UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MACROCHEM CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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[X] No fee required.
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MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
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Notice of Annual Meeting of Stockholders
June 23, 2004
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The Annual Meeting of Stockholders of MacroChem Corporation ("MacroChem" or
the "Company"), a Delaware corporation, will be held on Wednesday, June 23, 2004
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, 2004.
3. To approve a proposal to amend the Company's 2001 Incentive Plan to
increase the number of shares of Common Stock authorized for issuance
under the Incentive Plan by 4,000,000.
4. To approve a proposal to amend the Company's Certificate of
Incorporation, as amended, to increase the number of authorized shares
of capital stock from 60,000,000 shares of Common Stock and 6,000,000
shares of Preferred Stock to 100,000,000 shares of Common Stock and
6,000,000 shares of Preferred Stock.
5. To transact other business properly coming before the meeting.
Stockholders owning shares of MacroChem common stock at the close of
business on April 28, 2004 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 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,
/s/ Glenn E. Deegan
-----------------------------------
Glenn E. Deegan, Esq.
Vice President, General Counsel and
Secretary
Lexington, Massachusetts
May 27, 2004
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 23, 2004
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 Wednesday, June 23, 2004, and at any adjournment thereof.
Stockholders of record at the close of business on April 28, 2004 will be
entitled to vote at the meeting. On that date, 38,724,694 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, 2004, the approval of an amendment to
the Company's 2001 Incentive Plan to increase the number of shares of Common
Stock available for issuance under the Incentive Plan by 4,000,000, the approval
of an amendment to the Company's certificate of incorporation to increase the
number of authorized shares of capital stock 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,
facsimile, 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.
The Company's Annual Report to Stockholders for the Company's fiscal year
ended December 31, 2003 is being mailed together with its Annual Report on Form
10-K for the year ended December 31, 2003, as amended, and this Proxy Statement
to all stockholders entitled to vote at the meeting. This Proxy Statement and
the accompanying proxy card were first mailed to stockholders on or about May
27, 2004.
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, 3 and 4 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 authority to
vote 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, 2 and 3. Because Proposal No. 4 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. 4.
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 2005 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
Became a
Name Age Director Position with Company
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John L. Zabriskie.........64 2000 Chairman of the Board of Directors
Robert J. DeLuccia........58 2000 Vice Chairman of the Board of Directors
and President & Chief Executive
Officer
Michael A. Davis.........63 1997 Director
Paul S. Echenberg.........60 2000 Director
Peter G. Martin..........55 1995 Director
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 PureTech Ventures, LLC (since 2000) and the following
publicly traded companies: Array Biopharma (since 2001); Biosource International
(since 2002); 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.
3
ROBERT J. DELUCCIA has served as the Company's President and Chief
Executive Officer and Vice Chairman of the Board since June of 2003 and as a
Director since 2000. Mr. DeLuccia is the former President and Chief Executive
Officer of Immunomedics, Inc., a Nasdaq-listed biopharmaceutical company focused
on the development and commercialization of antibody diagnostic imaging and
therapeutic products for cancer and infectious diseases. Prior to Immunomedics,
he was President of Sterling Winthrop Pharmaceuticals, the U.S. subsidiary of
Sanofi (now Sanofi-Sythelabo). Mr. DeLuccia began his career as a pharmaceutical
sales representative for Pfizer and progressed to Vice President Marketing and
Sales Operations for Pfizer's Roerig Division. He is also a member of the board
of directors of IBEX Technologies, a publicly traded (TSX) pharmaceutical
company specializing in the development of biological markers for diagnosis,
monitoring and treatment of arthritis and cancer. Mr. DeLuccia holds both an
M.B.A. and a B.S. in marketing from Iona College.
MICHAEL A. DAVIS, M.D., SC.D., has served as a Director of the Company
since 1997 and provided medical and pharmaceutical consulting services to the
Company from 1991 to 2003. He currently is Medical Director of E-Z-EM, Inc., a
public company engaged in supplying oral radiographic contrast media, as well as
medical devices, where he also serves as a Director. From 2002 to 2003, Dr.
Davis, in addition to being Medical Director of E-Z-EM, was Senior Vice
President of MedEView, a start-up radiology informatics company and Visiting
Scientist in the Department of Radiology at Massachusetts General Hospital. 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. From 1986 to 2002,
he was Affiliate Professor of Biomedical Engineering at Worcester Polytechnic
Institute. 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.
4
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 and is currently an advisor to Enzo Biochem. 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 OF FOR THE DIRECTOR NOMINEES NAMED
ABOVE.
THE BOARD AND ITS COMMITTEES
BOARD MEETINGS
The Board of Directors held eight meetings during 2003. All of the
Company's current Directors attended at least 75 percent of the 2003 meetings of
the Board of Directors that they were eligible to attend and of those committees
that they were eligible to attend. The Board of Directors has determined that
all non-employee Directors meet the definition of "independence" as required by
applicable listing standards of The Nasdaq Stock Market, Inc. and the
established criteria of the Securities and Exchange Commission, or SEC.
COMMITTEES OF THE BOARD OF DIRECTORS
There are three standing committees of the Board of Directors: an Audit
Committee, a Compensation Committee and a Nominating and Corporate Governance
Committee.
AUDIT 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 Board has determined that Mr. Echenberg is
the "audit committee financial expert." Each of the Audit Committee members meet
the definition of "independence" as required by applicable listing standards of
The Nasdaq Stock Market, Inc. and the established criteria of the SEC. The Audit
Committee met four times during 2003. A copy of the Audit Committee Charter is
attached as Appendix A to this Proxy Statement.
COMPENSATION COMMITTEE
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 four times during
2003.
