Document:

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EXHIBIT 4.1A

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, ANY STATE
SECURITIES LAWS OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED BY THE HOLDER IN THE UNITED STATES OR TO U.S. PERSONS IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE NOTE UNDER SUCH ACT AND SUCH
APPLICABLE STATE LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

                                                                                                    

MetaMorphix, Inc.

	 	 	 
	No.                     

	 	$                    
	Date:
	 	 

CONVERTIBLE SECURED PROMISSORY NOTE

     MetaMorphix, Inc., a Delaware corporation (the “Company”), the principal office of
which is located at 8510 Corridor Road, Savage, Maryland 20763, for value received, hereby
promises to pay to the order of ___, or his or her registered assigns
(the “Holder”), at ___, the sum of
___ Dollars ($___) (the “Principal Amount”), together with
interest on the unpaid principal balance of this Note from time to time outstanding until such
principal amount is paid in full, such interest to be due and payable as set forth herein. The
principal amount, and any unpaid accrued interest hereon, shall be due and payable on November 14,
2008 (the “Maturity Date”), or such earlier date of prepayment. Payment for all amounts
due under this Note shall be made by mail to the registered address of the Holder. Each payment by
the Company pursuant to this Note shall be made without set-off or counterclaim and shall be made
in lawful currency of the United States of America and in immediately available funds

     This Note is one of an issue of the Company’s Convertible Secured Promissory Notes in the
aggregate principal amount of up to $5,000,000 (the “Notes”) issued in a private placement
(the “Placement”) pursuant to a subscription agreement between the Company and the Holder
(the “Subscription Agreement”), a copy of which agreement is available for inspection at
the Company’s principal office. Notwithstanding any provision to the contrary contained herein,
this Note is subject and entitled to those terms, conditions, covenants and agreements contained in
the Subscription Agreement that are expressly applicable to the Notes. Any transferee of this
Note, by its acceptance hereof, assumes the obligations of the Holder in the Subscription Agreement
with respect to the conditions and procedures for transfer of this Note.

     The Company waives presentment, demand, protest or notice of any kind in connection with this
Note.

     The following is a statement of the rights of the Holder of this Note and the conditions to
which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

     1. Interest.

 

 

          (A) Interest Rate. The Company shall pay simple interest on the Principal Amount
outstanding from time to time at the rate of twelve and one-half percent (12.5%) per annum. All
computations of interest hereunder shall be made based on the actual number of days elapsed in a
year of 365 days (including the first day but excluding the last day during which any such
Principal Amount is outstanding).

          (B) Payment. Interest on this Note shall be payable annually on each anniversary of
the initial issuance date of the Notes (or earlier upon conversion or prepayment) in cash or in
additional identical notes. The method of interest payment shall be at the option of the Company.

          (C) Liquidation Premium. In the event the Company liquidates or dissolves,
consolidates with, or merges into or with (other than any wholly-owned subsidiary merging with
another wholly-owned subsidiary or with the Company), or sells substantially all of its assets
(each, a “Trigger Event”), the Holder shall be entitled to a premium equal to the amount by
which 200% of the Principal Amount exceeds the total interest payments previously made to the
Holder (the “Liquidation Premium”). The Liquidation Premium shall be payable in cash or, in
the case of a merger or consolidation, stock of the surviving entity, after (i) payment in full of
the Principal Amount, accrued interest and Prepayment Premium (as defined in Section 2 hereof) on
the Notes and (ii) any liquidation preferences payable on the Company’s currently outstanding
preferred stock. The Liquidation Premium shall be payable if while this Note is outstanding or at
any time within 120 days after the Note has been prepaid pursuant to Section 2 hereof, the Company
enters into a definitive agreement which contemplates a Trigger Event. The purpose of this Section
1(C) is to provide the Holders of the Notes with a 300% return on their investment, inclusive of
interest.

     2. Prepayment. The Principal Amount may be prepaid in whole or in part at any time
upon fifteen (15) days’ prior written notice to the Holder (a “Prepayment Notice”). In the
event the Company determines to prepay this Note it shall pay to the Holder, in lieu of accrued
interest, a premium equal to the amount by which sixty-two and one-half percent (62.5%) of the
outstanding Principal Amount exceeds the total interest payments previously made to the Holder (the
“Prepayment Premium”). This prepayment provision shall not be utilized by the Company to
circumvent the payment of the Liquidation Premium and other amounts payable pursuant to Section
1(C) above.

     3. Conversion of Note.

          (A) Optional Conversion. The Holder shall have the right, at its option, at any time
prior to the Maturity Date, to convert all or any portion of the outstanding Principal Amount plus
any accrued but unpaid interest into shares of the Company’s common stock at a conversion price
equal to $4.00 per share (the “Conversion Price”). Notwithstanding anything to the contrary
contained herein, the Holder may exercise its right of conversion hereunder after receipt of a
Prepayment Notice and prior to the date set for prepayment.

          (B) Automatic Conversion. The Company shall have the right to force conversion of
outstanding Principal Amount into shares of the Company’s common stock at the Conversion Price upon
consummation of its initial public offering of securities (the “IPO”). The

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date of any such conversion shall be deemed the date of the closing of the IPO. As of 5:00
p.m. on the date prior to the date of conversion under this Section 3(B), the Note shall cease to
accrue interest and thereafter shall solely represent the right to receive Conversion Shares (as
defined below) and interest which has previously accrued. The shares of Common Stock to be issued
upon such conversion in accordance with Section 3A or 3B hereof are herein referred to as the
“Conversion Shares.”

          (C) Adjustment of Conversion Price.

          (i) In case the Company shall hereafter (a) declare a dividend or make a distribution
on its outstanding shares of Common Stock in shares of Common Stock, (b) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of shares, or (c)
combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect at the time of such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the Conversion Price by a fraction,
the denominator of which shall be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.

          (ii) In case the Company shall hereafter issue any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock to a person
(except (a) pursuant to Subsection (i) above; (b) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof; or (c) issuances up to $15
million in principal amount of convertible promissory notes similar to the Notes having a
conversion price less than the Conversion Price) for a consideration per share or having an
exercise, conversion or exchange price (the “Offer Price”) less than the Conversion
Price in effect at the time of such issuance), then the Conversion Price shall be
immediately reset to such lower Offer Price. Upon written request by the Holder and delivery
of this Note, the Company shall promptly issue a revised Note in substitution of this Note,
which revised note shall include such reset Conversion Price.

          (D) Mechanics of Conversion.

          (i) Before the Holder shall be entitled to convert this Note into Conversion Shares in
accordance with Section 3A, the Holder shall surrender this Note at the office of the
Company, and shall give written notice to the Company at its principal corporate office, of
the election to convert the same and shall state therein the name or names in which the
certificate or certificates for the Conversion Shares are to be issued. The Company shall,
as soon as practicable thereafter, issue and deliver to the Holder a certificate or
certificates for the number of Conversion Shares to which the Holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the Note to be converted, and the Holder shall
be treated for all purposes as the record holder of such shares of Common Stock as of such
date. In the event of a conversion of less than the

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total Principal Amount, the Company shall, as soon as practicable thereafter, issue and
deliver to the Holder a new Note for the remaining Principal Amount.

          (ii) In the event of a conversion pursuant to the provisions of Section 3B hereof, the
Company shall deliver to the Holder at its address appearing on the records of the Company a
written notice of the imminent conversion of this Note (the “Conversion Notice”),
requesting surrender of this Note for cancellation and written instructions regarding the
registration and delivery of certificates for the Conversion Shares. In the event the
Holder receives a Conversion Notice, the Holder shall be required to surrender this Note for
cancellation within seven business days of the Conversion Notice (the “Conversion
Date”), but the failure of the Holder so to surrender this Note shall not affect the
conversion of the outstanding Principal Amount into Conversion Shares, provided that if the
Note is not surrendered, an affidavit of lost note shall be provided. No holder of this
Note shall be entitled upon conversion of this Note to have the Conversion Shares registered
in the name of another person or entity without first complying with all applicable
restrictions on the transfer of this Note. In the event the Holder does not provide the
Company with written instructions regarding the registration and delivery of certificates
for the Conversion Shares, the Company shall issue such shares in the name of the Holder and
shall forward such certificates to the Holder at its address appearing on the records of the
Company. The person entitled to receive the Conversion Shares shall be deemed to have
become the holder of record of such shares at the close of business on the Conversion Date
and the person entitled to receive share certificates for the Conversion Shares shall be
regarded for all corporate purposes after the Conversion Date as the record holder of the
number of Conversion Shares to which it is entitled upon the conversion. The Company may
rely on record ownership of this Note for all corporate purposes, notwithstanding any
contrary notice. After the Conversion Date, this Note shall, until surrendered to the
Company, represent the right to receive the Conversion Shares; provided, however, that the
Company shall have no obligation to issue the Conversion Shares until the Holder has
delivered either this Note or an affidavit of loss.

