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 (AMENDMENT NO. )
<Table>
Filed by the Registrant [ ]
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 Under Rule 14a-12
</Table>
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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(4) Date filed:
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[LOGO] [letterhead]
May 17, 2002
Dear fellow stockholder:
Our Annual Meeting of Stockholders will be held on Thursday, June 6, 2002 at
10:00 a.m. EDT at the Gaithersburg Marriott Washingtonian Center, 9751
Washingtonian Boulevard, Gaithersburg, Maryland 20878. I look forward to meeting
many of you in person and sharing with you the successes of our company.
This year, perhaps more than any other, your prompt vote is important to our
company. Among other things, we are asking you approve an increase in our
capital stock. This will allow us to raise necessary funds during this critical
time in the development of our product candidates. In this difficult financing
environment, we need the flexibility to raise funds quickly as opportunities
arise, and an increase in our authorized capital will help us to do so.
In the past 10 years, we have accomplished the unimaginable. To date, we have
15 ongoing Phase I and Phase II clinical studies - and more are planned. Over
75% of our cash is spent on research and development efforts. Our goal is simple
- - to develop drugs that will improve patients' lives. It is clear that we will
need additional resources to accomplish this goal. Although we will continue our
strategic partnering efforts, we likely will need to raise more cash through the
sale of our securities. Your continued support is essential to our efforts.
On behalf of your Board, I urge you to support our proposed increase in
capitalization so that we can continue to move forward. The majority vote of all
of our stockholders is needed to approve this change. Your prompt reply is very
important. Please vote as soon as possible by signing and returning the enclosed
proxy card in the enclosed envelope, or by using the Internet as instructed in
the enclosed proxy card.
Very truly yours,
John W. Holaday, Ph.D.
Chairman of the Board of Directors
and Chief Executive Officer
[ENTREMED LOGO]
ENTREMED, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2002
To Our Stockholders:
Notice is hereby given that the annual meeting of the stockholders of
EntreMed, Inc. (the "Company") will be held on June 6, 2002, at 10:00 a.m. local
time, at the Gaithersburg Marriott Washington Center, 9751 Washingtonian
Boulevard, Gaithersburg, Maryland 20878 (the "Annual Meeting"). The Annual
Meeting is called for the following purposes:
1. To elect three directors to a term of three years, or until a
successor has been elected and qualified;
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
the Company's common stock, $.01 par value, from 35,000,000 shares to
90,000,000 shares and to increase the number of authorized shares of the
Company's preferred stock, $1.00 par value, from 5,000,000 shares to
10,000,000 shares, increasing the total authorized capital stock from
40,000,000 shares to 100,000,000 shares;
3. To approve amendments to the Company's 2001 Long-Term Incentive
Plan increasing from 2,250,000 to 3,250,000 the number of shares of Common
Stock reserved for issuance thereunder and changing the maximum number of
shares of Common Stock subject to awards that may be awarded to any one
employee from 250,000 shares during any one calendar year to 750,000 shares
during any three consecutive calendar years;
4. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company; and
5. 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 26, 2002 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 and Chief Executive Officer
May 17, 2002
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 26, 2002. 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 21,922,860 shares of Common Stock
outstanding.
Q: WHAT AM I VOTING ON?
A: You are being asked to vote on the election of three directors to the terms
described in the Proxy Statement, the approval of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of our
capital stock, the approval of amendments to the Company's 2001 Long-Term
Incentive Plan and the ratification of Ernst & Young LLP as the independent
auditors of the Company.
Q: WHAT IS THE NATURE OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION?
A: We are asking you to approve an amendment to the Company's Amended and
Restated Certificate of Incorporation that would increase the number of shares
of Common Stock that the Company is authorized to issue from 35,000,000 shares
to 90,000,000 shares and increase the number of shares of Preferred Stock that
the Company is authorized to issue from 5,000,000 shares to 10,000,000 shares.
If approved by the Company's stockholders, the amendment will increase the
Company's total authorized capital stock from 40,000,000 shares to 100,000,000
shares.
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
amendment to the Certificate of Incorporation, the changes to the 2001 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.
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 2002. We will file that report with the Securities and Exchange Commission
("SEC"), and you can get a copy by:
- contacting EntreMed corporate offices via phone (240) 864-2600; or email
at christopherc@entremed.com; or
- through the SEC's EDGAR system at www.sec.gov or by contacting the SEC's
public reference room.
ENTREMED, INC.
9640 MEDICAL CENTER DRIVE
ROCKVILLE, MARYLAND 20850
(240) 864-2600
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2002
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 Gaithersburg Marriott Washington Center, 9751 Washingtonian
Boulevard, Gaithersburg, Maryland 20878 on June 6, 2002, at 10:00 a.m. (local
time) and for any postponement or adjournment 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 Company's Amended and Restated Certificate of
Incorporation, the approval of the amendments to the 2001 Long-Term Incentive
Plan (the "2001 Plan"), and the 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
17, 2002.
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 26, 2002 (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 21,922,860 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. Assuming a
quorum is present, 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. Abstentions
and broker non-votes will not affect the outcome of the election of directors.
