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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Filed by a Party other than the Registrant [ ]
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[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
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Notice of Annual Meeting of Stockholders
June 14, 2005
------------------------------
The Annual Meeting of Stockholders of MacroChem Corporation ("MacroChem" or
the "Company"), a Delaware corporation, will be held on Tuesday, June 14, 2005
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, 2005.
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, three and seven 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 shares of MacroChem common stock at the close of
business on April 22, 2005 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,
Glenn E. Deegan, Esq.
Vice President, General Counsel and
Secretary
Lexington, Massachusetts
May 16, 2005
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 14, 2005
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 Tuesday, June 14, 2005, and at any adjournment thereof.
Stockholders of record at the close of business on April 22, 2005 will be
entitled to vote at the meeting. On that date, 41,613,455 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, 2005, 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,
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.
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The Company's Annual Report to Stockholders for the Company's fiscal year
ended December 31, 2004 is being mailed together with its Annual Report on Form
10-K for the year ended December 31, 2004, 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
16, 2005.
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 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 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.
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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 2006 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, Ph.D. 65 2000 Chairman of the Board of Directors
Robert J. DeLuccia 59 2000 Vice Chairman of the Board of Directors
and President & Chief Executive Officer
Michael A. Davis, M.D., Sc.D. 63 1997 Director
Paul S. Echenberg 61 2000 Director
Peter G. Martin 56 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 MacroChem 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 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); Momenta
Pharmaceuticals, Inc. (since 2001); 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 our President and Chief Executive Officer
and Vice Chairman of the Board of Directors since June 2003 and as a Director
since 2000. From 1998 to 1999, Mr. DeLuccia served as 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-Aventis). 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 cancer and arthritis, and Topigen
Pharmaceuticals, Inc., a publicly traded (TSX) developer of anti-inflammatory
respiratory products. Mr. DeLuccia holds both a B.S. and an M.B.A. in marketing
from Iona College.
MICHAEL A. DAVIS, M.D., SC.D., has served as a Director of MacroChem since
1997 and provided medical and pharmaceutical consulting services to MacroChem
from 1991 to 2003. He currently is Medical Director of E-Z-EM, Inc., a public
company engaged in supplying oral radiographic contrast media and medical
devices. Dr. Davis served as a Director of E-Z-EM from 1995 to 2004 and
currently holds the designation of Director Emeritus. In November of 2004 he was
elected a Director and Chairman of the Executive Committee of OmniCorder
Technologies, Inc., a public company engaged in infrared imaging of perfusion.
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 1986 to 2002, he was Affiliate Professor of
Biomedical Engineering at Worcester Polytechnic Institute. From 1982 to 1997,
Dr. Davis was Adjunct Professor of Surgery at Tufts University School of
Veterinary Medicine. 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 MacroChem since 2000. Since
1996, 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 serves as Chairman of the Board of Directors of both E-Z-EM, Inc. and
AngioDynamics, Inc. and as a Director of Benvest Capital Inc., a merchant bank
that he founded. Since 1989, Mr. Echenberg has served as 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.
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PETER G. MARTIN has served as a Director of MacroChem since 1995. Since
1990, Mr. Martin has been an independent investment banker and venture
capitalist and he 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 one million shares of
our Common Stock in 1995. Mr. Russell is no longer entitled to designate a
Director of MacroChem. 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 FOR THE DIRECTOR NOMINEES NAMED
ABOVE.
THE BOARD AND ITS COMMITTEES
BOARD MEETINGS
The Board of Directors held seven meetings during 2004. All of the
Company's current Directors attended at least 75 percent of the 2004 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 "independent" 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 (1)
reviewing our financial results and recommending the selection of our
independent auditors; (2) reviewing the effectiveness, quality and integrity of
our accounting policies and practices, financial reporting and internal
controls; and (3) 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 of Directors has determined that Mr. Echenberg is the
"audit committee financial expert." Each member of the Audit Committee meets the
definition of "independent" as required by applicable listing standards of The
Nasdaq Stock Market, Inc. and the established criteria of the SEC. The Audit
Committee met five times during 2004.
