<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
GENOME THERAPEUTICS CORP.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
GENOME THERAPEUTICS CORP.
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
IN LIEU OF AN ANNUAL MEETING
TO BE HELD ON JANUARY 26, 1998
To the Shareholders of
GENOME THERAPEUTICS CORP.:
NOTICE IS HEREBY GIVEN that a Special Meeting in Lieu of an Annual Meeting
of Shareholders of Genome Therapeutics Corp. (the "Company") will be held on
January 26, 1998 at 11:00 a.m. at Ropes & Gray, One International Place, 36th
Floor, Boston, Massachusetts, for the following purposes:
A. To elect five directors.
B. To consider approval of the Company's 1997 Stock Option Plan.
C. To consider approval of the Company's 1997 Directors' Deferred Stock
Plan.
D. To ratify the selection of Arthur Andersen LLP as the Company's auditors
for the fiscal year ending August 31, 1998.
E. To transact such other business as may properly come before the meeting
or any adjournments of the meeting.
The Board of Directors has fixed the close of business on December 5, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at this meeting and at any adjourned session(s) thereof.
All shareholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed form of proxy as promptly as possible. Shareholders
attending the meeting may vote in person even if they have returned a proxy.
By Order of the Board of Directors,
DAVID C. CHAPIN, Clerk
December 22, 1997
Boston, Massachusetts
<PAGE> 3
GENOME THERAPEUTICS CORP.
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by the Board of Directors of Genome
Therapeutics Corp. (the "Company") for use at a Special Meeting in Lieu of an
Annual Meeting of Shareholders to be held on January 26, 1998 (the "Annual
Meeting"), or at any adjourned session(s) of that meeting, for the purposes set
forth in the foregoing Notice. The cost of solicitation of proxies, including
expenses in connection with preparing and mailing this Proxy Statement, will be
borne by the Company. This solicitation of proxies is being made by mail,
although it may be supplemented by telephone, facsimile or personal solicitation
by directors, officers, or other employees of the Company. No additional
compensation will be paid to such individuals for such services. This Proxy
Statement and accompanying proxy will be mailed on or about December 22, 1997,
to all shareholders entitled to vote at the meeting. The address of the Company
is 100 Beaver Street, Waltham, Massachusetts, 02154.
Only shareholders of record at the close of business on December 5, 1997
will be entitled to notice of and to vote at the Annual Meeting. As of December
5, 1997, the Company had outstanding 18,211,844 shares of Common Stock, $.10 par
value (the "Common Stock"). Each share of Common Stock is entitled to one vote.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised. It may be revoked by filing with the Clerk of the
Company an instrument of revocation or a duly executed proxy bearing a later
date. It may also be revoked by attending the meeting and electing to vote in
person.
A copy of the Company's 1997 Annual Report to Shareholders, including
financial statements, is being mailed concurrently with this Proxy Statement to
each shareholder entitled to vote at the Annual Meeting. THE COMPANY WILL
PROVIDE, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED AUGUST 31, 1997 AND RELATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES TO EACH SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL
MEETING WHO REQUESTS A COPY OF SUCH IN WRITING. REQUESTS SHOULD BE SENT TO
GENOME THERAPEUTICS CORP., 100 BEAVER STREET, WALTHAM, MASSACHUSETTS, 02154,
ATTENTION: FENEL M. ELOI, SENIOR VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL
OFFICER.
QUORUM, REQUIRED VOTES AND METHOD OF TABULATION
Consistent with Massachusetts law and under the Company's by-laws, a
majority of the shares entitled to be cast on a particular matter, present in
person or represented by proxy, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Company to act as election inspectors for the Annual Meeting.
The Company will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director, or that reflect
abstentions and "broker non-votes" (i.e., shares represented at the Annual
Meeting held by brokers and nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote, and the broker
or nominee does not have the discretionary voting power in the particular
matter) on any other matter, only as shares that are present and entitled to
vote for purposes of determining the presence of a quorum, but none of the
withheld votes, abstentions, or broker non-votes will be
<PAGE> 4
counted as "cast" or have any effect on the outcome of voting on the particular
matter, even though persons analyzing the results of the voting may interpret
the results differently.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 5, 1997, certain information
regarding all shareholders known by the Company to be the beneficial owners of
more than 5% of the Company's Common Stock, and the stock ownership of the
Company's current directors and nominees, the Company's executive officers and
of all directors and officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP OF CLASS
-------------------------------------------------------- ---------- --------
<S> <C> <C>
Orrie M. Friedman....................................... 2,257,395 12.4%
Robert J. Hennessey..................................... 1,435,000 (2) 7.3%
Philip Leder............................................ 207,500 (3) 1.1%
Lawrence Levy........................................... 20,000 (3) *
Donald J. McCarren...................................... 71,400 (3) *
Steven M. Rauscher...................................... 74,000 (3) *
Fenel M. Eloi........................................... 160,450 (3) *
Bernd Seizinger......................................... 75,000 (3) *
Christopher T. Kelly.................................... 6,500 *
All directors and officers as a group (8 persons)....... 2,049,850 (4) 10.2%
</TABLE>
- ---------------
* Less than 1%
(1) The address of all such persons is c/o the Company, 100 Beaver Street,
Waltham, Massachusetts, 02154, except Dr. Friedman, whose address is c/o
Grenfell Development Corp., One Kendall Square, Suite 2200, Cambridge, MA
02139.
(2) Includes 1,433,000 shares which are issuable upon the exercise of vested
options.
(3) Includes 20,000 shares for Mr. Levy, 70,000 shares for each of Dr. McCarren
and Mr. Rauscher, 207,500 shares for Dr. Leder, 10,200 shares for Mr. Eloi,
and 75,000 shares for Dr. Seizinger which are issuable upon the exercise of
vested options or options which are to become vested within 60 days
following December 5, 1997. Excludes options which have been granted to
directors and officers but which will not become vested within 60 days
following December 5, 1997.
(4) Includes a total of 1,885,700 shares which may be issuable upon the exercise
of vested options or options which are to become vested 60 days following
December 5, 1997. Excludes options which have been granted to directors and
officers but which will not become vested within 60 days following December
5, 1997.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers. Executive officers, directors and
greater than ten percent beneficial owners are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during fiscal 1997 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with.
2
<PAGE> 5
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to
its Chief Executive Officer and other executive officers who earned more than
$100,000 for the fiscal year ended August 31, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
ANNUAL UNDERLYING
COMPENSATION STOCK ALL
------------------ OPTIONS/ OTHER
FISCAL SALARY BONUS SARS COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR $ $ # $
- --------------------------------------- ------- ------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Robert J. Hennessey.................... 1997 346,915(2) 40,000 -- 2,735
Chairman, President/CEO 1996 313,661(3) 50,000 300,000 1,000
1995 258,655(4) 25,000 -- 1,000
Bernd R. Seizinger..................... 1997 272,228(5) 50,000 600,000 --
Executive Vice President, 1996 -- -- -- --
Chief Scientific Officer 1995 -- -- -- --
Fenel M. Eloi.......................... 1997 152,742(6) 24,000 15,100 2,846
Sr. Vice President, 1996 119,700 30,000 25,100 1,000
CFO & Treasurer 1995 108,800 -- 40,500 1,000
Christopher T. Kelly................... 1997 59,257(7) 15,000 165,000 --
Sr. Vice President- 1996 -- -- -- --
Strategic Planning and 1995 -- -- -- --
Business Development
</TABLE>
- ---------------
(1) These amounts represent Company contributions to the Company's 401(k) Plan.
(2) This amount includes $63,331 for relocation expenses and $16,949 for other
compensation allowances.
(3) This amount includes $67,123 for temporary housing.
(4) This amount includes $34,031 for temporary housing.
(5) This amount includes $56,458 for relocation expenses.
(6) This amount includes $14,743 for relocation expenses.
(7) This amount includes $4,450 for temporary housing. Mr. Kelly's salary
reflects 4 months of employment.
EXECUTIVE EMPLOYMENT AGREEMENT
Robert J. Hennessey, Chairman of the Board, President and Chief Executive
Officer of the Company, has an employment agreement with the Company which
commenced March 15, 1996. The agreement is subject to automatic extension
annually thereafter unless prior written notice of nonrenewal is given. Mr.
