MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 24, 1999
The Annual Meeting of Stockholders of MacroChem Corporation (the
"Company"), a Delaware corporation, will be held on Thursday, June 24, 1999 at
10:00 a.m. at the offices of Ropes & Gray, One International Place, 36th Floor,
Boston, Massachusetts, for the following purposes:
1. To elect six members of the Board of Directors to serve for
the ensuing year and until their successors are elected and
qualified.
2. To ratify the appointment of Deloitte & Touche LLP as
independent auditors for the Company for the fiscal year
ending December 31, 1999.
3. To transact other business properly coming before the meeting.
Stockholders owning Company shares at the close of business on May 7, 1999
are entitled to attend and vote at the meeting.
We hope that all stockholders will be able to attend the meeting. To assure
that a quorum is present at the meeting, please date, sign and promptly return
the enclosed proxy whether or not you expect to attend the meeting. IF YOU PLAN
TO ATTEND THE MEETING, PLEASE MARK THE APPROPRIATE BOX ON THE ENCLOSED PROXY. A
postage-prepaid envelope, addressed to American Stock Transfer & Trust Company,
the Company's transfer agent and registrar, has been enclosed for your
convenience. If you attend the meeting, you may vote your shares in person.
By Order of the Board of Directors,
WILLIAM P. JOHNSON
SECRETARY
Lexington, Massachusetts
May 21, 1999
MACROCHEM CORPORATION
110 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS 02421
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 1999
The enclosed proxy is solicited by the Board of Directors of MacroChem
Corporation (the "Company") for use at the Annual Meeting of Stockholders to be
held on Thursday, June 24, 1999, and at any adjournment thereof.
Stockholders of record at the close of business on May 7, 1999 will be
entitled to vote at the meeting. On that date 22,219,884 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, 1999, and otherwise in accordance with
the discretion of the named attorneys-in-fact and agents on any other matters
that may properly come before the meeting.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company, who will receive no extra
compensation for such services, may solicit proxies by telephone, telecopy,
telegraph, or personal calls.
The Board of Directors knows of no other matter to be presented at the
meeting. If any other matter should be properly presented at the meeting upon
which a vote may be taken, such shares represented by all proxies received by
the Board or Directors will be voted with respect thereto in accordance with the
judgment of the persons named as the proxies therein.
The Company's Annual Report to stockholders for the Company's fiscal year
ended December 31, 1998 is being mailed together with Form 10-K and this Proxy
Statement to all stockholders entitled to vote at the meeting. This Proxy
Statement and the accompanying proxy were first mailed to stockholders on or
about May 21, 1999.
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Company's by-laws, a majority of
the shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the meeting will be counted by persons appointed by the
Company to act as election inspectors for the meeting.
The six nominees for election as Directors at the meeting who receive the
greatest number of votes properly cast for the election of Directors shall be
elected the Directors of the Company.
The election inspectors will count the total number of votes cast "for"
approval of Proposal No. 2 for purposes of determining whether sufficient
affirmative votes have been cast. The election inspectors will count shares
represented by proxies that withhold authority to vote for a nominee for
election as a Director or that reflect abstentions and "broker non-votes" (i.e.,
shares represented at the meeting held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum. Neither abstentions nor broker non-votes have any effect on the outcome
of voting on Proposal Nos. 1 and 2.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has set the number of Directors to be elected for
the ensuing year at six. The six Directors will be elected to serve until the
Annual Meeting of Stockholders to be held in 2000 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 Company:
Year
Nominee
First
Became a
Name Age Director Position With Company
- - --------------------------------------------------------------------------------
Carlos M. Samour.......78 1981 Chairman of the Board of Directors
and Scientific Director
Alvin J. Karloff.......67 1990 Chief Executive Officer, President and
Director
Willard M. Bright .....85 1993 Director
Peter G. Martin........50 1995 Director
Stephen J. Riggi.......61 1996 Vice President, Operations and Director
Michael A. Davis.......58 1997 Director and Consultant
The Board of Directors held four meetings during 1998. All the
Company'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 1998.
