-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfftPENBWZPypQlJy43ylx9Xs18wp7hrkzEW+zFd5OtzGbfd+hqB4Ep1ePOMtRsW Jr5qKY3uQUFt1w0Z6Nxafw== 0000950133-00-002246.txt : 20000522 0000950133-00-002246.hdr.sgml : 20000522 ACCESSION NUMBER: 0000950133-00-002246 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000622 FILED AS OF DATE: 20000519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTREMED INC CENTRAL INDEX KEY: 0000895051 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 581959440 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-20713 FILM NUMBER: 640355 BUSINESS ADDRESS: STREET 1: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012179858 MAIL ADDRESS: STREET 2: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 DEF 14A 1 ENTREMED, INC. DEFINITIVE PROXY STATEMENT 1 SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ X ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 EntreMed, Inc. - -------------------------------------------------------------------------------- (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. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, schedule or registration statement no.: - -------------------------------------------------------------------------------- (3) Filing party: - -------------------------------------------------------------------------------- (4) Date filed: - -------------------------------------------------------------------------------- 2 ENTREMED, INC. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 22, 2000 To Our Stockholders: Notice is hereby given that the annual meeting of the stockholders of EntreMed, Inc. (the "Company") will be held on June 22, 2000, at 10:00 a.m. local time, at the Hyatt Regency Bethesda, One Bethesda Metro Center, Bethesda, Maryland 20814 (the "Annual Meeting"). The Annual Meeting is called for the following purposes: 1. To elect three directors of the Company; 2. To approve an amendment to the Company's 1999 Long-Term Incentive Plan, increasing from 750,000 to 1,750,000 the number of shares of Common Stock reserved for issuance; 3. To approve and ratify the appointment of Ernst & Young LLP as the independent auditors of the Company; and 4. To consider and take action upon such other matters as may properly come before the Annual Meeting or any postponement or adjournment thereof. The Board of Directors has fixed April 24, 2000 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting. Only stockholders of record at the close of business on that date will be entitled to notice of, and to vote at, the Annual Meeting. You are cordially invited to attend the Annual Meeting. Whether or not you expect to attend, you are respectfully requested by the Board of Directors to sign, date and return the enclosed proxy promptly. Stockholders who execute proxies retain the right to revoke them at any time prior to the voting thereof. A return envelope, which requires no postage, if mailed in the United States is enclosed for your convenience. By Order of the Board of Directors, John W. Holaday, Ph.D. Chairman, President and Chief Executive Officer May 19, 2000 3 COMMON QUESTIONS REGARDING PROXIES Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD? A: You are receiving a Proxy Statement and proxy card from us because you own shares of Common Stock of the Company. This Proxy Statement describes issues on which we would like you, as a stockholder, to vote. It also gives you information on these issues so that you can make an informed decision. When you sign the proxy card, you appoint John W. Holaday Ph.D. and James D. Johnson Ph.D. as your representatives at the meeting. Dr. Holaday and Dr. Johnson will vote your shares at the meeting as you have instructed them on the proxy card. This way, your shares will be voted whether or not you attend the Annual Meeting. Even if you plan to attend the meeting, it is a good idea to complete, sign and return your proxy card in advance of the meeting just in case your plans change. You can always decide to vote in person. Q: WHAT IS THE RECORD DATE? A: The record date is set for April 24, 2000. Only holders of Common Stock of record as of the close of business on this date will be entitled to vote at the Annual Meeting. Q: HOW MANY SHARES ARE OUTSTANDING? A: As of the record date, the Company had 15,559,543 shares of Common Stock outstanding. Q: WHAT AM I VOTING ON? A: You are being asked to vote on the election of three directors, the approval of an additional reservation of 1,000,000 shares of Common Stock for issuance pursuant to the Company's 1999 Long-term Incentive Plan to be granted as incentives to officers, directors, employees, and consultants of the Company, and the approval and ratification of Ernst & Young LLP as the independent auditors of the Company. Q: HOW DO I VOTE? A: You may either vote by mail or in person at the Annual Meeting. To vote by mail, please sign your proxy card and mail it in the enclosed, prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted in accordance with your instructions. If you return a signed card but do not provide voting instructions, your shares will be voted based on the recommendations of the Board of Directors. We will pass out written ballots to anyone who wants to vote at the Annual Meeting. If you hold your shares through a brokerage account and do not have a physical shares certificate, you must request a legal proxy from your stockbroker in order to vote at the Annual Meeting. Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? A: It means that you have multiple accounts at the transfer agent and/or with stockbrokers. Please sign and return all proxy cards to ensure that all your shares are voted. Q: HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING? A: A majority of the Company's outstanding shares of Common Stock as of the record date must be present at the meeting in order to hold the Annual Meeting and conduct business. This is called a quorum. Q: WHAT IF I ABSTAIN FROM VOTING? A: Abstentions with respect to a proposal are counted for purposes of establishing a quorum. If a quorum is present, abstentions have no effect on the outcome of the vote for directors, but will count as a vote against the proposed reservation of additional shares for the 1999 Long-Term Incentive Plan and selection of the Company's independent auditors. Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED? A: In order for a director to be elected, the affirmative vote of a plurality of the shares voted must occur. If a proxy card does not indicate whether the stockholder is voting for or against an item, the vote is not counted in determining whether the matter has been approved once a quorum has been established. 4 Q: HOW ARE VOTES COUNTED? A: Voting results will be tabulated and certified by our transfer agent, American Stock Transfer & Trust Company. Q: WHERE CAN I FIND THE VOTING RESULTS OF THE ANNUAL MEETING? A: We will announce the voting results at the Annual Meeting. We will also publish the results in our quarterly report on Form 10-Q for the second quarter of 2000. We will file that report with the Securities and Exchange Commission ("SEC"), and you can get a copy by contacting: - EntreMed corporate offices at (301) 217-9858; - the SEC at (800) SEC-0330 for the location of the nearest public reference room; or - through the EDGAR system at www.sec.gov. 5 ENTREMED, INC. 9640 MEDICAL CENTER DRIVE ROCKVILLE, MARYLAND 20850 (301) 217-9858 PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 22, 2000 This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of EntreMed, Inc., a Delaware corporation (the "Company"), the principal executive offices of which are located at 9640 Medical Center Drive, Rockville, Maryland 20850, for the Annual Meeting of Stockholders to be held at the Hyatt Regency Bethesda, One Bethesda Metro Center, Bethesda, Maryland 20814 on June 22, 2000, at 10:00 a.m. (local time) and for any postponement, or adjournments thereof (the "Annual Meeting"), for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. Any stockholder giving such a proxy has the power to revoke it at any time before it is voted. Written notice of such revocation should be forwarded directly to the Secretary of the Company at the above stated address. Attendance at the Annual Meeting will not have the effect of revoking the proxy unless such written notice is given or the stockholder votes by ballot at the Annual Meeting. If the enclosed proxy is properly executed and returned, the shares represented thereby will be voted in accordance with the directions thereon and otherwise in accordance with the judgment of the persons designated as proxies. Any proxy on which no direction is specified will be voted in favor of the actions described in this Proxy Statement, including the election of the director nominees set forth under the caption "Election of Directors", the approval of the amendment to the 1999 Long-Term Incentive Plan (the "1999 Plan") increasing the shares of common stock reserved for issuance, and the approval and ratification of the appointment of Ernst & Young LLP as the independent auditors of the Company. The approximate date on which this Proxy Statement and the accompanying form of proxy will first be mailed or given to the Company's stockholders is May 19, 2000. Your vote is important. Accordingly, we urge you to sign and return the accompanying proxy card whether or not you plan to attend the Annual Meeting. If you do attend, you may vote by ballot at the Annual Meeting, thereby canceling any proxy previously given. VOTING SECURITIES Holders of record of shares of the Company's Common Stock, par value $.01 per share (the "Shares"), as of the close of business on April 24, 2000 (the "Record Date"), are entitled to notice of and to vote at the Annual Meeting on all matters. On the Record Date the Company had 15,559,543 Shares outstanding. Each outstanding Share is entitled to one vote upon all matters to be acted upon at the Annual Meeting. A majority of the outstanding Shares entitled to vote on any matter and represented at the Annual Meeting, in person or by proxy, shall constitute a quorum. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. If a stockholder, present in person or by proxy, abstains on any matter, the stockholder's Shares will not be voted on such matter. Thus, an abstention from voting on any matter has the same legal effect as a vote "against" the matter, even though the stockholder may interpret such action differently. Broker non-votes are not counted for any purpose in determining whether a matter has been approved. Assuming a quorum is present, (i) the affirmative vote of a plurality of the Shares cast in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors is required to elect the director nominees and (ii) the affirmative vote of a majority of the Shares cast in person or represented by proxy at the Annual Meeting and entitled to vote on the matter, excluding broker non-votes, is necessary to 6 approve the amendment to the 1999 Plan and to approve and ratify the appointment of Ernst & Young LLP as the independent auditors of the Company. The Company is not currently aware of any matters that will be brought before the Annual Meeting (other than procedural matters) that are not referred to in the enclosed Notice of Annual Meeting. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS The following table sets forth, as of April 24, 2000 (except as otherwise footnoted below), certain information concerning stock ownership of all persons known by the Company to own beneficially more than 5% of the Shares, each director or director nominee, each executive officer named under "Executive Compensation and Other Matters" and all directors and executive officers of the Company as a group.
