MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 27, 2002
The Annual Meeting of Stockholders of MacroChem Corporation (the
"Company"), a Delaware corporation, will be held on Thursday, June 27, 2002 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, 2002.
3. To transact other business properly coming before the meeting.
Stockholders owning Company shares at the close of business on May 6, 2002
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,
Glenn E. Deegan, Esq.
Secretary
Lexington, Massachusetts
June 3, 2002
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 27, 2002
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 Thursday, June 27, 2002, and at any adjournment thereof.
Stockholders of record at the close of business on May 6, 2002 will be
entitled to vote at the meeting. On that date 27,920,137 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, 2002, 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 of 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, 2001 is being mailed together with Form 10-K, as amended, 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 3, 2002.
1
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
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 2003 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.
All of the nominees are currently Directors: Robert J. Palmisano, Dr. John
L. Zabriskie, Dr. Michael A. Davis, Robert J. DeLuccia, Paul S. Echenberg and
Peter G. Martin. 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 First
Became a
Name Age Director Position with Company
- --------------------------------------------------------------------------------
Robert J. Palmisano.....57 2001 Chief Executive Officer,
President and Director
John L. Zabriskie.......62 2000 Chairman of the Board of Directors
Michael A. Davis.......60 1997 Director and Consultant
Robert J. DeLuccia......56 2000 Director
Paul S. Echenberg.......58 2000 Director
Peter G. Martin........53 1995 Director
The Board of Directors held ten meetings during 2001. All the Company's
current Directors attended at least 75 percent of the 2001 meetings of the Board
of Directors that they were eligible to attend and of those committees that they
were eligible to attend.
There are two committees of the Board of Directors, an Audit Committee and
a Compensation Committee. The Company does not have a nominating committee.
Mr. Martin (Chairman), Mr. DeLuccia and Mr. Echenberg serve as members of
the Audit Committee, which was established to assist the Board of Directors by
(i) reviewing the Company's financial results and recommending the selection of
the Company's independent auditors; (ii) reviewing the effectiveness, quality
and integrity 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 five times during
2001.
3
Dr. Davis (Chairman) and Dr. Zabriskie 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 four times during 2001.
BACKGROUND
The following is a brief summary of the background of each nominee for
election as a Director of the Company:
ROBERT J. PALMISANO has served as the Company's Chief Executive Officer and
President and as a Director since April 9, 2001. From 1997 to 2000, he was Chief
Executive Officer and Director of Summit Technology, Inc. From 1984 to January
1997, Mr. Palmisano was employed at Bausch and Lomb, Inc., where he served from
1988 to 1996 as Senior Vice President and President of the Eyewear Division.
From January 1997 to April 1997, Mr. Palmisano was a private consultant. He is a
member of the Board of Directors of Laser Diagnostic Technologies, a medical
device company specializing in the diagnosis of eye diseases. He holds a B.A.
from Providence College.
JOHN L. ZABRISKIE, PH.D., has served as a Director of the Company since
2000 and was elected Chairman of the Board of Directors in March 2001. From 1997
to 2000, he was Chairman, President and Chief Executive Officer of NEN Life
Science Products, which was sold to Perkin Elmer. In 1994, Dr. Zabriskie became
Chairman, President and Chief Executive Officer of Upjohn; he was responsible
for Upjohn's merger with the Swedish pharmaceutical company Pharmacia, and
became Chief Executive Officer of the merged company. Before his appointment at
Upjohn, he spent nearly 30 years with Merck & Company, rising to Executive Vice
President and President of Merck Manufacturing Division. He is a member of the
Board of Directors of the following publicly traded companies: Biomira Inc.
(since 1998); Cubist Pharmaceuticals, Inc. (since 1998); Kellogg Company (since
1995); and Array BioPharma (since 2001). Dr. Zabriskie received a B.S. in
chemistry from Dartmouth College and a Ph.D. in organic chemistry from the
University of Rochester.
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 2002, Dr. Davis has served as Senior Vice
President, Medical Affairs of MedEView, Inc., an internet based medical
information Company focused on the business to business (B2B) healthcare market.
