MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
Notice of Annual Meeting of Stockholders
July 10, 2003
The Annual Meeting of Stockholders of MacroChem Corporation (the
"Company"), a Delaware corporation, will be held on Thursday, July 10, 2003 at
10:00 a.m. at the offices of Ropes & Gray LLP, One International Place, 36th
Floor, Boston, Massachusetts, for the following purposes:
1. To elect five 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, 2003.
3. To approve amendments to the Company's certificate of incorporation to
effect a reverse stock split of the Company's Common Stock, pursuant to
which any whole number of outstanding shares between, and including, two
and four would be combined into one share of Common Stock and to authorize
the Company's Board of Directors to select and file one such amendment.
4. To transact other business properly coming before the meeting.
Stockholders owning Company shares at the close of business on May 12, 2003
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.
General Counsel and Secretary
Lexington, Massachusetts
June 9, 2003
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
PROXY STATEMENT
Annual Meeting of Stockholders
July 10, 2003
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, July 10, 2003, and at any adjournment thereof.
Stockholders of record at the close of business on May 12, 2003 will be
entitled to vote at the meeting. On that date, 28,390,654 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, 2003, the approval of amendments to the
Company's certificate of incorporation to effect a reverse stock split, 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. We have engaged the proxy advisory group of Morrow
& Co., Inc. to assist us in the solicitation of proxies, for a fee of $3,500
plus expenses.
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.
If sufficient votes in favor of any of the proposals set forth in the
Notice of Annual Meeting of Stockholders are not received by the time scheduled
for the meeting, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies with
respect to any such proposals. Any adjournment will require the affirmative vote
of a majority of the votes cast on the question in person or by proxy at the
session of the meeting to be adjourned. The persons named as proxies will vote
in favor of such adjournment those proxies which they are entitled to vote in
favor of such adjournment proposals. They will vote against any such adjournment
those proxies required to be voted against any of such adjournment proposals.
Unless revoked, the proxies granted will remain valid following any adjournment
of the annual meeting.
The Company's Annual Report to Stockholders for the Company's fiscal year
ended December 31, 2002 is being mailed together with its Form 10-K for the year
ended December 31, 2002 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 9, 2003.
1
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Company's bylaws, 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 five 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 Nos. 2 and 3 for purposes of determining whether sufficient
affirmative votes have been cast. The election inspectors will count shares
represented by proxies that withhold authority to vote for a nominee for
election as a Director or that reflect abstentions and "broker non-votes" (i.e.,
shares represented at the meeting held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum. Neither abstentions nor broker non-votes have any effect on the outcome
of voting on Proposal Nos. 1 and 2. Because Proposal No. 3 requires the
affirmative vote of a majority of the outstanding shares of Common Stock,
abstentions and broker non-votes will have the effect of a negative vote on
Proposal No. 3.
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 five. The five Directors will be elected to serve until the
Annual Meeting of Stockholders to be held in 2004 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: Dr. John L. Zabriskie, Robert
J. DeLuccia, Dr. Michael A. Davis, 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
Name Age Became a Director Position with Company
- -------------------------------------------------------------------------------------------------------
John L. Zabriskie...................63 2000 Chairman of the Board of Directors
Robert J. DeLuccia..................57 2000 Vice Chairman of the Board of Directors
and Interim President & Chief Executive
Officer
Michael A. Davis...................62 1997 Director
Paul S. Echenberg...................59 2000 Director
Peter G. Martin....................54 1995 Director
The Board of Directors held seven meetings during 2002. All of the
Company's current Directors attended at least 75 percent of the 2002 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 standing committees of the Board of Directors, an Audit
Committee and a Compensation Committee. The Company does not have a nominating
committee.
Mr. Martin (Chairman), Dr. Davis 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 four times during
2002.
3
Dr. Davis (Chairman) and Dr. Zabriskie serve on the Company's Compensation
Committee. The Compensation Committee was established for the purposes 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 two times during 2002.
In addition to the two standing committees, in April 2003 the Board of
Directors established a Search Committee to identify and evaluate potential
candidates to become the Company's Chief Executive Officer. The Company's former
Chief Executive Officer, Robert J. Palmisano, resigned from the Company
effective April 11, 2003 and the Board of Directors appointed Mr. DeLuccia to
serve as interim President and Chief Executive Officer. Dr. Davis and Mr.
DeLuccia serve as members of the Search Committee.
BACKGROUND
The following is a brief summary of the background of each nominee for
election as a Director of the Company:
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 2001. Since 2001, he
has been a co-founder and Director of Puretech Ventures, LLC. 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: Array Biopharma
(since 2001); Biosource International (since 2002); Cubist Pharmaceuticals, Inc.
(since 1998); and Kellogg Company (since 1995). Dr. Zabriskie received a B.S. in
chemistry from Dartmouth College and a Ph.D. in organic chemistry from the
University of Rochester.
ROBERT J. DELUCCIA has served as a Director of the Company since 2000 and
was elected Vice Chairman of the Board of Directors and Interim President and
Chief Executive Officer in April 2003. Mr. DeLuccia is currently a director of
IBEX Technologies, Inc., a publicly traded biotechnology company focused on the
development and commercialization of proprietary biological markers for the
diagnosis of disease, the monitoring of drug therapy and the development of
unique drug treatments. From 1998 through 1999, Mr. DeLuccia was President and
Chief Executive Officer and a director of Immunomedics, Inc., 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., 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.
