-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SEMH0DPhENG6ZzdpUQgIuxWaoqnRm17iCbDsUMoiOiZN8EqpQuqo/CuPC44jYr8w B8twqYmRIHxLrm8J697tBg== 0000950133-99-002826.txt : 19990817 0000950133-99-002826.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950133-99-002826 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTREMED INC CENTRAL INDEX KEY: 0000895051 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 581959440 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20713 FILM NUMBER: 99692292 BUSINESS ADDRESS: STREET 1: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012179858 MAIL ADDRESS: STREET 2: 9610 MEDICAL CENTER DR STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-Q 1 FORM 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20459 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________. Commission file number 0-20713 ------- ENTREMED, INC. -------------- (Exact name of registrant as specified in its charter) Delaware 58-1959440 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9640 Medical Center Drive Rockville, Maryland ------------------- (Address of principal executive offices) 20850 ----- (Zip code) (301) 217-9858 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date. Class Outstanding at August 11, 1999 - --------------------------- ------------------------------ Common Stock $.01 Par Value 14,669,983 2 ENTREMED, INC. Table of Contents
PART I. FINANCIAL INFORMATION PAGE ---- Item 1 -- Financial Statements Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the Three Months Ended June 30, 1999 and 1998, and the Six Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Item 1 -- Legal Proceedings 11 Item 2 -- Changes in Securities 11 Item 3 -- Defaults upon Senior Securities 11 Item 4 -- Submission of Matters to Vote of Security Holders 11 Item 5 -- Other Information 12 Item 6 -- Exhibits and Reports on Form 8-K 12 SIGNATURES 13
2 3 ENTREMED, INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1999 1998 ------------------- ----------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 17,514,233 $ 30,818,689 Short term investments 1,501,845 4,352,371 Interest receivable 73,363 186,927 Accounts receivable 358,860 112,383 Prepaid expenses and other 7,784 170,877 ----------------- ----------------- Total current assets 19,456,085 35,641,247 Furniture and equipment, net 4,082,070 2,979,237 Other assets 955,534 953,519 ----------------- ----------------- Total assets $ 24,493,689 $ 39,574,003 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,471,039 $ 2,093,017 Accrued liabilities 1,199,515 1,332,682 Deferred revenue 1,372,500 2,945,833 ----------------- ----------------- Total current liabilities 6,043,054 6,371,532 Minority interest 23,210 14,407 Stockholders' equity: Convertible preferred stock, $1.00 par and $1.50 Liquidation value: 5,000,000 shares authorized, none issued and outstanding at June 30, 1999 (unaudited) and December 31, 1998 - - Common stock, $.01 par value: 35,000,000 shares authorized, 13,177,192 (unaudited) and 13,123,031 shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 131,772 131,230 Additional paid-in capital 78,760,100 78,364,136 Accumulated deficit (60,464,447) (45,307,302) ----------------- ----------------- Total stockholders' equity 18,427,425 33,188,064 ----------------- ----------------- Total liabilities and stockholders' equity $ 24,493,689 $ 39,574,003 ================= =================
The accompanying notes are an integral part of the financial statements. 3 4 ENTREMED, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six months ended June 30, June 30, 1999 1998 1999 1998 -------------------------------- ----------------------------------- Revenues: Collaborative research and development $ 1,042,500 $ 1,042,500 $ 2,085,000 $ 2,085,000 Licensing 50,000 50,000 100,000 100,000 Grant revenues - 72,985 158,819 135,456 Royalty revenues 236,531 - 428,211 - Other revenues - - 1,040 - -------------- ------------ --------------- -------------- Total revenues 1,329,031 1,165,485 2,773,070 2,320,456 -------------- ------------ --------------- -------------- Expenses: Research & development 7,619,140 2,345,299 14,726,595 5,844,730 General & administrative 2,003,069 1,221,010 3,898,907 2,526,900 -------------- ------------ --------------- -------------- 9,622,209 3,566,309 18,625,502 8,371,630 Investment income 284,873 588,193 695,287 1,126,417 -------------- ------------ --------------- -------------- Net loss $ (8,008,305) $ (1,812,631) $ (15,157,145) $ (4,924,757) ============== ============ =============== ============== Net loss per share (basic and diluted) $ (0.61) $ (0.15) $ (1.15) $ (0.40) ============== ============ =============== ============== Weighted average number of shares outstanding (basic and diluted) 13,165,522 12,437,363 13,144,832 12,369,153 ============= ============ =============== ==============
The accompanying notes are an integral part of the financial statements. 4 5 ENTREMED, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1999 1998 ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (15,157,145) $ (4,924,757) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 457,489 371,375 Loss on disposal of furniture & equipment 65,674 - Minority interest 8,803 21,984 Changes in assets and liabilities: Accounts receivable (246,477) (255,886) Interest receivable 113,564 137,031 Prepaid expenses and other 161,078 85,724 Accounts payable 1,378,022 35,282 Accrued liabilities (133,167) (437,159) Deferred revenue (1,573,333) (350,000) -------------- ------------- Net cash used by operating activities (14,925,492) (5,316,406) -------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Maturities of short-term investments 2,850,526 31,954,030 Purchases of short-term investments - (15,745,080) Purchases of furniture & equipment (1,625,996) (321,527) -------------- ------------- Net cash provided by investing activities 1,224,530 15,887,423 -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from option and warrant exercises 396,506 2,511,326 -------------- ------------- Net cash provided by financing activities 396,506 2,511,326 -------------- ------------- Net increase (decrease) in cash and cash equivalents (13,304,456) 13,082,343 Cash and cash equivalents at beginning of period 30,818,689 18,232,491 -------------- ------------- Cash and cash equivalents at end of period $ 17,514,233 $ 31,314,834 ============== =============
The accompanying notes are an integral part of the financial statements. 5 6 ENTREMED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial information of EntreMed, Inc. (the "Company") includes the accounts of its 85% owned subsidiary, Cytokine Sciences, Inc. Cytokine Sciences was formed in June 1996 and was capitalized with $250,000 by EntreMed for the purpose of acquiring the assets of Innovative Therapeutics, Inc., which acquisition was completed in July 1996 in exchange for 15% of the common stock of Cytokine Sciences, Inc. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated financial statements d o not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the Company's audited financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 1998. 2. COMPREHENSIVE INCOME In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income" ("Statement 130"), which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997. The Company adopted Statement 130 in 1998 and has not presented a statement of comprehensive income because the effect of the components of comprehensive income is not material to its consolidated financial statements. 6 7 3. CONTINGENCIES The Company is a defendant in a lawsuit initiated in August 1995 in the United States District Court for the Eastern District of Tennessee by Bolling, McCool & Twist ("BMT"), a consulting firm. In the suit, BMT asserts that the Company breached an agreement between BMT and the Company by failing to pay BMT certain fees it asserts are owed under the agreement. More specifically, BMT has asserted a claim for the payment of services rendered in the approximate amount of $50,000 and seeks a success fee in an unspecified amount in connection with the BMS Collaboration. The judge in the case bifurcated the proceeding into two phases: an adjudication of whether the Company breached its agreement with BMT and then a damage phase. After a trial on the merits the jury found in favor of BMT on the breach of contract claim. A trial to determine damages had been scheduled for April 14, 1998. However, on April 6, 1998, the court issued an Order pursuant to which damages were limited to those arising during the term of the Agreement, which terminated on November 1, 1995. On May 6, 1999, the court confirmed its decision by granting the Company's motion for summary judgment and limiting the Company's damages to approximately $50,000 plus interest. Thus, this litigation at the trial level has been concluded. BMT has filed an appeal and the Company has cross-appealed. The Company cannot predict the outcome of such appeal. However, the Company intends to continue to contest any further action vigorously and believes that this proceeding will not have a material adverse effect on the Company or on its financial condition, although there can be no assurance that this will be the case. 4. SUBSEQUENT EVENT On July 27, 1999, the Company completed an offering of 1,478,118 shares of its common stock, par value $.01 per share, Series 1 Warrants to purchase a total of 739,059 shares of Common Stock at an exercise price of $33.02 and Series 2 Warrants to purchase a total of 739,059 shares of Common Stock at an exercise price of $25.45. The offering resulted in gross proceeds to the Company, prior to the deduction of fees and commissions, of approximately $30.1 million. The net proceeds from the offering will be used by the Company for continued clinical development of the Company's products, working capital and general corporate purposes, at the discretion of the Company's management. 