5
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Mr. Echenberg (Chairman), Dr. Zabriskie, Dr. Davis and Mr. Martin serve on
the Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee was established on May 6, 2004, and its charter is
available on the Company's website at www.macrochem.com. Prior to the formation
of the Nominating and Corporate Governance Committee, its functions were carried
out by the independent directors of the Board. The purposes of the Nominating
and Corporate Governance Committee are (i) to identify individuals qualified to
become members of the Board, (ii) to select, or to recommend that the Board
select, the director nominees for the next annual meeting of shareholders and
(iii) to develop and recommend to the Board a set of corporate governance
principles applicable to the Company. The Company does not currently pay any
third party a fee to assist in the process of identifying and evaluating
candidates for director. The Company has not received any nominees for director
from a stockholder or stockholder group that beneficially owns more than 5% of
the Company's common stock.
The Company's Nominating and Corporate Governance Committee may consider
nominees for director of the Company submitted in writing to the Chairman of the
Committee, which are submitted by executive officers of the Company, current
directors of the Company, search firms engaged by the Committee, and by others
in its discretion and, in the circumstances provided below, shall consider
nominees for director proposed by a stockholder. Information with respect to the
proposed nominee shall have been provided in writing by the stockholder to the
Company's Secretary at MacroChem Corporation, 110 Hartwell Avenue, Lexington, MA
02421, not less than 60 nor more than 90 days prior to the anniversary date of
the prior year's annual meeting, provided that if the current year's annual
meeting is not scheduled within 30 days of the anniversary date of the prior
year's annual meeting, notice from a stockholder shall be considered timely if
it is provided not later than the tenth day following which the notice of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever occurs first. The information shall include the name of the
nominee, and information with respect to the nominee as would be required under
the rules and regulations of the Securities and Exchange Commission to be
included in the Company's Proxy Statement if the proposed nominee were to be
included therein. In addition, the stockholder's notice shall also include the
class and number of shares the stockholder owns, a description of all
arrangements and understandings between the stockholder and the proposed
nominee, a representation that the stockholder intends to appear in person or by
proxy at the meeting to nominate the person named in its notice, a
representation as to whether the stockholder intends to deliver a proxy
statement to or solicit proxies from shareholders of the Company and information
with respect to the stockholder as would be required under the rules and
regulations of the Securities and Exchange Commission to be included in the
Company's Proxy Statement.
The Nominating and Corporate Governance Committee generally identifies
potential candidates for director by seeking referrals from the Company's
management and members of the Board of Directors and their various business
contacts. Candidates are evaluated based upon factors such as independence,
knowledge, judgment, integrity, character, leadership, skills, education,
experience, financial literacy, standing in the community and ability to foster
a diversity of backgrounds and views and to complement the Board's existing
strengths. There are no differences in the manner in which the Committee will
evaluate nominees for director based on whether the nominee is recommended by a
stockholder.
6
SEARCH COMMITTEE
In addition to the three 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 served as members of the Search Committee until May 29, 2003. On May
29, 2003, Dr. Zabriskie replaced Mr. DeLuccia as a member of the Search
Committee. The Search Committee met two times in 2003. On June 17, 2003, the
Board of Directors appointed Mr. DeLuccia to serve as President and Chief
Executive Officer effective July 1, 2003 on the recommendation of the Search
Committee.
7
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, 2004. 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.
8
PROPOSAL NO. 3
APPROVAL OF THE AMENDMENT TO THE 2001 INCENTIVE PLAN
The MacroChem Corporation 2001 Incentive Plan (the "Incentive Plan") is
designed to enhance the ability of the company to attract, retain and motivate
high-quality personnel and others in a position to make significant
contributions to MacroChem's success by allowing them to become owners of
MacroChem common stock. Since the inception of the Incentive Plan, a total of
1,200,000 shares have been reserved for issuance under the Incentive Plan. As of
the record date, there were outstanding options to purchase 972,200 shares of
MacroChem common stock and 216,800 shares remained available for grant. The
benefits or amounts that will be granted in the future under the 2001 Plan are
not determinable.
On April 26, 2004, the Board of Directors voted, subject to stockholder
approval, to increase the number of shares of MacroChem common stock reserved
for issuance under the Incentive Plan by 4,000,000 shares resulting in a total
amount of 4,216,800 shares available for grant as of the record date. The Board
of Directors believes that equity awards are and will continue to be an
important part of employee compensation and that this increase is necessary both
to attract new personnel as the Company grows and to retain existing personnel.
The material features of the Incentive Plan are described below under
"Summary of the Incentive Plan." The summary is qualified in its entirety by
reference to the express provisions of the Incentive Plan, a copy of which was
included as Exhibit 99 to the Company's Form S-8 filed on August 8, 2001 (File
No. 333-67080) and may be obtained from the Company free of charge upon request
to the Secretary of the Company.
SUMMARY OF THE INCENTIVE PLAN
The purpose of the Incentive Plan is to advance the interests of the
Company by giving stock-based incentives or incentives based on performance
criteria to selected employees, directors and other persons or entities who
provide services to the Company or any affiliate.
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors. Shares reserved for issuance under the Incentive Plan are
subject to adjustment for stock dividends and similar events. The Incentive Plan
provides for the grant by the Compensation Committee of stock options (both
incentive stock options and nonstatutory options), stock appreciation rights,
restricted stock, unrestricted stock, deferred stock, convertible securities and
performance awards, as well as loans or cash payments intended to help defray
the cost of other awards. Awards under the Incentive Plan may also include
provision for the payment of dividend equivalents with respect to the shares
subject to the awards. All key employees of the Company and other persons or
entities (including non-employee directors of the Company) who, in the opinion
of the Compensation Committee, are in a position to make a significant
contribution to the success of the Company are eligible to participate in the
Incentive Plan. There are currently 5 executive officers, 4 directors who are
not executive officers and approximately 11 employees who are not executive
officers who are eligible to participate in the Incentive Plan. The maximum
number of shares with respect to which stock options and stock appreciation
rights may be granted to any one participant in any calendar year is, in the
case of each type of award, 600,000 shares. No more than $1 million may be paid
to any individual with respect to a cash performance award; in applying this
limit, cash performance awards to the same individual that are determined by
reference to one year or shorter performance periods ending in the same fiscal
year are aggregated, as are multiple awards determined by reference to
multi-year performance periods ending in the same fiscal year. The maximum award
opportunity under a non-cash performance award other than a stock option or
stock appreciation right is 600,000 shares or their equivalent value in cash.