4
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. From May 2002 to February 2003, Dr. Davis 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. From May 2002 to May 2003, Dr. Davis also served as Visiting Scientist
in the Department of Radiology at Massachusetts General Hospital and Visiting
Professor of Radiology at Harvard Medical School. From 1980-2002, 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. From 1986 to 2002, he was Affiliate Professor of
Biomedical Engineering at Worcester Polytechnic Institute. He is also the
Medical Director and a Director of E-Z-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., a public company, and its wholly
owned subsidiary, Amerimmune Inc., which is engaged in developing drugs relating
to the immune system. From February 1999 to March 2003, Dr. Davis served as 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.
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 publicly traded companies: E-Z-EM,
Inc., a supplier of oral radiographic contrast media and medical devices and
Benvest Capital Inc., a merchant bank that he founded. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 1.
5
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, 2003. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 2.
6
PROPOSAL NO. 3
AMENDMENTS TO
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
OVERVIEW
The Board of Directors of the Company (the "Board") has unanimously
approved proposed amendments to the Company's certificate of incorporation to
effect a reverse stock split of all outstanding shares of the Company's Common
Stock at an exchange ratio ranging from one-to-two to one-to-four. The Board has
deemed it advisable that these proposed amendments be presented to the
stockholders of the Company for approval. You are now being asked to vote upon
these amendments to the Company's certificate of incorporation to effect this
reverse stock split whereby a number of outstanding shares of Common Stock
between and including two and four, such number consisting only of whole shares,
will be combined into one share of Common Stock. If proposal No. 3 is approved
by the stockholders, the Board will have the sole discretion pursuant to Section
242(c) of the Delaware General Corporation Law to elect, as it determines to be
in the best interests of MacroChem and its stockholders, whether or not to
effect a reverse stock split, and if so, the number of shares of Common Stock
between and including two and four which will be combined into one share of
Common Stock, at any time before the first anniversary of this annual meeting of
stockholders. The Board believes that stockholder approval of these amendments
granting the Board this discretion, rather than approval of a specified exchange
ratio, provides the Board with maximum flexibility to react to then-current
market conditions and, therefore, is in the best interests of MacroChem and its
stockholders.
The text of the forms of proposed amendments to the Company's certificate
of incorporation is attached to this proxy statement as Appendix A. By approving
these amendments, stockholders will approve a series of amendments to the
certificate of incorporation pursuant to which any whole number of outstanding
shares between and including two and four would be combined into one share of
Common Stock, and authorize the Board to file only one such amendment, as
determined by the Board in the manner described herein, and to abandon each
amendment not selected by the Board. The Board may also elect not to do any
reverse split.
If approved by the stockholders, and following such approval the Board
determines that effecting a reverse stock split is in the best interests of
MacroChem and its stockholders, the reverse stock split will become effective
upon filing one such amendment with the Secretary of State of the State of
Delaware. The amendment filed thereby will contain the number of shares selected
by the Board within the limits set forth in this proposal to be combined into
one share of Common Stock.
If the Board elects to effect a reverse stock split following stockholder
approval, the number of issued and outstanding shares of Common Stock would be
reduced in accordance with an exchange ratio determined by the Board within the
limits set forth in this proposal. Except for adjustments that may result from
the treatment of fractional shares as described below, each stockholder will
hold the same percentage of outstanding Common Stock immediately following the
reverse stock split as such stockholder held immediately prior to the reverse
stock split. Currently, MacroChem is authorized to issue up to a total of
66,000,000 shares of capital stock, consisting of 6,000,000 shares of Preferred
Stock and 60,000,000 shares of Common Stock. This amendment would not change the
number of total authorized shares of our capital stock. Thus, immediately
following the reverse stock split, the total number of authorized shares of
capital stock would remain at 66,000,000, consisting of 6,000,000 shares of
Preferred Stock and 60,000,000 shares of Common Stock. The par value of the
Preferred Stock and Common Stock would remain unchanged at $0.01 per share.
7
In addition to the 28,327,651 shares of Common Stock outstanding at May 1,
2003, the Board has reserved 3,567,580 shares for issuance upon exercise of
options and rights, including options and rights granted under the Company's
stock option plans, and up to approximately 735,540 shares of Common Stock which
may be issued upon exercise of warrants. Except as described above, at present
the Board has no other plans to issue the additional shares of Common Stock.
REASONS FOR THE REVERSE STOCK SPLIT
The Board believes that a reverse stock split may be desirable for a number
of reasons. First, the Board believes that a reverse stock split may allow the
Company to avoid having the Common Stock delisted from the Nasdaq National
Market. Second, the Board believes that a reverse stock split could improve the
marketability and liquidity of the Common Stock.
The Common Stock is quoted on the Nasdaq National Market. In order for the
Common Stock to continue to be quoted on the Nasdaq National Market, the Company
must satisfy certain listing maintenance standards established by Nasdaq. Among
other things, if the closing bid price of the Common Stock is under $1.00 per
share for 30 consecutive trading days and does not thereafter reach $1.00 per
share or higher for a minimum of ten consecutive trading days during the 180
calendar days following notification by Nasdaq, Nasdaq may delist the Common
Stock from trading on the Nasdaq National Market. If the Common Stock were to be
delisted, and the Common Stock does not qualify for trading on The Nasdaq
SmallCap Market, the Common Stock would trade on the OTC Bulletin Board or in
the "pink sheets" maintained by the National Quotation Bureau, Inc. Such
alternative markets are generally considered to be less efficient than, and not
as broad as, the Nasdaq National Market.
On November 11, 2002, the Company received a notification from Nasdaq
indicating that, for the previous thirty consecutive trading days, the Company's
common stock had not satisfied the minimum bid price requirement of $1.00 per
share required for continued inclusion on the Nasdaq National Market. On April
29, 2003, the Company received a notification from Nasdaq indicating that the
closing bid price of the Company's common stock had been at $1.00 per share or
greater for at least ten consecutive trading days prior to May 12, 2003 and
that, as a result, the Company had regained compliance with the minimum bid
price requirement. On May 28, 2003, the closing price of the Company's Common
Stock was $1.29.