7 8 ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL Since its inception in September 1991, the Company has devoted substantially all of its efforts and resources to sponsoring and conducting research and development on its own behalf and through collaborations with corporate partners and academic research and clinical institutions, and establishing its facilities and hiring personnel. In December 1995, the Company entered into a collaboration agreement with Bristol-Myers Squibb Company ("BMS") in which BMS made an equity investment in the Company and agreed to pay certain research and development fees and expenses, license fees, milestone payments, and royalties on net sales, if any. In August 1997, the Company reacquired the commercial rights to thalidomide from BMS. In December 1998, the Company sublicensed, on a worldwide basis, its intellectual property covering thalidomide to Celgene Corporation ("Celgene"). On February 9, 1999, the Company and BMS agreed to modify the research agreement whereby the Company assumed all responsibility for preclinical and clinical work on the Angiostatin(R) protein. On July 1, 1999, the Company and Calbiochem-Novabiochem Corp. ("Calbiochem") entered into a non-exclusive, worldwide licensing agreement under which Calbiochem will have the right to sell research grade Endostatin(TM) protein and Angiostatin(R) protein for non-commercial research purposes. Through June 30, 1999, with the exception of license fees and research and development funding from BMS and royalty payments from Celgene's sales of thalidomide as well as certain research grants, the Company has not generated any revenue from operations. The Company anticipates its revenue sources for the next several years to include royalty payments from Celgene's sales of thalidomide and Calbiochem's sales of research grade Endostatin(TM) protein and Angiostatin(R) protein, research grants and future collaboration payments from collaborators under arrangements entered into in the future. The timing and amounts of such revenues, if any, will likely fluctuate and depend upon the achievement of specified milestones, and results of operations for any period may be unrelated to the results of operations for any other period. RESULTS OF OPERATIONS Three and Six Months Ended June 30, 1999 and June 30, 1998 Revenues increased approximately 14% from approximately $1,165,000 for the three months ended June 30, 1998 ("1998 Three Months") to approximately $1,329,000 for the three months ended June 30, 1999 ("1999 Three Months"). This increase is due to royalty income from Celgene Corporation on the sale of thalidomide. For the six months ended June 30, 1999 ("1999 Six Months"), revenues were approximately $2,773,000 as compared to $2,320,000 the six months ended June 30, 1998 ("1998 Six Months"), a 20% increase. This increase is due to an increase in grant revenue earned under a Small Business Innovative Research program from the National Institutes of Health awarded to the Company in May 1997 and royalty income from Celgene Corporation on the sale of thalidomide. The collaborative research and development fees relate to the amortization over five years of a one-time payment from BMS, of $2,500,000 received in December 1995 and the amortization of semi-annual payments of $1,835,000 under the BMS collaboration agreement. The license fee represents the amortization over five years of a one-time $1,000,000 license fee received in December 1995 under the BMS collaboration agreement. Research and development expenses increased by approximately 225% from approximately $2,345,000 in the 1998 Three Months to approximately $7,619,000 in the 1999 Three Months and by approximately 152% from approximately $5,845,000 in the 1998 Six Months to approximately $14,727,000 in the 1999 Six Months. Research and development expenditures include sponsored research payments to academic collaborators, 8 9 including a $1,000,000 payment to Children's Hospital in March 1999 and March 1998 and expenses related to the Company's internal research programs. The increase in research and development costs reflects increased efforts in the Company's internal and sponsored research and product development programs related to its antiangiogenesis technologies. Overall, research personnel increased from 42 as of June 30, 1998 to 54 as of June 30, 1999. Research and development expenses are expected to continue to increase as the Company continues to expand its research and development efforts. General and administrative expenses increased approximately 64% from approximately $1,221,000 in the 1998 Three Months to approximately $2,003,000 in the 1999 Three Months. For the 1999 Six Months, general and administration expenses were approximately $3,899,000 as compared to approximately $2,527,000 for the 1998 Six Months, a 54% increase. The overall increase in general and administrative expenses during the 1999 periods compared to comparable periods of 1998 resulted primarily from the increase in administrative costs associated with adding administrative staff to support the Company's research efforts and external collaborations the Company is conducting, investigating potential strategic relationships, and obtaining professional services. Investment income decreased approximately 52% from approximately $588,000 in the 1998 Three Months to approximately $285,000 in the 1999 Three Months and decreased approximately 38% from approximately $1,126,000 in the 1998 Six Months to approximately $695,000 in the 1999 Six Months. This overall decrease in investment income during the 1999 periods compared to comparable periods of 1998 is due to the reduction of the Company's cash and short term investments as such working capital components are used to fund the Company's operations. Liquidity and Capital Resources At June 30, 1999, the Company had cash and cash equivalents of approximately $17,514,000 and short-term investments of approximately $1,502,000 with working capital of approximately $13,413,000, primarily representing the net proceeds of the Company's private placements of equity securities and its initial public offering, payments from BMS, including equity investments and various grants. On July 27, 1999, the Company completed an offering of 1,478,118 shares of its common stock, par value $.01 per share, Series 1 Warrants to purchase a total of 739,059 shares of Common Stock at an exercise price of $33.02 and Series 2 Warrants to purchase a total of 739,059 shares of Common Stock at an exercise price of $25.45. The offering resulted in gross proceeds to the Company, prior to the deduction of fees and commissions, of approximately $30.1 million. The net proceeds from the offering will be used by the Company for continued clinical development of the Company's products, working capital and general corporate purposes, at the discretion of the Company's management. The Company's cash resources have been used to finance research and development, including sponsored research, capital expenditures, including leasehold improvements to the Company's new facility, and general and administrative expenses. Over the next several years, the Company expects to incur substantial additional research and development costs, including costs related to early-stage research, preclinical and clinical trials, increased administrative expenses to support its research and development operations and increased capital expenditures for expanded research capacity, various equipment needs and facility improvements. The Company is a party to sponsored research agreements and clinical trials requiring the Company to fund an aggregate of approximately $2,185,000 through 2000 (including $1,400,000 to Children's Hospital) and license agreements requiring future milestone payments of up to $3,735,000 and additional payments upon attainment of regulatory milestones. 