The affirmative vote of a majority of the Shares outstanding and entitled to
vote on the matter is necessary to approve the amendments to the Company's
Amended and Restated Certificate of Incorporation. Therefore, abstentions and
broker non-votes will have the same effect as a vote "against" this proposal.
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, is necessary
to approve the amendments to the 2001 Plan and to ratify the appointment of
Ernst & Young LLP as the independent auditors of the Company. Thus,
an abstention from voting on either of these proposals will have the same legal
effect as a vote "against" the proposal, even though the stockholder may
interpret such action differently. Broker non-votes will not be counted for any
purpose in determining whether these two proposals have been approved and will
not affect the outcome of the vote on these proposals.
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 23, 2002 (except as otherwise
footnoted below), certain information concerning stock ownership of all persons
known by us to own beneficially more than 5% of our Common Stock, $.01 par value
per share, as well as each director or director nominee, each executive officer
named under "Executive Compensation and Other Matters" and all of our directors
and executive officers as a group.
<Table>
<Caption>
AMOUNT AND NATURE OF PERCENTAGE
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(1) OF CLASS
--------------------------- ----------------------- ----------
John W. Holaday, Ph.D. ..................................... 1,730,751(2) 7.6%
Edward R. Gubish, Ph.D. .................................... 410,251(3) 1.8%
Joanna C. Horobin, M.D. .................................... 115,000(4) *
Donald S. Brooks............................................ 251,001(5) 1.1%
James D. Johnson Ph.D., J.D. ............................... 111,750(6) *
Peter S. Knight............................................. 55,000(7) *
Jerry Finkelstein........................................... 135,000(8) *
Jennie C. Hunter-Cevera, Ph.D. ............................. 25,000(9) *
Mark C. M. Randall.......................................... 133,001(10) *
Wendell M. Starke........................................... 886,461(11) 4.0%
Thomas P. Russo............................................. 32,500(12) *
All executive officers and directors as a group (11
persons).................................................. 3,885,715(13) 15.9%
More Than 5% Beneficial Owner............................... 1,223,852 5.6%
FMR Corp. and affiliated entities(14)
82 Devonshire Street
Boston, MA 02109
</Table>
- ---------------
* 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 922,319 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
234,750 shares issuable upon exercise of options not exercisable within 60
days.
(3) Includes 399,251 shares issuable upon exercise of options that are
exercisable within 60 days. Does not include 232,750 shares issuable upon
exercise of options not exercisable within 60 days.
(4) Includes 113,000 shares issuable upon exercise of options that are
exercisable within 60 days. Does not include 500 shares issuable upon
exercise of options not exercisable within 60 days.
(5) Includes 251,001 shares issuable upon exercise of options that are
exercisable within 60 days.
(6) Includes 111,750 shares issuable upon exercise of options that are
exercisable within 60 days. Does not include 145,000 shares issuable upon
exercise of options not exercisable with 60 days.
(7) Includes 55,000 shares issuable upon exercise of options that are
exercisable within 60 days.
2
(8) Includes 111,000 shares issuable upon exercise of options and warrants that
are exercisable within 60 days.
(9) Includes 25,000 shares issuable upon exercise of options which are
exercisable within 60 days.
(10) Includes 133,001 shares issuable upon exercise of options and warrants that
are exercisable within 60 days.
(11) Includes 363,873 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. Does not include
12,500 shares issuable upon exercise of options not exercisable within 60
days. Does not include 39,474 shares owned by various family members of Mr.
Starke, as to which Mr. Starke disclaims beneficial ownership.
(12) Includes 32,500 shares issuable upon exercise of options that are
exercisable within 60 days.
(13) Includes 2,518,195 shares issuable upon exercise of options and warrants
that are exercisable within 60 days. Does not include 625,000 shares
issuable upon exercise of options not exercisable within 60 days.
(14) This information is based on a Schedule 13G filed with the SEC by FMR Corp.
on February 14, 2002. FMR Corp. reported that (a) it (directly or
indirectly) has sole dispositive power over all of these shares, (b) it
does not have sole voting power or shared voting power with respect to
these shares, (c) the Fidelity Growth Company Fund holds all of the shares
of common stock beneficially owned by FMR Corp. and (d) members of the
family of Edward C. Johnson 3rd may be deemed to form a controlling group
with respect to FMR Corp.
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 2003 and the
annual meeting of stockholders to be held in 2004. At the Annual Meeting, three
directors will be elected by the stockholders to serve a three-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.
Each 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 23, 2002 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.
3
<Table>
<Caption>
NAME AGE POSITION DIRECTOR SINCE
- ---- --- ------------------------------------ --------------
John W. Holaday, Ph.D. ............. 56 Chairman of the Board of Directors 1992
and Chief Executive Officer
Wendell M. Starke................... 60 Vice Chairman of the Board of 1994
Directors
Jerry Finkelstein(1)(2)............. 86 Director 1998
Mark C. M. Randall(1)(4)............ 39 Director 1996
Donald S. Brooks.................... 66 Director 1996
Peter S. Knight(2)(3)............... 51 Director 2000
Jennie C. Hunter-Cevera............. 54 Director 2001
</Table>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Chairman of Audit Committee
(4) Chairman of Compensation Committee
NOMINEES FOR TERMS EXPIRING 2005
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 and Managing Director since 1999. Mr. Randall also serves as Chairman of
Acorn Alternative Strategies (Overseas) Ltd., an investment fund company.