The Board expects that a reverse stock split of the Common Stock will
increase the market price of the Common Stock so that the Company is able to
maintain compliance with the Nasdaq minimum bid price listing standard. However,
the effect of a reverse split upon the market price of the Common Stock cannot
be predicted with any certainty, and the history of similar stock split
combinations for companies in like circumstances is varied. It is possible that
the per share price of the Common Stock after the reverse split will not rise in
proportion to the reduction in the number of shares of the Common Stock
outstanding resulting from the reverse stock split, and there can be no
assurance that the market price per post-reverse split share will either exceed
or remain in excess of the $1.00 minimum bid price for a sustained period of
time. The market price of the Common Stock may vary based on other factors which
are unrelated to the number of shares outstanding, including the Company's
future performance.
8
In addition, there can be no assurance that the Common Stock will not be
delisted due to a failure to meet other continued listing requirements even if
the market price per post-reverse split share of the Common Stock remains in
excess of $1.00. On March 31, 2003, the Company received a notification from
Nasdaq indicating that, as of December 31, 2002, the Company's stockholders'
equity did not comply with the minimum $10,000,000 stockholders' equity
requirement for continued inclusion on the Nasdaq National Market set forth in
Marketplace Rule 4450(a)(3). Since receipt of such notification, the Company has
been in communication with Nasdaq concerning this matter. However, on May 28,
2003, the Company received a further notification from Nasdaq indicating that as
a result of continued non-compliance with this rule, the Company's Common Stock
would be delisted from the Nasdaq National Market at the opening of business on
June 6, 2003 unless the Company files a hearing request with the Nasdaq Listing
Qualifications Panel before the end of business on June 4, 2003. The Company
has filed the request for a hearing to appeal the Nasdaq determination.
There can be no assurance that the Company will be able to regain compliance. If
the Company is unable to regain compliance, the Company will consider other
potential actions, including applying to transfer its common stock to The Nasdaq
Small Cap Market. Notwithstanding the foregoing, the Board believes that the
proposed reverse stock split, when implemented within the proposed exchange
ratio range, will result in the market price of the Common Stock rising to the
level necessary to satisfy the $1.00 minimum bid price requirement.
The Board also believes that the increased market price of the Common Stock
expected as a result of implementing a reverse stock split will improve the
marketability and liquidity of the Common Stock and will encourage interest and
trading in the Common Stock. Because of the trading volatility often associated
with low-priced stocks, many brokerage houses and institutional investors have
internal policies and practices that either prohibit them from investing in
low-priced stocks or tend to discourage individual brokers from recommending
low-priced stocks to their customers. Some of those policies and practices may
function to make the processing of trades in low-priced stocks economically
unattractive to brokers. Additionally, because brokers' commissions on
low-priced stocks generally represent a higher percentage of the stock price
than commissions on higher-priced stocks, the current average price per share of
the Common Stock can result in individual stockholders paying transaction costs
representing a higher percentage of their total share value than would be the
case if the share price were substantially higher. It should be noted that the
liquidity of the Common Stock may be adversely affected by the proposed reverse
split given the reduced number of shares that would be outstanding after the
reverse stock split. The Board anticipates, however, that the expected higher
market price will reduce, to some extent, the negative effects on the liquidity
and marketability of the Common Stock inherent in some of the policies and
practices of institutional investors and brokerage houses described above.
The Board does not intend for this transaction to be the first step in a
series of plans or proposals of a "going private transaction" within the meaning
of Rule 13e-3 of the Securities Exchange Act of 1934, as amended.
9
BOARD DISCRETION TO IMPLEMENT THE REVERSE STOCK SPLIT
If the reverse stock split is approved by the Company's stockholders, it
will be effected, if at all, only upon a determination by the Board that a
reverse stock split (with an exchange ratio determined by the Board as described
above) is in the best interests of MacroChem and its stockholders. Such
determination shall be based upon certain factors, including meeting the listing
requirements for the Nasdaq National Market, existing and expected marketability
and liquidity of the Common Stock, prevailing market conditions and the likely
effect on the market price of the Common Stock. If the Board determines to
effect the reverse stock split, the Board will consider certain factors in
selecting the specific exchange ratio, including the overall market conditions
at the time and the recent trading history of the Common Stock.
Notwithstanding approval of the reverse stock split by the stockholders,
the Board may, in its sole discretion, abandon all of the proposed amendments
and determine prior to the effectiveness of any filing with the Secretary of
State of the State of Delaware not to effect the reverse stock split prior to
the one year anniversary of this Annual Meeting of Stockholders, as permitted
under Section 242(c) of the Delaware General Corporation Law. If the Board fails
to implement any of the amendments prior to the one year anniversary of this
Annual Meeting of Stockholders, stockholder approval again would be required
prior to implementing any reverse stock split.
EFFECTS OF THE REVERSE STOCK SPLIT
After the effective date of the proposed reverse stock split, each
stockholder will own a reduced number of shares of the Common Stock. However,
the proposed reverse stock split will affect all of the Company's stockholders
uniformly and will not affect any stockholder's percentage ownership interests,
except to the extent that the reverse split results in any of the stockholders
owning a fractional share as described below. Proportionate voting rights and
other rights and preferences of the holders of Common Stock will not be affected
by the proposed reverse stock split (other than as a result of the payment of
cash in lieu of fractional shares). For example, a holder of 2% of the voting
power of the outstanding shares of Common Stock immediately prior to the reverse
stock split would continue to hold 2% of the voting power of the outstanding
shares of Common Stock immediately after the reverse stock split. The number of
stockholders of record will not be affected by the proposed reverse stock split
(except to the extent that any stockholder holds only a fractional share
interest and receives cash for such interest after the proposed reverse stock
split).
