MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02173
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1997
The Annual Meeting of Stockholders of MacroChem Corporation (the
"Corporation"), a Delaware corporation, will be held on Friday, May 23, 1997 at
9:30 a.m. at the Corporation's headquarters at 110 Hartwell Avenue, Lexington,
Massachusetts, for the following purposes:
1. To elect six members of the Board of Directors to serve for the
ensuing year and until their successors are elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP, as independent
auditors for the Corporation for the fiscal year ending
December 31, 1997.
3. To approve an amendment to the Corporation's 1994 Equity Incentive
Plan to increase the number of shares of Common Stock that may be
delivered thereunder from 2,500,000 to 4,000,000.
4. To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof.
We hope that all stockholders will be able to attend the Annual Meeting in
person. To assure that a quorum is present at the Annual Meeting, please date,
sign and promptly return the enclosed Proxy whether or not you expect to attend
the Annual Meeting. IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK THE
APPROPRIATE BOX ON THE ENCLOSED PROXY. A postage-prepaid envelope, addressed to
American Stock Transfer & Trust Company, the Corporation's transfer agent and
registrar, has been enclosed for your convenience. If you attend the Annual
Meeting, your Proxy will, at your request, be returned to you and you may vote
your shares in person.
By Order of the Board of Directors,
PIERRETTE E. SAMOUR
Secretary
Lexington, Massachusetts
April 17, 1997
<PAGE>
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02173
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1997
The enclosed Proxy is solicited by the Board of Directors of MacroChem
Corporation (the "Corporation") for use at the Annual Meeting of Stockholders to
be held on Friday, May 23, 1997, and at any adjournment thereof.
Stockholders of record at the close of business on March 31, 1997 will be
entitled to vote at the Annual Meeting or any adjournment thereof. On that date
15,931,875 shares of Common Stock, $.01 par value per share, of the Corporation
were issued and outstanding. Each share of Common Stock entitles the holder to
one vote with respect to all matters submitted to stockholders at the Annual
Meeting. The Corporation has no other voting securities.
Execution of a Proxy will not in any way affect a stockholder's right to
attend the Annual Meeting and vote in person. A stockholder may revoke his Proxy
at any time before it is exercised by written notice to the Corporation's
Secretary prior to the Annual Meeting, or by giving to the Corporation's
Secretary a duly executed Proxy bearing a later date than the Proxy being
revoked at any time before such Proxy is voted, or by appearing at the Annual
Meeting and voting in person. The shares represented by all properly executed
Proxies received in time for the Annual Meeting will be voted as specified
therein. If a stockholder does not specify in the Proxy how the shares are to be
voted, they will be voted in favor of the election as Directors of those persons
named in the Proxy Statement, the ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the fiscal year ending December 31, 1997,
the approval of an amendment to the 1994 Equity Incentive Plan increasing the
Common Stock that may be delivered thereunder from 2,500,000 to 4,000,000
shares, and otherwise in accordance with the discretion of the named
attorneys-in-fact and agents on any other matters that may properly come before
the Annual Meeting.
Expenses in connection with the solicitation of proxies will be paid by the
Corporation. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Corporation, who will receive no extra
compensation for such services, may solicit proxies by telephone, telecopy,
telegraph, or personal calls.
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any other matter should be properly presented at the Annual
Meeting upon which a vote may be taken, such shares represented by all Proxies
received by the Board or Directors will be voted with respect thereto in
accordance with the judgment of the persons named as the proxies therein.
The Corporation's Annual Report to stockholders for the Corporation's
fiscal year ended December 31, 1996 is being mailed together with Form 10-K and
this Proxy Statement to all stockholders entitled to vote at the Annual Meeting.
This Proxy Statement and the accompanying Proxy were first mailed to
stockholders on or about April 17, 1997.
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Corporation'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 Corporation to act as election inspectors for the Annual
Meeting.
The six 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 the Directors of the Corporation. A majority of the shares
present in person or by proxy and voting is necessary to approve the actions
proposed in Proposal Nos. 2 and 3.
The election inspectors will count the total number of votes cast "for"
approval of Proposal Nos. 2 and 3 for purposes of determining whether sufficient
affirmative votes have been cast. 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 and "broker non-votes" (i.e.,
shares represented at the 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 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. Neither abstentions nor broker non-votes have any effect on the outcome
of voting on Proposal Nos. 1- 3.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has set the number of Directors to be elected for
the ensuing year at six. The six directors will be elected to serve until the
1998 Annual Meeting of Stockholders and until their successors are elected and
qualified. Vacancies and newly created directorships resulting from any increase
in the number of authorized Directors may be filled by a majority vote of the
Directors then remaining in office. Officers are elected by and serve at the
pleasure of the Board of Directors.
Shares represented by all Proxies received by the Board of Directors and
not marked so as to withhold authority to vote for an individual Director, or
for all Directors, will be voted (unless one or more nominees are unable or
unwilling to serve) for the election of the nominees named below. The Board of
Directors knows of no reason why any such nominee should be unwilling to serve,
but if such should be the case, Proxies will be voted for the election of some
other person or for fixing the number of Directors at a lesser number. D. Ray
Taylor, who is now a Director, is not standing for reelection.
All of the nominees are currently Directors except Michael A. Davis. The
following table sets forth the year each nominee other than Dr. Davis was
elected a Director and the age, positions, and offices presently held by each
nominee with the Corporation:
Year
Nominee
First
Became a
Name Age Director Position
- --------------------------------------------------------------------------------
Carlos M. Samour ..... 76 1981 Chairman of the Board of Directors and
Scientific Director
Alvin J. Karloff...... 65 1990 Chief Executive Officer, President and
Director
Willard M. Bright .... 83 1993 Director
Peter G. Martin....... 48 1995 Director
Stephen J. Riggi...... 59 1996 Vice President, Operations and Director
Michael A. Davis...... 55 ---- Consultant
The Board of Directors held four meetings during the fiscal year ended
December 31, 1996. All the Corporation's current Directors attended at least 75
percent of the meetings of the Board of Directors and of those committees of
which they were members that were held during the fiscal year ended December 31,
1996.
There are two committees of the Board of Directors, an Audit Committee and
a Compensation Committee. The Corporation does not have a nominating committee.
Mr. Martin (Chairman), Dr. Bright and Mr. Taylor serve as members of the
Audit Committee, which was established for the purpose of (i) reviewing the
Corporation's financial results and recommending the selection of the
Corporation's independent auditors; (ii) reviewing the effectiveness of the
Corporation's accounting policies and practices, financial reporting and
internal controls; and (iii) reviewing the scope of the audit, the fees charged
by the independent auditors, any transactions which may involve a potential
conflict of interest, and internal control systems. The Audit Committee did not
meet during the fiscal year ended December 31, 1996. However, the Board of
Directors as a whole addressed certain Audit Committee matters at one meeting.
Mr. Taylor (Chairman), Mr. Martin and Dr. Bright serve on the Corporation's
Compensation Committee. The Compensation Committee was established for the
purpose of (i) determining the compensation of the Corporation's executive
officers, (ii) making awards under the Corporation's stock option plans, and
(iii) making recommendations to the Board of Directors with regard to the
adoption of new employee benefit plans. The Compensation Committee met two times
during the fiscal year ended December 31, 1996.
With the exception of Carlos Samour and Pierrette Samour, who are husband
and wife, respectively, no Director or executive officer is related to any other
Director or executive officer by blood or marriage.
BACKGROUND
The following is a brief summary of the background of each nominee for
election as a Director of the Corporation:
CARLOS M. SAMOUR, PH.D., the Corporation's Chairman of the Board of
Directors and its Scientific Director, founded the Corporation in 1981. Since
1990, Dr. Samour has served in an unpaid capacity as President and Chairman of
the Augusta Epilepsy Research Foundation, a non-profit organization, in
Washington, D.C. From 1958 until the formation of the Corporation, Dr. Samour
was director of the corporate research laboratory at The Kendall Corporation, a
general medical supply company, and its Lexington Laboratory after Kendall was
acquired by Colgate-Palmolive Corporation in 1972. Dr. Samour is the inventor of
many of the technologies under development by the Corporation and is responsible
for managing research and product development activities. He received an M.S.
degree from the Massachusetts Institute of Technology and a Ph.D. degree in
organic chemistry from Boston University.
