SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
Commission file number 0-13634
MACROCHEM CORPORATION
---------------------
(Exact name of registrant as
specified in its charter)
Delaware 04-2744744
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
110 Hartwell Avenue, Lexington, Massachusetts 02421-3134
--------------------------------------------------------
(Address of principal executive offices, Zip Code)
(781) 862-4003
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of September 30, 1999, there were 22,421,662 shares of Common Stock,
$.01 par value per share, of the Registrant outstanding.
<PAGE>
MACROCHEM CORPORATION
INDEX
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Page Number
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PART I Financial Information
Item 1 Unaudited Financial Statements
Unaudited Balance Sheets
September 30, 1999 and December 31, 1998 3-4
Unaudited Statements of Operations
Three Months and Nine Months Ended
September 30, 1999 and 1998 5
Unaudited Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 6-7
Notes to Unaudited Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
PART II Other Information
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. UNAUDITED FINANCIAL STATEMENTS
------------------------------
MACROCHEM CORPORATION
UNAUDITED BALANCE SHEETS
ASSETS
------
September 30, December 31,
1999 1998
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $16,332,380 $20,504,097
Accounts receivable 99,195 48,393
Prepaid expenses and other
current assets 181,609 204,181
Note receivable and related
accrued interest from affiliate 20,557 ---
---------- -----------
TOTAL CURRENT ASSETS 16,633,741 20,756,671
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation: 1999-$879,026;
1998-$731,080 405,033 397,483
---------- ----------
OTHER ASSETS:
Patents, net of accumulated amortization:
1999-$92,583; 1998-$79,600 439,396 351,110
Deposits 29,193 4,460
---------- ----------
TOTAL OTHER ASSETS 468,589 355,570
---------- ----------
TOTAL ASSETS $17,507,363 $21,509,724
========== ==========
(Continued)
<PAGE>
MACROCHEM CORPORATION
UNAUDITED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30, December 31,
1999 1998
CURRENT LIABILITIES: ------------- ------------
Accounts payable $ 193,828 $ 116,246
Accrued clinical trial costs 120,758 498,716
Other accrued expenses 167,423 156,210
Deferred compensation and related
accrued interest 95,503 93,563
---------- ----------
TOTAL CURRENT LIABILITIES 577,512 864,735
---------- ----------
DEFERRED REVENUE 500,000 500,000
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TOTAL LIABILITIES 1,077,512 1,364,735
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock --- ---
Common stock, $.01 par value; authorized
60,000,000 shares; issued 22,553,964
shares, outstanding 22,421,662
shares at September 30, 1999 and
issued 22,281,245 shares, outstanding
22,140,328 shares at December 31, 1998 225,540 222,812
Additional paid-in capital 49,225,829 47,295,449
Unearned compensation ( 462,587) ( 170,676)
Accumulated deficit (31,902,304) (26,508,119)
---------- ----------
Total 17,086,478 20,839,466
Less cost of treasury stock (132,302 shares
at September 30, 1999 and 140,917 shares
at December 31, 1998) ( 656,627) ( 694,477)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 16,429,851 20,144,989
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 17,507,363 $ 21,509,724
========== ==========
The accompanying notes are an integral part of these unaudited financial
statements.
