<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to '240.14a-11(c) or '240.14a-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)
GENOME THERAPEUTICS CORP.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(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 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 27, 2001
To the Shareholders of
GENOME THERAPEUTICS CORP.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Genome
Therapeutics Corp. (the "Company") will be held on February 27, 2001 at 10:00
a.m. at Ropes & Gray, One International Place, 36th floor, Boston,
Massachusetts, for the following purposes:
A. To elect six directors.
B. To approve the Company's 2001 Equity Incentive Plan.
C. To approve the Amendment to the Articles of Organization to
increase the number of shares of Common Stock, $.10 par value, the Company
is authorized to issue from 35,000,000 to 50,000,000 shares.
D. To ratify the selection of Arthur Andersen LLP as the Company's
auditors for the fiscal year ending August 31, 2001.
E. To transact such other business as may properly come before the
meeting or any adjournment of the meeting.
The Board of Directors has fixed the close of business on December 29, 2000
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
January 15, 2001
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 the Annual Meeting of Shareholders
to be held on February 27, 2001 (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. The Company has retained the services of
Corporate Investor Communications Corporation to assist with the solicitation of
proxies on behalf of the Company, at an anticipated cost of $6,500 plus
expenses. This Proxy Statement and accompanying proxy will be mailed on or about
January 17, 2001, to all shareholders entitled to vote at the meeting. The
address of the Company is 100 Beaver Street, Waltham, Massachusetts, 02453.
Only shareholders of record at the close of business on December 29, 2000
will be entitled to notice of and to vote at the meeting. As of December 29,
2000, the Company had outstanding 22,288,658 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 2000 Annual Report to Shareholders, including
financial statements, is being mailed concurrently with this Proxy Statement to
each shareholder entitled to vote at the 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, 2000 AND RELATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES TO EACH SHAREHOLDER ENTITLED TO VOTE AT THIS MEETING WHO
REQUESTS A COPY OF SUCH IN WRITING. REQUESTS SHOULD BE SENT TO GENOME
THERAPEUTICS CORP. 100 BEAVER STREET, WALTHAM MASSACHUSETTS, 02453, ATTENTION:
PHILIP V. HOLBERTON, 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.
Abstentions and broker "non-votes" are counted as present and entitled to
vote for purposes of determining a quorum. A broker non-vote occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power for that
particular item and has not received instructions from the beneficial owner.
Abstentions and broker non-votes
<PAGE> 4
are not counted for purposes of these proposals and will have no effect on the
outcome of voting on the particular matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 5, 2000, 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, and of all directors and named
executive 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>
Biotechnology Value Funds(2)................................ 1,451,400(3) 6.5%
Marc B. Garnick............................................. 7,129(4) *
Robert J. Hennessey......................................... 970,168(3) 4.2%
Philip Leder................................................ 117,760(4) .5%
Lawrence Levy............................................... 3,080(4) *
Steven M. Rauscher.......................................... 55,583(4) .3%
Norbert G. Riedel........................................... 3,716(4) *
Philip V. Holberton......................................... 8,000 *
Christopher T. Kelly........................................ 55,010 .3%
All directors and officers as a group (9 persons)........... 2,671,846(4) 12.0%
</TABLE>
---------------
* Less than 1%.
(1) The address of all such persons is c/o the Company, 100 Beaver Street,
Waltham, Massachusetts, 02453.
(2) Includes Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P.,
BVF Partners L.P. and BVF Inc.
(3) Includes 930,000 shares, which are issuable upon the exercise of vested
options.
(4) Includes 1,000 shares for Dr. Garnick, 110,000 shares for Dr. Leder, and
20,000 shares for Mr. Rauscher which shares are issuable upon the exercise
of vested options or options that are to become vested within 60 days
following December 11, 2000. Includes 5,129 shares for Dr. Garnick, 7,760
shares for Dr. Leder, 3,080 shares for Mr. Levy, 7,583 shares for Mr.
Rauscher, and 3,716 shares for Dr. Riedel, which shares are deferred and
issuable upon the earlier of three years from the grant date or the date
upon which the grantee ceases to be a director of the Company. Includes
24,000 restricted shares for Mr. Rauscher, which are subject to repurchase
by the Company based on a vesting schedule. Includes options which have been
granted to directors and officers that will become vested within 60 days
following December 11, 2000.
(5) Includes a total of 1,117,510 shares that may be issuable upon the exercise
of vested options or options that are to become vested within 60 days
following December 11, 2000. Includes 27,268 shares that are deferred and
issuable upon the earlier of three years from the grant date or the date
upon which the grantee ceases to be a director of the Company. Includes
24,000 restricted shares, which are subject to repurchase by the Company
based on a vesting schedule. Excludes options which have been granted to
directors and officers but which will not become vested within 60 days
following December 11, 2000.
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
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<PAGE> 5
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 2000 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with.
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
$100,000 for the fiscal year ended August 31, 2000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------------
FISCAL -------------------- STOCK/OPTIONS ALL OTHER
YEAR SALARY($) BONUS($) SARS(#) COMPENSATION($)(1)
------ --------- -------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Robert J. Hennessey(2)............... 2000 305,000 107,000 -- 33,660
Chairman and Chief Executive Officer 1999 290,000 -- -- 19,799
1998 281,634 20,625 -- 26,684
Philip V. Holberton.................. 2000 187,050(3) 35,000 -- --
Chief Financial Officer and Treasurer 1999 20,125 -- 10,000 --
Christopher T. Kelly................. 2000 175,100 44,000 5,000 3,000
Sr. Vice President and General 1999 174,982 -- -- 19,024
Manager -- Drug Rescue 1998 169,807 12,750 10,000 36,652
Richard E. Gill, Ph.D. .............. 2000 151,846(4) 15,000(5) 360,000 120,000
President and Chief Operating Officer
</TABLE>
---------------
(1) These amounts represent Company contributions to the Company's 401(k) Plan,
relocation expenses and other executive compensation allowances.
(2) Mr. Hennessey retired as Chief Executive Officer, effective October 26,
2000.
(3) Mr. Holberton is an independent contractor serving as the Company's Chief
Financial Officer. Mr. Holberton devotes approximately 70% of his time to
the Company's affairs. In 1999, Mr. Holberton served as an independent
contractor to the Company for only two months.
(4) Dr. Gill's employment with the Company terminated effective October 18,
2000. Mr. Gill was an employee for eight months in fiscal year 2000.
(5) Dr. Gill was paid a $15,000 bonus upon commencement of employment.
EXECUTIVE EMPLOYMENT AGREEMENTS
Steven M. Rauscher became Chief Executive Officer and President of the
Company effective October 26, 2000. Mr. Rauscher joined the Company pursuant to
a letter agreement dated as of October 26, 2000. The Company and Mr. Rauscher
are in the process of finalizing a definitive employment agreement based on the
terms of the letter agreement. Mr. Rauscher's current base salary is $360,000.
The agreement entitles Mr. Rauscher to receive an annual incentive of 0-40% of
his base salary based on the Company's achievement
3
<PAGE> 6
of certain operating and financial goals to be determined by the Board of
Directors. Upon hiring, Mr. Rauscher received 24,000 shares of the Company's
Common Stock that will vest in four equal annual installments of 6,000 shares on
the anniversary of Mr. Rauscher's employment. These shares are subject to a
right of the Company to repurchase the shares in the event Mr. Rauscher's
employment with the Company terminates. In addition, Mr. Rauscher was awarded
stock options to purchase 300,000 shares of Common Stock at an exercise price of
$14.4375 per share, the fair market value of the Common Stock on the date of
grant. These options will vest in equal annual installments on the anniversary
of employment. Mr. Rauscher was also awarded 240,000 options at an exercise
price of $14.4375 per share, the fair market value of the Common Stock, on the
date of grant, which options also vest in equal installments over four years,
but which can immediately vest in increments of 45,000, 45,000, 50,000 and
100,000 options if the stock price closes at $35, $45, $55 and $60 respectively
for 10 of 20 consecutive trading days.