AMOUNT AND NATURE OF PERCENTAGE OF NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OUTSTANDING CLASS --------------------------- ----------------------- ----------------- John W. Holaday, Ph.D.(2)................................ 1,473,001 9.36% Edward R. Gubish, Ph.D.(3)............................... 268,501 1.72% Joanna C. Horobin, M.D.(4)............................... 47,000 * Donald S. Brooks(5)...................................... 169,751 1.09% R. Nelson Campbell(6).................................... 125,000 * John C. Thomas, Jr.(7) (8)............................... 134,201 * Jerry Finkelstein(9)..................................... 112,500 * Lee F. Meier(10)......................................... 54,000 * Mark C. M. Randall(11)................................... 123,001 * Wendell M. Starke(12).................................... 533,103 3.43% All executive officers and directors as a group (10 persons)(13)........................................... 3,040,058 19.03%
- --------------- * Less than 1%. (1) Beneficial ownership is defined in accordance with the rules of the Securities and Exchange Commission ("SEC") and generally means the power to vote and/or to dispose of the securities regardless of any economic interest therein. (2) Includes 764,969 shares issuable upon exercise of options and warrants which are exercisable within 60 days and 126,666 shares held by a limited partnership of which Dr. Holaday is the general partner. Does not include 172,500 shares issuable upon exercise of options not exercisable within 60 days. (3) Includes 257,501 shares issuable upon exercise of options that are exercisable within 60 days. Does not include 87,500 shares issuable upon exercise of options not exercisable within 60 days. (4) Includes 46,000 shares issuable upon exercise of options and warrants that are exercisable within 60 days. Does not include 55,000 shares issuable upon exercise of options not exercisable within 60 days. (5) Includes 169,751 shares issuable upon exercise of options and warrants that are exercisable within 60 days. Does not include 31,250 shares issuable upon exercise of options not exercisable within 60 days. (6) Includes 125,000 shares issuable upon exercise of options that are exercisable within 60 days. Does not include 45,000 shares issuable upon exercise of options not exercisable within 60 days. (7) Mr. Thomas resigned as an executive officer as of November 1999. (8) Includes 65,267 shares issuable upon exercise of options and warrants that are exercisable within 60 days. Does not include 15,000 shares issuable upon exercise of options not exercisable within 60 days. (9) Includes 88,500 shares issuable upon exercise of options and warrants that are exercisable within 60 days. Does not include 12,500 shares issuable upon exercise of options not exercisable within 60 days. Does not include shares owned by various family members of Mr. Finkelstein as to which Mr. Finkelstein disclaims beneficial ownership. 2 7 (10) Includes 44,000 shares issuable upon exercise of options which are exercisable within 60 days and 10,000 shares issuable upon exercise of warrants which are exercisable within 60 days held by an entity of which Mr. Meier is a 50% stockholder. (11) Includes 123,001 shares issuable upon exercise of options and warrants that are exercisable within 60 days. (12) Includes 312,429 shares issuable upon exercise of options and warrants which are exercisable within 60 days and 21,819 shares held by a limited partnership of which Mr. Starke is the general partner. (13) Includes 1,996,418 shares issuable upon exercise of options and warrants that are exercisable within 60 days. Does not include 418,750 shares issuable upon exercise of options not exercisable within 60 days. PROPOSAL 1 ELECTION OF DIRECTORS The Company's Board of Directors is divided into three classes, as nearly equal in number as reasonably possible, with terms currently expiring at the Annual Meeting, the annual meeting of stockholders to be held in 2001 and the annual meeting of stockholders to be held in 2002. At the Annual Meeting, two directors will be elected by the stockholders to serve a three-year term. A third nominee is seeking election by the stockholders to serve a one-year term. Management recommends that the persons named below be elected as directors of the Company, and it is intended that the accompanying proxy will be voted for the election as directors of the three persons named below, unless the proxy contains contrary instructions. The Company has no reason to believe that any of the nominees will not be a candidate or will be unable to serve. However, in the event that any of the nominees should become unable or unwilling to serve as a director, the persons named in the proxy have advised that they will vote (unless authority has been withdrawn) for the election of such person or persons as shall be designated by management. Two of the three nominees currently serve as directors of the Company. All nominees have consented to being named in this Proxy Statement and to serve if elected. The following sets forth the names and ages as of April 24, 2000 of the three nominees for election to the Board of Directors, as well as the Directors whose terms will continue, their respective positions and offices with the Company, the period during which each has served as a director of the Company and their principal occupations or employment during the past five years.
NAME AGE POSITION DIRECTOR SINCE ---- --- --------------------------------------- -------------- John W. Holaday, Ph.D. .............. 54 Chairman of the Board of Directors; 1992 President and Chief Executive Officer Wendell M. Starke.................... 58 Vice Chairman of the Board of Directors 1994 Jerry Finkelstein(1)(2).............. 84 Director 1998 Mark C. M. Randall(1)(4)............. 37 Director 1996 Donald S. Brooks..................... 64 Director; Vice President, Legal Affairs 1996 Lee F. Meier(2)(3)................... 53 Director 1997 Peter S. Knight...................... 49 Director Nominee
- --------------- (1) Member of Audit Committee (2) Member of Compensation Committee (3) Chairman of Audit Committee (4) Chairman of Compensation Committee 3 8 NOMINEES FOR TERMS EXPIRING 2003 JOHN W. HOLADAY is a co-founder of the Company and has served as its President and Chief Executive Officer and a director since August 1992 and its Chairman of the Board since November 1995. Prior thereto, from May 1989 to August 1992, he was a co-founder of Medicis Pharmaceutical Corp. where he served as Scientific Director, Senior Vice President for Research and Development and director. Dr. Holaday also serves as a director for CytImmune Sciences, Inc., a privately held research diagnostics company. From 1968 to 1989, he served at the Walter Reed Army Institute of Research, where he founded the Neuropharmacology Branch in 1980. He serves as an officer and fellow in several biomedical societies and has authored and edited numerous scientific articles in journals and books. His current academic positions include Associate Professor of Anesthesiology and Critical Care Medicine and Senior Lecturer in Medicine at The Johns Hopkins University of Medicine, Baltimore, Maryland; Adjunct Professor of Psychiatry at the Uniformed Services University School of Medicine, Bethesda, Maryland. WENDELL M. STARKE has been Vice Chairman of the Board of Directors since June 1998 and a director of the Company since April 1994. Mr. Starke is a Chartered Financial Analyst and a Chartered Investment Counselor. Mr. Starke was President of INVESCO Capital Management, Inc. from 1979 to 1991. From 1992 to 1999, he served as Chairman of INVESCO, Inc., the parent company of INVESCO Capital Management and other INVESCO money management subsidiaries in the United States. Mr. Starke retired from INVESCO in June 1999. NOMINEE AND CONTINUING DIRECTORS FOR TERMS EXPIRING 2001 DONALD S. BROOKS has been a director of the Company since April 1996 and became a Vice President for the Company in 1998. From July 1993 until July 1998, Mr. Brooks was a practicing attorney with the law firm Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, in Roseland, New Jersey. Since July 1998, Mr. Brooks has continued to be of counsel to the law firm Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, which provides certain legal services to the Company. Prior thereto, Mr. Brooks was employed by Merck & Co., Inc. for 27 years, most recently, from 1986 to 1993, as Senior Counsel. From 1980 to 1985, Mr. Brooks served as a U.S. employer delegate to the Chemical Industries Committee, International Labor Organization in Geneva, Switzerland. PETER S. KNIGHT is a principal in Sage Venture Partners, a telecommunications investment firm. He recently closed his legal practice where he had been a partner in the law firm of Wunder, Knight, Forscey & DeVierno from 1991 to 1999. In 1996, at the request of President Clinton, Mr. Knight took a leave of absence from his firm to serve as the National Campaign Manager for Clinton/Gore '96. Prior to his partnership with the firm, Mr. Knight was the General Counsel and Secretary of Medicis Pharmaceutical Corporation, a pharmaceutical company specializing in dermatology. From 1977 to 1989, Mr. Knight served as the Chief of Staff to Congressman and then Senator Al Gore (D-TN). In 1988, Mr. Knight served as the campaign director for the Gore for President Committee. He served as the Chief of Staff to the late Representative Torbert H. Macdonald from 1975 to 1977. Prior to his service with the Representative, he worked in the Antitrust Division at the United States Department of Justice. Mr. Knight serves on the Board of Directors of two public companies -- Whitman Education Group, providers of postsecondary education and Medicis Pharmaceutical Corporation. He recently completed service on the boards of two public companies that went through successful mergers -- Comstat, an international telecommunications company and Healthworld, an international marketing and communications company specializing in health care. Mr. Knight also sits on the Board of the Schroder Family of Mutual Funds. He serves on the Board of Directors for the Vice President's Residence Foundation and the Board of Directors of the Center for National Policy. He holds a Juris Doctor degree from Georgetown University Law Center and a Bachelor of Arts degree from Cornell University. He is admitted to the practice of law in the District of Columbia. LEE F. MEIER has been a director of the Company since July 1997. Mr. Meier has over twenty-five years of experience in the equipment financing industry. He has been affiliated with US Leasing Corporation, The Chemical Bank of New York and Steiner Financial Corporation, a privately held, tax motivated lessor. Since 1984, Mr. Meier has served as founder and managing director of Meier Mitchell & Company, an investment 4 9 banking firm specializing in providing debt and lease financing products. Meier Mitchell & Company targets clients in the biotechnology and electronics industries and has arranged or provided well over $1.5 billion in financing to both private and public companies in these sectors. CONTINUING DIRECTORS FOR TERMS EXPIRING IN 2002 JERRY FINKELSTEIN has been a director of the Company since April 1998. Mr. Finkelstein has been a senior advisor to Apollo Advisors, L.P., a fund manager, since March 1994, and the Chairman of the Board of News Communications, Inc., a consortium of 23 publications, since August 1993. Mr. Finkelstein is the former publisher of the New York Law Journal, a daily legal newspaper. He has been a member of the Boards of Rockefeller Center, Chicago Milwaukee Corporation, Chicago Milwaukee Railroad Corporation, Bank of North America, Struthers Wells Corporation, The Hill, and PATH Railroad. Mr. Finkelstein has also held the following positions: member of Task Force Committee on the sale of the World Trade Center; Chairman of the New York City Planning Commission, and Commissioner of the Port Authority of New York and New Jersey, as well as numerous civic, social and political appointments. MARK C. M. RANDALL has been a director of the Company since April 1996. Since 1985, Mr. Randall has been associated with Sarasin International Securities Limited, London, England, a wholly-owned subsidiary of Bank Sarasin & Cie, a private bank based in Switzerland, of which he has been a Director since 1994. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINATED DIRECTORS, AND SIGNED PROXIES THAT ARE RETURNED WILL BE SO VOTED UNLESS OTHERWISE INSTRUCTED ON THE PROXY CARD. BOARD AND COMMITTEE MEETINGS The Board of Directors of the Company held five meetings during the fiscal year ended December 31, 1999 ("fiscal 1999") Each of the directors attended at least 75% of the meetings of the Board of Directors and the committees thereof on which such director served that were held during fiscal 1999. The Board of Directors has two standing committees. These are the Audit Committee and the Compensation Committee. The Audit Committee reviews, with the Company's independent auditors, the scope and timing of their audit services and any other services they are asked to perform, their report on the Company's financial statements following completion of their audit and the Company's policies and procedures with respect to internal accounting and financial controls. In addition, the Audit Committee makes annual recommendations to the Board of Directors for the appointment of independent public auditors for the ensuing year. The Audit Committee, which currently consists of three directors, Messrs. Finkelstein, Meier, and Randall, held quarterly meetings during fiscal 1999. The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of all officers of the Company, reviews general policy matters relating to compensation and benefits of employees of the Company and administers the Company's stock option plans. The Compensation Committee, which currently consists of three directors, Messrs. Finkelstein, Meier, and Randall, held numerous meetings during fiscal 1999. COMPENSATION OF DIRECTORS Prior to April 1999, the Company's directors received a fee of $2,000 per in-person meeting attended and were reimbursed for expenses actually incurred in connection with attending such meetings. As of April 1999, directors of the Company no longer receive cash compensation for serving on the Board of Directors or attending meetings thereof, except that the chairman of each committee will receive an annual cash payment of $2,000. All directors continue to be reimbursed for expenses actually incurred in connection with attending such meetings. Each director receives automatic grants of non-qualified stock options as follows: upon joining the Board of Directors, each new director will be granted an option to purchase 15,000 shares of Common Stock; for services of Vice Chairman of the Board, the Vice Chairman is granted an option to purchase 15,000 shares in addition to any options received in his capacity as a director; and upon re-election to the 5 10 Board to a three-year term, each director will be granted an option to purchase 30,000 shares. In addition, following the annual meeting in June 1999, each director with a continuing term was granted a one-time option to purchase 10,000 shares for each year remaining in their then-current term of office. PROPOSAL 2 APPROVAL OF ADDITIONAL SHARES FOR ISSUANCE UNDER 1999 LONG-TERM INCENTIVE PLAN, AMENDED The Board has approved an amendment to the 1999 Plan, subject to stockholder approval, to increase the aggregate number of shares authorized for issuance under the 1999 Plan from a total of 750,000 shares to 1,750,000 shares. The Board adopted the amendment to increase the number of shares authorized for issuance under the 1999 Plan to ensure that the Company can continue to grant stock-based awards to directors and employees of and consultants to the Company at levels determined appropriate by the Board and a committee or committees appointed by the Board. Management and the Board believe that the use of stock-based compensation is important to the Company to recruit and retain qualified persons. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to approve the 1999 Plan, as amended. Abstentions will be counted toward the tabulation of votes cast on this proposal and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter is approved. DESCRIPTION OF THE 1999 PLAN The following summary of the material features of the 1999 Plan is qualified in its entirety by reference to the full text of the 1999 Plan, a copy of which is available by writing the Company, Investor Relations, EntreMed, Inc., 9640 Medical Center Drive, Rockville, Maryland 20850. Unless otherwise specified, capitalized terms used herein have the meanings assigned to them in the 1999 Plan. ELIGIBILITY The 1999 Plan authorizes the grant of stock options (including incentive stock options and nonqualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, or any combination of the foregoing to all persons who are at the time of the grant of an award employees (including persons who may become employees), officers, directors, and consultants of the Company, or of any Affiliate of the Company, as may be selected from time to time. Only employees of the Company, or of any Parent or Subsidiary of the Company, are eligible to receive grants of incentive stock options. As of March 31, 2000, the number of employees, officers and directors of the Company eligible to receive grants under the 1999 Plan was approximately 85 persons. The number of consultants to the Company eligible to receive grants under the 1999 Plan is not determinable. ADMINISTRATION The 1999 Plan is administered by the Board of Directors or by a committee or committees appointed by the Board (all of which will hereinafter be referred to as the "Administrator"). The Administrator has all the powers vested in it by the terms of the 1999 Plan, including the authority to determine eligibility, to grant awards, prescribe Grant Agreements evidencing such awards, establish programs for granting awards, whether a stock option shall be an incentive stock option or a nonqualified stock option, any exceptions to nontransferability, any performance goals applicable to awards, the period during which Awards may be exercised, and the period during which awards shall be subject to restrictions, and otherwise administer the 1999 Plan. In making these determinations, the Administrator may take into account the nature of the services rendered or to be rendered by the award recipients, their present and potential contributions to the success of 6 11 the Company and its Affiliates, and such other factors as the Administrator in its discretion shall deem relevant. SHARES AVAILABLE FOR THE PLAN If the stockholders approve the increase in the aggregate number of shares authorized for issuance under the 1999 Plan, a maximum of 1,750,000 Shares will be available for grants and awards, an increase of 1,000,000 shares. At March 31, 2000, no shares (excluding any shares that might in the future be returned to the 1999 Plan as a result of cancellations or expiration of options) remained available for future grant under the 1999 Plan. If an award expires or terminates unexercised or is forfeited, or if any Shares are surrendered to the Company in connection with an award, the Shares subject to such award and the surrendered Shares will become available for further awards under the 1999 Plan. The number of Shares subject to the 1999 Plan (and the number of Shares and terms of any award) may be adjusted by the Administrator in the event of any change in the outstanding Common Stock by reason of any stock dividend, spin-off, split-up, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of Shares and the like. The maximum number of Shares that may be covered by awards of any combination granted during a calendar year to an individual under the 1999 Plan is limited to 150,000. STOCK OPTIONS The 1999 Plan authorizes the grant of incentive stock options and nonqualified stock options. Incentive stock options are stock options that satisfy the requirements of Section 422 of the Code. Nonqualified stock options are stock options that do not satisfy the requirements of Section 422 of the Code. Options granted under the 1999 Plan would entitle the grantee, upon exercise, to purchase a specified number of Shares from the Company at a specified exercise price per Share. The period of time during which an option may be exercised, as well as any vesting schedule, is determined by the Administrator, except that no option may be exercised more than 10 years after the date of grant. Additionally, the exercise price per Share and manner of payment for Shares purchased pursuant to options are determined by the Administrator and, in the case of nonqualified stock options, options must have an exercise price at least equal to the par value of the Common Stock. Incentive stock options must comply with Section 422 of the Code. Incentive stock options, thus, must have an exercise price at least equal to Fair Market Value on the date of grant. Additionally, no incentive stock option may be granted under the 1999 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of the Company or any affiliate of the Company, unless the option's exercise price is at least 110% of the Fair Market Value of the stock subject to the option on the date of grant, and the term of the option does not exceed five years from the date of grant. For incentive stock options granted under the 1999 Plan, the aggregate Fair Market Value, determined at the time of the grant, of the shares of Common Stock with respect to which such options are exercisable for the first time by an optionee during any calendar year (under all such plans of the Company and its affiliates) may not exceed $100,000. OTHER AWARDS In addition to stock options, the 1999 Plan authorizes the grant of stock appreciation rights, stock awards, phantom stock and performance awards. The Company has not issued