The following table reflects the approximate number of shares of our Common
Stock that would be outstanding as a result of each proposed reverse stock split
based on 28,327,651 shares of our Common Stock outstanding as of May 1, 2003,
without accounting for fractional shares which will be cancelled and paid for in
cash:
Approximate Shares of
Proposed Reverse Approximate Shares of Common Stock to be
Stock Split Ratio Common Shares to be Outstanding Authorized but Unissued*
- -----------------------------------------------------------------------------------------
one-for-two 14,163,825 45,836,175
one-for-three 9,442,550 50,557,450
one-for-four 7,081,912 52,918,088
- -----------------------------------------------------------------------------------------
<FN>
*Depending upon the reverse stock split ratio, up to approximately 2,597,956
shares will be reserved for issuance pursuant to the outstanding options or
warrants and for future issuances under the Company's equity incentive
plans.
</FN>
10
Although the proposed reverse stock split will not affect the rights of
stockholders or any stockholder's proportionate equity interest in MacroChem
(subject to the treatment of fractional shares), the number of authorized shares
of Common Stock will not be reduced. This will increase significantly the
ability of the Board to issue authorized and unissued shares without further
stockholder action. The issuance in the future of such additional authorized
shares may have the effect of diluting the earnings per share and book value per
share, as well as the stock ownership and voting rights, of the currently
outstanding shares of Common Stock. The effective increase in the number of
authorized but unissued shares of Common Stock may be construed as having an
anti-takeover effect by permitting the issuance of shares to purchasers who
might oppose a hostile takeover bid or oppose any efforts to amend or repeal
certain provisions of the Company's certificate of incorporation or bylaws.
The proposed reverse stock split will reduce the number of shares of Common
Stock available for issuance under the Company's 2001 Incentive Plan and 1994
Equity Incentive Plan in proportion to the exchange ratio selected by the Board
within the limits set forth in this proposal. There are also certain outstanding
stock options and warrants to purchase shares of Common Stock. Under the terms
of the outstanding stock options and warrants, the proposed reverse stock split
will effect a reduction in the number of shares of Common Stock issuable upon
exercise of such stock options and warrants in proportion to the exchange ratio
of the reverse stock split and will effect a proportionate increase in the
exercise price of such outstanding stock options and warrants. None of the
rights currently accruing to holders of our Common Stock, options or warrants
would be affected by the reverse stock split.
If the proposed reverse stock split is implemented, it will increase the
number of stockholders of MacroChem who own "odd lots" of less than 100 shares
of Common Stock. Brokerage commission and other costs of transactions in odd
lots are generally higher than the costs of transactions of more than 100 shares
of Common Stock.
The Common Stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended, and the Company is subject to the
periodic reporting and other requirements of the Exchange Act. The proposed
reverse stock split will not affect the registration of the Common Stock under
the Exchange Act. If the proposed reverse stock split is implemented, the Common
Stock will continue to be reported on the Nasdaq National Market under the
symbol "MCHM" (although Nasdaq would likely add the letter "D" to the end of the
trading symbol for a period of 20 trading days to indicate that the reverse
stock split has occurred).
EFFECTIVE DATE
The proposed reverse stock split would become effective as of 5:00 p.m.
Eastern time on the date of filing of a certificate of amendment to the
Company's certificate of incorporation with the office of the Secretary of State
of the State of Delaware. Except as explained below with respect to fractional
shares, on the effective date, shares of Common Stock issued and outstanding
immediately prior thereto will be combined and converted, automatically and
without any action on the part of the stockholders, into new shares of Common
Stock in accordance with the reverse stock split ratio determined by the Board
within the limits set forth in this proposal.
11
PAYMENT FOR FRACTIONAL SHARES
The Company's transfer agent will act as exchange agent for purposes of
implementing the exchange of stock certificates. Such person is referred to as
the "exchange agent."
No fractional shares of Common Stock will be issued as a result of the
proposed reverse stock split. Instead, stockholders who otherwise would be
entitled to receive fractional shares, upon surrender to the exchange agent of
such certificates representing such fractional shares, will be entitled to
receive cash in an amount equal to the product obtained by multiplying (i) the
closing sales price of the Common Stock on the effective date as reported on the
Nasdaq National Market by (ii) the number of shares of Common Stock held by such
stockholder that would otherwise have been exchanged for such fractional share
interest.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the effective date, stockholders will be
notified that the reverse split has been effected. Holders of pre-reverse split
shares will be asked to surrender to the exchange agent certificates
representing pre-reverse split shares in exchange for certificates representing
post-reverse split shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Company. No new certificates will be
issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the exchange agent. Stockholders should
not destroy any stock certificate and should not submit any certificates until
requested to do so.
ACCOUNTING CONSEQUENCES
The par value per share of Common Stock would remain unchanged at $0.01 per
share after the reverse stock split. As a result, on the effective date of the
reverse split, the stated capital on the Company's balance sheet attributable to
the Common Stock will be reduced proportionally, based on the exchange ratio of
the reverse stock split, from its present amount, and the additional paid-in
capital account will be credited with the amount by which the stated capital is
reduced. The per share Common Stock net income or loss and net book value will
be increased because there will be fewer shares of Common Stock outstanding. It
is not anticipated that any other accounting consequences would arise as a
result of the reverse stock split.
NO APPRAISAL RIGHTS
Under the Delaware General Corporation Law, the Company's stockholders are
not entitled to dissenter's rights with respect to the proposed amendments to
the Company's certificate of incorporation to effect the reverse split and the
Company will not independently provide the stockholders with any such right.