(Concluded)
<PAGE>
<TABLE>
<CAPTION>
MACROCHEM CORPORATION
UNAUDITED STATEMENTS OF OPERATIONS
For the three months For the nine months
ended September 30, ended September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Research contract $ 143,417 $ 187,496 $ 377,388 $ 187,496
---------- ---------- ---------- ----------
TOTAL REVENUES 143,417 187,496 377,388 187,496
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Research and development 1,230,041 909,861 4,386,650 2,631,397
Marketing, general and
administrative 565,101 515,531 1,978,260 1,469,771
Consulting fees with
related parties 12,000 12,000 36,000 36,000
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 1,807,142 1,437,392 6,400,910 4,137,168
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS ( 1,663,725) ( 1,249,896) ( 6,023,522) ( 3,949,672)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 204,039 307,983 631,553 913,728
Interest expense ( 986) ( 890) ( 2,216) ( 3,921)
---------- ---------- ---------- ----------
TOTAL OTHER INCOME 203,053 307,093 629,337 909,807
---------- ---------- ---------- ----------
NET LOSS $( 1,460,672) $( 942,803) $( 5,394,185) $( 3,039,865)
========== ========== ========== ==========
BASIC AND DILUTED
NET LOSS PER SHARE $( 0.07) $( 0.04) $( 0.24) $( 0.14)
========== ========== ========== ==========
SHARES USED TO COMPUTE
BASIC AND DILUTED NET
LOSS PER SHARE 22,382,707 22,248,985 22,305,765 22,206,531
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
<PAGE>
<TABLE>
<CAPTION>
MACROCHEM CORPORATION
UNAUDITED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $( 5,394,185) $( 3,039,865)
--------- ---------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 163,279 132,991
Stock-based compensation 416,926 92,683
401(k) contribution in company common stock 58,252 22,306
Amortization of discounts on marketable securities --- ( 309,243)
Increase (decrease) in cash from:
Accounts receivable ( 50,802) ( 187,497)
Prepaid expenses, other current assets and deposits ( 2,161) ( 58,377)
Note receivable and related accrued interest from affiliate ( 20,557) ---
Accounts payable and accrued expenses ( 289,163) 446,965
Deferred compensation and related accrued interest 1,940 2,776
Deferred revenues --- 500,000
---------- ----------
Total adjustments 277,714 642,604
---------- ----------
Net cash used by operating activities ( 5,116,471) ( 2,397,261)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities --- (37,125,148)
Proceeds from maturities of marketable securities --- 21,507,000
Expenditures for property and equipment ( 157,846) ( 234,283)
Additions to patents ( 101,269) ( 58,717)
---------- ----------
Net cash used for investing activities ( 259,115) (15,911,148)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease --- ( 13,595)
Repurchase of common shares --- ( 668,494)
Proceeds from exercise of common stock options 369,656 169,432
Proceeds from exercise of common stock warrants 834,213 38,528
---------- ----------
Net cash provided from financing activities 1,203,869 ( 474,129)
---------- ----------
Net decrease in cash and cash equivalents ( 4,171,717) (18,782,538)
Cash and cash equivalents, beginning of period 20,504,097 24,952,121
---------- ----------
Cash and cash equivalents, end of period $ 16,332,380 $ 6,169,583
========== ==========
</TABLE>
(Continued)
<PAGE>
MACROCHEM CORPORATION
UNAUDITED STATEMENTS OF CASH FLOWS-Continued
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the nine months ended September 30, 1999 and 1998, cash paid for
interest aggregated $275 and $1,145, respectively.
The Company did not pay any income taxes during those periods.
The accompanying notes are an integral part of these unaudited financial
statements.
(Concluded)
<PAGE>
MACROCHEM CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) As permitted by the rules of the Securities and Exchange Commission (the
"Commission") applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all disclosures required by generally accepted
accounting principles. Reference should be made to the financial statements
and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
In the opinion of management of the Company, the accompanying unaudited
financial statements reflect all adjustments which were of a normal
recurring nature necessary for a fair presentation of the Company's
financial position as of September 30, 1999 and September 30, 1998, and
results of operations and cash flows for the three and nine months ended
September 30, 1999, and 1998.
The results disclosed in the Unaudited Statements of Operations for the
three and nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
(2) Certain prior year amounts have been reclassified to conform to their
current presentation.
(3) The Company granted 573,750 common stock options under the 1994 Equity
Incentive Plan during the nine months ended September 30, 1999. During this
same period, 135,400 options under the 1994 Equity Incentive Plan were
exercised and 44,000 options under the 1994 Equity Incentive Plan were
forfeited. All options were granted with an exercise price at the fair
market value of the underlying common stock determined on the date of
grant.
(4) Potential common shares are not included in the per share calculations for
diluted EPS, because the effect of their inclusion would be anti-dilutive.
Anti-dilutive potential shares not included in per share calculations for
the nine months ended September 30, 1999 and 1998 were 2,693,597 and
2,353,437, respectively. Anti-dilutive potential shares not included in per
share calculations for the three months ended September 30, 1999 and 1998
were approximately 2,272,736 and 2,058,111, respectively.
