Edgar Filing: GENOME THERAPEUTICS CORP

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934

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[ ] Preliminary Proxy Statement
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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)
-----------------------------------------------------------

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GENOME THERAPEUTICS CORP.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On June 25, 2002

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 Tuesday, June 25, 2002 at
10:00 a.m. at Ropes & Gray, One International Place, 36th floor, Boston,
Massachusetts, for the following purposes:

A. To elect seven directors.

B. To approve an amendment to the 2000 Employee Stock Purchase Plan increasing
from 250,000 to 500,000 the number of shares of common stock, par value
$0.10 per share, reserved for issuance under the plan.

C. 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 April 26, 2002 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.

Arthur Andersen LLP, Boston, has been auditors of the Company for over 20
years. Their current status is unclear and therefore we do not have the
traditional proposal to ratify the selection of auditors on the agenda. See
page 19 for more detail.

By Order of the Board of Directors,

DAVID C. CHAPIN, Clerk

May 17, 2002
Boston, Massachusetts

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 Tuesday, June 25, 2002 (the "Annual Meeting"), or at
any adjourned session(s) of that meeting, for the purposes set forth in the
foregoing Notice. The cost of solicitation of proxies, including expenses in
connection with preparing and mailing this Proxy Statement, will be borne by
the Company. This solicitation of proxies is being made by mail, although it
may be supplemented by telephone, facsimile or personal solicitation by
directors, officers, or other employees of the Company. No additional
compensation will be paid to such individuals for such services. This Proxy
Statement and accompanying proxy will be mailed on or about May 17, 2002 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 April 26, 2002 will
be entitled to notice of and to vote at the meeting. As of April 26, 2002, the
Company had outstanding 22,835,451 shares of Common Stock, par value $0.10 per
share (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 2001 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 December 31, 2001 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: Stephen Cohen, Chief Financial Officer.

Quorum, Required Votes And Method Of Tabulation

Consistent with Massachusetts law and under the Company's by-laws, a
majority in interest of all stock issued and outstanding and entitled to vote
on a 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.

A majority of votes properly cast shall determine all matters other than
elections to office, and the nominees for election as directors at the Annual
Meeting who receive the greatest number of votes properly cast for the election
of directors shall be elected directors. The election inspectors will count
shares represented by proxies that withhold authority to vote for a nominee for
election as a director, or that reflect abstentions or "broker non-votes"
(i.e., shares represented at the Annual Meeting held by brokers or nominees as
to which (i) instructions have not been received from the beneficial owners or
persons entitled to vote and (ii) the broker or nominee does

not have or does not exercise the discretionary voting power on a particular
matter) only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum, but abstentions, broker
non-votes and proxies that withhold authority to vote will not be counted as
votes properly cast for purposes of determining the outcome of voting on any
matter.

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth, as of April 14, 2002, the number of shares
of our Common Stock beneficially owned by each director and nominee, by each of
the executive officers named in the Summary Compensation Table, and by the
directors and executive officers of the Company as a group:

Amount and
Nature of Percent
Beneficial of
Name and Address of Beneficial Owner(1) Ownership Class
--------------------------------------- ---------- -------

Marc B. Garnick............................................ 24,816(2) *
Robert J. Hennessey........................................ 983,801(2) 4.1%
Philip Leder............................................... 124,421(2) *
Lawrence Levy(3)........................................... 8,071(2) *
Steven M. Rauscher......................................... 201,734(2) *
Norbert G. Riedel.......................................... 22,913(2) *
David Stone................................................ 7,608(2) *
Stephen Cohen.............................................. 35,609(2) *
Richard Labaudiniere....................................... 35,015(2) *
All directors and executive officers as a group (9 persons) 1,443,988(4) 6.0%

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* Less than 1%.

(1) The address of all such persons is c/o the Company, 100 Beaver Street,
Waltham, Massachusetts, 02453.

(2) Includes 15,000 shares for Dr. Garnick, 940,588 shares for Mr. Hennessey,
111,500 shares for Dr. Leder, 1,500 shares for Mr. Levy, 162,809 shares for
Mr. Rauscher, 14,000 shares for Dr. Riedel, 3,000 shares for Mr. Stone,
31,597 shares for Mr. Cohen, and 34,173 shares for Dr. Labaudiniere, which
shares are issuable upon the exercise of vested options or options that are
to become vested within 60 days following April 14, 2002. Includes 8,816
shares for Dr. Garnick, 7,516 shares for Dr. Leder, 3,627 shares for Mr.
Levy, 2,178 shares for Mr. Rauscher, 6,139 shares for Dr. Riedel, and 4,608
shares for Mr. Stone 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. Excludes options which have been granted to
directors and executive officers which will not become vested within 60
days following April 14, 2002.

(3) Represents shares held by Northern Ventures Corporation, over which Mr.
Levy has shared voting and dispositive power.

(4) Includes a total of 1,314,167 shares that may be issuable upon the exercise
of vested options or options that are to become vested within 60 days
following April 14, 2002. Includes 32,884 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 executive officers which will not become vested within 60
days following April 14, 2002.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than
ten percent of the Company's stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission and
the National Association of Securities Dealers. Executive officers, directors
and greater than ten percent beneficial owners are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended December 31,
2001, 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 December 31, 2001:

SUMMARY COMPENSATION TABLE

Long-Term
Annual Compensation Compensation Awards
-------------------------- --------------------------
Restricted
Fiscal Stock Stock/Options All Other
Name and Principal Position Year Salary Bonus Awards(s) SARs(#) Compensation
--------------------------- ------ -------- -------- ---------- ------------- ------------

Steven M. Rauscher(1)........ 2001 $360,000 $121,500(5) -- -- $90,320(9)
Chief Executive Officer 2000(4) 58,154 -- $346,560(8) 540,501 --
1999 -- -- -- 4,451 --
Stephen Cohen(2)............. 2001 204,761 52,500(6) -- 129,164 71,260(10)
Sr. Vice President and
Chief Financial Officer
Richard Labaudiniere, Ph.D(3) 2001 230,000 75,134(7) -- 45,000 89,931(11)
Sr. Vice President - 2000(4) 35,385 -- -- 104,500 --
Research & Development

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(1) Mr. Rauscher's employment with the Company as the Chief Executive Officer
commenced on October 26, 2000. Prior to that time, he served as a director
of the Company since 1993.