ALVIN J. KARLOFF has served as the Corporation's Chief Executive Officer,
President and as a Director since January 1990. In 1986, Mr. Karloff founded
Medical and Scientific Enterprises, Inc., a privately held medical diagnostic
equipment company, where he served as Chairman, Chief Executive Officer and
President prior to joining the Corporation. Mr. Karloff was Director of
Marketing for Medical Products with New England Nuclear ("NEN"), a Dupont
company, from 1984 to 1985, and from 1969 to 1984, he served as Marketing
Manager, Sales Manager, and in several other sales and marketing positions for
NEN. Mr. Karloff holds a B.S. degree from the University of Massachusetts.
WILLARD M. BRIGHT, PH.D., has served as a Director of the Corporation since
December 1992. Since 1982, Dr. Bright has served as a Director (from 1982 to
July 1996 as Chairman of the Board of Directors) of Zoll Medical Corporation, a
publicly held medical supply company. Prior to 1982, Dr. Bright served as
President and Chief Executive Officer of The Kendall Corporation; as President
of the Professional Products Division of Warner Lambert; as President of
Boehringer Manheim Corporation USA, a manufacturer of medical products and
biochemicals; and as President and Director of Curtiss-Wright Corp., a
manufacturer of aerospace and industrial products. Dr. Bright received B.S. and
M.S. degrees from the University of Toledo and a Ph.D. in physical chemistry
from Harvard University.
PETER G. MARTIN has served as a Director of the Corporation since 1995.
Since 1990 Mr. Martin has been an independent investment banker and venture
capitalist. Prior to 1990 he was a commercial banker. Mr. Martin is also a
director of KFX, Inc., a public company engaged in coal beneficiation. Mr.
Martin was initially elected to the Board of Directors as the designee of David
Russell, who privately purchased 1 million shares of the Corporation's Common
Stock in 1995. Mr. Martin received B.A. and J.D. degrees from Fordham University
and an M.B.A. from Columbia University.
STEPHEN J. RIGGI, PH.D., has served as the Corporation's Vice President,
Operations since February 1996 and as a Director of the Corporation since August
1996. He was President and Chief Executive Officer of Telor Ophthalmic
Pharmaceuticals, Inc. from 1989 until 1994. Dr. Riggi served in research and
development positions with Lederle Laboratories from 1963 until 1974, and in
research and development and operations positions with the Pennwalt Corporation
Pharmaceutical Division, of which he became President in 1985. He is a graduate
of the University of Tennessee School of Basic Medical Sciences, where he
received master's and doctor's degrees in physiology and pharmacology.
MICHAEL A. DAVIS, M.D., SC.D. Since 1980 Dr. Davis has been Professor of
Radiology and Nuclear Medicine Director, Division of Radiologic Research,
University of Massachusetts Medical School. Since 1982 Dr. Davis has been
Adjunct Professor of Nuclear Medicine at Tufts University School of Veterinary
Medicine, and since 1986, Affiliate Professor of Biomedical Engineering at
Worcester Polytechnic Institute. He has provided medical consulting services to
the Corporation since 1991. He is also a director of EZ EM, Inc., a public
company engaged in supplying oral radiographic contrast media, as well as
medical devices. Dr. Davis received B.S. and M.S. degrees from Worcester
Polytechnic Institute, S.M. and Sc.D. degrees from the Harvard School of Public
Health, an M.B.A. from Northeastern University and an M.D. from the University
of Massachusetts Medical School.
EXECUTIVE OFFICERS
The executive officers of the Corporation, their ages and their positions
with the Corporation are as follows:
Name Age Position
- -------------------------------------------------------------------
Carlos M. Samour ...... 76 Chairman of the Board of Directors and
Scientific Director
Alvin J. Karloff ...... 65 Chief Executive Officer, President and Director
Stephen J. Riggi ...... 59 Vice President, Operations
Pierrette E. Samour ... 72 Treasurer and Secretary
The following is a brief summary of the background of Pierrette E. Samour.
The backgrounds of the Corporation's other executive officers, Dr. Samour, Mr.
Karloff and Dr. Riggi, are summarized above.
PIERRETTE E. SAMOUR, the Corporation's Treasurer since February 1993 and
Secretary since May 1992, co-founded the Corporation in 1981 along with her
husband, Carlos Samour. Mrs. Samour served as the Corporation's Clerk from 1985
through 1992 and as its Assistant Treasurer from 1985 through February 1993.
PROPOSAL NO. 2
ACCOUNTING MATTERS AND RATIFICATION OF AUDITORS
Unless otherwise directed by the stockholders, the persons named in the
enclosed Proxy will vote to ratify the selection of Deloitte & Touche LLP as
independent auditors for the fiscal year ending December 31, 1997. A
representative of Deloitte & Touche LLP is expected to be present at the Annual
Meeting, and will have the opportunity to make a statement and answer
appropriate questions from stockholders.
PROPOSAL NO. 3
AMENDMENT TO 1994 EQUITY INCENTIVE PLAN
GENERAL
The Corporation's 1994 Equity Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and stockholders in 1994. At a meeting held on
February 7, 1997, the Board of Directors of the Corporation adopted a proposal
to amend the Incentive Plan to increase the number of shares of the
Corporation's Common Stock that may be delivered thereunder ("Shares") from
2,500,000 Shares to 4,000,000 Shares, subject to the approval of stockholders.
Of the 2,500,000 Shares currently authorized for issuance under the Incentive
Plan, awards in the form of options for the purchase of 2,278,545 Shares, net of
forfeitures, have been granted in the three-year period since the adoption of
the Incentive Plan, leaving a balance of 221,455 Shares reserved for future
grants of options, stock appreciation rights, restricted stock, unrestricted
stock, deferred stock and performance awards. The following amounts of options
have been granted to the following individuals or groups under the Incentive
Plan: Dr. Samour - 520,000; Mrs. Samour - 100,000; Mr. Karloff - 480,000; Dr.
Bright - 30,000; Mr. Martin - 40,000; Dr. Riggi - 180,000; Dr. Davis - 40,000;
all current executive officers as a group - 1,280,000; all current Directors who
are not executive officers as a group - 110,000; and all employees who are not
executive officers as a group - 718,100. On March 31, 1997, the fair market
value of the Corporation's Common Stock was $4.94 per share. The benefits or
amounts that will be granted in the future under the Incentive Plan are not
determinable.
Under the Corporation's 1984 Incentive Stock Option Plan and 1984
Non-Qualified Stock Option Plan (the "1984 Plans"), options to purchase a total
of 1,544,180 Shares are currently outstanding. No additional options may be
granted under the 1984 Plans.
The Board of Directors recommends adoption of the proposed amendment
because the Board believes that it is important to have stock options and other
stock-based awards available in order to retain and attract high-quality
personnel for the Corporation.
The material features of the Incentive Plan as currently in effect are
described below under "Summary of Incentive Plan." The summary is qualified in
its entirety by reference to the express provisions of the Incentive Plan, a
copy of which may be obtained from the Corporation free of charge upon request
to the Secretary of the Corporation.
SUMMARY OF INCENTIVE PLAN
The purpose of the Incentive Plan is to advance the interests of the
Corporation by enhancing its ability to attract and retain employees and other
persons or entities who are in a position to make significant contributions to
the success of the Corporation through the ownership of Shares.
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). Shares reserved for issuance
under the Incentive Plan are subject to adjustment for stock dividends and
similar events. The Incentive Plan provides for the grant by the Compensation
Committee of stock options (both incentive stock options and nonstatutory
options), stock appreciation rights, restricted stock, unrestricted stock,
deferred stock grants and performance awards, as well as loans in connection
with such grants and supplemental awards in the form of cash payments intended
to offset income taxes due with respect to any such grant or award. Awards under
the Incentive Plan may also include provision for the payment of dividend
equivalents with respect to the Shares subject to the awards. All employees of
the Corporation and other persons or entities (including non-employee Directors
of the Corporation) who, in the opinion of the Compensation Committee, are in a
position to make a significant contribution to the success of the Corporation
are eligible to participate in the Incentive Plan. There are currently 4
executive officers, 3 Directors who are not executive officers and approximately
15 employees who are not executive officers eligible to participate in the
Incentive Plan. The maximum number of Shares with respect to which awards may be
granted to any one participant during the term of the Incentive Plan is 750,000
Shares.