In the event that Mr. Rauscher's employment is terminated by the Company
for reasons other than for cause, the agreement provides for the continuation of
all compensation and benefits for a period of up to 12 months, or until such
time as he is re-employed, whichever occurs first. Also, if, within 2 years
following (i) a change of control of the Company by a merger or (ii) such time
as any person or group acquires a majority of the outstanding Common Stock of
the Company, Mr. Rauscher is terminated, or he experiences a material reduction
in responsibilities or compensation, or is required to relocate out of the
greater Boston area, he will receive salary and benefits continuation for a
period of 18 months and any remaining unvested options and restricted shares
will immediately and fully vest and become exercisable.
Robert J. Hennessey, Chairman of the Board, and former Chief Executive
Officer of the Company, has an employment agreement with the Company, which
commenced March 15, 1996. The Company and Mr. Hennessey are currently
negotiating a revised employment agreement based on Mr. Hennessey's retirement
as the CEO and modified responsibilities to the Company due to Mr. Rauscher's
appointment as Chief Executive Officer and President. Mr. Hennessey's current
base salary is $360,500, 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
current agreement entitles Mr. Hennessey to receive bonuses based on the
Company's achievement of certain operating and financial goals to be determined
by the Board of Directors. Upon hiring, Mr. Hennessey was awarded non-qualified
stock options to purchase 1,600,000 shares of Common Stock at an exercise price
of $1.625 per share, all of which were vested as of August 31, 1999. In
February, 1996, 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, all
of which were vested as of August 31, 2000.
In addition, the agreement provides for the continuation of all
compensation and benefits for a period equal to the greater of the remaining
term of the agreement or 12 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, together with all
accrued obligations (as defined). The agreement contains customary
confidentiality and non-competition clauses.
Christopher T. Kelly, Senior Vice President and General Manager -- Drug
Rescue, has an employment agreement with the Company, which commenced March 14,
1997. Mr. Kelly's current base salary is $200,000. The agreement entitles Mr.
Kelly to receive an annual incentive of 0-25% of his base salary based on both
his personal and the Company's performance. The criteria for the bonus payment
are jointly determined by Mr. Kelly and the Chief Executive Officer, subject to
approval by the Stock Option and Compensation
4
<PAGE> 7
Committee. Upon hiring, Mr. Kelly was awarded stock options to purchase 150,000
shares of Common Stock at an exercise price of $9.06 per share, the fair market
value of the common stock on the date of grant, all of which were vested as of
August 31, 2000. In the event that Mr. Kelly's employment is terminated by the
Company for reasons other than for cause, or following a change of control of
the Company he is terminated or experiences a considerable reduction in his job
role or responsibilities, the agreement provides for the payment of not less
than 6 months of severance. Also, if, following a change of control of the
Company by a merger or if any person or group acquires a majority of the
outstanding Common Stock of the Company, Mr. Kelly is terminated, the agreement
provides that any remaining unvested options will be recommended to the Board of
Directors for immediate vesting.
Richard Labaudiniere, Ph.D, Senior Vice President of Research and
Development, has an employment agreement with the Company, which commenced
October 30, 2000. Dr. Labaudiniere's current base salary is $230,000. The
agreement entitles Dr. Labaudiniere to receive an annual incentive of 0-25% of
his base salary based on the Company's performance. The bonus payment is subject
to approval by the Stock Option and Compensation Committee. Upon hiring, Dr.
Labaudiniere was awarded stock options to purchase 4,500 shares of Common Stock
at an exercise price of $.10 per share, of which 2,500 options will vest on the
first anniversary of Dr. Labaudiniere's employment and 2,000 of which will vest
18 months after the commencement of Dr. Labaudiniere's employment. In addition,
Dr. Labaudiniere was awarded options to purchase 75,000 shares of Common Stock
at an exercise price of $14.375 per share, the fair market value of the Common
Stock on the date of the grant. These options will vest in four equal annual
installments of 18,750 on the anniversary of the commencement of his employment.
Dr. Labaudiniere was also awarded 25,000 options that will vest in equal
installments over four years, but which can immediately vest upon the attainment
of certain performance objectives, as defined by the Chief Executive Officer,
subject to the approval by the Stock Option and Compensation Committee. The
purchase price for these options will be $14.375, the fair market value of the
Common Stock on the date of the grant.
Richard E. Gill, former President and Chief Operating Officer of the
Company, is entitled to certain severance benefits as a result of his separation
from the Company on October 18, 2000. Pursuant to his employment agreement with
the Company dated November 22, 1999, Dr. Gill will continue to receive salary
and benefits for up to 12 months from the date of his termination or until he is
re-employed, whichever occurs first. In addition, pursuant to a severance
agreement dated December 5, 2000, in consideration for a full release of all
causes of action, rights or claims that Dr. Gill may have related to his
employment or separation from the Company, Dr. Gill was granted the right to
exercise a total of 5,000 options to purchase Common Stock at an exercise price
of $4.141 per share, which will be exercisable during the period from December
5, 2000 through October 17, 2001. In addition, Dr. Gill has 100,000 shares which
had previously vested and are exercisable through January 17, 2001.
5
<PAGE> 8
The following table reflects the stock options granted by the Company to
the named executive officers for the fiscal year ending August 31, 2000:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------- POTENTIAL REALIZED VALUE
% OF TOTAL AT ASSUMED RATES OF
OPTIONS/SARS STOCK PRICE APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
------------ ------------ ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Hennessey... -- -- -- -- -- --
Philip V. Holberton... -- -- -- -- -- --
Christopher T.
Kelly............... 5,000 .5 $ .10 1/19/10 $ 194,967 $ 310,749
Richard E. Gill(2).... 360,000 37.7 $3.911 12/16/09 1,964,892 3,962,731
</TABLE>
---------------
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the optionholders'
continued employment through the option period, and the date on which the
options are exercised.
(2) Refer to Executive Employment Agreements for discussion of Dr. Gill's
severance arrangements.
The following table sets forth the aggregate dollar value of all
Options/SARs exercised and the total number of unexercised Options/SARs held on
August 31, 2000 by each of the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT
SHARES ACQUIRED VALUE YEAR-END(#) FISCAL YEAR-END($)
ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
--------------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert J. Hennessey... 600,000 14,706,678 930,000/0 $ 19,728,000/0
Philip V. Holberton... 2,000 44,344 8,000/0 173,274/0
Christopher T.
Kelly............... 95,000 2,196,258 36,381/23,869 781,038/496,712
Richard E. Gill....... -- -- 100,000/260,000 2,103,400/5,551,660
</TABLE>
---------------
The closing price of the Common Stock on August 31, 2000 was $25.175 as reported
by NASDAQ National Market. Value is calculated on the basis of the difference
between the Option/SAR grant price and $25.175 multiplied by the number of
shares of Common Stock underlying the Option/SAR.
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 part, the following Reports of the Stock Option and
Compensation Committee and the Audit Committee and the Performance Graph on page
8 shall not be incorporated by reference into any such filings.
6
<PAGE> 9
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 for the last fiscal year consisted of
Messrs. Rauscher and Levy and Dr. Riedel, Committee Chairman. Mr. Rauscher
resigned from the Compensation Committee effective as of October 26, 2000 when
he assumed the position of President and CEO of the Company. The Compensation's
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.
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.
OVERVIEW
The objectives of the Company's executive compensation program are to:
- Provide a competitive compensation package that will attract and retain
superior talent and reward performance.
