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Personalis 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 0-26770 NOVAVAX, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2816046 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 8320 GUILFORD ROAD, COLUMBIA, MARYLAND 21046 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (301) 854-3900 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:- - -------------------------------------------------------------------------------------------- Common Stock ($.01 par value) American Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not be contained, to thebest of the registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. [ ] The aggregate market value of the registrant's Common Stock, par value $.01per share, held by non-affiliates of the registrant at March 20, 1997, ascomputed by reference to the closing price of such stock, was approximately$35,000,000. The number of shares of the registrant's Common Stock, par value $.01 pershare, outstanding at March 20, 1997 was 11,888,153 shares. Documents Incorporated by Reference: Portions of the 1997 Novavax, Inc.Proxy Statement are incorporated by reference into Part III of this Report.================================================================================ 2 PART I ITEM 1. BUSINESS Novavax, Inc. ("Novavax" or the "Company") is a biopharmaceutical companyfocusing on the research and development of proprietary topical and oral drugdelivery technologies. The Company's technology platforms involve the use ofproprietary microscopic organized lipid structures as vehicles for the deliveryof a wide variety of drugs and other therapeutic products, including certainhormones, anti-bacterial and anti-viral products and vaccine adjuvants. TheCompany's lead product candidates, ESTRASORB(TM), a topical estrogen cream andHelicore(TM), an oral anti-bacterial preparation for the treatment ofHelicobacter pylori infection, have completed Phase I human clinical trials. TheCompany has recently entered Phase I human clinical studies with ANDROSORB(TM),a topical testosterone cream. Historically, the focus of the Company was on the development of humanvaccines, vaccine adjuvants, drug delivery technologies and anti-infectivepharmaceuticals. Novavax developed several oral vaccines, two of which (ECOVAX057(TM) and Shigella flexneri 2a) were granted Investigational New DrugApplication ("IND") approvals and completed Phase I human clinical studies. Bothvaccine studies were multiple dose Phase I safety trials in which no significanttoxicity was noted. Although the Company began development of its pharmaceuticalproduct candidates later than, and as byproducts of, its vaccine development,its primary emphasis is now on these pharmaceutical product candidates for thefollowing reasons: - Much larger potential markets - Lower estimated clinical development costs - Measurements of clinical efficacy are more easily defined - Current financial resources do not permit concurrent development of both multiple vaccine and pharmaceutical programs Consistent with prudent use of the Company's limited cash resources, theclinical development programs of both oral active vaccine immunization programshave been presently suspended in favor of the development of the Company's threelead pharmaceutical product candidates. The Company has the potential to developother human pharmaceutical products utilizing its proprietary drug deliveryplatform technologies, dependent upon additional future capital. Novavax, Inc. was incorporated in Delaware in 1987. On December 12, 1995,the Company's former parent, IGI, Inc. ("IGI"), distributed its majorityinterest in Novavax to the IGI stockholders (the "Distribution"). Until then,Novavax had been the human pharmaceuticals subsidiary of IGI. The Company'sprincipal executive offices are located at 8320 Guilford Road, Columbia,Maryland, 21046. THE NOVAVAX TECHNOLOGY PLATFORMS Novavax has developed proprietary topical and oral drug deliverytechnologies using organized lipid structures. To date, the Company has utilizedits technology in the development of Novasome lipid vesicles and micellarnanoparticles ("MNPs"), which are sub-micron size lipid structures that alsopossess encapsulation capabilities. These structures may help in targeteddelivery and controlled release. The Company believes its technologies may allowfor more cost-effective delivery of a wide variety of drugs and othertherapeutics than is possible with phospholipid liposomes and other deliveryvehicles. Most commercial liposomes are composed of delicate phospholipids. Due totheir inherent lack of stability and carrying capacity limitations, phospholipidliposomes may only be used with a limited number of drugs. While capable of encapsulating certain (principally water soluble) drugs, phospholipid liposomeshave a number of significant disadvantages, including their expense and the needto use potentially hazardous organic solvents in their manufacture. In addition,the standard, multi-step phospholipid manufacturing process yields relativelysmall quantities of liposomes. 1 3 Novasome(R) Lipid Vesicles Novasome lipid vesicles are proprietary organized lipid structures in whichdrugs or other materials can be encapsulated for delivery into the bodytopically or orally. Novasome lipid vesicles are made using the Company'spatented manufacturing process from a variety of readily available chemicalscalled amphiphiles. IGI, the Company's former parent, currently uses Novasomelipid vesicles in a wide variety of cosmetic applications, including productssold by Estee Lauder and Revlon under such labels as Prescriptives and Almay. Todate, IGI has sold hundreds of tons of products that incorporate Novasometechnologies. The Company believes Novasome lipid vesicles have a number of proprietaryfeatures that may be applicable in the delivery of human therapeutics. BecauseNovasome lipid vesicles consist primarily of inexpensive chemicals and themanufacturing process is a simple one, the Company believes that themanufacturing cost of Novasome lipid vesicles is less than that of phospholipidliposomes and other drug delivery vehicles. Novasome lipid vesicles also have alarge, stable central core that allows them to entrap and deliver a wide varietyof substances that may be too large or chemically disruptive for phospholipidliposomes. In addition, the Company is able to manipulate the structure and sizeof Novasome lipid vesicles in order to vary the amount and rate of drug deliveryinto the body. This may enable Novasome lipid vesicles to be utilized for thecontinuous delivery of therapeutics over extended periods of time. Micellar Nanoparticles Micellar nanoparticles are submicron-sized water miscible lipid structuresthat have different structural characteristics and are generally smaller thanNovasome lipid vesicles. MNPs, like Novasome lipid vesicles, are derived fromamphiphile molecules. Novavax scientists have demonstrated the ability to incorporate alcoholsoluble drugs, and pesticides, vaccine adjuvants, proteins, whole viruses,flavors, fragrances and colors into MNPs. MNPs have the ability to entrapethanol or methanol soluble drugs and to deliver these drugs through intactskin. The MNP formulations used for the transdermal delivery of drugs havecosmetic properties similar to creams and lotions. NOVAVAX PRODUCT CANDIDATES Topical Drug Delivery The Company is using its micellar nanoparticle technology in thedevelopment of ESTRASORB, a cream designed for the delivery of estradiol(natural estrogen) through the skin. Estrogen replacement therapy is currentlyused worldwide by menopausal and post menopausal women to prevent osteoporosis,cardiovascular disease and other menopausal symptoms (e.g. "hot flashes").Current estrogen replacement products include oral tablets and more recently,transdermal patches. Oral estrogen tablets, however, have been associated withside effects primarily resulting from fluctuating blood hormone levels. Becauseof these side effects, transdermal patches for estrogen replacement weredeveloped. While these patches help reduce blood hormone fluctuations, they maycause skin irritation and patient inconvenience associated with wearing andchanging an external patch. The Company believes that ESTRASORB may offer several advantages overexisting therapies used for estrogen replacement. ESTRASORB is a lotion that may be applied to the skin much like a typical cosmetic cream. The Company believesESTRASORB will be able to deliver a continuous amount of estrogen to the patientwithout the fluctuations in blood hormone levels associated with oral tablets.In addition, ESTRASORB does not contain materials that may cause the skinirritation associated with transdermal patches. In 1995, the Company completed