     4. Grant of Security Interest. The Company’s obligations under the Notes are secured
by a junior lien in all of the Company’s assets pursuant to a security agreement dated as of
November 14, 2003 (the “Security Agreement”) entered into between the Company and Maroon
Bells LLC as agent for the Holder.

     5. Covenants of Company.

          (A) Affirmative Covenants. The Company covenants and agrees that, so long as this
Note shall be outstanding, it will perform the obligations set forth in this Section 5A:

               (i) Taxes and Levies. The Company will promptly pay and discharge all material taxes,
assessments, and governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become delinquent; provided,
however, that the Company shall not be required to pay and discharge any such tax,
assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith
by appropriate proceedings and the Company shall set aside on its books adequate

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reserves in accordance with generally accepted accounting principles (“GAAP”) with
respect to any such tax, assessment, charge, levy or claim so contested.

               (ii) Maintenance of Existence. The Company will do or cause to be done all things
reasonably necessary to preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all laws applicable to the Company, except where the failure to
comply would not have a material adverse effect on the Company or otherwise in connection with an
acquisition of the Company.

               (iii) Books and Records. The Company will at all times keep true and correct books,
records and accounts reflecting all of its business affairs and transactions in accordance with
GAAP.

               (iv) Notice of Certain Events. The Company will give prompt written notice (with a
description in reasonable detail) to the Payee of the occurrence of any Event of Default or any
event which, with the giving of notice or the lapse of time, would constitute an Event of Default.

               (v) Reservation of Shares. The Company will at all times reserve and keep available
out of its authorized capital stock such number of shares of Common Stock as may be required for
issuance upon conversion of the Notes.

               (vi) Information. The Company will forward to the Holder promptly, from time to time,
such other information regarding the business, prospects, financial condition, operations, property
or affairs of the Company as (A) the Company is required to forward such information to any holder
of indebtedness which is senior in priority to the Notes (“Senior Indebtedness”), and (B)
to the extent the Holders of not less than a majority in Principal Amount of the Notes then
outstanding may reasonably request in writing, both subject to the Holder’s execution of a
confidentiality agreement in the form provided by the Company.

               (vii) Notice of Trigger Event. The Company shall provide to each Holder not less than
thirty (30) days prior written notice of any Trigger Event, which notice shall also contain the
material terms and conditions of the Trigger Event.

          (B) Negative Covenants. The Company covenants and agrees that, so long as this Note
shall be outstanding, it will perform the obligations set forth in this Section 5B:

               (i) Sale of Assets, Merger, Dissolution, Consolidation. The Company will not
liquidate, dissolve, consolidate with, merge into or with (other than any wholly-owned subsidiary
of the Company merging with another wholly-owned subsidiary of the Company or with the Company),
sell, transfer or otherwise dispose of all or substantially all of its properties or assets to any
person or entity unless the Principal Amount, accrued interest and Prepayment Premium on this Note
is repaid in full prior to or in connection with such transaction and the Company shall have
sufficient funds to pay the Liquidation Premium in accordance with Section 1(C) of this Note;
provided that this clause (i) shall not restrict any disposition made in the
ordinary course of business and consisting of (a) capital goods which are obsolete or have no
remaining useful life; or (b) finished goods inventories.

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               (ii) Dividends. The Company will not declare or pay any dividends or distributions on
its outstanding capital stock other than as provided for in any certificates of designation with
respect to shares of preferred stock outstanding on the original issuance date of the Notes.

               (iii) Loans to Executives. The Company will not, and will not permit any of its
Subsidiaries to, make any loan to any executive officer or any person who is or becomes a holder of
5% of the capital stock of the Company, other than for reasonable advances for expenses in the
ordinary course of business.

     6. Events of Default. If any of the events specified in this Section 6 shall occur
(herein individually referred to as an “Event of Default”), the Holder of the Note may, so
long as such condition exists, declare the entire principal and unpaid accrued interest thereon
immediately due and payable, by notice in writing to the Company:

          (A) Default in the payment of the Principal Amount, accrued interest or Premium on this Note
when due and payable if such default is not cured by the Company within fifteen (15) days after the
Holder has given the Company written notice of such default; or

          (B) The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent,
or the consent by it to institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or release under the United
States Bankruptcy Code, or any other applicable federal or state law, or the consent by it to the
filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee, or
other similar official of the Company, or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the taking of corporate action by the Company
in furtherance of any such action; or

          (C) If, within sixty (60) days after the commencement of an action against the Company (and
service of process in connection therewith on the Company) seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution, or similar relief under any present or future statute,
law, or regulation, such action shall not have been resolved in favor of the Company or all orders
or proceedings thereunder affecting the operations or the business of the Company stayed, or if the
stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days
after the appointment without the consent or acquiescence of the Company of any trustee, receiver,
or liquidator of the Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.

          (D) The Company shall default in any material respect in the due observance or performance of
any covenant set forth in Section 5, which default shall continue uncured for fifteen (15) days.

          (E) The Company shall be in default on any Senior Indebtedness in the aggregate principal
amount of at least $1,000,000 and such default is not cured in accordance with the provisions of
the instrument governing such Senior Indebtedness.

     In any such event, the Holder, upon written notice to the Company, may accelerate the payment
of principal and interest due under the Note and may exercise any and all remedies

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available thereto at law or equity. Notwithstanding the foregoing, Holders of note less than
66 2/3% in Principal Amount of the Notes then outstanding (the “Required
Holders”) at the time of any of the foregoing Event of Default shall have the right to waive
any such Event of Default, except that no such waiver shall be deemed a waiver of an Event of
Default with respect to the non-payment of principal or interest hereunder with respect to a
non-waiving Holder.

     7. Assignment. Subject to the restrictions on transfer described in Section 8 below,
the rights and obligations of the Company and the Holder of this Note shall be binding upon and
benefit the successors, assigns, heirs, personal and legal representatives, and transferees of the
parties. Furthermore, (A) the Company may not assign this Note except upon a sale of all or
substantially all of its assets and (B) the Holder may only assign this Note to a person or entity
that is (i) an accredited investor under applicable securities laws and (ii) either another holder
of a substantially similar promissory note by the Company or a person or entity reasonably
acceptable to the Company.

     8. Transfer of this Note. With respect to any offer, sale or other disposition of
this Note, the Holder will give written notice to the Company prior thereto, describing briefly the
proposed manner thereof, together with a written opinion of such Holder’s counsel in form and
substance satisfactory to the Company, to the effect that such offer, sale, or other disposition
may be effected without registration or qualification (under any U.S. federal or applicable state
securities law then in effect) and that the requirements of Section of this Note have been met.
Upon receiving such written notice and opinion, the Company, as promptly as practicable, shall
notify such Holder that such Holder may sell or otherwise dispose of this Note, all in accordance
with the terms of the notice delivered to the Company. If a determination has been made pursuant
to this Section 8 that the opinion of counsel for the Holder is not reasonably satisfactory to the
Company, the Company shall so notify the Holder promptly after such determination has been made.
Each Note transferred as permitted hereby shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act of 1933, as amended (the
“Act”), unless in the opinion of counsel for the Company such legend is not required in
order to ensure compliance with the Act. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.

     9. Registered Holder. The Company may consider and treat the person in whose name
this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or
not this Note shall be overdue) and the Company shall not be affected by any notice to the
contrary. In case of transfer of this Note by operation of law, the transferee agrees to notify
the Company of such transfer and of its address, and to submit appropriate evidence regarding such
transfer so that this Note may be registered in the name of the transferee. This Note is
transferable only on the books of the Company by the Holder hereof, in person or by attorney, on
the surrender hereof, duly endorsed. Communications sent to any registered owner shall be
effective as against all Holders or transferees of the Note not registered at the time of sending
the communication.

     10. Amendments and Waivers. The provisions of this Note, including, but not limited
to, any waiver of the restrictive covenants or anti-dilution provisions or change to the conversion
price, may from time to time be amended, modified or waived, if such amendment, modification or
waiver is in writing and consented to by the Company and the Required Holders; provided,

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however, that no such amendment, modification or waiver which would (i) modify this Section
10, (ii) extend the Maturity Date for more than 90 days, or (iii) reduce the Principal Amount
payable hereunder shall be made without the consent of the Holder of each Note so affected. After
any waiver or amendment becomes effective, the Company shall mail to the Holder a copy thereof.

     11. Treatment of Note. As envisioned by generally accepted accounting principles, the
Company will treat, account, and report the Note as debt and not equity for accounting purposes and
with respect to any returns filed with federal, state, or local tax authorities.

     12. Notices. Any notice, request, or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if personally delivered,
or if mailed by registered or certified mail, postage prepaid, or if delivered by nationally
recognized overnight delivery service at the respective addresses of the parties as set forth
herein. Any party hereto may by notice so given change its address for future notice hereunder.