(2) Mr. Cohen's employment with the Company as the Sr. Vice President and Chief
Financial Officer commenced on January 22, 2001.

(3) Dr. Labaudiniere's employment with the Company as Sr. Vice President of
Research & Development commenced on October 30, 2000.

(4) Represents compensation paid during the transition period from September 1,
2000 to December 31, 2000. Effective January 1, 2001, the Company changed
its fiscal year from August 31 to December 31.

(5) Mr. Rauscher received an incentive bonus of $121,500 for fiscal year 2001,
which includes a pro rata adjustment to make his bonus retroactive to his
date of commencement of employment with the Company. This bonus was paid
half in cash and half in the form of a grant, pursuant to the Company's
2001 Incentive

Plan, of a non-qualified option to purchase 15,617 shares of Common Stock at
an exercise price of $1.67 per share. One-half of such shares vested upon
grant and the other half will vest on March 7, 2003.

(6) Mr. Cohen received an incentive bonus of $52,500 for fiscal year 2001. Such
bonus was paid half in cash and half in the form of a grant, pursuant to
the Company's 2001 Incentive Plan, of a non-qualified option to purchase
6,530 shares of Common Stock at an exercise price of $1.73 per share.
One-half of such shares vested upon grant and the other half will vest on
March 26, 2003.

(7) Dr. Labaudiniere received an incentive bonus of $75,134 for fiscal year
2001, which includes a pro rata adjustment to make his bonus retroactive to
his date of commencement of employment with the Company. Such bonus was
paid half in cash and half in the form of a grant, pursuant to the
Company's 2001 Incentive Plan, of a non-qualified option to purchase 9,345
shares of Common Stock at an exercise price of $1.73 per share. One-half of
such shares vested upon grant and the other half will vest on March 26,
2003.

(8) This amount represents the product of the 24,000 restricted shares granted
to Mr. Rauscher multiplied by $14.44, the fair market value of our Common
Stock on the date such shares were granted to Mr. Rauscher. The total
number of restricted shares held by Mr. Rauscher at the end of fiscal year
ended December 31, 2001 was 24,000. The closing price of our Common Stock
on December 31, 2001 was $6.81 per share, giving Mr. Rauscher's restricted
stock holding a total value of $163,440 at the fiscal year end. These
shares vest in four equal installments of 6,000 shares on the anniversary
of Mr. Rauscher's employment (October 26, 2000). These shares are subject
to forfeiture to the Company in the event Mr. Rauscher's employment with
the Company terminates under certain circumstances. These restricted stock
holdings entitle Mr. Rauscher to the same dividend rights as our
outstanding Common Stock. The Company does not expect to pay any dividends
for the foreseeable future.

(9) This amount represents $4,314 in contributions by the Company to Mr.
Rauscher's life insurance premiums, $692 to the Company's 401(k) Retirement
Savings Plan, and $85,314 in relocation expenses.

(10) This amount represents $8,323 in contributions by the Company to Mr.
Cohen's life insurance premiums and $62,938 in relocation expenses.

(11) This amount represents $2,529 in contributions by the Company to Dr.
Labaudiniere's life insurance premiums, $692 to the Company's 401(k)
Retirement Savings Plan, and $86,710 in relocation expenses.

Option Grants in Fiscal 2001

The following table reflects the stock options granted by the Company under
its 1997 Stock Option Plan to the named executive officers for the fiscal year
ended December 31, 2001.

The potential realizable value amounts in the last two columns of the
following 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 our Common
Stock, the optionholders' continued employment through the option period, and
the date on which the options are exercised.

Option/SAR Grants In Last Fiscal Year

Individual Grants

% of Total
Options/ Potential Realizable
SARs Exercise Value at Assumed
Options/ Employees of Base Rates of Stock price
SARS in Fiscal Price Expiration Appreciation for
Granted (#) Year ($/Share) Date Option Term
----------- ---------- --------- ---------- --------------------
5% 10%
-------- --------

Steven M. Rauscher.. -- -- -- -- -- --
Stephen Cohen....... 75,000(1) 8.78 $ 8.20 1/22/11 $386,912 $980,510
19,164(2) 2.25 2.46 1/22/11 208,923 360,599
35,000(3) 4.1 10.22 2/2/11 224,935 570,026
Richard Labaudiniere 45,000(4) 5.3 10.22 2/2/11 289,200 732,890

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(1) These shares, which were granted to Mr. Cohen on January 22, 2001, vest in
four equal annual installments commencing on the anniversary of his
employment.

(2) These shares, which were granted to Mr. Cohen on January 22, 2001, vest in
two equal annual installments commencing on the anniversary of his
employment.

(3) These shares, which were granted to Mr. Cohen on February 2, 2001, will
vest on the third anniversary of his employment.

(4) These shares, which were granted to Dr. Labaudiniere on February 2, 2001,
will vest on the third anniversary of his employment.