There are two committees of the Board of Directors, an Audit Committee and
a Compensation Committee. The Company does not have a nominating committee.
Mr. Martin (Chairman), Dr. Bright and Dr. Davis serve as members of the
Audit Committee, which was established for the purpose of (i) reviewing the
Company's financial results and recommending the selection of the Company's
independent auditors; (ii) reviewing the effectiveness of the Company's
accounting policies and practices, financial reporting and internal controls;
and (iii) reviewing the scope of the audit, the fees charged by the independent
auditors and any transactions which may involve a potential conflict of
interest. The Audit Committee met four times during 1998.
Dr. Bright (Chairman) and Mr. Martin serve on the Company's Compensation
Committee. The Compensation Committee was established for the purpose of (i)
determining the compensation of the Company's executive officers, (ii) making
awards under the Company's stock option plans, and (iii) making recommendations
to the Board of Directors with regard to the adoption of new employee benefit
plans. The Compensation Committee met four times during 1998.
BACKGROUND
The following is a brief summary of the background of each nominee for
election as a Director of the Company:
CARLOS M. SAMOUR, PH.D., the Company's Chairman of the Board of Directors
and its Scientific Director, founded the Company in 1981. From 1958 until the
formation of the Company, Dr. Samour was director of the corporate research
laboratory at The Kendall Company, 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 Company 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 Company's Chief Executive Officer and
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 Company. 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 Company 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
Company; 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 Company since 1995. Since
1990 Mr. Martin has been an independent investment banker and venture
capitalist. Prior to 1990 he was a commercial banker. Mr. Martin is also a
director of KFX, Inc., a public company that provides energy solutions, 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
Company's Common Stock in 1995. Mr. Russell is no longer entitled to designate a
Director of the Company. Mr. Martin received a B.A. and J.D. from Fordham
University and an M.B.A. from Columbia University.
STEPHEN J. RIGGI, PH.D., has served as the Company's Vice President,
Operations since February 1996 and as a Director of the Company 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 Company
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 Company
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 Company 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. In
addition, since February 1999 he has been President and Chief Executive Officer
of Versailles Capital Corporation, a public company, and its wholly owned
subsidiary, Amerimmune Inc., which is engaged in developing drugs relating to
the immune system. 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 Company, their ages and their positions with
the Company are as follows:
Name Age Position With Company
- - --------------------------------------------------------------------------------
Carlos M. Samour.......78 Chairman of the Board of Directors
and Scientific Director
Alvin J. Karloff.......67 Chief Executive Officer, President and Director
Stephen J. Riggi.......61 Vice President, Operations and Director
Paul J. Schechter......59 Vice President, Drug Development & Regulatory Affairs
William P. Johnson.....54 Treasurer and Secretary
The following is a brief summary of the backgrounds of Dr. Schechter and
Mr. Johnson. The backgrounds of the Company's other executive officers, Dr.
Samour, Mr. Karloff and Dr. Riggi, are summarized above.
PAUL J. SCHECHTER, M.D., PH.D., the Company's Vice President, Drug
Development and Regulatory Affairs since May 1998, was from 1973 to 1990 with
Merrell Dow Research Institute, where he attained the position of Vice President
for Clinical Research. He went on to become Vice President of Fujisawa
Pharmaceutical Company from 1990 to 1993. Most recently he served as Senior Vice
President, Drug Development with Hybridon, Inc. from 1993 to 1997. Dr. Schechter
holds an M.D. and Ph.D. in Pharmacology from the University of Chicago and a
B.S. from Columbia University, College of Pharmacy.
WILLIAM P. JOHNSON, Director of Finance of the Company since 1996, became
Treasurer and Secretary of the Company in May 1998. From 1985 to 1989, Mr.