Hennessey's current base salary is $260,000, and is subject to increase each
year, as determined by the Board of Directors or Stock Option and Compensation
Committee. The percentage of the increase must be at least equal to the
percentage increase, if any, during the preceding year in the Consumer Price
Index-Boston Region. The agreement entitles Mr. Hennessey to receive bonuses
based on the Company's achievement of certain operating and financial goals. The
amount of any bonus shall be determined by the Board (or a committee of the
Board) pursuant to the agreement. Mr. Hennessey was awarded non-qualified stock
options to purchase 1,600,000 shares of Common Stock upon hiring, all of which
were vested as of August 31, 1997.
3
<PAGE> 6
Mr. Hennessey was also awarded non-qualified stock options to purchase up to
300,000 shares of Common Stock, at an exercise price of $8.87 per share, the
fair market value of the Common Stock on the date of the grant. As of August 31,
1997, 175,000 options have vested and the balance of the 125,000 options by
their terms vest on December 21, 2005 or earlier if the average closing price of
the Common Stock for a period of 10 out of 20 consecutive trading days is $14.25
or higher.
These options shall become fully vested upon the occurrence of a change in
control (as defined). In addition, the agreement provides for the continuation
of all compensation and benefits for a period equal to the lesser of the
remaining term of the agreement or 8 months in the event that Mr. Hennessey's
employment is terminated without cause (as defined) or terminates with good
reason (as defined). In the event that Mr. Hennessey's employment is terminated
by the Company within 12 months following a change in control (as defined) for
any reason other than cause, the Company will pay him a lump sum cash payment
equal to two times the base salary and bonus paid to Mr. Hennessey for the
calendar year preceding the year in which the change in control occurs, and all
accrued obligations (as defined). The agreement contains customary
confidentiality and non-competition clauses.
The following table reflects the stock options granted by the Company to
the named executive officers for the fiscal year ending August 31, 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS/SARS EXERCISE APPRECIATION FOR
OPTIONS/SARS GRANTED TO OR BASE OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME # FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------ ------------ ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Hennessey..... -- -- -- -- -- --
Fenel M. Eloi........... 100(2) -- $8.3125 10/31/06 $ 523 $ 1,324
15,000(3) 1.9% 8.3125 6/30/07 78,415 198,720
Bernd R. Seizinger...... 600,000(4) 59.6% 7.4375 7/11/06 2,806,442 7,112,076
Christopher T. Kelly.... 150,000(5) 19% 9.0625 3/14/07 854,904 2,166,494
15,000(3) 1.9% 8.3125 6/30/07 78,415 198,720
</TABLE>
- ---------------
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the option holders'
continued employment through the option period, and the date on which the
options are exercised.
(2) This incentive stock option was granted on October 31, 1996 and has a term
of ten years. The option vests in four equal installments over the next four
years on the anniversary of the date of grant.
(3) These incentive stock options were granted on June 30, 1997 and have a term
of ten years. The options vest in four equal installments over the next four
years on the anniversary of the date of grant.
(4) This non-qualified stock option was granted on July 11, 1996 and has a term
of ten years. 300,000 of these options will be vested in equal installments
over four years, with the first 75,000 vesting on September 1,
4
<PAGE> 7
1997. The remaining 300,000 will vest as follows: 100,000 when the closing
price of the Common Stock, as reported on the NASDAQ National Market, is
$14.25 for any 10 of 20 consecutive trading days; 100,000 when the closing
price of the Common Stock, as reported on the NASDAQ National Market, is
$18.25 for any 10 of 20 consecutive trading days; and the remaining 100,000
when the closing price of the Common Stock, as reported on the NASDAQ
National Market, is $20.25 for any 10 of 20 consecutive trading days. All
options vest on Sept. 1, 2003.
(5) This non-qualified stock option was granted on March 14, 1997 and has a term
of ten years. 75,000 options will be vested in equal installments over four
years, with the first 18,750 vesting on March 16, 1998. The remaining 75,000
will vest as follows: 25,000 when the closing price of the Common Stock, as
reported on the NASDAQ National Market, is $14.25 for any 20 of 40
consecutive trading days; 25,000 when the closing price of the Common Stock,
as reported on the NASDAQ National Market, is $18.25 for any 20 of 40
consecutive trading days; and the remaining 25,000 when the closing price of
the Common Stock as reported on the NASDAQ National Market, is $20.25 for
any 20 of 40 consecutive trading days. All options vest March 16, 2004.
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held on August 31, 1997 by
each of the named executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)
SHARES ACQUIRED VALUE EXERCISABLE EXERCISABLE
NAME ON EXERCISE# REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------- ---------------- ------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Robert J. Hennessey.......... 2,000 $ 15,375 1,773,000/125,000 $ 10,087,375/0
Fenel M. Eloi................ 32,750 295,711 18,775/ 64,175 35,955/151,797
Bernd Seizinger.............. -- -- 75,000/525,000 37,500/262,500
Christopher T. Kelly......... -- -- 0/165,000 0/0
</TABLE>
- ---------------
(1) The closing price of the Common Stock on August 31, 1997 was $7.9375 as
reported by the NASDAQ National Market. Value is calculated on the basis of
the difference between the option exercise price and $7.9375 multiplied by
the number of shares of Common Stock underlying the option.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934 that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and the Performance Graph
on page 7 shall not be incorporated by reference into any such filings.
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE
The Stock Option and Compensation Committee of the Board of Directors (the
"Compensation Committee") of the Company consists of Dr. McCarren and Messrs.
Rauscher and Levy. The Compensation Committee's responsibilities include
recommending to the Board of Directors the compensation of the Company's
executive officers, administering the Company's stock option plans and approving
the grant of stock options to employees of, and consultants to, the Company. No
member of the Compensation Committee was an officer or employee of the Company
during the year ended August 31, 1997.
5
<PAGE> 8
The Company's executive compensation programs reflect input and
recommendations from the Company's Chief Executive Officer. The Compensation
Committee reviews his proposals concerning executive compensation and makes a
recommendation to the Board of Directors concerning the scope and nature of
compensation arrangements. It is the Company's current policy to establish,
structure and administer compensation plans and arrangements so that the
deductibility to the Company of such compensation will not be limited under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Company and Mr. Hennessey are parties to an employment agreement.
During the year ended August 31, 1997, Mr. Hennessey received a salary of
$266,635 and a bonus of $40,000 under the agreement. Pursuant to the agreement,
in March 1993 and March 1996 Mr. Hennessey was granted an option to purchase up
to 1,600,000 and 300,000 shares of the Company's Common Stock, respectively. See
"Executive Compensation -- Executive Employment Agreement".
Mr. Hennessey's base salary and bonus reflect Mr. Hennessey's and the
Company's accomplishments since his employment with the Company began in March
1993 through fiscal 1997. During this period, Mr. Hennessey completed several
strategic alliances with pharmaceutical companies, initiated the Company's
PathoGenome(TM) database initiative, and completed a successful public offering.
No specific weight was assigned to any of these factors by the Compensation
Committee.
EXECUTIVE OFFICER COMPENSATION
The Company maintains compensation and incentive programs designed to
motivate, retain and attract management. The compensation levels provided for
the Company's executive officers reflect consideration of the compensation
levels of comparable companies and the performance and potential of the officer.
Ongoing executive officer compensation is determined subjectively, in that
the Chief Executive Officer provides recommendations to the Compensation
Committee for the proposed remuneration of the Company's officers based on his
evaluation of those individuals' performance against objectives jointly
formulated by the Chief Executive Officer and the officers, any change in their
responsibilities, their potential to contribute to the success of the Company
and the compensation levels of similarly situated employees of comparable
companies. No specific weights have been assigned to these factors by the
Compensation Committee.
Officer compensation is generally composed of cash compensation and option
grants under the Company's stock option plans. The Company believes strongly in
the use of stock options to align the interests of its employees, particularly
its executive officers, with the interests of the Company's shareholders.
Options generally vest over a period of years, in order to serve as a future
incentive. There is no formula for the award of stock options to individual
executives. Factors considered in making option awards include the officer's
existing equity or stock option position, the importance to the Company of
retaining the officer's services, the officer's potential to contribute to the
success of the Company and the officer's past contributions to the Company.
STOCK OPTION AND COMPENSATION
COMMITTEE
Donald J. McCarren
Steven M. Rauscher
Lawrence Levy
6
<PAGE> 9
PERFORMANCE GRAPH
NOTE: The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
The graph below compares the relative cumulative total returns to the
Company's shareholders with the cumulative total of the S&P 500 Index and the
Hambrecht & Quist Biotechnology Index over the last five years.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG GENOME THERAPEUTICS CORPORATION, THE S & P 500 INDEX
AND THE HAMBRECHT & QUIST BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
GENOME
MEASUREMENT PERIOD THERAPEUTICS S & P H&Q
(FISCAL YEAR COVERED) CORP. 500 BIOTECHNOLOGY
<S> <C> <C> <C>
8/92 100 100 100
8/93 96 115 87
8/94 139 122 103
8/95 539 148 136
8/96 635 175 152
8/97 552 246 161
</TABLE>
LOGO
* $100 invested on 8/31/92 in stock or Index, including reinvestment of
dividends. Fiscal year ending August 31.