preclinical testing of ESTRASORB in aprimate model. Results of this study demonstrated that ESTRASORB can be utilizedto deliver estradiol through intact skin with maintenance of therapeutic serumestradiol levels for six days after a single topical application. Based on theseresults, the Company initiated a Phase I human clinical trial of ESTRASORB in 10symptomatic menopausal women. In this study, each woman received a singletopical application of ESTRASORB. This study was completed in the fourth quarterof 1996 with no significant adverse experiences noted. The Company plans to 2 4 submit dose ranging clinical study plans for ESTRASORB to the United States Foodand Drug Administration (the "FDA") in the first quarter of 1997. In September, 1996, the Company completed the preclinical testing ofANDROSORB (testosterone) in its MNP transdermal drug delivery platform. In theseanimal models, peak blood levels of testosterone delivered by ANDROSORB wereapproximately three times higher than that of testosterone dissolved in ethanol.After a single topical cream application, peak serum levels of testosterone wereas high as 35 nanograms per milliliter and persisted in the therapeutic rangefor 48 hours. Testosterone replacement therapy is currently used by males who aretestosterone deficient as a result of either primary or secondary hypogonadism.Testosterone in males is required to maintain sexual function and libido,maintain lean body mass, increase hemoglobin synthesis and maintain bonedensity. Current testosterone replacement therapy products include deepintramuscular injections or transdermal patches. The injections require frequentvisits to a physician and maybe associated with pain at the injection site andabscess. The transdermal patches may cause skin irritation and patientinconvenience associated with wearing and changing two to three external patchesper day. The Company believes that ANDROSORB may offer several advantages overcurrent testosterone replacement therapies. ANDROSORB is a lotion that may beapplied to the skin. This would eliminate the need for intramuscular injections.In addition, ANDROSORB does not contain materials that may cause the skinirritation associated with transdermal patches. As a result of its successfulpre-clinical studies with ANDROSORB, the Company filed for and received an INDwith the FDA in the fourth quarter of 1996. The Company has initiated a Phase Ihuman clinical study in 10 testosterone deficient males. In this safety study,each male will receive a single topical application of ANDROSORB. In September, 1996, the Company also completed the preclinical testing ofPROGESTSORB(TM) (progesterone) in its MNP transdermal drug delivery platform.PROGESTSORB was as effective as ethanol for delivery of progesteronetransdermally. A single topical cream application of PROGESTSORB provided peakserum levels of 10 nanograms per milliliter, which persisted in the therapeuticrange for 48 hours. The Company is developing an estrogen-progesterone productcandidate in its MNP transdermal delivery system for preclinical testing. With its MNP transdermal drug delivery platform, the Company has nowcompleted preclinical studies on three drugs (estradiol, testosterone andprogesterone). Novavax plans to proceed with clinical development of thesepharmaceutical products. The Company believes its MNP and other technologies aresuitable for the delivery of additional alcohol soluble, as well as other, drugsthrough the skin. Helicore Anti-microbial Preparations The Company has developed proprietary lipid structure formulations that itis using in the development of a non-antibiotic anti-bacterial preparation forthe treatment of Helicobacter pylori ("H. pylori") infection in humans. H. pylori was recognized in 1994 by the National Institutes of Health (the"NIH") as a causative agent of peptic ulcer disease, antral gastritis andcertain types of gastric cancer. It is estimated that 30-80 million adults inthe U.S. are infected with H. pylori. Each year the treatment of complicationsof H. pylori infections (i.e. peptic ulcer disease) in the U.S. alone costs inexcess of five billion dollars. Current therapies for the treatment of H. pylori include the use ofantibiotics alone or antibiotics in combination with drugs that inhibit acidproduction in the stomach. Problems associated with such therapies include, butare not limited to, cost, toxicity, failure to sufficiently eradicate all thebacteria, and acquired resistance to the antibiotic. In the fourth quarter of 1995, the Company completed a single-dose Phase Ihuman clinical study involving 20 subjects in which no clinically significantside effects were found. Based on the results of this study, in March, 1996, theCompany began a multiple-dose Phase I human clinical trial involving 20 non-symptomatic patients diagnosed with H. pylori infection. The Company recentlyreceived permission from the 3 5 FDA to proceed with the testing of Helicore (p10)(TM), an additional oralnon-antibiotic anti-bacterial preparation developed to eradicate H. pyloribacteria. Helicore(p10) was given in multiple doses to 10 non-symptomatic H.pylori positive subjects and no clinically significant side effects were noted.This additional preparation brings the total number of Helicore products inhuman clinical testing in non-symptomatic H. pylori infected patients to three.The study was completed in the fourth quarter of 1996 with no significantadverse experiences reported. The Company hopes to initiate Phase II clinicaltrials with Helicore in 1997. Vaccine Adjuvants Adjuvants are substances that make vaccines more effective. The Companybelieves that certain of its organized lipid structures (e.g. Novasome lipidvesicles and MNPs) may provide effective and safe adjuvant carrier systems for avariety of vaccines. The Company believes both Novasome lipid vesicles and MNPsmay be used as vaccine adjuvants and protective carriers in a variety ofcircumstances, including: (i) encapsulation and protection of delicate antigenicmaterials from destruction by the body's normal enzymatic processes; (ii)encapsulation of toxic materials, such as endotoxins and other potent toxins,for gradual releases thereby providing protection of the body from the toxinwhile generating an immune response to the toxic antigen; (iii) presentation ofsmall peptide antigens to elicit a heightened cellular immune response; and (iv)delivery of genes and other molecules into targeted cells. MANUFACTURING The development and manufacture of the Company's products are subject togood laboratory practices ("GLP") and good manufacturing practices ("GMP")requirements prescribed by the FDA and to other standards prescribed by theappropriate regulatory agency in the country of use. With its patentedNovamix(R) and other production machinery, the Company currently has the abilityto produce quantities of Novasome lipid vesicles sufficient to support itscurrent needs. The Company also has the ability to produce quantities ofNovasome lipid vesicles and MNP sufficient to support its needs for early-stageclinical trials. It does not presently have FDA certified facilities capable ofproducing the larger quantities of pharmaceutical products required for largerscale clinical trials or commercial production. The Company will need to acquiresuch manufacturing facilities for later stage clinical trials and commercialproduction of its own pharmaceuticals, or rely on collaborators, licensees or contract manufacturers. There can be no assurance that the Company will be ableto obtain such facilities or manufacture such products in a timely fashion atacceptable quality and prices, that it or its suppliers will be able to complywith GLP or GMP, as applicable, or that it or its suppliers will be able tomanufacture an adequate supply of product. MARKETING The Company plans to market its pharmaceuticals and vaccine adjuvants forwhich it obtains regulatory approvals either through joint ventures or corporatepartnering arrangements. The Company expects that such arrangements couldinclude technology licenses, research funding, milestone payments, collaborativeproduct development, royalties and equity investments in Novavax. Implementationof this strategy will depend on many factors, including the market potential,the success in developing relationships with distributors or marketing partnersfor the Company's products and the financial resources available to the Company. COMPETITION A number of large companies, such as Novartis, Procter & Gamble, AmericanHome Products, Parke-Davis, Solvay Pharmaceuticals, SmithKline Beecham, AbbottLaboratories, Ortho Pharmaceuticals and Mead Johnson Laboratories, produce andsell estrogen preparations for clinical indications identical to those theCompany proposes to target. SmithKline Beecham currently markets a transdermaltestosterone patch and Novartis markets an estrogen transdermal patch. Thecompetition to develop FDA approved hormone replacement therapies is intense andno assurance can be given that the Company's product candidates will bedeveloped into commercially successful products. 