Fiscal Year End Option Values

The following table sets forth the aggregate dollar value of all
Options/SARs exercised and the total number of unexercised Options/SARs held on
December 31, 2001 by each of the named executive officers:

Aggregated Option/SAR Exercises In Last Fiscal
Year And Fiscal Year-End Option/SAR Values

Number of Unexercised Value of Unexercised In-the
Shares Options/SARs at Fiscal Money Options/SARs at
Acquired Value Year-End(#) Fiscal Year-End
On Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
----------- -------- ------------------------- ----------------------------

Steven M. Rauscher.. -- -- 155,000 / 405,000 $ 0 / 0
Stephen Cohen....... -- -- 0 / 129,164 0 / 83,363
Richard Labaudiniere -- -- 27,500 / 122,000 16,775 / 13,420

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(1) The closing price of the Common Stock on December 31, 2001 was $6.81 as
reported by NASDAQ National Market. Value is calculated on the basis of the
difference between the Option/SAR grant price and $6.81 multiplied by the
number of shares of Common Stock underlying the Option/SAR.

Employment Agreements

Steven M. Rauscher, President and Chief Executive Officer, has an employment
agreement with the Company, which commenced on October 26, 2000. Mr. Rauscher's
current base salary is $384,000 per year. The agreement entitles Mr. Rauscher
to receive an annual incentive of 0-40% of his base salary based on the
Company's achievement of enhanced share value and 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 forfeiture to the Company in
the event Mr. Rauscher's employment with the Company terminates under certain
circumstances. In addition, Mr. Rauscher was awarded stock options to purchase
300,000 shares of Common Stock at an exercise price of $14.44 per share, the
fair market value of the Common Stock on the date of grant. These options will
vest in four equal annual installments on the anniversary of employment. Mr.
Rauscher was also awarded options to purchase 240,000 shares of Common Stock at
an exercise price of $14.44 per share, the fair market value of the Common
Stock on the date of grant, which options also vest in four equal annual
installments on the anniversary of his commencement of employment, but which
can immediately vest in cumulative increments of 45,000, 45,000, 50,000 and
100,000 shares 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, or terminates with good reason (as defined), 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 a change of control (as
defined) of the Company, Mr. Rauscher's employment is terminated other than for
cause, 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 from
the date of termination and any remaining unvested options and restricted
shares will immediately and fully vest and become exercisable.

Stephen Cohen, Senior Vice President and Chief Financial Officer, has an
employment agreement with the Company, which commenced on January 22, 2001. Mr.
Cohen's current base salary is $220,500 per year. The agreement entitles Mr.
Cohen to receive an annual incentive of up to 30% of his base salary based on
his performance and that of the Company against goals to be determined by the
Board of Directors annually after consultation with Mr. Cohen. Upon hiring, Mr.
Cohen was awarded stock options to purchase 75,000 shares of Common Stock at an
exercise price of $8.20 per share, the fair market value of the Common Stock on
the date of grant, which options vest in four equal annual installments on the
anniversary of his commencement of employment; provided, that, options to
purchase up to 37,500 of the shares can immediately vest in cumulative
increments of 7,125, 7,125, 8,145 and 15,105 shares if the stock price closes
at $35, $45, $55 and $60, respectively, for 10 of 20 consecutive trading days.
In lieu of a cash signing bonus, Mr. Cohen was awarded additional options to
purchase 19,164 shares of Common Stock at an exercise price of $2.46 per share,
representing thirty percent of the fair market value of our Common Stock on the
date of grant, which options vest in two equal installments on the anniversary
of his employment.

In the event that Mr. Cohen's employment is terminated by the Company for
reasons other than for cause, or he terminates it with good reason (as
defined), the agreement provides for the continuation of all compensation and
benefits for a period of up to 9 months, or until such time as he is
re-employed, whichever occurs first. Also, if, within 2 years following a
change of control (as defined) of the Company, Mr. Cohen's employment is
terminated other than for cause, or he experiences a material reduction in
responsibilities at the surviving company, or he is required to relocate out of
the greater Boston area, he will receive salary and benefits continuation for a
period of 12 months from the date of termination.

Richard Labaudiniere, Ph.D, Senior Vice President of Research and
Development, has an employment agreement with the Company, which commenced on
October 30, 2000. Dr. Labaudiniere's current base salary is $246,100 per year.
The agreement entitles Dr. Labaudiniere to receive an annual incentive of up to
30% of his base salary based on his performance and that of the Company against
goals to be determined by the Board of Directors annually after consultation
with Dr. Labaudiniere.Upon hiring, Dr. Labaudiniere was awarded options to
purchase 4,500 shares of Common Stock at an exercise price of $0.10 per share,
of which 2,500 shares vested on the first anniversary of Dr. Labaudiniere's
employment and 2,000 of which will vest 18 months after the commencement of his
employment. In addition, Dr. Labaudiniere was awarded options to purchase
75,000 shares of Common Stock at an exercise price of $14.38 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 shares on the anniversary
of the commencement of his employment. Dr. Labaudiniere was also awarded
options to purchase 25,000 shares of Common Stock that will vest in four equal
annual installments on the anniversary of the commencement of his employment,
but which become exercisable on an accelerated basis subject to the Company's
achieving certain product development goals in the judgment of the Board of
Directors. The exercise price for these options is $14.38 per share, the fair
market value of the Common Stock on the date of the grant.

If Dr. Labaudiniere's employment is terminated by the Company for reasons
other than for cause, or he terminates it with good reason (as defined), the
agreement provides for the continuation of all compensation and benefits for a
period of up to 9 months, or until such time as he is re-employed, whichever
occurs first. Also, if, within 2 years following a change of control (as
defined) of the Company, Dr. Labaudiniere's employment is terminated other than
for cause, or he experiences a material reduction in responsibilities at the
surviving company, or he is required to relocate out of the greater Boston
area, he will receive salary and benefits continuation for a period of 12
months from the date of termination.