     13. No Stockholder Rights. Nothing contained in this Note shall be construed as
conferring upon the Holder or any other person the right to vote or to consent or to receive notice
as a stockholder in respect of meetings of stockholders for the election of directors of the
Company or any other matters or any rights whatsoever as a stockholder of the Company; and no
dividends shall be payable or accrued in respect of this Note.

     14. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, excluding that body of law relating to conflict of laws.

     15. Registration Rights. The Holder of this Note (including any valid transferee or
assignee) shall be entitled to the registration rights for the Conversion Shares provided under
the Subscription Agreement entered into between the Company and the original Holder of this Note.

     IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by a duly
authorized officer.

	 	 	 	 	 
	ATTEST:	 	MetaMorphix, Inc.
	 
	 	 	 	 
	

	 	By:	 	 
	 

	 	 	 	 
	Michael R. N. Thomas	 	Edwin C. Quattlebaum, Ph.D.
	Vice President, Chief Financial Officer and Treasurer	 	President and Chief Executive Officer

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EXHIBIT 4.1B

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) SHALL HAVE BECOME
EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN
EXCHANGE FOR THIS WARRANT OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.

WARRANT TO PURCHASE COMMON STOCK

OF

METAMORPHIX, INC.

No. W-___

     This is to certify that for value received,                      (the “Original Holder”),
or its assigns (together, the “Holder”), is entitled to purchase, subject to the provisions
of this Warrant, from MetaMorphix, Inc., a Delaware corporation with offices at 8510 Corridor Road,
Savage, Maryland 20763 (the “Company”),                      fully paid, validly issued and
nonassessable shares of common stock of the Company (the “Common Stock”). This Warrant is
one of a series of warrants (collectively, the “Warrants”) originally issued in connection
with a private placement (the “Private Placement”) of up to $5,000,000 principal amount of
the Company’s Series A 12.5% Convertible Promissory Notes (the “Notes”).

     A. DATE OF ISSUANCE/EXERCISE PERIOD. This Warrant shall be deemed to be issued as of November
14, 2003 (the “Date of Issuance”). This Warrant shall be exercisable at any time or from
time to time during the period commencing on the Date of Issuance through the ten year anniversary
date of the Date of Issuance (“Termination Date”). The period from the Date of Issuance
through the Termination Date is herein referred to as the “Exercise Period.”

     B. EXERCISE PRICE. The exercise price of this Warrant shall be $6.00 per share. The exercise
price in effect at any time and as adjusted from time to time is hereinafter sometimes referred to
as the “Exercise Price.” The shares of Common Stock deliverable upon such exercise, as
adjusted from time to time, are hereinafter sometimes referred to as “Warrant Shares.”

     C. METHOD OF EXERCISE.

          1. Cash. This Warrant may be exercised in whole or in part at any time or from time to
time during the Exercise Period; provided, however, that if the Termination Date is a day on which
banking institutions in the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day. This Warrant may be exercised by presentation and
surrender hereof to the Company at its principal office with the Purchase Form

 

 

annexed hereto duly executed and accompanied by payment of the Exercise Price for the number
of Warrant Shares specified in such form (unless the Warrant is being exercised on a “cashless
basis” as provided in Section C.2. below). The Company shall use its good faith efforts to
deliver a certificate or certificates representing the Warrant Shares to the Holder within seven
(7) days after each such exercise of the Warrant and following the receipt of good and available
funds registered in the name of the Holder or, subject to applicable securities laws, its designee.
If this Warrant should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of
this Warrant at its office in proper form for exercise, together with a duly executed Purchase Form
and payment of the Exercise Price for the number of Warrant Shares specified in such Purchase Form,
the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or
that certificates representing such shares of Common Stock shall not then be physically delivered
to the Holder.

          2. Cashless. Provided there is a current market price for the Common Stock as
provided in Sections E.1. or E.2. below, the Holder may, at its option, exercise this
Warrant at any time during the Exercise Period on a “cashless” basis by exchanging this Warrant, in
whole or in part, into the number of Warrant Shares determined in accordance with this Section
C.2., by surrendering this Warrant at the principal office of the Company or at the office of
its stock transfer agent, accompanied by a notice of cashless election. In such event, the Company
shall issue the Holder a number of shares of Common Stock computed using the following formula:

     X = Y(A-B)/A

     where:

     X = the number of shares of Common Stock to be issued to Holder.

     Y = the number of shares of Common Stock for which this Warrant is being exercised.

A = the current market value of one (1) share of Common Stock. Current market value shall
have the meaning set forth Section E. below, except that for purposes hereof, the
date of exercise, as used in such Section E., shall mean the date the cashless
exercise notice is received by the Company.

     B = Exercise Price

     D. RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery
upon exercise of this Warrant such number of shares of its Common Stock as shall be required for
issuance and delivery upon exercise of the Warrants.

     E. FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon
any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:

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          1. Exchange or Nasdaq. If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed for trading on The
Nasdaq Stock Market, Inc. (“Nasdaq”), the current market value shall be the closing price
of the Common Stock on such exchange or market on such trading day or if no such sale is made on
such day, the average closing bid and asked prices for such day on such exchange or market; or

          2. Bulletin Board. If the Common Stock is not so listed or traded, the current market
value shall be the mean of the last reported bid and asked prices reported by the NASD Electronic
Bulletin Board (or its successor) on the last business day prior to the date of the exercise of
this Warrant; or

          3. Other. If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market value shall be an
amount determined in such reasonable manner as may be prescribed by the Board of Directors of the
Company.

     F. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at
the office of its stock transfer agent, if any, for other warrants of different denominations
entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office or at
the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, if any, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation hereof at the principal office of
the Company or at the office of its stock transfer agent, if any, together with a written notice
specifying the names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term “Warrant” as used herein includes any Warrants into which this Warrant may
be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and date.

     G. RIGHTS OF THE HOLDER. The Holder shall not, by virtue of being a holder of this Warrant,
be entitled to any rights of a shareholder in the Company, either at law or equity, except as
provided herein, and the rights of the Holder are limited to those expressed in the Warrant and are
not enforceable against the Company except to the extent set forth herein.

     H. ADJUSTMENT PROVISIONS. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time
to time upon the happening of certain events as follows:

          1. Stock Dividend; Reclassification. In case the Company shall hereafter (i) declare a
dividend or make a distribution on its outstanding shares of Common Stock in shares of

3

 

Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall occur.

               2. Anti-Dilution. In case the Company shall hereafter issue any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common Stock to any person
(other than (i) issuances pursuant to Section H.1. above; (ii) issuances pursuant to
options, warrants or other obligations to issue shares outstanding on the date hereof; or (iii) the
issuance of up to $15,000,000 in principal amount of convertible promissory notes similar to the
Notes having a conversion price less than the Exercise Price) for a consideration per share or
having an exercise, conversion or exchange price (the “Offer Price”) less than the Exercise
Price in effect at the time of such issuance, then the Exercise Price shall be immediately reset to
such lower Offer Price.

               3. Distributions. If the Company shall at any time distribute to its common
shareholders cash, evidences of indebtedness or other securities or assets (other than cash
dividends or distributions payable out of earned surplus or net profits for the current or
preceding year) then, in any such case, the Holder shall be entitled to receive, upon exercise of
this Warrant, with respect to each share of Common Stock issuable upon such exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such Holder would have been
entitled to receive with respect to each such share of Common Stock as a result of the happening of
such event had this Warrant been exercised immediately prior to the record date or other date
fixing shareholders to be affected by such event (the “Determination Date”) or, in lieu
thereof, if the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise Price on the
Determination Date by a fraction, the numerator of which is the result of such Exercise Price
reduced by the value of such distribution applicable to one share of Common Stock (such value to be
determined by the Board of Directors in its discretion) and the denominator of which is the
Exercise Price.

               4. Warrant Shares Adjustment. Whenever the Exercise Price payable upon exercise of
each Warrant is adjusted pursuant to this Section H, the number of Warrant Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the
number of Warrant Shares initially issuable upon exercise of this Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted.

               5. Minimum Adjustment. No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least one cent ($0.01) in such price;
provided, however, that any adjustments which by reason of this Section

4

 

H.5. are not required to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder.

               6. Continuing Adjustment. In the event that at any time, as a result of an adjustment
made pursuant to Section H, the Holder of this Warrant thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the number of such other
shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Sections H.1. — H.5., inclusive above.

               7. Adjusted Warrant. Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of shares as are
stated in the similar Warrants initially issuable pursuant to this Agreement. Upon written request
by the Holder, the Company shall promptly issue a revised warrant in substitution of this Warrant,
which revised warrant shall include such reset Exercise Price.