JENNIE C. HUNTER-CEVERA has been a director of the Company since June 2001.
Dr. Hunter-Cevera is the President of the University of Maryland Biotechnology
Institute. Prior to joining the University of Maryland in October of 1999, Dr.
Hunter-Cevera had been the head of the Center for Environmental Biotechnology at
Lawrence Berkeley National Laboratory between November 1994 and September 1999.
Dr. Hunter-Cevera is Past-President of SIM and USFCC and is an active member of
ASM and ACS. She served as Senior Editor for JIM for 10 years and has served as
a reviewer for proposals in metabolic biochemistry and bioremediation for NSF
and DOE. She was a member of the Secretary of Agriculture Glickman's Genetic
Resources Advisory Board, President Clinton's Council on Biotechnology for the
State Department, USA representative to the OECD on Biological Resource Centers
and serves on the Advisory Board for the Leadership Alliance for Biodiversity.
She has given over 40 invited lectures, seven keynote lectures, and is the
author of several papers and holder of two patents. Dr. Hunter-Cevera was
elected to the American Academy of Microbiology in 1995, the recipient of the
1996 SIM Charles Porter Award, elected as a SIM Fellow in 1997 and the 1999 Nath
Lecturer at West Virginia University. She is member of the State Department's
Council on Biotechnology.
CONTINUING DIRECTORS FOR TERMS EXPIRING 2004
DONALD S. BROOKS has been one of EntreMed's directors since April 1996 and
was Vice President, Legal Affairs from 1998 until August 2001. Between 1993 and
1998, Mr. Brooks was a practicing attorney with the law firm of Carella Byrne
Bain Gilfillan Cecchi Stewart and Olstein, Roseland, New Jersey, which
represents the Company on certain matters. Mr. Brooks continues to be of counsel
to the firm. Prior thereto, Mr. Brooks
4
was employed by Merck and 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 has been a Director of the Company since June 2000 and is a
Managing Director of MetWest Financial, a Los Angeles based financial services
company. Mr. Knight was a principal in Sage Venture Partners, a
telecommunications investment firm and 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 the Medicis
Pharmaceutical Corporation. In addition to the EntreMed Board of Directors, Mr.
Knight serves on the Board of Directors of Whitman Education Group, providers of
postsecondary education, and Medicis Pharmaceutical Corporation, a
pharmaceutical company specializing in dermatology. Mr. Knight also serves on
the board of the Schroeder Family of Mutual Funds. He serves on the Board of
Directors for the former Vice President's Residence Foundation, and the Board of
Directors of the Center for National Policy. He holds a Juris Doctor degree from
the Georgetown University Law Center and a Bachelor of Arts degree from Cornell
University.
CONTINUING DIRECTORS FOR TERMS EXPIRING 2003
DR. JOHN W. HOLADAY is the founder of EntreMed, Inc. 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 Vice President for Research and Development and Member of the Board of
Directors. Dr. Holaday also serves as Chairman of MaxCyte, Inc., a subsidiary of
EntreMed. In addition, he is on the Board of Directors of CytImmune Sciences and
LabBook, which are privately held biotechnology companies. Dr. Holaday was
commissioned into the U.S. Army in 1966 and subsequently served as the
Neuropathology Branch Chief at the Walter Reed Army Institute of Research, where
he served for 21 years as an officer and civilian. Dr. Holaday's academic
appointments include Visiting Associate Professor of Anesthesiology and Critical
Care Medicine at The Johns Hopkins University School of Medicine and Adjunct
Professor of Psychiatry at the Uniformed Services University of the Health
Sciences. Dr. Holaday was elected as the Chairman of the Maryland Bioscience
Alliance in April of 2000, and is a member of the American Society for
Pharmacology and Experimental Therapeutics, the Society for Critical Care
Medicine (Fellow, 1989) and Sigma Xi. He holds more than 30 U.S. and foreign
patents and has published more than 200 scientific articles and edited five
books.
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 and Chief Investment Officer 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.
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, 2001 ("fiscal 2001"). Each of the directors attended at
least 75% of the aggregate of the total number of meetings of the Board of
Directors and all committees of the Board on which he or she served (during the
period during which he or she served) that were held during fiscal 2001.
The Board of Directors has two standing committees. These are the Audit
Committee and the Compensation Committee.
5
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 Board of Directors has
adopted a written charter for the Audit Committee. All members of the Audit
Committee are independent as defined by Rule 4200(a)(14) of the National
Association of Securities' Dealers listing standards. During 2001, the Audit
Committee consisted of three directors, Messrs. Finkelstein, Knight, and
Randall. The Audit Committee met one time during fiscal 2001.
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. During 2001, the Compensation
Committee consisted of three directors, Messrs. Finkelstein, Knight, and
Randall. The Compensation Committee met one time during fiscal 2001.
