MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 30, 2000
The Annual Meeting of Stockholders of MacroChem Corporation (the
"Company"), a Delaware corporation, will be held on Friday, June 30, 2000 at
10:00 a.m. at the offices of Ropes & Gray, One International Place, 36th Floor,
Boston, 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 Company for the fiscal year ending December 31, 2000.
3. To transact other business properly coming before the meeting.
Stockholders owning Company shares at the close of business on May 10, 2000
are entitled to attend and vote at the meeting.
We hope that all stockholders will be able to attend the meeting. To assure
that a quorum is present at the meeting, please date, sign and promptly return
the enclosed proxy whether or not you expect to attend the meeting. IF YOU PLAN
TO ATTEND THE MEETING, PLEASE MARK THE APPROPRIATE BOX ON THE ENCLOSED PROXY. A
postage-prepaid envelope, addressed to American Stock Transfer & Trust Company,
the Company's transfer agent and registrar, has been enclosed for your
convenience. If you attend the meeting, you may vote your shares in person.
By Order of the Board of Directors,
Kenneth L. Rice, Jr.
SECRETARY
Lexington, Massachusetts
June 2, 2000
<PAGE>
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 30 , 2000
The enclosed proxy is solicited by the Board of Directors of MacroChem
Corporation (the "Company") for use at the Annual Meeting of Stockholders to be
held on Friday, June 30, 2000, and at any adjournment thereof.
Stockholders of record at the close of business on May 10, 2000 will be
entitled to vote at the meeting. On that date 22,452,173 shares of common stock
of the Company 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 meeting. The Company has no other voting securities.
Execution of a proxy will not in any way affect a stockholder's right to
attend the meeting and vote in person. A stockholder may revoke a proxy at any
time before it is exercised by written notice to the Company's Secretary prior
to the meeting, or by giving to the Company'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 meeting and voting in person. The shares
represented by all properly executed proxies received in time for the 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, 2000, 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 meeting.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company, 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
meeting. If any other matter should be properly presented at the 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 Company's Annual Report to Stockholders for the Company's fiscal year
ended December 31, 1999 is being mailed together with Form 10-K and this Proxy
Statement to all stockholders entitled to vote at the meeting. This Proxy
Statement and the accompanying proxy were first mailed to stockholders on or
about June 2, 2000.
1
<PAGE>
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Company's by-laws, a majority of
the shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the meeting will be counted by persons appointed by the
Company to act as election inspectors for the meeting.
The six nominees for election as Directors at the meeting who receive the
greatest number of votes properly cast for the election of Directors shall be
elected the Directors of the Company.
The election inspectors will count the total number of votes cast "for"
approval of Proposal No. 2 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 and 2.
2
<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
Annual Meeting of Stockholders to be held in 2001 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.
Three of the nominees are currently Directors: Alvin J. Karloff, Peter G.
Martin and Dr. Michael A. Davis. Dr. Carlos M. Samour resigned as Chairman of
the Board on May 17, 2000, and will continue as a Director until June 30, 2000.
He and Dr. Willard M. Bright are not candidates for re-election as Directors.
The following table sets forth the year each nominee was elected a Director and
the age, positions, and offices presently held by each nominee with the Company:
Year
Nominee
First
Became a
Name Age Director Position with Company
--------------------------------------------------------------------------------
Alvin J. Karloff............68 1990 Chief Executive Officer,
President and Chairman of
the Board of Directors
Peter G. Martin.............51 1995 Director
Michael A. Davis............59 1997 Director and Consultant
Robert J. DeLuccia..........54 -- None
Paul S. Echenberg...........56 -- None
Peter G. Savas..............51 -- None
The Board of Directors held four meetings during 1999. All the Company's
current Directors attended at least 75 percent of the 1999 meetings of the Board
of Directors and of those committees of which they were members.
There are two committees of the Board of Directors, an Audit Committee and
a Compensation Committee. The Company does not have a nominating committee.
3
<PAGE>
Dr. Bright (Chairman), Dr. Davis and Mr. Martin serve as members of the
Audit Committee, which was established for the purpose of (i) reviewing the
Company's financial results and recommending the selection of the Company's
independent auditors; (ii) reviewing the effectiveness of the Company'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 and any transactions which may involve a potential conflict of
interest. The Audit Committee met two times during 1999.