4 6 Many companies, such as Merck, Merck-Astra, Glaxo-Wellcome, Procter &Gamble, SmithKline Beecham, OraVax and others, are currently evaluating varioustreatment programs for peptic ulcer disease and the treatment of H. pylori. Mostof the therapies under investigation today involve a combination of a currentlyused ulcer treatment medication (e.g., Prilosec(R), Zantac(R) or Tagamet(R)) inassociation with an antibiotic (e.g., Amoxicillin, Flagyl(R) or Biaxin(R)). Themarket for the development of treatment programs for peptic ulcer disease and H.pylori infection is competitive and no assurance can be given that the Company'sH. pylori product candidates will be developed into commercially successfulproducts. A number of other companies have been working on vaccine adjuvants for usein human vaccines. These include, but are not limited to, Chiron, RibiImmunochem Research, Cambridge Biotech, Iscotec, Proteus International andBiomira. The competition to develop FDA-approved human vaccine adjuvants isintense and no assurance can be given that the Company's adjuvant productcandidates will be developed into commercially successful products. Primary competitors in the development of lipid structure and vesicleencapsulation technologies are The Liposome Company, Sequus Pharmaceuticals,Nexstar Pharmaceuticals and L'Oreal, as well as other pharmaceutical, vaccineand chemical companies. The Company believes that, except for L'Oreal, thesecompanies have focused their development efforts on pharmaceutical carriersystems for the treatment of infections and certain cancers. To the Company'sknowledge, The Liposome Company, Sequus and Nexstar all base their lipid vesicletechnologies on phospholipids. Most of the Company's competitors are larger than the Company and havesubstantially greater financial, marketing and technical resources. In addition,many of these competitors have substantially greater experience than the Companyin developing, testing and obtaining FDA and other approvals of pharmaceuticals.Furthermore, if the Company commences commercial sales of pharmaceuticals, itwill also be competing with respect to manufacturing efficiency and marketingcapabilities, areas in which it has limited or no experience. If any of thecompetitors develop new encapsulation technologies that are superior to the Company's Novasome encapsulation technology, the ability of the Company toexpand into the pharmaceutical and vaccine adjuvant markets will be materiallyand adversely affected. Competition among products will be based, among other things, on productefficacy, safety, reliability, availability, price and patent position. Animportant factor will be the timing of market introduction of the Company's orcompetitors' products. Accordingly, the relative speed with which the Companycan develop products, complete the clinical trials and approval processes andsupply commercial quantities of the products to the market is expected to be animportant competitive factor. The Company's competitive position will alsodepend upon its ability to attract and retain qualified personnel, to obtainpatent protection or otherwise develop proprietary products or processes and tosecure sufficient capital resources for the often substantial period betweentechnological conception and commercial sales. RESEARCH AND DEVELOPMENT The Company's research is focused principally on the development, marketingand licensing of formulations for topical drug delivery and therapeuticproducts, including anti-bacterial and anti-viral products and adjuvants forvaccines. The Company intends to use third-party funding when available, eitherthrough government or research grants or through collaborations, joint venturesor strategic alliances with other companies, particularly potential users ordistributors of the Company's products. Because of the substantial fundsrequired for clinical trials, the Company will have to obtain additionalfinancing for its future human clinical trials. No assurance can be given thatsuch financing will be available on terms attractive to the Company, if at all. The Company bases its development decisions on development costs andpotential return on investment, regulatory considerations, and the interest,sponsorship and availability of funding from third parties. As of December 31, 1996, the Company's research and development staffnumbered 11 individuals. In addition to its internal research and developmentefforts, the Company encourages the development of product candidates in areasrelated to its present lines by working with universities and governmentagencies. 5 7 Novavax's gross research and development expenditures, before amounts receivedfrom other companies, approximated $3,716,000, $3,708,000 and $2,860,000 in theyears ended December 31, 1996, 1995 and 1994, respectively. PATENTS AND PROPRIETARY INFORMATION The Company, through a wholly-owned subsidiary, holds 36 U.S. patents and58 foreign patents covering its technologies (which include a wide variety ofcomponent materials, its continuous flow vesicle production process and itsNovamix production equipment). The Company believes that these patents areimportant for the protection of its technology as well as certain of thedevelopment processes that underlie that technology. In addition, 15 U.S. patentapplications and many foreign patent applications are pending covering variouscomponents and applications of the Novavax technologies. The Company expects to engage in collaborations, sponsored researchagreements and preclinical testing agreements in connection with its futurepharmaceutical products and vaccine adjuvants, as well as clinical testingagreements with academic and research institutions and U.S. government agencies,such as the NIH, to take advantage of the technical expertise and staff of theseinstitutions and to gain access to clinical evaluation models, patients andrelated technologies. Consistent with pharmaceutical industry and academicstandards, and the rules and regulations promulgated under the federalTechnology Transfer Act of 1986, these agreements may provide that developmentsand results will be freely published, that information or materials supplied by the Company will not be treated as confidential and that the Company will berequired to negotiate a license to any such developments and results in order tocommercialize products incorporating them. There can be no assurance that theCompany will be able successfully to obtain any such license at a reasonablecost or that such developments and results will not be made available tocompetitors of the Company on an exclusive or nonexclusive basis. GOVERNMENT REGULATION The Company's research and development activities are subject to regulationfor safety, efficacy and quality by numerous governmental authorities in theUnited States and other countries. The development, manufacturing and marketingof human pharmaceuticals are subject to regulation in the United States forsafety and efficacy by the FDA in accordance with the Food, Drug and CosmeticAct. In the United States, human pharmaceuticals are subject to rigorous FDAregulation including preclinical and clinical testing. The process of completingclinical trials and obtaining FDA approvals for a new drug is likely to take anumber of years, requires the expenditure of substantial resources and is oftensubject to unanticipated delays. There can be no assurance that any product willreceive such approval on a timely basis, if at all. The steps required before new products for use in humans may be marketed inthe United States include (i) preclinical tests, (ii) submission to the FDA ofan application for IND, which must be approved before human clinical trialscommence, (iii) adequate and well-controlled human clinical trials to establishthe safety and efficacy of the product, (iv) submission of a New DrugApplication ("NDA") for a new drug or a Product License Application ("PLA") fora new biologic to the FDA and (v) FDA approval of the NDA or PLA prior to anycommercial sale or shipment of the product. Preclinical tests include laboratory evaluation of product formulation, aswell as animal studies (if an appropriate animal model is available) to assessthe potential safety and efficacy of the product. Formulations must bemanufactured according to GMP and preclinical safety tests must be conducted bylaboratories that comply with FDA regulations regarding GLP. The results of thepreclinical tests, are submitted to the FDA as part of an IND and are reviewedby the FDA prior to the commencement of human clinical trials. There can be noassurance that submission of an IND will result in FDA authorization to commenceclinical trials. Clinical trials involve the administration of theinvestigational new drug to healthy volunteers and to patients under thesupervision of a qualified principal investigator. 