MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02173
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 22, 1998
The Annual Meeting of Stockholders of MacroChem Corporation (the
"Corporation"), a Delaware corporation, will be held on Friday, May 22, 1998 at
10:00 a.m. at the offices of Ropes & Gray, One International Place, 36th Floor,
Boston, Massachusetts, for the following purposes:
1. To elect six members of the Board of Directors to serve for the
ensuing year and until their successors are elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP, as independent
auditors for the Corporation for the fiscal year ending December 31,
1998.
3. To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof.
We hope that all stockholders will be able to attend the Annual Meeting in
person. To assure that a quorum is present at the Annual Meeting, please date,
sign and promptly return the enclosed Proxy whether or not you expect to attend
the Annual Meeting. IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK THE
APPROPRIATE BOX ON THE ENCLOSED PROXY. A postage-prepaid envelope, addressed to
American Stock Transfer & Trust Company, the Corporation's transfer agent and
registrar, has been enclosed for your convenience. If you attend the Annual
Meeting, your Proxy will, at your request, be returned to you and you may vote
your shares in person.
By Order of the Board of Directors,
PIERRETTE E. SAMOUR
SECRETARY
Lexington, Massachusetts
April 17, 1998
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02173
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1998
The enclosed Proxy is solicited by the Board of Directors of MacroChem
Corporation (the "Corporation") for use at the Annual Meeting of Stockholders to
be held on Friday, May 22, 1998, and at any adjournment thereof.
Stockholders of record at the close of business on March 31, 1998 will be
entitled to vote at the Annual Meeting or any adjournment thereof. On that date
22,202,865 shares of Common Stock, $.01 par value per share, of the Corporation
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 Annual
Meeting. The Corporation has no other voting securities.
Execution of a Proxy will not in any way affect a stockholder's right to
attend the Annual Meeting and vote in person. A stockholder may revoke his Proxy
at any time before it is exercised by written notice to the Corporation's
Secretary prior to the Annual Meeting, or by giving to the Corporation'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 Annual
Meeting and voting in person. The shares represented by all properly executed
Proxies received in time for the Annual 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, 1998,
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 Annual
Meeting.
Expenses in connection with the solicitation of proxies will be paid by the
Corporation. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Corporation, who will receive no extra
compensation for such services, may solicit proxies by telephone, telecopy,
telegraph, or personal calls.
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any other matter should be properly presented at the Annual
Meeting upon which a vote may be taken, such shares represented by all Proxies
received by the Board or Directors will be voted with respect thereto in
accordance with the judgment of the persons named as the proxies therein.
The Corporation's Annual Report to stockholders for the Corporation's
fiscal year ended December 31, 1997 is being mailed together with Form 10-K and
this Proxy Statement to all stockholders entitled to vote at the Annual Meeting.
This Proxy Statement and the accompanying Proxy were first mailed to
stockholders on or about April 17, 1998.
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Corporation's by-laws, a
majority of the shares entitled to be cast on a particular matter, present in
person or represented by proxy, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Corporation to act as election inspectors for the Annual
Meeting.
The six nominees for election as Directors at the Annual Meeting who
receive the greatest number of votes properly cast for the election of Directors
shall be elected the Directors of the Corporation.
The election inspectors will count the total number of votes cast "for"
approval of Proposal No. 2 for purposes of determining whether sufficient
affirmative votes have been cast. The election inspectors will count shares
represented by proxies that withhold authority to vote for a nominee for
election as a Director or that reflect abstentions and "broker non-votes" (i.e.,
shares represented at the meeting held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum. Neither abstentions nor broker non-votes have any effect on the outcome
of voting on Proposal Nos. 1 and 2.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has set the number of Directors to be elected for
the ensuing year at six. The six directors will be elected to serve until the
1999 Annual Meeting of Stockholders 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. 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 Corporation:
Year
Nominee
First
Became a
Name Age Director Position With Corporation
- --------------------------------------------------------------------------------
Carlos M. Samour .... 77 1981 Chairman of the Board of Directors and
Scientific Director
Alvin J. Karloff..... 66 1990 Chief Executive Officer, President and
Director
Willard M. Bright ... 84 1993 Director
Peter G. Martin...... 49 1995 Director
Stephen J. Riggi..... 60 1996 Vice President, Operations and Director
Michael A. Davis..... 57 1997 Director and Consultant
The Board of Directors held four meetings during the fiscal year ended
December 31, 1997. All the Corporation's current Directors attended at least 75
percent of the meetings of the Board of Directors and of those committees of
which they were members that were held during the fiscal year ended December 31,
1997.