7
<PAGE> 10
PROPOSAL A
ELECTION OF FIVE DIRECTORS
The Board of Directors has fixed the number of directors at five. It is
intended that the enclosed proxy will be voted for the election of the five
persons named below unless such authority has been withheld in the proxy. Each
director will hold office until the next annual meeting and until his successor
is elected and shall have been qualified. The five nominees for election as
directors who receive the greatest number of votes properly cast for the
election of directors shall be elected directors of the Company. If any nominee
should be unavailable for election at the time of the Annual Meeting (which is
not presently anticipated) the persons named as proxies may vote for another
person in their discretion or may vote for fewer than five directors. All of the
nominees are currently directors of the Company and were elected at the 1997
Annual Meeting. All have agreed to serve as directors if elected at the Annual
Meeting.
Directors of the Company who are not also employees will receive
compensation under the 1997 Directors' Deferred Stock Plan, which is described
at page 15 below.
The nominees for directors of the Company who are proposed for election at
the Annual Meeting, their ages, and a description of their principal occupations
are set forth in the following table. The principal occupations and business
experience of the nominees for the past five years have been with the employers
indicated, although in some cases they have held different positions with such
employers.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIP SINCE
- ------------------------- ---- --------------------------------------------------- ----------
<S> <C> <C> <C>
Robert J. Hennessey...... 56 Mr. Hennessey became Chief Executive Officer and 1993
President of the Company in March 1993 and was
elected Chairman of the Board in May 1994. From
1990 to March 1993, Mr. Hennessey was President of
Hennessey & Associates, Ltd., a consulting firm,
and from 1980 to 1990 he was a Vice President of
Sterling Drug, Inc., a pharmaceutical company.
Philip J. Leder.......... 63 Dr. Leder, a director of the Company, has served as 1994
the John Emery Andrus Professor of Genetics and
Chairman of the Department of Genetics at Harvard
Medical School since 1980. He has also been a
Senior Investigator of the Howard Hughes Medical
Institute since 1986. Dr. Leder is a director of
Monsanto Company, Inc.
Lawrence Levy............ 74 Mr. Levy, a director of the Company, is Chairman of 1986
the Board of Directors and President of Northern
Ventures Corporation, an international management
and business consulting firm. He has held this
position since 1982.
Donald J. McCarren....... 58 Dr. McCarren, a director of the Company, has been 1993
the President and Chief Executive Officer of
National Center for Genome Resources since 1997. He
was the President, Chief Executive Officer and a
director of Tacora Corp., a drug delivery company,
from October 1994 until May 1996. From 1992 to
1994, Dr. McCarren was the President and Chief
Operating Officer of ImmunoGen, Inc., a
biopharmaceutical company, and from 1990 to 1992
Dr. McCarren was the President of Adria
Laboratories, a division of Erbamont, N.V., a
biopharmaceutical company.
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIP SINCE
- ------------------------- ---- --------------------------------------------------- ----------
<S> <C> <C> <C>
Steven M. Rauscher....... 45 Mr. Rauscher is a director of the Company and has 1993
been the Chief Executive Officer and a director of
Affiliated Research Centers, Inc. since 1995. From
1993 to 1995, Mr. Rauscher was President and Chief
Executive Officer of Pharmedic, Inc., a
biopharmaceutical company, and from 1976 to 1993,
he was Vice President of Abbott Laboratories, a
biopharmaceutical company.
</TABLE>
The Board of Directors held four meetings during fiscal 1997. In fiscal
1997, each member of the Board of Directors attended at least 75% of the
meetings of the Board of Directors and of each committee on which they serve.
The Board of Directors has established an Audit Committee consisting of Mr.
Rauscher, Dr. McCarren, and Mr. Levy which held one meeting during fiscal 1997.
The duties of the Audit Committee consist of reviewing with the Company's
independent auditors and its management the scope and results of the annual
audit, the scope of other services provided by the Company's auditors, proposed
changes in the Company's financial and accounting standards and principles, the
Company's policies and procedures with respect to its internal accounting,
auditing and financial controls, and making recommendations to the Board of
Directors on the engagement of independent auditors.
The Board of Directors has established a Stock Option and Compensation
Committee, consisting of Dr. McCarren and Messrs. Rauscher and Levy. The duties
of the Stock Option and Compensation Committee consist of recommending to the
Board of Directors the compensation of the Company's executive officers,
administering the Company's stock option plans and approving the grant of stock
options to employees of, and consultants to, the Company. During fiscal 1997,
the Stock Option and Compensation Committee held six meetings.
The Board of Directors has established a Nominating Committee, consisting
of Mr. Levy and Dr. Leder. The duties of the Nominating Committee consist of
considering and making recommendations regarding candidates for election to the
Board of Directors. The Nominating Committee held no meetings during fiscal
1997. The Nominating Committee does not consider nominees recommended by
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE FIVE NOMINEES DESCRIBED ABOVE.
EXECUTIVE OFFICERS
The executive officers of the Company who are not also directors of the
Company are as follows.
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------ ------------------------------------------
<S> <C>
Fenel M. Eloi................. Senior Vice President, Treasurer and Chief
Financial Officer
Bernd R. Seizinger............ Executive Vice President and Chief
Scientific Officer
Christopher T. Kelly.......... Senior Vice President -- Strategic
Planning and Business Development
</TABLE>
Fenel M. Eloi joined the Company in September 1989 as Corporate Controller
and was promoted to his current position in 1997. Between 1984 and 1989, Mr.
Eloi held various financial management positions at GTE Corp. Prior to 1984, he
held various financial positions, both domestic and international, with
Haemonetics Corporation and Simplex Time Recorder Co.
9
<PAGE> 12
Dr. Seizinger has served as Executive Vice President and Chief Scientific
Officer since 1996. Prior to joining the Company, Dr. Seizinger held various
positions at Bristol-Myers Squibb Pharmaceutical Research Institute including
Vice President, Molecular Genetics, Oncology of Bristol-Myers from 1992 to 1995
and Vice President, Corporate and Academic Alliances from 1995 to September
1996. Prior to this, Dr. Seizinger served as an Associate Professor of
Neuroscience at Harvard Medical School as well as Associate Geneticist in the
Department of Neurology and Neurosurgery and Director of the Molecular
Neuro-Oncology Laboratory at Massachusetts General Hospital. Dr. Seizinger also
serves as an Associate Faculty Member of the Department of Molecular Biology at
Princeton University.
Christopher T. Kelly has been Senior Vice President- Strategic Planning and
Business Development since March 1997. Prior to joining the Company, Mr. Kelly
served as President and Chief Executive Officer of Spectral Pharmaceuticals,
Inc., a company which he co-founded in 1993. Prior to Spectral, he was Vice
President of Commercial Development at Triplex Pharmaceutical Corporation. From
March 1986 to March 1992, Mr. Kelly held senior strategic planning and business
development positions at Sterling Drug, Inc., serving as Vice President Business
Development from March 1989 to March 1992. Mr. Kelly previously held senior
marketing positions with Boehringer Mannheim Corporation, CooperBiomedical, Inc.
and Hoffmann-La Roche Inc.
10
<PAGE> 13
PROPOSAL B
ADOPTION OF 1997 STOCK OPTION PLAN
GENERAL
On October 20, 1997, the Board of Directors adopted the 1997 Stock Option
Plan (the "1997 Plan"), subject to shareholder approval. The 1997 Plan's
eligibility criteria are intended to encompass the employees, consultants and
advisers of the Company and its subsidiaries.
Subject to adjustment for stock splits and similar events, the total number
of shares of Common Stock that can be issued under the 1997 Plan is 850,000
shares. If any award under the 1997 Plan expires (or is terminated) without
having been exercised in full, the number of shares of Common Stock as to which
such award was not exercised will be available for future grants.
The proceeds received by the Company from exercises of awards under the
1997 Plan will be used for general corporate purposes. The shares of Common
Stock to be issued upon exercise of awards granted under the 1997 Plan will be
authorized but unissued shares or shares reacquired by the Company. No
fractional shares of Common Stock will be delivered under the 1997 Plan.