Dr. Davis (Chairman), Dr. Bright and Mr. Martin serve on the Company's
Compensation Committee. The Compensation Committee was established for the
purpose of (i) determining the compensation of the Company's executive officers,
(ii) making awards under the Company'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 five times during 1999.
BACKGROUND
The following is a brief summary of the background of each nominee for
election as a Director of the Company:
ALVIN J. KARLOFF has served as the Company's Chief Executive Officer and
President and as a Director since January 1990 and became Chairman of the Board
on May 17, 2000. 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 Company. 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 received a B.S. from the University
of Massachusetts.
PETER G. MARTIN has served as a Director of the Company 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 was initially
elected to the Board of Directors as the designee of David Russell, who
privately purchased 1 million shares of the Company's Common Stock in 1995. Mr.
Russell is no longer entitled to designate a Director of the Company. Mr. Martin
received a B.A. and J.D. from Fordham University and an M.B.A. from Columbia
University.
MICHAEL A. DAVIS, M.D., SC.D., has served as a Director of the Company
since 1997 and has provided medical and pharmaceutical consulting services to
the Company since 1991. Since 1980 Dr. Davis has been Professor of Radiology and
Nuclear Medicine and Director, Division of Radiologic Research, University of
Massachusetts Medical School. From 1982 to 1997 Dr. Davis was Adjunct Professor
of Surgery at Tufts University School of Veterinary Medicine. Since 1986 he has
been Affiliate Professor of Biomedical Engineering at Worcester Polytechnic
Institute. He is also a director of EZ EM, Inc., a public company engaged in
supplying oral radiographic contrast media, as well as medical devices. In
addition, from February to November 1999 he was President and Chief Executive
Officer of Amerimmune Pharmaceuticals, Inc., formerly known as Versailles
Capital Corporation, a public company, and its wholly owned subsidiary,
Amerimmune Inc., which is engaged in developing drugs relating to the immune
system. Since February 1999 Dr. Davis has been a director of both Amerimmune
Pharmaceuticals, Inc. and Amerimmune Inc. Dr. Davis received a B.S. and M.S.
from Worcester Polytechnic Institute, an S.M. and Sc.D. 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.
4
<PAGE>
ROBERT J. DELUCCIA is a nominee for election as a Director of the Company.
Mr. DeLuccia is currently a director of IBEX Technologies, Inc, a publicly
traded biotechnology company developing enzymes for a variety of therapeutic
applications. From 1998 through 1999 Mr. DeLuccia was President and Chief
Executive Officer and a director of Immunomedics, Inc. Immunomedics is a
publicly traded biotechnology company focused on diagnostic and therapeutic
products for the detection and treatment of cancer and infectious diseases. From
1994 through 1997, Mr. DeLuccia was President, Sterling Winthrop Pharmaceuticals
and Senior Vice President, Sanofi Winthrop, Inc. Sanofi Winthrop Inc. was then
the U.S. subsidiary of Sanofi (now Sanofi-Synthelabo) based in Paris, France.
Sanofi Winthrop focused on a wide range of cardiovascular, thrombosis,
rheumatoid arthritis, analgesics and oncology products as well as a full line of
parenteral products in a proprietary drug delivery system. From 1984 through
1994, Mr. DeLuccia was also with Sterling Drug as a Vice President in a variety
of marketing roles prior to the company's sale by Eastman Kodak to Sanofi. From
1974 through 1981 Mr. DeLuccia held sales, marketing and general management
positions at Pfizer, Inc. Mr. DeLuccia holds both an M.B.A. and a B.S. in
marketing from Iona College.
PAUL S. ECHENBERG is a nominee for election as a Director of the Company.
Since 1997 he has been the President and Chief Executive Officer of Schroders &
Associates Canada, Inc. and a director of Schroder Ventures Limited. These firms
provide merchant banking advisory services to a number of Canadian buy-out
funds. He is a director of the following companies: EZ EM, Inc., a supplier of
oral radiographic contrast media and medical devices; Cedara Software Inc.;
Benvest Capital Inc., a merchant bank that he founded; and Shirmax Fashions Ltd.