There are two committees of the Board of Directors, an Audit Committee and
a Compensation Committee. The Corporation does not have a nominating committee.
Mr. Martin (Chairman), Dr. Bright and Dr. Davis serve as members of the
Audit Committee, which was established for the purpose of (i) reviewing the
Corporation's financial results and recommending the selection of the
Corporation's independent auditors; (ii) reviewing the effectiveness of the
Corporation's accounting policies and practices, financial reporting and
internal controls; and (iii) reviewing the scope of the audit, the fees charged
by the independent auditors, any transactions which may involve a potential
conflict of interest, and internal control systems. The Audit Committee met one
time during the fiscal year ended December 31, 1997.
Dr. Bright (Chairman) and Mr. Martin serve on the Corporation's
Compensation Committee. The Compensation Committee was established for the
purpose of (i) determining the compensation of the Corporation's executive
officers, (ii) making awards under the Corporation's stock option plans, and
(iii) making recommendations to the Board of Directors with regard to the
adoption of new employee benefit plans. The Compensation Committee met four
times during the fiscal year ended December 31, 1997.
With the exception of Carlos Samour and Pierrette Samour, who are husband
and wife, respectively, no Director or executive officer is related to any other
Director or executive officer by blood, marriage or adoption.
BACKGROUND
The following is a brief summary of the background of each nominee for
election as a Director of the Corporation:
CARLOS M. SAMOUR, PH.D., the Corporation's Chairman of the Board of
Directors and its Scientific Director, founded the Corporation in 1981. Since
1990, Dr. Samour has served in an unpaid capacity as President and Chairman of
the Augusta Epilepsy Research Foundation, a non-profit organization, in
Washington, D.C. From 1958 until the formation of the Corporation, Dr. Samour
was director of the corporate research laboratory at The Kendall Corporation, a
general medical supply company, and its Lexington Laboratory after Kendall was
acquired by Colgate-Palmolive Corporation in 1972. Dr. Samour is the inventor of
many of the technologies under development by the Corporation and is responsible
for managing research and product development activities. He received an M.S.
from the Massachusetts Institute of Technology and a Ph.D. in organic chemistry
from Boston University.
ALVIN J. KARLOFF has served as the Corporation's Chief Executive Officer,
President and as a Director since January 1990. In 1986, Mr. Karloff founded
Medical and Scientific Enterprises, Inc., a privately held medical diagnostic
equipment company, where he served as Chairman, Chief Executive Officer and
President prior to joining the Corporation. Mr. Karloff was Director of
Marketing for Medical Products with New England Nuclear ("NEN"), a Dupont
company, from 1984 to 1985, and from 1969 to 1984, he served as Marketing
Manager, Sales Manager, and in several other sales and marketing positions for
NEN. Mr. Karloff received a B.S. from the University of Massachusetts.
WILLARD M. BRIGHT, PH.D., has served as a Director of the Corporation since
December 1992. Since 1982, Dr. Bright has served as a Director (from 1982 to
July 1996 as Chairman of the Board of Directors) of Zoll Medical Corporation, a
publicly held medical supply company. Since 1973, he has served as a director of
CSS Industries, Inc., a publicly held consumer products company. Prior to 1982,
Dr. Bright served as President and Chief Executive Officer of The Kendall
Corporation; as President of the Professional Products Division of Warner
Lambert; as President of Boehringer Manheim Corporation USA, a manufacturer of
medical products and biochemicals; and as President and Director of
Curtiss-Wright Corp., a manufacturer of aerospace and industrial products. Dr.
Bright received a B.S. and M.S. from the University of Toledo and a Ph.D. in
physical chemistry from Harvard University.
PETER G. MARTIN has served as a Director of the Corporation since 1995.
Since 1990 Mr. Martin has been an independent investment banker and venture
capitalist. Prior to 1990 he was a commercial banker. Mr. Martin is also a
director of KFX, Inc., a public company engaged in coal beneficiation, and
DermaRx Corporation, a public company that provides wound care products and
services. Mr. Martin was initially elected to the Board of Directors as the
designee of David Russell, who privately purchased 1 million shares of the
Corporation's Common Stock in 1995. Mr. Russell is no longer entitled to
designate a Director of the Corporation. Mr. Martin received a B.A. and J.D.
from Fordham University and an M.B.A. from Columbia University.