- Support the achievement of desired Company performance.
- Align the interests of executives with the long-term interests of
stockholders through award opportunities that can result in ownership of
Common Stock, thereby encouraging the achievement of superior results
over an extended period.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of (i)
base salary, which is set on an annual basis; (ii) annual incentive bonuses,
which are based on the achievement of predetermined objectives; and (iii)
long-term incentive compensation in the form of periodic stock option grants,
with the objective of aligning the executive officers' long-term interests with
those of the stockholders and encouraging the achievement of superior results
over an extended period.
The Compensation Committee performs annual reviews of executive
compensation to confirm the competitiveness of the overall executive
compensation packages as compared with companies who compete with the Company to
attract and retain employees.
In considering compensation of the Company's executives, one of the factors
the Compensation Committee takes into account is the anticipated tax treatment
to the Company of various components of compensation. The Company does not
believe Section 162(m) of the Internal Revenue code of 1986, as amended, which
generally disallows a tax deduction for certain compensation in excess of $1
million to any of the executive officers appearing in the Summary Compensation
Table above, will have an effect on the Company. the Compensation Committee has
considered the requirements of Section 162(m) of the code and its related
regulations. It is the Compensation Committee's present policy to take
reasonable measures to preserve the full deductibility of substantially all
executive compensation, to the extent consistent with its other compensation
objectives.
7
<PAGE> 10
BASE SALARY
The Compensation Committee reviews base salary levels for the Company's
executive officers on an annual basis. Base salaries are set competitively
relative to companies in the biotechnology industry and other comparable level
of experience, who have a comparable level of responsibility and expected level
of contribution to the Company's performance. In setting base salaries, the
Compensation Committee also takes into account the intense level of competition
among biotechnology companies to attract talented personnel.
ANNUAL INCENTIVE BONUSES
The Company, along with each executive officer, establishes goals related
specifically to that officer's areas of responsibility. The Compensation
Committee determines the amount of each executive's bonus based on a subjective
assessment by the Compensation Committee of the officer's progress toward
achieving the established goals. Bonuses are awarded on an annual basis.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentive compensation, in the form of stock options, allows the
executive officers to share in any appreciation in the value of the Company's
Common Stock. The Compensation Committee believes that stock option
participation aligns executive officers' interests with those of the
stockholders. The amounts of the awards are designed to reward past performance
and create incentives to meet long-term objectives. Awards are made at a level
calculated to be competitive within the biotechnology industry as well as a
broader group of companies of comparable size and complexity. In determining the
amount of each grant, the Compensation Committee takes into account the number
of shares held by the executive prior to the grant.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
During the year ended August 31, 2000, Mr. Hennessey received a salary of
$305,000 and compensation allowances of $33,660 under his employment agreement
with the Company. 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 Agreements." Mr. Hennessey continues to
have rights to 930,000 outstanding options, and is a shareholder in the Company.
Under Mr. Hennessey's employment agreement with the Company, Mr. Hennessey
receives an annual adjustment to base salary equal to the CPI for the Boston
metropolitan area. The $15,000 increase in Mr. Hennessey's base compensation for
fiscal year 2000 was based on a combination of the CPI increase required by his
employment agreement, a market adjustment for his position and a change in his
review cycle from March to September. For fiscal year 2000, Mr. Hennessey
received a bonus of $107,000 that represented a percentage of his targeted bonus
potential based upon achievement of specified financial and nonfinancial goals
established by the Compensation Committee, consisting of raising capital,
achieving revenue and profitability targets, and achieving specified
organizational objectives.
STOCK OPTION AND COMPENSATION
COMMITTEE
Norbert G. Riedel, Chairman
Marc Garnick
Lawrence Levy
8
<PAGE> 11
REPORT OF THE AUDIT COMMITTEE
The Audit Committee for the last fiscal year consisted of Messrs. Levy,
Rauscher, Committee Chairman and Dr. Riedel. Mr. Rauscher resigned from the
Audit Committee effective as of October 26, 2000 when he assumed the position of
President and CEO. Each of the current members of the Audit Committee is
independent (as defined in the NASDAQ's listing standards).
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing financial
reports and other financial information provided by the Company to any
governmental body or the public, the Company's systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established, and the Company's auditing, accounting and financial
processes generally. The Audit Committee annually recommends to the Board of
Directors the appointment of a firm of independent auditors to audit the
financial statements of the Company and meets with such personnel of the Company
to review the scope and the results of the annual audit, the amount of audit
fees, the Company's internal accounting controls, the Company's financial
statements contained in the Company's Annual Report to Stockholders and other
related matters. A more detailed description of the functions of the Audit
Committee can be found in the Company's Audit Committee Charter, attached to
this proxy statement as Appendix A.
The Audit Committee has reviewed and discussed with management the
financial statements for fiscal year 2000 audited by Arthur Andersen LLP, the
Company's independent auditors. The Audit Committee has discussed with Arthur
Andersen LLP various matters related to the financial statements, including
those matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU 380). The Audit Committee has also received the written
disclosures and the letter from Arthur Andersen LLP required by Independence
Standards Board Standard No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), and has discussed with Arthur
Andersen LLP its independence. Based upon such review and discussions the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ending August 31, 2000 for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Lawrence Levy, Chairman
Marc Garnick
Norbert G. Riedel
9
<PAGE> 12
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 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG GENOME THERAPEUTICS CORPORATION, THE S & P 500 INDEX
AND THE CHASE H & Q BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
GENOME
THERAPEUTICS CHASE H & Q
CORPORATION S & P 500 BIOTECHNOLOGY
------------ --------- -------------
<S> <C> <C> <C>
8/95 100.00 100.00 100.00
8/96 117.74 118.73 111.60
8/97 102.42 167.00 118.48
8/98 29.84 180.51 106.30
8/99 58.87 252.40 269.04
8/00 324.19 293.59 488.02
</TABLE>
* $100 INVESTED ON 8/31/95 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING AUGUST 31
10
<PAGE> 13
PROPOSAL A
ELECTION OF SIX DIRECTORS
The Board of Directors has fixed the number of directors at six. It is
intended that the enclosed proxy will be voted for the election of the six
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. In order to be elected a majority of
the shares entitled to vote must approve, or be deemed to have approved, the
election of each nominee for director. If any nominee should be unavailable for
election at the time of the 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 six directors. All of the nominees are currently directors
of the Company and were elected at the 2000 Annual Meeting. All have agreed to
serve as directors if elected at the meeting.
Directors of the Company who are not also employees will receive
compensation under the 1997 Directors' Deferred Stock Plan.
The nominees for directors of the Company who are proposed for election at
the 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 DIRECTORSHIPS SINCE
---- --- -------------------------------------------- --------
<S> <C> <C> <C>
Robert J. Hennessey............ 59 Mr. Hennessey served as Chief Executive Officer and 1993
President of the Company from March 1993 until
October 2000 and was elected Chairman of the Board in
May 1994.
Steven M. Rauscher............. 47 Mr. Rauscher became the Chief Executive Officer and 1993
President of the Company in October 2000. Previously,
he had been the Chief Executive Officer and a
director of AmericasDoctor, Inc. f/k/a Affiliated
Research Centers, Inc. since 1995.
Marc B. Garnick, M.D. ......... 53 Dr. Garnick is currently Executive Vice President and 1999
Chief Medical Officer at Praecis Pharmaceuticals,
Inc. and Clinical Professor of Medicine at Harvard
Medical School. From 1978 to 1998, Dr. Garnick held
various academic and hospital appointments at Harvard
Medical School, the Dana Farber Cancer Institute and
the Brigham and Women's Hospital.