Johnson was the Chief Financial Officer for Elscint, Inc. From 1989 to 1991 he
was Chief Financial Officer at Collaborative Research, Inc., and from 1991 to
1993 served as its Senior Vice President and General Manager. From 1993 to 1994,
Mr. Johnson was a General Consultant for Wellesley Partners, Ltd. He was Chief
Financial Officer for USTelecenters, Inc. from 1994 through 1995. Prior to
coming to the Company in 1996, Mr. Johnson was sole proprietor of Dekamel
Consulting Services. Mr. Johnson holds an M.B.A. from Babson College and a B.S.
in Accounting from Boston College.
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, 1999. 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.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of March 31, 1999, certain information
concerning ownership of the Company's common stock by (i) each person known by
the Company to be the beneficial owner of more than five percent (5%) of the
Company's common stock, (ii) each of the Company's Directors, (iii) each of the
executive officers named in the Summary Compensation Table under "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 PERCENTAGE
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED OF CLASS
- - --------------------------------------------------------------------------------
Carlos M. and Pierrette E. Samour(2)...... 1,459,400 6.6%
Alvin J. Karloff(2) ...................... 1,080,000 4.9%
Willard M. Bright(2) ..................... 76,800 *
Peter G. Martin(2) ....................... 65,270 *
Stephen J. Riggi(2)....................... 180,000 *
Michael A. Davis(2)....................... 25,000 *
Paul J. Schechter(2)...................... 60,000 *
Peter Janssen(3).......................... 1,476,411 6.6%
1780 Route 106
Muttontown, NY 11791
David H. Russell(4)....................... 1,100,000 5.0%
45 Park Place South, Suite 103
Morristown, NJ 07960
All Directors and Officers as a Group
(8 persons) (2)....................... 3,013,136 13.6%
- - --------------------------------------------------------------------------------
* Less than one percent (1%).
(1) The address of Dr. Samour, Mrs. Samour, Mr. Karloff, Dr. Bright, Mr.
Martin, Dr. Riggi, Dr. Davis and Dr. Schechter is c/o the Company, 110
Hartwell Avenue, Lexington, Massachusetts 02421.
(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-50,000; Mr. Martin-30,000; Dr. Riggi-180,000;
Dr. Davis-25,000; Dr. Schechter-60,000; Mr. Johnson-66,666.
(3) Includes 36,450 shares issuable upon the exercise of warrants held by Mr.
Janssen, 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) The 1,100,000 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.
COMPENSATION OF OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation earned by or paid or
awarded to Dr. Samour, Mr. Karloff and Dr. Riggi during each of the three fiscal
years ended December 31, 1998 and to Dr. Schechter during the fiscal year ended
December 31, 1998:
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
- - ---------------------------------------------------------------------------------------------------------------------
Other Annual Securities Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year $ $(1) $(2) # $(5)
- - ---------------------------------------------------------------------------------------------------------------------
Carlos M. Samour 1998 237,538 42,757 10,889 ----- 5,000
Chairman, Scientific 1997 198,749 35,775 10,894 ----- -----
Director and Director 1996 185,000 33,300 10,959 280,000 -----
Alvin J. Karloff 1998 237,563 42,761 13,453 ----- 5,000
President, Chief 1997 198,749 35,775 13,046 ----- -----
Executive Officer and 1996 185,000 33,300 13,140 240,000 -----
Director
Stephen J. Riggi 1998 175,000 ----- 1,175 ----- 5,000
Vice President, 1997 159,167 ----- 490 ----- -----
Operations and 1996(3) 133,557 ----- 408 180,000 -----
Director
Paul J. Schechter 1998(4) 116,667 ----- 392 180,000 5,000
Vice President,
Drug Development
& Regulatory Affairs
- - ---------------------------------------------------------------------------------------------------------------------
(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 $799, plus
a health insurance benefit equal to the annual premium each individual pays
under separate health insurance policies maintained by their former
employers, which health insurance benefit is paid in lieu of any other
health, medical or retirement benefits.