STEPHEN J. RIGGI, PH.D., has served as the Corporation's Vice President,
Operations since February 1996 and as a Director of the Corporation since August
1996. He was President and Chief Executive Officer of Telor Ophthalmic
Pharmaceuticals, Inc. from 1989 until 1994. Dr. Riggi served in research and
development positions with Lederle Laboratories from 1963 until 1974, and in
research and development and operations positions with the Pennwalt Corporation
Pharmaceutical Division, of which he became President in 1985. He is a graduate
of the University of Tennessee School of Basic Medical Sciences, where he
received master's and doctor's degrees in physiology and pharmacology.
MICHAEL A. DAVIS, M.D., SC.D., has served as a Director of the Corporation
since 1997. Since 1980 Dr. Davis has been Professor of Radiology and Nuclear
Medicine and Director, Division of Radiologic Research, University of
Massachusetts Medical School. Since 1982 Dr. Davis has been Adjunct Professor of
Surgery at Tufts University School of Veterinary Medicine, and since 1986,
Affiliate Professor of Biomedical Engineering at Worcester Polytechnic
Institute. He has provided medical consulting services to the Corporation since
1991. He is also a director of EZ EM, Inc., a public company engaged in
supplying oral radiographic contrast media, as well as medical devices. 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.
EXECUTIVE OFFICERS
The executive officers of the Corporation, their ages and their positions
with the Corporation are as follows:
NAME AGE POSITION WITH CORPORATION
- --------------------------------------------------------------------------------
Carlos M. Samour........ 77 Chairman of the Board of Directors and Scientific
Director
Alvin J. Karloff........ 66 Chief Executive Officer, President and Director
Stephen J. Riggi........ 60 Vice President, Operations
Pierrette E. Samour..... 73 Treasurer and Secretary
The following is a brief summary of the background of Pierrette E. Samour.
The backgrounds of the Corporation's other executive officers, Dr. Samour, Mr.
Karloff and Dr. Riggi, are summarized above.
PIERRETTE E. SAMOUR, the Corporation's Treasurer since February 1993 and
Secretary since May 1992, co-founded the Corporation in 1981 along with her
husband, Carlos Samour. Mrs. Samour served as the Corporation's Clerk from 1985
through 1992 and as its Assistant Treasurer from 1985 through February 1993.
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, 1998. A
representative of Deloitte & Touche LLP is expected to be present at the Annual
Meeting, and will have the opportunity to make a statement and answer
appropriate questions from stockholders.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of February 27, 1998, certain
information concerning ownership of the Corporation's Common Stock by (i) each
person known by the Corporation to be the beneficial owner of more than five
percent (5%) of the Corporation's Common Stock, (ii) each of the Corporation's
Directors, (iii) each of the executive officers named in the Summary
Compensation Table under "Compensation of Officers and Directors" below and (iv)
all Directors and executive officers as a group. Except as otherwise indicated,
the stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------
Carlos M. and Pierrette E. Samour(2)..... 1,464,100 6.6%
Alvin J. Karloff(2) ..................... 1,080,000 4.9%
Willard M. Bright(2) .................... 44,800 *
Peter G. Martin(2) ...................... 30,000 *
Stephen J. Riggi(2)...................... 120,000 *
Michael A. Davis(2)...................... 5,000 *
Peter Janssen(3)......................... 1,635,396 7.4%
1780 Route 106
Muttontown, NY 11791
Mellon Bank Corporation(4)............... 1,345,000 6.0%
One Mellon Bank Center
Pittsburgh, PA 15258
David H. Russell(5)...................... 1,110,102 5.0%
45 Park Place South, Suite 103
Morristown, NJ 07960
All Directors and Officers as a Group
(7 persons) (2)....................... 2,743,900 12.4%
- --------------------------------------------------------------------------------
* Less than one percent (1%).
(1) The address of Dr. Samour, Mrs. Samour, Mr. Karloff, Dr. Bright,
Mr. Martin, Dr. Riggi and Dr. Davis is c/o the Corporation, 110 Hartwell
Avenue, Lexington, Massachusetts 02173.