SUMMARY OF THE 1997 PLAN
The 1997 Plan is set forth as Exhibit A to this Proxy Statement. The
following description of certain features of the 1997 Plan is qualified in its
entirety by this reference.
Administration; Eligible Employees. The 1997 Plan will be administered by
the Compensation Committee of the Board of Directors, all of the members of
which are "disinterested persons" as that term is defined under rules
promulgated by the Securities and Exchange Commission, and "outside directors"
within the meaning of section 162(m) of the Code. All members of the
Compensation Committee serve at the pleasure of the Board.
The Compensation Committee has full power to select, from among the
personnel eligible for options, the individuals to whom options will be granted
and to determine the specific terms of each option, subject to the provisions of
the 1997 Plan. Persons eligible to participate in the 1997 Plan will be
employees, consultants, and advisers, whether or not they are officers or
directors, of the Company or any of its subsidiaries. Subject to certain
adjustments for stock splits and similar events, the maximum number of shares of
Common Stock with respect to which an award may be granted to any participant
during any single fiscal year is 500,000.
General Terms of Options. The 1997 Plan permits the granting of options
that qualify as incentive stock options under the Code ("incentive options" or
"ISOs"), stock options that do not so qualify ("nonstatutory options"), and
stock appreciation rights ("SARs"). The option exercise price of each option
shall be determined by the Compensation Committee but shall not be less than
100% of the fair market value of the shares on the date of grant in the case of
ISOs (110% in the case of ISOs granted to a ten percent or greater shareholder),
nor shall the exercise price be less, in the case of an original issue, than the
par value per share of the Common Stock.
The term of each option will be fixed by the Compensation Committee but may
not exceed ten years from the date of grant (five years in the case of an
incentive option granted to a ten percent or greater shareholder). The
Compensation Committee will determine at what time or times each option may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Compensation Committee.
11
<PAGE> 14
The exercise price of options granted under the 1997 Plan must be paid in
full in cash or check, bank draft or money order unless the Compensation
Committee permits payment by delivery of shares of Common Stock or an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price.
Each SAR will entitle the participant to receive upon exercise the excess
of the share's value on the date of exercise over the share's fair market value
on the date it was granted. No SAR will be exercisable later than ten years
after the date of grant.
If an employee's employment terminates, other than because of death or
discharge for cause which in the opinion of the Compensation Committee casts
such discredit on the employee as to justify termination of the award, any award
held by the employee will be exercisable only to the extent the employee would
have been permitted to exercise the award at the date of such termination, and
then only within three months of the date of such termination (or such longer
period as the Compensation Committee may determine). In the case of a
participant who is not an employee, provisions relating to the exercisability of
awards following termination of service shall be specified in the award. If a
participant dies at a time when he is entitled to exercise an award, such award
may be exercised by such participant's legal representatives or beneficiaries at
any time within three years (or such shorter period as the Board or the
Compensation Committee may determine) after his death. In no event, however,
would any award be exercisable later than ten years from the date of grant.
Adjustment for Stock Dividends, Mergers, etc. The Compensation Committee is
required to make appropriate adjustments in connection with outstanding awards
and the maximum number of shares that may be delivered under the 1997 Plan to
reflect stock dividends, stock splits, extraordinary distributions,
recapitalizations and similar events.
Nontransferability of Awards. Except as the Board may otherwise determine
in connection with gifts, no award granted under the 1997 Plan may be
transferred other than by will or by the laws of descent and distribution, and
during a participant's lifetime an award may be exercised only by the
participant (or, in the event of a participant's incapacity, the person or
persons legally appointed to act on the participant's behalf).
Changes in Stock. In the event of a stock dividend or other distribution to
common stock holders other than a normal cash dividend, stock split or
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of stock or securities of the Company
subject to awards then outstanding or subsequently granted under the Plan, the
exercise price of such awards, the maximum number of shares or securities that
may be delivered under the 1997 Plan, and other relevant provisions shall be
appropriately adjusted by the Board.
Tax Withholding. The Compensation Committee in its discretion may permit a
participant to elect to have the Company hold back from the shares to be
delivered upon exercise, or to deliver to the Company, shares of Common Stock
having a value sufficient to satisfy all federal, state and local withholding
tax requirements. Such withholding tax obligations would otherwise be required
to be paid in cash by the participant on the date of exercise.
Effect, Discontinuance, Cancellation, Amendment and Termination. Neither
adoption of the 1997 Plan nor the grant of awards to a participant will affect
the Company's right to grant such participant awards that are not subject to the
1997 Plan, to issue to such participant Common Stock as a bonus or otherwise, or
to adopt other plans or arrangements under which Common Stock may be issued.
The Compensation Committee may at any time discontinue granting awards
under the 1997 Plan. With the consent of the participant, the Compensation
Committee may at any time cancel an existing award in whole or in part and grant
another award for such number of shares as the Compensation Committee specified.
The Board may at any time or times amend the 1997 Plan or any outstanding award
for the purpose
12
<PAGE> 15
of satisfying the requirements of section 422 of the Code or of any changes in
applicable laws or regulations or for any other purpose that may at the time be
permitted by law, or may at any time terminate the 1997 Plan as to any further
grants of awards, provided that (except to the extent expressly required or
permitted by the 1997 Plan) no such amendment shall, without the approval of the
shareholders of the Company effectuate a change for which shareholder approval
is required in order for the 1997 Plan to continue to qualify under Rule 16b-3
under the Securities Exchange Act of 1934 or section 422 of the Code, and no
such amendment shall adversely affect the rights of any participant (without his
consent) under any award previously granted. Currently, the incentive stock
option regulations would require shareholder approval for an increase in the
maximum number of shares issuable pursuant to incentive options under the 1997
Plan or a modification in eligibility requirements under the 1997 Plan. In order
to qualify for the exemption available under Rule 16b-3 an amendment would
currently require such approval if it materially increased benefits accruing to
directors or officers of the Company under the 1997 Plan, materially increased
the number of securities issuable under the 1997 Plan or materially modified
eligibility requirements under the 1997 Plan.
Effective Date of 1997 Plan. As of the date of this Proxy Statement, the
Compensation Committee has granted options to purchase 155,550 shares under the
1997 Plan subject to shareholder approval of the 1997 Plan. Upon approval by the
shareholders, the 1997 Plan will be effective as of October 20, 1997, and will
continue in effect through October 20, 2007, unless earlier terminated by the
Board.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive Options. No taxable income is realized by the optionee upon the
grant or, in general, the exercise of an ISO. If no disposition of shares issued
to an optionee pursuant to the exercise of an ISO are sold more than two years
from the date of grant of the ISO and more than one year after the transfer of
such shares to the optionee, then (a) upon sale of such shares, any amount
realized in excess of the option price (the amount paid for the shares) will be
taxed to the optionee as a long-term capital gain and any loss sustained will be
a long-term capital loss, and (b) no deduction will be allowed to the Company
for federal income tax purposes. The exercise of an ISO may result in
alternative minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year or one-year holding periods described
above (a "disqualifying disposition"), generally (a) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on an arm's length sale of such shares) over the option price thereof,
and (b) the Company will be entitled to deduct such amount. Any further gain
realized will be taxed as short-term or long-term capital gain and will not
result in any deduction by the Company. Special rules will apply where all or a
portion of the exercise price of the ISO is paid by tendering shares of Common
Stock.
If an ISO is exercised at a time when it no longer qualifies for the tax
treatment described above, the option is treated as a nonstatutory stock option.
Generally, an ISO will not be eligible for the tax treatment described above if
it is exercised more than three months following termination of employment (one
year following termination of employment, in the case of termination by reason
of permanent and total disability), except in certain cases where the ISO is
exercised after the death of the optionee. Also, an ISO will not be eligible for
the tax treatment described above to the extent that it, together with other
ISOs granted to the same individual, first became exercisable in any calendar
year for shares of Common Stock having a fair market value (determined at time
of grant) in excess of $100,000.
Nonstatutory Options. With respect to nonstatutory options under the 1997
Plan, no income is realized by the optionee at the time the option is granted.
Generally, (a) at exercise, ordinary income is realized by the optionee in an
amount equal to the difference between the option price and the fair market
value of the shares
13
<PAGE> 16
on the date of exercise, and the Company may claim a tax deduction for the same
amount, and (b) at disposition, appreciation or depreciation after the date of
exercise is treated as either short-term or long-term capital gain or loss
depending on how long the shares have been held (but no additional deduction
will be available to the Company). In the case of nonstatutory options granted
to an employee, the ordinary income associated with exercise constitutes wages
subject to withholding.