9
The exercise price of stock options will be determined by the Compensation
Committee, but in the case of an incentive stock option may not be less than
100% (110% in the case of a stockholder who beneficially owns 10% or more of the
Company's common stock) of the fair market value of the shares at the time of
grant. The term of each option will be set by the Compensation Committee and
each option will be exercisable at such time or times as the Compensation
Committee specifies. The option price may be paid in cash or check acceptable to
the Company or, if permitted by the Compensation Committee and subject to
certain additional limitations, by tendering shares held for at least six
months, for employees who are not executive officers or directors by using a
promissory note, by delivering to the Company an undertaking by a broker to
deliver promptly sufficient funds to pay the exercise price, or by a combination
of the foregoing.
Under the terms of the Incentive Plan, stock appreciation rights, or SARs,
are rights entitling the holder upon exercise to receive cash or common stock,
as the Compensation Committee determines, equal to a function (as determined by
the Compensation Committee) of the amount by which the common stock has
appreciated in value since the date of grant. Restricted stock awards consist of
common stock subject to restrictions that require that the shares be redelivered
to the Company if specified conditions are not satisfied. A deferred stock award
consists of a promise to deliver common stock or other securities in the future
on specified terms. A performance award is an award subject to performance
criteria. Performance awards may consist of awards intended to qualify for the
performance-based exception under Section 162(m) of the Internal Revenue Code
and awards that are not intended to qualify for that exception. In the case of a
performance award intended to qualify for the exception, the performance
criteria to which the award is subject must consist of objectively determinable
measures of performance relating to any of the following (determined on a
consolidated basis or, as the context permits, on a divisional, subsidiary, line
of business, project or geographical basis or in combinations thereof): (i)
sales; revenues; assets; expenses; earnings before or after deduction for all or
any portion of interest, taxes, depreciation, amortization or other items,
whether or not on a continuing operations or an aggregate or per share basis;
return on equity, investment, capital or assets; one or more operating ratios;
borrowing levels, leverage ratios or credit rating; market share; capital
expenditures; cash flow; stock price; stockholder return; technology licensing;
licensing of particular products; or any combination of the foregoing; or (ii)
acquisitions and divestitures (in whole or in part); joint ventures and
strategic alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity) and
refinancings; transactions that would constitute a change of control; or any
combination of the foregoing. A performance criterion measure and targets with
respect thereto determined by the Compensation Committee need not be based upon
an increase, a positive or improved result or avoidance of loss.
Except as otherwise provided by the Compensation Committee, if a
participant dies, options and SARs exercisable immediately prior to death may be
exercised during a period of one year following such death (or for the remainder
of their original term, if less) and options and SARs not exercisable at a
participant's death terminate.
10
In the case of termination of a participant's association with the Company
for reasons other than death, options and SARs generally remain exercisable, to
the extent they were exercisable immediately prior to termination, for six
months (or for the remainder of the original term, if less). If a participant's
employment terminates as a result of retirement at or after age 65, retirement
at or after age 55 and with at least ten years of continuous employment, or as a
result of disability as determined by the Company, or if the services of a
non-employee director who is a participant are terminated, the exercisable
portion of the option will continue to be exercisable for the original term of
the option. If any such association is terminated due to the participant's
discharge for cause which in the opinion of the Compensation Committee casts
such discredit on the participant as to justify immediate termination of any
award under the Incentive Plan, such participant's options and SARs shall
terminate immediately on cessation of association.
Except as otherwise provided by the Compensation Committee, outstanding
awards of restricted shares must be transferred to the Company upon a
participant's death or other termination of employment and, similarly, deferred
share grants, performance awards and supplemental awards to which a participant
is not irrevocably entitled will be forfeited.
In the event of certain acquisitions of the Company or its assets or a
liquidation of the Company, all outstanding awards will terminate as of the
effective date of the transaction, unless assumed. Prior to the effective date
of the transaction, each outstanding option and SAR that is not being assumed
(or for which a substitute award is not being guaranteed) in the transaction
will become exercisable in full. The Compensation Committee may in its sole
discretion remove certain conditions on outstanding awards in connection with
such transaction or place restrictions on amounts delivered or paid in
connection with such transaction with respect to stock subject to restrictions
under the Incentive Plan.
Awards may generally be transferred only by will or by the laws of descent
and distribution. However, options awarded to employees or Directors which are
not incentive stock options may be transferred (for no consideration) by a
participant to the spouse, children or grandchildren of the participant, a trust
or trusts for the exclusive benefit of such family members, or a partnership in
which such family members are the only partners, provided there is no
consideration for any such transfer. Any subsequent transfer would be similarly
restricted.
No award may be granted under the Incentive Plan after March 22, 2011, but
awards previously granted may be extended beyond that date. Subject to a
requirement that stockholder approval be obtained for certain actions requiring
stockholder approval under the Internal Revenue Code's incentive stock option
rules and rules limiting deductions for non-performance based compensation, the
Compensation Committee may extend or terminate the Incentive Plan at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
associated with stock option grants under the Incentive Plan under law as in
effect on the date of this Proxy Statement. The summary does not purport to
cover federal employment tax or other federal tax consequences that may be
associated with the Incentive Plan, nor does it cover state, local or non-U.S.
taxes.