Philip Leder, M.D. ............ 66 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.................. 77 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.
Norbert G. Riedel, Ph.D........ 43 Dr. Riedel is currently President of the Recombinant 1999
Strategic Business Unit for Baxter Hyland Immuno, a
division of Baxter Healthcare Corp. From 1991 to
1998, Dr. Riedel served in various research and
management positions at Hoechst Marion Roussel, Inc.
where his most recent responsibility was Head of
Global Biotechnology and the Hoechst Ariad Genomic
Center.
</TABLE>
11
<PAGE> 14
The Board of Directors held 7 meetings during fiscal 2000. Each member of
the Board of Directors, except for Dr Riedel, attended at least 75% of the
meetings of the Board of Directors and of each committee on which he serves.
The Board of Directors has an Audit Committee, which during fiscal year
2000 consisted of Messrs. Levy, Rauscher, Chairman and Dr. Garnick. Mr. Rauscher
resigned from the Committee effective October 26, 2000. The Audit Committee held
2 meetings during fiscal 2000. 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. See "Report of the Audit Committee."
The Board of Directors has a Stock Option and Compensation Committee, which
during fiscal year 2000 consisted of Messrs. Levy, Rauscher and Dr. Riedel,
Chairman. Mr. Rauscher resigned from the Committee effective October 26, 2000.
The Stock Option and Compensation Committee held 7 meetings during fiscal 2000.
The duties of the Stock Option and Compensation Committee consist of determining
the compensation of the Company's executive officers, and administering the
Company's stock option plans and determining the grant of stock options to
employees of, and consultants to, the Company. See "Report of the Stock Option
and Compensation Committee."
The Board of Directors has a Nominating Committee, consisting of Mr. Levy
and Dr. Leder. The duties of the Nominating Committee consist of considering and
making recommendations to the Board of Directors for appointment of directors.
During fiscal year 2000, the Nominating Committee did not hold any meetings. The
Nominating Committee does not consider nominees recommended by shareholders.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE SIX 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>
Philip V. Holberton................... Treasurer and Chief Financial Officer
Christopher T. Kelly.................. Senior Vice President and General Manager -- Drug Rescue
</TABLE>
Philip V. Holberton was appointed Treasurer and Chief Financial Officer for
the Company effective July 1999. Since 1995, he has been an independent
contractor, serving corporations as its Chief Financial Officer. He served as a
contract Chief Financial Officer for BioSepra, Inc. from August 1998 to December
1999. From 1991 to 1995, he was Chief Financial Officer of Cambridge
NeuroScience, Inc., a biotechnology company.
Christopher T. Kelly has been Senior Vice President and General
Manager -- Drug Rescue since May 2000. He served as Senior Vice
President -- Strategic Planning and Business Development from March 1997 until
October 2000. Prior to joining the Company, Mr. Kelly served as President and
Chief Executive Officer of Special Pharmaceuticals, Inc., a company that he
co-founded in 1993.
12
<PAGE> 15
PROPOSAL B
APPROVAL OF 2001 EQUITY INCENTIVE PLAN
GENERAL
On December 5, 2000, the Board of Directors adopted the 2001 Equity
Incentive Plan (the "Plan"), subject to shareholder approval, and reserved
3,400,000 shares of the Company's Common Stock for issuance thereunder.
The Company recognizes the importance of stock options as a tool for
recruiting and retaining the highest caliber executive officers, employees and
directors. As of December 5, 2000, the Company has a number of stock option
plans for which there only remains approximately 430,000 shares for future
issuance. If this proposal is successfully adopted, the Company intends to cease
granting options from its existing plans and grant all new options from the
newly adopted 2001 Equity Incentive Plan.
The purpose of the Plan is to advance the interests of the Company by
enhancing its ability to attract and retain executive officers, employees,
directors and other persons or entities providing services to the Company who
are in a position to make significant contributions to the success of the
Company, and to reward participants for such contributions, through ownership of
shares of Common Stock (the "Stock") of the Company and cash incentives. The
Plan is intended to accomplish these goals by enabling the Company to grant
awards in the form of options, stock appreciation rights, restricted stock,
unrestricted stock or deferred stock, or performance awards, or combinations
thereof, all as more fully described below.
OVERVIEW
The Plan will be administered by the Stock Option and Compensation
Committee (the "Committee"). During such times as the Stock is registered under
the Securities Exchange Act of 1934 (the "1934 Act"), all members of the
Committee will be "non-employee directors" within the meaning of rule 16b-3
promulgated under the 1934 Act and "outside directors" within the meaning of
Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as amended (the
"Code"). Under the Plan, the Committee may grant stock options, stock
appreciation rights, restricted stock, unrestricted stock, deferred stock, and
performance awards (in cash or stock), or combinations thereof, and may waive
the terms and conditions of any award. A total of 3,400,000 shares of Stock are
reserved for issuance under the Plan. Employees of the Company, including
executive officers, directors and other persons or entities providing services
to the Company or its subsidiaries who are in a position to make a significant
contribution to the success of the Company are eligible to receive awards under
the Plan.
Section 162(m) of the Code places annual limitations on the deductibility
by public companies of compensation in excess of $1,000,000 paid to each of the
chief executive officer and the other four most highly compensated officers,
unless, among other things, the compensation is performance-based. For
compensation attributable to stock options and stock appreciation rights to
qualify as performance-based, the plan under which they are granted must state a
maximum number of shares with respect to which options and rights may be granted
to an individual during a specified period and must be approved by the Company's
shareholders. To comply with these requirements, the Plan provides that the
maximum number of shares as to which awards may be granted to any participant in
any one calendar year is 1,000,000, and the Plan is being submitted for
shareholder approval. Grants of restricted stock will be limited to 100,000
shares in any one calendar year.
Stock Options. The exercise price of an incentive stock option ("ISO")
granted under the Plan or an option intended to qualify as performance-based
compensation under Section 162(m) of the Code shall not be less than 100% of the
fair market vale of the Stock at the time of grant. The Committee determines the
13
<PAGE> 16
exercise price of a non-ISO granted under the Plan. No ISO may be granted under
the Plan after December 4, 2010, but ISO's previously granted may extend beyond
that date. The exercise price may be paid in cash or by check payable to the
order of the Company. Subject to certain additional limitations, the Committee
may also permit the exercise price to be paid by tendering shares of Stock, by
delivery of a promissory note, by delivery to the Company of an undertaking by a
broker to deliver promptly sufficient funds to pay the exercise price, or a
combination of the foregoing.
Stock Appreciation Rights (SARs). Stock appreciation rights ("SARs") may
be granted either alone or in tandem with stock option grants. Each SAR entitles
the holder on exercise to receive an amount in cash or Stock or a combination
thereof (such form to be determined by the Committee) determined in whole or in
part by reference to appreciation in the fair market value of a share of Stock.
SARs may be based solely on appreciation in the fair market value of Stock or on
a comparison of such appreciation with some other measure of market growth.
Stock Awards; Deferred Stock. The Plan provides for awards of
nontransferable shares of restricted Stock subject to forfeiture ("Restricted
Stock"), as well as unrestricted shares of Stock. Share of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period and the satisfaction of any
other conditions or restrictions established by the Committee. Except as the
Committee may otherwise determine, if a participant dies or ceases to be an
employee or ceases to continue the consulting or other similar relationship
engaged in by such participant with the Company for any reason during the
restricted period, the Company may repurchase the shares of Restricted Stock or
the shares of Restricted Stock may be forfeited to the Company. The Plan also
provides for deferred grants entitling the recipient to receive shares of Stock
in the future at such times and on such conditions as the Committee may specify.