MATERIAL FEDERAL U.S. INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following is a summary of important tax considerations of the proposed
reverse stock split. It addresses only stockholders who hold the pre-reverse
split shares and post-reverse split shares as capital assets. It does not
purport to be complete and does not address stockholders subject to special
rules, such as financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, mutual funds, foreign stockholders,
stockholders who hold the pre-reverse split shares as part of a straddle, hedge,
or conversion transaction, stockholders who hold the pre-reverse split shares as
qualified small business stock within the meaning of Section 1202 of the
Internal Revenue Code of 1986, as amended (the "Code"), stockholders who are
subject to the alternative minimum tax provisions of the Code, and stockholders
who acquired their pre-reverse split shares pursuant to the exercise of employee
stock options or otherwise as compensation. This summary is based upon current
law, which may change, possibly even retroactively. It does not address tax
considerations under state, local, foreign, and other laws. Furthermore, the
Company has not obtained a ruling from the Internal Revenue Service or an
opinion of legal or tax counsel with respect to the consequences of the reverse
stock split. Each stockholder is advised to consult his or her tax advisor as to
his or her own situation.
12
The reverse stock split is intended to constitute a reorganization within
the meaning of Section 368 of the Code. Assuming the reverse split qualifies as
a reorganization, a stockholder generally will not recognize gain or loss on the
reverse stock split, except to the extent of cash, if any, received in lieu of a
fractional share interest in the post-reverse split shares. The aggregate tax
basis of the post-reverse split shares received will be equal to the aggregate
tax basis of the pre-reverse split shares exchanged therefor (excluding any
portion of the holder's basis allocated to fractional shares), and the holding
period of the post-reverse split shares received will include the holding period
of the pre-reverse split shares exchanged.
A holder of the pre-reverse split shares who receives cash will generally
recognize gain or loss equal to the difference between the portion of the tax
basis of the pre-reverse split shares allocated to the fractional share interest
and the cash received. Such gain or loss will be a capital gain or loss and will
be short term if the pre-reverse split shares were held for one year or less and
long term if held more than one year.
No gain or loss will be recognized by the Company as a result of the
reverse stock split.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of the
Common Stock outstanding on the record date will be required to approve these
amendments to the Company's certificate of incorporation. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 3.
13
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of May 1, 2003, 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
- -----------------------------------------------------------------------------------------
Peter G. Martin(2) ....................... 118,938 *
Michael A. Davis(2)....................... 113,668 *
Robert J. DeLuccia(2)(3).................. 75,268 *
Paul S. Echenberg(2)...................... 70,668 *
John L. Zabriskie(2)...................... 163,245 *
Robert J. Palmisano(2)(4)................. 797,189 2.81%
Bernard R. Patriacca(2)................... 174,052 *
Melvin A. Snyder(2)....................... 281,362 *
Thomas C.K. Chan(2)....................... 119,092 *
Paul J. Schechter......................... - *
Dennis R. Fowler.......................... - *
All Directors and Officers as a Group
(11 persons) (2)...................... 1,913,482 6.75%
- -----------------------------------------------------------------------------------------
<FN>
* Less than one percent (1%).
(1) The address of 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. Martin-116,668; Dr.
Davis-107,668; Mr. DeLuccia-66,668; Mr. Echenberg-66,668; Dr.
Zabriskie-56,668; Mr. Palmisano-770,000; Mr. Patriacca-160,468; Mr.
Snyder-272,434 and Dr. Chan-109,802.
(3) Mr. DeLuccia was appointed Vice Chairman of the Board of Directors and
Interim President and Chief Executive Officer effective April 10, 2003.
(4) Mr. Palmisano resigned as President and Chief Executive Officer and as a
director of the Company effective April 11, 2003.
</FN>
14
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. DeLuccia.........57 Interim President and Chief Executive Officer
Thomas C. K. Chan..........47 Vice President, Research and Development, Chief
Technology Officer
Bernard R. Patriacca.......59 Vice President, Chief Financial Officer
Melvin A. Snyder...........60 Vice President, Market Development
Glenn E. Deegan............36 General Counsel and Secretary
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. DeLuccia, is summarized above.
THOMAS C. K. CHAN, PH.D., has served as the Company's Vice President of
Research and Development and Chief Technology Officer since April 2003. From
September 2001 to April 2003, Dr. Chan served as the Company's Vice President of
Research and Technology and 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 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 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 General Counsel and
Secretary since June 2002. From June 2001 to June 2002, he served as the
Company's Director of Legal Affairs. 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 Holland
& Knight LLP and at Nutter, McClennen & Fish, LLP. Mr. Deegan holds a B.S. from
Providence College and a J.D. from Boston College.
15
COMPENSATION OF OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation earned by or paid or
awarded to Dr. Chan, Mr. Snyder and Dr. Paul Schechter, the Company's former
Vice President of Drug Development and Regulatory Affairs, during each of the
three fiscal years ended December 31, 2002, to Mr. Palmisano and Mr. Patriacca
during each of the two fiscal years ended December 31, 2002 and to Dr. Dennis
Fowler, the Company's former Vice President of Drug Development, during the
fiscal year ended December 31, 2002:
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------
Other Annual Securities Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year $ $ $(1) # $(2)
- ---------------------------------------------------------------------------------------------------------------------
Robert J. Palmisano(3) 2002 375,950 ----- 13,032 290,000 5,500
President, Chief 2001(4) 265,561 122,822 8,952 1,000,000 -----
Executive Officer
Bernard R. Patriacca 2002 185,000 ----- 1,032 125,000 5,500
Vice President, Chief 2001(5) 113,808 ----- 452 178,200 ------
Financial Officer and
Treasurer
Thomas C.K. Chan 2002 177,725 ----- 360 120,000 5,332
Vice President, Research 2001(6) 148,917 ----- 158 104,700 4,289
& Development and 2000 11,875 ----- ----- ----- -----
Chief Technology Officer
Melvin A. Snyder 2002 194,250 ----- 1,584 125,000 5,160
Vice President, Market 2001 185,000 ----- 598 184,100 3,870
Development 2000(7) 151,200 ----- ----- ----- -----
Paul J. Schechter 2002(8) 91,126 ----- 792 ----- 1,833
Vice President, 2001 217,000 ----- 1,007 60,400 5,250
Drug Development 2000 203,333 ----- 753 ----- 5,250
& Regulatory Affairs
Dennis R. Fowler 2002(9) 108,519 20,000 430 150,000 -----
Vice President,
Drug Development
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes amounts paid for taxable group term life insurance. Also includes
for Mr. Palmisano a monthly automobile allowance of $1,000.