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 three times during 2004.
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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 Nominating and Corporate Governance Committee
conducted their activities during three meetings of the full Board.
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
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, 2005. 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.
7
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-three to one-to-seven. 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 three and seven, 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 three and seven 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 three and seven 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
106,000,000 shares of capital stock, consisting of 6,000,000 shares of Preferred
Stock and 100,000,000 shares of Common Stock. This amendment would not change
8
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 106,000,000, consisting of 6,000,000 shares of
Preferred Stock and 100,000,000 shares of Common Stock. The par value of the
Preferred Stock and Common Stock would remain unchanged at $0.01 per share.
In addition to the 41,613,455 shares of Common Stock outstanding at April
29, 2005, the Board has reserved 4,684,043 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 3,914,168 shares of Common Stock
which may be issued upon exercise of warrants. Except as described above or in
connection with equity financing activities, 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 SmallCap
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 SmallCap Market. In order for the
Common Stock to continue to be quoted on the Nasdaq SmallCap Market, the Company
must satisfy certain listing maintenance standards established by Nasdaq. The
minimum standards for listing on The Nasdaq SmallCap Market include
stockholders' equity of $2.5 million or market capitalization of $35 million and
a minimum bid price of $1.00. A failure to meet the minimum bid price
requirement shall be determined to exist only if the deficiency continues for a
period of 30 consecutive business days. On October 18, 2004, the Company
received written notice from Nasdaq that the bid price of the Company's common
stock had closed below $1.00 for the prior 30 consecutive business days, and, as
a result, did not comply with a requirement for continued inclusion in The
Nasdaq SmallCap Market under Marketplace Rule 4310(c)(4). In accordance with
Marketplace Rule 4310(c)(8), the Company was provided 180 calendar days, or
until April 18, 2005, to regain compliance. On April, 19, 2005, the Company
received written notice from Nasdaq granting the Company an additional 180
calendar day compliance period, or until October 13, 2005, to regain compliance
with the Nasdaq SmallCap Market's $1.00 minimum bid price requirement in
accordance with Marketplace Rule 4310(c)(8)(D). In order to regain compliance,
the Company must demonstrate a closing bid price for its common stock of $1.00
per share or more for a minimum of 10 consecutive business days. On April 27,
2005, the closing price of the Company's Common Stock was $.34. If the Company
cannot regain compliance with the Nasdaq SmallCap Market listing requirements,
the Company's common stock may be delisted from trading on The Nasdaq SmallCap
Market. If the Common Stock were to be delisted, the Common Stock could 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 SmallCap Market.
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
9
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. 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. 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.
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 SmallCap 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
10
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 41,613,455 shares of our Common Stock outstanding as of April 29, 2005,
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 Stock to be Outstanding Authorized but Unissued*
- -------------------------------------------------------------------------------------------------------------------
one-for-three 13,871,151 86,128,849
one-for-four 10,403,363 89,596,637
one-for-five 8,322,691 91,677,309
one-for-six 6,935,575 93,064,425
one-for-seven 5,944,779 94,055,221
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Depending upon the reverse stock split ratio, up to approximately 2,866,070 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>
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.
11
The proposed reverse stock split will reduce the number of shares of Common
Stock available for issuance under the Company's 2001 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 commissions 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 SmallCap 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.
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 SmallCap 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.
12
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 U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE REVERSE STOCK SPLIT
The following is a summary of material U.S. federal income 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, constructive sale 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 (including other U.S. federal tax 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 AND THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN
INCOME OR OTHER TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT.
13
The reverse stock split is intended to constitute a reorganization within
the meaning of Section 368 of the Code and is not part of a plan to increase
periodically a stockholder's proportionate interest in the assets or earnings
and profits of the Company. 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 therefor.