The exercise price of an incentive stock option granted under the Incentive
Plan may not be less than 100% (110% in the case of 10% shareholders) of the
fair market value of the Shares at the time of grant. The exercise price of a
nonstatutory option granted under the Incentive Plan is determined by the
Compensation Committee. The term of each option may be set by the Compensation
Committee but cannot exceed ten years from grant (five years from grant in the
case of an incentive stock option granted to a 10% shareholder), and each option
will be exercisable at such time or times as the Compensation Committee
specifies. The option price may be paid in cash or check acceptable to the
Corporation or, if permitted by the Compensation Committee and subject to
certain additional limitations, by tendering Shares held for at least six
months, by using a promissory note, by delivering to the Corporation 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") may be granted either alone or in tandem
with stock option grants. Each SAR entitles the participant, in general, to
receive upon exercise the excess of a share's fair market value at the date of
exercise over the share's fair market value on the date the SAR was granted. The
Incentive Plan also provides for SARs entitling the participant, upon exercise,
to receive an amount based on certain other measures, including SARs that
entitle the recipient to receive, following a change in control of the
Corporation as determined by the Compensation Committee, an amount measured by
specified values or averages of values prior to the change in control. If an SAR
is granted in tandem with an option, the SAR will be exercisable only to the
extent the option is exercisable. To the extent the option is exercised, the
accompanying SAR will cease to be exercisable, and vice versa.
The Incentive Plan provides for awards of nontransferable restricted Shares
subject to forfeiture, as well as of unrestricted Shares. Awards may provide for
acquisition of restricted and unrestricted Shares for par value. Restricted
Shares are subject to repurchase by the Corporation at the original purchase
price if the participant ceases to be an employee before the restrictions lapse.
Other awards under the Incentive Plan may also be settled with restricted
Shares.
The Incentive Plan also provides for deferred grants entitling the
recipient to receive Shares in the future at such times and on such conditions
as the Compensation Committee may specify, and performance awards entitling the
recipient to receive cash or Shares following the attainment of performance
goals determined by the Compensation Committee. Performance conditions and
provisions for deferred stock may also be attached to other awards under the
Incentive Plan.
Except as otherwise provided by the Compensation 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) and options and SARs not exercisable at a participant's death
terminate. Outstanding awards of restricted Shares must be transferred to the
Corporation upon a participant's death and, similarly, deferred Share grants,
performance awards and supplemental awards to which a participant is not
irrevocably entitled will be forfeited, except as otherwise provided.
In the case of termination of a participant's association with the
Corporation for reasons other than death, options and SARs generally remain
exercisable, to the extent they were exercisable immediately prior to
termination, for six months (or for the remainder of the original term, if less)
and restricted Shares must be resold to the Corporation. Other awards to which a
participant was not irrevocably entitled prior to termination are forfeited and
the awards cancelled unless otherwise determined by the Compensation Committee.
If a participant's employment terminates as a result of retirement on or after
age 65, retirement on or after age 55 after ten years of continuous employment,
or as a result of disability as determined by the Corporation, or if the
services of a non-employee Director who is a participant are terminated, the
exercisable portion of the option will continue to be exercisable for the
original term of the option. If any such association is terminated due to the
participant's discharge for cause which in the opinion of the Compensation
Committee casts such discredit on the participant as to justify immediate
termination of any award under the Incentive Plan, such participant's options
and SARs may be terminated immediately.
In the event of certain acquisitions of the Corporation, all outstanding
awards will terminate as of the effective date of the covered transaction.
Generally, at least twenty days prior to the effective date of such transaction,
each outstanding option and SAR will become exercisable in full, the
restrictions on each outstanding share of restricted stock will be removed, the
Corporation will make any payment and provide any benefit under each outstanding
deferred stock award, performance award, and supplemental grant which would have
been made or provided with the passage of time had the transaction not occurred
and the participant not ceased to be an employee of the Corporation or died, and
any portion of the principal of or interest on a loan award will be forgiven.
With respect to an outstanding award held by a participant who, following the
covered transaction, will be employed by or otherwise providing services to a
corporation which is a surviving or acquiring corporation in such a transaction
or an affiliate of such a corporation, the Compensation Committee may, in lieu
of the actions described above, arrange to have such surviving or acquiring
corporation or affiliate grant to the participant a substantially equivalent
replacement award.
Awards may generally be transferred only by will or by the laws of descent
and distribution. However, options awarded to employees or Directors which are
not incentive stock options may be transferred by a participant to the spouse,
children or grandchildren of the participant, a trust or trusts for the
exclusive benefit of such family members, or a partnership in which such family
members are the only partners, provided there is no consideration for any such
transfer. Any subsequent transfer would be similarly restricted.
No award may be granted under the Incentive Plan after February 11, 2004,
but awards previously granted may be extended beyond that date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences associated
with stock option grants under the Incentive Plan does not purport to cover
federal employment tax or other federal tax consequences that may be associated
with the Incentive Plan, nor does it cover state, local or non-U.S. taxes.
INCENTIVE STOCK OPTIONS. In general, an optionee realizes no ordinary
taxable income upon the grant or exercise of an incentive stock option ("ISO")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "IRC").
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 Corporation) equal to the value of the Shares at the time of exercise less
the exercise price. In the case of a sale to an unrelated party for a price less
than the value of the Shares at the time of exercise, this ordinary income is
normally capped by the gain on the sale, if any. Any gain recognized in the
disposition in excess of the ordinary income amount is treated as a capital gain
for which the Corporation 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 Corporation 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 nonstatutory option (see below). A special rule applies in the case of
termination of employment by reason of permanent disability. ISOs granted after
1986 are also treated as nonstatutory options 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 the grant) in excess of $100,000.
NONSTATUTORY STOCK OPTIONS. In general, in the case of a nonstatutory
option (i) 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 time of exercise) of the fair market value of the Shares acquired
upon exercise over the exercise price; (ii) a corresponding deduction is
available to the Corporation, subject to satisfaction of applicable
tax-reporting requirements; and (iii) 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 Corporation is not entitled to a deduction.
MISCELLANEOUS. Under the so-called "golden parachute" provisions of the
IRC, the grant, vesting or accelerated exercisability of awards in connection
with a change of control of the Corporation may be required to be valued and
taken into account in determining whether participants have received
compensatory payments, contingent on the change of control, in excess of certain
limits. If these limits are exceeded, a substantial portion of amounts payable
to the participant, including income recognized by reason of the grant, vesting
or exercise of awards under the Incentive Plan, may be subject to an additional
20% federal tax and may be nondeductible to the Corporation.
The Corporation's ability to claim a deduction in connection with awards
under the Incentive Plan may be further limited by Section 162(m) of the IRC,
which restricts to $1 million the amount a public corporation may deduct for
remuneration in any year to any of its top five officers. Certain forms of
remuneration are exempt from the $1 million limit, including compensation
associated with the exercise of non-discounted stock options that are granted
pursuant to shareholder-approved plans and that meet certain other requirements.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the approval of the amendment to the
Incentive Plan will promote the interests of the Corporation and the
stockholders and recommends that the stockholders vote "FOR" this proposal to
amend the Incentive Plan. Proxies solicited by the Board of Directors will be so
voted unless stockholders specify otherwise.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock present or represented and voting is required for adoption of
this proposal to amend the Incentive Plan.
<PAGE>
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of February 28, 1997, certain
information concerning stock ownership of the Corporation by (i) each person
known by the Corporation to be the beneficial owner of more than five percent
(5%) of the Corporation's Common Stock, (ii) each of the Corporation's Directors
and nominees for Director, (iii) each of the executive officers named in the
Summary Compensation Table and (iv) all Directors and executive officers as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
Number of Shares
Name and Address of Common Stock Percentage
of Beneficial Owner (1) Beneficially Owned of Class
- --------------------------------------------------------------------------------
Carlos M. and Pierrette E. Samour(2)(3)...... 1,226,000 7.8%
Alvin J. Karloff(2) ......................... 840,000 5.3%
D. Ray Taylor(2) ............................ 20,000 *
Willard M. Bright(2) ........................ 50,000 *
Peter G. Martin(2) .......................... 10,000 *
Stephen J. Riggi(2).......................... 60,000 *
Michael A. Davis............................. 10,000 *
Bruce Meyers(4) ............................. 1,433,895 9.1%
17 State Street
New York, NY 10004
Peter Janssen(4)............................. 1,918,895 12.2%
17 State Street
New York, NY 10004
Mellon Bank Corporation(5)................... 1,415,000 9.0%
One Mellon Bank Center
Pittsburgh, PA 15258
David Russell(6)............................. 1,010,102 6.4%
45 Park Place South, Suite 103
Morristown, NJ 07960
WisdomTree Capital Management, Inc. (7)...... 979,100 6.2%
1633 Broadway
New York, NY 10019
All Directors and Officers as a Group
(7 persons) (2).......................... 2,216,000 14.1%
- --------------------------------------------------------------------------------
* Less than one percent (1%).