(2) Includes the following number of shares issuable upon the exercise of stock
options exercisable within 60 days: Dr. and Mrs. Samour-995,080;
Mr. Karloff-1,080,000; Dr. Bright-30,000; Mr. Martin-30,000; Dr. Riggi-
120,000; Dr. Davis-5,000.
(3) Includes 36,450 shares issuable upon the exercise of warrants exercisable
immediately, and 33,279 shares issuable upon exercise of a warrant owned by
Janssen-Meyers Associates, L.P. ("Janssen-Meyers"). Mr. Janssen owns 50% of
Janssen-Meyers and has voting and dispositive power over 50% of the shares
beneficially owned by Janssen-Meyers.
(4) Of the 1,345,000 shares shown for Mellon Bank Corporation, its Schedule
13G, as amended on January 20, 1998, shows the following: 1,345,000 shares
of which the sole voting power and shared dispositive power are held by
Mellon Bank, N.A. and The Dreyfus Corporation, and 885,000 shares of which
the sole voting power and shared dispositive power are held by Premiere
Aggressive Growth Fund.
(5) The 1,110,102 shares shown for Mr. Russell include 100,000 shares owned by
Mr. Russell's wife; although Mr. Russell disclaims beneficial ownership of
such 100,000 shares. 10,102 of the shares shown for Mr. Russell are held by
Emin Company, L.L.C., which is controlled by Mr. Russell.
COMPENSATION OF OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS COMPENSATION
The following table sets forth the compensation earned by or paid or
awarded to Dr. Samour and Mr. Karloff during each of the three fiscal years
ended December 31, 1997 and to Dr. Riggi during each of the two fiscal years
ended December 31, 1997:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
- --------------------------------------------------------------------------------
Securities
Other Annual Underlying
Name and Principal Salary Bonus Compensation Options
Position Year $ $(1) $(2) #
- --------------------------------------------------------------------------------
Carlos M. Samour 1997 198,749 35,775 10,894 -----
Chairman, Scientific 1996 185,000 33,300 10,959 280,000
Director and Director 1995 155,000 27,900 13,643 -----
Alvin J. Karloff 1997 198,749 35,775 13,046 -----
President, Chief 1996 185,000 33,300 13,140 240,000
Executive Officer and 1995 155,000 27,900 12,530 -----
Director
Stephen J. Riggi 1997 159,167 ----- 490 -----
Vice President, 1996(3) 133,557 ----- 408 180,000
Operations and Director
- --------------------------------------------------------------------------------
(1) Since March 1992, Dr. Samour and Mr. Karloff have each received, in lieu of
retirement benefits, annual payments equal to eighteen percent of their
salaries.
(2) Includes amounts paid for taxable group term life insurance. Also includes
for Dr. Samour and Mr. Karloff a monthly automobile allowance of $799, plus
a health insurance benefit equal to the annual premium each individual pays
under separate health insurance policies maintained by their former
employers, which health insurance benefit is paid in lieu of any other
health, medical or retirement benefits.
(3) Dr. Riggi's employment commenced on February 12, 1996.
STOCK OPTIONS
No stock options were granted during the fiscal year ended December 31,
1997 to Dr. Samour, Mr. Karloff or Dr. Riggi.
The following table provides information concerning unexercised options
held by Dr. Samour, Mr. Karloff and Dr. Riggi as of December 31, 1997 (no
options were exercised by these persons during the fiscal year ended December
31, 1997):
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options at Options at
Fiscal Year-End Fiscal Year-End
# $ (1)
- --------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Carlos M. Samour (2) 695,080/ NA $3,901,008/ NA
Alvin J. Karloff 1,080,000/ NA $7,702,500/ NA
Stephen J. Riggi 60,000/120,000 $ 195,000/390,000
- --------------------------------------------------------------------------------
(1) The value of Dr. Samour's, Mr. Karloff's and Dr. Riggi's in-the-money
unexercised options at the end of the fiscal year ended December 31, 1997
was determined by multiplying the number of options held by the difference
between the market price of the Common Stock underlying the options on
December 31, 1997 ($ 9.125 per share) and the exercise price of the options
granted.
(2) Does not include options to purchase up to 300,000 shares of Common Stock
granted to Pierrette Samour, Dr. Samour's wife, of which he is deemed to
have beneficial ownership. If such 300,000 options were included, Dr.