A holder of the pre-reverse split shares who receives cash in lieu of a
fractional share interest in the post-reverse split shares should generally be
treated as having received that cash as a distribution in redemption of the
fractional share. Such holder should consult his or her own tax advisor in
regards to the tax effect of the redemption (i.e., capital gain or dividend
treatment) in light of his or her particular facts and circumstances.
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.
14
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of April 29, 2005 (except as noted),
information concerning ownership of our common stock by (1) each person known by
us to be the beneficial owner of more than five percent (5%) of our common
stock, (2) each of our directors, (3) each of the executive officers named in
the Summary Compensation Table under "Executive Officers' Compensation" below
and (4) 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. There were a total of 41,613,455
shares of our common stock outstanding on April 29, 2005.
We have determined the number of shares beneficially owned by each
stockholder under rules promulgated by the SEC. The information is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting or investment power and any shares as to
which the individual or entity has the right to acquire beneficial ownership
within 60 days after April 29, 2005 through the exercise of any stock option,
warrant or other right. The inclusion in the following table of those shares,
however, does not constitute an admission that the named stockholder is a direct
or indirect beneficial owner.
Name and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned of Class
- -------------------------------------- ------------------ ----------
Five Percent Stockholders
Galleon Management L.P. (1)........... 3,632,746 8.73%
Arnold H. Snider (2).................. 2,880,608 6.92%
Directors and Executive Officers (3)
Robert J. DeLuccia (4)................ 1,099,032 2.64%
Bernard R. Patriacca (4)(5)........... 511,998 1.23%
Melvin A. Snyder (4)(5)............... 475,918 1.14%
Thomas C.K. Chan (4)(5)............... 501,084 1.20%
Glenn E. Deegan (4)(5)................ 273,326 *
Peter G. Martin (4)................... 142,270 *
Michael A. Davis (4).................. 137,000 *
Paul S. Echenberg (4)(6).............. 181,108 *
John L. Zabriskie (4)(7).............. 903,441 2.17%
All directors and officers as a
group (9 persons) (4)(5).......... 3,859,325 9.27%
- ------------------
<FN>
* Less than one percent (1%).
(1) According to a Schedule 13-G/A dated December 31, 2004, filed jointly by
Galleon Management, L.P. ("Galleon"), Raj Rajaratnam, Galleon Management,
L.L.C., Galleon Advisors, L.L.C., Galleon Captains Partners, L.P., Galleon
Captains Offshore, Ltd., Galleon Healthcare Partners, L.P., and Galleon
Healthcare Offshore, Ltd. (collectively, the "Galleon Entities"), Mr.
Rajaratnam, Galleon Management, L.L.C. and Galleon Management, L.P. have
shared dispositive and voting power with respect to all shares listed in
the table, Galleon Advisors, L.L.C. has shared dispositive and voting power
with respect to 497,215 of the shares listed in the table, Galleon Captains
Partners, L.P. has shared dispositive and voting power with respect to
153,415 of the shares listed in the table, Galleon Captains Offshore, Ltd.
has shared dispositive and voting power with respect to 584,885 of the
shares listed in the table, Galleon Healthcare Partners, L.P. has shared
dispositive and voting power with respect to 343,800 of the shares listed
in the table and Galleon Healthcare Offshore, Ltd. has shared dispositive
and voting power with respect to 2,550,646 of the shares listed in the
table. The shares listed as beneficially owned by Galleon include the
following numbers of shares issuable upon the exercise of warrants
exercisable within 60 days: Galleon Captain's Offshore, Ltd.-28,480 shares;
Galleon Captain's Partners, LP-7,120 shares; Galleon Healthcare Offshore,
Ltd.-177,000 shares; and Galleon Healthcare Partners, LP-23,000 shares. The
15
address of the principal place of business of Galleon Management L.P. is
135 East 57th Street, 16th Floor, New York, NY 10022.
(2) According to a Schedule 13-G/A dated December 31, 2004, filed jointly by
Arnold H. Snider, Deerfield Capital, L.P. ("Deerfield Capital"), Deerfield
Partners, L.P. ("Deerfield Partners"), Deerfield Management Company, L.P.