6 8 Clinical trials are typically conducted in three sequential phases,although the phases may overlap. In Phase I, the investigational new drugusually is administered to healthy human subjects and is tested for safety,dosage, tolerance, absorption, distribution, metabolism, excretion andpharmacokinetics. Phase II involves studies in a limited patient population to(i) determine the efficacy of the investigational new drug for specificindications, (ii) determine dosage tolerance and optimal dosage and (iii)identify possible adverse effects and safety risks. When an investigational newdrug is found to be effective and to have an acceptable safety profile in PhaseII evaluation, Phase III trials are undertaken to further evaluate clinicalefficacy and to further test for safety within an expanded patient population atgeographically dispersed clinical study sites. There can be no assurance thatPhase I, Phase II or Phase III testing will be completed successfully within anyspecified time period, if at all, with respect to any of the Company's productssubject to such testing. Furthermore, the Company or the FDA may suspendclinical trials at any time if the participants are being exposed to anunacceptable health risk. The FDA may deny an NDA or PLA if applicableregulatory criteria are not satisfied, require additional testing orinformation, or require post marketing testing and surveillance to monitor thesafety of the Company's products. In addition to obtaining FDA approval for each PLA, an EstablishmentLicense Application ("ELA") must be filed and approved by the FDA for themanufacturing facilities of a biologic product before commercial marketing ofthe biologic product is permitted. The regulatory process may take many yearsand requires the expenditure of substantial resources. All data obtained from development programs are submitted as an NDA or aPLA to the FDA and the corresponding agencies in other countries for review andapproval. FDA approval of the NDA or PLA and the associated ELA is requiredbefore marketing may begin in the United States. Although the FDA's policy is toreview priority applications within 180 days of their filing, in practice longertimes may be required. The FDA frequently requests that additional informationbe submitted requiring significant additional review time. Essentially, allproposed products of the Company will be subject to demanding and time-consumingNDA or PLA or similar approval procedures in the countries where the Companyintends to market its products. These regulations define not only the form andcontent of the development of safety and efficacy data regarding the proposedproduct, but also impose specific requirements regarding manufacture of theproduct, quality assurance, packaging, storage, documentation and recordkeeping, labeling and advertising and marketing procedures. Effectivecommercialization also requires inclusion of the Company's products in national,state, provincial or institutional formularies or cost reimbursement systems. In addition to regulations enforced by the FDA, the Company also is subjectto regulation under the Occupational Safety and Health Act, the EnvironmentalProtection Act, the Toxic Substances Control Act, the Resource Conservation andRecovery Act and other present and potential future federal, state or localregulations. The Company's research and development involves the controlled useof hazardous materials, chemicals, viruses and various radioactive compounds.Although the Company believes that its safety procedures for handling anddisposing of such materials comply with the standards prescribed by state andfederal regulations, the risk of accidental contamination or injury from thesematerials cannot be completely eliminated. In the event of such an accident, theCompany could be held liable for any damages that result, and any such liabilitycould exceed the resources of the Company. In both domestic and foreign markets, the ability of the Company tocommercialize its product candidates will depend, in part, on the availabilityof reimbursement from third-party payers, such as government healthadministration authorities, private health insurers and other organizations.Third-party payers are increasingly challenging the price and cost-effectivenessof medical products. There can be no assurance that Novavax-developed productswill be considered cost effective. Significant uncertainty exists as to thereimbursement status of newly-approved medical products. There can be noassurance that adequate third-party insurance coverage will be available for theCompany to establish and maintain price levels sufficient for realization of anappropriate return on its investment in developing new therapies. Government andother third-party payers are increasingly attempting to contain medical costs bylimiting both coverage and the level of reimbursement for new therapeuticproducts approved for marketing by the FDA and by refusing, in some cases, toprovide coverage for uses of approved products for disease indications for whichthe FDA has not granted marketing approval. If adequate coverage andreimbursement levels are not provided by 7 9 government and third-party payers for uses of the Company's therapeuticproducts, the market acceptance of these products would be adversely affected. There have been a number of federal and state proposals during the last fewyears to subject the pricing of pharmaceuticals to government control and tomake other changes to the medical care system of the United States. It isuncertain what legislative proposals will be adopted or what actions federal,state or private payers for medical goods and services may take in response toany medical reform proposals or legislation. The Company cannot predict the effect medical reforms may have on its business, and no assurance can be giventhat any such reforms will not have a material adverse effect on the Company. EMPLOYEES The Company had 18 full-time employees as of December 31, 1996, of whom 11are in research and development. The Company has no collective bargainingagreement with its employees and believes that its employee relations are good. Under a Transition Services Agreement, established at the time of theDistribution, IGI continued to provide certain administrative services toNovavax, including services relating to human resources, purchasing andaccounting, data processing and payroll services from the day of theDistribution until June 30, 1996. Novavax paid IGI a fee for all servicesprovided by IGI employees, based on IGI's cost. In addition to the services described in the Transition Services Agreement,Edward B. Hager served as Chairman of the Board and Chief Executive Officerthrough June 30, 1996 (the "Transition Termination Date") and John P. Galloserved as Chief Operating Officer through June, 1996 and Treasurer until May,1996. Prior to the Transition Termination Date, Dr. Hager devoted the majorityof his time to IGI and received no compensation for his services as an officerof Novavax. Mr. Gallo devoted approximately one half of his business timethrough the Transition Termination Date to Novavax and its business, and IGI andNovavax each agreed to pay Mr. Gallo one half of his annual compensation. On July 1, 1996, John O. Marsh, Jr. succeeded Dr. Hager as Chairman andChief Executive Officer. Subsequently, Mr. Marsh appointed Denis M. O'Donnell,M.D., the President of Novavax, to the additional position of Chief OperatingOfficer to succeed Mr. Gallo in that role. Dr. Hager and Mr. Gallo remainDirectors of the Company. In addition, in May, 1996, Ms. Elaine T. Bennett wasappointed Vice President, Treasurer and Chief Financial Officer of the Company. On February 25, 1997, Mr. Marsh announced his retirement as Chairman of theBoard of Directors, effective immediately, and as Chief Executive Officereffective upon the arrival of his replacement. The Board then elected Richard F.Maradie as Chief Executive Officer commencing March 4, 1997. Dr. Hager waselected as Chairman of the Board of Directors. ITEM 2. PROPERTIES The Company leases approximately 12,000 square feet of administrativeoffices and laboratory space located at 8320 Guilford Road, Columbia, Maryland.The Company believes this space is adequate for its early stage clinical trials.Additional funding will be necessary to meet the cost requirements of expandingthe manufacturing facility for later stage clinical trials and