Since 2002, Dr. Davis has also served as Visiting Scientist, Radiology at
Massachusetts General Hospital and as Visiting Professor, Radiology at Harvard
Medical School. From 1980 to 2002, Dr. Davis was Professor of Radiology and
Nuclear Medicine and Director of the Division of Radiologic Research at the
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
ROBERT J. DELUCCIA has served as a Director of the Company since 2000. 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 of Sterling Winthrop
Pharmaceuticals and Senior Vice President of 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 has served as a Director of the Company since 2000. 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; 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, he 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. 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.
5
EXECUTIVE OFFICERS
The executive officers of the Company, their ages and their positions with
the Company are as follows:
Name Age Position with Company
- -------------------------------------------------------------------------------
Robert J. Palmisano............57 Chief Executive Officer, President
Thomas C. K. Chan..............46 Vice President, Research and Technology
Bernard R. Patriacca...........58 Vice President, Chief Financial Officer
Melvin A. Snyder...............59 Vice President, Market Development
Glenn E. Deegan................35 Secretary, Director of Legal Affairs
The following is a brief summary of the backgrounds of Dr. Chan, Mr.
Patriacca, Mr. Snyder and Mr. Deegan. The background of the Company's other
executive officer, Mr. Palmisano, is summarized above.
THOMAS C. K. CHAN, PH.D., has served as the Company's Vice President of
Research and Technology since September 2001. From December 2000 until September
2001, he served as the Company's Senior Director of Preclinical Studies. From
1997 to 2000, he served as Senior Director of Pharmacology and Toxicology at
EPIX Medical, Inc. From 1994 to 1997, he served as Director of Therapeutic
Development at Creative BioMolecules, Inc. and from 1992 to 1993, Dr. Chan
served as its Manager of Pharmacology and Toxicology. From 1990 to 1992, he
served as Associate Director at the Purdue Cancer Center. Dr. Chan earned a
B.Sc. in Biochemistry/ Microbiology and a doctorate in Pharmacology from the
University of British Columbia. He then completed a fellowship in
Hematology/Oncology at the UCSD Cancer Center in San Diego.
BERNARD R. PATRIACCA, C.P.A., has served as the Company's Vice President,
Chief Financial Officer and Treasurer since April 23, 2001. From 1997 to 2001,
he served as Vice President and Controller of Summit Technology, Inc. From 1994
to 1997, he served as Vice President of Errands Etc., Inc., a privately held
homeowners' personal service company. From 1991 to 1994, Mr. Patriacca held
senior financial management positions at several privately held consumer
services companies. From 1973 to 1991, he was employed in various capacities at
Dunkin Donuts, Inc., including Chief Financial Officer and Director. Mr.
Patriacca received a B.S. and an M.B.A. from Northeastern University.
MELVIN A. SNYDER, has served as the Company's Vice President for Market
Development since October 20, 2000. From June 1999 until October 2000, he served
as a consultant to the Company in the area of business development. From 1998
until 1999, he was Vice President of Marketing and Business Development at
Immunomedics and, between 1995 and 1998, he served as a consultant to several
pharmaceutical companies including Immunomedics. Between 1975 and 1995, he was
President of ProClinica Inc., a marketing communications and licensing-support
company. Mr. Snyder holds a bachelor's degree from Lehigh University.
GLENN E. DEEGAN, ESQ., has served as the Company's Secretary and Director
of Legal Affairs since June 4, 2001. From September 1999 until May 2001, he
served as Assistant General Counsel of Summit Technology, Inc. From 1993 until
1999, Mr. Deegan was engaged in the private practice of law in Boston at
Sherburne, Powers & Needham and at Nutter, McClennen & Fish, LLP. Mr. Deegan
holds a B.S. from Providence College and a J.D. from Boston College.
6
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, 2002. 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
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of April 15, 2002, 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 "Executive
Officers' Compensation" 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
- --------------------------------------------------------------------------------
Alvin J. Karloff(2)(3).............. 1,090,000 3.9%
Peter G. Martin(2) ................. 102,270 *
Michael A. Davis(2)................. 97,000 *
Robert J. DeLuccia(2)............... 42,266 *
Paul S. Echenberg(2)................ 40,666 *
John L. Zabriskie(2)................ 129,910 *
Robert J. Palmisano(2).............. 550,000 2.0%
Thomas C.K. Chan(2)(3).............. 16,666 *
Bernard R. Patriacca(2)............. 45,000 *
Paul J. Schechter(2)(3)(4).......... 255,000 *
Melvin A. Snyder(2)(3).............. 120,000 *
All Directors and Officers as a Group
(11 persons) (2)(3)................. 2,488,778 8.7%
- -------------------------------------------------------------------------------
* Less than one percent (1%).