any such awards and does not currently expect to issue them under the 1999 Plan. Subject to the terms of a particular grant, the exercise of a stock appreciation right under the 1999 Plan would entitle the grantee to receive in cash, Common Stock, or a combination thereof, as specified in the Grant Agreement, the excess of the Fair Market Value of a specified number of Shares on the date of exercise over the base price per Share specified in the Grant Agreement. The 1999 Plan also authorizes the grant of 7 12 restricted and unrestricted stock awards on terms and conditions, which terms and conditions may condition the vesting or payment of such awards on the achievement of one or more Performance Goals (as described below) established by the Administrator. In addition, the 1999 Plan authorizes the grant of phantom stock in the form of awards denominated in stock-equivalent units on terms and conditions, which terms and conditions may condition the vesting or payment of such awards on the achievement of one or more Performance Goals (as described below), established by the Administrator. An award of phantom stock may be settled in cash, Common Stock, or a combination thereof, as specified in the Grant Agreement. Finally, the 1999 Plan authorizes the grant of performance awards, which become payable upon attainment of one or more Performance Goals established by the Administrator. Performance awards may be paid in cash, Common Stock, or a combination thereof, as specified in the Grant Agreement. The term "Performance Goals" means performance goals established by the Administrator which may be based on one or more business criteria selected by the Administrator that apply to an individual or group of individuals, a business unit, or the Company and/or one or more of its Affiliates either separately or together, over such performance period as the Administrator may designate, including, but not limited to, business criteria based on operating income, earnings or earnings growth, sales, return on assets, equity or investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, or any other objective goals established by the Administrator, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. TRANSFERABILITY Except as otherwise determined by the Administrator or provided in a Grant Agreement, awards granted under the 1999 Plan are not transferable except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in Code Section 414(p). Unless otherwise determined by the Administrator, awards may be exercised only by the grantee or by permitted transferees during the lifetime of the grantee or, in the event of legal disability, by the grantee's guardian or legal representative. AMENDMENT AND TERMINATION The Board of Directors may amend, alter or terminate the 1999 Plan, or any portion thereof, at any time. No award may be granted under the 1999 Plan after the close of business on March 31, 2009. Subject to other applicable provisions of the Plan, all awards made under the 1999 Plan prior to the termination of the 1999 Plan will remain in effect until those awards have been satisfied or terminated. NEW PLAN BENEFITS The following table sets forth certain information regarding stock option grants made under the 1999 Plan that are subject to stockholder approval of the additional 1,000,000 Shares to be authorized for issuance thereunder. 1999 LONG-TERM INCENTIVE PLAN
NUMBER OF SHARES EXERCISE PRICE PER SHARE NAME AND POSITION SUBJECT TO OPTIONS ($) ----------------- ------------------ ------------------------ John W. Holaday, Ph.D. .................................. 80,000 25.625 Chairman, President and Chief Executive Officer Edward R. Gubish, Ph.D. ................................. 50,000 25.625 Senior Vice President of Research and Development Joanna C. Horobin, M.D. ................................. 50,000 25.625 Senior Vice President of Commercial Development
8 13
NUMBER OF SHARES EXERCISE PRICE PER SHARE NAME AND POSITION SUBJECT TO OPTIONS ($) ----------------- ------------------ ------------------------ Donald S. Brooks......................................... 25,000 25.625 Vice President, Legal Affairs R. Nelson Campbell....................................... 30,000 25.625 Chief Financial Officer John C. Thomas........................................... -- -- Secretary/Treasurer Executive Group.......................................... 235,000 25.625 Non-Executive Director Group............................. -- -- Non-Executive Officer Employee Group..................... 75,100 *
- --------------- * Granted at exercise prices ranging from $25.625 to $93.50, depending on date of grant. SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following discussion briefly summarizes certain federal income tax aspects of stock options, stock appreciation rights, stock awards, phantom stock, and performance awards granted under the 1999 Plan. The rules governing the tax treatment of awards and the receipt of Shares and/or cash in connection with such awards are quite technical, so the following description of tax consequences is necessarily general in nature and does not purport to be complete. Moreover, statutory provisions are subject to change, as are their interpretations, and their application may vary in individual circumstances. Finally, the tax consequences under applicable state and local law may not be the same as under the federal income tax laws. INCENTIVE STOCK OPTIONS In general, a grantee is not required to recognize income on the grant or exercise of an incentive stock option. However, the difference between the exercise price and the Fair Market Value of the stock on the exercise date is an adjustment item for purposes of the alternative minimum tax. Further, if a grantee does not exercise an incentive stock option within certain specified periods after termination of employment, the option is treated for federal income tax purposes in the same manner as a nonqualified stock option, as described below. The general rule is that gain or loss from the sale or exchange of Shares acquired on the exercise of an incentive stock option will be treated as capital gain or loss. If certain holding period requirements are not met, however, the grantee generally will recognize ordinary income at the time of the disposition. Gain recognized on the disposition in excess of the ordinary income resulting therefrom will be capital gain, and any loss recognized will be capital loss. NONQUALIFIED STOCK OPTIONS, STOCK APPRECIATION RIGHTS, PHANTOM STOCK, AND PERFORMANCE AWARDS A grantee generally is not required to recognize income on the grant of a nonqualified stock option, a stock appreciation right, or on the award of phantom stock or a performance award. Instead, ordinary income generally is required to be recognized on the date the nonqualified stock option or stock appreciation right is exercised, or in the case of an award of phantom stock or a performance award on the date of payment of such award in cash or Shares. In general, the amount of ordinary income required to be recognized, (a) in the case of a nonqualified stock option, is an amount equal to the excess, if any, of the Fair Market Value of the Shares on the exercise date over the exercise price, (b) in the case of a stock appreciation right, the amount of cash and the Fair Market Value of any Shares received on the exercise date, and (c) in the case of an award of phantom stock or a performance award, the amount of cash and the Fair Market Value of any Shares received. In all three instances, ordinary income also includes the amount of any taxes withheld upon payment of the award. 9 14 RESTRICTED STOCK Shares of restricted stock awarded under the 1999 Plan will be subject to a substantial risk of forfeiture for the period of time specified in the award. Unless a grantee of Shares of restricted stock makes an election under Section 83(b) of the Code as described below, the grantee generally is not required to recognize ordinary income on the award of restricted stock. Instead, on the date the substantial risk of forfeiture lapses, the grantee will be required to recognize ordinary income in an amount equal to the excess, if any, of the Fair Market Value of the Shares on such date over the amount, if any, paid for such Shares. If a grantee makes a Section 83(b) election to recognize ordinary income on the date the Shares are awarded, the amount of ordinary income required to be recognized is an amount equal to the excess, if any, of the Fair Market Value of the Shares on the date of award over the amount, if any, paid for such Shares. In such case, the grantee will not be required to recognize additional ordinary income when the substantial risk of forfeiture lapses. UNRESTRICTED STOCK In general, a grantee is required to recognize ordinary income on the date of issuance of unrestricted Shares to the grantee equal to the excess, if any, of the Fair Market Value of such Shares on such date over the amount, if any, paid for such Shares. GAIN OR LOSS ON SALE OR EXCHANGE OF 1999 PLAN SHARES In general, gain or loss from the sale or exchange of Shares granted or awarded under the 1999 Plan will be treated as capital gain or loss, provided that the Shares are held as capital assets at the time of the sale or exchange. However, if certain holding period requirements are not satisfied at the time of a sale or exchange of Shares acquired upon exercise of an incentive stock option (a "disqualifying disposition"), a grantee generally will be required to recognize ordinary income upon such disposition. DEDUCTIBILITY BY COMPANY The Company generally is not allowed a deduction in connection with the grant or exercise of an incentive stock option. However, if a grantee is required to recognize income as a result of a disqualifying disposition, the Company will be entitled to a deduction equal to the amount of ordinary income so recognized. In general, in the case of a nonqualified stock option (including an incentive stock option that is treated as a nonqualified stock option, as described above), a stock appreciation right, a stock award, phantom stock, or a performance award, the Company generally will be allowed a deduction in an amount equal to the amount of ordinary income recognized by the grantee, provided that certain income tax reporting requirements are satisfied. PARACHUTE PAYMENTS Where payments to certain employees that are contingent on a change in control exceed limits specified in the Code, the employee generally is liable for a 20% excise tax on, and the corporation or other entity making the payment generally is not entitled to any deduction for, a specified portion of such payments. If the Administrator, in its discretion, grants awards, the exercise date of which is accelerated by a change in control of the Company, such acceleration of the exercise date would be relevant in determining whether the excise tax and deduction disallowance rules would be triggered with respect to certain of the Company's employees. PERFORMANCE-BASED COMPENSATION Subject to certain exceptions, Section 162(m) of the Code disallows federal income tax deductions for compensation paid by a publicly held corporation to certain executives to the extent the amount paid to the executive exceeds $1 million for the taxable year. The 1999 Plan has been designed to allow the Administrator to make awards under the 1999 Plan that qualify under an exception to the deduction limit of Section 162(m) for "performance-based compensation." 