COMPENSATION OF DIRECTORS
During 2001, each director of the Company received automatic grants of
non-qualified stock options as follows: upon joining the Board of Directors,
each new director was granted an option to purchase 15,000 shares of Common
Stock; for services of Vice Chairman of the Board, the Vice Chairman was 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 Board to a three-year term,
each director was granted an option to purchase 30,000 shares. The Company's
directors were reimbursed for expenses actually incurred in connection with
attending meetings.
As approved by the Board of Directors effective April 2002, each director
of the Company in the future will receive 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; each director whose term in office continues or who is re-elected to
the Board (including directors who are employees of the Company) beginning at
the annual meeting of stockholders in 2002 will be granted a stock option
covering 20,000 shares on a date to be determined by the Board of Directors. All
directors continue to be reimbursed for expenses actually incurred in connection
with attending such meetings. The Company's Vice-Chairman, Mr. Wendell Starke
also received $100,000 for services in 2001 and is eligible to participate in
our 2001 Long-Term Incentive Plan. Following Mr. Brook's retirement as our vice
president of Legal Affairs as of August 2001, Mr. Brooks serves as our
consultant. He received $58,000 for these services in 2001.
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK AND PREFERRED STOCK
The Board of Directors believes that it would be in the best interest of
the Company and its stockholders to amend the Company's Certificate of
Incorporation to increase the number of shares of Common Stock that the Company
may issue from the 35,000,000 shares presently authorized to 90,000,000 shares
and to increase the number of shares of Preferred Stock that the Company may
issue from the 5,000,000 shares presently authorized to 10,000,000 shares,
increasing the total authorized capital stock of the Company from 40,000,000
shares to 100,000,000 shares. We also plan to restate our Certificate of
Incorporation to eliminate unnecessary references to a series of preferred stock
that was eliminated upon completion of our initial public offering and to
consolidate other amendments to our Certificate of Incorporation into a single
document.
On April 26, 2002, there were 21,922,860 shares of Common Stock and no
shares of Preferred Stock issued and outstanding. In addition, approximately
8,250,000 shares of Common Stock have been reserved for issuance upon the
conversion of outstanding warrants and pursuant to issuance under the Company's
1992
6
Stock Incentive Plan, 1996 Stock Incentive Plan, 1999 Long-Term Incentive Plan
and 2001 Long-Term Incentive Plan.
Under the terms of our Amended and Restated Certificate of Incorporation,
the Board of Directors is authorized to issue shares of Common Stock and
Preferred Stock to such persons and for such consideration as it may determine
without further action by the stockholders, except as stockholder action may be
required by law, contractual arrangement or the rules of the NASD. The issuance
of the additional shares of Common Stock and Preferred Stock that would be
authorized by the proposed amendment also would be determined by the Board of
Directors in its discretion. The terms of any Preferred Stock to be issued,
including dividend rates, conversion prices, voting rights, redemption
provisions and similar matters, will be determined by the Board of Directors at
the time such Preferred Stock is issued, without further stockholder approval.
The purpose of increasing the number of authorized shares of Common Stock
and Preferred Stock is to provide additional shares that could be used for
proper corporate purposes, including and without limitation: convertible debt
financings, equity financings, acquisitions of other businesses or properties,
strategic collaborations, employee equity incentives and the facilitation of
future stock dividends and stock splits. Any such issuances could be used to
discourage, or have the effect of discouraging, an attempt to acquire control of
the Company, whether or not such a change in control transaction was favored by
the majority of the stockholders, and could enhance the ability of officers and
directors to retain their positions. For example, Preferred Stock could be
issued to persons, firms or entities known to be friendly to management. The
additional Preferred Stock could also be issued in conjunction with a
stockholder rights plan that would, upon the acquisition of a certain percentage
of the Company's voting stock by an unaffiliated person or group, grant certain
stockholders Preferred Stock with super-majority voting provisions or give
certain stockholders the right to acquire additional shares of Common Stock at a
below-market price. However, the Board of Directors is not presently
contemplating any transaction that would result in the Company issuing
additional shares of Common Stock or Preferred Stock.
Although the Board of Directors could authorize the issuance of additional
shares based on its judgment as to the best interest of the Company and its
stockholders, without further stockholder approval, the issuance of additional
shares may decrease the proportionate holdings of existing stockholders and
could have the effect of diluting the voting power per share thereby, depending
on the price of issuance, dilute the value of existing stockholders' shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE CERTIFICATE OF INCORPORATION, AND SIGNED PROXIES THAT ARE RETURNED WILL
BE SO VOTED UNLESS OTHERWISE INSTRUCTED ON THE PROXY CARD.
PROPOSAL 3
APPROVAL OF ADDITIONAL SHARES FOR ISSUANCE AND INCREASE IN
NUMBER OF SHARES THAT MAY BE GRANTED ANNUALLY TO AN INDIVIDUAL
UNDER THE COMPANY'S 2001 LONG-TERM INCENTIVE PLAN, AS AMENDED
GENERAL
The Board has approved an amendment to the 2001 Plan, subject to
stockholder approval, to increase the aggregate number of shares authorized for
issuance under the 2001 Plan from a total of 2,250,000 shares to 3,250,000
shares.