From 1989 through 1997 Mr. Echenberg was President of Eckvest Equity, Inc., a
private merchant bank providing consulting and personal investment services.
From 1970 to 1989 he was President and Chief Executive Officer of Twinpak, Inc.,
a manufacturer of plastic packaging, and from 1982 to 1989 was Executive Vice
President of CB Pak, Inc., a publicly traded plastic, glass and packaging
company. Mr. Echenberg received a B.Sc. from McGill University and an M.B.A.
from Harvard Business School.
PETER G. SAVAS is a nominee for election as a Director of the Company.
Since 1992 Mr. Savas has been with Unisyn Technologies, Inc., a private
biotechnology company that provides contract process development and
manufacturing of biologics to the global pharmaceutical industry. Mr. Savas
joined Unisyn in 1992 as President and Chief Operating Officer and became Chief
Executive Officer in 1995. From 1989 to 1992 Mr. Savas was Senior Vice President
of Zymark Corporation, a manufacturer of standard and custom laboratory
automation and robotics equipment. From 1984 through 1989 Mr. Savas held the
position of Vice President of Genex Corporation, a single chain antibody therapy
company. From 1975 through 1984 Mr. Savas held positions of increasing
responsibility culminating in the role of Vice President & General Manager of
Millipore Corporation, a Fortune 1000 biotechnology . Mr. Savas began his career
as a Senior Research Scientist at Bristol-Myers. He received a B.A. in Chemistry
from Syracuse University.
5
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company, their ages and their positions with
the Company are as follows:
NAME AGE POSITION WITH COMPANY
-----------------------------------------------------------------------------
Alvin J. Karloff...........68 Chief Executive Officer, President
and Chairman of the Board of Directors
Paul J. Schechter..........60 Vice President, Drug Development & Regulatory
Affairs
Kenneth L. Rice, Jr........46 Vice President, Chief Financial Officer,
Treasurer and Secretary
The following is a brief summary of the backgrounds of Dr. Schechter and
Mr. Rice. The background of the Company's other executive officer, Mr. Karloff,
is summarized above.
PAUL J. SCHECHTER, M.D., PH.D., the Company's Vice President, Drug
Development and Regulatory Affairs since May 1998, was from 1973 to 1990 with
Merrell Dow Research Institute, where he attained the position of Vice President
for Clinical Research. He went on to become Vice President of Fujisawa
Pharmaceutical Company from 1990 to 1993. Most recently he served as Senior Vice
President, Drug Development with Hybridon, Inc. from 1993 to 1997. Dr. Schechter
holds an M.D. and Ph.D. in Pharmacology from the University of Chicago and a
B.S. from Columbia University, College of Pharmacy.
KENNETH L. RICE, JR., Vice President and Chief Financial Officer of the
Company since August 1999 and Treasurer and Corporate Secretary since February
2000, has held executive financial and operating positions at a number of life
sciences and computer services firms. Most recently Mr. Rice was Vice President,
Finance and Administration, Chief Financial Officer & Secretary at Pentose
Pharmaceuticals, Inc. from 1998 to 1999. Mr. Rice held similar positions at
Unisyn Technologies, Inc. (1993 to 1998, Senior Vice President, CFO and General
Counsel). Mr. Rice spent his early career at Millipore Corporation, where he
attained the postion of Corporate Tax Director. Mr. Rice holds an LL.M. in
Taxation from Boston University Law School, a J.D. from Suffolk Law School and
an M.B.A. and B.S.B.A. from Babson College.
6
<PAGE>
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, 2000. A
representative of Deloitte & Touche LLP is expected to be present at the
meeting, and will have the opportunity to make a statement and answer
appropriate questions from stockholders.
7
<PAGE>
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of March 31, 2000, certain information
concerning ownership of the Company's common stock by (i) each person known by
the Company to be the beneficial owner of more than five percent (5%) of the
Company's common stock, (ii) each of the Company's Directors, (iii) each of the
executive officers named in the Summary Compensation Table under "Compensation
of Officers and Directors" below 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.