(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. Palmisano resigned as President and Chief Executive Officer and as a
director of the Company effective April 11, 2003.
(4) Mr. Palmisano's employment commenced on April 9, 2001.
(5) Mr. Patriacca's employment commenced on April 23, 2001.
(6) Dr. Chan was appointed Vice President, Research and Technology on September
24, 2001.
(7) Mr. Snyder's employment commenced on October 1, 2000. Of his total salary
in 2000, $105,000 related to a consulting contract.
(8) Dr. Schechter's employment terminated on April 30, 2002.
(9) Dr. Fowler's employment commenced on June 3, 2002 and terminated on
November 22, 2002.
</FN>
16
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 2002 to Mr. Palmisano, Mr. Patriacca, Mr. Snyder, Dr. Chan and
Dr. Fowler:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Potential
Realizable
Value
at Assumed
Annual Rates
Number of % of Total of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
----------------------------------------------------------------------------------------------------------
Robert J. Palmisano 90,000 (1) 8.8 1.82 06/27/12 103,013 261,055
Robert J. Palmisano 200,000 (1) 19.6 0.63 11/20/12 79,241 200,812
Thomas C.K. Chan 20,000 (2) 2.0 1.82 06/27/12 22,892 58,012
Thomas C.K. Chan 100,000 (2) 9.8 0.63 11/20/12 39,620 100,406
Bernard R. Patriacca 25,000 (3) 2.5 1.82 06/27/12 28,615 72,515
Bernard R. Patriacca 100,000 (3) 9.8 0.63 11/20/12 39,620 100,406
Melvin A. Snyder 25,000 (4) 2.5 1.82 06/27/12 28,615 72,515
Melvin A. Snyder 100,000 (4) 9.8 0.63 11/20/12 39,620 100,406
Paul J. Schechter 0 0 0 N/A --- ---
Dennis R. Fowler 150,000 (5) 14.7 2.11 06/03/12 199,045 504,419
- -------------------------------------------------------------------------------------------------------------
<FN>
(1) A portion of the options granted to Mr. Palmisano were granted in June 2002
at an exercise price of $1.82 per share. The options were to expire ten
years from the date of grant and vest over the next three years. A portion
of the options granted to Mr. Palmisano were granted in November 2002 at an
exercise price of $0.63 per share. The options were to expire ten years
from the date of grant and vest 50% after six months and the remaining 50%
on the one year anniversary of the date of grant. All of the options
granted to Mr. Palmisano in 2002 were cancelled effective April 11, 2003.
(2) A portion of the options granted to Dr. Chan were granted in June 2002 at
an exercise price of $1.82 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 November 2002 at an exercise price of
$0.63 per share. The options expire ten years from the date of grant and
vest 50% after six months and the remaining 50% on the one year anniversary
of the date of grant.
(3) A portion of the options granted to Mr. Patriacca were granted in June 2002
at an exercise price of $1.82 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 November 2002 at an
exercise price of $0.63 per share. The options expire ten years from the
date of grant and vest 50% after six months and the remaining 50% on the
one year anniversary of the date of grant.
(4) A portion of the options granted to Mr. Snyder were granted in June 2002 at
an exercise price of $1.82 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. Snyder were granted in November 2002 at an exercise price of
$0.63 per share. The options expire ten years from the date of grant and
vest 50% after six months and the remaining 50% on the one year anniversary
of the date of grant.
(5) The options granted to Dr. Fowler were granted in June 2002 at an exercise
price of $2.11 per share. The options were to expire ten years from the
date of grant and vest over the next three years. The options were
cancelled effective November 22, 2002.
</FN>
17
The following table provides information concerning option exercises during
the fiscal year ended December 31, 2002 and unexercised options held by Mr.
Palmisano, Mr. Patriacca, Mr. Snyder, Dr. Chan, Dr. Schechter and Dr. Fowler as
of December 31, 2002:
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Acquired Value Options at Options at
On Exercise (#) Realized ($) Fiscal Year-End # Fiscal Year-End $(1)
- ----------------------------------------------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
Robert J. Palmisano(2) 0 0 770,000/520,000 NA/NA
Bernard R. Patriacca 0 0 59,401/243,799 NA/NA
Melvin Snyder 0 0 214,100/125,000 NA/NA
Thomas C.K. Chan 0 0 51,568/173,132 NA/NA
Paul J. Schechter (3) 0 0 NA/NA NA/NA
Dennis R. Fowler (4) 0 0 NA/NA NA/NA
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) The value of Mr. Palmisano's, Mr. Patriacca's, Mr. Snyder's and Dr. Chan's
in-the-money unexercised options at the end of fiscal year ended December
31, 2002 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, 2002 ($0.51 per share) and the exercise price of the
options granted.
(2) Mr. Palmisano resigned as President and Chief Executive Officer and as a
director of the Company effective April 11, 2003. The 520,000 unexercisable
options listed in the table as of December 31, 2002 were cancelled as of
April 11, 2003,
(3) All of Dr. Schechter's outstanding options were cancelled as of October 30,
2002.