Martin Williams, Senior Vice President, Corporate Development & Marketing,
has an employment agreement with the Company, which commenced on July 30, 2001.
Mr. Williams' current base salary is $220,000 per year, which, if certain
performance objectives have been achieved, will be increased to $250,000 on the
first anniversary of his employment. The agreement also entitles Mr. Williams
to receive an annual incentive of up to 25% of his base salary based on
achievement of corporate and mutually agreed upon personal goals. In addition,
upon hiring, Mr. Williams received a signing bonus in the form of options to
purchase 3,646 shares of the Company's Common Stock, of which 1,823 shares
vested on the date of grant and the remaining 1,823 shares will vest eighteen
months from the date of Mr. Williams' commencement of employment. These options
have an exercise price of $3.53 per share, which equals 30% of the fair market
value of the Common Stock on the date of grant. Mr. Williams also received
options to purchase 100,000 shares of Common Stock that will vest in four equal
annual installments on the anniversary of the commencement of his employment,
but 50,000 of these shares may vest on an accelerated basis, subject to Stock
Option and Compensation Committee approval, upon the attainment of certain
goals. The exercise price for these options is $11.76 per share, the fair
market value of the Common Stock on the date of grant.

In the event that Mr. Williams' employment is terminated by the Company for
reasons other than for cause (as defined), the agreement provides for the
continuation of all compensation and benefits for a period up to 6 months, or
until such time as he is re-employed in a comparable position, whichever occurs
first. In addition, if the Company elects to enforce the non-compete provision
of the Company's IP Policy against Mr. Williams for a period up to twelve
months, Mr. Williams' salary and benefits will continue for the period during
which such non-compete provision is enforced, subject to off-set for any
severance benefits provided under the prior sentence. Also, if, within 1 year
following a change of control of the Company, Mr. Williams' employment is

terminated other than for cause, or he experiences a material reduction in
responsibilities or compensation at the surviving company, or he is required to
relocate out of the greater Boston area, he will receive salary and benefits
continuation for a period of 6 months. Upon a change of control, all of Mr.
Williams' unvested options will immediately vest and he will have up to 90 days
to exercise his option rights.

Robert J. Hennessey, Chairman of the Board, and former Chief Executive
Officer of the Company, has an employment agreement with the Company, which
commenced on May 1, 2001. The agreement provides that Mr. Hennessey will devote
25% of his business time to working with the Chief Executive Officer and other
employees of the Company on business development projects. Mr. Hennessey's
current annual base salary is $140,000, which is subject to review
semi-annually by the Chief Executive Officer based upon Mr. Hennessey's duties
and responsibilities. Upon joining the Company in 1993, Mr. Hennessey was
awarded non-qualified stock options to purchase 1,600,000 shares of Common
Stock at an exercise price of $1.63 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.

If Mr. Hennessey's employment is terminated without cause, or he terminates
it with good reason (as defined), 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 a change of control (as defined) of the Company, Mr. Hennessey's
employment is terminated other than for cause, or if he experiences a material
reduction in responsibilities at the surviving company, he will receive salary
and benefits continuation for a period of 18 months from the date of
termination.

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 11 shall not be incorporated by reference into any
such filings.

REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE

The Stock Option and Compensation Committee of the Board of Directors (the
"Compensation Committee") of the Company for the last fiscal year consisted of
Mr. Levy, Dr. Garnick, and Mr. Riedel, Committee Chairperson. The Compensation
Committee's charter is to review and approve the Company's compensation
philosophy and major compensation and benefits programs for its employees,
oversee equity based plans, review and approve executive officers' compensation
plans, and review executive development and succession planning strategies. The
Compensation Committee's responsibilities include, but are not limited to, the
following:

. Review and endorse the Company's compensation philosophy and goals.

. Determine, modify and adopt total compensation packages of the Chief
Executive Officer and other officers encompassing base pay, management
incentive plans, stock, benefits and perquisites.

. Perform annual review and modification of officer compensation packages.

. Recommend director compensation to the Board of Directors.

. Approve and maintain oversight of stock plans and award policies pursuant
to plans approved by the Company's shareholders.

. Perform periodic review of major employee benefit plans.

. Review key executive development strategies.

. Review and approve key employee retention plans.

. Review and endorse succession plan strategies.

. Report key highlights of Compensation Committee business to the Board of
Directors.

Compensation Philosophy and Goals

The Company's goal is to attract, retain, motivate, and reward its employees
through the use of competitive compensation programs and policies, while
aligning employee interests more closely with that of the Company and its
shareholders. The Company's compensation philosophy is influenced by
competitive dynamics and labor conditions as well as the financial position of
the Company. With respect to the retention of management, the Company seeks to
retain and reward the highest caliber management team by offering
total-compensation solutions, which are comparable to those offered by its
competitors, and promote performance-based compensation. To align the interests
of employees more closely with those of the shareholders, the Company promotes
equity based employee reward and recognition plans.

EXECUTIVE OFFICER COMPENSATION PROGRAM

The compensation of the executive officers of the Company consists of a
combination of salary, performance bonuses, stock options contributions to or
accruals for benefit plans, and participation in various other plans, such as
the Company's 401(k) plan, as well as the provision of medical and other
personal benefits typically offered to all employees. The Compensation
Committee reviews the Company's executive compensation plans annually to ensure
that total compensation plans and key elements therein are competitive with
prevailing industry benchmark data of similar size companies and positions of
comparable scope of responsibility. As part of the annual review process, the
Committee considers recommendations presented by the Chief Executive Officer
and considers achievement of predetermined performance goals for the preceding
fiscal year and overall leadership and management performance for each
executive prior to approval of executive compensation plans.

Base Salary

The Compensation Committee reviews base salary levels for the Company's
executive officers on an annual basis. In accordance with the Company's pay
philosophy, base salaries are set competitively relative to the compensation of
executive officers of similar size companies in the same industry, and who have
comparable levels of responsibility, experience, and expected level of
contribution to company performance.

Annual Performance Bonuses

Under the Company's Management Incentive Plan, executives are eligible to
receive a percentage of annual base salary in incentive pay based on attainment
of performance goals as approved by the Compensation Committee. These goals
fall into three primary categories: attainment of certain financial targets,
business/scientific achievement, and development/management of the Company's
human capital. In addition, these goals are weighted to reflect the importance
and level of impact to the Company. Incentive bonuses are paid in cash and
stock options of equivalent cash value at date of grant that vest over a
defined period of time.