10 15 THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1999 PLAN, INCREASING FROM 750,000 TO 1,750,000 THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE, AND SIGNED PROXIES THAT ARE RETURNED WILL BE SO VOTED UNLESS OTHERWISE INSTRUCTED ON THE PROXY CARD. PROPOSAL 3 APPROVAL AND RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors recommends a vote for the approval and ratification of the appointment of Ernst & Young LLP, Certified Public Accountants, as the Company's independent auditors for the fiscal year ending December 31, 2000 ("fiscal 2000"). Ernst & Young LLP has been the Company's auditors for the past fiscal year and has no direct or indirect financial interest in the Company. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if he or she desires to do so, and shall be available to respond to appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S AUDITORS FOR FISCAL 2000. 11 16 EXECUTIVE COMPENSATION AND OTHER MATTERS The following summary compensation table sets forth the aggregate compensation paid or accrued by the Company to the Chief Executive Officer and to the next most highly compensated executive officers whose annual compensation exceeded $100,000 for fiscal 1999 (collectively, the "Named Executives") for services rendered to the Company during the Company's fiscal years ended December 31, 1999, 1998 and 1997. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ SECURITIES ANNUAL UNDERLYING SALARY BONUS OPTIONS/SARS ALL OTHER NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) COMPENSATION --------------------------- ---- ------- ------- ------------ ------------ John W. Holaday, Ph.D. ...................... 1999 325,000 125,000 110,000 21,506(1) Chairman, President and Chief 1998 250,000 125,000 5,000 19,467 Executive Officer 1997 275,000 -- 260,000 18,883 Edward R. Gubish, Ph.D. ..................... 1999 202,700 85,000 50,000 8,955(2) Senior Vice President of 1998 180,000 75,000 -- 6,916 Research and Development 1997 165,000 50,000 100,000 6,332 Joanna C. Horobin, M.D. ..................... 1999 195,000 75,000 50,000 6,715(2) Senior Vice President of 1998 -- -- -- -- Commercial Development 1997 -- -- -- -- Donald S. Brooks............................. 1999 195,000 25,000 45,000 3,099(2) Vice President, Legal Affairs 1998 81,975 37,500 80,000 855 1997 -- -- 6,000 -- R. Nelson Campbell........................... 1999 151,450 35,000 20,000 2,529(2) Chief Financial Officer 1998 147,000 20,000 -- 1,849 1997 133,718 25,000 50,000 1,301 John C. Thomas, Jr. ......................... 1999 120,000 -- 5,000 -- Secretary/Treasurer 1998 126,000 10,000 -- 6,916(2) 1997 120,000 25,000 50,000 --
- --------------- (1) $12,551 of such amount represents the premiums paid by us with respect to a split-dollar life insurance policy on the life of Dr. Holaday. Premiums paid by us on such policy are treated as non-interest bearing advances to the insured for the policy. The initial proceeds of any death benefit are required to be used to repay the indebtedness, and the balance of the insurance proceeds are payable as designated by the insured. See "Employment Contracts and Termination of Employment and Change-in-Control Arrangements". The remaining amount represents group health insurance premiums paid on behalf of such officer. (2) Consists of group health insurance premiums paid on behalf of such officer. (3) Mr. Thomas resigned as an executive officer as of November 1999. The following table sets forth certain information with respect to individual grants of stock options and warrants made during the fiscal year ended December 31, 1999 to each of the named executive officers. 12 17 OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ----------------------------------------- VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1) OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------- NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($) ---- ------------ ------------ ----------- ---------- ---------- ---------- John W. Holaday, Ph.D. ........ 50,000 7.13% 18.625 2/25/2009 1,516,908 2,415,422 60,000 8.55% 21.50 6/24/2009 2,101,275 3,345,927 Edward R. Gubish, Ph.D. ....... 25,000 3.56% 18.625 2/25/2009 758,454 1,207,711 25,000 3.56% 21.50 6/24/2009 875,531 1,394,136 Joanna C. Horobin, M.D. ....... 50,000 7.13% 12.875 2/10/2009 1,048,601 1,669,721 Donald S. Brooks............... 25,000 3.56% 18.625 2/25/2009 758,454 1,207,711 20,000 2.85% 21.50 6/24/2009 700,425 1,115,309 R. Nelson Campbell............. 10,000 1.43% 18.625 2/25/2009 303,382 483,084 10,000 1.43% 21.50 6/24/2009 350,212 557,655 John C. Thomas, Jr. ........... 5,000 .71% 18.625 2/25/2009 151,691 241,542
- --------------- (1) Calculated by multiplying the exercise price by the annual appreciation rate shown (as prescribed by SEC rules and compounded for the term of the options), subtracting the exercise price per share and multiplying the gain per share by the number of shares covered by the options. These amounts are not intended to forecast possible future appreciation, if any, of the price of our shares. The actual value realized upon exercise of the options to purchase our shares will depend on the fair market value of our shares on the date of exercise. The following table sets forth information concerning all option holdings, as well as fiscal year-end values, for each of the named executive officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/VALUE
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES VALUE FISCAL YEAR-END(#) FISCAL YEAR-END($)(1) ACQUIRED ON REALIZED --------------------------- --------------------------- NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------- ----------- ------------- ----------- ------------- John W. Holaday, Ph.D.(2)...... -- -- 719,169 137,500 12,176,437 1,393,563 Edward R. Gubish, Ph.D. ....... -- -- 232,501 62,500 3,460,769 599,125 Joanna C. Horobin, M.D. ....... -- -- 23,750 26,250 302,694 334,556 Donald S. Brooks(2)............ -- -- 157,251 18,750 863,732 131,156 R. Nelson Campbell............. -- -- 112,500 27,500 1,427,488 278,713 John C. Thomas, Jr.(2)......... -- -- 147,619 16,250 2,719,026 221,544
- --------------- (1) Calculated by multiplying the number of unexercised options outstanding at December 31, 1999 by the difference between the fair market value of our shares at December 31, 1999 ($25.625) and the option exercise price. (2) Holdings include warrants issued in lieu of stock options. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Effective January 1999, the Company entered into a three-year employment agreement with John W. Holaday, Ph.D., Chairman and Chief Executive Officer with an annual base salary of $325,000 per year and a minimal annual increase of 10% per year. The Company may terminate the agreement without cause and, upon such termination, Dr. Holaday will be entitled to receive his base salary through the end of the initial 13 18 term of the agreement (subject to an offset for salary received from subsequent employment). The agreement contains confidentiality and non-competition provisions. The Company maintains a $2,000,000 split-dollar life insurance policy on the life of Dr. Holaday at an annual cost of approximately $12,551. Premiums paid by the Company on such policy are treated as non-interest bearing advances to Dr. Holaday for the policy. The initial proceeds of any such death benefit are required to be used to repay the indebtedness, and the balance of the insurance proceeds are payable as designated by Dr. Holaday. Each of the Company's employees has entered into a Proprietary Information and Invention Assignment Agreement providing, among other things, that such employee will not disclose any confidential information or trade secrets in any unauthorized manner and that all inventions of such employee relating to our current or anticipated business during the term of employment become the Company's property. In the event of certain transactions, including those which may result a change in control, as defined under the 1999 Plan, unvested installments of options to purchase Shares of the Company may become immediately exercisable. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the 1934 Securities and Exchange Act (the "1934 Act") requires the Company's executive officers, directors and persons who beneficially own more than 10% of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Such executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports filed by such reporting persons. Based solely on the Company's review of copies of such reports furnished to the Company and written representations that no other reports were required during fiscal 1998, the Company believes that all Section 16(a) filing requirements applicable to the Company's executive officers, directors, and greater than 10% beneficial owners were complied with. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1999, the members of the Compensation Committee were: Lee F. Meier, Mark C. M. Randall, and Jerry Finkelstein. In connection with the Company's private placement of securities in July 1999, Mark C. M. Randall received warrants to purchase 15,000 shares of the Company's common stock at an exercise price of $20.362 per share as compensation for services rendered as a placement agent. The warrants are exercisable for five years from the date of issuance. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee is comprised of three independent, non-employee directors. It is the Committee's responsibility to: - Make recommendations and report to the board of directors concerning matters of executive compensation; - Administer the Company's executive incentive plans; - Review compensation plans, programs and policies; and - Monitor the performance and compensation of executive officers. The goal of the Company's executive compensation policy is to ensure that an appropriate relationship exists between executive compensation and the creation of stockholder value, while at the same time attracting, motivating and retaining senior management. The Compensation Committee's informal executive 14 19 compensation philosophy (which applies generally to all Company management, including the President and Chief Executive Officer, John W. Holaday, Ph.D.) considers a number of factors, which may include: - Providing levels of compensation competitive with companies at a comparable stage of development and in the Company's geographic area; - Integrating management's compensation with the achievement of performance goals; - Maintaining an appropriate balance between base salary and performance-based compensation, with a higher proportion of compensation being performance-based as salary grade increases; and - Recognizing and providing incentive for individual initiative and achievement. The compensation structure of the Company's executive officers, including its President and Chief Executive Officer, is based on competitive, market-based pay practices, performance evaluations and generally includes a combination of base salary, discretionary bonuses and stock options. In setting compensation levels, the Compensation Committee considers data regarding compensation practices from a group of biotechnology and pharmaceutical companies that are believed to be generally comparable to the Company. The companies comprising this group are not necessarily included within the peer group index reflected in the performance graph illustrated in this proxy. Base salary is not targeted at any particular level within the group of companies considered. Instead, total salary is determined based on a subjective assessment of the executive's performance and the Company's needs. Cash bonuses are within the discretion of the Compensation Committee and are based, in part, on achieving certain business and financial objectives and the Compensation Committee's subjective assessment of individual performance during the year. Consistent with its belief that equity ownership by senior management is beneficial in aligning the interests of senior management with those of the stockholders, the Company provides potentially significant long-term incentive opportunities to its senior management through discretionary grants of stock options, thereby emphasizing the potential creation of long-term stockholder value. The Compensation Committee considers stock options effective long-term incentives because an executive can profit only if the value of the Common Stock increases. In making these grants, the Compensation Committee considers its subjective assessment of the Company's past financial performance and future prospects, an executive officer's current level of ownership of the Common Stock, the period during which an executive officer has been in a key position with the Company, individual performance and competitive practices within the comparative group of companies. Section 162(m) of the Internal Revenue Code generally denies a deduction to any publicly held corporation for compensation paid to its chief executive officer and its four other highest-paid executive officers to the extent that any such individual's compensation exceeds $1 million, subject to certain exceptions. The Committee intends to take actions to minimize the Company's exposure to nondeductible compensation expense under Section 162(m). While keeping this goal in mind, the Committee also will try to maintain the flexibility that the Committee believes to be an important element of the Company's executive compensation program. By the Compensation Committee: Mark C. M. Randall, Chairman Lee F. Meier Jerry Finkelstein 15 20 STOCK PRICE PERFORMANCE PRESENTATION The following chart compares the cumulative total stockholder return on the Company's Shares with the cumulative total stockholder return of the NASDAQ Stock Market -- U. S. Index, and the NASDAQ Pharmaceuticals Index. [COMPARISON OF CUMULATIVE TOTAL RETURN LINE GRAPH]
NASDAQ STOCK MARKET - ENTREMED, INC. US NASDAQ PHARMACEUTICALS -------------- --------------------- ---------------------- 6/12/96 $100.000 $100.000 $100.000 12/31/96 $108.333 $104.326 $90.263 12/31/97 $77.500 $127.825 $93.222 12/31/98 $140.000 $180.243 $118.596 12/31/99 $170.833 $334.108 $219.895
- --------------- (1) Assumes $100 invested on June 12, 1996 and assumes dividends reinvested. Measurement points begin with the date of the Company's initial public offering ("IPO") and include the last day of each year beginning with the year in which the IPO occurred, through and including December 31, 1999. The material in this chart is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, (the "1933 Act") or the 1934 Act, whether made before or after the date of this proxy statement and irrespective of any general incorporation language in such filing. CERTAIN TRANSACTIONS In December 1995 the Company entered into a collaboration agreement with Bristol-Myers Squibb Company to develop and commercialize certain antiangiogenesis therapeutics. On February 9, 1999, the original BMS collaboration was modified such that the final payment of $611,667 under the agreement was paid on June 5, 1999. As amended, BMS has no further funding obligation to the Company as of August 9, 1999. See also "Executive Compensation and Other Matters -- Compensation Committee Interlocks and Insider Participation", regarding Mark C. M. Randall. Donald S. Brooks, a director of the Company and our Vice President, Legal Affairs is of counsel to the law firm of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, which provided certain legal services to the Company in 1999 and will continue to provide legal services. 16 21 GENERAL The Management of the Company does not know of any matters other than those stated in this Proxy Statement that are to be presented for action at the Annual Meeting. If any other matters should properly come before the Annual Meeting, it is intended that proxies in the accompanying form will be voted on any such other matters in accordance with the judgment of the persons voting such proxies. Discretionary authority to vote on such matters is conferred by such proxies upon the persons voting them. The Company will bear the cost of preparing, printing, assembling, and mailing the proxy, Proxy Statement and other material that may be sent to stockholders in connection with this solicitation. It is contemplated that brokerage houses will forward the proxy materials to beneficial owners at the request of the Company. In addition to the solicitation of proxies by use of the mails, officers and regular employees of the Company may solicit proxies by telephone without additional compensation. The Company does not expect to pay any compensation for the solicitation of proxies. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON BEING SOLICITED BY THE PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 (AS FILED WITH THE SEC, INCLUDING THE FINANCIAL STATEMENTS THERETO). ALL SUCH REQUESTS SHOULD BE DIRECTED TO INVESTOR RELATIONS, ENTREMED, INC., 9640 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850. STOCKHOLDER PROPOSALS The annual meeting of stockholders for the fiscal year ending December 31, 2000 is expected to be held in June 2001 (the "Next Annual Meeting"). All proposals intended to be presented at the Next Annual Meeting must be received at the Company's executive offices, which are located at 9640 Medical Center Drive, Rockville, Maryland 20850, Attention: Corporate Secretary, not later than January 19, 2001, to receive consideration for inclusion in the Proxy Statement and form of proxy related to that meeting. Pursuant to the proxy rules under the 1934 Act, the Company's stockholders are notified that the deadline for providing the Company with timely notice of any stockholder proposal to be submitted outside of the Rule 14a-8 process for consideration at the Next Annual Meeting will be April 3, 2001. As to all such matters which the Company does not have notice on or prior to that date, discretionary authority to vote on such proposal shall be granted to the persons designated in the Company's proxy related to the Next Annual Meeting. By Order of the Board of Directors, John W. Holaday, Ph.D. Chairman, President and Chief Executive Officer May 19, 2000 17 22 ANNEX A ENTREMED, INC. 1999 LONG-TERM INCENTIVE PLAN, AS AMENDED 1. PURPOSE AND TYPES OF AWARDS EntreMed, Inc., a Delaware corporation (the "Corporation"), maintained the EntreMed, Inc. Amended and Restated 1996 Stock Option Plan (the "Prior Plan"). The Prior Plan has been replaced with the 1999 Long-Term Incentive Plan as set forth herein, effective March 31, 1999, subject to the approval of the stockholders of the Corporation within twelve months of such effective date (the "Plan"). Notwithstanding anything herein to the contrary, nothing in this Plan shall adversely affect the rights or obligations, under any Award granted under the Prior Plan, of any grantee or holder of an Award without such person's approval. The purpose of the Plan is to promote the long-term growth and profitability of the Corporation by: (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Corporation and (ii) enabling the Corporation to attract, retain and reward the best-available persons. The Plan permits the granting of stock options (including incentive stock options qualifying under Code section 422 and nonqualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, or any combination of the foregoing. 2. DEFINITIONS Under this Plan, except where the context otherwise indicates, the following definitions apply: (a) "Administrator" shall have the meaning set forth in Section 3(a). (b) "Affiliate" shall mean any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the Corporation (including, but not limited to, joint ventures, limited liability companies, and partnerships). For this purpose, "control" shall mean ownership of 50% or more of the total combined voting power or value of all classes of stock or interests of the entity. (c) "Award" shall mean any stock option, stock appreciation right, stock award, phantom stock award, or performance award. (d) "Board" shall mean the Board of Directors of the Corporation. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. A-1 23 (f) "Common Stock" shall mean shares of common stock of the Corporation, $.01 par value. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Fair Market Value" of a share of the Corporation's Common Stock for any purpose on a particular date shall mean the last reported sale price per share of Common Stock, regular way, on such date or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq-National Market, or if the Common Stock is not so listed or admitted to trading or included for quotation, the last quoted price, or if the Common Stock is not so quoted, the average of the high bid and low asked prices, regular way, in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices, regular way, as furnished by a professional market maker making a market in the Common Stock as selected in good faith by the Administrator or by such other source or sources as shall be selected in good faith by the Administrator. If, as the case may be, the relevant date is not a trading day, the determination shall be made as of the next preceding trading day. As used herein, the term "trading day" shall mean a day on which public trading of securities occurs and is reported in the principal consolidated reporting system referred to above, or if the Common Stock is not listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq-National Market, any business day. (i) "Grant Agreement" shall mean a written document memorializing the terms and conditions of an Award granted pursuant to the Plan and shall incorporate the terms of the Plan. (j) "Participants" shall have the meaning set forth in Section 5. (k) "Parent" shall mean a corporation, whether nor or hereafter existing, within the meaning of the definition of "parent corporation" provided in Code section 424(e), or any successor thereto. (l) "Performance Goals" shall mean performance goals established by the Administrator which may be based on one or more business criteria selected by the Administrator that apply to an individual or group of individuals, a business unit, or the Corporation and/or one or more of its Affiliates either separately or together, over such performance period as the Administrator may designate, including, but not limited to, business criteria based on operating income, earnings or earnings growth, sales, return on assets, equity or investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income A-2 24 statement objectives, or any other objective goals established by the Administrator, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. (m) "Subsidiary" and "subsidiaries" shall mean only a corporation or corporations, whether now or hereafter existing, within the meaning of the definition of "subsidiary corporation" provided in section 424(f) of the Code, or any successor thereto. (n) "Ten-Percent Stockholder" shall mean a grantee who (applying the rules of Code section 424(d)) owns stock possessing more than 10% of the total combined voting power or value of all classes of stock or interests of the Corporation or an Affiliate. 3. ADMINISTRATION (a) Administration of the Plan. The Plan shall be administered by the Board or by such committee or committees as may be appointed by the Board from time to time (the Board, committee or committees hereinafter referred to as the "Administrator"). (b) Powers of the Administrator. The Administrator shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole and absolute discretion, to grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards. The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (i) determine the eligible persons to whom, and the time or times at which Awards shall be granted; (ii) determine the types of Awards to be granted; (iii) determine the number of shares to be covered by or used for reference purposes for each Award; (iv) impose such terms, limitations, restrictions and conditions upon any such Award as the Administrator shall deem appropriate, including, but not limited to, whether a stock option shall be an incentive stock option or a nonqualified stock option, any exceptions to nontransferability, any Performance Goals applicable to Awards, any provisions relating to vesting, any circumstances in which the Awards would terminate, the period during which Awards may be exercised, and the period during which Awards shall be subject to restrictions; (v) modify, amend, extend or renew outstanding Awards, accept the surrender of outstanding Awards and substitute new Awards, or specify a lower or higher exercise price, or a longer or shorter term, for any substituted Awards than the surrendered Awards, or impose any other provisions that are authorized by this Plan (provided however, that, except as provided in Section 7(f)(ii) of the Plan, any modification that would materially adversely affect any outstanding Award shall not be made without the consent of the holder); (vi) accelerate, extend (as long as such extension shall not cause the Plan to fail to comply with Code section 422, if applicable) or otherwise change the time in which an Award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award due to termination of any A-3 25 grantee's employment or other relationship with the Corporation; and (vii) establish objectives and conditions, if any, for earning Awards and determining whether Awards will be paid after the end of a performance period. In making these determinations, the Administrator may take into account the nature of the services rendered or to be rendered by the Award recipients, their present and potential contributions to the success of the Corporation and its Affiliates, and such other factors as the Administrator in its discretion shall deem relevant. Subject to the provisions of the Plan, the Administrator shall have full power and authority, in its sole and absolute discretion, to administer and interpret the Plan and to adopt and interpret such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable. (c) Non-Uniform Determinations. The Administrator's determinations under the Plan (including, without limitation, determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the Grant Agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. (d) Limited Liability. To the maximum extent permitted by law, no member of the Administrator shall be liable for any action taken or decision made in good faith relating to the Plan or any Award thereunder. (e) Effect of Administrator's Decision. All actions taken and decisions and determinations made by the Administrator on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Administrator's sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the Corporation, its stockholders, any Participants and any other employee, consultant, or director of the Corporation, and their respective successors in interest. 4. SHARES AVAILABLE FOR THE PLAN (a) Maximum Issuable Shares. Subject to adjustments as provided in Section 7(f), the shares of Common Stock that may be issued with respect to Awards granted under the Plan shall not exceed an aggregate of 1,750,000 shares of Common Stock. The Corporation shall reserve such number of shares for Awards under the Plan, subject to adjustments as provided in Section 7(f). If any Award, or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any shares of Common Stock are surrendered to the Corporation in connection with any Award (whether or not such surrendered shares were acquired pursuant to any Award), the shares subject to such Award and the surrendered shares shall thereafter be available for further Awards under the Plan; provided, however, that any such shares that are surrendered to the Corporation in connection with any Award or that are otherwise A-4 26 forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under Code section 422. (b) Maximum Awards. Subject to adjustments as provided in Section 7(f), the maximum number of shares of Common Stock subject to Awards of any combination that may be granted during any one calendar year of the Corporation to any one individual under this Plan shall be limited to 150,000. 5. PARTICIPATION Participation in the Plan shall be open to all persons who are at the time of the grant of an Award employees (including persons who may become employees), officers, directors, and consultants of the Corporation, or of any Affiliate of the Corporation, as may be selected by the Administrator from time to time. A Participant who has been granted an Award may, if he or she is otherwise eligible, be granted additional Awards if the Administrator so determines. 6. AWARDS The Administrator, in its sole discretion, establishes the terms of all Awards granted under the Plan. All Awards shall be subject to the terms and conditions provided in the Grant Agreement. (a) Stock Options. The Administrator may from time to time grant to eligible Participants Awards of incentive stock options as that term is defined in Code section 422 or nonqualified stock options; provided, however, that Awards of incentive stock options shall be limited to employees of the Corporation or of any Parent or Subsidiary of the Corporation. Options intended to qualify as incentive stock options under Code section 422 must have an exercise price at least equal to Fair Market Value on the date of grant or at least 110% of Fair Market Value in the case of a Ten-Percent Stockholder, [but nonqualified stock options may be granted with an exercise price less than Fair Market Value.] No stock option shall be an incentive stock option unless so designated by the Administrator at the time of grant and such designation is reflected in the Grant Agreement evidencing such stock option. (b) Stock Appreciation Rights. The Administrator may from time to time grant to eligible Participants Awards of Stock Appreciation Rights ("SARs"). A SAR may be exercised in whole or in part as provided in the applicable Grant Agreement and entitles the grantee to receive, subject to the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one share of Common Stock over (B) the base price per share specified in the Grant Agreement, multiplied by (ii) the number of shares covered by the SAR, or portion thereof, which is exercised. Payment by the Corporation of the amount receivable upon any exercise of a SAR may be made by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as specified in the Grant Agreement. If upon settlement of the exercise of a SAR a grantee is to receive a portion of such payment in shares of Common Stock, the number of shares A-5 27 shall be determined by dividing such portion by the Fair Market Value of a share of Common Stock on the exercise date. No fractional shares shall be used for such payment and the Administrator shall determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated. (c) Stock Awards. The Administrator may from time to time grant restricted or unrestricted stock Awards to eligible Participants in such amounts, on such terms and conditions (which terms and conditions may condition the vesting or payment of Stock Awards on the achievement of one or more Performance Goals), and for such considerations, including no consideration or such minimum consideration as may be required by law, as it shall determine. (d) Phantom Stock. The Administrator may from time to time grant Awards to eligible Participants denominated in stock-equivalent units ("Phantom Stock") in such amounts and on such terms and conditions as it shall determine, which terms and conditions may condition the vesting or payment of Phantom Stock on the achievement of one or more Performance Goals. Phantom Stock units granted to a Participant shall be credited to a bookkeeping reserve account solely for accounting purposes and shall not require a segregation of any of the Corporation's assets. An Award of Phantom Stock may be settled in Common Stock, in cash, or in a combination of Common Stock and cash, as specified in the Grant Agreement. Except as otherwise provided in the applicable Grant Agreement, the grantee shall not have the rights of a stockholder with respect to any shares of Common Stock represented by a Phantom Stock unit solely as a result of the grant of a Phantom Stock unit to the grantee. (e) Performance Awards. The Administrator may, in its discretion, grant performance Awards, which become payable on account of attainment of one or more Performance Goals established by the Administrator. Performance Awards may be paid by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as specified in the Grant Agreement. 