(1) The address of Dr. Samour, Mrs. Samour, Mr. Karloff, Mr. Taylor,
Dr. Bright, Mr. Martin, Dr. Riggi and Dr. Davis is c/o the Corporation,
110 Hartwell Avenue, Lexington, Massachusetts 02173.
(2) Includes the following number of shares issuable upon the exercise of stock
options or warrants exercisable within 60 days: Dr. and Mrs. Samour
715,080; Mr. Karloff 840,000; Mr. Taylor 15,000; Dr. Bright 50,000;
Mr. Martin 10,000; Dr. Riggi 60,000; Dr. Davis 10,000.
(3) Includes 33,500 shares held by trusts for the benefit of Dr. and
Mrs. Samour's children. Dr. and Mrs. Samour have voting and dispositive
power over, but disclaim beneficial ownership with respect to, such shares.
(4) Includes the following number of shares issuable upon the exercise of
warrants, options, or unit purchase options exercisable immediately:
Mr. Meyers 1,421,395 and Mr. Janssen 1,693,896.
(5) Of the 1,415,000 shares shown for Mellon Bank Corporation, its Schedule 13G
as amended on January 24, 1997 shows the following: 1,415,000 shares of
which the sole voting power and shared dispositive power are held by Mellon
Bank, N.A. and The Dreyfus Corporation, and 875,000 shares of which the
sole voting power and shared dispositive power are held by Premiere Capital
Growth Fund.
(6) As reported in Mr. Russell's Schedule 13D, as amended, the 1,010,102
shares shown for Mr. Russell does not include 100,000 shares owned by
Mr. Russell's wife. Mr. Russell disclaims beneficial ownership of such
100,000 shares. The 1,010,102 shares are held by Emin Company, L.L.C.,
which is controlled by Mr. Russell.
(7) Includes 831,700 shares for which voting and dispositive power is shared
with WisdomTree Associates, L.P., and 147,400 shares for which voting and
dispositive power is shared with WisdomTree Offshore, Ltd., according to a
Schedule 13D dated February 5, 1997.
<PAGE>
COMPENSATION OF OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS COMPENSATION
The following table sets forth the compensation earned by or paid or
awarded to Dr. Samour and Mr. Karloff during each of the three fiscal years
ended December 31, 1996 and to Dr. Riggi during the fiscal year ended December
31, 1996:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
- --------------------------------------------------------------------------------
Other Securities
Annual Underlying
Name and Principal Salary Bonus Compensation Options
Position Year $ $(1) $(2) #
- --------------------------------------------------------------------------------
Carlos M. Samour 1996 185,000 33,300 10,959 280,000
Chairman, Scientific 1995 155,000 27,900 13,643 -----
Director and Director 1994 153,750 27,675 14,709 240,000
Alvin J. Karloff 1996 185,000 33,300 13,140 240,000
President, Chief 1995 155,000 27,900 12,530 -----
Executive Officer and 1994 153,750 27,675 13,462 240,000
Director
Stephen J. Riggi (3) 1996 133,557 ----- 408 180,000
Vice President,
Operations and Director
- --------------------------------------------------------------------------------
(1) Since March 1992, Dr. Samour and Mr. Karloff have each received, in lieu of
retirement benefits, annual payments equal to eighteen percent of their
salaries.
(2) Includes amounts paid for taxable group term life insurance. Also includes
for Dr. Samour and Mr. Karloff a monthly automobile allowance of $500 net
of taxes, plus a health insurance benefit equal to the annual premium each
individual pays under separate health insurance policies maintained by
their former employers, which health insurance benefit is paid in lieu of
any other health, medical or retirement benefits.
(3) Dr. Riggi's employment commenced on February 12, 1996.
<PAGE>
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during the fiscal year ended December 31, 1996 to Dr. Samour, Mr.
Karloff and Dr. Riggi:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
--------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates
% of Total of Stock Price
Number of Options Appreciation for
Securities Granted to Exercise Option Term
Underlying Employees or Base ------------------
Options in Fiscal Price Expiration 5% 10%
Name Granted(#) Year ($/Sh) Date ($) ($)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlos M. Samour 280,000(1) 27% 5.875 June 2006 1,034,500 2,621,700
Alvin J. Karloff 240,000(2) 23% 4.875 August 2006 735,800 1,864,700
Stephen J. Riggi 180,000(3) 17% 5.875 March 2006 665,100 1,685,400
- ------------------------------------------------------------------------------------
<FN>
(1) The option granted to Dr. Samour was granted in June 1996 under the
Corporation's 1994 Equity Incentive Plan at an exercise price of $5.875 per
share. The option expires ten years from the date of grant and vests with
respect to all 280,000 shares in June 1997.
(2) The option granted to Mr. Karloff was granted in August 1996 under
the Corporation's 1994 Equity Incentive Plan at an exercise price of
$4.875 per share. The option expires ten years from the date of grant and
vests with respect to all 240,000 shares in August 1997.
(3) The option granted to Dr. Riggi was granted in March 1996 under the
Corporation's 1994 Equity Incentive Plan at an exercise price of $5.875 per
share. The option expires ten years from the date of grant and vests with
respect to 60,000 shares in February in each of 1997, 1998, and 1999.
</FN>
</TABLE>
<PAGE>
The following table provides information concerning unexercised options
held by Dr. Samour, Mr. Karloff and Dr. Riggi as of December 31, 1996:
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options at Options at
Fiscal Year-End Fiscal Year-End
# $ (1)
- --------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Carlos M. Samour (2) 415,080/280,000 $ 1,901,422/NA
Alvin J. Karloff 840,000/240,000 $ 4,477,500/NA
Stephen J. Riggi 0/180,000 $ 0/NA
- --------------------------------------------------------------------------------
(1) The value of Dr. Samour's and Mr. Karloff's in-the-money unexercised
options at the end of the fiscal year ended December 31, 1996 was
determined by multiplying the number of options held by the difference
between the market price of the Common Stock underlying the options on
December 31, 1996 ($6.50 per share) and the exercise price of the options
granted. Dr. Samour holds 175,080 options exercisable at $.4375 per share
and Mr. Karloff holds 600,000 options exercisable at $.4375 per share.
(2) Does not include options to purchase up to 300,000 shares of Common Stock
granted to Pierrette Samour, Dr. Samour's wife, of which he is deemed to
have beneficial ownership. If such 300,000 options were included,
Dr. Samour would be deemed to have had an additional 715,080 exercisable
options as of December 31, 1996, the value of which would have been
$3,196,422.
DIRECTORS' COMPENSATION
Each non-employee Director of the Corporation receives compensation of
$4,000 annually, $500 per meeting attended, $300 for each committee meeting
attended if held on a separate day from a Board of Directors meeting, $300 per
telephone meeting and reimbursement of travel expenses in connection with
attending meetings of the Board of Directors. Dr. Bright receives additional
Director compensation of $1,000 per month. Dr. Samour, Mr. Karloff and Dr. Riggi
do not receive any additional compensation for their services as Directors.
During 1996 each non-employee Director was granted stock options as follows: Dr.
Bright - 10,000; Mr. Martin - 10,000; and Mr. Taylor - 10,000. The options are
all exercisable at $4.875 per share and become fully vested on May 24, 1997.
The Corporation entered into Consulting Agreements commencing January 1993,
with each of E. Donald Shapiro and Abraham Cohen, both former Directors of the
Corporation. Under the Consulting Agreements the Corporation paid each of Mr.
Shapiro and Mr. Cohen $1,000 per month through March 1996.