(5) Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements.
Comprehensive income (loss) is equal to net income (loss) for the three and
nine months ended September 30, 1999 and 1998.
(6) In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The provisions of SFAS No. 133 will
be effective for the Company beginning January 1, 2001. The Company has not
completed an evaluation of the effect of adopting SFAS No. 133 on the
Company's financiaposition and results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
GENERAL
MacroChem Corporation's primary business is the development of
pharmaceutical products for commercialization by applying SEPA(R) (Soft Enhancer
of Percutaneous Absorption), its patented topical drug delivery technology. SEPA
compounds, when properly combined with drugs, provide pharmaceutical
formulations (creams, gels, solutions, etc.) that enhance the transdermal
delivery of drugs into the skin or into the bloodstream. The Company currently
derives no significant revenue from product sales, royalties or license fees.
The Company plans to develop specific SEPA formulations for use with proprietary
and non-proprietary drugs manufactured by pharmaceutical companies, and to
commercialize these products through the formation of partnerships, strategic
alliances and license agreements with those companies. In order to attract
strategic partners, the Company is conducting clinical testing of certain
SEPA-enhanced drugs.
The Company's results of operations can vary significantly from year to
year and quarter to quarter, and depend, among other factors, on the signing of
new licenses and product development agreements, the timing of revenues
recognized pursuant to license agreements, the achievement of milestones by
licensees, the progress of clinical trials conducted by the licensees and the
Company and the degree of research, marketing and administrative effort. The
timing of the Company's revenues may not match the timing of the Company's
associated product development expenses. To date, research and development
expenses have generally exceeded revenue in any particular period and/or fiscal
year.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
During the three months ended September 30, 1999, the Company had $143,417
of revenues as compared to $187,496 of revenues during the same period in 1998.
All of the revenue is represented by one research contract related to the
Company's proprietary SEPA technology.
Research and development expenses in the 1999 period increased $320,180
(35%) over the comparable 1998 period. Clinical trial efforts and costs related
to products under development accounted for most of this increase over 1998.
Marketing, general and administrative expenses in the 1999 period increased
$49,570 (10%) over the comparable 1998 period. This increase is due primarily to
stock compensation and costs incurred due to increased printing and related
distribution of shareholder information which was partially offset by lower
consulting fees.
<PAGE>
Total other income decreased $104,040, resulting primarily from decreased
interest income earned on reduced cash and cash equivalents.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
During the nine months ended September 30, 1999, the Company had $377,388
of revenues as compared to $187,496 of revenues during the same period in 1998.
All of the revenue is represented by one research contract related to the
Company's proprietary SEPA technology.
Research and development expenses in the 1999 period increased $1,755,253
(67%) over the comparable 1998 period. Clinical trial efforts and costs related
to products under development accounted for most of this increase over 1998.
Marketing, general and administrative expenses increased $508,489 (35%)
over the comparable 1998 period. This increase in the 1999 period is due
primarily to stock compensation, costs incurred due to increased printing and
related distribution of shareholder information and increased consulting fees.
Total other income decreased $280,470, resulting primarily from decreased
interest income earned on reduced cash and cash equivalents.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits, rather than four, to
represent a year. The Year 2000 ("Y2K") problem arises because date-sensitive
software or hardware written or developed in this fashion may not be able to
distinguish between 1900 and 2000, and programs written in this manner that
perform arithmetic operations, comparisons or sorting of date fields may yield
incorrect results when processing a Y2K date. The Y2K problem could potentially
cause system failures or miscalculations that could disrupt operations.
The Company has appointed a Director of Year 2000 Compliance who, along
with an outside Y2K consultant, recently completed a review, which included
testing, of the Company's computer systems. This review of internal financial
and information technology systems was completed in the fourth quarter of 1998.
The Company has evaluated and prioritized the problems, which are not considered
significant. The Y2K consultant has certified that the Company's internal
computer systems are Year 2000 Compliant.
The Company intends to continuously identify and prioritize critical
vendors and suppliers and communicate with them about their plans and progress
in addressing their Y2K problems. The Company has implemented a policy to
exclude the use of any vendors which are not Y2K compliant.