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED PERCENTAGE OF CLASS
--------------------------------------------------------------------------------
Carlos M. and Pierrette E. Samour(2)(3).....1,459,400 6.5%
Alvin J. Karloff(2)(3)......................1,080,000 4.8%
Willard M. Bright(2) ....................... 86,800 *
Peter G. Martin(2) ......................... 59,270 *
Michael A. Davis(2)......................... 35,000 *
Paul J. Schechter(2)(3)..................... 145,000 *
Stephen J. Riggi(2)(3)...................... 180,000 *
Peter Janssen...............................1,357,017 6.0%
1780 Route 106
Muttontown, NY 11791
All Directors and Officers as a Group
(7 persons) (2)(3)......................3,045,470 13.6%
--------------------------------------------------------------------------------
* Less than one percent (1%).
(1) The address of Dr. Samour, Mrs. Samour, Mr. Karloff, Dr. Bright, Mr.
Martin, Dr. Davis, Dr. Schechter and Dr. Riggi is c/o the Company, 110
Hartwell Avenue, Lexington, Massachusetts 02421.
(2) Includes the following numbers of shares issuable upon the exercise of
stock options exercisable within 60 days: Dr. and Mrs. Samour-995,080; Mr.
Karloff-1,080,000; Dr. Bright-60,000; Mr. Martin-40,000; Dr. Davis-35,000;
Dr. Schechter-145,000; Dr. Riggi-180,000.
(3) Does not include the following numbers of vested shares in the Company's
401(k) Plan contributed by the Company to match portions of cash
contributions by the following Plan participants: Dr. and Mrs.
Samour-2,256; Mr. Karloff-1,673; Dr. Schechter-1,673; Dr. Riggi-1,121.
8
<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, Mr. Karloff and Dr. Riggi during each of the three fiscal
years ended December 31, 1999 and to Dr. Schechter during each of the two fiscal
years ended December 31, 1999:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
------------------------------------------------------------------------------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year $ $(1) $(2) # $(3)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carlos M. Samour 1999 250,000 45,000 10,606 ----- 5,000
Chairman, Scientific 1998 237,538 42,757 10,889 ----- 5,000
Director 1997 198,749 35,775 10,894 ----- -----
Alvin J. Karloff 1999 250,000 45,000 10,955 ----- 5,000
President, Chief 1998 237,563 42,761 13,453 ----- 5,000
Executive Officer 1997 198,749 35,775 13,046 ----- -----
Stephen J. Riggi 1999(4) 106,788 ----- ----- ----- 71,337
Former Vice 1998 175,000 ----- 1,175 ----- 5,000
President, Operations 1997 159,167 ----- 490 ----- -----
Paul J. Schechter 1999 182,500 ----- ----- 50,000 5,000
Vice President, 1998(5) 116,667 ----- 392 180,000 5,000
Drug Development
& Regulatory Affairs
------------------------------------------------------------------------------------------------------
<FN>
(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 $799, 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) For Dr. Samour, Mr. Karloff and Dr. Schechter, represents the dollar value
of Company contributions to the Company's 401(k) Retirement Plan, which was
established in 1998. For Dr. Riggi, represents $68,212 paid to Dr. Riggi
for consulting services to the Company from August 11, 1999 through
December 31, 1999 pursuant to an agreement with the Company and $3,125 of
Company contributions to the Company's 401(k) Retirement Plan. Company
contributions to the 401(k) Retirement Plan are made in its common stock.
(4) Dr. Riggi resigned as Director and officer on August 10, 1999.
(5) Dr. Schechter's employment commenced on May 1, 1998.
</FN>
</TABLE>
9
<PAGE>
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 1999 to Dr. Schechter (no stock options were granted during 1999
to Dr. Samour, Mr. Karloff or Dr. Riggi):
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates
Number of % of Total of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base OPTION TERM
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Schechter 50,000(1) 9% 7.81 January 2009 216,000 622,000
-------------------------------------------------------------------------------------------------
<FN>
(1) The option granted to Dr. Schechter was granted in January 1999 under the
Company's 1994 Equity Incentive Plan at an exercise price of $7.81 per
share. The option expires ten years from the date of grant and vests with
respect to 25,000 shares in January in each of 2000 and 2001.