("Deerfield Management") and Deerfield International Limited ("Deerfield
International", and collectively with Arnold H. Snider, Deerfield Capital,
Deerfield Partners, Deerfield Management and Deerfield International, the
"Deerfield Entities"), Arnold H. Snider has shared dispositive and voting
power with respect to all shares listed in the table, Deerfield Capital and
Deerfield Partners have shared dispositive and voting power with respect to
1,391,334 of the shares listed in the table and Deerfield Management and
Deerfield International have shared dispositive and voting power with
respect to 1,489,274 of the shares listed in the table. The address of the
principal place of business of Deerfield International is c/o Hemisphere
Management (B.V.I.) Limited, Bison Court, Columbus Centre, P.O. Box 3460,
Road Town, Tortola, BVI. The address of the principal place of business of
each of the other entities is 780 Third Avenue, 37th Floor, New York, NY
10017.
(3) The address of Mr. DeLuccia, Mr. Patriacca, Mr. Snyder, Dr. Chan, Mr.
Deegan, Mr. Martin, Dr. Davis, Mr. Echenberg and Dr. Zabriskie, is c/o
MacroChem, 110 Hartwell Avenue, Lexington, Massachusetts 02421.
(4) Includes the following numbers of shares issuable upon the exercise of
stock options exercisable within 60 days: Mr. Martin-140,000 shares; Dr.
Davis-131,000 shares; Mr. DeLuccia-801,174 shares; Mr. Echenberg-90,000
shares; Dr. Zabriskie-100,000 shares; Mr. Patriacca-439,534 shares; Mr.
Snyder-449,241 shares; Dr. Chan-397,667 shares; and Mr. Deegan-247,868
shares.
(5) Does not include the following numbers of vested shares in our 401(k) Plan
contributed by us to match portions of cash contributions by the following
Plan participants: Mr. Patriacca-22,449 shares; Mr. Snyder- 21,768 shares;
Dr. Chan-23,263 shares; and Mr. Deegan-23,628 shares.
(6) Includes 87,108 shares held by Eckvest Equity Inc., of which Mr. Echenberg
is the President and sole equity owner.
(7) Includes 696,864 shares held by Lansing Brown Investments LLC, of which Dr.
Zabriskie and his wife are the managers and sole equity holders.
</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 MACROCHEM
- ----------------------- ---- -------------------------------------------------------------------------
Robert J. DeLuccia 59 President, Chief Executive Officer and Vice Chairman of the
Board of Directors
Thomas C.K. Chan, Ph.D. 49 Vice President of Research and Development, Chief
Technology Officer
Glenn E. Deegan 38 Vice President and General Counsel
Bernard R. Patriacca 61 Vice President, Chief Financial Officer and Treasurer
Melvin A. Snyder 62 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 our other executive
officer, Mr. DeLuccia, is summarized above.
THOMAS C.K. CHAN, PH.D., has served as our Vice President of Research and
Development and Chief Technology Officer since April 2003. From September 2001
until April 2003, Dr. Chan served as our Vice President of Research and
Technology. From December 2000 until September 2001, he served as our Senior
Director of Pre-clinical 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 our Vice President, General Counsel
and Secretary since July 2003. From June 2001 until July 2003, Mr. Deegan served
as our Director of Legal Affairs and as General Counsel and Secretary. Prior to
joining MacroChem, he served as Assistant General Counsel of Summit Technology,
Inc. from 1999 to 2001. Earlier in his career, Mr. Deegan was engaged in the
private practice of law in Boston at Holland & Knight LLP from 1997 to 1999 and
at Nutter, McClennen & Fish, LLP from 1993 to 1997. Mr. Deegan also served as
law clerk to the Honorable Francis J. Boyle in the United States District Court
for the District of Rhode Island from 1992 to 1993. Mr. Deegan holds a B.S. from
Providence College and a J.D. from Boston College.