Based on the efforts described above, the Company currently believes that
its systems are Y2K compliant. However, there can be no assurance that all Y2K
problems have been successfully identified, or that the necessary corrective
actions were taken. Failure to successfully identify and remediate such Y2K
problems in a timely manner could have a material adverse effect on the
Company's results of operations, financial position or cash flow.
<PAGE>
The Company has created a formal contingency plan for mission critical
Y2K problems. Such plan includes having arrangements for alternate suppliers and
using manual intervention where necessary. If it becomes necessary for the
Company to take these corrective actions, it is uncertain whether this would
result in significant interruptions of business operations or would have a
material adverse effect on the Company's results of operations, financial
position or cash flow.
As of September 30, 1999, the Company had not incurred significant costs
related to the Y2K problem, and does not expect to do so in the future. Overall,
the Company anticipates that incremental costs to the Company related to the Y2K
problem will not exceed $70,000, but there can be no assurance that such costs
will not be greater that anticipated.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the primary source of funding for the Company's operations
has been the private and public sale of its securities, and to a lesser extent,
the licensing of its proprietary technology, research contracts, and the limited
sales of products and test materials.
During the first nine months of 1999, the Company received aggregate net
proceeds of $369,656 from the exercise of stock options and $834,213 from the
exercise of stock warrants, compared to $169,432 and $38,528 for the nine months
ended September 30, 1998. At September 30, 1999 working capital was
approximately $16.1 million, compared to $19.9 million at December 31, 1998. The
reduction in the Company's working capital was due primarily to the cash used by
operating activities. Until such time as the Company obtains agreements with
third-party licensees or partners to provide funding for the Company's
anticipated business activities or the Company is able to obtain funds through
the private or public sale of its securities, the Company's working capital will
be utilized primarily to fund its operating activities.
Pursuant to a plan approved by the Company's Board of Directors, the
Company is authorized to repurchase 1,000,000 shares of its common stock to be
held as treasury shares for future use. At September 30, 1999, 132,302
repurchased shares remain available for future use and 845,150 shares remain
available for repurchase.
Capital expenditures and patent development costs for the nine months ended
September 30, 1999 aggregated approximately $259,115. The Company expects the
rate of spending for capital expenditures and patent development costs for the
remainder of the year to be consistent with amounts expended to date.
The Company's long term capital requirements will depend upon numerous
factors, including the progress of the Company's research and development
programs; the resources that the Company devotes to self-funded clinical testing
of SEPA-enhanced compounds; proprietary manufacturing methods and advanced
technologies; the ability of the Company to enter into additional licensing
arrangements or other strategic alliances; the ability of the Company to
manufacture products under those arrangements; and the demand for its products
or the products of its licensees or strategic partners if and when approved for
sale by regulatory authorities. In any event, substantial additional funds will
be required before the Company is able to generate revenues sufficient to
support its operations. There is no assurance that the Company will be able to
obtain such additional funds on favorable terms, if at all. The Company's
inability to raise sufficient funds could require it to delay, scale back or
eliminate certain research and development programs.