     I. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (1) if the
Company shall pay any dividend or make any distribution upon the Common Stock (whether in cash or
Common Stock), or (2) if the Company shall offer to the holders of Common Stock for subscription or
purchase by them any share of any class or any other rights, or (3) if any capital reorganization
of the Company, reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or substantially all
of the property and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the
Company shall cause to be mailed by certified mail to the Holder, at least fifteen (15) days prior
the date specified in (x) or (y) below, as the case may be, a notice containing a brief description
of the proposed action and stating the date on which (x) a record is to be taken for the purpose of
such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation,
merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.

     J. CONSOLIDATION OR MERGER. If the Company shall at any time consolidate or merge with any
other corporation or transfer all or substantially all of its assets, then the Company shall
deliver written notice to the Holder of such merger, consolidation, or sale of assets at least
thirty (30) days prior to the closing of such merger, consolidation, or sale of assets. Such
written notice shall include a description of the material terms of the consolidation, merger or
sale of assets including, without limitation, any cash, assets or other rights to be delivered to
holders of the Company’s Common Stock in connection with such merger, consolidation or sale. This
Warrant shall terminate and expire concurrently with the closing of such merger, consolidation, or
sale of assets.

     K. REGISTRATION RIGHTS. The holders of the Warrants and the Warrant Shares or their
transferees shall have the registration rights set forth in Article IV of the Subscription

5

 

Agreement between the Original Holder and the Company entered into in connection with the
Private Placement (the “Subscription Agreement”), the provisions of which are incorporated
by reference herein in their entirety. In addition, the Subscription Agreement contains certain
restrictions, including “lock up” provisions on the transfer and sale of this Warrant and the
Warrant Shares which are binding upon the Holder hereof.

     L. REDEMPTION.

          1. On not less than thirty (30) days’ written notice (the “Redemption Notice”) to the
registered holders of the Warrants (the “Registered Holders”), the Warrants may be
redeemed, at the option of the Company, at a price of $.01 per Warrant (the “Call Price”),
provided (i) the market price of a share of the Company’s Common Stock (determined in accordance
with Section E.1. or E.2. hereof) shall exceed 300% of the Exercise Price for the 30
consecutive trading days ending on the fifth trading day prior to the date of the Redemption
Notice, (ii) the Common Stock is traded on a national securities exchange or Nasdaq, (iii) the
Warrant Shares have been registered for resale under the Securities Act or are otherwise freely
salable in the public market pursuant to Rule 144(k), and (iv) the Warrants are then exercisable.

          2. If the conditions set forth in Section L.1. are met, and the Company desires to
exercise its right to redeem the Warrants, it shall mail a Redemption Notice to each of the
Registered Holders, first class, postage prepaid, not later than the thirtieth (30th) day before
the date fixed for redemption, at their last address as shall appear on the Company’s records. Any
notice mailed in the manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.

          3. The Redemption Notice shall specify (i) the Call Price, (ii) the date fixed for redemption
(the “Redemption Date”), (iii) the place where the Warrant Certificates shall be delivered
and the Call Price paid, and (iv) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder (a) to whom notice was not mailed
or (b) whose notice was defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.

          4. Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York time) on the
business day immediately preceding the Redemption Date. On and after the Redemption Date, the
Registered Holders shall have no further rights except to receive, upon surrender of the Warrant,
the Call Price.

          5. From and after the Redemption Date, the Company shall, at the place specified in the
Redemption Notice, upon presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Registered Holder a sum in cash equal to
the Call Price of each such Warrant. From and after the Redemption Date and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and

6

 

all rights hereunder and under the Warrant Certificates, except the right to receive payment
of the Call Price, shall cease.

     M. MODIFICATION OF AGREEMENT. The provisions of this Warrant (including, but not limited to,
the anti-dilution provisions contained herein) may from time to time be amended, modified or
waived, if such amendment, modification or waiver is applicable to all of the outstanding Warrants
of the Company and is in writing and consented to by the Company and the holders of at least
sixty-six and two/thirds of the outstanding Warrants and such amendment, modification or waiver
shall be binding upon the holder of this Warrant (and any assignee thereof) regardless of whether
the Holder consented to such amendment, modification or waiver; provided that nothing shall prevent
the Company and a registered holder from consenting to modifications to this Warrant which affect
or are applicable to such registered Holder only.

     N. SECURITIES LAWS. Upon any issuance of Warrant Shares upon exercise of this Warrant, the
Company will be required to comply with the requirements of (1) the Securities Act, (2) the
Securities Exchange At of 1934, as amended, (3) any applicable listing requirements of any national
securities exchange, (4) any state securities regulation or “Blue Sky” laws, and (5) requirements
under any other law or regulation applicable to the issuance or transfer of such shares. If
required by the Company, in connection with each issuance of Warrant Shares upon exercise of this
Warrant, the Holder will give (x) assurances in writing, satisfactory to the Company, that such
shares are not being purchased with a view to the distribution thereof in violation of applicable
laws, (y) sufficient representations, warranties and information, in writing, to enable the Company
to rely on exemptions from the registration or qualification requirements of applicable laws, if
available, with respect to such exercise, and (z) the Holder’s cooperation to the Company in
connection with such compliance.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its duly
authorized officers.

	 	 	 	 	 
	 	METAMORPHIX, INC.

 	 
	 	By:  	 	 
	 	 	Edwin C. Quattlebaum, Chairman, President and Chief Executive Officer 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Michael R. N. Thomas,  Vice President, 	 
	 	 	Chief Financial Officer and Treasurer 	 
	 

Dated: November 14, 2003

7

 

PURCHASE FORM

Dated:                                         

     1. The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of
purchasing            shares of Common Stock of MetaMorphix, Inc. (or such number of shares of
Common Stock or other securities or property to which the undersigned is entitled in lieu thereof
or in addition thereto under the provisions of the Warrant).

     2. The undersigned elects to exercise the within Warrant on a cashless basis pursuant to the
provisions of Section C.2. of the Warrant by checking below:

                               check if cashless exercise; or

     3. The undersigned encloses herewith a bank draft, certified check or money order payable to
the Company in payment of the exercise price determined under, and on the terms specified in, the
Warrant.

     4. The undersigned hereby irrevocably directs that the said shares be issued and delivered as
follows:

	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Name(s) in Full	 	 	Address(es)	 	 	Number of Shares	 	 	S.S. or IRS #	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 

                                                                                

Signature of Subscriber

                                                                                

Print Name

 

 

ASSIGNMENT FORM

     FOR VALUE RECEIVED,                                                                 
        
           hereby sells, assigns and transfers
unto

Name                                                                                                                                                                 

(Please typewrite or print in block letters)

Address                                                                                                                                                                 

the right to purchase Common Stock represented by this Warrant to the extent of shares as
to which such right is exercisable and does hereby irrevocably
constitute and appoint ____ Attorney, to
transfer the same on the books of the Company with full power of substitution in the premises.

Date                                                             

Signatureexv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made as of the 1st day of January, 1998 by and
between METAMORPHIX, INC., a Delaware corporation (hereinafter referred to as the “Employer”) and
EDWIN C. QUATTLEBAUM, PH.D., a Maryland resident (hereinafter referred to as the “Employee”).

Explanatory Statement

     A. Employer desires to employ Employee as its Executive Vice President of Agriculture, in
accordance with the terms and conditions of this Agreement.

     B. Employee desires to serve in the employ of the Employer on a full-time basis subject
to the terms and conditions of this Agreement.

     C. Contemporaneously with the execution and delivery of this Agreement, Employer and Employee
have entered into an Incentive Stock Option Agreement (the “Stock Option Agreement”) and a
Non-Disclosure and Confidentiality Agreement (the “Confidentiality Agreement”).

Agreement

     NOW, THEREFORE, in consideration of the mutual covenants, promises, agreements,
representations, and warranties of Employer and Employee, each to the other made, the Explanatory
Statement which shall be deemed a substantial part hereof, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee
hereby covenant, promise, agree, represent, and warrant as follows:

     SECTION 1. EMPLOYMENT.

          1.1. Engagement of Employment. Employer hereby employs Employee, and Employee accepts
such employment, on an “at will” basis, as Employer’s Executive Vice President of Agriculture, as
of January 1, 1998, and Employee agrees to render such duties as are set forth in Section 1.2,
subject to the terms and conditions of this Agreement.

          1.2. Duties. During Employee’s employment under this Agreement, Employee shall render
to the best of Employee’s ability, on behalf of Employer, on an exclusive basis, and at the
direction of Employer’s Board of Directors, services as Employer’s Executive Vice President of
Agriculture, and such other duties as the Board of Directors shall direct. In particular, subject
to oversight and direction of the Board of Directors and the President, Employee shall:

 

 

          (a) identify, develop, and direct Employer’s agricultural business opportunities for
GDF-8 and other Growth in Differentiation Factors;

          (b) working with Employer’s Scientific Founder, Scientific Advisory Board, Research
Management Committee, and Chief Scientific Officer (or other officers), propose plans of
research (and related timetables, strategies, business plans, and budgets) to Employer’s
President and Board of Directors;

          (c) develop and negotiate strategic partnering and licensing agreements;

          (d) develop and oversee policies and procedures of confidentiality and
non-disclosure; and

          (e) coordinate patent-filing efforts.