</FN>
</TABLE>
The following table provides information concerning unexercised options
held by Dr. Samour, Mr. Karloff, Dr. Riggi and Dr. Schechter as of December 31,
1999 (no options were exercised by these persons during the fiscal year ended
December 31, 1999):
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) 695,080/ NA $ 685,050/ NA
Alvin J. Karloff 1,080,000/ NA $2,535,000/ NA
Stephen J. Riggi 180,000/ NA $ 0/ NA
Paul J. Schechter 60,000/170,000 $ 0/ 0
--------------------------------------------------------------------
10
<PAGE>
(1) The value of Dr. Samour's, Mr. Karloff's, Dr. Riggi's and Dr. Schechter's
in-the-money unexercised options at the end of the fiscal year ended
December 31, 1999 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, 1999 ($4.1875 per share) and the exercise price
of the options granted.
(2) Does not include options to purchase 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 a total of 995,080 exercisable options as of
December 31, 1999, the value of which would have been $1,435,050.
DIRECTORS' COMPENSATION
Each non-employee Director of the Company receives compensation at an
annual rate of $6,000 from January 1 through June 30, 2000 and at an annual rate
of $12,000 thereafter, $1,000 per meeting attended, $500 for each committee
meeting and telephone meeting attended 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 and
Mr. Karloff do not receive any additional compensation for their services as
Directors. During 1999 no stock options were granted to any non-employee
Director.
The Company currently compensates Dr. Davis at the rate of $3,000 per month
for medical and pharmaceutical consulting services.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company 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 $250,000. Each agreement
also provides for a monthly automobile allowance of $500 net of taxes and a
payment, in lieu of retirement benefits, equal to 18% of the individual's base
salary. Further, each agreement provides for the payment of 12 months' salary in
the event the individual is terminated without cause. In addition, each
agreement was amended in 1999 to preclude the individual from competing with the
Company during his employment and for a period of two years thereafter, and from
disclosing confidential information.
The Company has entered into an employment agreement of indefinite length
effective as of June 8, 1999 with Dr. Schechter. The agreement currently
provides for annual compensation of $190,000 and for the payment of six months'
salary in the event he is terminated without cause. In addition, the agreement
precludes Dr. Schechter from competing with the Company during his employment
and for a period of two years thereafter, and from disclosing confidential
information.
The Company and Dr. Riggi entered into a two-year agreement effective as of
August 10, 1999 in connection with his resignation as an officer and Director of
the Company. Under the agreement, the Company has engaged Dr. Riggi as a
consultant. Payment to Dr. Riggi for the first six months was at the annualized
rate of $175,000, and for the remaining 18 months will be at the annualized rate
of $87,500. During the term of the agreement, Dr. Riggi will receive all
benefits provided to him by the Company as of August 10, 1999, other than
participation in the Company's 401(k) plan, vacation accrual and other paid time
11
<PAGE>
off. The agreement also extends Dr. Riggi's right to exercise all outstanding
stock options awarded to him under the Company's 1994 Equity Incentive Plan, as
amended, for 24 months after August 10, 1999. Pursuant to the agreement and the
Employment Agreement between Dr. Riggi and the Company dated March 25, 1996 and
the Proprietary Information and Inventions Agreement dated March 25, 1996, Dr.
Riggi is precluded from competing with the Company for a period of two years
commencing on August 10, 1999 and from disclosing confidential information.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. Davis (Chairman), Dr.
Bright and Mr. Martin.
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 14 shall not be incorporated by reference into any such filings.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists of Dr. Davis
(Chairman), Dr. Bright and Mr. Martin. The Committee's responsibilities include
determining the compensation of the Company's executive officers, making awards
under the Company'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 Company during the
year ended December 31, 1999.
The Company's executive compensation programs reflect input from the
Company'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 Company's entire
Board of Directors. It is the Company's current policy to establish, structure
and administer compensation plans and arrangements so that the deductibility to
the Company of such compensation will not be limited under Section 162(m) of the
Internal Revenue Code.
CEO COMPENSATION
During 1999, the Company and Mr. Karloff were parties to an employment
agreement with a 1999 base salary of $250,000, compared with a 1998 base salary
at an annual rate of $225,000 from January 1 through June 30 and at an annual
rate of $250,000 thereafter. Under the contract, during 1999 Mr. Karloff also
received payments equal to 18% of base salary in lieu of receiving certain
benefits from the Company. These payments were not related to the Company's
performance during the period.