9 10 On February 9, 1999, the original Bristol-Myers Squibb Collaboration was modified such that the final payment of $611,667 under the agreement was paid on June 5, 1999. As amended, Bristol-Myers Squibb has no further funding obligation to the Company after August 9, 1999. YEAR 2000 COMPLIANCE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, those computer programs having time-sensitive software would recognize a date using "00" as the year 1900 rather than the year 2000. Based on a recent assessment, the Company determined that its accounting software will need to be updated or modified. This should be accomplished through updates from the software manufacturer. The Company does not expect any material costs associated with this modification or any disruptions to its primary operations. The Company has queried its significant supplier that does not share information systems with the Company (external agent). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of external agents to complete the Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. The Company anticipates no other year 2000 problems which are reasonably likely to have a material adverse effect on the Company's operations. There can be no assurance, however, that such problems will not arise. To date, the Company has not incurred significant costs in connection with the implementation of its Year 2000 Plan. The Company does not expect future costs to be significant. - ----------------------------- Statements herein that are not descriptions of historical facts are forward-looking and subject to risk and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the Company's Securities and Exchange Commission filings under "Risk Factors", including risks relating to the early stage of products under development; uncertainties relating to clinical trials' dependence on third parties' future capital needs; and risks relating to the commercialization, if any, of the Company's proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks). 10 11 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS This information as set forth in Note 3 of "Notes to Consolidated Financial Statements" appearing in Item 1 of Part I of this report is incorporated herein by reference. Item 2. CHANGES IN SECURITIES Not applicable. Item 3. DEFAULT UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS (a) The Company's annual meeting of stockholders was held on June 24, 1999 ("Annual Meeting"). (b) Not applicable. (c) At the Annual Meeting, the stockholders considered and approved the following proposals: (i) Election of Directors. The following sets forth the nominees who were elected directors of the Company for the term expiring in the year indicated as well as the number of votes cast for, against or withheld:
Term (Year Votes Expires) Name For Against Withheld - -------- ---- --- ------- -------- 2002 Jerry Finkelstein 10,918,705 55,533 - 2002 Mark C.M. Randall 10,919,050 55,188 -
(ii) Approval of 1999 Long-Term Incentive Plan. At the Annual Meeting the stockholders approved and ratified the Company's 1999 Long-Term Incentive Plan (the "1999 Plan") reserving 750,000 shares of Common Stock for issuance under the 1999 Plan. This proposal received 4,830,183 votes in favor, 372,458 votes against and 49,450 abstentions. In addition, 5,722,147 shares were not voted. (iii) Ratification of Appointment of Ernst & Young LLP. At the Annual Meeting, stockholders ratified the selection of Ernst & Young LLP as the independent auditors. The proposal received 10,944,976 votes in favor, 13,491 votes against, and 15,771 abstentions. 11 12 Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBIT AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: 10.32 1999 Long-Term Incentive Plan 10.33 Amendment to Research Agreement, dated June 24, 1999, between the Registrant and Children's Hospital 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed by Registrant during the quarter ended June 30, 1999. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENTREMED, INC. (Registrant) Date: August 16, 1999 /s/ John W. Holaday ------------------------------------ John W. Holaday, Ph.D. President and Chief Executive Officer Date: August 16, 1999 /s/ R. Nelson Campbell ------------------------------------ R. Nelson Campbell Chief Financial Officer 13 EX-10.32 2 1999 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10.32 ENTREMED, INC. ENTREMED, INC. 1999 LONG-TERM INCENTIVE PLAN 1. PURPOSE AND TYPES OF AWARDS EntreMed, Inc., a Delaware corporation (the "Corporation"), maintained the EntreMed, Inc. Amended and Restated 1996 Stock Option Plan (the "Prior Plan"). The Prior Plan has been replaced with the 1999 Long-Term Incentive Plan as set forth herein, effective March 31, 1999, subject to the approval of the stockholders of the Corporation within twelve months of such effective date (the "Plan"). Notwithstanding anything herein to the contrary, nothing in this Plan shall adversely affect the rights or obligations, under any Award granted under the Prior Plan, of any grantee or holder of an Award without such person's approval. The purpose of the Plan is to promote the long-term growth and profitability of the Corporation by: (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Corporation and (ii) enabling the Corporation to attract, retain and reward the best-available persons. The Plan permits the granting of stock options (including incentive stock options qualifying under Code section 422 and nonqualified stock options), stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, or any combination of the foregoing. 2. DEFINITIONS Under this Plan, except where the context otherwise indicates, the following definitions apply: (a) "Administrator" shall have the meaning set forth in Section 3(a). (b) "Affiliate" shall mean any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the Corporation (including, but not limited to, joint ventures, limited liability companies, and partnerships). For this purpose, "control" shall mean ownership of 50% or more of the total combined voting power or value of all classes of stock or interests of the entity. (c) "Award" shall mean any stock option, stock appreciation right, stock award, phantom stock award, or performance award. (d) "Board" shall mean the Board of Directors of the Corporation. 1 2 (e) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (f) "Common Stock" shall mean shares of common stock of the Corporation, $.01 par value. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Fair Market Value" of a share of the Corporation's Common Stock for any purpose on a particular date shall mean the last reported sale price per share of Common Stock, regular way, on such date or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq-National Market, or if the Common Stock is not so listed or admitted to trading or included for quotation, the last quoted price, or if the Common Stock is not so quoted, the average of the high bid and low asked prices, regular way, in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices, regular way, as furnished by a professional market maker making a market in the Common Stock as selected in good faith by the Administrator or by such other source or sources as shall be selected in good faith by the Administrator. If, as the case may be, the relevant date is not a trading day, the determination shall be made as of the next preceding trading day. As used herein, the term "trading day" shall mean a day on which public trading of securities occurs and is reported in the principal consolidated reporting system referred to above, or if the Common Stock is not listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq-National Market, any business day. (i) "Grant Agreement" shall mean a written document memorializing the terms and conditions of an Award granted pursuant to the Plan and shall incorporate the terms of the Plan. (j) "Participants" shall have the meaning set forth in Section 5. (k) "Parent" shall mean a corporation, whether nor or hereafter existing, within the meaning of the definition of "parent corporation" provided in Code section 424(e), or any successor thereto. (l) "Performance Goals" shall mean performance goals established by the Administrator which may be based on one or more business criteria selected by the Administrator that apply to an individual or group of individuals, a business unit, or the Corporation and/or one or more of its Affiliates either separately or together, over such performance period as the Administrator may designate, including, but not limited to, 2 3 business criteria based on operating income, earnings or earnings growth, sales, return on assets, equity or investment, regulatory compliance, satisfactory internal or external audits, improvement of financial ratings, achievement of balance sheet or income statement objectives, or any other objective goals established by the Administrator, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. (m) "Subsidiary" and "subsidiaries" shall mean only a corporation or corporations, whether now or hereafter existing, within the meaning of the definition of "subsidiary corporation" provided in section 424(f) of the Code, or any successor thereto. (n) "Ten-Percent Stockholder" shall mean a grantee who (applying the rules of Code section 424(d)) owns stock possessing more than 10% of the total combined voting power or value of all classes of stock or interests of the Corporation or an Affiliate. 