11
INCENTIVE STOCK OPTIONS. In general, an optionee realizes no taxable income
for regular income tax purposes upon the grant or exercise of an incentive stock
option, or ISO, within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "IRC"). However, the exercise of an ISO may result in
an alternative minimum tax liability to the optionee. With certain exceptions, a
disposition of shares purchased under an ISO within two years from the date of
grant or within one year after exercise produces ordinary income to the optionee
(with a deduction available to the Company) equal to the value of the shares at
the time of exercise less the exercise price. In the case of a sale to an
unrelated party for a price less than the value of the shares at the time of
exercise, this ordinary income is normally capped by the gain on the sale, if
any. Any gain recognized in the disposition in excess of the ordinary income
amount is treated as a capital gain for which the Company is not entitled to a
deduction. If the optionee does not dispose of the shares until after the
expiration of these one- and two-year holding periods, any gain or loss
recognized upon a subsequent sale is treated as a long-term capital gain or loss
for which the Company is not entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a nonstatutory option (see below). A special rule applies in the case of
termination of employment by reason of permanent disability. ISOs are also
treated as nonstatutory options to the extent they first become exercisable by
an individual in any calendar year for shares having a fair market value
(determined as of the date of the grant) in excess of $100,000.
NONSTATUTORY STOCK OPTIONS. In general, in the case of a nonstatutory
option (i) the optionee has no taxable income at the time of grant but realizes
income in connection with exercise of the option in an amount equal to the
excess (at time of exercise) of the fair market value of the shares acquired
upon exercise over the exercise price; (ii) a corresponding deduction is
available to the Company; and (iii) upon a subsequent sale or exchange of the
shares, any recognized gain or loss after the date of exercise is treated as
capital gain or loss for which the Company is not entitled to a deduction.
MISCELLANEOUS. Under the so-called "golden parachute" provisions of the
IRC, the grant, vesting or accelerated exercisability of awards in connection
with a change of control of the Company may be required to be valued and taken
into account in determining whether participants have received compensatory
payments, contingent on the change of control, in excess of certain limits. If
these limits are exceeded, a substantial portion of amounts payable to the
participant, including payments associated with the grant, vesting or exercise
of awards under the Incentive Plan, may be subject to an additional 20% federal
tax and may be nondeductible to the Company.
The Company's ability to claim a deduction in connection with awards under
the Incentive Plan may be further limited by Section 162(m) of the IRC, which
restricts to $1 million the amount a public corporation may deduct for certain
remuneration paid in any year to any of its top five officers. Certain forms of
remuneration are eligible for a performance-based exception to the $1 million
limit, including compensation associated with the exercise of non-discounted
stock options, or with payments or distributions under performance awards, that
are granted pursuant to shareholder-approved plans and that meet certain other
requirements.
The foregoing description of tax consequences presupposes stock options
that are exercisable for unrestricted stock. Under Section 83 of the IRC, an
optionee who exercises a nonstatutory option for restricted stock will generally
have taxable income only when the restricted stock vests. The taxable income
12
will equal the fair market value of the stock at that time less the exercise
price. However, the optionee may make a so-called "83(b) election" in connection
with the exercise to recognize taxable income at the time of exercise equal to
the fair market value of the stock at the time of exercise less the exercise
price. Assuming no other applicable limitations, the amount and timing of the
deduction available to the Company will correspond to the income recognized by
the optionee. The application of Section 83 to ISOs exercisable for restricted
stock is less clear.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy at the meeting will be required to approve the
amendment to the Incentive Plan to increase the number of shares of Common Stock
that are authorized for issuance under the plan by 4,000,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 3.
13
PROPOSAL 4
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED
CAPITAL STOCK
DESCRIPTION OF SECURITIES
- -------------------------
As of the date of this Proxy Statement, 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, par value $0.01 per share, and 60,000,000 shares of Common
Stock, par value $0.01 per share. The Board of Directors of the Company,
referred to in this Proxy Statement as the Board, has unanimously approved,
subject to stockholder approval, a proposed amendment to the Company's
certificate of incorporation (the "Amendment") that would increase the
authorized shares of the Company's capital stock from 60,000,000 shares of
common stock to 100,000,000 shares of common stock. The Amendment will not
change the amount of authorized shares of preferred stock, which will remain at
6,000,000 shares. The text of the form of proposed amendment to the Company's
certificate of incorporation is attached to this Proxy Statement as Appendix B.
In addition to the 38,724,694 shares of common stock outstanding at April
28, 2004, the Board has reserved 3,524,295 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 2,498,316 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 additional shares of common stock.
PURPOSE OF PROPOSED INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The purpose of the proposed increase is to provide more shares for general
corporate purposes, including raising additional capital, stock issuances under
employee stock option plans, possible future acquisitions or business
collaborations and stock dividends and splits. The Board of Directors believes
that an increase in the total number of shares of authorized capital stock will
help the Company to meet its future needs and give it greater flexibility in
responding quickly to advantageous business opportunities.
The Company may undertake additional equity financing through a public
offering or private placement of common stock or other securities, including
debt securities, convertible into or exercisable or exchangeable for shares of
common stock. The authorization of additional shares of common stock pursuant to
the Amendment will permit the Company to seek additional equity financing when
and if market conditions are advantageous and without the delay, cost and
uncertainty inherent in obtaining future shareholder approval for the
authorization of additional shares of common stock in order to permit such
financing. The Company may also explore opportunities for acquisitions of
related businesses, products and technologies, including acquisitions made by an
exchange of shares of common stock. The Company may also explore strategic joint
ventures or other collaborative business arrangements that involve the exchange
or use of shares of common stock. There are no present understandings or
agreements for issuing a material number of additional shares of common stock
from the currently authorized shares of common stock or the additional shares of
common stock proposed to be authorized under the Amendment.
14
The Company's issuance of shares of common stock, including the additional
shares that will be authorized if the proposed Amendment is adopted, may dilute
the equity ownership position of current holders of common stock and may be made
without stockholder approval, unless otherwise required by applicable laws or
stock exchange regulations.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of
MacroChem 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. 4.