<PAGE>
The Company believes that its existing cash and cash equivalents will be
sufficient to meet its operating expenses and capital expenditure requirements
for at least the next twelve months. The Company's cash requirements may vary
materially from those now planned because of changes in focus and direction of
the Company's research and development programs, competitive and technical
advances, patent developments or other developments. It is not believed that
inflation will have any significant effect on the results of the Company's
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
CASH AND CASH EQUIVALENTS
As of September 30, 1999, the Company is exposed to market
risks which relate primarily to changes in U.S. interest rates. The Company's
cash equivalents are subject to interest rate risk and will decline in value if
interest rates increase. Due to the short duration of these financial
instruments, three months or less, changes to interest rates would not have a
material effect upon the Company's financial position. A hypothetical 10% change
in interest rates would result in an increase or decrease of approximately
$20,000 and $63,000, respectively, to reported interest income within the
Company's statements of operations for the three and nine months ended September
30, 1999.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS IN THIS REPORT AND IN
FORWARD-LOOKING STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ON THE BASIS OF
MANAGEMENT'S THEN-CURRENT EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING: THE COMPANY'S HISTORY
OF OPERATING LOSSES AND NEED FOR CONTINUED WORKING CAPITAL; TECHNOLOGICAL
UNCERTAINTY RELATING TO TRANSDERMAL DRUG DELIVERY SYSTEMS AND THE EARLY STAGE OF
DEVELOPMENT OF THE COMPANY'S PROPOSED PRODUCTS; THE COMPANY'S NEED FOR
SIGNIFICANT ADDITIONAL PRODUCT DEVELOPMENT EFFORTS AND ADDITIONAL FINANCING;
UNCERTAINTIES RELATED TO CLINICAL TRIALS OF THE COMPANY'S PROPOSED PRODUCTS; THE
COMPANY'S DEPENDENCE ON THIRD PARTIES FOR COMMERCIALIZATION; NO ASSURANCE OF
LICENSE ARRANGEMENTS; THE LACK OF SUCCESS OF THE COMPANY'S PRIOR DEVELOPMENT
EFFORTS; UNCERTAINTIES RELATED TO GOVERNMENT REGULATION AND REGULATORY
APPROVALS; THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR THE FDA APPLICATION
PROCESS; THE COMPANY'S LACK OF EXPERIENCED MARKETING PERSONNEL AND DEPENDENCE ON
THIRD PARTIES FOR MARKETING AND DISTRIBUTION; THE COMPANY'S DEPENDENCE ON THIRD
PARTIES FOR MANUFACTURING; THE COMPANY'S RELIANCE ON KEY EMPLOYEES, THE LIMITED
PERSONNEL OF THE COMPANY AND ITS DEPENDENCE ON ACCESS TO SCIENTIFIC TALENT;
UNCERTAINTIES RELATING TO COMPETITION, PATENTS AND PROPRIETARY TECHNOLOGY;
UNCERTAINTIES RELATING TO RISKS OF PRODUCT LIABILITY CLAIMS, LACK OF PRODUCT
LIABILITY INSURANCE, AND EXPENSE AND DIFFICULTY OF OBTAINING ADEQUATE INSURANCE
COVERAGE; UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; AND OTHER
FACTORS. ADDITIONAL INFORMATION ON THESE AND OTHER FACTORS WHICH COULD AFFECT
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE ARE INCLUDED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND, IN PARTICULAR, THE
SECTION ENTITLED "RISK FACTORS".
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-----------------
On August 13,1999, the Board of Directors approved the Amended and Restated
Bylaws of the Company, which include an "advance notice" bylaw governing the
requirements of prior notice for stockholder nominations of directors and
stockholder proposals being submitted for Annual Meetings of Stockholders. Under
the Amended and Restated Bylaws, stockholders who wish to make a proposal at the
2000 Annual Meeting - other than one that will be included in the Company's
proxy materials - must notify the Company no earlier that March 24, 2000 and no
later than April 25, 2000. If a stockholder who wishes to present a proposal
fails to notify the Company by April 25, 2000, the stockholder would not be
entitled to present the proposal at the meeting. If, however, management were to
allow the matter to be presented, the proxies that management solicits for the
meeting will have discretionary authority to vote on the stockholder's proposal.
If a stockholder makes a timely notification, the proxies may still exercise
discretionary voting authority under circumstances consistent with the SEC's
proxy rules. This updates the disclosure in the Company's May 21, 1999 Proxy
Statement. The foregoing description of the Amended and Restated Bylaws is
qualified in its entirety by reference to the full text of the Company's Amended
and Restated Bylaws filed as Exhibit 5 to the Form 8-K filed August 26, 1999 and
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed herewith:
10.1 Consulting Agreement dated August 10, 1999 between the Company
and Stephen J. Riggi.
27. Financial Data Schedule
(b) A report on Form 8-K was filed on August 26, 1999 to report 1) the
declaration of a Rights dividend by the Company, the terms of which
are set forth in a Rights Agreement dated as of August 13, 1999 between
the Company and American Stock Transfer & Trust Company, as Rights
Agent, a copy of which was filed as an exhibit thereto and 2) the
adoption by the Board of Directors of the Amended and Restated Bylaws
of the Company, a copy of which was filed as an exhibit thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MacroChem Corporation
---------------------
(Registrant)
November 12, 1999 /s/ Alvin J. Karloff
--------------------
Alvin J. Karloff
President & C.E.O.