3. ADMINISTRATION (a) Administration of the Plan. The Plan shall be administered by the Board or by such committee or committees as may be appointed by the Board from time to time (the Board, committee or committees hereinafter referred to as the "Administrator"). (b) Powers of the Administrator. The Administrator shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole and absolute discretion, to grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards. The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (i) determine the eligible persons to whom, and the time or times at which Awards shall be granted; (ii) determine the types of Awards to be granted; (iii) determine the number of shares to be covered by or used for reference purposes for each Award; (iv) impose such terms, limitations, restrictions and conditions upon any such Award as the Administrator shall deem appropriate, including, but not limited to, whether a stock option shall be an incentive stock option or a nonqualified stock option, any exceptions to nontransferability, any Performance Goals applicable to Awards, any provisions relating to vesting, any circumstances in which the Awards would terminate, the period during which Awards may be exercised, and the period during which Awards shall be subject to restrictions; (v) modify, amend, extend or renew outstanding Awards, accept the surrender of outstanding Awards and substitute new Awards, or specify a lower or higher exercise price, or a longer or shorter term, for any substituted Awards than the surrendered Awards, or impose any other provisions that are authorized by this Plan (provided however, that, except as provided in Section 7(f)(ii) of the Plan, any modification that would materially adversely affect any outstanding Award shall not be made without the consent of the holder); (vi) accelerate, extend (as long as such extension shall not cause the Plan to fail to comply with Code section 422, if applicable) or otherwise change the time in which an Award may be exercised or becomes payable 3 4 and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award due to termination of any grantee's employment or other relationship with the Corporation; and (vii) establish objectives and conditions, if any, for earning Awards and determining whether Awards will be paid after the end of a performance period. In making these determinations, the Administrator may take into account the nature of the services rendered or to be rendered by the Award recipients, their present and potential contributions to the success of the Corporation and its Affiliates, and such other factors as the Administrator in its discretion shall deem relevant. Subject to the provisions of the Plan, the Administrator shall have full power and authority, in its sole and absolute discretion, to administer and interpret the Plan and to adopt and interpret such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable. (c) Non-Uniform Determinations. The Administrator's determinations under the Plan (including, without limitation, determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the Grant Agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. (d) Limited Liability. To the maximum extent permitted by law, no member of the Administrator shall be liable for any action taken or decision made in good faith relating to the Plan or any Award thereunder. (e) Effect of Administrator's Decision. All actions taken and decisions and determinations made by the Administrator on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Administrator's sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the Corporation, its stockholders, any Participants and any other employee, consultant, or director of the Corporation, and their respective successors in interest. 4. SHARES AVAILABLE FOR THE PLAN (a) Maximum Issuable Shares. Subject to adjustments as provided in Section 7(f), the shares of Common Stock that may be issued with respect to Awards granted under the Plan shall not exceed an aggregate of 750,000 shares of Common Stock. The Corporation shall reserve such number of shares for Awards under the Plan, subject to adjustments as provided in Section 7(f). If any Award, or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares, or if any shares of Common Stock are surrendered to the Corporation in connection with any Award (whether or not such surrendered shares were acquired pursuant to any Award), the shares subject to such Award and the surrendered shares shall thereafter be available for 4 5 further Awards under the Plan; provided, however, that any such shares that are surrendered to the Corporation in connection with any Award or that are otherwise forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under Code section 422. (b) Maximum Awards. Subject to adjustments as provided in Section 7(f), the maximum number of shares of Common Stock subject to Awards of any combination that may be granted during any one calendar year of the Corporation to any one individual under this Plan shall be limited to 150,000. 5. PARTICIPATION Participation in the Plan shall be open to all persons who are at the time of the grant of an Award employees (including persons who may become employees), officers, directors, and consultants of the Corporation, or of any Affiliate of the Corporation, as may be selected by the Administrator from time to time. A Participant who has been granted an Award may, if he or she is otherwise eligible, be granted additional Awards if the Administrator so determines. 6. AWARDS The Administrator, in its sole discretion, establishes the terms of all Awards granted under the Plan. All Awards shall be subject to the terms and conditions provided in the Grant Agreement. (a) Stock Options. The Administrator may from time to time grant to eligible Participants Awards of incentive stock options as that term is defined in Code section 422 or nonqualified stock options; provided, however, that Awards of incentive stock options shall be limited to employees of the Corporation or of any Parent or Subsidiary of the Corporation. Options intended to qualify as incentive stock options under Code section 422 must have an exercise price at least equal to Fair Market Value on the date of grant or at least 110% of Fair Market Value in the case of a Ten-Percent Stockholder, [but nonqualified stock options may be granted with an exercise price less than Fair Market Value.] No stock option shall be an incentive stock option unless so designated by the Administrator at the time of grant and such designation is reflected in the Grant Agreement evidencing such stock option. (b) Stock Appreciation Rights. The Administrator may from time to time grant to eligible Participants Awards of Stock Appreciation Rights ("SARs"). A SAR may be exercised in whole or in part as provided in the applicable Grant Agreement and entitles the grantee to receive, subject to the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one share of Common Stock over (B) the base price per share specified in the Grant Agreement, multiplied by (ii) the number of shares covered by the SAR, or portion thereof, which is exercised. Payment by the Corporation of the amount receivable upon any exercise of a SAR may be made by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as 5 6 specified in the Grant Agreement. If upon settlement of the exercise of a SAR a grantee is to receive a portion of such payment in shares of Common Stock, the number of shares shall be determined by dividing such portion by the Fair Market Value of a share of Common Stock on the exercise date. No fractional shares shall be used for such payment and the Administrator shall determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated. (c) Stock Awards. The Administrator may from time to time grant restricted or unrestricted stock Awards to eligible Participants in such amounts, on such terms and conditions (which terms and conditions may condition the vesting or payment of Stock Awards on the achievement of one or more Performance Goals), and for such considerations, including no consideration or such minimum consideration as may be required by law, as it shall determine. (d) Phantom Stock. The Administrator may from time to time grant Awards to eligible Participants denominated in stock-equivalent units ("Phantom Stock") in such amounts and on such terms and conditions as it shall determine, which terms and conditions may condition the vesting or payment of Phantom Stock on the achievement of one or more Performance Goals. Phantom Stock units granted to a Participant shall be credited to a bookkeeping reserve account solely for accounting purposes and shall not require a segregation of any of the Corporation's assets. An Award of Phantom Stock may be settled in Common Stock, in cash, or in a combination of Common Stock and cash, as specified in the Grant Agreement. Except as otherwise provided in the applicable Grant Agreement, the grantee shall not have the rights of a stockholder with respect to any shares of Common Stock represented by a Phantom Stock unit solely as a result of the grant of a Phantom Stock unit to the grantee. (e) Performance Awards. The Administrator may, in its discretion, grant performance Awards, which become payable on account of attainment of one or more Performance Goals established by the Administrator. Performance Awards may be paid by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as specified in the Grant Agreement. 7. MISCELLANEOUS (a) Investment Representations. The Administrator may require each person acquiring shares of Common Stock pursuant to Awards hereunder to represent to and agree with the Corporation in writing that such person is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend that the Administrator deems appropriate to reflect any restrictions on transfer. All certificates for shares issued pursuant to the Plan shall be subject to such stock transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or interdealer quotation system upon which the Common Stock is then quoted, and any applicable federal or state securities laws. The Administrator may place a legend or legends on any such certificates to make appropriate reference to such restrictions. 6 7 (b) Compliance with Securities Law. Each Award shall be subject to the requirement that if, at any time, counsel to the Corporation shall determine that the listing, registration or qualification of the shares subject to such an Award upon any securities exchange or interdealer quotation system or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of nonpublic information or the satisfaction of any other condition is necessary in connection with the issuance or purchase of shares under such an Award, such Award may not be exercised, in whole or in part, unless such satisfaction of such condition shall have been effected on conditions acceptable to the Administrator. Nothing herein shall be deemed to require the Corporation to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. (c) Withholding of Taxes. Grantees and holders of Awards shall pay to the Corporation or its Affiliate, or make provision satisfactory to the Administrator for payment of, any taxes required to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. The Corporation or its Affiliate may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the grantee or holder of an Award. In the event that payment to the Corporation or its Affiliate of such tax obligations is made in shares of Common Stock, such shares shall be valued at Fair Market Value on the applicable date for such purposes. (d) Loans. The Corporation or its Affiliate may make or guarantee loans to grantees to assist grantees in exercising Awards and satisfying any withholding tax obligations. (e) Transferability. Except as otherwise determined by the Administrator or provided in a Grant Agreement, no Award granted under the Plan shall be transferable by a grantee except by will or the laws of descent and distribution. Unless otherwise determined by the Administrator in accordance with the provisions of the immediately preceding sentence, during the lifetime of the grantee, the Award may be exercised only by the grantee, by such permitted transferees or, during the period the grantee is under a legal disability, by the grantee's guardian or legal representative. Except as provided above, the Award may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. (f) Adjustments; Business Combinations. (i) Adjustments for Events Affecting Common Stock. In the event of changes in the Common Stock of the Corporation by reason of any stock dividend, spin-off, split-up, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares and the like, the Administrator shall, in its discretion, make appropriate substitutions for or adjustments to the maximum number and kind of shares reserved for issuance or with respect to which Awards may be granted under the Plan to any individual as provided in Section 4 of the Plan and to the number, kind and price of shares covered to any individual by outstanding Awards (without changing the aggregate purchase price as to which such Awards remain 7 8 exercisable) and shall, in its discretion and without the consent of holders of Awards, make any other substitutions for or adjustments in outstanding Awards, including but not limited to reducing the number of shares subject to Awards or providing or mandating alternative settlement methods such as settlement of the Awards in cash or in shares of Common Stock or other securities of the Corporation or of any other entity, or in any other matters which relate to Awards as the Administrator shall, in its sole discretion, determine to be necessary or appropriate. (ii) Pooling of Interests Transaction. Notwithstanding anything in the Plan to the contrary and without the consent of holders of Awards, the Administrator, in its sole discretion, may make any modifications to any Awards, including but not limited to cancellation, forfeiture, surrender or other termination of the Awards in whole or in part regardless of the vested status of the Award, in order to facilitate any business combination that is authorized by the Board to comply with requirements for treatment as a pooling of interests transaction for accounting purposes under generally accepted accounting principles. (iii) Adjustments for Other Events. The Administrator is authorized to make, in its discretion and without the consent of holders of Awards, adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Corporation, or the financial statements of the Corporation or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. (g) Substitution of Awards in Merger and Acquisitions. Awards may be granted under the Plan from time to time in substitution for Awards held by employees or directors of entities who become or are about to become employees or directors of the Corporation or an Affiliate as the result of a merger or consolidation of the employing entity with the Corporation or an Affiliate, or the acquisition by the Corporation or an Affiliate of the assets or stock of the employing entity. The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Administrator deems appropriate at the time of grant to conform the substitute Awards to the provisions of the awards for which they are substituted. Substitute Awards shall not be counted toward the share limit imposed by Section 4(b). (h) Foreign Participants. The Administrator may, without amending the Plan, modify Awards granted to Participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. (i) Termination, Amendment and Modification of the Plan. The Board may amend, alter or terminate the Plan, or portion thereof, at any time. 8 9 (j) Non-Guarantee of Employment or Service. Nothing in the Plan or in any Grant Agreement shall confer on an individual any legal or equitable right against the Corporation, any Affiliate or the Administrator, except as expressly provided in the Plan or the Grant Agreement. Nothing in the Plan or in any Grant Agreement thereunder shall (i) constitute inducement, consideration, or contract for employment or service between an individual and the Corporation or any Affiliate; (ii) confer any right on an individual to continue in the service of the Corporation or any Affiliate; or (iii) shall interfere in any way with the right of the Corporation or any Affiliate to terminate such service at any time with or without cause or notice, or to increase or decrease compensation for such service. (k) Other Employee Benefits. Except as to plans that by their terms include such amounts as compensation, the amount of any compensation deemed to be received by a Participant as a result of the exercise of an Award or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employee benefits of such Participant are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Administrator. (l) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation and a grantee or any other person. To the extent that any grantee or other person acquires a right to receive payments from the Corporation pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Corporation. (m) Governing Law. The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Administrator relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Delaware without regard to its conflict of laws principles. (n) Effective Date, Termination Date. The Plan is effective as of March 31, 1999, the date on which the Plan, as a replacement to the Prior Plan, was adopted by the Board, subject to the approval of the stockholders of the Corporation within twelve months of such effective date. No Award shall be granted under the Plan after the close of business on March 31, 2009. Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards. Date Approved by the Stockholders: June 24, 1999 9 EX-10.33 3 CHILDREN'S HOSPITAL RESEARCH AGREEMENT 1 Exhibit 10.33 ENTREMED, INC. CHILDREN'S HOSPITAL RESEARCH AGREEMENT This Agreement ("Agreement") entered into this 24th day of June, 1999 (the "Effective Date"), by and between Children's Hospital, 300 Longwood Avenue, Boston, Massachusetts 02115-5737 ("Hospital"), and EntreMed, Inc., 9640 Medical Center Drive, Suite 200, Rockville, Maryland 20850 ("EntreMed") WHEREAS, Hospital owns certain inventions that may be useful in the treatment of diseases in humans or animals and is interested in having a corporate sponsor and licensee to clinically develop these inventions; WHEREAS, EntreMed is interested in funding and/or implementing the clinical development of certain of the inventions in return for options for licensing certain of the inventions; WHEREAS, Hospital and EntreMed entered into a Children's Hospital Research Agreement dated September 29, 1993, as amended on August 23, 1995 (the "1993 Agreement); WHEREAS, the parties now wish to amend and restate the 1993 Agreement in its entirety as of the Effective Date by entering into three agreements dated June 24, 1999; and WHEREAS, the research program contemplated by this Agreement is of mutual interest and benefit to Hospital and to EntreMed and may further the practice of medicine and the research agenda of the Hospital in a manner consistent with its status as a non-profit, tax-exempt, teaching Hospital. NOW, THEREFORE, the parties agree as follows: 1. Scope of Work (a) Hospital agrees to use reasonable efforts to perform the Research and Clinical Development Program entitled "Angiogenesis Research Program" ("Program") in accordance with Exhibit A, attached hereto and made a part of this Agreement as the same may be amended by the parties from time to time. (b) Any alteration in or amendment to the Program must be approved in writing by both Hospital and EntreMed prior to such alteration or amendment being effective. 2. Period of Performance (a) The Program shall be conducted during the period beginning on the Effective Date, through September 29, 2000, and will be subject to renewal only by written mutual agreement of EntreMed and Hospital. 1 2 3. Principal Investigator (a) The Principal Investigator for the Program will be Dr. M. Judah Folkman ("Principal Investigator") of the Department of Surgery. In the event the Principal Investigator becomes unable to complete the Program for any reason, EntreMed and Hospital may mutually agree upon a substitute Principal Investigator, in which event this Agreement shall continue in full force and effect. If EntreMed and Hospital cannot agree on a substitute, either party may immediately thereafter terminate this Agreement, subject to the requirements of Section 11(f) of this Agreement. 4. Research Program Support (a) Primary Program Support. EntreMed agrees to pay Hospital One Million Four Hundred Thousand Dollars ($1,400,000) to fund the Program in accordance with the conditions and terms of this Agreement. (b) Payments. On September 29, 1999, EntreMed will pay Hospital the sum of $700,000 and thereafter will make one additional payment of $700,000 on March 29, 2000, in accordance with the conditions and terms set forth herein. (c) Payments. Payments of all sums due hereunder shall be made by check payable as follows: Children's Hospital Research Finance Office 300 Longwood Avenue Boston, MA 02115-5737 (d) Late Payments. Late payments shall bear interest from the due date until payment at a rate of the lower of one and one-half percent (1 1/2%) per month, or the maximum amount permitted by law. The payment of such interest shall not forclose Hospital from exercising any other rights it may have as a consequence of the lateness of any payment, including without limitation termination under Article 11(d). 5. Equipment (a) Equipment purchased as part of the Program shall be owned by the Hospital, shall be physically located at the Hospital, and shall remain as property of the Hospital following completion of the Program. 6. Publications (a) EntreMed acknowledges that Hospital is an academic medical center and that Dr. Folkman and his collaborators shall be free to publish results of their studies without restraint. Notwithstanding this, Hospital agrees to send EntreMed copies of any manuscripts resulting from the Program and submitted for consideration for publication or any abstracts that are submitted to a conference no later than the same day the manuscript or abstract is submitted. Hospital agrees to use reasonable efforts 2 3 to notify EntreMed at least one month in advance of any instances where the results of the Program will be presented at a conference by invitation and without abstract. EntreMed will notify Hospital if any action is necessary to secure patent protection for the technology and Hospital agrees to take such action, subject to the terms and conditions hereof. If EntreMed so elects, Hospital agrees to include in any publication of the results of the Program acknowledgment of EntreMed's financial and technical support. 7. Intellectual Property (a) Any invention conceived or first reduced to practice by Hospital or Hospital personnel in the performance of the Program shall be owned by Hospital ("Invention"). Any invention conceived or first reduced to practice by EntreMed or EntreMed personnel at EntreMed's facilities during the term of this Agreement shall be owned by EntreMed. Any invention conceived or first reduced to practice jointly by Hospital or Hospital personnel and EntreMed or EntreMed personnel shall be jointly owned by Hospital and EntreMed; for jointly-owned inventions, Hospital agrees to offer an option to license the Hospital's interest in the invention according to Section 7(c). (b) Hospital agrees to notify EntreMed as soon as possible when a new, potentially patentable Invention has been identified and disclosed to the Technology Transfer Office. EntreMed will immediately order a patentability and infringement search and, if the Invention is patentable, will be responsible, at EntreMed's expense, for filing and prosecuting patent applications on behalf of Hospital in Hospital's name covering the new Inventions, with appropriate and timely review and approval by Hospital. EntreMed shall solicit Hospital's comments prior to any significant actions required during filing and prosecution and provide Hospital with drafts of proposed actions and responses sufficiently in advance to allow time for comment and with file copies after the action is completed. If EntreMed decides not to file a patent application, EntreMed will notify Hospital within [ninety) [90] days of receiving disclosure of the new Invention and if EntreMed decides not to maintain prosecution of any patent application, EntreMed will notify Hospital in a timely fashion. Hospital may elect to file or maintain prosecution of such patent rights at its own expense; and Hospital shall be entitled to dispose of such patent rights without limitation, and EntreMed shall have no further option, license or other rights thereto. (c) For Inventions for which EntreMed shall elect to file and maintain prosecution of a patent application, Hospital grants to EntreMed an exclusive nine-month option to decide whether or not to negotiate an exclusive license. Such option period shall begin at the date of filing of a provisional