Long-term Incentive Compensation

The Compensation Committee believes that the granting of new hire and annual
stock options aligns executive officers' interests with those of the
shareholders. Long-term incentive compensation, in the form of stock options,
directly provides the executive officers a capital accumulation opportunity
directly linked to Company and individual performance as measured by
appreciation in the value of the Company stock, while also promoting retention
and competitive pay practices. Stock options are granted in accordance with
prevailing industry benchmark data for executives of similar size companies who
hold positions of comparable scope of responsibility and in accordance with
Company and overall individual performance.

Compensation Of Chief Executive Officer

The compensation of Steven M. Rauscher, the Company's Chief Executive
Officer, was determined using the methods described above. Mr. Rauscher's
salary for fiscal year 2001 was $360,000, pursuant to his employment contract.
Mr. Rauscher received an annual incentive bonus of $121,500 for fiscal 2001,
payable half in cash and half in the form of options to purchase 15,617 shares
of the Company's Common Stock at an exercise price of $1.67 per share, which
options vested as to half the shares upon grant and which vest as to the other
half of the shares upon the first anniversary of the grant date. As a long-term
incentive designed to retain and motivate Mr. Rauscher, he was granted options
to purchase 60,000 shares of Common Stock of the Company. The new options have
an exercise price equal to the fair market value on the date of grant and vest
in four equal annual installments commencing on the first anniversary of the
grant date.

STOCK OPTION AND COMPENSATION COMMITTEE

Norbert G. Riedel, Chairperson
Marc Garnick
Lawrence Levy

REPORT OF THE AUDIT COMMITTEE

The Audit Committee for the last fiscal year consisted of Mr. Stone, Dr.
Garnick and Mr. Levy, Committee Chairperson. 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.

The Audit Committee has reviewed and discussed with management the financial
statements for fiscal year 2001 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 ended December 31,
2001 for filing with the Securities and Exchange Commission.

AUDIT COMMITTEE

Lawrence Levy, Chairperson
Marc Garnick
David Stone

PERFORMANCE GRAPH

NOTE: The stock price performance shown on the graph below is not necessarily
indicative of future price performance.

The following graph compares the relative cumulative total returns to the
Company's shareholders with the cumulative total of the S&P 500 Index and the
Chase H&Q Biotechnology Index over the last five years.

[CHART]

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG GENOME THERAPEUTICS CORPORATION, THE S & P 500 INDEX
AND THE CHASE H & Q BIOTECHNOLOGY INDEX

GENOME CHASE H&Q
THERAPEUTICS BIOTECHNOLOGY
CORPORATION S&P 500 INDEX
----------- ------- -------------
12/1996 $100.00 $100.00 $100.00
12/1997 58.70 131.01 112.56
12/1998 26.00 165.95 128.30
12/1999 150.00 198.35 271.27
12/2000 65.00 178.24 439.58
12/2001 63.00 154.99 402.34

PROPOSAL A

ELECTION OF SEVEN DIRECTORS

The Board of Directors has fixed the number of directors at seven. It is
intended that the enclosed proxy will be voted for the election of the seven
persons named below unless such authority has been withheld in the proxy. Each
director will hold office until the next annual meeting and until his successor
is elected and shall have been qualified. The nominees for election as
directors at the Annual Meeting who receive the greatest number of votes
properly cast for the election of directors shall be elected directors. If any
nominee should be unavailable for election at the time of the Annual Meeting
(which is not presently anticipated) the persons named as proxies may vote for
another person in their discretion or may vote for fewer than seven directors.
All of the nominees are currently directors of the Company and, with the
exception of Mr. David Stone, were elected at the 2001 Annual Meeting. All have
agreed to serve as directors if elected at the meeting.

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.

Director
Name Age Principal Occupation and other Directorships Since
---- --- -------------------------------------------- --------

Robert Hennessey..... 60 Mr. Hennessey served as Chief Executive 1993
Officer and President of the Company from
March 1993 until October 2000 and was
elected Chairman of the Board in May 1994.
Steven M. Rauscher... 48 Mr. Rauscher became the Chief Executive 1993
Officer and 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.
Mr. Rauscher was employed by Abbott
Laboratories from 1975 to 1993 holding
various positions to include VP of Sales for
the U.S. Pharmaceutical Products Division,
VP of Business Development for the
International Products Division, and VP of
Corporate Licensing.
Marc B. Garnick, M.D. 54 Dr. Garnick is currently Executive Vice 1999
President and 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.

Director
Name Age Principal Occupation and other Directorships Since
---- --- --------------------------------------------- --------

Philip Leder, M.D....... 67 Dr. Leder, a director of the Company, has 1994
served as 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........... 78 Mr. Levy, a director of the Company, is 1986
Chairman of 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. 44 Dr. Riedel is currently the Chief Scientific 1999
Officer (CSO) for Baxter International Inc.
From 1998 until March of 2001, Dr. Riedel
served as President of the Recombinant
Strategic Business Unit for Baxter Hyland
Immuno, a division of Baxter International.
Prior to joining Baxter in 1998, Dr. Riedel
served as Head of Global Biotechnology and
the Hoechst Ariad Genomic Center for
Hoechst Marion Roussel, Inc.
David Stone............. 45 Since 2000, Mr. Stone has been a founding 2001
partner of AGTC Funds, a venture capital
group focused on investment opportunities in
start-up and early stage companies that apply
genomic information and technologies to
develop products or services. Mr. Stone has
also been an advisor partner since 1999 to
NewcoGen, an investment group focused on
new opportunities in early stage technology
and life science companies. Both AGTC
Funds and NewcoGen are part of Flagship
Ventures. From 1994 to 1999, Mr. Stone was
a Managing Director at Cowen & Company
(now SG Cowen) where he followed the
biopharmaceutical industry.

THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE SEVEN NOMINEES DESCRIBED
ABOVE.

Board Meetings and Committees

The Board of Directors held eight meetings during fiscal 2001. Each member
of the Board of Directors attended at least 75% of the meetings of the Board of
Directors and of each committee on which he serves.

The Board of Directors has an Audit Committee, which during fiscal year 2001
consisted of Mr. Stone, Dr. Garnick and Mr. Levy, Committee Chairperson. The
Audit Committee held three meetings during fiscal 2001. 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 Mr. Levy, Dr. Garnick and Mr. Riedel,
Committee Chairperson. The Stock Option and Compensation Committee held four
meetings during fiscal 2001. 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 2001, the Nominating Committee held no meetings.
The Nominating Committee does not consider nominees recommended by shareholders.

Pursuant to the 1997 Directors' Deferred Stock Plan, each non-employee
director receives his annual retainer, currently set at $10,000, for the fiscal
year in the form of a right to receive Common Stock on the earlier of (i) three
years from the date of grant or (ii) the date upon which such director ceases
to be a director by reason of death, permanent disability, resignation or
retirement. The number of shares granted is determined by dividing the annual
retainer by the fair market value of the Common Stock on the date of grant. As
a long term incentive in connection with their re-election to the Board,
directors are also granted options to receive an aggregate of 6,000 shares of
Common Stock that vest over four years with an exercise price equal to the fair
market value at date of grant. In addition, each director may elect to receive
all of his board meeting fees and sub-committee fees, currently set at $2,000
and $500, respectively, per meeting, in the form of cash or a right to receive
shares of Common Stock on the earlier of (i) three years from the date of grant
or (ii) the date upon which such director ceases to be a director by reason of
death, permanent disability, resignation or retirement. The number of shares
granted in connection with a meeting is determined by dividing the annual
retainer by the fair market value of the Common Stock on the date of such
meeting. Meeting fees are reduced by fifty percent if the director attends a
meeting via teleconference.

EXECUTIVE OFFICERS

The executive officers of the Company who are not also directors of the
Company are as follows:

Name Position
---- --------

Stephen Cohen....... Sr. Vice President & Chief Financial Officer
Richard Labaudiniere Sr. Vice President - Research & Development
Martin Williams..... Sr. Vice President - Corporate Development & Marketing

Mr. Cohen was appointed Senior Vice President and Chief Financial Officer on
January 22, 2001. Prior to joining the Company, Mr. Cohen was the Controller
for the Global Pharmaceutical Research and Development Organization at Abbott
Laboratories serving in this capacity since 1988. Mr. Cohen joined Abbott
Laboratories in 1976.

Dr. Labaudiniere was appointed Senior Vice President of Research and
Development on October 30, 2000. Dr. Labaudiniere joined the Company from
Rhone-Poulenc Rorer (now Aventis) where, between the period 1994 and 2000, he
served in various capacities including Senior Director for Worldwide Lead
Discovery; Senior Director, Bone Program - New Lead Generation; and Director,
Discovery Chemistry.

Mr. Williams was appointed Senior Vice President of Corporate Development &
Marketing on July 30, 2001. Prior to joining the Company, Mr. Williams was Vice
President of Business Development & Marketing at Pentose Pharmaceuticals, a
biopharmaceutical company focused on the prevention and treatment of infectious
disease, since 1997. From 1987 through 1997, Mr. Williams also directed the
development and commercialization of several flagship brands for
Glaxo-Wellcome, Hoffman-LaRoche, American Cyanamid and American Home Products.

PROPOSAL B

APPROVAL OF AN AMENDMENT TO THE 2000 EMPLOYEE STOCK PURCHASE PLAN INCREASING
FROM 250,000 TO 500,000 THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE UNDER THE PLAN.

In the opinion of the Board of Directors, our future success depends, in
large part, upon our ability to maintain a competitive position in attracting,
retaining and motivating key employees. Under our 2000 Employee Stock Purchase
Plan (the "Stock Purchase Plan"), we have currently reserved 250,000 shares of
Common Stock to provide eligible employees with opportunities to purchase
shares of our Common Stock. As of March 31, 2002, there were 122,303 shares
available for future purchase under the Stock Purchase Plan. Unless the number
of shares of Common Stock authorized for purchase under the Stock Purchase Plan
is increased, we may not have sufficient shares in the Stock Purchase Plan to
keep it available to employees through the next annual meeting. Accordingly,
the Board adopted, subject to stockholder approval, an amendment to the Stock
Purchase Plan increasing the number of shares of Common Stock authorized for
purchase under the Stock Purchase Plan from 250,000 shares to 500,000 shares.

Overview

On October 27, 1999, the Board of Directors adopted an employee stock
purchase plan (the "Stock Purchase Plan"), subsequently approved by our
Stockholders, and reserved 250,000 shares of the Company's Common Stock for
issuance under the plan. Under the Stock Purchase Plan, eligible employees may
authorize the Company to deduct amounts from their bi-weekly base salary, which
amounts are used to enable the employees to exercise options (each an "Option")
to purchase shares of Common Stock of the Company. The purpose of the Stock
Purchase Plan is to attract and retain key personnel, and encourage stock
ownership by the Company's employees.

Summary of the Stock Purchase Plan

The following summary of the Stock Purchase Plan is qualified in its
entirety by reference to the Stock Purchase Plan, a copy of which is attached
as Exhibit A to the Proxy Statement filed with the SEC on January 27, 2000, and
may be accessed electronically from the SEC's home page (www.sec.gov). In
addition, a copy of the Stock Purchase Plan may be obtained from our Secretary.