/s/ Kenneth L. Rice
-------------------
Kenneth L. Rice
Chief Financial Officer
/s/ William P. Johnson
----------------------
William P. Johnson
Corporate Secretary & Treasurer
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421-3134
August 10, 1999
Stephen J. Riggi, Ph.D.
MacroChem Corporation
110 Hartwell Avenue
Lexington, Massachusetts 02421-3134
Dear Steve:
As we have discussed, your employment with MacroChem Corporation (the
"Company") as Vice President, Operations will terminate on August 10, 1999 (the
"Separation Date") as a result of your resignation from this position. The
purpose of this letter is to confirm the agreement ("Agreement") between you and
the Company concerning your severance arrangements.
In consideration of your accepting all of the terms of this Agreement and
subject to your meeting your obligations under it, the Company will provide you
the following severance pay and benefits:
1. Beginning on August 11, 1999 and continuing until August 10, 2001 (the
"Consulting Period"), unless earlier terminated pursuant to paragraph 5
herein, the Company will engage your services as a consultant to provide
marketing, business and technical support to the Company (hereinafter
referred to as the "Services").
2. During the Consulting Period, you will work on the Services and on other
matters requested of you by the Company from time to time, devoting up to
50% of your professional time to your performance of the Services. You are
free to accept engagements from others during this period, so long as those
engagements do not violate this Agreement, and/or do not interfere or
conflict with your provision of the Services to the Company, and/or do not
breach your continuing obligations to the Company as set forth in (i)
paragraphs 6, 7, 8, and 9 of your Employment Agreement dated March 25, 1996
(which expressly survive the termination of the Employment Agreement) and
(ii) the Proprietary Information and Inventions Agreement. (See paragraph
15, herein.) You will provide the Services in a timely manner and in
accordance with generally --- accepted professional standards for such
Services.
3. During the first six (6) months of the Consulting Period, you will be paid
for your Services at the annualized rate of one hundred and seventy-five
thousand dollars ($175,000), payable monthly. For the remaining eighteen
(18) months of the Consulting Period, you will be paid for your Services at
the annualized rate of eighty-seven thousand five hundred dollars ($87,500)
payable monthly. During the Consulting Period, you will receive all
benefits provided to you by the Company on the date hereof, including
medical, dental, and life and disability insurance, pursuant to the terms
of the Company's benefit plans and programs as from time to time in effect
(other than participation in the Company's 401(k) Plan, vacation accrual
and other paid time off).
<PAGE>
4. All payments to you hereunder shall be net of taxes and other required
withholdings. Any reasonable expenses incurred by you in providing services
to the Company hereunder, including without limitation expenses incurred in
travel and entertainment, shall be reimbursed by the Company, so long as
such expenses have been expressly authorized in writing by Chief Executive
Officer Alvin Karloff (or his/her designee) and appropriate receipts and
other documentation are timely submitted by you to the Company.
5. The Company may terminate this Agreement and your Services at any time
without notice in the event that the Company determines, in its reasonable
judgment, that (i) you have breached any material provision of this
Agreement; or (ii) that you have engaged in fraud or other material
dishonesty with respect to the Company; or (iii) you have otherwise acted
in a manner that was harmful, or potentially harmful, to the business
interests or reputation of the Company. Upon termination of your Services,
whether pursuant to this paragraph 5 or by expiration of the term of this
Agreement or otherwise, the Company shall have no further obligation to
you, other than for any amounts then due and unpaid under the express
provisions of this Agreement. Your obligations under paragraphs 6, 12, 13,
15, 17 and 18 shall survive any termination of your Services or this
Agreement, whether by expiration of the term or otherwise, and shall be
binding upon your heirs, executors, administrators, representatives and
assigns.
6. You agree that all Works, as defined below, shall be the sole property of
the Company. You hereby assign and agree to assign to the Company, or its
designee, your full right, title and interest, if any, to any and all Works
and agree that all copyrightable Works that you create shall be considered
"work made for hire." You agree to execute, without additional
compensation, any further documentation that the Company may request in
order to make this assignment fully effective.