patent application or a non-provisional patent application. At the end of the nine-month option period after filing of a provisional patent application, EntreMed may request an additional six-month option period. In consideration for granting the additional six-month period, EntreMed will agree to file a non-provisional patent application at EntreMed's expense. If EntreMed chooses to license such patent rights during either option period, EntreMed shall have an additional three-month period in which to negotiate and enter into a license on the terms and conditions of the model license agreement (Exhibit B). During this three-month period, EntreMed will provide a development plan to Hospital which will include a time frame for implementation of the 3 4 development plan. This development plan will be updated semiannually. If EntreMed chooses not to license each patent rights, Hospital shall have the right to license to a third party; and EntreMed shall have no further option, license or other rights thereto. (d) Any license granted pursuant to this Agreement shall conform to the terms and conditions of the License attached as Exhibit B. (e) Any license granted pursuant to this Article shall be subject to a reservation of the unrestricted right of Hospital and inventors (while employed by Hospital or other non-profit institution) to use subject matter claimed in the licensed patent(s) or patent application(s) for research purposes only at no cost to Hospital and the right to license to non-profit institutions for research purposes only. (f) EntreMed shall retain all invention disclosures submitted by Hospital in confidence and use its best efforts to prevent their disclosure to third parties. EntreMed shall be relieved of this obligation only when this information becomes publicly available through no fault of EntreMed. 8. Indemnification (a) EntreMed shall indemnify, defend and hold harmless Hospital and its board members, officers, medical staff, employees, and agents from and against any and all liability, damage, loss or expense (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon it or any one of them in connection with any claims, suits, actions, demands or judgments arising out of, resulting from or related to performance under this Agreement, regardless of the theory of liability (including, but not limited to, actions in the form of tort, warranty, or strict liability), to the extent that such liability, loss, damage or expense is the result of the acts or omissions of EntreMed or any of its board members, officers, agents, servants, and employees. (b) EntreMed agrees, at its own expense, to provide attorneys reasonably acceptable to the Hospital to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. Hospital shall promptly notify EntreMed if any such action shall be brought or flied or claim made. (c) This Article 8 shall survive expiration or termination of this Agreement. 9. Biological Materials Transfer (a) Unique clones, chemicals, proteins or reagents developed or discovered under the Program by Hospital may be shared with scientists at non-profit academic or governmental institutions upon execution of Hospital's Materials Transfer Agreement for commercially significant materials. Requests for such materials that originate from commercial entities will be discussed with EntreMed, and Hospital will consider the potential effect of such transfers on the Program before deciding whether to transfer such materials. 4 5 10. Timely Pre-Clinical and Clinical Development (a) As a condition to obtaining a license to the patent rights to Inventions under Section 7, EntreMed agrees to support clinical development, clinical trial and regulatory management of licensed products. If EntreMed decides to sublicense the licensed product and patent rights, in whole or for a field of use, the sublicensee must be acceptable to Hospital in that such sublicensee can provide the resources required to bring the Invention to the marketplace. Such acceptance of a sublicensee by Hospital will not be unreasonably withheld. (b) EntreMed agrees to notify Hospital in a timely way of its decision to discontinue preclinical or clinical development of any licensed product and its reasons for doing so. The license(s) held by EntreMed to Patent Rights (as defined in the license agreement for such licensed product) for that Licensed Product (as defined in the license agreement for such licensed product) will be terminated upon notice from Hospital. 11. Term and Termination (a) The term of this Agreement begins on the Effective Date and terminates on September 29, 2000, unless sooner terminated as provided below. (b) Performance under this Agreement may be terminated by EntreMed at any time with or without cause, and by Hospital without cause, upon one (1) year prior written notice to the other party. If Hospital terminates this Agreement under this Article 11(b), all options and rights to Inventions and patent rights granted in this Agreement to EntreMed shall remain in effect under Article 7 and all licenses granted prior to the effective date of termination shall remain in effect subject to the terms of the applicable license agreement entered into between EntreMed and Hospital. EntreMed shall continue to fund the Program for the shorter of either one year following notice of termination or the remainder of the term set forth in Article 11(a). (c) In the event of termination by EntreMed under Article 11(b), all options and rights to Inventions and patent rights granted in Article 7 shall immediately terminate this Agreement and coincidentally with EntreMed's notice of termination. Any license agreement granted to EntreMed under Article 7 prior to such notice of termination, shall survive, subject to the terms of said license agreement. (d) In the event of EntreMed's material breach of this Agreement, including without limitation, failure to meet its payment obligation under Article 4, Hospital shall have the right to give notice of breach, and EntreMed shall have thirty (30) days to cure. If EntreMed shall not cure such breach within the thirty-day period, Hospital shall have the right to immediately terminate this Agreement and all options and rights to Inventions and patent rights granted in Article 7 and/or all license and other rights granted in any license agreements executed prior to the date of notice of termination of Article 7 rights under this Agreement or the 1993 Agreement, such notice to be given in writing to EntreMed. 5 6 (e) In the event of termination by Hospital under Article 11(b), and upon sending its notice of termination, Hospital agrees to promptly take all responsible steps to reduce the costs to EntreMed, and Hospital shall return at termination any unexpended funds to EntreMed less any non-refundable costs including non-cancelable obligations Hospital has incurred in the performance of the Program prior to the date of notice of such termination. In no event shall such deduction exceed the total support specified in Article 4. (f) In the event of termination under Article 3 and upon the terminating party sending its notice of termination, Hospital agrees to promptly take all responsible steps to reduce the costs to EntreMed, and Hospital shall return at termination any unexpended funds to EntreMed less any non-refundable costs including, but not limited to non-cancelable obligations Hospital has incurred in the performance of the Program prior to the date of notice of such termination. In no event shall such deduction exceed the total support specified in Article 4. EntreMed agrees to fund salaries of essential personnel for a period of nine months from notice of termination. All options and rights to Inventions and patent rights granted in Article 7 to EntreMed shall remain in effect and all licenses granted prior to the effective date of termination shall remain in effect subject to the terms of the applicable license agreement entered into between EntreMed and Hospital. (g) The following provisions shall survive any expiration or termination of this Agreement: 4(a) as to the Option, 5(a), 7(a), 8, 11(b), 11(c), 11(f), 11(g), 12(a), 15 (except (b) and (g) and 16. 