(4) All of Dr. Fowler's outstanding options were cancelled as of November 22,
2002.
</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 2002, 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 10,000
options exercisable at $1.82 per share, vesting over the next three years from
grant date of June 27, 2002. Also during 2002, Dr. Davis, Mr. Martin, Mr.
DeLuccia, Mr. Echenberg and Dr. Zabriskie were each granted 1,000 shares of
common stock for Director's services rendered from July through December 2001.
During 2002, the Company paid Dr. Davis $50,000 for medical and
pharmaceutical consulting services. Dr. Davis' consulting agreement with the
Company has been terminated effective as of March 31, 2003.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In May 2000, the Company's Board of Directors voted to pay Alvin J.
Karloff, the Company's former Chief Executive Officer, 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. During
2002, the bonus to Mr. Karloff was paid because of the bonus payment made to Mr.
Palmisano.
18
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 2002, Mr.
Karloff received severance payments totaling $121,194 pursuant to the employment
agreement.
The Company had entered into an employment agreement of indefinite length
effective as of April 9, 2001 with Mr. Palmisano. During 2002, the agreement
provided for annual compensation of $375,950. The agreement also provided for a
monthly automobile allowance of $1,000 net of taxes. 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. Mr.
Palmisano resigned his employment with the Company effective as of April 11,
2003.
The Company has entered into an employment agreement of indefinite length
effective as of September 24, 2001 with Thomas C.K. Chan. The agreement, as
modified by the Severance Agreement between Dr. Chan and the Company dated as of
October 25, 2002, currently provides for annual compensation of $177,725 and for
the payment of twelve 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, as
modified by the Severance Agreement between Mr. Patriacca and the Company dated
as of October 25, 2002, currently provides for annual compensation of $185,000
and for the payment of twelve 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 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.
The Company had entered into an employment agreement of indefinite length
effective as of June 8, 1999 with Dr. Schechter. Dr. Schechter resigned his
employment with the Company effective as of April 30, 2002. During 2002, Dr.
Schechter received salary totaling $91,126 pursuant to the employment agreement.
The Company had entered into an employment agreement of indefinite length
effective as of June 3, 2002 with Dr. Fowler. Dr. Fowler's employment with the
Company terminated effective as of November 22, 2002. During 2002, Dr. Fowler
received salary, including bonus and vacation, totaling $109,769 and severance
payments totaling $18,750 pursuant to the employment agreement.
The Company has entered into Severance Agreements with Mr. Patriacca and
Dr. Chan dated as of October 25, 2002. The Severance Agreements extend the
severance periods from 6 months to 12 months in the event of termination under
certain circumstances.
19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. Davis (Chairman) and
Dr. Zabriskie.
20
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, 2002.
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 2002, 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 2002, Dr. Chan, Mr. Patriacca 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.
21
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. Palmisano, who served as Chief Executive Officer
for all of 2002, results from his employment agreement and his participation in
the executive compensation program described in this report. The Committee
applied the principals outlined above in establishing 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.
The Company had 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 2002, the agreement
provided for an annual base salary at a rate of $375,950. The agreement also
provided for a monthly automobile allowance of $1,000 net of taxes. Mr.
Palmisano did not receive a bonus for 2002. Mr. Palmisano resigned his
employment with the Company effective April 11, 2003.
Dated: June 9, 2003 COMPENSATION COMMITTEE
Dr. Michael A. Davis
Dr. John L. Zabriskie
22
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, 1997 through
December 31, 2002 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., NexMed,
Inc., VIVUS, Inc. and Bentley Pharmaceuticals, 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 2002: Cellegy Pharmaceuticals, Inc., NexMed, Inc.,
VIVUS, Inc. and Zonagen, Inc. Bentley Pharmaceuticals, Inc. has been added
because it more closely resembles the Company in size, focus and character of
its activities. Zonagen, Inc. has been deleted because it bears less of a
resemblance to the Company in size, focus and character of its activities.
Cumulative Total Return
--------------------------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
MACROCHEM CORPORATION $100.00 $ 92.47 $ 45.90 $ 28.09 $ 33.42 $ 5.60
NASDA STOCK MARKET (U.S.) $100.00 $140.99 $261.48 $157.40 $124.87 $86.38
NEW PEER GROUP (1) $100.00 $ 30.53 $ 45.51 $ 54.36 $ 63.14 $38.16
OLD PEER GROUP (2) $100.00 $ 54.56 $ 33.96 $ 38.70 $ 44.81 $20.92
________________________________
<FN>
(1) New Peer Group Companies: Cellegy Pharmaceuticals, Inc., NexMed, Inc., VIVUS, Inc. and Bentley Pharmaceuticals, Inc.
(2) Old Peer Group Companies: Cellegy Pharmaceuticals, Inc., NexMed, Inc., VIVUS, Inc. and Zonagen, Inc.
</FN>
23
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors currently consists of three
directors, Mr. Martin (Chairman), Dr. Davis and Mr. Echenberg, all of whom are
independent directors as defined in National Association of Securities Dealers
Marketplace Rule 4200(a)(14). The responsibilities 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, 2002. Deloitte & Touche LLP issued their unqualified report
dated March 7, 2003 (except to Note 8, which is dated March 18, 2003) 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, 2002 be included in the Annual Report on Form 10-K for
the fiscal year then ended.
Dated: June 9, 2003 Audit Committee
Peter G. Martin
Dr. Michael A. Davis
Paul S. Echenberg
24
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,
2002 and for the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for that fiscal year were $83,900.
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, 2002.
ALL OTHER FEES
There were no 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, 2002.
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
2003 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.