The Board has also approved an amendment to the Plan to revise the maximum
number of shares of Common Stock subject to Awards that may be granted to any
one individual from 250,000 Shares during any one calendar year to 750,000
Shares during any three consecutive calendar years, beginning in calendar year
2002. The amendment will therefore not change the aggregate number of shares of
Common Stock subject to Awards that may be granted to any one individual over
any three-year period, but will permit flexibility in the plan so that
Participants may be granted a greater number of Shares subject to Awards in some
years than in others.
7
The Board adopted the amendment to increase the number of shares authorized
for issuance under the 2001 Plan and the amendment to increase the number of
shares that may be granted to any one individual annually 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 to administer the 2001 Plan.
Management and the Board believe that the use of stock-based compensation is
important to the Company to recruit and retain qualified persons.
DESCRIPTION OF THE 2001 PLAN
The following summary of the material features of the 2001 Plan, as
proposed to be amended, is qualified in its entirety by reference to the full
text of the 2001 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 2001 Plan.
ELIGIBILITY
The 2001 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, or 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, 2002, the number of employees, officers and
directors of the Company eligible to receive grants under the 2001 Plan was
approximately 125 persons. The number of consultants to the Company eligible to
receive grants under the 2001 Plan is not determinable.
ADMINISTRATION
The 2001 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 2001 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 2001 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 the Company and its Affiliates, and such other factors as the
Administrator in its discretion shall deem relevant. The Administrator may
delegate to the Chief Executive Officer of the Company the power to administer
the 2001 Plan and to exercise the full authority of the Administrator with
respect to awards granted to specified Participants or groups of Participants.
SHARES AVAILABLE FOR THE PLAN
If the stockholders approve the increase in the aggregate number of Shares
authorized for issuance under the 2001 Plan, a maximum of 3,250,000 Shares will
be available for grants and awards, an increase of 1,000,000 shares.
At April 23, 2002, 730,715 Shares (excluding any Shares that might in the
future be returned to the 2001 Plan as a result of cancellations or expiration
of options) remained available for future grant under the 2001 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 2001 Plan. The number of Shares subject to the 2001
Plan (and
8
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.
If the stockholders approve the revision to the maximum number of Shares
that may be covered by awards of any combination to an individual during a
particular time period under the 2001 Plan, a maximum of 750,000 such Shares may
be granted to an individual during any three consecutive calendar years after
the date of the amendment.
STOCK OPTIONS
The 2001 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 2001 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 2001 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 2001
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 2001 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 2001 Plan.
Subject to the terms of a particular grant, the exercise of a stock
appreciation right under the 2001 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 2001 Plan also authorizes the grant of 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 2001 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.
9
Finally, the 2001 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.
PERFORMANCE GOALS
In its discretion, the Administrator may condition the grant, vesting or
payment of awards under the Plan on the attainment of Performance Goals. 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 2001 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 2001 Plan, or any
portion thereof, at any time. No award may be granted under the 2001 Plan after
the close of business on May 14, 2011. Subject to other applicable provisions of
the Plan, all awards made under the 2001 Plan prior to the termination of the
2001 Plan will remain in effect until those awards have been satisfied or
terminated.
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 2001 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 will not 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 within certain specified periods after termination
of employment, the grantee will recognize ordinary income on the exercise of an
incentive stock option in the same manner as on the exercise of 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.
10
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 exercise, 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.
RESTRICTED STOCK
Shares of restricted stock awarded under the 2001 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 such 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 2001 PLAN SHARES
In general, gain or loss from the sale or exchange of Shares granted or
awarded under the 2001 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 persons that are contingent on a change in
control exceed limits specified in the Code, the person 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
11
Administrator, in its discretion, grants awards, the exercise date or payment of
which is accelerated by a change in control of the Company, such acceleration of
the exercise date or payment would be relevant in determining whether the excise
tax and deduction disallowance rules would be triggered.
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 2001 Plan has been designed to allow the
Administrator to make awards under the 2001 Plan that qualify under an exception
to the deduction limit of Section 162(m) for "performance-based compensation."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENTS
TO THE COMPANY'S 2001 PLAN, AND SIGNED PROXIES THAT ARE RETURNED WILL BE SO
VOTED UNLESS OTHERWISE INSTRUCTED ON THE PROXY CARD.
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends a vote for the ratification of the
appointment of Ernst & Young LLP, Certified Public Accountants, as the Company's
independent auditors for the fiscal year ending December 31, 2002 ("fiscal
2002"). Ernst & Young LLP have 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 will be available to respond to appropriate questions.
AUDIT FEES
For the year ended December 31, 2001, the Company incurred from Ernst &
Young LLP an aggregate of $169,800 for audit fees, covering professional
services rendered for (1) the audit of the Company's annual financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 and (2) the reviews of the financial statements included in
the Company's quarterly reports on Form 10-Q for the first three quarters of
2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Ernst & Young LLP did not perform any financial information systems design,
implementation or related services for the Company during the year ended
December 31, 2001.