BERNARD R. PATRIACCA, C.P.A., has served as our 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 an M.B.A.
and a B.S. from Northeastern University.
17
MELVIN A. SNYDER, has served as our Vice President for Market Development
since October 2000. From June 1999 until October 2000, he served as a consultant
to us 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 B.A. 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 Mr. Patriacca, Dr. Chan and Mr. Snyder during each of the three
fiscal years ended December 31, 2004, and to Mr. DeLuccia and Mr. Deegan during
each of the two fiscal years ended December 31, 2004:
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) ($)(2) (#)(3) ($)(4)
- --------------------------- ---- ---------- --------- ------------ ----------------------- ------------
Robert J. DeLuccia (5) 2004 288,000 58,752 17,688 ----- 271,840 -----
President, Chief 2003 195,000 54,720 6,516 54,720 500,000 -----
Executive Officer
Bernard R. Patriacca (6) 2004 193,750 32,400 1,188 ----- 145,000 9,500
Vice President, Chief 2003 185,000 29,360 1,032 29,360 48,000 8,000
Financial Officer and 2002 185,000 ----- 1,032 ----- 125,000 5,500
Treasurer
Thomas C.K. Chan (7) 2004 196,667 40,590 270 ----- 172,300 49,500
Vice President, Research 2003 182,716 30,359 360 30,359 76,000 27,481
& Development, Chief 2002 ----- 360 ----- 120,000 5,332
177,725
Technology Officer
Glenn E. Deegan (8) 2004 165,156 30,240 162 ----- 128,800 26,500
Vice President, 2003 138,763 22,913 360 22,913 55,900 16,000
General Counsel and
Secretary
Melvin A. Snyder (9) 2004 194,250 24,242 1,188 ----- 118,808 48,805
Vice President, Market 2003 194,250 24,010 1,584 24,010 50,000 27,160
Development 2002 194,250 ----- 1,584 ----- 125,000 5,160
- --------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes amounts paid for taxable group term life insurance. Also
includes, for Mr. DeLuccia, a monthly automobile allowance of $1,000 for
a portion of 2004 and $1,500 for the remainder of 2004.
(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) Total stock option grants reported in the table for 2004 include the
following stock option awards which, although earned in 2004, were
granted on March 23, 2005: Mr. DeLuccia - 195,840; Mr. Patriacca -
108,000; Dr. Chan - 135,300; Mr. Deegan - 100,800; and Mr. Snyder -
80,808. These options were granted at an exercise price of $0.41 per
share. The options expire ten years from the date of grant and vested
fully on the date of grant.
(4) Represents the dollar value of MacroChem's contributions to our 401(k)
Retirement Plan, which are made in our common stock, as well as, for
fiscal year 2004, the following retention payments payable as of July 2,
2004: Mr. Patriacca - $43,000; Dr. Chan - $43,000; Mr. Deegan - $20,000;
and Mr. Snyder - $43,000.
(5) Mr. DeLuccia's employment commenced on July 1, 2003. Of total salary in
2003, $51,000 related to a consulting contract in connection with his
role as interim CEO. As part of Mr. DeLuccia's 2003 compensation, he
received an award of 60,800 shares of restricted stock on January 7,
2004, all of which vested six months from the date of grant.
(6) Mr. Patriacca's employment commenced on April 23, 2001. As part of Mr.
Patriacca's 2003 compensation, he received an award of 32,622 shares of
restricted stock on January 7, 2004, all of which vested six months from
the date of grant.