25
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 2004, the Company must
receive them on or before February 10, 2004. 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 Bylaws, stockholders who wish to make a proposal at the
Annual Meeting to be held in 2004, other than one that will be included in the
proxy materials, must notify the Company no earlier than April 11, 2004 and no
later than May 11, 2004. If a stockholder who wishes to present a proposal fails
to notify the Company by May 11, 2004, any proxy that management solicits for
the Annual Meeting in 2004 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, 2002 and 2001 and each year in the
three-year period ended December 31, 2002 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 2002 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, 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 9, 2003 General Counsel and Secretary
26
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.
27
Appendix A
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
MACROCHEM CORPORATION
MacroChem Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The name of the Corporation is MacroChem Corporation
SECOND: The Certificate of Incorporation of the Corporation was originally
filed with the Secretary of State of the State of Delaware on May 15, 1992.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted a resolution setting forth a proposed amendment
to the Corporation's Certificate of Incorporation.
FOURTH: Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
Corporation for approval, and was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware. The
total number of outstanding shares entitled to vote or consent to this
Certificate of Amendment was ____________ shares of Common Stock. A majority of
the outstanding shares of Common Stock, voting together as a single class, voted
in favor of this Certificate of Amendment of the Certificate of Incorporation.
The vote required was a majority of the outstanding shares of Common Stock,
voting together as a single class.
FIFTH: Accordingly, upon the effectiveness hereof, paragraph 4 of the
Corporation's Certificate of Incorporation shall be amended
and restated to read in its entirety as follows:
"The total number of shares of stock which the corporation shall have authority
to issue is sixty-six million (66,000,000) shares, 60,000,000 of which shall be
Common Stock, of the par value of One Cent ($.01) per share; 6,000,000 of which
shall be Preferred Stock, of the par value of One Cent ($.01) per share, 500,000
of which shall be designated as "Series A Convertible Preferred Stock", of the
par value of One Cent ($.01), amounting in the aggregate to Six Hundred Sixty
Thousand and 00/100 Dollars ($660,000.00). Effective as of 5:00 p.m., Eastern
time, on the date this Certificate of Amendment of the Certificate of
Incorporation is filed with the Secretary of State of the State of Delaware,
each [*] shares of the Corporation's Common Stock, par value $.01 per share,
issued and outstanding shall, automatically and without any action on the part
of the respective holders thereof, be combined and converted into one (1) share
of Common Stock, par value $.01 per share, of the Corporation. No fractional
shares shall be issued and, in lieu thereof, any holder of less than one share
of Common Stock shall be entitled to receive cash for such holder's fractional
share based upon the closing sales price of the Corporation's Common Stock as
reported on the NASDAQ National Market as of the date this Certificate of
Amendment is filed with the Secretary of State of the State of Delaware.
Additional designations and powers, preferences and rights and qualifications,
limitations or restrictions thereof of the shares of stock shall be determined
by the Board of Directors of the Corporation from time to time."
IN WITNESS WHEREOF, MacroChem Corporation has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer on this ____
day of ______ 200__ .
MACROCHEM CORPORATION
By:
- --------------------------
Robert J. DeLuccia
Interim President and Chief Executive Officer
- --------
[*]By approving these amendments, stockholders will approve the combination of
any whole number of shares of Common Stock between and including two (2) and
four (4) into one (1) share of Common Stock. The Certificate of Amendment filed
with the Secretary of State of the State of Delaware will include only that
number determined by the Board of Directors to be in the best interests of the
Corporation and its stockholders. In accordance with these resolutions, the
Board of Directors will not implement any amendment providing for a different
split ratio.]
28
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 10, 2003
----------------------------------------
The undersigned hereby appoints Robert J. DeLuccia and Bernard R.
Patriacca, or either of them, with power of substitution to each, proxies to
vote at the Annual Meeting of Stockholders of MacroChem Corporation, to be held
on Thursday, July 10, 2003 at the offices of Ropes & Gray LLP, One International
Place, 36th Floor, Boston, Massachusetts, at 10:00 a.m., local time, or at any
adjournments thereof, all of the shares of Common Stock, par value $.01 per
share, of MacroChem Corporation that the undersigned would be entitled to vote
if personally present. The undersigned instructs such proxies or their
substitutes to act on the following matters as specified by the undersigned, and
to vote in such manner as they may determine on any other matters that may
properly come before the meeting.
This proxy when properly executed will be voted in the manner directed by
the undersigned stockholder(s). If no contrary direction is made, this proxy
will be voted FOR all nominees and FOR Proposal Nos. 2 and 3 as more
specifically described in the proxy statement.
1. Election of Directors:
_____FOR ALL NOMINEES
_____WITHHOLD AUTHORITY FOR ALL NOMINEES
_____FOR ALL EXCEPT (See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish
to withhold, as shown here: O
Nominee: O John L. Zabriskie
0 Peter G. Martin
O Michael A. Davis
O Robert J. DeLuccia
O Paul S. Echenberg
2. To ratify the appointment of Deloitte & Touche LLP, as independent
auditors for the Corporation for the fiscal year ending December 31, 2003.
FOR _____ AGAINST _____ ABSTAIN _____
3. To approve amendments to the Company's certificate of incorporation to
effect a reverse stock split of the Company's Common Stock, pursuant to
which any whole number of outstanding shares between, and including, two
and four would be combined into one share of Common Stock and to
authorize the Company's Board of Directors to select and file one such
amendment.
FOR _____ AGAINST _____ ABSTAIN _____
4. To consider and act upon any other matters that may properly come before
the meeting or any adjournment thereof.
PLEASE MARK HERE IF YOU PLAN TO ATTEND MEETING. _____
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
Signature of Stockholder______________________________________DATE______________
Signature of Stockholder______________________________________DATE______________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.