(1) The address of Mr. Karloff, Mr. Martin, Dr. Davis, Mr. DeLuccia, Mr.
Echenberg, Dr. Zabriskie, Mr. Palmisano, Mr. Patriacca, Dr. Schechter, Mr.
Snyder and Dr. Chan 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: Mr. Karloff-970,000; Mr. Martin-
100,000; Dr. Davis-91,000; Mr. DeLuccia-36,666; Mr. Echenberg-36,666;
Dr. Zabriskie-23,333; Mr. Palmisano-540,000; Dr. Chan-16,666; Mr.
Patriacca-40,000; Dr. Schechter-255,000; and Mr. Snyder-120,000.
(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: Mr. Karloff-3,833; Dr.
Schechter-4,263; Mr. Snyder-1,095; Dr. Chan-1,197.
(4) Dr. Schechter resigned his employment with the Company effective as of
April 30, 2002.
8
COMPENSATION OF OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation earned by or paid or
awarded to Alvin Karloff, Dr. Schechter and Mr. Snyder during each of the three
fiscal years ended December 31, 2001, to Dr. Chan during each of the two fiscal
years ended December 31, 2001 and to Mr. Palmisano and Mr. Patriacca during the
fiscal year ended December 31, 2001:
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)
- ----------------------------------------------------------------------------------------------------------
Alvin J. Karloff 2001(3) 125,715 75,000 245,836 ----- 3,941
Former President, 2000 300,000 54,000 13,043 100,000 5,250
Chief Executive Officer 1999 250,000 45,000 10,955 ----- 5,000
Robert J. Palmisano 2001(4) 265,561 122,822 8,952 1,000,000 -----
President, Chief
Executive Officer
Thomas C.K. Chan 2001(5) 148,917 ----- 158 104,700 4,289
Vice President, Research 2000(6) 11,875 ----- ----- ----- -----
& Technology
Bernard R. Patriacca 2001(7) 113,808 ----- 452 178,200 ------
Vice President, Chief
Financial Officer and
Treasurer
Paul J. Schechter(8) 2001 217,000 ----- 1,007 60,400 5,250
Vice President, 2000 203,333 ----- 753 ----- 5,250
Drug Development 1999 182,500 ----- ----- 50,000 5,000
& Regulatory Affairs
Melvin A. Snyder 2001 185,000 ----- 598 184,100 3,870
Vice President, Market 2000(9) 151,200 ----- ----- ----- -----
Development 1999 76,500 ----- ----- ----- -----
- ---------------------------------------------------------------------------------------------------------
<FN>
(1) Includes amounts paid for taxable group term life insurance. Also
includes for Mr. Karloff a monthly automobile allowance of $799 and
$236,000 relating to a severance agreement, effective April 30, 2001 and
for Mr. Palmisano a monthly automobile allowance of $1000.
(2) Represents the dollar value of Company contributions to the Company's
401(k) Retirement Plan, which are made in its Common stock.
(3) Mr. Karloff `s employment terminated on April 30, 2001.
(4) Mr. Palmisano's employment commenced on April 9, 2001.
(5) Dr. Chan was appointed Vice President, Research and Technology on
September 24, 2001.
(6) Dr. Chan's employment commenced on December 1, 2000.
(7) Mr. Patriacca's employment commenced on April 23, 2001.
(8) Dr. Schechter resigned his employment with the Company effective as of
April 30, 2002.
(9) Mr. Snyder's employment commenced on October 1, 2000. Of his total
salary in 2000, $105,000 related to a consulting contract. His total
salary in 1999 related to a consulting contract.