RECOMMENDATION
The Board of Directors believes that the 1997 Plan, by permitting further
grants of awards to acquire Common Stock of the Company, will benefit the
Company and assist it in meeting the competitive situation created by the
incentive compensation programs of other companies. Accordingly, the Board of
Directors believes that the proposal is in the best interests of the Company and
its shareholders and recommends that the shareholders approve the 1997 Plan.
It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the 1997 Plan, unless instructed to the
contrary. The 1997 Plan will not take effect unless it is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL B.
14
<PAGE> 17
PROPOSAL C
ADOPTION OF 1997 DIRECTORS' DEFERRED STOCK PLAN
GENERAL
On November 21, 1997, the Board of Directors adopted, subject to
stockholder approval, the 1997 Directors' Deferred Stock Plan (the "Directors'
Plan"). Under the Directors' Plan, non-employee directors of the Company will
receive their annual retainer in the form of deferred shares of Common Stock.
The annual retainer is currently set at 800 shares of Common Stock and may be
adjusted from time to time. In addition, each director will be permitted to
elect to receive all of his or her board meeting fees for each year in the form
of deferred shares. Meeting fees are currently set at $2,000 per meeting and may
be adjusted from time to time. Directors receive no compensation for their
services other than the annual retainer and their board meeting fees.
SUMMARY OF THE DIRECTORS' PLAN.
The Directors' Plan is set forth as Exhibit B to this Proxy Statement. The
following description of certain features of the Directors' Plan is qualified in
its entirety by this reference.
Administration; Eligible Directors. The plan will be administered by the
Compensation Committee of the Board of Directors. All directors who are not
employees of the Company ("Eligible Directors") participate in the Directors'
Plan. There are currently four Eligible Directors.
General Terms of Deferred Stock. Under the Directors' Plan, on January 10
of each fiscal year, each Eligible Director will receive the annual retainer for
the fiscal year, currently set at 800 shares, in the form of a right to receive
Common Stock of the Company on the earlier of (i) three years from the date of
grant or (ii) the date upon which such director ceases to be a director by
reason of death, permanent disability, resignation or retirement. An award to a
director elected for a partial term will be subject to proration. In addition, a
director may elect to receive board meeting fees, currently set at $2,000 per
meeting, in the form of deferred shares payable at the same time as the annual
retainer.
The number of shares underlying awards granted to any director shall be
equal to (i) 800 shares of Common Stock (as adjusted from time to time by the
Board or for mergers, stock splits and similar events) for the annual retainer
and (ii) the whole number (with any fractional interests rounded up to the next
highest whole number) obtained by dividing $2,000, as adjusted from time to time
by the Board, by the fair market value of the stock on the date of each board
meeting attended by such director.
Non-transferability of Awards. Each deferred stock award will be
non-transferable except upon death or pursuant to a qualified domestic relations
order. If the director ceases to be a director of the Company by reason of
death, permanent disability, resignation or retirement, the director's stock may
thereafter be issued to the designated beneficiary, legal representative or
legatee of the director.
Adjustments for Mergers. Upon a merger in which the Company is not the
surviving corporation or that results in the acquisition of more than 50% of the
Company's stock or sale of all or substantially all of the Company's assets, or
a dissolution or liquidation of the Company, all shares of deferred stock
awarded under the Directors' Plan which are not issuable at that time will be
automatically issued immediately prior to the consummation of the transaction.
Changes in Stock, etc. In the event of a stock dividend, extraordinary
distribution, stock split, recapitalization or other change in the Company's
capital stock, the number and kind of shares of stock or securities of the
Company subject to awards then outstanding or subsequently granted under the
Directors'
15
<PAGE> 18
Plan, the price of such awards, the maximum number of shares or securities that
may be delivered under the Directors' Plan, and other relevant provisions shall
be appropriately adjusted by the Board.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No taxable income is realized by the director at the time the deferred
stock is granted. Generally, (a) upon issuance, ordinary income is realized in
an amount equal to the fair market value of the shares on the date of issuance,
and the Company may claim a tax deduction for the same amount, and (b) at
disposition, appreciation or depreciation after the date of issuance is treated
as either short-term or long-term capital gain or loss depending on how long the
shares have been held (but no additional deduction will be available to the
company).
RECOMMENDATION
The Board of Directors believes that the Directors' Plan, by permitting
grants of awards to acquire Common Stock of the Company, will benefit the
Company and assist it in meeting the competitive situation created by the
incentive compensation programs of other companies. Accordingly, the Board of
Directors believes that the proposal is in the best interests of the Company and
its shareholders and recommends that the shareholders approve the Directors'
Plan.
It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the Directors' Plan, unless instructed to the
contrary. The Directors' Plan will not take effect unless it is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL C.
The following table sets forth the benefits or amounts that will be
received by or allocated to non-employee directors of the Company who are
eligible to be granted deferred stock under the Directors' Plan for the calendar
year ending December 31, 1998.
NEW PLAN BENEFITS
1997 DIRECTORS' DEFERRED STOCK PLAN (1)
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE(2) NUMBER OF SHARES(2)
- ------------------------------------------------------------ ---------------- -------------------
<S> <C> <C>
Philip J. Leder............................................. $ 16,800 1,744
Lawrence Levy............................................... $$16,800 1,744
Donald J. McCarren.......................................... $$16,800 1,744
Steven M. Rauscher.......................................... $$16,800 1,744
All current directors who are not executive officers as a
group (4 persons)......................................... $ 67,200 6,976
</TABLE>
- ---------------
(1) The amounts shown on this table are based on amounts which would have been
received last year if the Directors' Plan had been in effect and each
director had elected to take his board meeting fee in the form of deferred
shares.
(2) The dollar value for the annual retainer is based on the closing price of
the Company's Common Stock on January 10, 1997 and the dollar value for each
meeting fee is based on the closing price of the Company's Common Stock on
the date of the applicable meeting, each as reported on the NASDAQ National
Market. The dollar value and number of shares used to calculate the meeting
fee represents 4 meetings attended by each of Dr. Leder, Mr. Levy, Dr.
McCarren and Mr. Rauscher.
16
<PAGE> 19
PROPOSAL D
RATIFICATION OF SELECTION OF AUDITORS
Arthur Andersen LLP, Boston, Massachusetts, has been selected by the Board
of Directors of the Company as auditors of the Company for the fiscal year
ending August 31, 1998. Unless otherwise indicated, proxies will be voted in
favor of ratifying the selection of Arthur Andersen as auditors. A
representative of Arthur Andersen will be present at the Annual Meeting if
requested by a shareholder (either in writing or by telephone) in advance of the
Annual Meeting. Such requests should be directed to the Clerk of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL D.
SHAREHOLDER PROPOSALS
In order for any proposal that a shareholder intends to present at next
year's annual meeting of shareholders to be eligible for inclusion in the
Company's proxy material for that meeting, it must be received by the Clerk of
the Company at the Company's offices in Waltham, Massachusetts, no later than
August 23, 1998.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
meeting, but if other matters do properly come before the meeting, it is
intended that the persons named in the proxy will vote in respect thereof in
accordance with their best judgment.
In the event that sufficient votes in favor of any of the proposals set
forth in the accompanying Notice are not received by the time scheduled for the
meeting, the persons named as proxies may propose one or more adjournments of
such meeting for a period of not more than 60 days in the aggregate to permit
further solicitation of proxies with respect to any of such proposals. Any such
adjournments will require the affirmative vote of a majority of the votes cast
on the question in person or by proxy at the session of the meeting to be
adjourned. The persons named as proxies will vote in favor of such adjournment
those proxies that they are entitled to vote in favor of such proposals. They
will vote against any such adjournment those proxies required to be voted
against any of such proposals. The costs of any such additional solicitation and
of any adjourned session will be born by the Company.
The Board of Directors encourages you to have your shares voted by signing
and returning the enclosed form of proxy. The fact that you will have returned
your proxy in advance will in no way affect your right to vote in person should
you find it possible to attend. However, by signing and returning the proxy you
have assured your representation at the meeting. Thank you for your cooperation.
17
<PAGE> 20
EXHIBIT A
GENOME THERAPEUTICS CORP.
1997 STOCK OPTION PLAN
1. PURPOSE
The purpose of the 1997 Stock Option Plan (the "Plan") is to advance the
interests of Genome Therapeutics Corp. (the "Company") by enhancing the ability
of the Company and its subsidiaries to attract and retain employees, consultants
or advisers who are in a position to make significant contributions to the
success of the Company; to reward such individuals for their contributions; and
to encourage such individuals to take into account the long-term interests on
the Company through interests in shares of the Company's common stock ("Stock").