15
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of May 1, 2004, 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 Percentage
of Beneficial Owner (1) Beneficially Owned of Class
- --------------------------------------------------------------------------------
Peter G. Martin(2) ......................... 128,937 *
Michael A. Davis(2)......................... 123,667 *
Robert J. DeLuccia(2)....................... 480,467 *
Paul S. Echenberg(2)........................ 80,667 *
John L. Zabriskie(2)........................ 189,911 *
Robert J. Palmisano(3)(4)................... 15,000 *
Bernard R. Patriacca(2)(3).................. 315,823 *
Melvin A. Snyder(2)(3)...................... 357,444 *
Thomas C.K. Chan(2)(3)...................... 235,100 *
Glenn E. Deegan (2)(3)...................... 148,181 *
All Directors and Officers as a Group
(10 persons) (2)(3)..................... 2,075,197 5.36%
- --------------------------------------------------------------------------------
<FN>
* Less than one percent (1%).
(1) The address of Mr. Martin, Dr. Davis, Mr. DeLuccia, Mr. Echenberg, Dr.
Zabriskie, Mr. Palmisano, Mr. Patriacca, Mr. Snyder, Dr. Chan and Mr.
Deegan 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-126,667; Dr.
Davis-117,667; Mr. DeLuccia-401,667; Mr. Echenberg-76,667; Dr.
Zabriskie-83,334; Mr. Patriacca-278,201; Mr. Snyder-330,767; Dr.
Chan-201,368; and Mr. Deegan-114,100.
(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. Palmisano-12,876;
Mr. Patriacca-15,798; Mr. Snyder- 14,269; Dr. Chan-15,446; and Mr.
Deegan-14,944.
(4) Mr. Palmisano resigned as President and CEO and as a director of the
Company effective April 11, 2003.
</FN>
16
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..............58 President and Chief Executive Officer
Thomas C.K. Chan................48 Vice President of Research and Development,
Chief Technology Officer
Glenn E. Deegan ................37 Vice President and General Counsel
Bernard R. Patriacca............60 Vice President, Chief Financial Officer
and Treasurer
Melvin A. Snyder................61 Vice President, Market Development
The following is a brief summary of the backgrounds of Dr. Chan, Mr.
Deegan, Mr. Patriacca and Mr. Snyder. 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 until April 2003, Dr. Chan served as the Company's Vice President
of Research and Technology. 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 their 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.
GLENN E. DEEGAN, ESQ., has served as the Company's Vice President, General
Counsel and Secretary since July 2003. From June 2001 until July 2003, Mr.
Deegan served as the Company's Director of Legal Affairs and as General Counsel
and Secretary. Prior to joining MacroChem, he served as Assistant General
Counsel of Summit Technology, Inc. Earlier in his career, 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 bachelor of science degree from
Providence College and a juris doctor degree from Boston College.
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
17
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.
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. Palmisano, Mr. Patriacca, and Mr. Snyder during each of
the three fiscal years ended December 31, 2003, and to Mr. DeLuccia and Mr.
Deegan during the fiscal year ended December 31, 2003:
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------------
Restricted Securities All
Other Annual Stock Underlying Other
Name and Principal Salary Bonus Compensation Awards Options Compensation
Position Year $ $ $(1) ($)(2) # $(3)
- ---------------------------------------------------------------------------------------------------------------------------
Robert J. DeLuccia (4) 2003 195,000 54,720 6,516 54,720 500,000
President, Chief
Executive Officer
Robert J. Palmisano (5) 2003 167,491 ----- 3,758 ----- ----- 5,483
President, Chief 2002 375,950 ----- 13,032 290,000 5,500
Executive Officer 2001 265,561 122,822 8,952 1,000,000 -----
Bernard R. Patriacca (6) 2003 185,000 29,360 1,032 29,360 48,000 28,000
Vice President, Chief 2002 185,000 ----- 1,032 125,000 5,500
Financial Officer and 2001 113,808 ----- 452 178,200 ------
Treasurer
Thomas C.K. Chan (7) 2003 182,716 30,359 360 30,359 76,000 27,481
Vice President, Research 2002 177,725 ----- 360 120,000 5,332
& Development and 2001 148,917 ----- 158 104,700 4,289
Chief Technology Officer
Glenn E. Deegan (8) 2003 138,763 22,913 360 22,913 55,900 15,481
Vice President,
General Counsel and
Secretary
Melvin A. Snyder (9) 2003 194,250 24,010 1,584 24,010 50,000 27,160
Vice President, Market 2002 194,250 ----- 1,584 125,000 5,160
Development 2001 185,000 ----- 598 184,100 3,870
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes amounts paid for taxable group term life insurance. Also
includes, for Mr. Palmisano and Mr. DeLuccia, a monthly automobile
allowance of $1,000.
(2) Although the restricted stock reflected in this table was earned in 2003,
the awards were made in January 2004. The values in this table are as of
the date of the grant. There are no restricted stock holdings other
than as reflected in this table.
18
(3) Represents the dollar value of Company contributions to the Company's
401(k) Retirement Plan, which are made in Company common stock, as well
as, for fiscal year 2003, the following retention payments payable as of
December 31, 2003: Mr. Patriacca - $22,000; Dr. Chan - $22,000; Mr.
Deegan - $10,000; and Mr. Snyder - $22,000.
(4) Mr. DeLuccia's employment commenced on July 1, 2003. Of total salary in
2003, $51,000 related to a consulting contract in connection with his
role as interim CEO. As part of Mr. DeLuccia's 2003 compensation, he
received an award of 60,800 shares of restricted stock on January 7,
2004, all of which vest 6 months from the date of grant.
(5) Mr. Palmisano's employment commenced on April 9, 2001 and he resigned
effective April 11, 2003.
(6) Mr. Patriacca's employment commenced on April 23, 2001. As part of Mr.
Patriacca's 2003 compensation, he received an award of 32,622 shares of
restricted stock on January 7, 2004, all of which vest 6 months from the
date of grant.
(7) Dr. Chan was appointed Vice President, Research and Technology on
September 24, 2001. As part of Dr. Chan's 2003 compensation, he received
an award of 33,732 shares of restricted stock on January 7, 2004, all of
which vest 6 months from the date of grant.