Employee shall not pursue other employment, consulting, or professional endeavors except his
continued service upon the Board of Directors of Dominion BioScience and (until June 30, 1998) two
days each month as a consultant for such company. To the extent approved by Employer’s Board of
Directors in its sole discretion, Employee may serve from time-to-time upon additional Boards.

     SECTION 2. COMPENSATION.

          2.1. Annual Salary. Employer shall pay Employee (in addition to any benefits or
bonuses provided for in this Agreement) an annual salary (the “Annual Salary”), payable in
semi-monthly or other regular installments, and subject to customary payroll deductions in
accordance with the general practice of Employer. The Annual Salary shall be Two Hundred Thousand
Dollars ($200,000.00) per annum, subject to later adjustments as may be agreed upon between
Employer and Employee.

          2.2 Salary Review. Employer shall re-examine the Annual Salary after: (a) the
anticipated GDF-8 Agricultural Opportunity transgenic animal-focused Research and Development
contracts (in swine and chicken) and a GDF-8 Inhibitor Partnership have been established; (b)
Employer has received at least Ten Million Dollars ($10,000,000) in aggregate up-front payments
from strategic partnering and licensing agreements and/or from equity investments in Employer; and
(c) Employer has hired a full-time Chief Executive Officer. Upon any adjustment, the Bonus
Compensation provisions may be eliminated or modified.

          2.3. Bonus Compensation. In addition to the Annual Salary provided for by Section
2.1, subject to customary payroll deductions in accordance with the general practice of Employer,
Employer shall pay Employee additional compensation in the form of an annual bonus (the “Annual
Performance-Based Bonus”) as follows:

2

 

          (a) in January, 1998 and, thereafter, in December of each year during Employee’s
employment, Employee and Employer’s President shall establish challenging performance-based
goals relating to Employee’s and Employer’s performance over the following calendar year
(the “Performance Goals”). Employer shall pay Employee an Annual Performance-Based Bonus, in
cash, of up to twenty percent (20%) of the Annual Salary upon achieving (in the judgment of
the Board of Directors) all stated portions of the Performance Goals;

          (b) payment of the Annual Performance-Based Bonus earned with respect to a particular
calendar year shall be payable as of March 1 of the following year (or upon such later,
appropriate date if the applicable Performance Goals are based upon financial reports not
then received); and

          (c) if Employee is not employed by Employer as of December 31 of any calendar year
(except as set forth in Section 6) and/or if Employee is in default of any material term of
this Employment Agreement, then Employer may, in its sole discretion, discontinue or lessen
any and all payments attributable to the Annual Performance-Based Bonus.

     SECTION 3. BENEFITS. Employee shall be provided with at least such health,
dental, disability, life insurance, and other benefits as may be provided to other
comparable employees of Employer from time to time. Employee also shall be entitled to participate
in any retirement or pension plan identical or substantially similar to any plan that may be
offered to comparable employees of Employer. Employer, assuming insurability of Employee at
standard rates, will also provide Employee with term life insurance in the amount of Five Hundred
Thousand Dollars ($500,000) for the period that Employee is employed under this Agreement.

     SECTION 4. PERSONAL LEAVE AND HOLIDAYS.

          4.1. Personal Leave. Employee shall be entitled to “Personal Leave” during each
calendar year as set forth in this Section 4.1 and as follows: twenty (20) working days
during each twelve month period during which Employee is employed under this Agreement. Personal
Leave shall be used for all vacation, sick leave, personal leave, consulting and directorships (to
the extent permitted by Section 1), and any other time during which Employee is not required to
perform the duties set forth in Section 1. Employee shall take Employee’s Personal Leave at such
time or times in accordance with the policy of Employer so as not to disrupt the
Employer‘s operations. During Employee’s Personal Leave, the Annual Salary, and all
benefits paid and provided pursuant to this Agreement, shall be paid and provided in full. Unused
Personal Leave for any given year that has not been taken by Employee within such year may not be
carried over to the following year.

          4.2. Holidays. In addition to his Personal Leave, Employee shall be entitled to New
Year’s Day, President’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas,

3

 

and such other holidays as are recognized by Employer in accordance with applicable federal,
state, or local laws and as are offered to other comparable employees of Employer.

     SECTION 5. BUSINESS EXPENSES. Employee is authorized to incur reasonable expenses in
connection with Employee’s exercise of Employee’s duties under this Agreement. It is intended by
Employer and Employee that all such expenses shall be ordinary and necessary expenses incurred in
connection with the duties of Employee under this Agreement. Employer may establish guidelines
pertaining to Employee’s authorization to incur business expenses on behalf of Employer and
Employee agrees to comply with all Employer policies relating to the authorization and verification
of such expenses.

		
	SECTION 6. 	CONFIRMATION OF “AT WILL” EMPLOYMENT AND EMPLOYER’S
SEVERANCE PAY OBLIGATIONS.

          6.1. “At Will” Employment. Employee acknowledges and confirms that he is an “at will”
employee and that his employment, notwithstanding any provision of this Agreement, may be
terminated at any time, with or without cause.

          6.2 Severance Pay Obligations. In the event that Employer terminates the employment of
Employee without cause at any time prior to December 31, 2001 (i.e., the date upon which Employee
could become fully vested under the terms of his Stock Option Agreement):

          (a) in the event that Employer terminates Employee’s employment within the first three
(3) years of this Agreement, Employer shall continue to pay Employee, subject to customary
payroll deductions in accordance with the general practice of Employer, an amount equal to
Employee’s Annual Salary for six (6) additional months. After the third anniversary of this
Agreement, until December 31, 2001, this severance benefit shall be reduced to an amount
equal to Employee’s Annual Salary for three (3) additional months;

          (b) as set forth in the Stock Option Agreement, Employee shall become vested with
respect to any options scheduled to become vested during such six (6) or three (3) month
period, as applicable; and

          (c) Employer shall continue to provide benefits to Employee pursuant to this Agreement
during such six (6) or three (3) month period, as applicable.

For the purposes of this Section 6.2, the term “cause” shall include, but not be limited to:

          (x) fraud, misappropriation, or intentional material damage to the property or
business of Employer;

4

 

          (y) continuance of failure by Employee to perform his duties in compliance with this
Agreement provided that such “cause” shall have been found by a majority of the Employer’s
Board of Directors; or

          (z) a violation of the Non-Disclosure and Confidentiality Agreement to which Section 8
of this Agreement refers;

provided, however, that Employee’s employment shall not terminate for
“cause” under subsections (y) or (z) unless Employer has given Employee at least ten (10)
days prior written notice and the opportunity to cure within such ten-day period.

Upon a merger or sale of all or substantially all of Employer’s assets, Employee shall be due
severance pay in accordance with this Section unless the successor or purchaser corporation, as
the case may be, expressly assumes Employer’s obligations under this Employee Agreement and,
subject to reasonable modifications, Employee’s Stock Option Agreement and Employer’s title and
responsibilities are to remain substantially the same after such merger or purchase. In the event,
however, that Employer’s Board of Directors directs that Employer be dissolved and its assets
liquidated, no severance pay shall be due.

     SECTION 7. INCENTIVE STOCK OPTION AGREEMENT. Contemporaneously with this Agreement,
Employer has granted Employee the opportunity to purchase up to two hundred thirty-three thousand
one hundred (233,100) shares of Employer’s common stock pursuant to a Stock Option Agreement, the
form of which is attached hereto as Exhibit “A” and incorporated herein by reference, and
Employer‘s 1996 Employees’ Incentive Stock Option Plan; such number of shares
constituting up to three and one-half percent (3 1/2%) of Employer’s shares of
stock, both common and preferred, taking into effect the shares subject to Employee’s option.
Subject to the terms of the Stock Option Agreement and such Plan, Employee may be able to purchase
shares of Employer’s stock beginning upon January 1, 1999. The Stock Option Agreement shall not
obligate Employee to exercise his option to purchase stock of Employer and does not obligate
Employer to continue Employee’s employment.

     SECTION 8. NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENT.
Contemporaneously with this Agreement, Employer and Employee have entered into a
NonDisclosure and Confidentiality Agreement, the form of which is attached hereto as Exhibit
“B” and incorporated herein by reference.

     SECTION 9. CONSTRUCTION OF AGREEMENT: CHOICE OF LAW,
SEVERABILITY, AND NUMBER. The validity, legality, and construction of this Agreement
or of any of its provisions shall be determined under the laws of the State of Maryland, it being
agreed that this Agreement shall be deemed to have been made in the State of Maryland. If any
provision contained in this Agreement cannot be enforced to its fullest extent, then such
provision shall be enforced to the maximum extent permitted by law, and Employer and Employee
consent and agree that such provision may be judicially modified accordingly in any proceeding
brought to enforce such provision. The invalidity, illegality, or inability to enforce any
provision of this

5

 

Agreement shall not affect or limit the validity and enforceability of any other provision
hereof. Where context requires, the plural shall include the singular and vice versa.