(3) Dr. Riggi's employment commenced on February 12, 1996.
(4) Dr. Schechter's employment commenced on May 1, 1998.
(5) Represents the dollar value of Company contributions to the Company's
401(k) Retirement Plan, which was established in 1998. Company
contributions are made in its common stock.
STOCK OPTIONS
The following table provides information concerning the grant of stock
options during 1998 to Dr. Schechter (no stock options were granted during 1998
to Dr. Samour, Mr. Karloff or Dr. Riggi):
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------
Potential
Realizable
Value
at Assumed
Annual Rates
Number of % of Total of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($)
- - ---------------------------------------------------------------------------------------------------
Paul J. Schechter 180,000(1) 31% 12.063 May 2008 1,365,000 3,460,000
(1) The option granted to Dr. Schechter was granted in May 1998 under the
Company's 1994 Equity Incentive Plan at an exercise price of $12.063 per
share. The option expires ten years from the date of grant and vests with
respect to 60,000 shares in May in each of 1999, 2000 and 2001.
The following table provides information concerning unexercised options
held by Dr. Samour, Mr. Karloff, Dr. Riggi and Dr. Schechter as of December 31,
1998 (no options were exercised by these persons during the fiscal year ended
December 31, 1998):
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 $2,250,000/ NA
Alvin J. Karloff 1,080,000/ NA $6,960,000/ NA
Stephen J. Riggi 120,000/ 60,000 $308,000/154,000
Paul J. Schechter 0/180,000 $0/ 0
- - -----------------------------------------------------------------------------
(1) The value of Dr. Samour's, Mr. Karloff's, Dr. Riggi's and Dr. Schechter's
in-the-money unexercised options at the end of the fiscal year ended
December 31, 1998 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, 1998 ($8.438 per share) and the exercise price
of the options granted.
(2) Does not include options to purchase 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, 1998, the value of which would have been $4,105,000.
DIRECTORS' COMPENSATION
Each non-employee Director of the Company receives compensation of $4,000
annually, $1,000 per meeting attended, $500 for each committee meeting attended,
$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 1998 each non-employee Director was granted stock options as
follows: Dr. Bright - 30,000; Mr. Martin - 30,000; and Dr. Davis - 30,000. The
options are all exercisable at $12.688 per share and vest as to 10,000 shares on
each of May 22, 1999, May 22, 2000 and May 22, 2001.
The Company 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 Company 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 $250,000. 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 Company during his
employment and for a period of one year thereafter, and from disclosing
confidential information.
The Company has entered into an employment agreement of indefinite length
effective as of 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 Company during his employment and for a period
of two years thereafter, and from disclosing confidential information.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Dr. 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 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. Neither
member of the Committee was an officer or employee of the Company during the
year ended December 31, 1998.
The Company's executive compensation programs reflect input from the
Company'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 Company's entire
Board of Directors. It is the Company's current policy to establish, structure
and administer compensation plans and arrangements so that the deductibility to
the Company of such compensation will not be limited under Section 162(m) of the
Internal Revenue Code.
CEO COMPENSATION
During 1998, the Company and Mr. Karloff were parties to an employment
agreement with a 1998 base salary of $225,000 from January 1 through June 30 and
$250,000 thereafter, compared with a 1997 base salary of $200,000. The increases
in 1998 were based on his accomplishments listed in the following paragraph.
Under the contract, during 1998 Mr. Karloff also received payments equal to 18%
of base salary in lieu of receiving certain benefits from the Company. These
payments were not related to the Company's performance during the period.