7. MISCELLANEOUS (a) Investment Representations. The Administrator may require each person acquiring shares of Common Stock pursuant to Awards hereunder to represent to and agree with the Corporation in writing that such person is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend that the Administrator deems appropriate to reflect any restrictions on transfer. All certificates for shares issued pursuant to the Plan shall be subject to such stock transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or interdealer quotation system upon which the Common Stock is then quoted, and any applicable federal or state securities laws. The Administrator may place a legend or legends on any such certificates to make appropriate reference to such restrictions. A-6 28 (b) Compliance with Securities Law. Each Award shall be subject to the requirement that if, at any time, counsel to the Corporation shall determine that the listing, registration or qualification of the shares subject to such an Award upon any securities exchange or interdealer quotation system or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of nonpublic information or the satisfaction of any other condition is necessary in connection with the issuance or purchase of shares under such an Award, such Award may not be exercised, in whole or in part, unless such satisfaction of such condition shall have been effected on conditions acceptable to the Administrator. Nothing herein shall be deemed to require the Corporation to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. (c) Withholding of Taxes. Grantees and holders of Awards shall pay to the Corporation or its Affiliate, or make provision satisfactory to the Administrator for payment of, any taxes required to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. The Corporation or its Affiliate may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the grantee or holder of an Award. In the event that payment to the Corporation or its Affiliate of such tax obligations is made in shares of Common Stock, such shares shall be valued at Fair Market Value on the applicable date for such purposes. (d) Loans. The Corporation or its Affiliate may make or guarantee loans to grantees to assist grantees in exercising Awards and satisfying any withholding tax obligations. (e) Transferability. Except as otherwise determined by the Administrator or provided in a Grant Agreement, no Award granted under the Plan shall be transferable by a grantee except by will or the laws of descent and distribution. Unless otherwise determined by the Administrator in accordance with the provisions of the immediately preceding sentence, during the lifetime of the grantee, the Award may be exercised only by the grantee, by such permitted transferees or, during the period the grantee is under a legal disability, by the grantee's guardian or legal representative. Except as provided above, the Award may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. (f) Adjustments; Business Combinations. (i) Adjustments for Events Affecting Common Stock. In the event of changes in the Common Stock of the Corporation by reason of any stock dividend, spin-off, split-up, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares and the like, the Administrator shall, in its discretion, make appropriate substitutions for or adjustments to the maximum number and kind of shares reserved for issuance or with respect to which Awards may be granted under the Plan to any individual as provided in Section 4 of the Plan and to the number, kind and price of shares covered to any individual by outstanding Awards (without changing the aggregate purchase price as to which such Awards remain A-7 29 exercisable) and shall, in its discretion and without the consent of holders of Awards, make any other substitutions for or adjustments in outstanding Awards, including but not limited to reducing the number of shares subject to Awards or providing or mandating alternative settlement methods such as settlement of the Awards in cash or in shares of Common Stock or other securities of the Corporation or of any other entity, or in any other matters which relate to Awards as the Administrator shall, in its sole discretion, determine to be necessary or appropriate. (ii) Pooling of Interests Transaction. Notwithstanding anything in the Plan to the contrary and without the consent of holders of Awards, the Administrator, in its sole discretion, may make any modifications to any Awards, including but not limited to cancellation, forfeiture, surrender or other termination of the Awards in whole or in part regardless of the vested status of the Award, in order to facilitate any business combination that is authorized by the Board to comply with requirements for treatment as a pooling of interests transaction for accounting purposes under generally accepted accounting principles. (iii) Adjustments for Other Events. The Administrator is authorized to make, in its discretion and without the consent of holders of Awards, adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Corporation, or the financial statements of the Corporation or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. (g) Substitution of Awards in Merger and Acquisitions. Awards may be granted under the Plan from time to time in substitution for Awards held by employees or directors of entities who become or are about to become employees or directors of the Corporation or an Affiliate as the result of a merger or consolidation of the employing entity with the Corporation or an Affiliate, or the acquisition by the Corporation or an Affiliate of the assets or stock of the employing entity. The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Administrator deems appropriate at the time of grant to conform the substitute Awards to the provisions of the awards for which they are substituted. Substitute Awards shall not be counted toward the share limit imposed by Section 4(b). (h) Foreign Participants. The Administrator may, without amending the Plan, modify Awards granted to Participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. (i) Termination, Amendment and Modification of the Plan. The Board may amend, alter or terminate the Plan, or portion thereof, at any time. A-8 30 (j) Non-Guarantee of Employment or Service. Nothing in the Plan or in any Grant Agreement shall confer on an individual any legal or equitable right against the Corporation, any Affiliate or the Administrator, except as expressly provided in the Plan or the Grant Agreement. Nothing in the Plan or in any Grant Agreement thereunder shall (i) constitute inducement, consideration, or contract for employment or service between an individual and the Corporation or any Affiliate; (ii) confer any right on an individual to continue in the service of the Corporation or any Affiliate; or (iii) shall interfere in any way with the right of the Corporation or any Affiliate to terminate such service at any time with or without cause or notice, or to increase or decrease compensation for such service. (k) Other Employee Benefits. Except as to plans that by their terms include such amounts as compensation, the amount of any compensation deemed to be received by a Participant as a result of the exercise of an Award or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employee benefits of such Participant are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Administrator. (l) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation and a grantee or any other person. To the extent that any grantee or other person acquires a right to receive payments from the Corporation pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (m) Governing Law. The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Administrator relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Delaware without regard to its conflict of laws principles. (n) Effective Date, Termination Date. The Plan is effective as of March 31, 1999, the date on which the Plan, as a replacement to the Prior Plan, was adopted by the Board, subject to the approval of the stockholders of the Corporation within twelve months of such effective date. No Award shall be granted under the Plan after the close of business on March 31, 2009. Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards. Date Approved by the Stockholders: June 24, 1999 Date Amendment No. 1 Approved by Stockholders: June __, 2000 A-9 31 ENTREMED, INC. ANNUAL MEETING OF STOCKHOLDERS THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints John W. Holaday, Ph.D. and James D. Johnson, Ph.D. and each of them as proxy (each of whom shall have full power of substitution) to represent the undersigned at the Annual Meeting of Stockholders to be held at the Hyatt Regency Bethesda, One Bethesda Metro Center, Bethesda, Maryland 20814 on June 22, 2000 at 10:00 a.m. and at any adjournment thereof, and to vote the shares of common stock the undersigned would be entitled to vote if personally present, as indicated on the reverse. (CONTINUED AND TO BE SIGNED ON REVERSE SIDE) 32 PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE! ANNUAL MEETING OF STOCKHOLDERS ENTREMED, INC. JUNE 22, 2000 - PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED - A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE. FOR all nominees WITHHOLD listed at right (except AUTHORITY as marked to the To vote for all nominees contrary below) listed at right 1. Election of [ ] [ ] NOMINEES: TERMS EXPIRING 2003 Directors John W. Holaday, Ph.D. Wendell M. Starke TERM EXPIRING 2001 Peter S. Knight (INSTRUCTION: To withhold authority to vote for any individual nominee, print that nominee's name on the line provided below.) - ------------------------------------------------ FOR AGAINST ABSTAIN 2. Approval of an amendment to the 1999 Long- [ ] [ ] [ ] term Incentive Plan to increase from 750,000 to 1,750,000 the number of shares of common stock reserved for issuance thereunder. 3. Approval and ratification of the appointment [ ] [ ] [ ] of Ernst & Young LLP as independent auditors for the Company. 4. In their discretion upon such other business as may properly come before the meeting. THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY INSTRUCTION IS GIVEN, THE SHARES OF COMMON STOCK WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES, FOR THE APPROVAL OF AN AMENDMENT TO THE 1999 LONG-TERM INCENTIVE PLAN, AND FOR THE APPROVAL AND RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY. Signature DATED ,2000 -------------------------------------- ----------------------------------- ----------- SIGNATURE IF HELD JOINTLY NOTE: (Please date, sign as name appears above, and return promptly. If the Shares are registered in the names of two or more persons, each should sign. When signing as Corporate Officer, Partner, Executor, Administrator, Trustee or Guardian, please give full title. Please note any changes in your address alongside the address as it appears in the proxy.)
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