Michael A. Davis, a nominee for election as a Director, entered into a
Finder's Compensation Agreement dated March 7, 1996 with the Corporation. The
Agreement provides for the Corporation to pay Dr. Davis a fee equal to 5% (up to
a maximum or $250,000) for each agreement resulting from his introduction for
(a) up-front licensing fees received by the Corporation for the use of SEPAAE or
other technologies in any over-the-counter or pharmaceutical product and (b)
royalties received by the Corporation for products licensed with SEPAAE or other
technologies. No such fees have been paid to date to Dr. Davis. In addition, the
Corporation currently compensates Dr. Davis at the rate of $3,000 per month for
medical consulting services.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Corporation has entered into employment agreements of indefinite length
effective as of November 1, 1992 with each of Dr. Samour and Mr. Karloff. Each
agreement currently provides for annual compensation of $200,000. Each agreement
also provides for a monthly automobile allowance of $500 net of taxes and a
payment equal to 18% of the individual's base salary, which payment is in lieu
of retirement benefits. Further, each agreement provides for the payment of 12
months' salary in the event the individual is terminated without cause. In
addition, each agreement precludes the individual from competing with the
Corporation during his employment and for a period of one year thereafter, and
from disclosing confidential information.
The Corporation has entered into an employment agreement of indefinite
length effective as of March 25, 1996 with Dr. Riggi. The agreement currently
provides for annual compensation of $160,000 and for the payment of six months'
salary in the event he is terminated without cause. In addition, the agreement
precludes Dr. Riggi from competing with the Corporation during his employment
and for a period of two years thereafter, and from disclosing confidential
information.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation's Compensation Committee consists of Mr. Taylor (Chairman),
Mr. Martin and Dr. Bright.
Notwithstanding anything to the contrary set forth in any of the previous
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate future filings, including this
Proxy Statement, in whole or in part, the following report and the Performance
Graph on page 19 shall not be incorporated by reference into any such filings.
<PAGE>
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists of Mr. Taylor
(Chairman), Mr. Martin and Dr. Bright. The Committee's responsibilities include
determining the compensation of the Corporation's executive officers, making
awards under the Corporation's stock option plans and making recommendations to
the Board of Directors with regard to the adoption of new employee benefit
plans. No member of the Committee was an officer or employee of the Corporation
during the year ended December 31, 1996.
The Corporation's executive compensation programs reflect input from the
Corporation's Chairman and from its Chief Executive Officer. The Compensation
Committee reviews their proposals concerning executive compensation and makes a
final determination concerning the scope and nature of compensation
arrangements. The action of the Committee is reported to the Corporation's
entire Board of Directors. It is the Corporation's current policy to establish,
structure and administer compensation plans and arrangements so that the
deductibility to the Corporation of such compensation will not be limited under
Section 162(m) of the Internal Revenue Code.
CEO COMPENSATION
The Corporation and Mr. Karloff are parties to an employment agreement with
a 1996 base salary of $185,000, compared with a 1995 base salary of $155,000.
The increase in 1996 was based on his accomplishments listed in the following
paragraph. Under the contract, Mr. Karloff also receives payments equal to 18%
of base salary in lieu of receiving certain benefits from the Corporation.
During the year ended December 31, 1996, Mr. Karloff received these payments, as
provided by the employment contract. These payments were not related to the
Corporation's performance during the period.
In August 1996 the Committee granted Mr. Karloff a stock option to purchase
240,000 shares of the Corporation's Common Stock at an exercise price of $4.875
per share, vesting in one year. In June 1996 Dr. Samour received a stock option
to purchase 280,000 shares of the Corporation's Common Stock at an exercise
price of $5.875 per share, vesting in one year. The terms of these options were
determined subjectively. These option grants were in part compensation for
accomplishments of Mr. Karloff and Dr. Samour during the period since February
1994 as well as future incentive. During the period, Mr. Karloff and Dr. Samour,
among other things, arranged a private placement in which the Corporation
received net proceeds of approximately $2.4 million; facilitated the orderly
exercise of Unit Purchase Options and Class A Warrants, Class AA Warrants and
Class X Warrants, resulting in net proceeds of approximately over $12 million;
supervised the construction of an on-site production facility that conforms to
the FDA's current Good Manufacturing Practices (cGMP) to produce and supply
products for use in pre-clinical and clinical evaluations; built a dedicated and
competent management and research team; secured FDA approval of an
Investigational New Drug (IND) application to conduct a double-blind Phase II
clinical trial with a SEPA/Ibuprofen formulation for treating muscle pain; and
initiated a Phase I/II clinical trial of a topical formulation for treating
erectile dysfunction. No specific weight was assigned to each of these
accomplishments by the Committee.
EXECUTIVE OFFICER COMPENSATION
The Corporation maintains compensation and incentive programs designed to
motivate, retain and attract capable management. Dr. Samour and Dr. Riggi are
also parties to employment contracts with the Corporation described elsewhere in
the Proxy Statement. The compensation levels provided for in the Corporation's
employment contracts with its executive officers are determined subjectively,
but reflect consideration of the compensation levels of comparable companies,
the achievements and potential of the officer and negotiations with the officer.
Ongoing executive officer compensation is determined subjectively, in that
the Chairman and the Chief Executive Officer provide recommendations to the
Compensation Committee for the proposed remuneration of the Corporation's
officers based on their perceptions of those individuals' performance against
objectives jointly formulated by the Chairman, the Chief Executive Officer and
the officers, any change in their functional responsibilities, their potential
to contribute to the success of the Corporation and the compensation levels
provided to officers of comparable companies. No specific weights have been
assigned to these factors by the Committee.
Officer compensation is generally composed of cash compensation and grants
of options under the Corporation's stock option plans. Options generally vest
over three years, in order to serve as a future incentive. There is no set
formula for the award of stock options to individual executives. Factors
considered in making option awards include prior grants to the officer, the
importance of retaining the officer's services, the officer's potential to
contribute to the success of the Corporation and the officer's past
contributions to the Corporation.
Dated: April 17, 1997 COMPENSATION COMMITTEE
D. Ray Taylor
Peter G. Martin
Willard M. Bright
<PAGE>
PERFORMANCE GRAPH
The following five-year performance graph compares the cumulative total
shareholder return (assuming reinvestment of dividends) on $100 invested in the
Corporation's Common Stock for the five-year period from December 31, 1991
through December 31, 1996 with similar investments in the NASDAQ Market Index of
companies and a New Peer Group Index of the following four companies that
provide similar services to those provided by the Corporation -- ALZA
Corporation, Cygnus Inc., Noven Pharmaceuticals Inc. and Theratech Inc. The New
Peer Group Index has been changed from the Former Peer Group Index used in the
Proxy Statement for the 1996 Annual Meeting of Stockholders. Theratech Inc. has
been added because it closely resembles the Corporation in the size, focus and
character of its activities. Elan Plc has been deleted because it bears less of
a resemblance to the Corporation in the size, focus and character of its
activities.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN (1)
AMONG MACROCHEM CORPORATION, THE NASDAQ STOCK MARKET-U.S. INDEX,
AN OLD PEER GROUP AND A NEW PEER GROUP
1991 1992 1993 1994 1995 1996
MacroChem Corporation $100 $258 $142 $ 74 $168 $274
NASDAQ Market Index $100 $116 $134 $131 $185 $227
Former Peer Group Index (2) $100 $ 98 $ 77 $ 55 $ 76 $ 87
New Peer Group Index (3) $100 $ 95 $ 63 $ 41 $ 60 $ 61
- ---------------------------
(1) $100 invested on 12/31/91 in stock or index - including reinvestment of
dividends. Fiscal year ending December 31.
(2) Former Peer Group Companies: ALZA Corporation, Cygnus Inc., Elan Plc and
Noven Pharmaceuticals Inc.
(3) New Peer Group Companies: ALZA Corporation, Cygnus Inc., Noven
Pharmaceuticals Inc. and Theratech Inc.
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a consulting agreement dated July 27, 1995 and expiring on
March 27, 1996, the Corporation engaged Janssen-Meyers Associates, L.P.
("Janssen-Meyers") to perform consulting services relating to corporate finance
and other financial service matters and to act as co-soliciting agent with D.H.
Blair Investment Banking Corp. in connection with certain exercises of the
Corporation's Class A Warrants and Class AA Warrants. The Corporation
compensated Janssen-Meyers at the rate of $5,000 per month, plus pre-approved
expenses. On June 17, 1996, in connection with services performed for the
Corporation, Janssen-Meyers received a warrant, expiring June 17, 1999, for the
purchase of 145,800 shares of the Corporation's Common Stock at a price of
$6.075 per share. The Corporation has agreed to pay Janssen-Meyers a monthly fee
of $5,000 for consulting services from December 1996 through April 1997. Peter
Janssen and Bruce Meyers, who own 50% and 50%, respectively, of Janssen-Meyers,
owned 1,918,895 shares (12.2%) and 1,433,895 shares (9.1%), respectively, of the
Corporation's Common Stock as of February 28, 1997.