commercialscale-up. The Company also leases 1750 square feet of space located in Rockville,Maryland. This space contains the Company's certified animal facility andlaboratories for its biologics development which includes the vaccine adjuvantprogram. ITEM 3. LEGAL PROCEEDINGS On February 6, 1996, Johnson & Johnson and its wholly-owned subsidiaryOrtho-McNeil, Inc. (collectively, "J&J") filed a lawsuit against the Company'ssubsidiary, Micro-Pak, Inc., and the Company's former parent, IGI, Inc. and itssubsidiaries in the United States District Court for the District of New Jerseyalleging trademark infringement and trademark dilution. J&J alleged that IGI'suse of the names NOVA 8 10 SKIN, NOVA SKIN CARE and NOVA-AESTHETICS infringed on rights associated withJ&J's trademark RENOVA for a prescription drug. This lawsuit has been settled, with no liability incurred by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourthquarter of the fiscal year ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers hold office until the first meeting of theBoard of Directors following the annual meeting of stockholders and until theirsuccessors are duly chosen and qualified, or until they resign or are removedfrom office in accordance with the Company's By-laws. PRINCIPAL OCCUPATION AND OTHER BUSINESS NAME AGE EXPERIENCE DURING PAST FIVE YEARS- - ------------------------------ --- ------------------------------------------------------ Edward B. Hager, M.D. ........ 65 Chairman of the Board since February, 1997. Director of Novavax since its founding in 1987. Chairman of the Board and Chief Executive Officer of Novavax, Inc. from 1987 through June, 1996. Chairman of the Board, Chief Executive Officer and Director of IGI, Inc., an animal health products and cosmetics company, since its founding in 1977.Richard F. Maradie............ 49 Chief Executive Officer of Novavax since March, 1997. Co-Founder, President and Chief Executive Officer of Protyde Pharmaceuticals, Inc. from 1994 to 1997. Executive Vice President and Chief Operating Officer of Platelet Research Products, Inc. from 1991 to 1994. President and Chief Executive Officer of VimRx Pharmaceuticals, Inc. from 1988 to 1991. Executive Vice President and Chief Operating Officer of Creative Biomolecules, Inc. from 1987 to 1988. Senior Director Cetus Corp. and General Manager and Chairman of the Board of Managers for Cetus/BenVenue Oncology Therapeutics from 1983 to 1987. Director of Oncology Marketing and Sales of Adria Laboratories, Inc. from 1974 to 1983.Denis M. O'Donnell, M.D. ..... 43 President of Novavax since September, 1995 and Chief Operating Officer of Novavax since July, 1996. Vice President, Business Development of Novavax from 1992 to September, 1995. Vice President of IGI from 1991 to 1995. From 1986 to 1991, Dr. O'Donnell was the Director of the Clinical Research Center of MTRA, Inc., a provider of contract pharmaceutical research. Director of Elxsi Corporation, a holding company for companies in diverse fields, since March, 1996.D. Craig Wright, M.D. ........ 46 Vice President, Research and Development and Operations of Novavax since 1993. Founder and Senior Director of Medical Research of Univax Biologics, Inc., a biopharmaceutical company, from 1988 to 1992.Elaine T. Bennett............. 41 Vice President,Treasurer and Chief Financial Officer of Novavax since May, 1996. Controller of IGI, Inc. in 1996. Assistant Controller of IGI, from 1987 to 1996. 9 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERMATTERS There were 1,058 stockholders of record as of March 20, 1997. The Companyhas never paid cash dividends on its Common Stock. The Company currentlyanticipates that it will retain all of its earnings for use in the developmentof its business and does not anticipate paying any cash dividends in theforeseeable future. Since December 12, 1995, the principal market for the Company's CommonStock ($.01 par value) has been the American Stock Exchange. The Company's stocktrades under the symbol "NOX". Prior to December 12, 1995, the Company was amajority-owned subsidiary of IGI. The following table shows the range of highand low closing prices of the Company's common stock on the American StockExchange for the period indicated. HIGH LOW ---- --- 1996 First quarter........................................ $6 5/8 $3 3/8 Second quarter....................................... 8 1/4 5 1/4 Third quarter........................................ 7 1/8 3 1/8 Fourth quarter....................................... 4 5/8 2 7/8 1995 Fourth quarter (December 12, 1995 through December 31, 1995)................................ $5 $3 10 12 ITEM 6. SELECTED FINANCIAL DATA NOVAVAX, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1992 1993 1994 1995 1996 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Revenues: Research revenues (1)..... $ 940,900 $ 380,700 $ 475,000 $ -- $ -- Sales..................... -- -- -- -- 55,553 Royalties from former parent (2)............. 86,555 198,546 209,877 268,002 -- Total revenues............ 1,027,455 579,246 684,877 268,002 55,553 Costs and expenses: Selling and marketing............ 246,679 278,836 323,640 398,776 -- General and administrative (3)... 1,314,741 1,976,356 2,162,431 2,905,873 1,874,418 Research and development.......... 1,720,220 2,701,038 2,860,048 3,708,005 3,715,545 Interest expense to former parent(4)..... 193,471 413,049 1,028,794 1,749,706 -- Interest income........ -- -- -- -- (137,539) Income tax expense..... -- -- -- -- 98,094 Net loss.................. (2,447,656) (4,790,033) (5,690,036) (8,494,358) (5,494,985) Loss per common and common equivalent share....... $ (0.85) $ (0.54) Weighted average number of common shares outstanding............ 9,937,936 10,132,896BALANCE SHEET DATA: Total current assets...... $ 174,932 $ 268,050 $ 501,845 $ 4,761,199 $ 3,153,105 Working capital........... 9,346 202,914 306,159 4,330,412 2,571,838 Total assets.............. 2,475,342 2,819,631 3,132,688 7,529,544 5,721,952 Capital lease obligations............ -- -- -- -- 34,351 Stockholders' (deficit) equity................. (609,309) (1,070,994) (2,202,868) 7,098,757 5,117,078 - - ---------------(1) Includes payments for licensing agreements and technology application review. (2) Includes royalties for product sales in IGI's animal health products and cosmetic and consumer products businesses through the date of the Distribution. (3) Includes administrative expenses incurred by IGI allocated to Novavax through the date of the Distribution. (4) Interest expense is solely attributable to debt incurred by Novavax to fund its operations through the date of the Distribution. 11 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS The following discussion may contain "forward-looking" statements, as thatterm is defined by (i) the Private Securities Litigation Reform Act of 1995 (the"Reform Act") and (ii) in releases made by the Securities and ExchangeCommission from time to time. Such statements should be read in conjunction withthe cautionary factors described in Exhibit 99 attached to this report andincorporated into this discussion by this reference and the consolidatedfinancial statements and related notes included elsewhere. The Company's futureoperating results may be affected by various trends and factors that are beyondthe Company's control. These include, among other factors, changes in generaleconomic conditions, rapid or unexpected changes in technologies and uncertainbusiness conditions that affect the pharmaceutical and vaccine industries.Accordingly, past results and trends should not be used by investors toanticipate future results or trends. The following is a discussion of the historical consolidated financialcondition and results of operations of Novavax and its subsidiaries. Thediscussion should be read in conjunction with the consolidated financialstatements and notes thereto set forth in Item 8 to this Report. On December 12, 1995, the Company's former parent, IGI, Inc., distributedits majority interest in Novavax to the IGI stockholders (the "Distribution").Prior to the Distribution, IGI owned 93.2% of the outstanding shares of theCompany, all of which were distributed to IGI stockholders. Certain periodscovered by the discussion below occurred when the Company was a subsidiary ofIGI and may not be indicative of current or future performance. RESULTS OF OPERATIONS The Company has incurred net losses since its inception from thedevelopment of its technologies to human pharmaceuticals, vaccines and vaccineadjuvants. Novavax expects the losses to increase in the near-term, as itconducts additional human clinical trials and seeks regulatory approval for itsproduct candidates. The Company also expects to continue to incur substantialoperating losses over the extensive time period required to develop theCompany's products , or until such time as revenues, to offset the losses, aresufficient to fund its continuing operations. Until the second quarter of 1996, the Company had recorded revenues fromtwo sources: (i) research revenues from industry partners in consideration ofeither exclusive licenses or technology application reviews and (ii) royaltyrevenues that were attributable to product sales by IGI. Revenues from the saleof scientific prototype vaccines and adjuvants have been recorded in the second,third and fourth quarters of 1996. 