Performance Awards. The Plan provides for performance awards entitling the
recipient to receive cash or Stock following the attainment of performance goals
determined by the Committee. Performance conditions and provisions for deferred
stock may also be attached to other awards under the Plan. In the case of any
performance award intended to qualify for the performance-based remuneration
exception described in Section 162(m) of the Code (an "Exempt Award"), the
Committee will in writing pre-establish specific performance goals that are
based upon any one or more operational, result or event-specific goals. The
maximum Exempt Award payable to an individual in respect of any performance goal
for any year cannot exceed $500,000 cash or 100,000 shares of Stock.
Termination. Except as otherwise provided by the Committee, if a
participant dies, options and SARs exercisable immediately prior to death may be
exercised by the participant's executor, administrator or transferee during a
period of one year following such death (or for the remainder of their original
term, if less). Options and SARs not exercisable at a participant's death
terminate. In the case of termination for reasons other than death, options and
SARs remain exercisable, to the extent they were exercisable immediately prior
to termination, for three months (or for the remainder of their original term,
if less); provided that if in the Committee's judgment the reason for the award
holder's termination casts discredit on the Company sufficient to justify
immediate termination of the award, then such award will immediately terminate.
Change of Control. In the case of certain mergers, consolidations or other
transactions in which the Company is acquired or is liquidated and there is a
surviving or acquiring corporation, the Plan permits the Committee to arrange
for the assumption of awards outstanding under the Plan or the grant to
participants of replacement awards by that corporation. All outstanding awards
not assumed by the surviving or acquiring corporation shall become exercisable
immediately prior to the consummation of such merger, consolidation or other
transaction and upon such consummation all outstanding awards that have not been
assumed or replaced will terminate.
14
<PAGE> 17
Amendment. The Committee may amend the Plan or any outstanding award at
any time, provided that no such amendment will, without the approval of the
shareholders of the Company, effectuate a change for which shareholder approval
is required in order for the Plan to continue to qualify for the award of ISOs
under Section 422 of the Code or for the award of performance-based compensation
under Section 162(m) of the Code.
NEW PLAN BENEFIT
The future benefits or amounts that would be received under the Plan by the
executive officers and the non-executive officer employees are discretionary and
are therefore not determinable at this time. The Company has adopted the
following methodology for granting options to non-executive Directors: upon
election or appointment to an initial term on the Board, the Company will grant
a non-executive Director an option to purchase 25,000 shares at fair market
value, which option will vest ratably over 4 years. Each anniversary date
thereafter, such Director will be granted an additional option to purchase 6,000
shares at fair market value, which option will vest ratably over 4 years. Under
the Plan, the existing non-executive Directors as a group will receive options
to purchase 24,000 shares of Common Stock at the Company's Board meeting
following the annual meeting.
FEDERAL TAX EFFECTS
The following discussion summarizes certain federal income tax consequences
of the issuance and receipt of options under the Plan. The summary does not
purport to cover federal employment tax or other federal tax consequences that
may be associated with the Plan, nor does it cover state, local or non-U.S.
taxes.
Incentive Stock Options. In general, an optionee realizes no taxable
income upon the grant or exercise of an ISO. However, the exercise of an ISO may
result in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO within two years from
the date of grant or within one year after exercise produces ordinary income to
the optionee (and a deduction to the Company) equal to the value of the shares
at the time of exercise less the exercise price. Any additional gain recognized
in the disposition is treated as a capital gain for which the Company is not
entitled to a deduction. If the optionee does not dispose of the shares until
after the expiration of these one- and two-year holding periods, any gain or
loss recognized upon a subsequent sale is treated as a long-term capital gain or
loss for which the Company is not entitled to a deduction.
Nonstatutory (Non-ISO) Options. In general, in the case of a non-ISO, the
optionee has no taxable income at the time of grant but realizes income in
connection with exercise of the option in an amount equal to the excess (at the
time of exercise) of the fair market value of the shares acquired upon exercise
over the exercise price. A corresponding deduction is available to the Company.
Upon a subsequent sale or exchange of the shares, appreciation or depreciation
after the date of exercise is treated as capital gain or loss for which the
Company is not entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a non-ISO. ISOs are also treated as non-ISOs to the extent they first become
exercisable by an individual in any calendar year for shares having a fair
market value (determined as of the date of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Code, the vesting
or accelerated exercisability of awards in connection with a change in control
of the Company may be required to be valued and taken into account in
determining whether participants have received compensatory payments, contingent
on the change in control, in excess of certain limits. If these limits are
exceeded, a substantial portion of amounts payable to
15
<PAGE> 18
the participant, including income recognized by reason of the grant, vesting or
exercise of awards under the Plan, may be subject to an additional 20% federal
tax and may not be deductible to the Company.
Effective Date of the 2001 Equity Incentive Plan. The 2001 Equity
Incentive Plan will become effective as of February 27, 2001, provided that it
is approved by the shareholders at this meeting.
RECOMMENDATION
The Board of Directors believes that adoption of the 2001 Equity Incentive
Plan and the reservation of shares thereunder is important for the Company to
attract and retain employees and directors and to be able to continue to offer
them the opportunity to participate in the ownership and growth of the Company.
Accordingly, the Board of Directors believes the 2001 Equity Incentive Plan is
in the best interest of the Company and its shareholders and recommends that the
shareholders approve the 2001 Equity Incentive Plan and the reservation of
3,400,000 shares of Common Stock thereunder.
The affirmative vote of a majority of the Company's Common Stock present,
in person or by proxy, and entitled to vote at the Annual Meeting is required to
approve the 2001 Equity Incentive Plan. Shares of Common Stock represented by
proxies in the form enclosed, if properly executed and returned and not revoked,
will be vote as specified, but where no specification is made, the shares of
Common Stock will be voted in favor of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL B.
PROPOSAL C
APPROVAL OF AMENDMENT TO THE ARTICLES OF ORGANIZATION TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK, $.10 PAR VALUE PER SHARE, THE COMPANY
IS AUTHORIZED TO ISSUE FROM 35,000,000 TO 50,000,000 SHARES
On December 5, 2000 the Board of Directors voted, subject to approval by
the shareholders, to amend Article 4 of the Company's Articles of Organization
to increase the number of shares of Common Stock, par value $0.10 per share, the
Company is authorized to issue from 35,000,000 to 50,000,000 shares (the
"Amendment").
On December 5, 2000, the Company had 22,284,817 shares of Common Stock
outstanding, 3,594,040 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options or for future awards under its equity
incentive plans. The Company currently does not have any plans, commitments or
understandings with respect to the issuance of the additional shares of Common
Stock being authorized hereby. The Board of Directors believes that it is
desirable to have available a substantial number of authorized but unissued
shares of Common Stock which may be issued from time to time, without further
action by the shareholders, to provide for stock splits or stock dividends, to
be able to take advantage of acquisition opportunities, to meet future capital
needs and for other general corporate purposes.
The issuance of additional authorized shares of Common Stock may dilute the
voting power and equity interest of present shareholders. It is not possible to
predict in advance whether the issuance of additional shares will have a
dilutive effect on earnings per share as it depends on the specific events
associated with a particular transaction. Shares of authorized but unissued
Common Stock may be issued from time to time by the Board of Directors without
further shareholder action unless such action is required by the law of The
Commonwealth of Massachusetts, under which the Company is incorporated, the
Company's Articles of Organization, or the rules of the Nasdaq National Market
System ("NASDAQ"). Additional authorized but unissued shares of Common Stock
might be used in the context of a defense against or response to possible or
16
<PAGE> 19
threatened hostile takeovers. For example, such additional shares could be used
to dilute the stock ownership of parties seeking to obtain control of the
Company, to increase the total amount of consideration necessary for a party to
obtain control, or to increase the voting power of friendly third parties. These
uses could have the effect of making it more difficult for a third party to
remove incumbent management or to accomplish a given transaction, even if such
actions would generally be beneficial to shareholders. The Board of Directors
has concluded, however, that the advantages of the additional authorized shares
outweigh any potential disadvantages.