STOCKHOLDER PROPOSALS
In order to be included in proxy material for the 1998 Annual Meeting,
stockholders' proposals must be received by the Corporation on or before
December 18, 1997. The Corporation suggests that proponents submit their
proposals by certified mail, return receipt requested, addressed to the
Secretary of the Corporation.
FINANCIAL INFORMATION
The audited financial statements and related financial and business
information of the Corporation as of December 31, 1996 and December 31, 1995 and
each year in the three-year period ended December 31, 1996 are contained in the
accompanying Annual Report and Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who beneficially own more than
10 percent of the Corporation's Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Based solely on its review of
the copies of such reports received by it, and written representations from
certain reporting persons that no Forms 5 were required for those persons, the
Corporation believes that during the fiscal year ended December 31, 1996 all
filing requirements applicable to its officers, directors, and such 10 percent
beneficial owners were complied with, except that D. Ray Taylor filed a late
report covering one sale of the Corporation's Common Stock, Peter Janssen filed
a late report covering four sales of the Corporation's Common Stock, and Peter
Martin failed to file a report covering a purchase of the Corporation's Common
Stock and a report covering a sale of the Corporation's Common Stock.
MISCELLANEOUS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
Proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
<PAGE>
A copy of the Corporation's Annual Report to the Securities and Exchange
Commission on Form 10-K, exclusive of exhibits, is available without charge upon
written request to: MacroChem Corporation, 110 Hartwell Avenue, Lexington,
Massachusetts 02173, Attention: Stephen J. Riggi, Ph.D., Vice President,
Operations.
By Order of the Board of Directors,
PIERRETTE E. SAMOUR
Secretary
Lexington, Massachusetts
April 17, 1997
THE MANAGEMENT HOPES THAT THE STOCKHOLDERS WILL ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING AND YOUR COOPERATION WILL
BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02173
-----------------------------------------
Notice of Annual Meeting of Stockholders
May 23, 1997
-----------------------------------------
The undersigned hereby appoints Alvin J. Karloff and Carlos M. Samour, or
either of them, with power of substitution to each, proxies to vote at the
Annual Meeting of Stockholders of MacroChem Corporation, to be held on May 23,
1997 at MacroChem Corporation's headquarters, 110 Hartwell Avenue, Lexington,
Massachusetts, at 9:30 a.m., local time, or at any adjournments thereof, all
shares of Common Stock, par value $.01 per share, of MacroChem Corporation that
the undersigned would be entitled to vote if personally present. The
undersigned instructs such proxies or their substitutes to act on the following
matters as specified by the undersigned, and to vote in such manner as they may
determine on any other matters that may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed by
the undersigned stockholder(s). If no contrary direction is made, this proxy
will be voted FOR the election of all nominees for director named on the
reverse, FOR the ratification of the selection of Deloitte & Touche LLP as
auditors for the fiscal year ending December 31, 1997, FOR the approval of an
amendment to the Corporation's 1994 Equity Incentive Plan, and in the discretion
of the named proxies as to any other matter that may properly come before the
meeting.
1. Election of Directors: FOR all Nominees_____
AGAINST all nominees_____
The undersigned hereby GRANTS authority to elect the following nominees as
Director. Instruction: To withhold authority to vote for any individual
nominee, draw a line through that nominee's name.
Nominees: Carlos M. Samour
Alvin J. Karloff
Willard M. Bright
Peter G. Martin
Stephen J. Riggi
Michael A. Davis
2. To ratify the appointment of Deloitte & Touche LLP as independent auditors
for the Corporation for the fiscal year ending December 31, 1997.
FOR_____ AGAINST_____ ABSTAIN_____
3. To approve an amendment to the Corporation's 1994 Equity Incentive Plan to
increase the number of shares of Common Stock that may be delivered
thereunder from 2,500,000 to 4,000,000.
FOR_____ AGAINST_____ ABSTAIN_____
4. To consider and act upon any other matters that may properly come before
the meeting or any adjournment thereof.
Please check box at right if you plan to attend meeting in person._____
SIGNATURE
Title (if any)______________________________________________DATE____________
SIGNATURE
Title (if any)______________________________________________DATE____________
Note: Please sign exactly as name appears on the card. All joint owners
should sign. When signing as executor, attorney, administrator 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 signer's office. If a partner-
ship, sign in the partnership name.
As amended
November 15, 1996
MACROCHEM CORPORATION
1994 EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this 1994 Equity Incentive Plan (the "Plan") is
to advance the interests of MacroChem Corporation (the "Company") by enhancing
its ability to attract and retain employees and other persons or entities who
are in a position to make significant contributions to the success of the
Company and its subsidiaries through ownership of shares of the Company's common
stock ("Stock").
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
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplement Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION. Unless otherwise determined by the Board of Directors of
the Company (the "Board"), the Plan will be administered by a Committee of the
Board designated for such purpose (the "Committee"). The Committee shall consist
of at least two directors. A majority of the members of the Committee shall
constitute a quorum, and all determinations of the Committee shall be made by a
majority of its members. Any determination of the Committee under the Plan may
be made without notice or meeting of the Committee by a writing signed by a
majority of the Committee members. So long as the Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), all members of the Committee
shall be non-employee directors within the meaning of Rule 16b-3 under the 1934
Act. The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an award is canceled, grant another Award in
its place on such terms as the Committee shall specify), except that the
Committee may not, without the consent of the holder of an Award, take any
action under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants, and change such
forms from time to time; (h) adopt, amend and rescind rules and regulations for
the administration of the Plan; and (i) interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken under authority
granted by any provision of the Plan, will be conclusive and will bind all
parties. Nothing in this paragraph shall be construed as limiting the power of
the Committee to make adjustments under Section 7.3 or Section 8.6.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under this plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any action by the
Committee or Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
3. EFFECTIVE DATE AND TERM OF PLAN. The Plan will become effective on the
date on which it is approved by the stockholders of the Company. Grants of
Awards under the Plan may be made prior to that date, subject to such approval
of the Plan. No Award may be granted under the Plan after February 11, 2004, but
Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN. Subject to the adjustment as provided in
Section 8.6 below, the aggregate number of shares of Stock that may be delivered
under the Plan will be 2,500,000. If any Award requiring exercise for delivery
of Stock terminates without having been exercised in full, or if any Award
payable in Stock or cash is satisfied in cash rather than Stock, the number of
shares of Stock as to which such Award was not exercised or for which cash was
substituted will be available for future grants. The maximum number of shares
(subject to adjustment as provided in Section 8.6 below) with respect to which
Awards may be made to any one Participant during the term of the Plan shall be
750,000 shares. The preceding sentence shall be construed consistent with the
regulations under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
Stock delivered under the Plan may be either 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.
5. ELIGIBILITY AND PARTICIPATION. Those eligible to receive Awards under
the Plan ("Participants") will be persons in the employ of the Company or any of
its subsidiaries ("Employees") and other persons or entities (including without
limitation non-Employee directors of the Company or a subsidiary of the Company)
who, in the opinion of the Committee, are in a position to make a significant
contribution to the success of the Company or its subsidiaries. A "subsidiary"
for purposes of the Plan will be a corporation in which the Company owns,
directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) NATURE OF OPTIONS. An Option is an Award entitling the holder on
exercise thereof to purchase Stock at a specified exercise price.
Both "incentive stock options," as defined in Section 422 of the Code
(any Option intended to qualify as an incentive stock option being
hereinafter referred to as an "ISO"), and Options that are not incentive
stock options, may be granted under the Plan. ISOs shall be awarded only to
Employees.
(b) EXERCISE PRICE. The exercise price of an Option will be determined
by the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100%
(110% in the case of an ISO granted to a ten-percent stockholder) of
the fair market value of the Stock subject to the Option, determined
as of the time the Option is granted. A "ten-percent stockholder" is
any person who at the time of grant owns, directly or indirectly, or
is deemed to own by reason of the attribution rules of section 424(d)
of the Code, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any of its
subsidiaries.
(2) In no case may the exercise price paid for Stock which is
part of an original issue of authorized Stock be less than the par
value per share of the Stock.