Any employee, consultant or adviser designated to participate in the Plan is
referred to as a "participant." The proceeds received from the sale of stock
pursuant to the Plan shall be used for general corporate purposes.
Options granted pursuant to the Plan may be incentive stock options as
defined in Section 422 of the Code (any option that is intended so to qualify as
an incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Except as otherwise expressly
provided with respect to an option grant, no option granted pursuant to the Plan
shall be an incentive option.
2. ADMINISTRATION
The Plan shall be administered by a Stock Option Committee appointed by, or
in a manner authorized by, the Board of Directors (the "Board") of the Company
or such other committee of the Board as the Board shall from time to time
appoint or authorize to administer the Plan (the Stock Option Committee or such
other committee being hereinafter referred to as the "Committee"). The Committee
shall have authority, not inconsistent with the express provisions for the Plan,
(a) to grant awards consisting of options or stock appreciation rights ("SARs"),
or both, to such participants as the Committee may select; (b) to determine the
time or times when awards shall be granted and the number of shares of Stock
subject to each award; (c) to determine which options are, and which options are
not, incentive options; (d) to determine the terms and conditions of each award;
(e) to prescribe the form or forms of any instruments evidencing awards and any
other instruments required under the Plan and to change such forms from time to
time; (f) to adopt, amend and rescind rules and regulations for the
administration of the Plan; and (g) to interpret the Plan and to decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations of the Committee shall be conclusive and
shall bind all parties. Subject to Section 8, the Committee shall also have the
authority, both generally and in particular instances, to waive compliance by a
participant with any obligation to be performed by him under an award, to waive
any condition or provision of an award, and to amend or cancel any award (and if
an award is canceled, to grant a new award on such terms as the Committee shall
specify), except that the Committee may not take any action with respect to an
outstanding award that would adversely affect the rights of the participant
under such award without such participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 4(c) and Section 6(j).
The Committee shall consist of two or more members of the Board who are, at
the time of their appointment and any time they exercise discretion in
administering the Plan, "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, and "outside directors" within the
meaning of Section 162(m) of the Code. A majority of the members of the
Committee shall constitute a quorum, and all determinations of the Committee
shall be made by a majority of its members. Any
1
<PAGE> 21
determination of the Committee under the Plan may be made without notice or
meeting of the Committee by a writing signed by a majority of the Committee
members.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of awards under the Plan may be made prior
to that date (but after Board adoption of the Plan), subject to approval of the
Plan by such shareholders.
No awards shall be granted under the Plan after the completion of ten years
from the date on which the Plan was adopted by the Board, but awards previously
granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
a. Number of Shares. Subject to adjustment as provided in Section 4(c),
the aggregate number of shares of Stock that may be delivered upon the exercise
of awards granted under the Plan shall be 850,000. If any award granted under
the Plan terminates without having been exercised in full, or upon exercise is
satisfied other than by delivery of Stock, the number of shares of Stock as to
which such award was not exercised shall be available for future grants within
the limits set forth in this Section 4(a).
b. Maximum Shares. Subject to Section 4(d), the maximum number of shares
of Stock with respect to which an award may be granted to any participant during
any single fiscal year is 500,000. For purposes of this paragraph, except as
otherwise provided in regulations or other guidance issued under Section 162(m)
of the Code, any repricing of an option or Stock Appreciation Right shall be
treated as an additional grant.
c. Shares to be Delivered. Shares delivered under the Plan will be common
stock of the Company and shall be authorized but unissued Stock, or, if the
Board so decides in its sole discretion, previously issued Stock acquired by the
Company and held in its treasury. No fractional shares of Stock will be
delivered under the Plan.
d. Changes in Stock. In the event of a stock dividend or other
distribution to common stock holders other than a normal cash dividend, stock
split or combination of shares, recapitalization or other change in the
Company's capital stock, the number and kind of shares of stock or securities of
the Company subject to awards then outstanding or subsequently granted under the
Plan, the exercise price of such awards, the maximum number of shares or
securities that may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Board, whose determination shall be
binding on all persons.
The Board or Committee may also adjust the number of shares subject to
outstanding awards, the exercise price of outstanding awards and the terms of
outstanding awards, to take into consideration material changes in accounting
practices or principles, extraordinary dividends, consolidations or mergers
(except those described in Section 6(j)), acquisitions or dispositions of stock
or property or any other event if it is determined by the Board or Committee in
its sole discretion that such adjustment is appropriate to avoid distortion in
the operation of the Plan, provided that no such adjustment shall be made in the
case of an incentive option, without the consent of the participant, if it would
constitute a modification, extension or renewal of the option within the meaning
of section 424(h) of the Code.
5. ELIGIBILITY FOR AWARDS
Those eligible to receive awards under the Plan ("Participants") will be
employees of the Company or any of its subsidiaries ("Employees") and other
persons or entities (including without limitation non-Employee directors of the
Company or a subsidiary of the Company) who, in the opinion of the Committee,
are in a position to make a significant contribution to the success of the
Company and its subsidiaries.
2
<PAGE> 22
Incentive options shall be granted only to "employees" as defined in the
provisions of the Code or regulations thereunder applicable to incentive stock
options.
A subsidiary for purposes of the Plan shall be a corporation (i) in which
the Company owns, directly or indirectly, stock possessing 50% or more of the
total combined voting power of all classes of stock or (ii) over which the
Company has effective operating control; provided, however, that no corporation
shall be deemed a subsidiary for the purpose of any provisions applicable to
incentive options, and no incentive options shall be granted to employees of
such corporation, unless in each case such corporation shall constitute a
subsidiary as defined in clause (i) above.
6. TERMS AND CONDITIONS OF OPTIONS AND SARs
a. Exercise Price of Options. The exercise price of each option shall be
determined by the Committee but in the case of an incentive option shall not be
less than 100% (110%, in the case of an incentive option granted to a
ten-percent shareholder) of the fair market value of the Stock at the time the
option is granted; nor shall the exercise price be less, in the case of an
original issue of authorized stock, than par value. For this purpose, "fair
market value" in the case of incentive options shall have the same meaning as it
does in the provisions of the Code and the regulations thereunder applicable to
incentive options; and "ten-percent shareholder" shall mean any participant who
at the time of grant owns directly, or by reason of the attribution rules set
forth in section 424(d) of the Code is deemed to own, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
of any of its parent or subsidiary corporations.
b. Duration of Options. An option shall be exercisable during such period
or periods as the Committee may specify. The latest date on which an option may
be exercised (the "Final Exercise Date") shall be the date which is ten years
(five years, in the case of an incentive option granted to a "ten-percent
shareholder" as defined in (a) above) from the date the option was granted or
such earlier date as may be specified by the Committee at the time the option is
granted.
c. Exercise of Options.
i. An option shall become exercisable at such time or times and upon
such conditions as the Committee shall specify. In the case of an option
not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the option may be
exercised.
ii. Any exercise of an option shall be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied by (A)
such documents as may be required by the Committee and (B) payment in full
as specified below in Section 6(d) for the number of shares for which the
option is exercised.
iii. In the case of an option that is not an incentive option, the
Committee shall have the right to require that the participant exercising
the option remit to the Company an amount sufficient to satisfy any
federal, state, or local withholding tax requirements (or make any other
arrangements satisfactory to the Company with regard to such taxes) prior
to the delivery of any Stock pursuant to the exercise of the option. If
permitted by the Committee, either at the time of the grant of the option
or the time of exercise, the participant may elect, at such time and in
such manner as the Committee may prescribe, to satisfy such withholding
obligation by (A) delivering to the Company Stock owned by such individual
having a fair market value equal to such withholding obligation, or (B)
requesting that the Company withhold from the shares of Stock to be
delivered upon the exercise a number of shares of Stock having a fair
market value equal to such withholding obligation.
In the case of an incentive option, if at the time the option is
exercised the Committee determines that under applicable law and
regulations the Company could be liable for the withholding of any federal
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<PAGE> 23
or state tax with respect to a disposition of the Stock received upon
exercise, the Committee may require as a condition of exercise that the
participant exercising the option agree (A) to inform the Company promptly
of any disposition (within the meaning of section 424(c) of the Code and
the regulations thereunder) of Stock received upon exercise, and (B) to
give such security as the Committee deems adequate to meet the potential
liability of the Company for the withholding of tax, and to augment such
security from time to time in any amount reasonably deemed necessary by the
Committee to preserve the adequacy of such security.
iv. If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the option has
been transferred by the participant's will or the applicable laws of
descent and distribution, the Company shall be under no obligation to
deliver Stock pursuant to such exercise until the Company is satisfied as
to the authority of the person or persons exercising the option.
d. Payment for and Delivery of Stock. Stock purchased upon exercise of an
option under the Plan shall be paid for as follows: (i) in cash or by certified
check or cashier's check, bank draft or money order payable to the order of the
Company or (ii) if so permitted by the Committee (which, in the case of an
incentive option, shall specify such method of payment at the time of grant),
(A) through the delivery of shares of Stock (duly owned by the participant and
for which the participant has good title, free and clear of any liens and
encumbrances) having a fair market value on the last business day preceding the
date of exercise equal to the purchase price or (B) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (C) by any combination of
the permissible forms of payment.
e. Stock Appreciation Rights. The Committee in its discretion may grant
SARs either in tandem with or independent of options awarded under the Plan.