(8) Mr. Deegan was appointed Vice President, General Counsel and Secretary on
July 10, 2003. As part of Mr. Deegan's 2003 compensation, he received an
award of 25,458 shares of restricted stock on January 7, 2004, all of
which vest 6 months from the date of grant.
(9) As part of Mr. Snyder's 2003 compensation, he received an award of 26,677
shares of restricted stock on January 7, 2004, all of which vest 6 months
from the date of grant.
</FN>
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 2003 to Mr. DeLuccia, Mr. Patriacca, Mr. Snyder, Dr. Chan, and
Mr. Deegan:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------
Potential
Realizable
Value
at Assumed
Annual Rates
of Stock Price
Number of % of Total Appreciation for
Securities Options Exercise Option Term
Underlying Granted to or base -------------------------
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
- ---------------------------------------------------------------------------------------------------------------
Robert J. DeLuccia 500,000 (1) 52.8 1.06 6/20/13 333,314 844,684
Thomas C.K. Chan 76,000 (2) 8.0 1.15 7/10/13 54,965 139,293
Glenn E. Deegan 55,900 (3) 5.9 1.15 7/10/13 40,428 102,454
Bernard R. Patriacca 48,000 (4) 5.1 1.15 7/10/13 34,715 87,975
Melvin A. Snyder 50,000 (5) 5.3 1.15 7/10/13 36,161 91,640
- ---------------------------------------------------------------------------------------------------------------
<FN>
(1) The options granted to Mr. DeLuccia were granted in June 2003 at an
exercise price of $1.06 per share. The options expire ten years from the
date of grant. One hundred fifty thousand (150,000) options vested
immediately and the remaining options vest over the next two years.
(2) The options granted to Dr. Chan were granted in July 2003 at an exercise
price of $1.15 per share. The options expire ten years from the date of
grant and vest over the next three years.
(3) The options granted to Mr. Deegan were granted in July 2003 at an
exercise price of $1.15 per share. The options expire ten years from the
date of grant and vest over the next three years.
(4) The options granted to Mr. Patriacca were granted in July 2003 at an
exercise price of $1.15 per share. The options expire ten years from the
date of grant and vest over the next three years.
(5) The options granted to Mr. Snyder were granted in July 2003 at an
exercise price of $1.15 per share. The options expire ten years from the
date of grant and vest over the next three years.
</FN>
19
The following table provides information concerning option exercises during
the fiscal year ended December 31, 2003 and unexercised options held by Mr.
DeLuccia, Mr. Palmisano, Mr. Patriacca, Mr. Snyder, Dr. Chan, and Mr. Deegan, as
of December 31, 2003:
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Acquired Value Options at Options at
On Exercise (#) Realized ($) Fiscal Year-End # Fiscal Year-End $(1)
- ----------------------------------------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------
Robert J. DeLuccia 0 0 216,668/363,332 NA/NA
Robert J. Palmisano(2) 0 0 0/0 NA/NA
Bernard R. Patriacca 0 0 227,135/124,065 $22,000/NA
Melvin Snyder 0 0 322,434/66,666 22,000/NA
Thomas C.K. Chan 0 0 269,135/31,565 22,000/NA
Glenn E. Deegan 0 0 80,000/95,000 5,500/NA
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) The value of Mr. DeLuccia's, Mr. Palmisano's, Mr. Patriacca's, Mr.
Snyder's, Dr. Chan's and Mr. Deegan's in-the-money unexercised options at
the end of fiscal year ended December 31, 2003 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, 2003 ($0.85
per share) and the exercise price of the options granted.
(2) All of Mr. Palmisano's outstanding options were cancelled as of
October 10, 2003.
</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 2003, ten-year stock
options were granted to non-employee Directors as follows: Dr. Davis, Mr.
Martin, Mr. Echenberg and Dr. Zabriskie each received 30,000 options exercisable
at $1.15 per share, vesting over the next three years from the grant date of
July 10, 2003.
During 2003, the Company paid Dr. Davis $9,000 for medical and
pharmaceutical consulting services. Dr. Davis' consulting agreement with the
Company terminated effective as of March 31, 2003. The Company also paid Mr.
DeLuccia $51,000 for consulting services in connection with his role as interim
Chief Executive Officer. Mr. DeLuccia's consulting agreement terminated
effective as of July 1, 2003.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company had entered into an employment agreement of indefinite length
effective as of April 9, 2001 with Robert J. Palmisano, the Company's former
Chief Executive Officer. Mr. Palmisano resigned his employment with the Company
effective as of April 11, 2003. During 2003, Mr. Palmisano received salary
totaling $167,491 pursuant to the employment agreement.
The Company has entered into an employment agreement of indefinite length
effective as of July 1, 2003 with Robert J. DeLuccia. The agreement currently
provides for annual compensation of $288,000 and for the payment of twelve
months' salary in the event he is terminated without cause. The agreement also
provides for a monthly automobile allowance of $1,000. In addition, the
agreement precludes Mr. DeLuccia from competing with the Company during his
employment and for a period of two years thereafter, and from disclosing
confidential information.
20
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 $185,000 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 Confidentiality and Noncompetition Agreements
effective as of June 4, 2001 with Glenn E. Deegan. These Agreements preclude Mr.
Deegan from competing with the Company during his employment and for a period of
one year thereafter, and from disclosing confidential information. The Company
has also entered into a Severance Agreement with Mr. Deegan dated as of October
25, 2002, which provides for the payment of nine months' salary in the event he
is terminated without cause.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. Davis (Chairman) and
Dr. Zabriskie.
21
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, 2003.
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 2003, the executive compensation program consisted of three principal
components: base salary, cash and non-cash bonus, 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 2003, Dr. Chan, Mr. Deegan, Mr. Patriacca and Mr.
Snyder were parties to employment contracts or similar agreements 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.