</FN>
9
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 2001 to Mr. Palmisano, Mr. Patriacca, Dr. Schechter, Mr. Snyder
and Dr. Chan:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates
of Stock Price
Number of % of Total Appreciation for
Securities Options Exercise Option Term
Underlying Granted to or Base -------------------------
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
Robert J. Palmisano 1,000,000(1) 48.8 3.02 4/9/11 1,899,262 4,813,102
Thomas C.K. Chan 50,000(2) 2.4 2.53 1/12/11 79,555 201,608
Thomas C.K. Chan 4,700(2) .2 6.07 6/26/11 17,942 45,468
Thomas C.K. Chan 50,000(2) 2.4 3.155 12/19/11 99,208 251,413
Bernard R. Patriacca 120,000(3) 5.9 5.49 4/23/11 414,316 1,049,958
Bernard R. Patriacca 8,200(3) .4 6.07 6/26/11 31,303 79,327
Bernard R. Patriacca 50,000(3) 2.4 3.155 12/19/11 99,208 251,413
Paul J. Schechter 50,000(4) 2.4 2.53 1/12/11 79,555 201,608
Paul J. Schechter 10,400(4) .5 6.07 6/26/11 39,701 100,610
Melvin A. Snyder 175,000(5) 8.5 2.53 1/12/11 278,443 705,629
Melvin A. Snyder 9,100(5) .4 6.07 6/26/11 34,738 88,034
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) The options granted to Mr. Palmisano were granted in April 2001 at an
exercise price of $3.02 per share. The options expire ten years from the
date of grant and vest over the next three years.
(2) A portion of the options granted to Dr. Chan were granted in January 2001
at an exercise price of $2.53 per share. The options expire ten years from
the date of grant and vest over the next three years. A portion of the
options granted to Dr. Chan were granted in June 2001 at an exercise price
of $6.07 per share. The options expire ten years from the date of grant and
vest over the next three years. A portion of the options granted to Dr.
Chan were granted in December 2001 at an exercise price of $3.155 per
share. The options expire ten years from the date of grant and vest over
the next three years.
(3) A portion of the options granted to Mr. Patriacca were granted in April
2001 at an exercise price of $5.49 per share. The options expire ten years
from the date of grant and vest over the next three years. A portion of the
options granted to Mr. Patriacca were granted in June 2001 at an exercise
price of $6.07 per share. The options expire ten years from the date of
grant and vest over the next three years. A portion of the options granted
to Mr. Patriacca were granted in December 2001 at an exercise price of
$3.155 per share. The options expire ten years from the date of grant and
vest over the next three years.
(4) A portion of the options granted to Dr. Schechter were granted in January
2001 at an exercise price of $2.53 per share. The options expire ten years
from the date of grant and vest over the next three years. The remaining
options granted to Dr. Schechter were granted in June 2001 at an exercise
price of $6.07 per share. The options expire ten years from the date of
grant and vest over the next three years.
(5) A portion of the options granted to Mr. Snyder were granted in January 2001
at an exercise price of $2.53 per share. The options expire ten years from
the date of grant and vest over the next three years. The remaining options
granted to Mr. Snyder were granted in June 2001 at an exercise price of
$6.07 per share. The options expire ten years from the date of grant and
vest over the next three years.
</FN>
10
The following table provides information concerning option exercises during
the fiscal year ended December 31, 2001 and unexercised options held by Mr.
Karloff, Mr. Palmisano, Mr. Patriacca, Dr. Schechter, Mr. Snyder and Dr. Chan as
of December 31, 2001:
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Acquired Value Options at Options at
On Exercise (#) Realized ($) Fiscal Year-End (#) Fiscal Year-End $(1)
- ----------------------------------------------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
Alvin J. Karloff 200,000 $1,036,763 970,000/NA 1,030,875/NA
Robert J. Palmisano 0 0 310,000/690,000 9,300/20,700
Thomas C.K. Chan 0 0 16,666/88,033 8,647/17,293
Bernard R. Patriacca 0 0 NA/178,200 NA/NA
Paul J. Schechter 0 0 255,000/35,400 12,970/12,970
Melvin Snyder 0 0 120,000/94,100 51,880/38,910
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) The value of Mr. Karloff's, Mr. Palmisano's, Dr. Chan's, Mr. Patriacca's,
Dr. Schechter's and Mr. Snyder's in-the-money unexercised options at the
end of fiscal year ended December 31, 2001 was determined by multiplying
the number of options held by the difference between the market price of
Common Stock underlying the options on December 31, 2001 ($3.05 per share)
and the exercise price of the options granted.