Samour would be deemed to have had a total of 995,080 exercisable options
as of December 31, 1997, the value of which would have been $5,963,508.
DIRECTORS' COMPENSATION
Each non-employee Director of the Corporation receives compensation of
$4,000 annually, $500 per meeting attended, $300 for each committee meeting
attended if held on a separate day from a Board of Directors meeting, $300 per
telephone meeting and reimbursement of travel expenses in connection with
attending meetings of the Board of Directors. Dr. Bright receives additional
Director compensation of $1,000 per month. Dr. Samour, Mr. Karloff and Dr. Riggi
do not receive any additional compensation for their services as Directors.
During 1997 each non-employee Director was granted stock options as follows:
Dr. Bright - 10,000; Mr. Martin - 10,000; and Dr. Davis - 10,000. The options
are all exercisable at $7.50 per share and become fully vested on May 22, 1998.
The Corporation currently compensates Dr. Davis at the rate of $3,000 per
month for medical consulting services.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Corporation has entered into employment agreements of indefinite length
effective as of November 1, 1992 with each of Dr. Samour and Mr. Karloff. Each
agreement currently provides for annual compensation of $225,000. Each agreement
also provides for a monthly automobile allowance of $500 net of taxes and a
payment, in lieu of retirement benefits, equal to 18% of the individual's base
salary. Further, each agreement provides for the payment of 12 months' salary in
the event the individual is terminated without cause. In addition, each
agreement precludes the individual from competing with the Corporation during
his employment and for a period of one year thereafter, and from disclosing
confidential information.
The Corporation has entered into an employment agreement of indefinite
length effective as of March 25, 1996 with Dr. Riggi. The agreement currently
provides for annual compensation of $175,000 and for the payment of six months'
salary in the event he is terminated without cause. In addition, the agreement
precludes Dr. Riggi from competing with the Corporation during his employment
and for a period of two years thereafter, and from disclosing confidential
information.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation's Compensation Committee consists of Dr. Bright (Chairman)
and Mr. Martin.
Notwithstanding anything to the contrary set forth in any of the previous
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate future filings, including this
Proxy Statement, in whole or in part, the following report and the Performance
Graph on page 14 shall not be incorporated by reference into any such filings.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists of Dr. Bright
(Chairman) amd Mr. Martin. The Committee's responsibilities include determining
the compensation of the Corporation's executive officers, making awards under
the Corporation's stock option plans and making recommendations to the Board of
Directors with regard to the adoption of new employee benefit plans. Neither
member of the Committee was an officer or employee of the Corporation during the
year ended December 31, 1997.
The Corporation's executive compensation programs reflect input from the
Corporation's Chairman and from its Chief Executive Officer. The Compensation
Committee reviews their proposals concerning executive compensation and makes a
final determination concerning the scope and nature of compensation
arrangements. The action of the Committee is reported to the Corporation's
entire Board of Directors. It is the Corporation's current policy to establish,
structure and administer compensation plans and arrangements so that the
deductibility to the Corporation of such compensation will not be limited under
Section 162(m) of the Internal Revenue Code.
CEO COMPENSATION
During 1997, the Corporation and Mr. Karloff were parties to an employment
agreement with a 1997 base salary of $200,000, compared with a 1996 base salary
of $185,000. The increase in 1997 was based on his accomplishments listed in the
following paragraph. Under the contract, Mr. Karloff also receives payments
equal to 18% of base salary in lieu of receiving certain benefits from the
Corporation. During the year ended December 31, 1997, Mr. Karloff received these
payments, as provided by the employment contract. These payments were not
related to the Corporation's performance during the period.
The 1997 base salaries of Mr. Karloff and Dr. Samour reflect the following
accomplishments of Mr. Karloff and Dr. Samour during 1996. During the period,
Mr. Karloff and Dr. Samour, among other things, facilitated the orderly exercise
of Unit Purchase Options and Class A Warrants, Class AA Warrants and Class X
Warrants, resulting in net proceeds of approximately $5 million; built a
dedicated and competent management and research team; secured FDA approval of an
Investigational New Drug (IND) application to conduct a double-blind Phase II
clinical trial with a SEPA/Ibuprofen formulation for treating muscle pain; and
initiated a Phase I/II clinical trial of a topical formulation for treating
erectile dysfunction. No specific weight was assigned to each of these
accomplishments by the Committee.