(7) Dr. Chan was appointed Vice President, Research and Technology on
September 24, 2001. As part of Dr. Chan's 2003 compensation, he received
an award of 33,732 shares of restricted stock on January 7, 2004, all of
which vested six months from the date of grant.
(8) Mr. Deegan was appointed Vice President, General Counsel and Secretary on
July 10, 2003. As part of Mr. Deegan's 2003 compensation, he received an
award of 25,458 shares of restricted stock on January 7, 2004, all of
which vested six months from the date of grant.
(9) As part of Mr. Snyder's 2003 compensation, he received an award of 26,677
shares of restricted stock on January 7, 2004, all of which vested six
months from the date of grant.
</FN>
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 2004 to Mr. DeLuccia, Dr. Chan, Mr. Deegan, Mr. Patriacca and Mr.
Snyder:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO EXERCISE ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES OR BASE PRICE APPRECIATION FOR
GRANTED IN FISCAL PRICE EXPIRATION OPTION TERM
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
- --------------------- ------------ ---------- -------- ---------- ------------------------
Robert J. DeLuccia 76,000 (1) 20.6 1.65 2/10/14 78,863 199,855
Bernard R. Patriacca 37,000 (2) 10.0 1.65 2/10/14 38,394 97,298
Thomas C.K. Chan 37,000 (3) 10.0 1.65 2/10/14 38,394 97,298
Glenn E. Deegan 28,000 (4) 7.6 1.65 2/10/14 29,055 73,631
Melvin A. Snyder 38,000 (5) 10.3 1.65 2/10/14 39,432 99,928
<FN>
(1) The options granted to Mr. DeLuccia were granted in February 2004 at an
exercise price of $1.65 per share. The options expire ten years from the
date of grant and vest over the three year period beginning on June 23,
2004.
(2) The options granted to Mr. Patriacca were granted in February 2004 at an
exercise price of $1.65 per share. The options expire ten years from the
date of grant and vest over the three year period beginning on June 23,
2004.
(3) The options granted to Dr. Chan were granted in February 2004 at an
exercise price of $1.65 per share. The options expire ten years from the
date of grant and vest over the three year period beginning on June 23,
2004.
(4) The options granted to Mr. Deegan were granted in February 2004 at an
exercise price of $1.65 per share. The options expire ten years from the
date of grant and vest over the three year period beginning on June 23,
2004.
(5) The options granted to Mr. Snyder were granted in February 2004 at an
exercise price of $1.65 per share. The options expire ten years from the
date of grant and vest over the three year period beginning on June 23,
2004.
</FN>
19
The following table provides information concerning option exercises during
the fiscal year ended December 31, 2004 and unexercised options held by Mr.
DeLuccia, Mr. Patriacca, Mr. Snyder, Dr. Chan, and Mr. Deegan, as of December
31, 2004:
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT YEAR END FISCAL YEAR-END ($)(1)
SHARES ACQUIRED ON VALUE REALIZED EXERCISEABLE / EXERCISEABLE /
NAME EXERCISE (#) ($) UNEXERCISEABLE UNEXERCISEABLE
- -------------------- ------------------ -------------- ---------------------- -----------------------
Robert J. DeLuccia --- --- 401,667/254,333 NA/NA
Bernard R. Patriacca --- --- 310,867/77,333 10,000/NA
Thomas C.K. Chan --- --- 243,367/94,333 10,000/NA
Glenn E. Deegan --- --- 132,734/70,266 2,500/NA
Melvin Snyder --- --- 347,433/79,667 10,000/NA
<FN>
(1) The value of Mr. DeLuccia's, Mr. Patriacca's, Dr. Chan's, Mr. Deegan's
and Mr. Snyder's in-the-money unexercised options at the end of fiscal
year ended December 31, 2004 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, 2004 ($0.73 per share) and the
exercise price of the options granted.