The 1998 base salaries of Mr. Karloff and Dr. Samour reflect the following
accomplishments of Mr. Karloff and Dr. Samour during 1997. During the period,
Mr. Karloff and Dr. Samour, among other things, facilitated exercise of the
Class A and Class AA Warrants and Unit Purchase Options, resulting in net
proceeds of approximately $18 million to the Company; negotiated the services of
Lehman Brothers as the Company's investment bankers; restructured the Company's
management team and arranged for hiring additional top-level personnel; expanded
the Company's cGMP facilities, laboratories and offices at the same location
with minimal inconvenience; and continued a major clinical trial of a topical
formulation for treating erectile dysfunction. No specific weight was assigned
to these accomplishments by the Compensation Committee.
EXECUTIVE OFFICERS' COMPENSATION
The Company 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 Company described elsewhere in the
Proxy Statement. The 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.
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 Company'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 Company 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 Company'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 Company and the officer's past contributions to the Company.
Dated: May 21, 1999 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
Company's common stock for the five-year period from December 31, 1993 through
December 31, 1998 with similar investments in the NASDAQ Stock Market (U.S.)
Index of companies and a New Peer Group of four companies that provide services
similar to those provided by the Company: Cellegy Pharmaceuticals, Inc., Noven
Pharmaceuticals Inc., Theratech Inc. and Zonagen, Inc. The New Peer Group
replaces the Old Peer Group used in the Company's Proxy Statement for the Annual
Meeting of Stockholders held in 1998: ALZA Corporation, Cygnus Inc., Noven
Pharmaceuticals Inc. and Theratech Inc. Cellegy Pharmaceuticals, Inc. and
Zonagen, Inc. have been added because they closely resemble the Company in size,
focus and character of their activities. ALZA Corporation and Cygnus Inc. have
been deleted because they bear less of a resemblance to the Company in the size,
focus and character of their activities.
COMARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MACROCHEM CORPORATION, A NEW PEER GROUP,
AN OLD PEER GROUP AND THE NASDAQ STOCK MARKET (U.S.) INDEX
12/93 12/94 12/95 12/96 12/97 12/98
MacroChem Corporation $100 $52 $119 $193 $270 $250
New Peer Group(1) $100 $81 $ 93 $106 $ 77 $ 90
Old Peer Group(2) $100 $65 $ 94 $ 95 $106 $156
NASDAQ Stock Market (U.S.) $100 $98 $138 $170 $208 $294
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(1) New Peer Group Companies: Cellegy Pharmaceuticals, Inc., Noven
Pharmaceuticals Inc., Theratech Inc. and Zonagen, Inc.
(2) Old Peer Group Companies: ALZA Corporation, Cygnus Inc., Noven
Pharmaceuticals Inc. and Theratech Inc.
STOCKHOLDER PROPOSALS
In order for stockholder proposals which are submitted pursuant to Rule
14a-8 of the Securities Exchange Act of 1934 (the "Exchange Act") to be
considered by the Company for inclusion in the proxy material for the Annual
Meeting to be held in 2000, they must be received by the Company on or before
January 21, 2000. The Company suggests that proponents submit their proposals by
certified mail, return receipt requested, addressed to the Secretary of the
Company.
For proposals that stockholders intend to present at the Annual Meeting to
be held in 2000 outside the processes of Rule 14a-8 of the Exchange Act, unless
the stockholder notifies the Secretary of the Company of such intent by April
13, 2000, any proxy that management solicits for the Annual Meeting in 2000 will
confer on the holder of the proxy discretionary authority to vote on any such
proposal properly presented at the meeting.
FINANCIAL INFORMATION
The audited financial statements and related financial and business
information of the Company as of December 31, 1998 and 1997 and each year in the
three-year period ended December 31, 1998 are contained in the Company's 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 Company's
officers and directors, and persons who beneficially own more than 10 percent of
the Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based solely on its review of the
copies of such reports received by it, and written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that during 1998 all filing requirements applicable to its officers,
directors, and such 10 percent beneficial owners were complied with, except that
Peter Martin filed one late report covering an acquisition made during 1998.
MISCELLANEOUS
Management does not know of any other matters which 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 WILLIAM P. JOHNSON
May 21, 1999 SECRETARY
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.