12. Communications (a) Notice. All medical/scientific and other communications, reports, and notices shall be delivered by hand or sent by first class mail postage prepaid and addressed as follows: If to EntreMed: President EntreMed, Inc. 9640 Medical Center Drive, Suite 200 Rockville, MD 20850 With a copy to: James Dean Johnson, Ph.D. Jones & Askew 2400 Monarch Tower 2434 Peachtree Road Atlanta, GA 30326 6 7 If to Hospital: For all medical/scientific communications: Judah Folkman, M.D. Department of Surgery Children's Hospital 300 Longwood Avenue Boston, MA 02115-5737 With a copy to: Director Technology Transfer Office Children's Hospital 300 Longwood Avenue Boston, MA 02115-5737 For all other communications, reports, and notices: Director Technology Transfer Office Children's Hospital 300 Longwood Avenue Boston, MA 02115-5737 (b) For the purpose of facilitating EntreMed's understanding of the research activities conducted by Hospital pursuant to the Program, Hospital will permit duly authorized employees or representatives of EntreMed to visit its facilities where the research is conducted, or attend restricted-access Hospital seminars on or off site, at reasonable times and with prior reasonable notice and approval by the Principal Investigator. All such visits, seminars or other communications, including without limitation, informal conversations, email and the like concerning research activities, will bc subject to the Mutual Nondisclosure Agreement between the parties of even date as this Agreement. (c) All communications regarding the business terms in this Agreement shall be exclusively between EntreMed and the Technology Transfer Office. 13. Use of Names (a) Each party agrees not to use or cite in any manner the name of the other, its employees or Principal Investigator in any commercial or non-commercial advertising, article, press release or in any other forms of writing or publication medium, or orally to the extent practical, without the prior written permission of the party or individual whose name is to be used except as required by law. Hospital agrees to respond to any submission by EntreMed in a timely manner, and EntreMed agrees to submit such writings, and summarized oral comments to the extent practical, for approval at least ten (10) days prior to submission for public release. EntreMed agrees that any such writings or publications or oral comments or 7 8 presentations, and any references in its other communications to the public or third parties, will accurately reflect the contractual relationship between the parties and will not misrepresent or mislead others as to the nature of the relationship. The parties agree to meet within thirty (30) days alter the Effective Date to establish a set of rules to assist them in complying with this Article 13.(a). (b) EntreMed agrees not to disclose any of Hospital's confidential or proprietary information in Invention disclosures or reports, data concerning scientific discoveries, data from evaluations, research results and the like in any commercial or non-commercial advertising, article, press release or in any other forms of writing or publication medium or to any third party without the prior written permission of Hospital. 14. Representations and Warranties. Hospital represents and warrants to EntreMed as follows: (a) The execution and delivery of this Agreement by Hospital have been duly and validly authorized and this Agreement constitutes a legal, valid and binding obligation of Hospital, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement does not conflict with or violate any charter document or, to Hospital's knowledge, any contract binding upon Hospital. (b) Hospital has not received notice of any assertion that any of the patents or subject Inventions infringe upon any third party's know-how, patent or other intellectual property rights, except as otherwise provided in writing to EntreMed, Inc. (c) Hospital is and will be, during the term of this Agreement and thereafter, the owner of all rights in and to the inventions conceived or first reduced to practice by hospital or its employees or independent contractors as a part of and/or the projects which are included in the Program. EntreMed represents and warrants to Hospital as follows: (a) The execution and delivery of this Agreement by EntreMed have been duly and validly authorized and this Agreement constitutes a legal, valid and binding obligation of EntreMed enforceable in accordance with its terms. The execution, delivery and performance of this Agreement does not conflict with or violate any charter document or, to EntreMed's knowledge, any contract binding upon EntreMed. 15. General Provisions (a) All rights and remedies hereunder will be cumulative and not alternative, and this Agreement shall be construed and governed by the laws of the Commonwealth of Massachusetts. (c) Neither party may assign, transfer or delegate its rights, duties or obligations hereunder without the prior written consent of the other, and any assignment, transfer or delegation in violation of this provision shall be void. Subject to the terms 8 9 of this provision, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything herein to the contrary, in the event EntreMed merges with another entity, is acquired by another entity, or sells all or substantially all of its assets to another entity, EntreMed may assign its rights and obligations hereunder to, in the event of a merger or acquisition, the surviving entity, and in the event of a sale, the acquiring entity, without Hospital's consent so long as: (i) EntreMed is not then in breach of this Agreement; (ii) the proposed assignee has a net worth at least equivalent to the net worth EntreMed had as of the date of this Agreement; (iii) EntreMed provides written notice of the assignment to Hospital, together with documentation sufficient to demonstrate the requirements set forth in subparagraphs (i) and (ii) above, at least twenty (20) days prior to the effective date of the proposed assignment; and (iv) Hospital receives from the proposed assignee, in writing, at least twenty (20) days prior to the effective date of the assignment an agreement to perform the obligations of EntreMed under this Agreement. (c) This Agreement may be amended only by written agreement signed by both parties. (d) It is expressly agreed by the parties hereto that the Hospital and EntreMed are independent contractors and nothing in this Agreement is intended to create an employer relationship, joint venture, or partnership between the parties. Neither party has the authority to bind the other. (e) This Agreement and its Exhibits constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all proposals, negotiations and other communications between the parties, whether written or oral, with respect to the subject matter hereof. (f) If any provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired thereby. (g) The use of vertebrate animals in the conduct of work under this Agreement shall comply with applicable portions of the Animal Welfare Act (P.L. 89-544 as amended) and will follow the guidelines prescribed in DHEW, NIH Publication No. 78-23, "Guide for the Care and Use of Laboratory Animals," as amended, and in any applicable state or local regulations. (h) EXCEPT AS PROVIDED IN ARTICLE 14, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, HOSPITAL MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NONINFRINGEMENT, WITH RESPECT TO ANY PATENT, TRADEMARK, COPYRIGHT, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INVENTION, RESEARCH RESULTS, INFORMATION OR DATA PROVIDED OR UNDER OPTION TO ENTREMED HEREUNDER AND HEREBY DISCLAIMS THE SAME, AND HOSPITAL SHALL NOT BE LIABLE FOR ANY DIRECT, CONSEQUFNTIAL OR OTHER DAMAGES SUFFERED BY ENTREMED OR ANY LICENSEE OR 9 10 OTHERS RESULTING FROM USE OF THE SAME OR ANY RESULTING PRODUCT OR PROCESS. 16. 1993 Agreement (a) Hospital and EntreMed hereby terminate the 1993 Agreement, except that Articles 5(a), 7, 8, 14(a), (c), second 14(a), and 15 shall survive. (b) All Inventions under the 1993 Agreement shall be governed by the provisions of any license agreement as amended from time to time, entered into prior to the Effective Date, subject to Article II of this Agreement, or the provisions of this amended and restated Agreement, if no license agreement has been cxecuted as of the Effective Date. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
CHILDREN'S HOSPITAL ENTRMED, INC. By: /s/ William G. New By: /s/ John W. Holaday, Ph.D. ----------------------------------- ------------------------------ William G. New John W. Holaday, Ph.D. Title: V.P. Research Administration Title: President and CEO ----------------------------------- --------------------------- Date: June 24, 1999 Date: June 24, 1999 ----------------------------------- ---------------------------- /s/ M. Judah Folkman, M.D. Date: June 24, 1999 - --------------------------------------------- ---------------------------- M. Judah Folkman, M.D.
10 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-1999 17,514,233 1,501,845 358,860 0 0 19,456,085 5,959,539 1,877,469 24,493,689 6,043,054 0 0 0 131,772 18,427,425 24,493,689 0 2,773,070 0 0 18,625,502 0 0 (15,157,145) 0 (15,157,145) 0 0 0 (15,157,145) (1.15) (1.15)
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