RECOMMENDATION
The affirmative vote of a majority of the shares outstanding and entitled
to vote on the proposal at the Annual Meeting is required to approve the
increase in authorized share of Common Stock. Since the increase in authorized
shares of Common Stock must receive the affirmative vote of a majority of the
outstanding shares of Common Stock, abstentions and broker non-votes will have
the effect of a vote against the proposal. Shares represented by proxies in the
form enclosed, if properly executed and returned and not revoked, will be voted
as specified, but where no specification is made, the shares will be voted in
favor of the proposal.
The Board of Directors believes that approval of the increase in the
authorized shares is in the best interest of the shareholders because it would
facilitate the Company's business and financial purposes in the future without
the necessity of delaying such activities for further shareholder approvals,
except as may be required in a particular case by the law of The Commonwealth of
Massachusetts, the Company's Articles of Organization, or the rules of NASDAQ.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL C.
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, 2001. 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
Proposals of shareholders submitted for consideration at the 2002 Annual
Meeting of shareholders must be received by the Company no later than October
30, 2001 in order to be included in the Company's proxy statement for the 2002
Annual Meeting. In addition, if a shareholder wishes to present a proposal at
the Company's 2002 Annual Meeting that will not be included in the Company's
proxy statement and fails to notify the Company by no later than January 13,
2002, then the proxies solicited by the Board of Directors for the 2002 Annual
Meeting will include discretionary authority to vote on the shareholder's
proposal in the event that it is properly brought before the meeting.
17
<PAGE> 20
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 borne 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.
18
<PAGE> 21
ANNEX A
AUDIT COMMITTEE CHARTER
The audit committee is a committee of the board of directors. Its primary
function is to assist the board in fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to the shareholders
and others, the systems of internal controls which management and the board of
directors have established, and the audit process. The Audit Committee works in
partnership with the independent accountant and relies on the independent
accountant and management in discharging its duties.
In meeting its responsibilities, the audit committee is expected to:
1) Provide an open avenue of communication between the independent
accountant and the board of directors.
2) Review and update the committee's charter annually.
3) Recommend to the Board of Directors the independent accountants to
be nominated and review and approve the discharge of the independent
accountant.
4) Confirm and assure the independence of the internal review of
management consulting services and related fees provided by the independent
accountant. Receive a formal statement regarding relationships and services
that may affect objectivity and independence for discussing any relevant
matters with independent auditors and for recommending that the full board
take appropriate action to ensure the independence of the auditor.
5) Consider, in consultation with the independent accountant the audit
scope and plan of the independent accountant.
6) Consider and review with the independent accountant:
a) The adequacy of the company's internal controls including
computerized information system controls and security.
b) Any related significant findings and recommendations of the
independent accountant together with management's responses thereto.
7) Review with management and the independent accountant at the
completion of the annual examination:
a) The company's annual financial statements and related footnotes.
b) The independent accountant's audit of the financial statements
and his or her report thereon.
c) Any significant changes required in the Independent accountant's
audit plan.
d) Any serious difficulties or disputes with management encountered
during the course of the audit.
e) Other matters related to the conduct of the audit, which are to
be communicated to the committee under generally accepted auditing
standards.
19
<PAGE> 22
8) Consider and review with management:
a) Significant findings of the independent accountant during the
year and management's responses thereto.
b) Any difficulties encountered in the course of their audits,
including any restrictions on the scope of their work or access to
required information.
c) Any changes required in the planned scope of their audit plan.
9) The Audit Committee and the independent accountant shall review all
filings with the SEC and other published documents containing the company's
financial statements and ensure that the information contained in these
documents is consistent with the information contained in the financial
statements.
10) The independent accountant and management shall review legal and
regulatory matters that may have a material impact on the financial
statements, related company compliance policies, and programs and reports
received from regulators and shall report findings to the audit committee.
11) Meet with the independent accountant and management in separate
executive sessions to discuss any matters that the committee or these
groups believe should be discussed privately with the audit committee.
12) Report committee actions to the board of directors with such
recommendations, as the committee may deem appropriate.
13) The audit committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. The committee shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any
investigation.
14) The committee shall meet at least two times per year, or more
frequently as circumstances require, plus a quarterly teleconference
regarding the release of earnings. The committee may ask members of
management or others to attend the meeting and provide pertinent
information as necessary.
15) The committee will perform such other functions as assigned by
law, the company's charter or bylaws, or the board of directors.
16) The membership of the audit committee shall consist of at least
three independent members of the board of directors who shall serve at the
pleasure of the board of directors. Audit committee members and the
committee chairman shall be designated by the full board of directors upon
the recommendation of the nominating committee. The duties and
responsibilities of a member of the audit committee are in addition to
those duties set out for a member of the board of directors.
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ANNEX B
2001 INCENTIVE PLAN
DEFINED TERMS
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used in
the Plan and sets forth certain operational rules related to those terms.
2. GENERAL
The Plan has been established to advance the interests of the Company by
giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
stock-based incentives or incentives based on Performance Criteria.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express
provisions of the Plan, to interpret the Plan; determine eligibility for and
grant Awards; determine, modify or waive the terms and conditions of any Award;
prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication. In the case of any Award intended to be eligible for the
performance-based compensation exception under Section 162(m), the Administrator
shall exercise its discretion consistent with qualifying the Award for such
exception.
4. LIMITS ON AWARD UNDER THE PLAN
A. Number of Shares. A maximum of 3,400,000 shares of Stock may be
delivered in satisfaction of Awards under the Plan. For purposes of the
preceding sentence, the following shares shall not be considered to have been
delivered under the Plan: (i) shares remaining under an Award that terminates
without having been exercised in full; (ii) shares subject to an Award, where
cash is delivered to a Participant in lieu of such shares; and (iii) shares of
Restricted Stock that have been forfeited in accordance with the terms of the
applicable Award; and (iv) shares held back in satisfaction of tax withholding
requirements from shares that would otherwise have been delivered pursuant to an
Award. The number of shares of Stock delivered under an Award shall be
determined net of any previously acquired shares of Stock tendered by the
Participant in payment of withholding taxes.
B. Type of Shares. Stock delivered by the Company under the Plan may be
authorized but unissued Stock or previously issued Stock acquired by the Company
and held in treasury. No fractional shares of Stock will be delivered under the
Plan.
C. Option & SAR Limits. The maximum number of shares of Stock for which
Stock Options may be granted to any person in any calendar year, the maximum
number of shares of Stock subject to SARs granted to any person in any calendar
year and the aggregate maximum number of shares of Stock subject to other Awards
(other than Restricted Stock Awards) that may be delivered to any person in any
calendar year shall each be 1,000,000, and the aggregate maximum number of
shares of stock subject to Restricted Stock Awards that may be delivered to any
person in any calendar year shall be 100,000. For purposes of the preceding
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sentence, the repricing of a Stock Option or SAR shall be treated as a new grant
to the extent required under Section 162(m). Subject to these limitations, each
person eligible to participate in the Plan shall be eligible in any year to
receive Awards covering up to the full number of shares of Stock then available
for Awards under the Plan.