ALL OTHER FEES
For the year ended December 31, 2001, the Company incurred from Ernst &
Young LLP an aggregate of $132,500 for all other services, including $62,000 for
other audit related services and $70,500 for other services.
The Audit Committee has considered the compatibility of non-audit services
with the auditor's independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S AUDITORS FOR FISCAL 2002.
12
REPORT OF THE AUDIT COMMITTEE
The Board of Directors of the Company has appointed an Audit Committee
composed of 3 directors, each of whom is independent under the National
Association of Securities Dealers' listing standards, as applicable and as may
be modified or supplemented.
The Board of Directors has adopted a written charter for the Audit
Committee. The Audit Committee's job is one of oversight as set forth in its
Charter. It is not the duty of the Audit Committee to prepare the Company's
financial statements, to plan or conduct audits, or to determine that the
Company's financial statements are complete and accurate and are in accordance
with generally accepted accounting principles. The Company's management is
responsible for preparing the Company's financial statements and for maintaining
internal control. The independent auditors are responsible for auditing the
financial statements and for expressing an opinion as to whether those audited
financial statements fairly present the financial position, results of
operations, and cash flows to the Company in conformity with generally accepted
accounting principles.
The Audit Committee has reviewed and discussed the Company's audited
consolidated financial statements with management and with Ernst & Young LLP,
the Company's independent auditors for 2001.
The Audit Committee has discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Accounting Standards No. 61.
The Audit Committee has received from Ernst & Young LLP the written
statements required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed Ernst & Young's
independence with Ernst & Young, and has considered the compatibility of
nonaudit services with the auditor's independence.
Based on the review and discussions referred to above, the Audit Committee
has recommended to the Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 for filing with the Securities and Exchange
Commission (the "SEC").
By the Audit Committee:
Peter S. Knight, Chairman
Mark C. M. Randall
Jerry Finkelstein
13
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following summary compensation table sets forth the aggregate
compensation paid or accrued by us to the Chief Executive Officer and to
executive officers whose annual compensation exceeded $100,000 for fiscal 2001
(collectively, the "named executive officers") for services during the fiscal
years ended December 31, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
ANNUAL OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#) COMPENSATION
- --------------------------- ----- --------- -------- ------------ ------------
John W. Holaday, Ph.D. .................. 2001 395,000 (1) 250,000 22,432(2)
Chairman and 2000 380,000 150,000 150,000 21,298
Chief Executive Officer 1999 325,000 125,000 110,000 21,506
Edward R. Gubish, Ph.D. ................. 2001 295,000 (1) 222,000 9,881(3)
President and Chief 2000 250,000 125,000 115,000 8,747
Operating Officer 1999 202,700 85,000 50,000 8,955
Joanna C. Horobin, M.D. ................. 2001 208,333 -- -- 139,234(4)
Executive Vice President 2000 250,000 -- 100,000 8,747
of Commercial Development 1999 195,000 75,000 50,000 6,715
Thomas Russo (5)......................... 2001 235,231 20,000 12,500 9,881(3)
Chief Financial Officer
James D. Johnson, Ph.D., J.D............. 2001 183,333 (1) 195,000 683(3)
Senior Vice President and General
Counsel
Donald S. Brooks, Vice................... 2001 128,154 -- 30,000 1,949(6)
President, Legal Affairs 2000 210,000 25,000 45,000 3,087
1999 195,000 25,000 45,000 3,099
</Table>
- ---------------
(1) Consideration of bonuses for 2001 has been deferred.
(2) $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.
(3) Consists of group health insurance premiums paid on behalf of such officer.
(4) $125,000 of such amount represents severance payments pursuant to the terms
of a separation agreement dated September 28, 2001. $6,000 represents
payment in lieu of out-placement assistance. The remaining amount represents
health insurance premiums paid on behalf of such officer. The terms of this
separation agreement expired April 30, 2002.
(5) Mr. Russo resigned from the company effective January 31, 2002.
(6) Represents health insurance premiums paid on behalf of such officer.
Subsequent to his retirement effective August 1, 2001, Mr. Brooks entered
into a consulting arrangement with the Company. See "Compensation of
Directors."