1996 COMPARED TO 1995 The net loss of $5,494,985 for the year ended December 31, 1996 was$2,999,373, or 35%, lower than the net loss of $8,494,358 for the year endedDecember 31, 1995. The 1996 net loss includes $1,506,790, compared to $101,183included in the 1995 net loss, of non-cash compensation expense. Thiscompensation expense relates to the amortization of below-market priced stock options and warrants issued at the time of the Distribution. Other non-cashcharges include $334,564 for the disposal of property and equipment and $328,226of depreciation and patent amortization expense. Non-cash charges of $272,886for depreciation and patent amortization have been included in the 1995 expense. Revenues of $55,533 were recognized during the year ended December 31, 1996from the sale of scientific prototype vaccines and adjuvants. Novavax earnedroyalties from IGI of 10% of licensed product sales, or $268,002, in the yearended December 31, 1995. Total operating expenses were $5,589,963 in 1996, decreasing $1,422,691, or20%, from the $7,012,654 incurred in 1995. Reduced cash resources have causedthe Company to reduce spending, achieve other efficiencies and have caused theCompany to focus its efforts on the development of its three lead productcandidates in connection with FDA human clinical trials. Selling, general and administrative expenses include all costs associatedwith the marketing of the Company's technology to potential industry partners,related cost associated with management and adminis- 12 14 trative expenses. Costs associated with the Distribution are included in the1995 expenses. Total selling, general and administrative expenses were$1,874,418 and $3,304,649 for the years ended December 31, 1996 and 1995,respectively. Nonrecurring charges of $230,474 were incurred through June 30,1996 for transitional services provided by IGI. The agreement providing forthese services terminated on June 30, 1996 and no additional charges have beenrecorded. Certain costs included in the 1995 expenses were estimates allocatedfrom IGI, based on Novavax being a separate public company, and may not comparewith the actual costs Novavax incurred in 1996. These estimated costs were$850,000 for the year ended December 31, 1995. Research and development expenses, including scientific staffing, suppliesand other costs related to the ongoing development of the Novavax technologieswere $3,715,545 and $3,708,005 for the years ended December 31, 1996 and 1995,respectively. Although expenses appear to have remained relatively constant, the1996 expenses include non-cash charges of $1,410,648, compared to $101,183 in1995, related to the amortization of below-market priced stock options issued atthe time of the Distribution, and non-cash charges of $334,564 for the disposalof property and equipment related to the closing of one of the Novavaxsubsidiaries' laboratory. Net interest income of $137,539 was recorded during the twelve months endedDecember 31, 1996, compared with net interest expense of $1,749,706 for the sameperiod ended December 31, 1995, that was charged to Novavax by IGI forborrowings and notes due to IGI through the date of the Distribution to fundoperating losses, capital equipment purchases and patent costs. In connection with the filing of the Company's 1995 tax return during 1996,it was determined that the Company had an Alternative Minimum Tax liabilityresulting from the cash received from IGI in return for the license. Net incometax expense of $98,094 for 1996 is attributable to the Alternative Minimum Taxcalculation. 1995 COMPARED TO 1994 Royalty revenues from IGI were $268,000 and $210,000 for the years endedDecember 31, 1995 and 1994, respectively. There were research revenues of$475,000 for the year ended December 31, 1994. As a result of the IGI License Agreement, which was entered into as amethod of transferring the Novavax technologies, Novavax did not receive anyadditional royalty payments in the period from the Distribution to the end offiscal year 1995. Novavax has presented the payment under the IGI LicenseAgreement as a capital contribution in its financial statements to reflect the intercompany nature and substance of the transaction. The form was structured asa prepaid license agreement to address various considerations of theDistribution, including tax and financing considerations. For tax purposes, thetransaction was treated as income for the period ended December 31, 1995.Novavax has recorded the license at its carryover basis because the transactionis a transfer made among entities under common control. As all costs ofdevelopment for this technology have been expensed, with the exception of thepatents retained by Novavax, the historical basis is zero. Selling, general and administrative expenses were approximately $3,305,000and $2,486,000 for the years ended December 31, 1995 and 1994, respectively.Certain costs included in these expenses were estimated based on Novavax being aseparate public company and may not reflect the actual costs that Novavax willincur in the future. These estimated costs were $850,000 and $779,000 for theyears ended December 31, 1995 and 1994, respectively. Research and development expenses were approximately $3,708,000 and$2,860,000 for the years ended December 31, 1995 and 1994, respectively. Theincrease in these expenses related principally to increased efforts in thedevelopment of human vaccine and pharmaceutical applications of the Novavaxtechnologies in connection with IND filings. Interest expense was approximately $1,750,000 and $1,029,000 for the yearsended December 31, 1995 and 1994, respectively. The increase related toincreased borrowing from IGI for operating losses, capital equipment and patentcosts. 13 15 LIQUIDITY AND CAPITAL RESOURCES Novavax's future growth will depend on its ability to commercialize itsNovavax technologies for human pharmaceutical applications. Novavax's capitalrequirements depend on numerous factors, including but not limited to theprogress of its research and development programs, the progress of preclinicaland clinical testing, the time and costs involved in obtaining regulatoryapprovals, the costs of filing, prosecuting, defending and enforcing any patentclaims and other intellectual property rights, competing technological andmarket developments, and changes in Novavax's development of commercializationactivities and arrangements. The Company's rapid evolution from a research phasecompany to a development stage biopharmaceutical company with products in humanclinical trials prompted the need for expansion during 1996. On October 31,1996, the Company completed the relocation of its administrative offices andpharmaceutical laboratories to a leased facility in Columbia, Maryland. Furtherexpansion necessary to establish commercial-scale manufacturing capabilities andthe future purchases of capital equipment are subject to the Company's abilityto raise funds through additional equity financing, or collaborativearrangements with corporate partners. Net cash used in 1996 for operating activities was $3,315,990. From thedate of the Distribution, Novavax conducted its operations with approximately$5,000,000 paid by IGI under the IGI License Agreement, revenues of $55,533 fromthe sale of scientific prototype vaccines and adjuvants and $350,639 from theexercise of stock options. On October 30, 1996, Novavax received $1,655,877, netof all transaction costs, from the sale of 505,000 common shares that wereprivately placed with accredited institutional investors by Vector SecuritiesInternational, Inc. On December 31, 1996, the Company had $2,982,078 in cash,cash equivalents and marketable securities on hand. On February 10, 1997, Novavax signed a definitive agreement to privatelyplace 1,200,000 common shares with Anaconda Opportunity Fund, L.P., anaccredited institutional investor, at an aggregate price of $5,100,000. As partof the transaction, Novavax also granted warrants to purchase an additional600,000 shares at a price of $6.00 per share and 600,000 shares at a price of$8.00 per share. The warrants have a three-year term. The transaction was closedon March 14, 1997. Upon closing, the Company received $4,100,000 in cash and