D. Other Award Limits. No more than $500,000 may be paid to any individual
with respect to any Cash Performance Award. In applying the limitation of the
preceding sentence: (A) multiple Cash Performance Awards to the same individual
that are determined by reference to performance periods of one year or less
ending with or within the same fiscal year of the Company shall be subject in
the aggregate to one limit of such amount, and (B) multiple Cash Performance
Awards to the same individual that are determined by reference to one or more
multi-year performance periods ending in the same fiscal year of the Company
shall be subject in the aggregate to a separate limit of such amount. With
respect to any Performance Award other than a Cash Performance Award or a Stock
Option or SAR, the maximum Award opportunity shall be 100,000 shares of Stock or
their equivalent value in cash, subject to the limitations of Section 4.c.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those Employees,
directors and other individuals or entities providing services to the Company or
its Affiliates who, in the opinion of the Administrator, are in a position to
make a significant contribution to the success of the Company and its
Affiliates. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in Sections
421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
a. ALL AWARDS
(1) Terms of Awards. The Administrator shall determine the terms of all
Awards subject to the limitations provided herein.
(2) Performance Criteria. Where rights under an Award depend in whole or
in part on satisfaction of Performance Criteria, actions by the Company that
have an effect, however material, on such Performance Criteria or on the
likelihood that they will be satisfied will not be deemed an amendment or
alteration of the Award.
(3) Transferability Of Awards. Except as the Administrator otherwise
expressly provides, Awards may not be transferred other than by will or by the
laws of descent and distribution, and during a Participant's lifetime an Award
requiring exercise may be exercised only by the Participant (or in the event of
the Participant's incapacity, the person or persons legally appointed to act on
the Participant's behalf).
(4) Vesting, Etc. Without limiting the generality of Section 3, the
Administrator may determine the time or times at which an Award will vest (i.e.,
become free of forfeiture restrictions) or become exercisable and the terms on
which an Award requiring exercise will remain exercisable. Unless the
Administrator expressly provides otherwise, immediately upon the cessation of
the Participant's employment or other service relationship with the Company and
its Affiliates, an Award requiring exercise will cease to be exercisable, and
all Awards to the extent not already fully vested will be forfeited, except
that:
(A) All Stock Options and SARs held by the Participant immediately
prior to the cessation of the Participant's employment or other service
relationship for reasons other than death and except as provided in (B)
below, to the extent then exercisable, will remain exercisable for the
lesser of (i) a period of three months or (ii) the period ending on the
latest date on which such Stock Option or SAR could have been exercised
without regard to this Section 6.a.(5), and shall thereupon terminate;
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(B) all Stock Options and SARs held by a Participant immediately prior
to his or her death, to the extent then exercisable, will remain
exercisable by such Participant's executor or administrator or the person
or persons to whom the Stock Option or SAR is transferred by will or the
applicable laws of descent and distribution, for the lesser of (i) a one
year ending with the first anniversary of the Participant's death period
(or such longer or shorter period as is determined by the Administrator) or
(ii) the period ending on the latest date on which such Stock Option or SAR
could have been exercised without regard to this Section 6.a.(5) and shall
thereupon terminate; and
(C) all Stock Options and SARs held by the Participant whose cessation
of employment or other service relationship is determined by the
Administrator in its sole discretion to result for reasons which cast such
discredit on the Participant as to justify immediate termination of the
Award shall immediately terminate upon such cessation.
Unless the Administrator expressly provides otherwise, a Participant's
"employment or other service relationship with the Company and its Affiliates"
will be deemed to have ceased, in the case of an employee Participant, upon
termination of the Participant's employment with the Company and its Affiliates
(whether or not the Participant continues in the service of the Company or its
Affiliates in some capacity other than that of an employee of the Company or its
Affiliates), and in the case of any other Participant, when the service
relationship in respect of which the Award was granted terminates (whether or
not the Participant continues in the service of the Company or its Affiliates in
some other capacity).
(5) Taxes. The Administrator will make such provision for the withholding
of taxes as it deems necessary. The Administrator may, but need not, hold back
shares of Stock from an Award or permit a Participant to tender previously owned
shares of Stock in satisfaction of tax withholding requirements.
(6) Dividend Equivalents, Etc. The Administrator may provide for the
payment of amounts in lieu of cash dividends or other cash distributions with
respect to Stock subject to an Award.
(7) Rights Limited. Nothing in the Plan shall be construed as giving any
person the right to continued employment or service with the Company or its
Affiliates, or any rights as a shareholder except as to shares of Stock actually
issued under the Plan. The loss of existing or potential profit in Awards will
not constitute an element of damages in the event of termination of employment
or service for any reason, even if the termination is in violation of an
obligation of the Company or Affiliate to the Participant.
(8) Section 162(m). In the case of an Award intended to be eligible for
the performance-based compensation exception under Section 162(m), the Plan and
such Award shall be construed to the maximum extent permitted by law in a manner
consistent with qualifying the Award for such exception. In the case of a
Performance Award intended to qualify as performance-based for the purposes of
Section 162(m) (other than a Stock Option or SAR with an exercise price at least
equal to the fair market value of the underlying Stock on the date of grant),
the Committee shall in writing preestablish one or more specific Performance
Criteria no later than 90 days after the commencement of the period of service
to which the performance relates (or at such earlier time as is required to
qualify the Award as performance-based under Section 162(m)). Prior to payment
of any Performance Award (other than a Stock Option or SAR with an exercise
price at least equal to the fair market value of the underlying Stock on the
date of grant) intended to qualify as performance-based under Section 162(m),
the Committee shall certify whether the Performance Criteria have been attained
and such determination shall be final and conclusive. If the Performance
Criteria with respect to any such Award are not attained, no other Award shall
be provided in substitution of the Performance Award.
b. AWARDS REQUIRING EXERCISE
(1) Time And Manner Of Exercise. Unless the Administrator expressly
provides otherwise, (a) an Award requiring exercise by the holder will not be
deemed to have been exercised until the Administrator
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receives a written notice of exercise (in form acceptable to the Administrator)
signed by the appropriate person and accompanied by any payment required under
the Award; and (b) if the Award is exercised by any person other than the
Participant, the Administrator may require satisfactory evidence that the person
exercising the Award has the right to do so.
(2) Exercise Price. The Administrator shall determine the exercise price
of each Stock Option provided that each Stock Option intended to qualify for the
performance-based exception under Section 162(m) of the Code and each ISO must
have an exercise price that is not less than the fair market value of the Stock
subject to the Stock Option, determined as of the date of grant. An ISO granted
to an Employee described in Section 422(b)(6) of the Code must have an exercise
price that is not less than 110% of such fair market value.
(3) Payment Of Exercise Price, If Any. Where the exercise of an Award is
to be accompanied by payment, the Administrator may determine the required or
permitted forms of payment, subject to the following: (a) all payments will be
by cash or check acceptable to the Administrator, or, if so permitted by the
Administrator (with the consent of the optionee of an ISO if permitted after the
grant), (i) through the delivery of shares of Stock which have been outstanding
for at least six months (unless the Administrator approves a shorter period) and
which have a fair market value equal to the exercise price, (ii) by delivery of
a promissory note of the person exercising the Award to the Company, payable on
such terms as are specified by the Administrator, (iii) 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 (iv) by any combination
of the foregoing permissible forms of payment; and (b) where shares of Stock
issued under an Award are part of an original issue of shares, the Award shall
require an exercise price equal to at least the par value of such shares.
(4) ISOs. No ISO may be granted under the Plan after December 4, 2010, but
ISOs previously granted may extend beyond that date.
c. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in return for
either (i) services determined by the Administrator to have a value not less
than the par value of the Awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the Awarded shares of
Stock plus such additional amounts (if any) as the Administrator may determine
payable in such combination and type of cash, other property (of any kind) or
services as the Administrator may determine.