You agree that you will never, directly or through another, register
any copyright claim on any of the Works, other than on behalf of the
Company at the express written direction of the chief executive officer
of the Company (or his/her designee). You agree that you will never,
directly or through another, publish or present any of the Works, other
than at the express written direction of the Chief Executive Officer of
the Company (or his/her designee). You represent that, to the best of
your knowledge, none of the Works will contain any material that
infringes any intellectual property rights of third parties. To the
extent that material in any of the Works is found to be owned by
others, you promise and agree to assist in obtaining written permission
for publication and republication by the Company.
<PAGE>
The Company's rights with respect to the Works shall include, without
limitation, the right to edit the Works and the right to decide whether
or not any of the Works shall be published.
For the purposes of this Agreement, "Works" means all inventions,
discoveries, compositions, concepts, ideas and the like, (whether or
not patentable or copyrightable or constituting trade secrets)
conceived, made, created, developed or reduced to practice by you
(whether alone or with others, whether or not during normal business
hours and whether on or off Company premises) during the term of this
Agreement that relate in any way to the business, products or services
of the Company, or to any prospective activity of the Company of which
you have knowledge.
7. You agree to comply with all written policies, practices and procedures of
the Company applicable and supplied to consultants, as these may be changed
by the Company from time to time in writing. You acknowledge that you do
not have the authority to obligate the Company to any contracts or pledge
its credit and you agree that you will not attempt to do so unless
expressly authorized in writing by the Chief Executive Officer of the
Company (or his/her designee).
8. You may elect to continue your participation in the Company's medical and
dental insurance plans under the applicable federal law known as "COBRA"
after termination of the Agreement at your own expense.
9. The period to exercise any outstanding stock options that you have been
awarded under the MacroChem Corporation 1994 Equity Incentive Plan, as
amended November 15, 1996 and May 23, 1997 (the "Equity Incentive Plan")
shall be extended for a period of twenty-four (24) months following the
Separation Date, it being understood that in no event shall this paragraph
9 be deemed to make any option exercisable beyond the latest date on which
it could have been exercised without regard to this paragraph 9. Except as
otherwise expressly provided in this paragraph 9 of this Agreement, your
rights and obligations with respect to the Company's securities shall be as
provided in the applicable stock option plan.
10. In addition to your resignation as Vice President, Operations of MacroChem
effective on the Separation Date, you also will resign as a member of the
Board of Directors of the Company effective on the Separation Date, and you
acknowledge and agree that all such resignations are irrevocable.
11. No later than the Separation Date, you will return to the Company all
documents, files, books, keys, passes, identification materials, and other
property of the Company, except that which is necessary to perform the
Services contemplated by this Agreement.
<PAGE>
12. You agree that you will not (i) disparage the Company or any of the people
or organizations connected with it; (ii) do or say anything that could
disrupt the good morale of the employees of the Company or otherwise harm
its interests or reputation; or (iii) take any actions that will have the
purpose or effect of disrupting the current business and/or operations of
the Company. The Company agrees that it will not disparage you or do or say
anything that could harm your interests or reputation.
13. Each of you and the Company agree to keep the terms of this Agreement
confidential, except for disclosures (i) required by law, (ii) by you to
members of your immediate family and (iii) by you or the Company to your or
the Company's legal/tax advisors or other financial advisors, respectively.
14. In order to be certain that this Agreement will resolve any and all
concerns that you might have, the Company requests that you carefully
consider its terms, including the release of claims set forth below and, in
that regard, encourages you to seek the advice of an attorney before
signing this Agreement.
15. This Agreement contains the entire agreement between you and the Company
and replaces all prior and contemporaneous agreements, communications and
understandings, whether written or oral, with respect to your employment
and its termination and all related matters, excluding only (i) the
covenants relating to post-employment activities contained in paragraphs 6,
7, 8, and 9 of your Employment Agreement dated March 25, 1996 (the
"Employment Agreement") which expressly survive the termination of the
Employment Agreement; (ii) the Proprietary Information and Inventions
Agreement (the "Proprietary Information Agreement"); and (iii) and, except
as modified herein, the Equity Incentive Plan, all of which shall remain in
full force and effect in accordance with their terms.