Except as hereinafter provided, each SAR will entitle the participant to receive
upon exercise, with respect to each share of Stock to which the SAR relates, the
excess of (i) the share's value on the date of exercise, over (ii) the share's
fair market value on the date it was granted. For purposes of clause (i),
"value" shall mean fair market value; provided, that the Committee may adjust
such value to take into account dividends on the Stock and may also grant SARs
that provide, in such limited circumstances following a change in control of the
Company (as determined by the Committee) as the Committee may specify, that
"value" for purposes of clause (i) is to be determined by reference to an
average value for the Stock during a period immediately preceding the change in
control, all as determined by the Committee. The amount payable to a participant
upon exercise of an SAR shall be paid either in cash or in shares of Stock, as
the Committee determines. Each SAR shall be exercisable during such period or
periods and on such terms as the Committee may specify. No SAR shall be
exercisable after the date which is ten years from the date of grant.
f. Delivery of Stock. A participant shall not have the rights of a
shareholder with regard to awards under the Plan except as to Stock actually
received by him under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (ii) if the outstanding Stock is
at the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
issuance, and (iii) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
award, such representation or agreements as counsel of the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting transfer.
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<PAGE> 24
g. Nontransferability of Awards. Except as the Board may otherwise
determine in connection with the gifts, no award may be transferred other than
by will or by the laws of descent and distribution, and during a participant's
lifetime, an award may be exercised only by him (or in the event of the
participant's incapacity, the person or persons legally appointed to act on the
participant's behalf).
h. Death. If a participant dies, each award held by the participant
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by his executor or administrator, or by the person
or persons to whom the award is transferred by will or the applicable laws of
descent and distribution, at any time within the three-year period ending with
the third anniversary of the participant's death (or such shorter or longer
period as the Board or Committee may determine) but in no event beyond the Final
Exercise Date. All awards held by a participant immediately prior to death that
are not then exercisable shall terminate on the date of death.
i. Other Termination of Service. If an employee's employment with the
Company and its subsidiaries terminates for any reason other than death, all
awards held by the employee that are not then exercisable on the date employment
terminates shall continue to be exercisable for a period of three months (or
such longer period as the Committee may determine, but in no event beyond the
Final Exercise Date) unless the employee was discharged for cause which in the
opinion of the Committee casts such discredit on him as to justify termination
of his awards. After completion of that three-month period (or such shorter or
longer period as the Board or Committee may determine) such awards shall
terminate to the extent not previously exercised, expired or terminated. For
purposes of this Section 6(i), employment shall not be considered terminated (i)
in the case of sick leave or other bona fide leave of absence approved for
purposes of the Plan by the Committee, so long as the employee's right to
reemployment is guaranteed either by statute or by contract, or (ii) in the case
of a transfer of employment between the Company and a subsidiary or between
subsidiaries, or to the employment of a corporation (or a parent or subsidiary
corporation of such corporation) issuing or assuming an award in a transaction
to which section 424(a) of the Code applies.
In the case of a participant who is not an employee, provisions relating to
the exercisability of awards following termination of service shall be specified
in the award. If not so specified, all awards held by such participant that are
not then exercisable shall terminate upon termination of service.
j. Mergers, etc. In the event of a consolidation or merger in which the
Company is not the surviving corporation or which results in the acquisition of
substantially all the Company's outstanding Stock by a single person or entity
or by a group of persons and/or entities acting in concert, or in the event of
the sale or transfer of substantially all the Company's assets, all outstanding
awards shall thereupon terminate, provided that at least 20 days prior to the
effective date of any such merger, consolidation or sale of assets, the Board or
Committee shall either (i) make all outstanding awards exercisable immediately
prior to consummation of such merger, consolidation or sale of assets or (ii) if
there is a surviving or acquiring corporation, arrange, subject to consummation
of the merger, consolidation or sale of assets, to have that corporation or an
affiliate of that corporation grant to participants replacement awards which in
the case of incentive awards satisfy, in the determination of the Board or
Committee, the requirement of section 424(a) of the Code.
The Board or Committee may grant awards under the Plan in substitution for
awards held by employees, consultants or advisers of another corporation who
concurrently becomes employees, consultants or advisers of the Company or a
subsidiary of the Company as a result of a merger or consolidation of that
corporation with the Company or a subsidiary of the Company, or as the result of
the acquisition by the Company or a subsidiary of the Company of property or
stock of that corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Board or Committee considers
appropriate in the circumstances.
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7. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the grant of awards shall confer upon
any participant any right to continue as an employee of, or consultant or
adviser to, the Company or any parent or subsidiary or affect in any way the
right of the Company or parent or subsidiary to terminate such participant at
any time. Except as specifically provided by the Committee in any particular
case, the loss of existing or potential profit in awards granted under this Plan
shall not constitute an element of damages in the event of termination of the
relationship of a participant even if the termination is in violation of an
obligation of the Company to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of awards to a participant shall
affect the Company's right to make awards to such participant that are not
subject to the Plan, to issue to such participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued.
The Committee may at any time discontinue granting awards under the Plan.
With the consent of the participant, the Committee may at any time cancel an
existing award in whole or in part and grant another award for such number of
shares as the Committee specified. The Board may at any time or times amend the
Plan or any outstanding award for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment shall, without the approval of the stockholders of the Company
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify under Rule 16b-3 under the Securities Exchange Act
of 1934 or section 422 of the Code, and no such amendment shall adversely affect
the rights of any participant (without his consent) under any award previously
granted.
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EXHIBIT B
GENOME THERAPEUTICS CORP.
1997 DIRECTORS' DEFERRED STOCK PLAN
1. Purpose.
The purpose of this 1997 Directors' Deferred Stock Plan (the "Plan") of
Genome Therapeutics Corp. (the "Company") is to assist the Company in recruiting
and retaining highly qualified directors and to strengthen the commonality of
interest between directors and shareholders by providing for the receipt by the
directors of the Company of all or a portion of their directors fees in the form
of Deferred Stock Rights (as defined below).
2. Administration.
The Plan will be administered by a committee (the "Committee") of not less
than two directors of the Company, whose construction and interpretation of the
terms and provisions of the Plan shall be final and conclusive. Unless the Board
of Directors otherwise decides, the Committee will be the Stock Option and
Compensation Committee of the Board. All questions of interpretation of the Plan
shall be determined by the Committee and such determination shall be final and
binding upon all persons having an interest in the Plan. No Committee member
shall be liable for any action or determination under the Plan made in good
faith.
3. Participation in the Plan.
All directors of the Company who are not employees of the Company
("Eligible Directors") shall be eligible to be granted deferred stock under the
Plan.
4. Stock Subject to the Plan.
The maximum number of shares which may be issued under the Plan shall be
150,000 shares of the Company's Common Stock, $0.10 par value per share ("Common
Stock"), subject to adjustment as provided in Section 9.
5. Election of Deferred Stock Right.
(a) Each Eligible Director shall receive his or her Annual Retainer in the
form of a Deferred Stock Right as provided hereunder. "Annual Retainer" means
the amount that a director is entitled to receive for serving as a director for
a calendar year, as determined from time to time by the Board of Directors. The
Annual Retainer for calendar 1998 is set at 800 shares of Common Stock.
"Deferred Stock Rights" represent the right to receive a specified number of
shares of Common Stock from the Company on a date that is the earlier of (i) the
date three years from the date of grant of such Defined Stock Right or (ii) the
date upon which the grantee ceases to be a director of the Company by reason of
death, permanent disability, resignation or retirement.
(b) Subject to adjustment from time to time by the Board of Directors, each
Eligible Director shall receive a fee in the amount of $2,000 for each board
meeting attended by such Eligible Director (as so adjusted, the "Meeting Fee").