Administration; Participation

The Stock Purchase Plan is administered by the Stock Option and Compensation
Committee of the Board of Directors. All employees who, on the first day of an
Option Period (as defined below), are scheduled to work at least 20 hours per
week and who are expected to be employed for at least five months per year by
the Company are eligible to participate in the Stock Purchase Plan, unless
after the grant of their option such employee would be treated as owning 5% or
more of the voting power or value of the stock of the Company (an "Eligible
Employee"). As of March 31, 2002, the number of employees participating in the
Stock Purchase Plan was approximately 100 persons.

An Eligible Employee may elect to become a participant (a "Participant") in
the Stock Purchase Plan by delivering to the Company, at least 15 days prior to
the beginning of an Option Period, a form authorizing the Company to deduct an
amount from his or her salary to exercise Options. The aggregate amount which
an employee may authorize the Company to deduct under the Company's Stock
Purchase Plan is not less than 1% nor more than 15% of the employee's bi-weekly
base salary. Participants are allowed to increase or decrease the

percentage of wages deducted once per quarter during the time the Option is
outstanding. A Participant may suspend his or her contributions at any time.

Terms of Options

The periods for which Options may be granted are January 1 to June 30 and
July 1 to December 30 of each year. Such periods are each "Option Periods".
Each Participant is granted an Option on the first day of the Option Period and
such Option is deemed exercised if an Eligible Employee continues to be a
Participant on the last day of the Option Period. For each Option Period, the
maximum number of shares covered by an Option is that number having a fair
market value of $12,500 on the first day of the Option Period. The exercise
price of an Option is 85% of the fair market value for the Common Stock (a) on
the grant date or (b) at the time at which the Option is deemed exercised,
whichever is less.

The Options are nontransferable, except in the case of death of the
employee. If an employee dies, his or her beneficiary may withdraw the
accumulated payroll deduction or use such deductions to purchase shares on the
last day of the Option Period. If an employee ceases to be employed by the
Company by reason of permanent disability or retirement or is on an approved
leave of absence from the Company, such employee may request that his or her
accumulated payroll deductions be used to purchase shares on the last day of
the Option Period. If an employee ceases to be employed by the Company for any
other reason, the Option held by him or her is deemed canceled and any of his
or her accumulated payroll deductions is returned. A Participant may elect to
discontinue participation at any time prior to the end of an Option Period and
to have his or her accumulated payroll deduction refunded.

Shares Subject to the Stock Purchase Plan

Subject to Stockholder approval of this proposal at this meeting, the number
of shares that are reserved for issuance under the Stock Purchase Plan will be
500,000 shares of the Company's Common Stock, subject to adjustment for stock
splits and similar events. The proceeds received by the Company from exercise
under the Stock Purchase Plan will be used for the general corporate purposes
of the Company. Shares issued under the Stock Purchase Plan may be authorized
but unissued or shares reacquired by the Company and held in its treasury.

Amendment and Termination

The Stock Purchase Plan shall remain in full force and effect until
suspended or discontinued by the Board of Directors. The Board of Directors may
at any time or times amend or revise the Stock Purchase Plan for any purpose
which may at any time be permitted by law, or may at any time terminate the
Stock Purchase Plan, provided that no amendment that is not approved by the
Stockholders shall be effective if it would cause the Stock Purchase Plan to
fail to satisfy the requirements of Rule 16b-3 (or any successor rule) of the
Securities Exchange Act of 1934, as amended. No amendment of the Stock Purchase
Plan may adversely affect the rights of any recipient of any option previously
granted without such recipient's consent.

Effective Date of the Stock Purchase Plan

The Stock Purchase Plan became effective as of March 1, 2000 and continues
to remain in force.

Federal Income Tax Considerations

Federal income tax is not imposed upon an employee in the year an option is
granted or the year the shares are purchased pursuant to the exercise of the
option granted under the Stock Purchase Plan. Federal

income tax generally is imposed upon an employee when he or she sells or
otherwise disposes of the shares acquired pursuant to the Stock Purchase Plan.
If an employee sells or disposes of the shares more than two years from the
grant date and more than one year from the exercise date, then Federal income
tax assessed at ordinary rates will be imposed upon the amount by which the
fair market value of the shares on the date of grant or disposition, whichever
is less, exceeds the amount paid for the shares. In addition, the difference
between the amount received by the employee at the time of sale and the
employee's tax basis in the shares, (the amount paid on exercise of the option
plus the amount recognized as ordinary income) will be recognized as a capital
gain or loss. The Company will not be allowed a deduction under these
circumstances for Federal income tax purposes. If the employee sells or
disposes of the shares sooner than two years from the grant date or one year
from the exercise date, then the difference between the fair market value on
the last day of the Option Period and the amount paid for the shares will be
taxed as ordinary income, and the Company would be entitled to a deduction
equal to that amount. In addition, the difference between the amount realized
on the disposition and the Participant's basis in the shares (the amount paid
on exercise of the option plus the ordinary income recognized as a result of
the disposition) will be recognized as a capital gain or loss.

The Board of Directors recommends a vote FOR Proposal B.

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information about our Common Stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2001, including, but not
limited to, the 1984 Stock Option Plan, 1991 Stock Option Plan, 1993 Stock
Option Plan, 1995 Stock Option Plan, 1995 Directors Stock Option Plan, 1997
Stock Option Plan, 2001 Incentive Plan, the Employee Stock Purchase Plan, and
the 1997 Directors' Deferred Stock Plan:

Number of securities
remaining available
for future issuance
Number of securities under equity
to be issued upon Weighted-average compensation plans
exercise of exercise price of (excluding securities
outstanding options, outstanding options, reflected in the first
Plan category warrants and rights warrants and rights column)
------------- -------------------- -------------------- ----------------------

Equity compensation plans approved by
shareholder............................ 2,401,726 $8.60 2,968,194
Equity compensation plans not approved by
shareholders........................... 1,194,588(1)(2)(3)(4) 7.26 --
Total.................................... 3,596,314 $8.16 2,968,194

--------
(1) Includes 630,000 shares of Common Stock issuable upon exercise of
outstanding options granted to Robert Hennessey in connection with his
commencement of employment on March 15, 1993, the terms of which are more
particularly described on page 8. The balance of the options granted to Mr.
Hennessey upon the commencement of his employment have been exercised.