     SECTION 10. NOTICES. All notices and communications hereunder shall be in writing and
shall be deemed given when sent postage prepaid by registered or certified mail, return receipt
requested, by hand delivery with a signed returned copy, or by delivery of a nationally recognized
overnight delivery service, and addressed as follows:

     If intended for Employer:

MetaMorphix, Inc.

1450 South Rolling Road

Baltimore, Maryland 21227

Attn: President

     with a copy to:

William E. Carlson, Esquire

Shapiro and Olander

2000 Charles Center South 36

South Charles Street

Baltimore, Maryland 21201

     If intended for Employee:

Edwin C. Quattlebaum, Ph.D.

141 Spa View Avenue Annapolis,

Maryland 21401

If, however, a party furnishes another party with notice of a change of address, as provided in
this Section, then all notices and communications thereafter shall be addressed as provided in such
notice.

     SECTION 11. ENTIRE AGREEMENT. This Agreement, which is the product of a negotiation
between Employer and Employee, the Stock Option Agreement, and the NonDisclosure and
Confidentiality Agreement contain the entire understanding between Employer and Employee with
respect to matters set forth herein and therein and supersedes all other oral and written
agreements or understandings between them with respect to matters set forth herein and therein. No
modification or addition hereto or waiver or cancellation of any provision shall be valid

6

 

except as provided in a writing signed by the party against whom such modification, addition,
waiver, or cancellation is being enforced.

     IN WITNESS WHEREOF, Employer and Employee have executed this Employment Agreement as of the
day and year first above written.

[SEAL]

	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	METAMORPHIX, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Frederick Cobb,

	 	 	 	By
	 	/s/ William E. Carlson	 	 
	 

	 	 	 	 	 	 	 	 
	Frederick Cobb, Treasurer

	 	 	 	 	 	William E. Carlson, President	 	 
	 
	 	 	 	 	 	 	 	 
	WITNESS:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	/s/ Edwin C. Quattlebaum	 	 
	 

	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	Edwin C. Quattlebaum, Ph.D.	 	 

7

 

EXHIBIT A

METAMORPHIX, INC.

Incentive Stock Option Agreement

     This Incentive Stock Option Agreement certifies that, pursuant to the MetaMorphix, Inc. 1996
Employee Incentive Stock Option Plan (the “Plan”), the Board has granted an option to purchase
shares of Common Stock of MetaMorphix, Inc. as stated below. Capitalized terms used herein and not
defined shall have the meaning ascribed to such terms in the Plan.

	 	 	 	 	 
	Optionee:	 	Edwin C. Quattlebaum, Ph.D.
	 
	 	 	 	 
	Optionee’s address:	 	141 Spa View Avenue
 Annapolis, Maryland 21401
	 
	 	 	 	 
	Social Security No.:	 	###-##-####
	 
	 	 	 	 
	Option Shares:	 	Up to 233,100 shares of Common Stock as follows: (i) 166,500 shares (the
“Initial Option Shares”) granted upon January 1, 1998, to vest in accordance with the
Summary Vesting Schedule below; and (ii) 66,600 shares (the “Supplemental Option
Shares”), hereby granted, but conditioned upon the event that, on or prior to July 1,
1998, the Company has received at least $10,000,000 in aggregate up-front payments
from strategic partnering and/or licensing agreements that are attributable, in the
sole judgment of the Board of Directors, to the Optionee’s efforts on behalf of the
Company. If the Company receives such aggregate up-front payments during the period
from July 1, 1998 through December 31, 2001, the Company shall reduce the grant of
Supplemental Option Shares by 1/42 (2.38%), or 1585.71 shares, for each month after
July 1, 1998 that the Company does not receive such payments. The Company shall not
grant any fractional shares. The Supplemental Option Shares shall vest in accordance
with the Summary Vesting Schedule below.
	 
	 	 	 	 
	Per Share Exercise Price:	 	$0.25 per share
	 
	 	 	 	 
	Grant Date:

	 	 	 	(i) Initial Option Shares: January 1, 1998
	 
	 	 	 	 
	

	 	 	 	(ii) Supplemental Option Shares: Date upon which the
conditions for granting such options have been
satisfied.

8

 

	 	 	 	 	 
	Expiration Date:

	 	(i)
	 	January 1, 2008
	 
	 	 	 	 
	

	 	(ii)
	 	The tenth
anniversary of the Grant Date of the Supplemental Option
Shares.
	 
	 	 	 	 
	Summary Vesting Schedule:	 	25%, or 41,625 Initial Option Shares, at January 1, 1999.
Thereafter in monthly installments over the following 36 months, as follows: 3,468
Initial Option Shares per month for the first 33 months and 3,477 Initial Option
Shares per month for the following 3 months.
	 
	 	 	 	 
	 	 	25%, or up to 16,650 Supplemental Option Shares, upon
satisfaction of the conditions for granting Supplemental
Option Shares and as may be adjusted pursuant to this
Agreement. Thereafter in monthly installments, to be
determined by the Company, through January 1, 2002.

METAMORPHIX, INC.

                                                                                

Dated: As of January 1, 1998                                                                                                                                                      

                                                                                

President

     The undersigned hereby accepts the foregoing option and agrees to the terms and conditions
thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 1996 Employee
Incentive Stock Option Plan and agrees to be bound by the terms of such Plan.

	 	 	 	 	 	 	 
	

	 	OPTIONEE
	 	=
	 	Edwin C. Quattlebaum, Ph.D.

9

 

Terms and Conditions of Incentive Stock Option Agreement

     1. Grant of Option. MetaMorphix, Inc., a Delaware corporation (the “Company”), hereby
grants to the Optionee, as of the applicable Grant Date, an option, pursuant to the Plan, to
purchase an aggregate number of shares (the “Option Shares”) of the Company’s common stock (the
“Common Stock”), at the Per Share Exercise Price, purchasable as set forth in and subject to the
terms and conditions of this option and the Plan. Except where the context otherwise requires, the
term “Company” shall include all future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the
“Code”).

     2. Incentive Stock Option. This option is intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code, and, as such, is subject to the requirements
and limitations contained in Section 11 of the Plan.

     3. Exercise of Option and Provisions for Termination.

          (a) Vesting Schedule.

               (i) Initial Option Shares. Except as otherwise provided in this Agreement, the option
for Initial Option Shares may be exercised prior to the tenth anniversary of the Grant Date
(hereinafter the “Initial Option Expiration Date”) in installments as follows: (a) 25%, or 41,625
Initial Option Shares, at January 1, 1999; (b) 3,468 Initial Option Shares per month, vesting upon
the first day of each month, for the first thirty (30) months; and (c) 3,477 Initial Option Shares
per month, for the following three (3) months, through December 31, 2001. The right of exercise
shall be cumulative so that if the option is not exercised to the maximum extent permissible
during any exercise period, it shall be exercisable, in whole or in part, with respect to all
shares not so purchased at any time prior to the Initial Option Expiration Date or the earlier
termination of this option. This option may not be exercised at any time on or after the Initial
Option Expiration Date, except as otherwise provided in Section 3(e) below.

               (ii) Supplemental Option Shares. Except as otherwise provided in this Agreement, the
option for Supplemental Option Shares may be exercised prior to the tenth anniversary of the Grant
Date (hereinafter the “Supplemental Option Expiration Date”) in installments as follows: (a) 25%,
or up to 16,650 Supplemental Option Shares, upon satisfaction of the conditions for granting
Supplemental Option Shares and as may be adjusted pursuant to the terms of this Agreement; and (b)
thereafter in monthly installments, to be determined by the Company, through December 31, 2001.
The right of exercise shall be cumulative so that if the option is not exercised to the maximum
extent permissible during any exercise period, it shall be exercisable, in whole or in part, with
respect to all shares not so purchased at any time prior to the Supplemental Option Expiration
Date or the earlier termination of this option. This option may not be exercised at any time on or
after the Supplemental Option Expiration Date, except as otherwise provided in Section 3(e) below.

10

 

          (b) Subject to the conditions set forth in this Agreement and the Plan, this option shall be
exercised by the Optionee’s delivery of written notice of exercise to the Treasurer of the
Company, specifying the number of shares to be purchased and the purchase price to be paid
therefor and accompanied by payment in full accordance with Section 4. Such exercise shall be
effective upon receipt by the Treasurer of the Company of such written notice together with the
required payment. The Optionee may purchase less than the number of shares covered hereby,
provided that no partial exercise of this option may be for any fractional share or for fewer than
ten whole shares.