</FN>
DIRECTORS' COMPENSATION
Each non-employee Director of the Company receives compensation of $12,000
annually, $1,000 per regular meeting attended for the chairman of each
committee, $1,000 per regular meeting attended, $500 for each special, telephone
or committee meeting attended and reimbursement of travel expenses in connection
with attending meetings of the Board of Directors. During 2001, ten-year stock
options were granted to non-employee Directors as follows: Dr. Davis, Mr.
Martin, Mr. DeLuccia, Mr. Echenberg and Dr. Zabriskie each received 20,000
options exercisable at $6.07 per share, vesting over the next three years from
grant date of June 26, 2001 and Dr. Zabriskie received 10,000 options
exercisable at $3.155 per share, vesting over the next three years from grant
date of December 19, 2001. Also during 2001, Dr. Davis, Mr. Martin, Mr.
DeLuccia, Mr. Echenberg, Dr. Zabriskie and Peter Savas, a former director, were
granted 1,000 shares of common stock for Director's services rendered from
January though June 2001.
The Company currently compensates Dr. Davis at the rate of $5,000 per month
for medical and pharmaceutical consulting services.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In May 2000, the Company's Board of Directors voted to pay Mr. Karloff a
bonus of $75,000 upon the earlier of payment of a bonus to a new Chief Executive
Officer or the signing of a License Agreement by the Company for one of its
products. As of December 31, 2001, the bonus to Mr. Karloff was due and payable
because of the bonus due to Mr. Palmisano.
11
The Company had entered into an employment agreement of indefinite length
effective as of November 1, 1992 with Mr. Karloff. Mr. Karloff resigned his
employment with the Company effective as of April 30, 2001. During 2001, Mr.
Karloff received salary totaling $125,715 and severance payments totaling
$236,000 pursuant to the employment agreement.
The Company has entered into an employment agreement of indefinite length
effective as of April 9, 2001 with Mr. Palmisano. The agreement currently
provides for annual compensation of $375,950. The agreement also provides for a
monthly automobile allowance of $1,000 net of taxes, and provided for a bonus
for 2001 equal to at least 35% of Mr. Palmisano's annual base salary received.
Further, the agreement provides for the payment of 12 months' salary in the
event he is terminated without cause. In addition, the agreement precludes him
from competing with the Company during his employment and for a period of one
year thereafter, and from disclosing confidential information.
The Company has entered into an employment agreement of indefinite length
effective as of September 24, 2001 with Thomas C.K. Chan. The agreement
currently provides for annual compensation of $177,725 and for the payment of
six months' salary in the event he is terminated without cause. In addition, the
agreement precludes Dr. Chan 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 April 23, 2001 with Bernard Patriacca. The agreement currently
provides for annual compensation of $185,000 and for the payment of six months'
salary in the event he is terminated without cause. In addition, the agreement
precludes Mr. Patriacca from competing with the Company during his employment
and for a period of two years thereafter, and from disclosing confidential
information.
The Company had entered into an employment agreement of indefinite length
effective as of June 8, 1999 with Dr. Schechter. As of December 31, 2001, the
agreement provided for annual compensation of $231,525 and for the payment of
six months' salary in the event he was 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. Dr. Schechter resigned his employment with the Company
effective as of April 30, 2002.
The Company has entered into an employment agreement of indefinite length
effective as of October 1, 2000 with Mel Snyder. The agreement currently
provides for annual compensation of $194,250 and for the payment of six months'
salary in the event he is terminated without cause. In addition, the agreement
precludes Mr. Snyder from competing with the Company during his employment and
for a period of two years thereafter, and from disclosing confidential
information.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. Davis (Chairman) and
Dr. Zabriskie.
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REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists of Dr. Davis
(Chairman) and Dr. Zabriskie. 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, 2001.
The primary goals of the Company's executive compensation program
administered by the Compensation Committee are to attract, retain and motivate
superior executives and to compensate these executives in a manner that both
recognizes their individual performance and aligns their interests with the
interests of MacroChem's stockholders. The Company's executive compensation
program reflects input from the Company's Chief Executive Officer. The
Compensation Committee reviews his proposals concerning executive compensation
and makes a final determination or recommendation concerning the scope and
nature of compensation arrangements. The action or recommendation of the
Committee is reported to the Company's entire Board of Directors.
COMPONENTS OF EXECUTIVE COMPENSATION
For 2001, the executive compensation program consisted of two principal
components: base salary and stock options. The level and mix of each of these
components was determined on a case-by-case basis without reference to specific
criteria or formulas.