7. EFFECT OF CERTAIN TRANSACTIONS
a. 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 all
outstanding awards shall become exercisable immediately prior to
consummation of such merger, consolidation or sale of assets unless, if
there is a surviving or acquiring corporation, the Board has arranged,
subject to consummation of the merger, consolidation or sale of assets, for
the assumption of the awards or the grant to participants of replacement
awards by the surviving or acquiring corporation or an affiliate of that
corporation, which awards in the case of incentive options shall satisfy
the requirements of section 424(a) of the Code.
The Board may grant awards under the Plan in substitution for awards
held by directors, employees, consultants or advisers of another
corporation who concurrently become directors, employees, consultants
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<PAGE> 27
or advisers of the Company or a subsidiary of the Company as the 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 considers appropriate in the
circumstances.
b. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
(1) Basic Adjustment Provisions. In the event of a stock dividend, stock
split or combination of shares, recapitalization or other change in the
Company's capital structure, the Administrator will make appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under
Section 4.a. and to the maximum share limits described in Section 4.c., and will
also make appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change.
(2) Certain Other Adjustments. The Administrator may also make adjustments
of the type described in paragraph (1) above to take into account distributions
to common stockholders other than those provided for in Section 7.a. and
7.b.(1), or any other event, if the Administrator determines that adjustments
are appropriate to avoid distortion in the operation of the Plan and to preserve
the value of Awards made hereunder; provided, that no such adjustment shall be
made to the maximum share limits described in Section 4.c. or 4.d., or otherwise
to an Award intended to be eligible for the performance-based exception under
Section 162(m), except to the extent consistent with that exception, nor shall
any change be made to ISOs except to the extent consistent with their continued
qualification under Section 422 of the Code.
(3) Continuing Application of Plan Terms. References in the Plan to shares
of Stock shall be construed to include any stock or securities resulting from an
adjustment pursuant to Section 7.b.(1) or 7.b.(2) above.
8. LEGAL CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares of Stock previously
delivered under the Plan until the Company's counsel has approved all legal
matters in connection with the issuance and delivery of such shares; if the
outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. 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
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at any
time or times amend the Plan or any outstanding Award for any purpose which 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 will, 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 Section
422 of the Code and for Awards to be eligible for the performance-based
exception under Section 162(m).
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10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any way
affect the Company's right to award a person bonuses or other compensation in
addition to Awards under the Plan.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of The Commonwealth
of Massachusetts.
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EXHIBIT A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:
"ADMINISTRATOR": The Board or, if one or more has been appointed, the
Committee.
"AFFILIATE": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.
"AWARD": Any or a combination of the following:
(i) Stock Options.
(ii) SARs.
(iii) Restricted Stock.
(iv) Unrestricted Stock.
(v) Deferred Stock.
(vi) Securities (other than Stock Options) that are convertible into
or exchangeable for Stock on such terms and conditions as the Administrator
determines.
(vii) Cash Performance Awards.
(viii) Performance Awards.
(ix) Grants of cash, or loans, made in connection with other Awards
in order to help defray in whole or in part the economic cost (including
tax cost) of the Award to the Participant.
"BOARD": The Board of Directors of the Company.
"CASH PERFORMANCE AWARD": A Performance Award payable in cash. The right of
the Company under Section 6.a.(3) to extinguish an Award in exchange for cash or
the exercise by the Company of such right shall not make an Award otherwise not
payable in cash a Cash Performance Award.
"CODE": The U.S. Internal Revenue Code of 1986 as from time to time amended
and in effect, or any successor statute as from time to time in effect.
"COMMITTEE": One or more committees of the Board which in the case of
Awards granted to officers of the Company shall be comprised solely of two or
more outside directors within the meaning of Section 162(m). Any Committee may
delegate ministerial tasks to such persons (including Employees) as it deems
appropriate.
"COMPANY": Genome Therapeutics Corp.
"DEFERRED STOCK": A promise to deliver Stock or other securities in the
future on specified terms.
"EMPLOYEE": Any person who is employed by the Company or an Affiliate.
"ISO": A Stock Option intended to be an "incentive stock option" within the
meaning of Section 422 of the Code. No Stock Option Awarded under the Plan will
be an ISO unless the Administrator expressly provides for ISO treatment.
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"PARTICIPANT": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.
"PERFORMANCE AWARD": An Award subject to Performance Criteria. The
Committee in its discretion may grant Performance Awards that are intended to
qualify for the performance-based compensation exception under Section 162(m)
and Performance Awards that are not intended so to qualify.
"PERFORMANCE CRITERIA": Specified criteria the satisfaction of which is a
condition for the exercisability, vesting or full enjoyment of an Award. For
purposes of Performance Awards that are intended to qualify for the
performance-based compensation exception under Section 162(m), a Performance
Criterion shall mean an objectively determinable measure of performance relating
to any of the following (determined either on a consolidated basis or, as the
context permits, on a divisional, subsidiary, line of business, project or
geographical basis or in combinations thereof): (i) sales; revenues; assets;
expenses; earnings before or after deduction for all or any portion of interest,
taxes, depreciation, amortization or other items, whether or not on a continuing
operations or an aggregate or per share basis; return on equity, investment,
capital or assets; one or more operating ratios; borrowing levels, leverage
ratios or credit rating; market share; capital expenditures; cash flow; stock
price; stockholder return; network deployment; sales of particular products or
services; customer acquisition, expansion and retention; or any combination of
the foregoing; or (ii) acquisitions and divestitures (in whole or in part);
joint ventures and strategic alliances; spin-offs, split-ups and the like;
reorganizations; recapitalizations, restructurings, financings (issuance of debt
or equity) and refinancings; transactions that would constitute a change of
control; or any combination of the foregoing. A Performance Criterion measure
and targets with respect thereto determined by the Administrator need not be
based upon an increase, a positive or improved result or avoidance of loss.
"PLAN": The Genome Therapeutics Corp. 2001 Incentive Plan as from time to
time amended and in effect.
"RESTRICTED STOCK": An Award of Stock subject to restrictions requiring
that such Stock be redelivered to the Company if specified conditions are not
satisfied.
"SECTION 162(m)": Section 162(m) of the Code.
"SARs": Rights entitling the holder upon exercise to receive cash or Stock,
as the Administrator determines, equal to a function (determined by the
Administrator using such factors as it deems appropriate) of the amount by which
the Stock has appreciated in value since the date of the Award.
"STOCK": Common Stock of the Company, par value $ .10 per share.
"STOCK OPTIONS": Options entitling the recipient to acquire shares of Stock
upon payment of the exercise price.
"UNRESTRICTED STOCK": An Award of Stock not subject to any restrictions
under the Plan.
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PROXY
GENOME THERAPEUTICS CORP.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven M. Rauscher and Philip V. Holberton or
either of them, proxies with power of substitution to each, to vote at the
Annual Meeting of Stockholders of Genome Therapeutics Corp., to be held on
February 27, 2001, at Ropes & Gray, One International Place, 36th Floor, Boston,
Massachusetts at 10:00 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.
SEE REVERSE
Please sign and date this proxy on SIDE
The reverse side where indicated
<PAGE> 32
[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 six directors.
NOMINEES: (01) Philip Leder, (02) Robert J. Hennessey, (03) Lawrence Levy,
(04) Marc B. Garnick, (05) Steven M. Rauscher, (06) Norbert G. Riedel
FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES
[ ] [ ]
[ ]
For all nominees except as noted above.
2. To approve the Company's 2001 Equity Incentive Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the Amendment to the Article of the Organization to increase the
number of shares of common stock, $.10 par value, the Company is authorized to
issue from 35,000,000 to 50,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To ratify the selection of Arthur Andersen LLP as the Company's auditors for
the fiscal year ending August 31, 2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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 RIGHT
PLEASE SIGN AND DATE.
Please sign exactly as name appears hereon.
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:_________________
Signature______________________________________ Date:_________________