</FN>
DIRECTORS' COMPENSATION
Each of our non-employee Directors 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. No stock options were granted
to non-employee Directors during 2004.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
We entered into an employment agreement of indefinite length effective as
of June 19, 2003 with Robert J. DeLuccia. The agreement 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 $1,500. In addition, the agreement precludes Mr.
DeLuccia from competing with us during his employment and for a period of two
years thereafter, and from disclosing confidential information.
We 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 us dated as of October 25, 2002,
currently provides for annual compensation of $205,000 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 us during his employment
and for a period of two years thereafter, and from disclosing confidential
information.
20
We entered into an employment agreement of indefinite length effective as
of December 17, 2004 with Glenn E. Deegan. The agreement currently provides for
annual compensation of $180,000 and for the payment of twelve months' salary in
the event he is terminated without cause. In addition, the agreement precludes
Mr. Deegan from competing with us during his employment and for a period of two
years thereafter, and from disclosing confidential information. We also entered
into a Severance Agreement with Mr. Deegan dated as of October 25, 2002, and
amended as of December 17, 2004, which provides for the payment of twelve
months' salary in the event he is terminated without cause.
We 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 us dated as of October 25, 2002,
currently provides for annual compensation of $200,000 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 us during his
employment and for a period of two years thereafter, and from disclosing
confidential information.
We entered into an employment agreement of indefinite length effective as
of October 1, 2000 with Mel Snyder. The agreement, as modified by the Severance
Agreement between Mr. Snyder and us dated as of December 17, 2004, currently
provides for annual compensation of $194,250 and for the payment of twelve
months' salary in the event he is terminated without cause. In addition, the
agreement precludes Mr. Snyder from competing with us 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.
On April 19, 2005, MacroChem completed a private placement of 2,731,705
shares of common stock and five-year warrants to purchase 1,365,852 shares of
the Company's common stock for approximately $815,000 in gross proceeds. The
securities were sold in units, with each unit containing one share of common
stock and a warrant to purchase one-half of a share of common stock.
Institutional investors purchased 2,000,000 units at a purchase price per unit
of $0.25, with the accompanying warrants having an exercise price of $0.35 per
share. Certain of MacroChem's executive officers and directors, including Dr.
Zabriskie, purchased 731,705 units at a per unit purchase price of $0.4305, with
the accompanying warrants having an exercise price of $0.52 per share. Of the
731,705 units, Dr. Zabriskie, through Lansing Brown Investments, LLC, an entity
in which Dr. Zabriskie and his wife are the sole managers, purchased 464,576
units for an aggregate purchase price of $200,000.
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, 2004.
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 2004, 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 2004, 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 2004, 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.
22
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.
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 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
for all of 2004, 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 2004, the agreement provided for
an annual base salary at a rate of $288,000. The agreement also provided for a
monthly automobile allowance of $1,500 net of taxes and a target bonus for 2004
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 3, 2005 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, 1999 through
December 31, 2004 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
-------------------------------------------------------------------
12/99 12/00 12/01 12/02 12/03 12/04
MACROCHEM CORPORATION 100.00 61.20 72.83 12.20 20.30 17.43
NASDAQ STOCK MARKET (U.S.) 100.00 60.30 45.49 26.40 38.36 40.51
PEER GROUP 100.00 119.46 138.75 83.86 124.01 98.52
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, 2004. Deloitte & Touche LLP issued their unqualified report
dated March 24, 2005 on MacroChem's financial statements (which report includes
an explanatory paragraph referring to MacroChem Corporation's ability to
continue as a going concern).
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 received the
written disclosures and the letter from Deloitte & Touche LLP required by
Independence Standards Board Standard No. 1 and 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, 2004 be included in the Annual Report on Form 10-K for
the fiscal year then ended.
Dated: May 3, 2005 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 registered public
accounting firm. The following table sets forth the estimated aggregate fees
billed to the Company for the fiscal years ended December 31, 2004 and 2003 by
Deloitte & Touche LLP:
2004 2003
Audit Fees $ 188,000 $ 115,480
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees -- --
----------- -----------
Total $ 188,000 $ 115,480
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 Company's
consolidated financial statements and are not reported under "Audit Fees." The
Company did not pay any Audit-Related Fees during 2004 or 2003.