16. If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement, or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable shall not be affected thereby and each portion and
provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
17. You agree to cooperate with the Company with respect to matters arising
during or related to your employment, including but not limited to,
cooperation in connection with any litigation or governmental investigation
or regulatory or other proceeding which may have arisen or which may arise
following the execution of this Agreement. As part of the cooperation
agreed to herein, you shall provide complete and truthful information to
the Company and its attorneys with respect to any matter arising during or
related to your employment. Specifically, you shall make yourself available
at reasonable times and upon reasonable notice to meet with Company
personnel and the Company's attorneys and shall provide to the Company and
its attorneys any and all documentary or other physical evidence pertinent
to any such matter; and, at the Company's request upon reasonable notice,
you shall travel to such places as the Company may specify (for which the
Company will reimburse you for your reasonable travel and lodging expenses)
and provide such truthful and complete information and evidence to parties
whom the Company may specify. Further, upon the oral request of the Company
or its attorneys, you shall testify, truthfully and accurately, to any such
matter in any civil case to which the Company is a party or in connection
with any investigation or regulatory or other proceeding relating to the
Company or its activities. Finally, you shall promptly notify the Company,
within three (3) business days, of your receipt from any third party or
governmental entity of a request for testimony and/or documents, whether by
legal process or otherwise, relating to any matter arising during or
relating to your employment.
<PAGE>
18. In exchange for the severance pay and benefits provided you under this
Agreement, to portions of which you would not otherwise be entitled, you
agree that this Agreement shall be in complete and final settlement of any
and all causes of action, rights, claims, liabilities, damages, of whatever
kind or nature, whether known or unknown, that you have had in the past,
now have, or might now have, against the Company and/or its parent,
subsidiaries, and other affiliates, and all of its and their respective
past, present and future directors, shareholders, officers, employees,
agents, attorneys, successors and assigns, and each of them (collectively
the "Releasees"), in any way related to, connected with or arising out of
your employment or its termination or pursuant to Title VII of the Civil
Rights Act, the Americans with Disabilities Act, the Age Discrimination in
Employment Act, the Massachusetts fair employment practices statute, or any
other federal, state or local employment law, regulation or other
requirement, and you hereby release and forever discharge the Releasees,
both individually and in their official capacities, from any and all such
causes of action, rights or claims. The Company agrees that this Agreement
shall be in complete and final settlement of any and all causes of action,
rights, claims, liabilities, damages, of whatever kind or nature, whether
known or unknown, that the Company has had in the past, now has, or might
now have, against you, in any way related to, in connected with, or arising
out of your employment or its termination, and the Company hereby releases
and forever discharges you from any and all such causes of action, rights,
or claims.
19. In signing this Agreement, you give the Company assurance that you
understand its provisions, that your agreement is knowing and voluntary,
that you have been afforded the opportunity to consult with and seek advice
from an attorney, and that you have been advised by the Company to consult
with an attorney prior to executing this Agreement.
20. This Agreement and the rights and obligations defined herein shall bind any
successor or successors of the Company by reorganization, merger or
consolidation and any assignee of all or substantially all of its business
and properties.
If the terms of this Agreement are acceptable to you, please sign, date and
return it to me within twenty-one days of the date you receive it. You may
revoke this Agreement at any time during the seven-day period immediately
following the date of your signing, provided that you do so in writing. If you
do not revoke it, then, at the expiration of that seven-day period, this
Agreement will take effect as a legally-binding agreement between you and the
Company on the basis set forth above. The enclosed copy of this letter, which
you should also sign and date, is for your records.
Sincerely,
/s/ Alvin J. Karloff
--------------------
Alvin J. Karloff
President and Chief Executive Officer
Accepted and agreed:
Signature:/s/ Stephen J. Riggi
--------------------
Stephen J. Riggi
Date: August 10,1999
--------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheet, statement of operations, statement of stockholders'
equity and statement of cash flows and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<CIK> 0000743884
<NAME> MacroChem Corporation
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<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
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0
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<TOTAL-LIABILITY-AND-EQUITY> 16,429,851
<SALES> 377,388
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<CGS> 0
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