(3) The Committee may reduce the exercise price of an Option at
any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the
Participant.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the case of
an ISO granted to a ten-percent stockholder) of the day immediately
preceding the date the Option was granted, or such earlier date as may have
been specified by the Committee at the time the Option was granted.
(d) EXERCISE OF OPTIONS. Options granted under any single Award will
become exercisable at such time or times, and on such conditions, as the
Committee may specify. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may be
exercised.
Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1) any
documents required by the Committee and (2) payment in full in accordance
with paragraph (e) below for the number of shares for which the Option is
exercised.
(e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must
be paid for as follows: (1) in cash or by check (acceptable to the Company
in accordance with guidelines established for this purpose), bank draft or
money order payable to the order of the Company or (2) if so permitted by
the instrument evidencing the Option (or in the case of an Option which is
not an ISO, by the Committee at or after grant of the Option), (i) through
the delivery of shares of Stock which have been outstanding for at least
six months (unless the Committee expressly approves a shorter period) and
which have a fair market value on the last business day preceding the date
of exercise equal to the exercise price, or (ii) by delivery of a
promissory note of the Option holder to the Company, payable on such terms
as are specified by the Committee, or (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 permissible forms of payment; provided, that if the Stock delivered
upon exercise of the Option is an original issue of authorized Stock, at
least so much of the exercise price as represents the par value of such
Stock must be paid other than by the Option holder's promissory note.
(f) DISCRETIONARY PAYMENTS. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise
price of the Option at the time of its exercise, the Committee may cancel
the Option and cause the Company to pay in cash or in shares of Common
Stock (at a price per share equal to the fair market value per share) to
the person exercising the Option an amount equal to the difference between
the fair market value of the Stock which would have been purchased pursuant
to the exercise (determined on the date the Option is canceled) and the
aggregate exercise price which would have been paid. The Committee may
exercise its discretion to take such action only if it has received a
written request from the person exercising the Option, but such a request
will not be binding on the Committee.
6.2. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is
an Award entitling the recipient on exercise of the Right 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 Stock value.
In general, a Stock Appreciation Right entitles the Participant to
receive, with respect to each share of Stock as to which the Right is
exercised, the excess of the share's fair market value on the date of
exercise over its fair market value on the date the Right was granted.
However, the Committee may provide at the time of grant that the amount the
recipient is entitled to receive will be adjusted upward or downward under
rules established by the Committee to take into account the performance of
the Stock in comparison with the performance of other stocks or an index or
indices of other stocks. The Committee may also grant Stock Appreciation
Rights providing that following a change in control of the Company, as
determined by the Committee, the holder of such Right will be entitled to
receive, with respect to each share of Stock subject to the Right, an
amount equal to the excess of a specified value (which may include an
average of values) for a share of Stock during a period preceding such
change in control over the fair market value of a share of Stock on the
date the Right was granted.
(b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the
Plan. A Stock Appreciation Right granted in tandem with an Option which is
not an ISO may be granted either at or after the time the Option is
granted. A Stock Appreciation Right granted in tandem with an ISO may be
granted only at the time the Option is granted.
(c) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation Rights
are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the procedure
required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has
been exercised or has terminated exceeds the number of shares not
covered by the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon
the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with
the related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may
be exercised only when the market price of the Stock subject to the
Option exceeds the exercise price of such option.
(d) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Committee
may specify. The Committee may at any time accelerate the time at which all
or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to the
Company, accompanied by any other documents required by the Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) NATURE OF RESTRICTED STOCK AWARD. A Restricted Stock Award
entitles the recipient to acquire, for a purchase price equal to par value,
shares of Stock subject to the restrictions described in paragraph (d)
below ("Restricted Stock").
(b) ACCEPTANCE OF AWARD. A Participant who is granted a Restricted
Stock Award will have no rights with respect to such Award unless the
Participant accepts the Award by written instrument delivered or mailed to
the Company accompanied by payment in full of the specified purchase price,
if any, of the shares covered by the Award. Payment may be by certified or
bank check or other instrument acceptable to the Committee.
(c) RIGHTS AS A STOCKHOLDER. A Participant who receives Restricted
Stock will have all the rights of a stockholder with respect to the Stock,
including voting and dividend rights, subject to the restrictions described
in paragraph (d) below and any other conditions imposed by the Committee at
the time of grant. Unless the Committee otherwise determines, certificates
evidencing shares of Restricted Stock will remain in the possession of the
Company until such shares are free of all restrictions under the Plan.
(d) RESTRICTIONS. Except as otherwise specifically provided by the
Plan, Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, and if the Participant ceases to be an
Employee or otherwise suffers a Status Change (as defined at Section 7.2(a)
below) for any reason, must be offered to the Company for purchase for the
amount of cash paid for the Stock, or forfeited to the Company if no cash
was paid. These restrictions will lapse at such time or times, and on such
conditions, as the Committee may specify. The Committee may at any time
accelerate the time at which the restrictions on all or any part of the
shares will lapse.
(e) NOTICE OF ELECTION. Any Participant making an election under
Section 83(b) of the Code with respect to Restricted Stock must provide a
copy thereof to the Company within 10 days of the filing of such election
with the Internal Revenue Service.
(f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at
the time any Award described in this Section 6 is granted, provide that any
or all the Stock delivered pursuant to the Award will be Restricted Stock.
(g) UNRESTRICTED STOCK. The Committee may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of restrictions
under the Plan for a price which is not less than the par value of the
Stock.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will take place
at such time or times, and on such conditions, as the Committee may
specify. The Committee may at any time accelerate the time at which
delivery of all or any part of the Stock will take place. At the time any
Award described in this Section 6 is granted, the Committee may provide
that, at the time Stock would otherwise be delivered pursuant to the Award,
the Participant will instead receive an instrument evidencing the
Participant's right to future delivery of Deferred Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following
the attainment of Performance Goals. Performance Goals may be related to
personal performance, corporate performance, departmental performance or
any other category of performance deemed by the Committee to be important
to the success of the Company. The Committee will determine the Performance
Goals, the period or periods during which performance is to be measured and
all other terms and conditions applicable to the Award.
(b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee may,
at the time any Award described in this Section 6 is granted, impose the
condition (in addition to any conditions specified or authorized in this
Section 6 or any other provision of the Plan) that Performance Goals be met
prior to the Participant's realization of any payment or benefit under the
Award.
6.6. LOANS AND SUPPLEMENTAL GRANTS.
(a) LOANS. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the Participant. A
Loan may be made either in connection with the purchase of Stock under the
Award or with the payment of any Federal, state and local income tax with
respect to income recognized as a result of the Award. The Committee will
have full authority to decide whether to make a Loan and to determine the
amount, terms and conditions of the Loan, including the interest rate
(which may be zero), whether the Loan is to be secured or unsecured or with
or without recourse against the borrower, the terms on which the Loan is to
be repaid and the conditions, if any, under which it may be forgiven.
However, no Loan may have a term (including extensions) exceeding ten years
in duration.
(b) SUPPLEMENTAL GRANTS. In connection with any Award, the Committee
may at the time such Award is made or at a later date, provide for and
grant a cash award to the Participant ("Supplemental Grant") not to exceed
an amount equal to (1) the amount of any federal, state and local income
tax on ordinary income for which the Participant may be liable with respect
to the Award, determined by assuming taxation at the highest marginal rate,
plus (2) an additional amount on a grossed-up basis intended to make the
Participant whole on an after-tax basis after discharging all the
Participant's income tax liabilities arising from all payments under this
Section 6. Any payments under this subsection (b) will be made at the time
the Participant incurs Federal income tax liability with respect to the
Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be
exercised by the Participant's executor or administrator or the person or
persons to whom the Option or Right is transferred by will or the
applicable laws of descent and distribution, and all Options originally
issued to the Participant and transferred pursuant to Section 8.5 hereof
may be exercised by the person or persons to whom the Option has been so
transferred, at any time within the one year period ending with the first
anniversary of the Participant's death (or such shorter or longer period as
the Committee may determine), and shall thereupon terminate. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard
to this Section 7. Except as otherwise determined by the Committee, all
Options originally issued to a Participant and all Stock Appreciation
Rights held by a Participant immediately prior to death that are not then
exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in
the event the certificates representing such Restricted Stock are held by
the Company, such Restricted Stock will be so transferred without any
further action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled, as of the
time of death, unless otherwise determined by the Committee.