14
The following table sets forth certain information with respect to
individual grants of stock options made during the fiscal year ended December
31, 2001 to each of the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------- VALUE AT ASSUMED ANNUAL
% NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------ ------------ -------- ---------- ---------- ----------
John W. Holaday, Ph.D. ...... 40,000 2.12% 14.13 4/6/2011 355,326 900,464
41,000 2.18% 11.99 8/21/2011 309,158 783,468
169,000 8.97% 8.97 10/1/2011 953,361 2,416,001
Edward R. Gubish, Ph.D. ..... 32,000 1.70% 11.99 8/21/2011 241,294 611,487
190,000 10.09% 8.97 10/1/2011 1,071,826 2,716,214
Thomas Russo................. 12,500 .66% 11.57 8/30/2005 31,168 67,120
James D. Johnson, Ph.D.,
J.D. ...................... 75,000 3.98% 15.18 3/22/2011 715,615 1,813,507
120,000 6.37% 8.97 10/1/2011 679,943 1,715,504
Donald S. Brooks............. 30,000 1.59% 16.55 6/15/2011 312,246 791,293
</Table>
- ---------------
(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
for the fiscal year ended December 31, 2001 for each of the named executive
officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR-END (#) AT FISCAL YEAR-END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
John W. Holaday, Ph.D.(2)....................... 876,919 279,750 680,488 --
Edward R. Gubish, Ph.D.(2)...................... 380,501 251,500 173,952 --
Joanna C. Horobin, M.D. ........................ 87,500 62,500 -- --
Thomas Russo.................................... 32,500 15,000
James D. Johnson Ph.D., J.D. ................... 97,500 157,500 -- --
Donald S. Brooks(2)............................. 251,001 -- 16,567 --
</Table>
- ---------------
(1) Calculated by multiplying the number of unexercised options outstanding at
December 31, 2001 by the difference between the fair market value of our
shares at December 31, 2001 ($8.45) 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, we entered into a three-year employment agreement
with John W. Holaday, Ph.D. as our Chairman and Chief Executive Officer with an
annual base salary of $325,000 per year and a
15
minimal annual increase of 10% per year. We 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 term of the agreement (subject to an
offset for salary received from subsequent employment). The agreement contains
confidentiality and non-competition provisions. This agreement is renewed
automatically each year unless terminated pursuant to its termination
provisions.
We maintain 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 us 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.
On September 28, 2001, we entered into a separation agreement with Joanna
C. Horobin, M.D., our former Executive Vice President of Commercial Development.
Pursuant to the separation agreement, Dr. Horobin received severance payments
totaling $125,000 plus a payment of $6,000 in lieu of out-placement assistance.
In addition, we agreed to accelerate the vesting of certain stock options held
by Dr. Horobin and to extend the period in which certain of these stock options
may be exercised.
Each of our 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 our
property.
In the event of certain transactions, including those that may result in a
change in control, as defined under our Incentive Stock Option Plans, unvested
installments of options to purchase our shares 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 our review of such forms furnished to the Company and
written representations from certain reporting persons, we believe that all
filing requirements applicable to our executive officers, directors and greater
than 10% beneficial owners were complied with.
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
16
compensation philosophy (which applies generally to all Company management,
including the 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 Chief Executive Officer, is based on competitive, market-based pay practices
and 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 Statement.
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. The Compensation Committee has deferred consideration of
bonuses for fiscal 2001. Upon achieving specific financial objectives, the
bonuses paid in 2001 represented the Compensation Committee's awards for bonuses
earned during the year 2000.
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
Peter S. Knight
Jerry Finkelstein
17
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 Chart]
<Table>
<Caption>
ENTREMED, INC. NASDAQ STOCK MARKET-US NASDAQ PHARMACEUTICALS
-------------- ---------------------- ----------------------
12/31/96 100.000 100.000 100.000
12/31/97 71.538 122.478 103.340
12/31/98 129.231 172.721 131.549
12/31/99 157.692 320.980 247.256
12/31/00 106.154 193.129 307.547
12/31/01 52.000 153.246 262.785
</Table>
- ---------------
(1) Assumes $100 invested on December 31, 1996 and assumes dividends are
reinvested. Measurement points begin with the date of the assumed investment
and include the last day of each of the subsequent 5 years through and
including December 31, 2001. 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
Donald S. Brooks, one of our directors, is of counsel to the law firm of
Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, which provides
certain legal services to us. We paid approximately $39,000 to Carella, Byrne
for these services in 2001.
James D. Johnson, our Senior Vice President, is a partner at Kilpatrick,
Stockton, which provides certain patent prosecution and certain other legal
services to us. We paid approximately $3,324,000 to Kilpatrick, Stockton for
these services in 2001. This amount represents less than 5% of Kilpatrick,
Stockton's total revenues for 2001.
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,
including any call for adjournment of 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.
18
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,
2001 (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,
2002 is expected to be held in June 2003 (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 17, 2003, 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 2, 2003. 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 and Chief Executive
Officer
May 17, 2002
19
EXHIBIT A
ENTREMED, INC.
2001 LONG-TERM INCENTIVE PLAN, AS AMENDED
1. PURPOSE AND TYPES OF AWARDS
The purpose of the 2001 Long-Term Incentive Plan ("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" means a corporation, partnership, business trust,
limited liability company or other form of business organization at least a
majority of the total combined voting power of all classes of stock or other
equity interests of which is owned by the Corporation, either directly or
indirectly, and any other entity designated by the Administrator in which the
Corporation has a significant interest.
(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.
(f) "Common Stock" shall mean shares of common stock of the
Corporation, $.01 par value.
(g) "Corporation" shall mean EntreMed, Inc. and any successor thereto.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "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
A-1
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.
(j) "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.
(k) "Participants" shall have the meaning set forth in Section 5.
(l) "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.
(m) "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
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.
(n) "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.
(o) "Ten-Percent Stockholder" shall mean a Participant 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 a Parent or Subsidiary of the Corporation.
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,
A-2
committee or committees hereinafter referred to as the "Administrator").