BASE SALARY. During 2001, Dr. Chan, Mr. Patriacca, Dr. Schechter and Mr.
Snyder were parties to employment contracts with the Company described elsewhere
in the Proxy Statement. The initial base salary 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.
In determining the ongoing base salary of each executive, the Compensation
Committee takes into account (i) the executive's individual performance and
contribution to the management team; (ii) the performance of MacroChem over the
evaluation period by reference to corporate objectives jointly formulated by the
Chief Executive Officer and the officers; and (iii) base salaries of executives
in comparable positions in comparable companies. In setting base salary, the
Committee takes into account all components of an executive officer's
compensation package. In determining base salary, the Committee reviews the
foregoing factors as they relate to each executive individually and applies each
factor subjectively, without reference to specific criteria. The Committee does
not weigh any one factor more or less heavily than any other and considers the
input of the Chief Executive Officer and, as necessary, outside experts in
reaching its determinations.
STOCK OPTIONS. The Compensation Committee views grants of stock options as
a major component of an executive's compensation, believing that the grant of
options aligns the interests of the executives with the interests of the
stockholders by providing a direct correlation between an increase in the value
of the MacroChem's stock and executive compensation and that this method of
compensation allows MacroChem to conserve cash resources.
13
In determining the size of a stock option award for an individual executive
officer, the Committee considers the same factors used for determining base
salary and applies each factor subjectively, without reference to specific
criteria. The Committee does not weigh any one factor more or less heavily than
any other and considers the input of the Chief Executive Officer and, as
necessary, outside experts, in reaching its determinations. The size of previous
option grants is not an important factor in determining current awards. Options
are typically exercisable at the market price on the date of the grant.
CEO COMPENSATION
The compensation for Mr. Karloff and Mr. Palmisano, each of whom served as
Chief Executive Officer for part of 2001, results from their respective
employment agreements and their participation in the executive compensation
program described in this report. The Committee applied the principals outlined
above in establishing Mr. Karloff's and Mr. Palmisano's compensation in the same
manner as they were applied to other executives of the Company. In addition to
the factors described above for all executives, the Compensation Committee
considers the degree to which the Company has attained the strategic objectives
identified for a particular year in determining the compensation of the Chief
Executive Officer. The Compensation Committee may also consider the achievement
of any other individual goals that have been established for the Chief Executive
Officer.
Mr. Alvin J. Karloff - Mr. Karloff resigned from his position as Chief
Executive Officer effective as of April 30, 2001. During 2001, the Company and
Mr. Karloff were parties to an employment agreement that provided for a base
salary at an annual rate of $300,000, compared with a 2000 base salary of
$300,000. Under the agreement, Mr. Karloff was also entitled to receive payments
equal to 18% of base salary in lieu of receiving certain benefits from the
Company. Accordingly, during 2001, Mr. Karloff received salary totaling $125,715
and severance payments totaling $236,000 pursuant to the agreement. These
payments were not related to the Company's performance during the period. In
addition, as of December 31, 2001 a bonus in the amount of $75,000 was due and
payable to Mr. Karloff in recognition of Mr. Karloff's accomplishments and
assistance to the Company in selecting a successor Chief Executive Officer.
Mr. Robert J. Palmisano -- The Company has entered into an employment
agreement of indefinite length effective as of April 9, 2001 with Mr. Palmisano.
As an inducement for Mr. Palmisano to join the Company, the agreement provided
for the grant of options to purchase 1,000,000 shares of the Company's stock at
an exercise price equal to the market price on the date of the grant. During
2001, the agreement provided for an annual base salary at a rate of $365,000.
The agreement also provided for a monthly automobile allowance of $1,000 net of
taxes, and a bonus for 2001 equal to at least 35% of Mr. Palmisano's annual base
salary plus an additional bonus equal to up to 15% of annual base salary based
upon the achievement of certain performance goals established for Mr. Palmisano.
In determining Mr. Palmisano's bonus, the Committee considered Mr. Palmisano's
achievement of performance goals related to raising additional capital,
conforming to certain financial parameters with respect to the Company's
operating plan and assembling a new management team.
Dated: June 3, 2002 COMPENSATION COMMITTEE
Dr. Michael A. Davis
Dr. John L. Zabriskie
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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, 1996 through
December 31, 2001 with similar investments in the NASDAQ Stock Market (U.S.)