          (c) Continuous Relationship with the Company Required. Except as otherwise provided
in this Section 3 and Section 11(d) of the Plan, this option may not be exercised unless the
Optionee, at the time he or she exercises this option, is, and has been at all times since the
date of grant of this option, an employee of the Company (an “Eligible Optionee”).

          (d) Termination of Relationship with the Company. If the Optionee ceases to be an
Eligible Optionee for any reason, then, except as provided in paragraphs (e) and (f) below, the
right to exercise this option shall terminate six months after such cessation (but in no event
after the Expiration Date applicable to such option), provided that this option: (i) shall
be intended to remain an incentive stock option only for a period of three months after such
cessation, and (ii) shall be exercisable only to the extent that the Optionee was entitled to
exercise this option on the date of such cessation. Notwithstanding the foregoing, if the
Optionee, prior to the Initial Option Expiration Date or the Supplemental Option Expiration Date,
materially violates the noncompetition or confidentiality provisions of any employment contract,
confidentiality and nondisclosure agreement or other agreement between the Optionee and the
Company, the right to exercise the options granted under this Agreement shall terminate
immediately upon such violation.

          (e) Exercise Period Upon Death or Disability. If the Optionee dies or becomes
disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Initial Option
Expiration Date or the Supplemental Option Expiration Date while he or she is an Eligible
Optionee, or if the Optionee dies within three months after the Optionee ceases to be an Eligible
Optionee (other than as the result of a termination of such relationship by the Company for
“cause” as specified in paragraph (f) below), this option shall be exercisable, within the period
of three months following the date of death, and within the period of one year following the
disability, of the Optionee (whether or not such exercise occurs before the applicable Expiration
Date), by the Optionee or by the person to whom this option is transferred by will or the laws of
descent and distribution, provided that this option shall be exercisable only to the
extent that this option was exercisable by the Optionee on the date of his or her death or
disability. Except as otherwise indicated by the context, the term “Optionee”, as used in this
option, shall be deemed to include the estate of the Optionee or any person who acquires the right
to exercise this option by bequest or inheritance or otherwise by reason of the death of the
Optionee.

          (f) Discharge for Cause. If the Optionee, prior to the Initial Option Expiration Date
or the Supplemental Option Expiration Date, is discharged by the Company for “cause” (as defined
below), the right to exercise this option shall terminate immediately upon such cessation of
employment. “Cause” shall mean willful misconduct by the Optionee or willful failure to

11

 

perform his or her responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of any employment, consulting,
advisory, nondisclosure, non-competition or other similar agreement between the Optionee and the
Company), as determined by the Board of Directors of the Company, which determination shall be
conclusive. The Optionee shall be considered to have been discharged “for cause” if the Company
determines, within 30 days after the Optionee’s resignation, that discharge for cause was
warranted.

     4. Payment of Purchase Price.

          (a) Method of Payment. Payment of the purchase price for shares purchased upon
exercise of this option shall be made (i) by delivery to the Company of cash or a check to the
order of the Company in an amount equal to the purchase price of such shares, (ii) subject to the
consent of the Company, by delivery to the Company of shares of Common Stock of the Company then
owned by the Optionee having a fair market value equal in amount to the purchase price of such
shares, (iii) by any other means which the Board of Directors determines are consistent with the
purpose of the Plan and with applicable laws and regulations (including, without limitation, the
provisions of Rule 16b-3 under the Securities Exchange Act of 1934 and Regulation T promulgated by
the Federal Reserve Board), or (iv) by any combination of such methods of payment. The Optionee
recognizes that the payment of his purchase price by delivery to the Company of shares of Common
Stock of the Company then owned by the Optionee may have certain tax consequences to the Optionee.

          (b) Valuation of Shares or Other Non-Cash Consideration Tendered in Payment of
Purchase Price. For the purposes hereof, the fair market value of any share of the Company’s
Common Stock or other non-cash consideration which may be delivered to the Company in exercise of
this option shall be determined in good faith by the Board of Directors of the Company.

          (c) Delivery of Shares Tendered in Payment of Purchase Price. If the Optionee
exercises this option by delivery of shares of Common Stock of the Company, the certificate or
certificates representing the shares of Common Stock of the Company to be delivered shall be duly
executed in blank by the Optionee or shall be accompanied by a stock power duly executed in blank
suitable for purposes of transferring such shares to the Company. Fractional shares of Common Stock
of the Company will not be accepted in payment of the purchase price of shares acquired upon
exercise of this option.

     5. Delivery of Shares: Compliance with Securities Law. Etc.

          (a) General. The Company shall, upon payment of the option price for the number of
shares purchased and paid for, make prompt delivery of such shares to the Optionee, provided that
if any law or regulation requires the Company to take any action with respect to such shares before
the issuance thereof, then the date of delivery of such shares shall be extended for the period
necessary to complete such action.

12

 

          (b) Listing. Qualification, Etc. This option shall be subject to the requirement that
if, at any time, counsel to the Company shall determine that the listing, registration or
qualification of the shares subject hereto upon or with any securities exchange or regulatory
body, or that the disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval, disclosure or satisfaction of such other
condition shall have been effected or obtained on terms acceptable to the Board of Directors (or
an opinion of counsel has been obtained that such registration, qualification, consent, or
approval is not necessary). Nothing herein shall be deemed to require the Company to apply for,
effect or obtain such listing, registration, qualification, or disclosure, or to satisfy such
other condition.

     6. Nontransferability of Option. This option is personal and no rights granted
hereunder may be transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise), nor shall any such rights be subject to execution, attachment or similar
process, except that this option may be transferred by will or the laws of descent and
distribution. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of
this option or of such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon this option or such rights, this option and such rights shall,
at the election of the Company, become null and void.

     7. No Special Employment or Similar Rights. Nothing contained in the Plan or this
option shall be construed or deemed by an person under any circumstances to bind the Company to
continue the employment or other relationship of the Optionee with the Company for the period
within which this option may be exercised.

     8. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with
respect to any shares which may be purchased by exercise of this option (including, without
limitation, any rights to receive dividends or non-cash distributions with respect to such shares)
unless and until a certificate representing such shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for which the record date is
prior to the date such certificate is issued.

     9. Adjustment Provisions.

          (a) General. If, through or as a result of any merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other similar transaction,
(i) the outstanding shares of Common Stock are increased or decreased or are exchanged for a
different number or kind of shares or other securities of the Company, or (ii) additional shares
or new or different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, the Optionee shall,
with respect to this option or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 14 of the Plan.

13

 

          (b) Board Authority to Make Adjustments. Any adjustments under this Section 9
will be made by the Board of Directors, whose determination as to what adjustments, if any, will be
made and the extent thereof will be final, binding and conclusive. No fractional shares will be
issued pursuant to this option on account of any such adjustments.

     10. Mergers, Consolidation. Distributions, Liquidation, Etc. In the event of a merger
or consolidation or sale of all or substantially all of the assets of the Company in which
outstanding shares of Common Stock are exchanged for securities, cash or other property of any
other corporation or business entity, or in the event of a liquidation of the Company, prior to the
Initial Option Expiration Date or the Supplemental Option Expiration Date or termination of this
Option, the Optionee shall, with respect to this option or any unexercised portion hereof, be
entitled to the rights and benefits, and be subject to the limitations, set forth in Section 15 of
the Plan.

     11. Withholding Taxes. The Company’s obligation to deliver shares upon the exercise of
this option shall be subject to the Optionee’s satisfaction of all applicable federal, state and
local income and employment tax withholding requirements.

12. Investment Representations: Legends.

          (a) Representations. The Optionee represents, warrants and covenants that:

               (i)
 Any shares purchased upon exercise of this option shall be acquired for the
Optionee’s account for investment only, and not with a view to, or for sale in connection with, any
distribution of the shares in violation of the Securities Act of 1933 (the “Securities Act”), or
any rule or regulation under the Securities Act.

               (ii) The Optionee has had such opportunity as he or she has deemed adequate to obtain from
representatives of the Company such information as is necessary to permit the Optionee to evaluate
the merits and risks of his or her investment in the Company.

               (iii) The Optionee is able to bear the economic risk of holding such shares acquired pursuant
to the exercise of this option for an indefinite period.

               (iv) The Optionee understands that (A) the shares acquired pursuant to the exercise of this
option will not be registered under the Securities Act and are “restricted securities” within the
meaning of Rule 144 under the Securities Act; (B) such shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the Securities Act or an
exemption from registration is then available; (C) in any event, an exemption from registration
under Rule 144 or otherwise under the Securities Act will not be available for at least two years
and even then will not be available unless a public market then exists for the Common Stock,
adequate information concerning the Company is then available to the public, and other terms and
conditions of Rule 144 are complied with; and (D) there is now no registration statement on file
with the Securities and Exchange Commission with respect to any

14

 

stock of the Company and the Company has no obligation or current intention to register any
shares acquired pursuant to the exercise of this option under the Securities Act.