EXECUTIVE OFFICERS' COMPENSATION
The Company maintains compensation and incentive programs designed to
motivate, retain and attract capable management. Dr. Samour and Dr. Schechter
are also parties to employment contracts with the Company described elsewhere in
the Proxy Statement. The compensation levels provided for in the Company'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.
12
<PAGE>
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 Company'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 Company 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 Company's stock option plans. 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 Company and the officer's past contributions to the Company.
Dated: June 2, 2000 COMPENSATION COMMITTEE
Michael A. Davis
Willard M. Bright
Peter G. Martin
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PERFORMANCE GRAPH
The following five-year performance graph compares the cumulative total
shareholder return (assuming reinvestment of dividends) on $100 invested in the
Company's common stock for the five-year period from December 31, 1994 through
December 31, 1999 with similar investments in the NASDAQ Stock Market (U.S.)
Index of companies and a New Peer Group of four companies that provide services
similar to those provided by the Company: Cellegy Pharmaceuticals, Inc., Noven
Pharmaceuticals Inc., Vivus and Zonagen, Inc. The New Peer Group replaces the
Old Peer Group used in the Company's Proxy Statement for the Annual Meeting of
Stockholders held in 1999: Cellegy Pharmaceuticals, Inc., Noven Pharmaceuticals
Inc., Theratech Inc. and Zonagen, Inc. Vivus has been added because it more
closely resembles the Company in size, focus and character of its activities.
Theratech, Inc. has been deleted because it bears less of a resemblance to the
Company in the size, focus and character of its activities.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MACROCHEM CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP
12/94 12/95 12/96 12/97 12/98 12/99
MacroChem Corporation $100 $229 $371 $521 $482 $239
New Peer Group(1) $100 $141 $164 $109 $ 63 $ 80
Old Peer Group(2) $100 $ 97 $113 $ 89 $ 76 $ 99
NASDAQ Stock Market (U.S.) $100 $141 $174 $213 $300 $542
--------------------------
(1) New Peer Group Companies: Cellegy Pharmaceuticals, Inc., Noven
Pharmaceuticals Inc., Vivus and Zonagen, Inc.
(2) Old Peer Group Companies: Cellegy Pharmaceuticals, Inc., Noven
Pharmaceuticals Inc., Theratech Inc. and Zonagen, Inc.
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STOCKHOLDER PROPOSALS
In order for the Company to consider stockholder proposals for inclusion in
the proxy material for the Annual Meeting to be held in 2001, the Company must
receive them on or before February 2, 2001. The Company suggests that proponents
submit their proposals by certified mail, return receipt requested, addressed to
the Secretary of the Company at MacroChem Corporation, 110 Hartwell Avenue,
Lexington, MA 02421-3134.
Under the Company's By-Laws, stockholders who wish to make a proposal at
the Annual Meeting to be held in 2001, other than one that shall be included in
the proxy materials, must notify the Company no earlier than March 30, 2001 and
no later than May 1, 2001. If a stockholder who wishes to present a proposal
fails to notify the Company by May 1, 2001, any proxy that management solicits
for the Annual Meeting in 2001 will confer on the holder of the proxy
discretionary authority to vote on any such proposal properly presented at the
meeting.
FINANCIAL INFORMATION
The audited financial statements and related financial and business
information of the Company as of December 31, 1999 and 1998 and each year in the
three-year period ended December 31, 1999 are contained in the Company's Annual
Report on Form 10-K.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who beneficially own more than 10 percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. 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 Company
believes that during 1999 all filing requirements applicable to its officers,
directors, and such 10 percent beneficial owners were complied with, except that
Peter Martin filed one late report covering an acquisition made in 1999.
MISCELLANEOUS
Management does not know of any other matters which may come before the
meeting. However, if any other matters are properly presented to the 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.
A COPY OF THE COMPANY'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 02421, ATTENTION: DIRECTOR, INVESTOR RELATIONS.
By Order of the Board of Directors,
Lexington, Massachusetts Kenneth L. Rice, Jr.
June 2, 2000 SECRETARY
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MANAGEMENT HOPES THAT THE STOCKHOLDERS WILL ATTEND THE 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 MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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