Notwithstanding the foregoing, the Administrator may delegate to the Chief
Executive Officer of the Corporation the power to administer this Plan and have
the full authority of the Administrator hereunder with respect to Awards granted
to specified Participants or groups of Participants.
(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(g)(i) 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, 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 Participant's employment or other relationship
with the Corporation or an Affiliate; 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.
A-3
(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 3,250,000 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 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)
and Section 7(g)(ii), the maximum number of shares of Common Stock subject to
Awards of any combination that may be granted during any three consecutive
calendar years of the Corporation (beginning in the calendar year of the
effective date of amendment number 1 to this Plan and not considering any years
prior thereto) to any one individual under this Plan shall be limited to
750,000.
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
A-4
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 Participant 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 Participant is to
receive a portion of such payment in shares of Common Stock, the number of
shares 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
Participant 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 Participant.
(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.
A-5
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.
(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. Participants 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 Participant 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 Participants to assist Participants 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 Participant 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 Participant, the Award may be exercised only by the Participant or,
during the period the Participant is under a legal disability, by the
Participant'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) Capital Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, split-up, stock split,
recapitalization, reclassification,
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combination or exchange of shares, merger, consolidation, liquidation or the
like, the Administrator may, in its discretion, provide for a substitution for
or adjustment in (i) the number and class of shares of Common Stock subject to
outstanding Awards, (ii) the exercise price of Stock Options and the base price
upon which payments under SARs are determined, (iii) the aggregate number and
class of Shares for which Awards thereafter may be made under this Plan, (iv)
the maximum number of shares of Common Stock with respect to which a Participant
may be granted Awards during the period specified in Section 4(b) hereof.
(g) Modification, Substitution of Awards.
(i) Subject to the terms and conditions of this Plan, the
Administrator may modify the terms of any outstanding Awards; provided, however,
that no modification of an Award shall, without the consent of the Participant,
alter or impair any of the Participant's rights or obligations under such Award.
(ii) Anything contained herein to the contrary
notwithstanding, Awards may, at the discretion of the Administrator, be granted
under this Plan in substitution for stock options and other awards covering
capital stock of another corporation which is merged into, consolidated with, or
all or a substantial portion of the property or stock of which is acquired by,
the Corporation or one of its Affiliates. The terms and conditions of the
substitute Awards so granted may vary from the terms and conditions set forth in
this Plan to such extent as the Administrator may deem appropriate in order to
conform, in whole or part, to the provisions of the awards in substitution for
which they are granted. Such substitute Awards granted hereunder shall not be
counted toward the limit imposed by Section 4(b) hereof, except to the extent it
is determined by the Administrator that counting such Awards is required in
order for Awards hereunder to be eligible to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
(h) Foreign Employees. Without amendment of this Plan, the
Administrator may grant Awards to Participants who are subject to the laws of
foreign countries or jurisdictions on such terms and conditions different from
those specified in this Plan as may in the judgement of the Administrator be
necessary or desirable to foster and promote achievement of the purposes of this
Plan. The Administrator may make such modifications, amendments, procedures,
sub-plans and the like as may be necessary or advisable to comply with
provisions of laws of other countries or jurisdictions in which the Corporation
or any of its Affiliates operate or have employees.
(i) Termination, Amendment and Modification of the Plan. The Board may
amend, alter or terminate the Plan, or portion thereof, at any time.
(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.
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(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 Participant or any other
person. To the extent that any Participant 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 May
14, 2001, the date on which the 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 May 14, 2011. 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.
Approved by the Stockholders: June 15, 2001
Date Amendment No. 1 Approved by Stockholders: June ____, 2002
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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 Gaithersburg Marriott Washington Center, 9751 Washingtonian
Boulevard, Gaithersburg, Maryland 20878 on June 6, 2002, 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)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
ENTREMED, INC.
JUNE 6, 2002
\/ Please Detach and Mail in the Envelope Provided \/
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|
PLEASE MARK YOUR [X] |
VOTES AS IN THIS |_____
EXAMPLE.
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked To vote for all nominees
to the contrary below) listed at right
1. Election of [ ] [ ] NOMINEES: TERMS EXPIRING 2005
Directors Jerry Finkelstein
Mark C.M. Randall
(INSTRUCTION: To withhold authority to vote for Jennie C. Hunter-Cevera
any individual nominee, print that nominee's name
on the line provided below.)
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FOR ABSTAIN AGAINST
2. Approval of an amendment to the Company's Amended and Restated Certificate of
Incorporation described in the accompanying proxy statement. [ ] [ ] [ ]
3. Approval of amendments to the Company's 2001 Long-Term Incentive Plan described in the
accompanying proxy statement. [ ] [ ] [ ]
4. Ratification of the appointment of Ernst & Young LLP as independent auditors for the Company. [ ] [ ] [ ]
5. In their discretion upon such other business as may properly come before the meeting,
including any call for adjournment thereof.
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 THE AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION, FOR THE APPROVAL OF THE AMENDMENTS TO THE 2001 LONG-TERM INCENTIVE PLAN, AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
Signature DATED ,2002
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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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