               (v) The Optionee agrees that, if the Company offers any of its Common Stock for sale pursuant
to a registration statement under the Securities Act, the Optionee will not, without the prior
written consent of the Company, offer, sell, contract to sell or otherwise dispose of, directly or
indirectly (a “Disposition”), any shares purchased upon exercise of this option for a period of 90
days after the effective date of such registration statement.

By making payment upon exercise of this option, the Optionee shall be deemed to have reaffirmed,
as of the date of such payment, the representations made in this Section 12.

          (b) Legends on Stock Certificate. All stock certificates representing shares of
Common Stock issued to the Optionee upon exercise of this option shall have affixed thereto
legends substantially in the following form, in addition to any other legends required by
applicable state law:

“The shares of stock represented by this certificate have
not been registered under the Securities Act of 1933 and
may not be transferred, sold or otherwise disposed of in
the absence of an effective registration statement with
respect to the shares evidenced by this certificate,
filed and made effective under the Securities Act of
1933, or an opinion of counsel satisfactory to the
Company to the effect that registration under such Act is
not required.”

“The shares of stock represented by this certificate are
subject to certain restrictions on transfer contained in
an Option Agreement, a copy of which will be furnished
upon request by the issuer.”

     13. Miscellaneous.

          (a) Except as provided herein, this option may not be amended or otherwise modified unless
evidenced in writing and signed by the Company and the Optionee.

          (b) All notices under this option shall be mailed or delivered by hand to (i) the Company at
the address set forth below, (ii) the Optionee at the address set forth on the first page of this
option, or (iii) at such other address as may be designated in writing by either of the parties to
one another.

	 	 	 	 	 
	

	 	If to the Company:
	 	MetaMorphix, Inc., Inc.
	

	 	 	 	1450 South Rolling Road

15

 

	 	 	 	 	 
	

	 	 	 	Baltimore, Maryland 21227
	

	 	 	 	Attn: President

          (c) This option shall be governed by and construed in accordance with the laws of the State of
Delaware.

16

 

EXHIBIT B

MetaMorphix, Inc.

Non-Disclosure and Confidentiality Agreement

     This Agreement made by and between Edwin C. Quattlebaum (hereafter referred to as the
Employee) and MetaMorphix, Inc., a Delaware corporation (hereafter referred to as MM, Company, or
Employer), is and shall be effective as of this 1st day of January, 1998 (hereafter referred to as
the Effective Date).

1. Company’s Business and Technology.

MM is engaged in the discovery and commercial development of a superfamily of growth
factors, Growth and Differentiation Factors (GDF), related factors collectively referred to
as Transforming Growth Factors (TGF) and related technology, and herein referred to as the
“Company’s technology" or as the “Company’s business.” The Company’s technology
includes, but is not limited to, the development of, proteins, peptides, small molecules,
and/or other related technologies to affect the actions of GDF and TGF in the fetus and the
adult including humans and other animals. The Company’s technology includes proprietary
proteins and genes, antisense technology, antibodies, receptors, and various protein and
non-protein chemical entities which directly or indirectly affect the production,
expression, biological or pharmacology of GDF and TGF. The Company’s business includes
discovery research, human pharmaceutical development, veterinary medicine, agriculture,
human and veterinarian diagnostics, research reagents, and other human and agricultural
products and services.

2. Confidentiality.

2.1 The Employee acknowledges that in connection with the performance of his/her duties, MM
will be disclosing confidential and proprietary information to the Employee, including
commercially valuable technical and business information (“Confidential
Information"). Confidential Information includes information or materials that
the Employee develops or acquires knowledge of or, has access to, as a result of employment
by MM. The Employee acknowledges that Mm’s business is extremely competitive, dependent in
part upon the maintenance of secrecy, and that any unauthorized disclosure of Confidential
Information to any third party will result in serious harm to MM.

2.2 The Employee covenants and agrees that the Confidential Information will be used only
in connection with the duties and responsibilities of the position that the

 

 

Employee may have with the Company, and will not be used in any other way, even if not
envisioned by the Employee, to the detriment of MM.

2.3 The Employee covenants and agrees not to disclose, directly or indirectly, the
Confidential Information to any third person or entity, other than representatives or agents
of MM, or as expressly directed by Mm’s management. The Employee will treat all such
information as confidential and the sole property of MM.

2.4 “Confidential Information” does not include information which, in the judgment of the
Chief Scientific Officer (or other management of MM), (a) was actually known to the Employee
upon the commencement of employment, other than by previous disclosure MM, as evidenced by
written records at the time of pre-employment disclosure; (b) is at the time of disclosure or
later becomes publicly known under circumstances involving no breach of this Agreement; (c)
is lawfully and in good faith made available to, the Employee by a third party who did not
derive it from MM and who imposes no obligation of confidence on the Employee; or (d) after
the termination of employment, developed by the Employee’s independent of any disclosure by
MM (and without reliance upon Confidential Information known to the then former employee), as
clearly evidenced by written records.

2.5 The Employee shall continue to be bound by the terms of the confidentially provisions
contained in this Section 2 during Employee’s employment and, subsequently, for a period of
five years after the termination of employment with MM.

2.6 The Employee recognizes that the event of a breach by Employee of this Agreement the
damages and harm to MM would be irreparable. Accordingly, Employee acknowledges that MM would
be entitled, among other available remedies, to seek and obtain injunctive relief.

3. Inventions, Trade Secrets, Intellectual Property and Business Information.

3.1 The Employee covenants and agrees to promptly and fully disclose in writing to the
Company, or a designated representative of MM, any invention, improvement, discovery,
formula, technique, method, trade secret or other intellectual property, whether patentable
or not, whether copyrightable or not (collectively “Invention(s)”) made, conceived,
developed, or first reduced to practice by the Employee, either alone or jointly with
others, while performing services as an employee of MM or relating to the Company’s
technology (as defined in Section 1.) The Employee is bound to this provision during
Employee’s employment and, subsequently for a period of 5 years following termination of
employment with MM. The Employee will execute any legal documents necessary to perfect the
assignment of such inventions or copyrights in any

 

 

and all countries which the Company deems important to its business. The Employee appoints
the Company as his/her agent and attorney-in-fact to execute and file any such document(s)
and to do all lawful acts necessary to apply for and obtain patents or copyrights, and to
enforce the Company’s rights under this section. All patent or copyrights will be at the
Company’s own expense and the Employee will not be compensated for his/her time and other
expenses for such efforts, other than Employee’s salary (if Employee is then employed).

3.2 The Employee acknowledges, covenants and agrees that all discoveries, inventions, trade
marks, trade secrets, business information and intellectual property shall be the sole and
exclusive property of the Company.

4. Confidentiality Obligations By Other Agreements.

4.1 In accordance with Section 11.3 of December 1, 1994 Collaboration Agreement between MM,
The Johns Hopkins University (JHU), and Genetics Institute, Inc. (GI), Employee (to the
extent permitted, from time-to-time, by MM) may have access to Confidential Information (as
described therein) of JHU and GI and, accordingly, shall be bound by 11.1, and 11.4 of the
Collaboration Agreement.

4.2 Employee, upon request, shall sign such other confidentially, non-disclosure, and other
such agreement that third parties (with whom MM has a relationship) require.

5 Other Obligations.

5.1 The Employee represents that Employee is not bound by any agreement that prevents
him/her from disclosing to MM any information that the Employee is obligated to keep secret
pursuant to any existing confidentiality agreement with a third party or consistent with
his/her duties or obligations to such third party and Employee further recognizes that
nothing in this Agreement imposes any obligation on the Employee to the contrary.

6. No Conflict: Valid and Binding. The Employee represents that to his/her knowledge neither the
execution of this Agreement nor the performance of the Employee’s duties under this Agreement will
result in a violation or breach of any other agreement by which the Employee is bound. Employee
will not enter into any agreement that would conflict with this agreement.

7. Severability. If any provision of this Agreement shall be declared invalid, illegal or
unenforceable, such provision shall be served and the remaining provisions shall continue in
full force and effect.

 

 

8. Governing Law. This Agreement shall be governed by the laws of the State of Maryland.

9. Miscellaneous. This Agreement represents the “entire agreement” between Employee and MM with
respect to the matters set forth herein. Nothing in this agreement suggests any term of
employment or that Employee’s employment is anything other than “at-will” employment.

IN WITNESS WHEREOF, the parties have executed this Employment Agreement and Confidentially
Agreement as of the above indicated Effective Date.

MetaMorphix, Inc.

Employee:

	 	 	 	 	 	 	 	 	 
	/s/ Edwin C. Quattlebaum
	 	 	 	By:
	 	/s/ William E. Carlson
	 	 
	 

	 	 	 	 	 	 	 	 
	Edwin C. Quattlebaum

	 	 	 	 	 	William E. Carlson, President	 	 
	 
	 	 	 	 	 	 	 	 
	Date: January      1998	 	 	 	Date: January _, 1998

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