CASH AND NON-CASH BONUSES. For 2003, MacroChem had in place a management
incentive plan designed to provide awards in addition to base salary based on
the achievement of specific performance goals. These performance goals are based
on corporate-wide performance as well as individual objectives. The performance
goals are based on certain financial achievements and operational benchmarks.
Executive bonuses are generally in the range of 30% of base salary if
performance goals are met and can be higher if performance goals are
substantially exceeded.
22
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.
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. DeLuccia, who served as Chief Executive
Officer beginning on July 1, 2003, results from his employment agreement and his
participation in the management incentive program described in this report. The
Committee applied the principals outlined above in establishing Mr. DeLuccia'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 has entered into an employment agreement of indefinite length
effective as of July 1, 2003 with Mr. DeLuccia. As an inducement for Mr.
DeLuccia to join the Company, the agreement provided for the grant of options to
purchase 500,000 shares of the Company's stock at an exercise price equal to the
market price on the date of the grant. During 2003, the agreement provided for
an annual base salary at a rate of $288,000. The agreement also provided for a
monthly automobile allowance of $1,000 net of taxes and a target bonus for 2003
equal to 40% of Mr. DeLuccia's annual base salary based upon the achievement of
certain performance goals established for Mr. DeLuccia. In determining
Mr. DeLuccia's bonus, the Committee considered Mr. DeLuccia's achievement of
performance goals related to raising additional capital, conforming to certain
financial parameters with respect to the Company's operating plan, increasing
the Company's exposure to the financial community, advancing the Company's
clinical programs, advancing the Company's research and development efforts and
initiating collaborations with other companies.
Dated: May 13, 2004 COMPENSATION COMMITTEE
Dr. Michael A. Davis
Dr. John L. Zabriskie
23
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, 1998 through
December 31, 2003 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 Bentley Pharmaceuticals, Inc.
Cumulative Total Return
------------------------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
MACROCHEM CORPORATION $100.00 $ 49.64 $ 30.38 $ 36.15 $ 6.06 $ 10.07
NASDAQ STOCK MARKET (U.S.) $100.00 $185.43 $111.83 $ 88.76 $ 61.37 $ 91.75
PEER GROUP $100.00 $149.04 $178.05 $206.79 $124.99 $182.83
24
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, 2003. Deloitte & Touche LLP issued their unqualified report
dated March 26, 2004 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, 2003 be included in the Annual Report on Form 10-K for
the fiscal year then ended.
Dated: May 13, 2004 AUDIT COMMITTEE
Peter G. Martin
Dr. Michael A. Davis
Paul S. Echenberg
25
AUDIT AND RELATED FEES
Deloitte & Touche LLP is the Company's independent auditor. The following
table sets forth the estimated aggregate fees billed to the Company for the
fiscal years ended December 31, 2003 and 2002 by Deloitte & Touche:
2003 2002
---- ----
Audit Fees $115,480 $83,900
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees -- --
-------- -------
Total $115,480 $83,900
AUDIT FEES
Audit fees were for professional services rendered for the audit of the
Company's annual financial statements, review of financial statements included
in the Company's quarterly reports on Form 10-Q and services that were provided
in connection with statutory and regulatory filings or engagements.
AUDIT-RELATED FEES
Audit-Related Fees refer to assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
consolidated financial statements and are not reported under "Audit Fees." The
Company did not pay any Audit-Related Fees during 2003 or 2002.
TAX FEES
Tax Fees refer to fees for professional services rendered regarding tax
compliance, tax advice or tax planning. The Company did not pay any Tax Fees to
Deloitte and Touche during 2003 or 2002.
ALL OTHER FEES
All Other Fees refer to fees for services other than those described above.
The Company did not pay Deloitte & Touche fees for any other services during
2003 or 2002.
PRE-APPROVAL POLICIES AND PROCEDURES
It is the policy of the Company that all services provided by Deloitte &
Touche shall be pre-approved by the Audit Committee. Deloitte & Touche will
provide the Audit Committee with an engagement letter outlining the scope of the
audit services proposed to be performed during the fiscal year and the estimated
fees for such services. Pre-approval of audit and permitted non-audit services
may be given by the Audit Committee at any time up to one year before the
commencement of such services by Deloitte & Touche. Pre-approval must be
detailed as to the particular services to be provided. Pre-approval may be given
26
for a category of services, provided that (i) the category is narrow enough and
detailed enough that management of the Company will not be called upon to make a
judgment as to whether a particular proposed service by Deloitte & Touche fits
within such pre-approved category of services and (ii) the Audit Committee also
establishes a limit on the fees for such pre-approved category of services.
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 the 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
2004 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.
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS
The Board will give appropriate attention to written communications on
issues that are submitted by stockholders, and will respond if and as
appropriate. Absent unusual circumstances or as contemplated by committee
charters, the Chairman of the Audit Committee will, with the assistance of our
Corporate Secretary, (1) be primarily responsible for monitoring communications
from stockholders and (2) provide copies or summaries of such communications to
the other directors as he or she considers appropriate.
Communications will be forwarded to all directors if they relate to
substantive matters and include suggestions or comments that the Chairman of the
Audit Committee considers to be important for the directors to know. In general,
communications relating to corporate governance and long-term corporate strategy
are more likely to be forwarded than communications relating to personal
grievances and matters as to which we tend to receive repetitive or duplicative
communications.
Stockholders who wish to send communications on any topic to the Board
should address such communications to the Chairman of Audit Committee, c/o the
Corporate Secretary, MacroChem Corporation, 110 Hartwell Avenue, Lexington, MA
02421-3134.
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 2005, the Company must
receive them on or before January 25, 2005. 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 2005, other than one that will be included in the
proxy materials, must notify the Company no earlier than March 25, 2005 and no
later than April 24, 2005. If a stockholder who wishes to present a proposal
fails to notify the Company by April 24, 2005, any proxy that management
solicits for the Annual Meeting in 2005 will confer on the holder of the proxy
discretionary authority to vote on any such proposal properly presented at the
meeting.