Index of companies and a Peer Group of four companies that provide services
similar to those provided by the Company: Cellegy Pharmaceuticals, Inc., NexMed,
Inc., VIVUS, Inc. and Zonagen, Inc.
Cumulative Total Return
---------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
MacroChem Corporation $100.00 $140.38 $129.81 $ 64.43 $ 39.43 $ 46.92
NASDAQ Stock Market (U.S.) $100.00 $122.48 $172.68 $320.89 $193.01 $153.15
Peer Group $100.00 $ 72.94 $ 39.79 $ 24.77 $ 28.22 $ 32.69
15
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors currently consists of three
directors, Mr. Martin (Chairman), Mr. DeLuccia and Mr. Echenberg, all of whom
are independent directors as defined in National Association of Securities
Dealers Marketplace Rule 4200(a)(14). The duties of the Audit Committee are (i)
to review with management and the independent auditors the scope and results of
any and all audits, the nature of any other services provided by the independent
auditors, changes in the accounting principles applied to the presentation of
MacroChem's financial statements, and any comments by the independent auditors
on MacroChem's policies and procedures with respect to internal accounting,
auditing and financial controls and (ii) to make recommendations to the board of
directors on the engagement of the independent auditors. The Board of Directors
has adopted a written charter of the Audit Committee.
Consistent with its duties, the Audit Committee has reviewed and discussed
with the Company's management the audited financial statements for the year
ended December 31, 2001. Deloitte & Touche LLP issued their unqualified report
dated March 18, 2002 on MacroChem's financial statements.
The Audit Committee has also discussed with Deloitte & Touche LLP the
matters required to be discussed by AICPA Statement on Auditing Standards No.
61, "Communication with Audit Committees." The Audit Committee has discussed
with Deloitte & Touche LLP its independence as an auditor. The Audit Committee
has also considered whether Deloitte & Touche LLP's provision of non-audit
services is compatible with its independence.
Based on these reviews and discussions, the Audit Committee recommended to
the Board of Directors that MacroChem's audited financial statements for the
year ended December 31, 2001 be included in the Annual Report on Form 10-K for
the fiscal year then ended.
Dated: June 3, 2002 AUDIT COMMITTEE
Peter G. Martin
Robert J. DeLuccia
Paul S. Echenberg
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AUDIT AND RELATED FEES
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
"Deloitte & Touche") for professional services rendered for the audit of the
Company's annual financial statements for the fiscal year ended December 31,
2001 and for the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for that fiscal year were $69,790.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Deloitte & Touche for professional services
rendered for information technology services relating to financial information
systems design and implementation for the fiscal year ended December 31, 2001.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche for services rendered to the
Company, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees", for the fiscal
year ended December 31, 2001 were $14,126.
The Audit Committee has considered whether the provision of financial
information systems design and implementation services and other services is
compatible with maintaining the principal accountant's independence.
NO INCORPORATION BY REFERENCE
In the Company's filings with the SEC, information is sometimes
"incorporated by reference". This means that the Company is referring you to
information that has previously been filed with the SEC, so the information
should be considered as part of the filing you are reading. Based on SEC
regulations, the Report of Compensation Committee, the Performance Graph of this
Proxy Statement and the Report of Audit Committee specifically are not
incorporated by reference into any other filings with the SEC.
This Proxy Statement is sent to you as part of the proxy materials for the
2002 Annual Meeting of Stockholders. You may not consider this Proxy Statement
as material for soliciting the purchase or sale of the Company's Common Stock.
17
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 2003, the Company must
receive them on or before February 3, 2003. 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 2003, other than one that will be included in
the proxy materials, must notify the Company no earlier than March 29, 2003 and
no later than April 28, 2003. If a stockholder who wishes to present a proposal
fails to notify the Company by April 28, 2003, any proxy that management
solicits for the Annual Meeting in 2003 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, 2001 and 2000 and each year in the
three-year period ended December 31, 2001 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 2001 all filing requirements applicable to its officers,
directors, and such 10 percent beneficial owners were complied with.
MISCELLANEOUS
Management does not know of any other matters that 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, AS AMENDED, 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 Glenn E. Deegan, Esq.
June 3, 2002 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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