7.2. TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an Employee for any
reason other than death, or if there is a termination (other than by reason
of death) of the consulting, service or similar relationship in respect of
which a non-Employee Participant was granted an Award hereunder (such
termination of the employment or other relationship being hereinafter
referred to as a "Status Change"), the following will apply:
(a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights originally issued to the Participant that were
not exercisable immediately prior to the Status Change shall terminate at
the time of the Status Change. Any Options or Rights that were exercisable
immediately prior to the Status Change will continue to be exercisable for
a period of six months (or such longer period as the Committee may
determine), and shall thereupon terminate, unless (i) the Award provides by
its terms for immediate termination in the event of a Status Change, (ii)
the Status Change results from (w) retirement of the Participant on or
after age 65, (x) retirement on or after age 55 after 10 years of
continuous employment by the Company, (y) disability (as determined by the
Company), or (z) termination of the Participant's service as a director if
the Participant is a non-Employee director, in which cases that portion of
the Options originally issued to the Participant that was exercisable
immediately prior to the Status Change will continue to be exercisable for
the original term of the Option or (iii) unless the Status Change results
from a discharge for cause which in the opinion of the Committee casts such
discredit on the Participant as to justify immediate termination of the
Award. In no event, however, shall an Option or Stock Appreciation Right
remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. For purposes of this paragraph,
in the case of a Participant who is an Employee, a Status Change shall not
be deemed to have resulted by reason of (i) a sick leave or other bona fide
leave of absence approved for purposes of the Plan by the Committee, so
long as the Employee's right to reemployment is guaranteed either by
statute or by contract, or (ii) a transfer of employment between the
Company and a subsidiary or between subsidiaries, or to the employment of a
corporation (or a parent or subsidiary corporation of such corporation)
issuing or assuming an option in a transaction to which section 424(a) of
the Code applies.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing
such Restricted Stock are held by the Company, such Restricted Stock will
be so transferred without any further action by the Participant) in
accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award
canceled as of the date of such Status Change unless otherwise determined
by the Committee.
7.3. CERTAIN CORPORATE TRANSACTIONS.
7.3.1. MERGERS, SALES 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
or a dissolution or liquidation of the Company (a "covered transaction"),
all outstanding Awards will terminate as of the effective date of the
covered transaction, and the following rules shall apply:
(a) Subject to paragraphs (b) and (c) below, the Committee shall, at
least twenty (20) days prior to the effective date of the covered
transaction, (1) make each outstanding Option and Stock Appreciation Right
exercisable in full, (2) remove the restrictions from each outstanding
share of Restricted Stock, (3) cause the Company to make any payment and
provide any benefit under each outstanding Deferred Stock Award,
Performance Award, and Supplemental Grant which would have been made or
provided with the passage of time had the transaction not occurred and the
Participant not suffered a Status Change (or died), and (4) forgive all or
any portion of the principal of or interest on a Loan.
(b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of the
covered transaction, the Committee may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of
the date of the covered transaction notwithstanding paragraph (a) above.
(c) With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise
providing services to a corporation which is a surviving or acquiring
corporation in such transaction or an affiliate of such a corporation, the
Committee may, in lieu of the action described in paragraph (a) above,
arrange to have such surviving or acquiring corporation or affiliate grant
to the Participant a replacement award which, in the judgment of the
Committee, is substantially equivalent to the Award.
7.3.2. LIQUIDATION AND DISSOLUTION.
In the event of a dissolution or liquidation of the Company, all
outstanding Awards will terminate as of the effective date of such
dissolution or liquidation, and the following rules shall apply:
(a) Subject to paragraphs (b) and (c) below, the Committee may, prior
to the effective date of such liquidation or dissolution, (1) make each
outstanding Option and Stock Appreciation Right exercisable in full, (2)
remove the restrictions from each outstanding share of Restricted Stock,
(3) cause the Company to make any payment and provide any benefit under
each outstanding Deferred Stock Award, Performance Award, and Supplemental
Grant which would have been made or provided with the passage of time had
the transaction not occurred and the Participant not suffered a Status
Change (or died), and (4) forgive all or any portion of the principal of or
interest on a Loan.
(b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of
such liquidation or dissolution, the Committee may in its sole discretion
remove such conditions. If it does not do so, however, such Award will
terminate as of the date of such liquidation or dissolution notwithstanding
paragraph (a) above.
(c) With respect to an outstanding Award held by a participant who,
following such liquidation or dissolution, will be employed by or otherwise
providing services to a corporation which is a surviving or acquiring
corporation in such transaction or an affiliate of such a corporation, the
Committee may, in lieu of the action described in paragraph (a) above,
arrange to have such surviving or acquiring corporation or affiliate grant
to the Participant a replacement award which, in the judgment of the
Committee, is substantially equivalent to the Award.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may
be prescribed by the Committee from time to time. Such instruments may be
in the form of agreements to be executed by both the Participant and the
Company, or certificates, letters or similar instruments, which need not be
executed by the Participant but acceptance of which will evidence agreement
to the terms thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award
will not give a holder rights as a stockholder; the holder will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Committee
may, on such conditions as it deems appropriate, provide that a holder will
receive a benefit in lieu of cash dividends that would have been payable on
any or all Stock subject to the holder's Award had such Stock been
outstanding. Without limitation, the Committee may provide for payment to
the holder of amounts representing such dividends, either currently or in
the future, or for the investment of such amounts on behalf of the holder.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restrictions from shares previously
delivered under the Plan (a) until all conditions of the Award have been
satisfied or removed, (b) until, in the opinion of the Company's counsel,
all applicable federal and state laws and regulations have been complied
with, (c) if the outstanding Stock is at the time listed on any stock
exchange, until the shares to be delivered have been listed or authorized
to be listed on such exchange upon official notice of notice of issuance,
and (d) until all other legal matters in connection with the issuance and
delivery of such shares have been approved by the Company's counsel. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award,
such representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
If an Award is exercised by the Participant's legal representative,
the Company will be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of such
representative.
8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local
withholding tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any
Stock. If and to the extent that such withholding is required, the
Committee may permit the Participant or such other person to elect at such
time and in such manner as the Committee provides to have the Company hold
back from the shares to be delivered, or to deliver to the Company, Stock
having a value calculated to satisfy the withholding requirement. The
Committee may make such share withholding mandatory with respect to any
Award at the time such Award is made to a Participant.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require
as a condition of exercise that the person exercising the ISO agree (a) to
inform the Company promptly of any disposition (within the meaning of
section 424(c) of the Code) of Stock received upon exercise, and (b) to
give such security as the Committee deems adequate to meet the potential
liability of the Company for the withholding requirements and to augment
such security from time to time in any amount reasonably deemed necessary
by the Committee to preserve the adequacy of such security.
8.5. TRANSFERABILITY OF AWARDS.
No Award (other than an Award in the form of an outright transfer of
cash or Unrestricted Stock) may be transferred other than by will or by the
laws of descent and distribution, and during an employee'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), except that Options awarded
to Employees or members of the Board which are not ISOs may be transferred
by a Participant to (i) the spouse, children or grandchildren of the
Participant ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii) a partnership
in which such Immediate Family Members are the only partners, provided that
(x) there may be no consideration for any such transfer, and (y) subsequent
transfers of Options shall be prohibited except those in accordance with
Section 8.5 hereof. Following any such transfer, the transferred Option
shall continue to be subject to all the terms and conditions of this Plan,
including without limitation the provisions of Section 7 with respect to
exercise of the Option following the death or termination of employment of
the Participant to whom the Option was originally granted, and Section 8.4
with respect to tax withholding.
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization,
or other distribution to common stockholders other than normal cash
dividends, after the effective date of the Plan, the Committee will make
any appropriate adjustments to the maximum number of shares that may be
delivered under the Plan, or with respect to which Awards may be made to
any one Participant, under Section 4 above.
(b) In any event referred to in paragraph (a), the Committee will also
make any 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. The Committee may also make such adjustments to
take into account material changes in law or in accounting practices or
principles, mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, if it is determined by the
Committee that adjustments are appropriate to avoid distortion in the
operation of the Plan.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of
the Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee
in any particular case, the loss of existing or potential profit in Awards
granted under the Plan will not constitute an element of damages in the
event of termination of an employment, service or similar relationship even
if the termination is in violation of an obligation of the Company to the
Participant.
8.8. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal
to the par value of the Stock the Committee may determine that such price
has been satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.
The Committee 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 for the award of ISOs under section 422 of the Code.