EXECUTIVE OFFICER COMPENSATION
The Corporation maintains compensation and incentive programs designed to
motivate, retain and attract capable management. Dr. Samour and Dr. Riggi are
also parties to employment contracts with the Corporation described elsewhere in
the Proxy Statement. The compensation levels provided for in the Corporation'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.
Ongoing executive officer compensation is determined subjectively, in that
the Chairman and the Chief Executive Officer provide recommendations to the
Compensation Committee for the proposed remuneration of the Corporation's
officers based on their perceptions of those individuals' performance against
objectives jointly formulated by the Chairman, the Chief Executive Officer and
the officers, any change in their functional responsibilities, their potential
to contribute to the success of the Corporation and the compensation levels
provided to officers of comparable companies. No specific weights have been
assigned to these factors by the Committee.
Officer compensation is generally composed of cash compensation and grants
of options under the Corporation's stock option plans. Options generally vest
over three years, in order to serve as a future incentive. There is no set
formula for the award of stock options to individual executives. Factors
considered in making option awards include prior grants to the officer, the
importance of retaining the officer's services, the officer's potential to
contribute to the success of the Corporation and the officer's past
contributions to the Corporation.
Dated: April 17, 1998 COMPENSATION COMMITTEE
Willard M. Bright
Peter G. Martin
PERFORMANCE GRAPH
The following five-year performance graph compares the cumulative total
shareholder return (assuming reinvestment of dividends) on $100 invested in the
Corporation's Common Stock for the five-year period from December 31, 1992
through December 31, 1997 with similar investments in the NASDAQ Market Index of
companies and a Peer Group Index of the following four companies that provide
similar services to those provided by the Corporation -- ALZA Corporation,
Cygnus Inc., Noven Pharmaceuticals Inc. and TheraTech Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MACROCHEM CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX,
AND A PEER GROUP
1992 1993 1994 1995 1996 1997
MacroChem Corporation $100 $ 55 $ 29 $ 65 $106 $149
NASDAQ Market Index $100 $115 $112 $159 $195 $240
Peer Group Index $100 $ 67 $ 43 $ 63 $ 64 $ 72
- ---------------------
* $100 invested on 12/31/92 in stock or index - including reinvestment of
dividends. Fiscal year ending December 31.
CERTAIN TRANSACTIONS
The Corporation paid Janssen-Meyers Associates, L.P. ("Janssen-Meyers") a
monthly fee of $5,000 for consulting services relating to public relations from
December 1996 through April 1997. Peter Janssen and Bruce Meyers, who own 50%
and 50%, respectively, of Janssen-Meyers, owned 1,635,396 shares (7.4%) and
1,082,695 shares (4.9%), respectively, of the Corporation's Common Stock as of
February 27, 1998. Each of Messrs. Janssen and Meyers has voting and dispositive
power over 50% of the shares beneficially owned by Janssen-Meyers.
STOCKHOLDER PROPOSALS
In order to be included in proxy material for the 1999 Annual Meeting,
stockholders' proposals must be received by the Corporation on or before
December 17, 1998. The Corporation suggests that proponents submit their
proposals by certified mail, return receipt requested, addressed to the
Secretary of the Corporation.
FINANCIAL INFORMATION
The audited financial statements and related financial and business
information of the Corporation as of December 31, 1997 and 1996 and each year in
the three-year period ended December 31, 1997 are contained in the Company's
Annual Report and Annual Report on Form 10-K.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who beneficially own more than
10 percent of the Corporation's Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Based solely on its review of
the copies of such reports received by it, and written representations from
certain reporting persons that no Forms 5 were required for those persons, the
Corporation believes that during the fiscal year ended December 31, 1997 all
filing requirements applicable to its officers, directors, and such 10 percent
beneficial owners were complied with, except that Peter Janssen filed five late
reports covering 27 sales made during five months in 1997.
MISCELLANEOUS
Management does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual 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 CORPORATION'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 02173, ATTENTION: DIRECTOR, INVESTOR RELATIONS.
By Order of the Board of Directors,
PIERRETTE E. SAMOUR
SECRETARY
Lexington, Massachusetts
April 17, 1998
THE MANAGEMENT HOPES THAT THE STOCKHOLDERS WILL ATTEND THE ANNUAL 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 ANNUAL MEETING AND YOUR COOPERATION WILL
BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.