27
FINANCIAL INFORMATION
The audited financial statements and related financial and business
information of the Company as of December 31, 2003 and 2002 and each year in the
three-year period ended December 31, 2003 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 Form 5s were required for those persons, the Company
believes that during 2003 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.
May 27, 2004 Vice President, General Counsel and
Secretary
28
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.
29
APPENDIX A
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AUDIT COMMITTEE CHARTER
I. ORGANIZATION
There shall be a committee of the board of directors to be known as the Audit
Committee. The members of the Audit Committee shall satisfy the independence
requirements of the Sarbanes-Oxley Act of 2002, as may be amended from time to
time (the "Sarbanes-Oxley Act"), and The Nasdaq Stock Market, Inc. as such
requirements are interpreted by the Board of Directors in its business judgment.
II. STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors with
respect to corporate accounting, reporting practices of the company, and the
quality and integrity of the financial reports of the company. In so doing, the
Audit Committee will maintain free and open means of communication between the
directors, the independent auditors, the internal auditors, if any, and the
financial management of the company. The company's independent auditors are
ultimately responsible to the Board of Directors and the Audit Committee, as
representatives of the company's shareholders.
III. RESPONSIBILITIES
The function of the Audit Committee is oversight. While the Audit Committee has
the responsibilities set forth in this charter, it is not the responsibility of
the Audit Committee to plan or conduct audits, to determine that the company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles, or to assure compliance with laws,
regulations or any internal rules or policies of the company. This is the
responsibility of management. The independent auditor is responsible for
performing independent audits of the company's consolidated financial statements
in accordance with generally accepted auditing standards and for issuing reports
thereon. The Audit Committee has direct and sole responsibility for the
appointment, compensation, oversight and replacement, if necessary, of the
independent auditor, including the resolution of disagreements between
management and the auditor regarding financial reporting. Each member of the
Audit Committee shall be entitled to rely on (i) the integrity of those persons
and organizations within and outside the company that it receives information
from and (ii) the accuracy of the financial and other information provided to
the Audit Committee by such persons or organizations absent actual knowledge to
the contrary (which shall be promptly reported to the Board of Directors).
IV. DUTIES AND PROCEEDINGS OF THE AUDIT COMMITTEE
In carrying out its responsibilities, the Audit Committee believes its policies
and procedures should remain flexible, in order to best react to changing
30
conditions and to monitor the corporate accounting and reporting practices of
the company. The Audit Committee shall assist the Board of Directors in
fulfilling its oversight responsibilities by accomplishing the following:
o Annually review and determine the selection of the independent auditor
to audit the financial statements of the company and its divisions and
subsidiaries, if any; and where appropriate, determine the replacement
or rotation of the independent auditor.
o Take appropriate action to oversee the independence of the company's
outside auditors including the following:
o Annually review, evaluate and discuss the formal written statement
received from the independent auditors delineating all
relationships between the auditors and the company consistent with
Independent Standards Board Standard 1.
o Actively engage in a dialogue with the auditors regarding any
disclosed relationships or services that may impact the objectivity
and independence of the auditors.
o Approve or pre-approve all auditing services (including comfort
letters and statutory audits) and all permitted non-audit services
by the auditor.
o Recommend to the Board of Directors actions to satisfy the Board of
the independence of the auditors.
o Meet with the independent auditors and financial management of the
company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
o Review with the independent auditors, the company's internal auditor,
if any, and financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the company,
and elicit any recommendations for the improvement of such internal
control procedures or particular areas where new or more detailed
controls or procedures are desirable. Further, the Audit Committee
periodically should review company policy statements to determine their
adherence to any code of conduct prescribed by the Board of Directors.
o Receive and review reports of the independent auditor discussing (1)
all critical accounting policies and practices used in the preparation
of the Company's financial statements, (2) all alternative treatments
of financial information within generally accepted accounting
principals ("GAAP") that have been discussed with management,
ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditor, and
(3) other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
o Review the internal audit function of the company, if any, including
the independence and authority of its reporting obligations, the
proposed audit plans for the coming year, and the coordination of such
plans with the independent auditors.
31
o Receive prior to each meeting, a summary of findings from completed
internal audits, if any, and a progress report on any proposed internal
audit plan, if any, with explanations for any deviations from the
original plan.
o Review and discuss with management and the independent auditor the
annual and quarterly financial statements and MD&A of the company prior
to filing of the company's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q to determine that the independent auditors are
satisfied with the disclosure and content of the financial statements
to be presented to the shareholders. Discuss the results of the annual
audit and quarterly review and any other matters that are required to
be communicated to the Audit Committee by the independent auditor under
generally accepted auditing standards. Any changes in accounting
principles should be reviewed.
o Provide sufficient opportunity for the independent auditors and
internal auditors, if any, to meet with the members of the Audit
Committee without members of management present. Among the items to be
discussed in these meetings are the independent auditors' evaluation of
the company's financial, accounting, and auditing personnel, and the
cooperation that the independent auditors received during the course of
the audit.
o Review accounting and financial function succession planning within the
company.
o Receive from the CEO and CFO a report of all significant deficiencies
and material weaknesses in the design or operation of internal
controls, and any fraud that involves management or other employees who
have a significant role in the company's internal controls.
o Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the Board
of Directors.
o Establish procedures for the receipt, retention and treatment of
complaints received by the company regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submissions by employees of concerns regarding questionable
accounting or accounting matters.
V. AUTHORITY AND RESOURCES OF THE AUDIT COMMITTEE
The Audit Committee has the authority to retain legal, accounting or other
experts that it determines to be necessary to carry out its duties. It also has
authority to determine compensation for such advisors as well as for the
independent auditor. The Audit Committee may determine appropriate funding needs
for its own administrative expenses that are necessary and appropriate to
carrying out its duties.
32
APPENDIX B
----------
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 one hundred-six million (106,000,000) shares, 100,000,000 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 One
Million Sixty Thousand and 00/100 Dollars ($1,060,000.00).
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
President and Chief Executive Officer
33