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 2004 or 2003.
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
2004 or 2003.
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
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
26
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
2005 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 2006, the Company must
receive them on or before January 16, 2006. 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 2006, other than one that will be included in the
proxy materials, must notify the Company no earlier than March 15, 2006 and no
later than April 15, 2006. If a stockholder who wishes to present a proposal
fails to notify the Company by April 15, 2006, any proxy that management
27
solicits for the Annual Meeting in 2006 will confer on the holder of the proxy
discretionary authority to vote on any such proposal properly presented at the
meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 19, 2005, MacroChem completed a private placement of 2,731,705
shares of common stock and five-year warrants to purchase 1,365,852 shares of
the Company's common stock for approximately $815,000 in gross proceeds. The
securities were sold in units, with each unit containing one share of common
stock and a warrant to purchase one-half of a share of common stock.
Institutional investors purchased 2,000,000 units at a purchase price per unit
of $0.25, with the accompanying warrants having an exercise price of $0.35 per
share. Certain of MacroChem's executive officers and directors purchased 731,705
units at a per unit purchase price of $0.4305, with the accompanying warrants
having an exercise price of $0.52 per share. The executive officers and
directors who participated in the transaction, and the number of units purchased
by each, are as follows:
PERSON POSITION INVESTMENT UNITS
AMOUNT PURCHASED
John L. Zabriskie (1) Chairman of the Board of Directors $200,000 464,576
Robert J. DeLuccia President, Chief Executive Officer and Vice Chairman $60,000 139,372
of the Board
Paul S. Echenberg (2) Director $25,000 58,072
Thomas C.K. Chan Vice President, Chief Technology Officer $20,000 46,457
Bernard R. Patriacca Vice President, Chief Financial Officer $10,000 23,228
<FN>
(1) Dr. Zabriskie purchased the units through Lansing Brown Investments, LLC, an
entity in which Mr. Zabriskie and his wife are the sole managers.
(2) Mr. Echenberg purchased his units through Eckvest Equity Inc., an entity in
which Mr. Echenberg is the President and sole equity owner.
</FN>
FINANCIAL INFORMATION
The audited financial statements and related financial and business
information of the Company as of December 31, 2004 and 2003 and each year in the
three-year period ended December 31, 2004 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 2004 all filing requirements applicable to its officers,
directors, and such 10 percent beneficial owners were complied with.
DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS
We have adopted a procedure approved by the Securities and Exchange
Commission called "householding." Under this procedure, we will deliver only one
copy of our annual report to stockholders, which includes a copy of our Annual
Report on Form 10-K for the year ended December 31, 2004, without exhibits, and
28
this proxy statement, to multiple stockholders who share the same address (if
they appear to be members of the same family) unless one or more of these
shareholders notifies us that they wish to continue receiving individual copies.
We believe this procedure provides greater convenience for our shareholders and
saves money by reducing the number of duplicate documents. Stockholders who
participate in householding will continue to receive separate proxy cards.
If you and other shareholders of record with whom you share an address
currently receive multiple copies of our Annual Report and Proxy Statement and
wish to receive only a single copy of the Annual Report and Proxy Statement,
please contact ADP-ICS, Householding Department, 51 Mercedes Way, Edgewood, NY
11717, or call toll-free (800) 542-1061. If you participate in householding and
wish to receive additional copies of the current Annual Report and Proxy
Statement, or if you wish to revoke your consent and receive separate copies of
future Annual Reports and Proxy Statements, please contact ADP as described
above.
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 16, 2005 Vice President, General Counsel and
Secretary
29
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.
30
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 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). 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 SmallCap 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."
31
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
Vice Chairman of the Board
32