(2) Includes 512,296 shares of Common Stock issuable upon exercise of
outstanding options granted to Steven Rauscher in connection with his
commencement of employment on October 26, 2000, the terms of which are more
particularly described on page 6. The balance of the options granted to Mr.
Rauscher upon the commencement of his employment were granted under a
shareholder approved plan.

(3) Includes 41,042 shares of Common Stock issuable upon exercise of
outstanding options granted to Chris Kelly on March 14, 1997 in connection
with his commencement of employment. Upon hiring, Mr. Kelly received
options to purchase 150,000 shares of Common Stock at a price of $9.06 per
share, the fair market value of our Common Stock on the date of grant.
Subsequently, pursuant to a stock option repricing approved by the Board of
Directors on November 10, 1998, Mr. Kelly forfeited 15% of his vested and
unvested options in exchange for repricing the exercise price of his
options to $4.23 per share. All of the options vested as of August 31,
2001. The options provide for a term of 10 years, subject to earlier
termination, and include provisions to adjust for any change in our Common
Stock through merger, stock-split or other change in the capital structure
of the Company.

(4) Includes 11,250 shares of Common Stock issuable upon exercise of
outstanding options granted to certain outside consultants on March 31,
1997 in connection with services rendered to the Company. The Company had
granted these consultants options to purchase a total of 15,000 shares of
Common Stock at an exercise price of $7.06 per share, the fair market value
of our Common Stock at the date of grant. All of these options vested as of
March 31, 2001. The options provide for a term of 10 years, subject to
earlier termination, and include provisions to adjust for any change in our
Common Stock through merger, stock-split or other change in the capital
structure of the Company.

SHAREHOLDER PROPOSALS

Proposals of shareholders submitted for consideration at the 2003 Annual
Meeting of shareholders must be received by the Company no later than January
17, 2003 in order to be included in the Company's proxy statement for the 2003
Annual Meeting. In addition, if a shareholder wishes to present a proposal at
the Company's 2003 Annual Meeting that will not be included in the Company's
proxy statement and fails to notify the Company by no later than April 2, 2003,
then the proxies solicited by the Board of Directors for the 2003 Annual
Meeting will include discretionary authority to vote on the shareholder's
proposal in the event that it is properly brought before the meeting.

OTHER MATTERS

Selection of Auditors

Arthur Andersen LLP, Boston, Massachusetts, served as auditors of the
Company for the fiscal year ended December 31, 2001 and as auditors of the
Company for over 20 years. However, we believe that as of the date of this
proxy, Arthur Andersen's viability and continued ability to effectively serve
as the Company's auditors remains unclear. Therefore, we have not selected an
auditor for the fiscal year ending December 31, 2002. We continue to monitor
the status of Arthur Andersen and are in frequent contact with their
representatives. We have also initiated discussions with other potential
auditing firms. Arthur Andersen continues to provide audit and tax services at
the high quality we received from them over many years. We anticipate that
Arthur Andersen will complete the review of our first quarter financials.

A representative of Arthur Andersen LLP 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.

Audit Fees. In fiscal 2001, we incurred $183,725 in professional fees from
Arthur Andersen LLP in connection with the audit of our annual financial
statements for the fiscal year ended December 31, 2001, for the

reviews of the financial statements included in our quarterly reports for the
fiscal year ended December 31, 2001 , audits and reviews required by regulatory
agencies in connection with the change in the fiscal reporting period (from
September 1 through August 31 to a calendar year January 1 through December 31)
and other audit related services in connection with business acquisitions,
accounting consultations, and SEC registration statements.

Financial Information Systems Design and Implementation Fees. We paid Arthur
Andersen LLP $46,232 for professional services rendered to us and our
affiliates for the fiscal year ended December 31, 2001 in connection with the
review of our information and technology systems. This included design,
operation and security of our information system as well as management of our
local area network.

All Other Fees. For all other services, we incurred an aggregate of $22,300
in fees to Arthur Andersen LLP during the fiscal year ended December 31, 2001,
primarily in connection with non-audit services associated with the preparation
and filing of our tax statements.

Our Audit Committee has considered whether the provision of services to the
Company by Arthur Andersen LLP beyond those rendered in connection with their
audit and review of our financial statements was compatible with maintaining
their independence. On the basis of the relevant facts and circumstances
pertaining to the engagement of Arthur Andersen LLP by the Company in
connection with such services in fiscal 2001, our Audit Committee believes that
Arthur Andersen LLP satisfied the requirements of independence from us.

Other General 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.

PROXY

GENOME THERAPEUTICS CORP.

ANNUAL MEETING OF STOCKHOLDERS

JUNE 25, 2002

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints STEVEN M. RAUSCHER and STEPHEN COHEN 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 June
25, 2002, 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 $0.10 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.

PLEASE SIGN AND DATE THIS PROXY ON SEE REVERSE SIDE
THE REVERSE SIDE WHERE INDICATED

GENOME THERAPEUTICS CORP.
c/o EquiServe
P.O. Box 43068
Providence, RI 02940

[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 AND 2.

1. To elect seven directors.

NOMINEES: (01) Philip Leder, (02) Robert J. Hennessey, (03) Lawrence Levy, (04)
Marc B. Garnick, (05) Steven M. Rauscher, (06) Norbert G. Riedel, (07) David
Stone

FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES
[ ] [ ]

[ ]
For all nominees except as noted above.

2. To approve an amendment to the 2000 Employee Stock Purchase Plan increasing
from 250,000 to 500,000 the number of shares of common stock, $0.10 par value,
reserved for issuance under the plan.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. 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:_________________