On or before December 15 of each year, each Eligible Director may elect to
receive all of his or her Board Meeting Fees for the upcoming calendar year (the
"Elective Fee") in the form of Deferred Stock Rights by completing and
delivering to the Company a written election (the "Election Form") in a form
established by the Committee. The election shall become effective for the next
succeeding calendar year and shall be irrevocable. Any Eligible Director who
does not deliver an Election Form to the Company shall receive his or her Board
Meeting Fees in the form of cash.
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<PAGE> 27
6. Terms, Conditions and Form of Deferred Stock.
Each Deferred Stock Right granted under the Plan shall be evidenced by a
written agreement in such form as the Committee shall from time to time approve,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) Annual Retainer. Subject to Section 13, on January 10 of each year
commencing in 1998, each Eligible Director then in office shall receive
certificates representing Deferred Stock Rights in respect of the Annual
Retainer. Any Eligible Director who is first elected other than at an annual
meeting of stockholders shall be entitled to receive a Deferred Stock Right for
the Annual Retainer (appropriately prorated) and the grant date will be the date
of election.
(b) Meeting Fee. For directors who have elected to have the Meeting Fee
paid in the form of Deferred Stock Rights, the number of shares underlying
Deferred Stock Rights granted to any Eligible Director shall be equal to the
whole number (with any fractional interests rounded up to the next highest whole
number) obtained by dividing $2,000 (as adjusted from time to time by the Board
of Directors) by the Fair Market Value of the Common Stock on the date of the
meeting for which such fee is being calculated (the "Meeting Date").
Certificates representing the Deferred Stock Rights shall be delivered to the
director as soon as practicable after the Meeting Date. The "Fair Market Value"
shall be (i) the average of the closing prices of the Common Stock on the NASDAQ
National Market or such other securities exchange or automated quotation system
on which the Common Stock shall be primarily traded at the time of such
determination for the ten trading days ending on the day before the applicable
reference date or (ii) if there is no such trading, as determined in good faith
by the Committee.
(d) Payment Upon Death. In the event of a director's death, the director's
Deferred Stock Rights shall be issuable to the legal representative or legatee
of the grantee. In the alternative, an Eligible Director may elect to designate
a beneficiary to receive his or her Deferred Stock Right in the event of such
director's death. In order to designate a beneficiary or beneficiaries, such
director must complete and deliver to the Company a written form (the
"Beneficiary Form") on which he or she makes such designation. Such a
designation will become effective when received by the Company but no later than
six months following the date a Deferred Stock Right is granted (the "Effective
Date"). The designation shall be irrevocable unless modified or revoked as
provided in this subsection. In order to modify or revoke a designation, the
director must complete and deliver to the Company a change in Beneficiary Form
at least six months prior to the Effective Date, providing that said
modification or revocation shall be effective on the Effective Date. If the
director shall die without making a designation, the Deferred Stock Right shall
be issued to the legal representative or legatee of the directors estate.
7. Assignments.
Each Deferred Stock Right granted under the Plan by its terms shall not be
transferable by the grantee otherwise than by will or by the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined in
Section 414(p) of the Internal Revenue Code of 1986, as amended or replaced from
time to time) and shall be exercised during the lifetime of the grantee only by
such grantee or the transferee pursuant to a qualified domestic relations order.
8. Limitation of Rights.
(a) No Right to Continue as Director. Neither the Plan, nor the granting
of a Deferred Stock Right nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, expressed or
implied, that the Company will retain a director for any period of time.
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(b) No Shareholder Rights. A grantee shall have no rights as a shareholder
with respect to the shares covered by his or her Deferred Stock Right until the
date of the issuance to him or her of a stock certificate covering the shares
underlying such Deferred Stock Right, and no adjustment will be made for
dividends or other rights for which the record date is prior to the date such
certificate is issued.
9. Adjustment Provisions.
(a) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased or decreased or are exchanged for a different number
or kind of shares or other securities of the Company, or (ii) additional shares
or new or different shares or other securities of the Company or other non-cash
assets of the Company are distributed with respect to such shares of Common
Stock or other securities, an appropriate and proportionate adjustment may be
made in (x) the maximum number and kind of shares reserved for issuance under
the Plan, (y) the number and kind of shares or other securities subject to any
then outstanding Deferred Stock Right under the Plan, and (z) the price for each
share subject to any then outstanding Deferred Stock Right under the Plan. In
the event of any other extraordinary dividend or distribution, whether in stock,
cash or other property, or a spinoff, split up or other extraordinary
transaction, the number of shares issuable under this Plan shall be subject to
such adjustment as the Committee or the Board may deem appropriate, and the
number of shares issuable pursuant to any Deferred Stock Right theretofore
granted and the price of such Deferred Stock Right shall be subject to such
adjustment as the Committee or the Board may deem appropriate with a view toward
preserving the value of such Deferred Stock Right.
(b) Mergers, etc. In the event of a consolidation or merger in which the
Company is not the surviving corporation or which results in the acquisition of
more than 50% of the Company's outstanding Stock by a single person or entity or
by a group of persons and/or entities acting in concert, or in the event of a
sale or transfer of substantially all of the Company's assets or a dissolution
or liquidation of the Company, all Deferred Stock Rights hereunder will
terminate; provided, that immediately prior to the effective date of any such
merger, consolidation, sale, dissolution or liquidation, all Deferred Stock
Rights hereunder that have been granted but are not otherwise issuable shall be
automatically issued.
10. Amendment of the Plan.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding option for the purpose of
satisfying changes in law or for any other lawful purpose, but no such action
shall adversely affect rights under any outstanding Deferred Stock Right without
the holder's consent.
11. Notice.
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Chief Financial Officer of the Company and shall
become effective when it is received.
12. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective upon approval by the
Board. Amendments to the Plan shall become effective when adopted by the Board
of Directors.
(b) Termination. Unless earlier terminated pursuant to Section 9, the Plan
shall terminate upon the date on which all shares available for issuance under
the Plan shall have been issued pursuant to the Deferred Stock Rights granted
under the Plan.
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<PAGE> 29
13. General Restrictions.
(a) Investment Representations. The Company may require any person to whom
a Deferred Stock Right is granted, as a condition of such Deferred Stock Right,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the
Deferred Stock Right for his or her own account for investment and not with any
present intention of selling or otherwise distributing the same, and to such
other effects as the Company deems necessary or appropriate in order to comply
with federal and applicable state securities laws.
(b) Compliance with Securities Laws. Each Deferred Stock Right shall be
subject to the requirements that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such Deferred Stock Right upon any securities exchange or under any state or
federal law is necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such shares may not be issued unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain listing, registration or qualification, or to satisfy
such condition.
Adopted by the Board of Directors
on November 21, 1997.
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<PAGE> 30
GENOME THERAPEUTICS CORP.
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS,
JANUARY 26, 1998
The undersigned hereby appoints Robert J. Hennessey and Fenel M. Eloi or either
of them, proxies with power of substitution to each, to vote at the Special
Meeting in Lieu of an Annual Meeting of Stockholders of Genome Therapeutics
Corp., to be held on January 26, 1998, at Ropes & Gray, One International Place,
36th Floor, Boston, Massachusetts at 11:00 a.m., local time, or at any
adjournments thereof, all of the shares of Common Stock, par value $.10 per
share, of Genome Therapeutics Corp. that the undersigned would be entitled to
vote if personally present. The undersigned instructs such proxies or their
substitutes to act on the following matters as specified by the undersigned, and
to vote in such manner as they may determine on any other matters that may
properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
--------------
SEE REVERSE
SIDE
--------------
<PAGE> 31
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO CONTRARY DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4.
1. To Elect five directors.
NOMINEES: Philip Leder, Robert J. Hennessey, Lawrence Levy,
Donald J. McCarren, Steven M. Rauscher
FOR WITHHELD
ALL / / FROM ALL / /
NOMINEES NOMINEES
/ /_______________________________________
For all nominees execept as noted above
Signature:_________________________________ Date:_______________
2. To approve of the Company's 1997 FOR AGAINST ABSTAIN
Stock Option Plan. / / / / / /
3. To approve of the Company's 1997 / / / / / /
Directors' Deferred Stock Plan.
4. To ratify the selection of Arthur / / / / / /
Andersen LLP as the Company's
auditors for the fiscal year ending
August 31, 1998.
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments of the
meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
PLEASE SIGN AND DATE.
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as executor, administrator, attorney or guardian or
as custodian for a minor, please give full title as such. If a corporation,
please sign in full corporate name and indicate the signer's office. If a
partner, sign in the partnership name.
Signature:_________________________________ Date:_______________