a promissory note due March 27, 1997 in the amount of $1,000,000. Novavaxestimates that the money received from the sale of the privately placed stock,along with its existing cash resources, will be sufficient to finance itsoperations at current levels of development activity for approximately 20 to 24months. Past spending levels are not necessarily indicative of future spending.Future expenditures for product development, especially relating to outsidetesting and human clinical trials, are discretionary and, accordingly, can beadjusted to available cash. Moreover, the Company will seek to establish one ormore collaborations with industry partners to defray the costs of clinicaltrials and other related activities. Novavax will also seek to obtain additionalfunds through public or private equity or debt financings, collaborativearrangements with pharmaceutical companies or from other sources. There can beno assurance that additional funding or bank financing will be available at allor on acceptable terms to permit successful commercialization of Novavax'stechnologies and products. If adequate funds are not available, Novavax may berequired to significantly delay, reduce the scope of or eliminate one or more ofits research or development programs, or seek alternative measures includingarrangements with collaborative partners or others that may require Novavax torelinquish rights to certain of its technologies, product candidates orproducts. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and notes thereto listed in the accompanying indexto financial statements (Item 14) are filed as part of this Annual Report andare incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE None. 14 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is contained in part under thecaption "Executive Officers of the Registrant" in Part I hereof, and theremainder is contained in the Company's Proxy Statement for the Company's AnnualMeeting of Stockholders to be held on May 15, 1997 (the "1997 Proxy Statement")under the captions "PROPOSAL 1 -- ELECTION OF DIRECTORS" and "BeneficialOwnership of Common Stock" and is incorporated herein by this reference. TheCompany expects to file the 1997 Proxy Statement within 120 days after the closeof the fiscal year ended December 31, 1996. Officers are elected on an annual basis and serve at the discretion of theBoard of Directors. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in the Company's 1997Proxy Statement under the captions "EXECUTIVE COMPENSATION" and "DirectorCompensation and Stock Options" and is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in the Company's 1997Proxy Statement under the caption "Beneficial Ownership of Common Stock" and isincorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in the Company's 1997Proxy Statement under the caption "Certain Relationships and RelatedTransactions" and is incorporated herein by this reference. 15 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements: Report of Independent Accountants Consolidated Balance Sheets as at December 31, 1996 and 1995 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Schedules are either not applicable or not required because the information required is contained in the financial statements or notes thereto. Condensed financial information of the Registrant is omitted since there are no substantial amounts of restricted net assets applicable to the Company's consolidated subsidiaries. (3) Exhibits Required to be Filed by Item 601 of Regulation S-K. (a) Exhibits marked with a single asterisk are filed herewith, and exhibits marked with a double asterisk reference management contract, compensatory plan or arrangement, filed in response to Item 14 (a)(3) of the instructions to Form 10-K. The other exhibits listed have previously been filed with the Commission and are incorporated herein by reference. * 3.1 Amended and Restated Certificate of Incorporation of Novavax, Inc. * 3.2 Amended and Restated By-laws of Novavax, Inc. 4 Specimen stock certificate for shares of Common Stock par value $.01 per share. [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 10, File No. 0-26770, filed September 14, 1995 (the "Form 10").] 10.1 Tax Matters Agreement between Novavax and IGI. [Incorporated by reference to Exhibit 10.1 to the Form 10.] 10.2 Transition Services Agreement between Novavax and IGI. [Incorporated by reference to Exhibit 10.2 to the Form 10.] 10.3 License Agreement between IGEN, Inc. And Micro-Pak, Inc. [Incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-26770, filed April 1,1996, (the "1995 Form 10-K").] ** 10.4 1995 Stock Option Plan. [Incorporated by reference to Exhibit 10.4 to the form 10.] ** 10.5 1995 Director Stock Option Plan. [Incorporated by reference to Exhibit 10.5 to the Form 10.] 10.6 Stock Purchase Agreement dated October 9, 1999 by and between the Company and the purchasers named therein. [Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3, File No. 333-14305, filed October 17, 1996.] * 10.7 Agreement of Lease by and between the Company and Rivers Center Associates Limited Partnership, dated September 25, 1996. 16 18 10.8 Stock and Warrant Purchase Agreement dated February 10, 1997 by and between the Company and Anaconda Opportunity Fund, L.P. [Incorporated by between the Company and Anaconda Opportunity Fund, L.P. [Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3, File No. 333-22685, filed March 4, 1997(the "Anaconda S-3").] 10.9 Form of Warrant issued by the Company to Anaconda Opportunity Fund, L.P. [Incorporated by reference to Exhibit 4.5 to the Anaconda S-3.] ** 10.10 Letter of Agreement dated February 26, 1997, by and between the Company * and Richard F. Maradie. * 11 Net Loss Per Common Share and Common Equivalent Share 21 List of Subsidiaries [Incorporated by reference to Exhibit 21 to the 1995 Form 10-K.] * 23 Consent of Coopers & Lybrand L.L.P. * 27 Financial Data Schedule * 99 Important Factors Regarding Forward-Looking Statements (b) Reports on Form 8-K: None. 17 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. NOVAVAX, INC. By: /s/ RICHARD F. MARADIE ------------------------------------ Richard F. Maradie Chief Executive OfficerDate: March 20, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theRegistrant in the capacity and on the date indicated. NAME TITLE DATE- - ------------------------------------------ ----------------------------- --------------- /s/ EDWARD B. HAGER Chairman of the Board March 20, 1997- - ------------------------------------------ Edward B. Hager /s/ RICHARD F. MARADIE Chief Executive Officer March 20, 1997- - ------------------------------------------ Richard F. Maradie /s/ ELAINE T. BENNETT Vice President, Principal March 21, 1997- - ------------------------------------------ Financial and Accounting Elaine T. Bennett Officer /s/ WAYNE A. DOWNING Director March 20, 1997- - ------------------------------------------ Wayne A. Downing /s/ JOHN P. GALLO Director March 20, 1997- - ------------------------------------------ John P. Gallo /s/ JANE E. HAGER Director March 20, 1997- - ------------------------------------------ Jane E. Hager /s/ MITCHELL J. KELLY Director March 20, 1997- - ------------------------------------------ Mitchell J. Kelly /s/ J. MICHAEL LAZARUS Director March 20, 1997- - ------------------------------------------ J. Michael Lazarus /s/ JOHN O. MARSH, JR. Director March 20, 1997 - - ------------------------------------------ John O. Marsh, Jr. /s/ RONALD A. SCHIAVONE Director March 20, 1997- - ------------------------------------------ Ronald A. Schiavone /s/ RONALD H. WALKER Director March 20, 1997- - ------------------------------------------ Ronald H. Walker 18 20 EXHIBIT INDEX EXHIBIT PAGE- - ------- ---- 3.1 3.2 4 * 10.1 * 10.2 * 10.3 * 10.4 * 10.5 * 10.6 * 10.7 10.8 * 10.9 * 10.10 11 21 * 23 27 99 - - ---------------* These exhibits are incorporated by reference 21 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Novavax, Inc.: We have audited the accompanying consolidated balance sheets of Novavax,Inc. and Subsidiaries as of December 31, 1996 and 1995, and the relatedconsolidated statements of operations, stockholders' equity (deficit) and cashflows for each of the three years in the period ended December 31, 1996. Thesefinancial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements based onour audits. We conducted our audits in accordance with generally accepted auditingstandards. These standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly,in all material respects, the consolidated financial position of Novavax, Inc.and Subsidiaries at December 31, 1996 and 1995, and the consolidated results oftheir operations and their cash flows for each of the three years in the periodended December 31, 1996 in conformity with generally accepted accountingprinciples. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. Rockville, MarylandFebruary 7, 1997 exceptas to Note 13 for whichthe date is March 14, 1997 22 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 1996 1995 ------------ ------------ ASSETSCurrent assets: Cash and cash equivalents..................................... $ 2,481,258 $ 4,634,236 Marketable securities......................................... 500,820 -- Receivable from former parent, net............................ -- 54,754 Prepaid expenses and other current assets..................... 171,027 72,209 ------------ ------------ Total current assets....................................... 3,153,105 4,761,199 ------------ ------------Property and equipment, net..................................... 977,911 1,400,998Patent costs, net............................................... 1,494,880 1,357,547Other assets.................................................... 96,056 9,800 ------------ ------------ Total assets.......................................... $ 5,721,952 $ 7,529,544 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Capital lease obligations..................................... $ 10,744 $ -- Accounts payable.............................................. 367,754 391,887 Accrued payroll............................................... 196,593 38,900 Payable to former parent...................................... 6,176 -- ------------ ------------ Total current liabilities.................................. 581,267 430,787 ------------ ------------Capital lease obligations, less current maturities.............. 23,607 -- ------------ ------------Commitments and contingenciesStockholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized................................................. -- -- Common stock, $.01 par value, 30,000,000 shares authorized, 10,660,710 and 9,937,936 shares issued and outstanding in 1996 and 1995, respectively................................ 106,607 99,379 Additional-paid in capital.................................... 32,409,899 30,188,122 Accumulated deficit........................................... (26,796,164) (21,301,179) Deferred compensation on stock options granted................ (603,264) (1,887,565) ------------ ------------ Total stockholders' equity................................. 5,117,078 7,098,757 ------------ ------------ Total liabilities and stockholders' equity............ $ 5,721,952 $ 7,529,544 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. F-2 23 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 ----------- ----------- ----------- Revenues: Research revenues................................. $ -- $ -- $ 475,000 Sales............................................. 55,533 -- -- Royalties from former parent...................... -- 268,002 209,877 ----------- ----------- ----------- Total revenues................................. 55,533 268,002 684,877 ----------- ----------- -----------Operating expenses: Selling and marketing............................. -- 398,776 323,640 General and administrative........................ 1,874,418 2,905,873 2,162,431 Research and development.......................... 3,715,545 3,708,005 2,860,048 ----------- ----------- ----------- Total operating expenses....................... 5,589,963 7,012,654 5,346,119 ----------- ----------- ----------- Loss from operations.............................. (5,534,430) (6, 744,652) (4,661,242) Interest expense to former parent -- (1,749,706) (1,028,794) Interest income, net.............................. 137,539 -- -- ----------- ----------- ----------- Loss before income taxes.......................... (5,396,891) (8,494,358) (5,690,036) ----------- ----------- -----------Income tax expense.................................. (98,094) -- -- ----------- ----------- -----------Net loss............................................ $(5,494,985) $(8,494,358) $(5,690,036) =========== =========== ===========Loss per common and common equivalent share......... $ (0. 54) $ (0.85) =========== ===========Weighted average number of common shares outstanding....................................... 10,132,896 9,937,936 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. F-3 24 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net loss.......................................... $(5,494,985) $(8,494,358) $(5,690,036) Reconciliation of net loss to net cash used by operating activities: Non-cash restructuring and recapitalization.......................... -- 1,513,253 -- Reimbursement to former parent............... -- (250,000) -- Non-cash compensation expense................ 1,506,790 101,183 -- Depreciation and amortization................ 328,225 272,886 255,901 Disposal of property and equipment........... 334,564 -- -- Changes in assets and liabilities: Accounts receivable.......................... -- 475,000 (341,000) Prepaid expenses and other assets............ (185,074) (58,993) 149,971 Payable to/Receivable from former parent..... 60,930 (54,754) -- Accounts payable and accrued expenses........ 133,560 235,101 130,549 ----------- ----------- -----------Net cash used by operating activities............... (3,315,990) (6,260,682) (5,494,615) ----------- ----------- -----------Cash flows from investing activities: Purchase of marketable securities................. (500,820) -- -- Capital expenditures.............................. (98,363) (45,562) (128,269) Deferred patent costs............................. (244,321) (367,418) (251,404) ----------- ----------- -----------Net cash used by investing activities............... (843,504) (412,980) (379,673) ----------- ----------- -----------Cash flows from financing activities: Payable to former parent.......................... -- 2,081,776 1,314,381 Notes payable to former parent.................... -- 4,172,401 4,558,162 License agreement with former parent.............. -- 5,000,000 -- Exercise of stock options......................... 350,639 37,500 -- Proceeds from the private placement of common stock, net................................... 1,655,877 -- -- ----------- ----------- -----------Net cash provided by financing activities........... 2,006,516 11,291,677 5,872,543 ----------- ----------- -----------Net change in cash and cash equivalents............. (2,152,978) 4,618,015 (1,745)Cash and cash equivalents at beginning of the period............................................ 4,634,236 16,221 17,966 ----------- ----------- -----------Cash and cash equivalents at end of the period...... $ 2,481,258 $ 4,634,236 $ 16,221 =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. F-4 25 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 DEFERRED COMMON STOCK ADDITIONAL NOTE PAYABLE COMBINED COMPENSATION --------------------- PAID-IN TO FORMER ENTITY ON STOCK SHARES DOLLARS CAPITAL PARENT CAPITAL DEFICIT OPTIONS GRANTED ---------- -------- ----------- ------------ ----------- ------------ --------------- Balance, January 1, 1994................ 14,973 $ 8,293,437 $ 4,974,000 $(14,338,431) Proceeds from payable to former parent............ 4,558,162 Net loss............ (5,690,036) ---------- ------------ ----------- ------------Balance, December 31, 1994................ 14,973 12,851,599 4,974,000 (20,028,467) Proceeds from payable to former parent............ 7,221,646 Proceeds from note payable to former parent............ 4,172,401 Restructuring and recapitalization... 9,872,963 98,879 23,162,374 (17,024,000) (4,974,000) License agreement with former parent............ 5,000,000 Options granted as compensation...... 1,988,748 (1,988,748) Amortization of deferred compensation...... 101,183 Exercise of stock options........... 50,000 500 37,000 Net loss............ (8,494,358) ---------- -------- ----------- ------------ ----------- ------------ -----------Balance, December 31, 1995................ 9,937,936 99,379 30,188,122 -- -- (21,301,179) (1,887,565) Options and warrants granted as compensation...... 222,489 (222,489) Amortization of deferred compensation...... 1,506,790 Private sale of common stock, net............... 505,000 5,050 1,650,827 Exercise of stock options........... 217,774 2,178 348,461 Net loss............ (5,494,985) ---------- -------- ----------- ------------ ----------- ------------ -----------Balance, December 31, 1996................ 10,660,710 $106,607 $32,409,899 $ -- $ -- $(26,796,164) $ (603,264) ========== ======== =========== ============ =========== ============ =========== TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ------------- Balance, January 1, 1994................ $(1,070,994) Proceeds from payable to former parent............ 4,558,162 Net loss............ (5,690,036) -----------Balance, December 31, 1994................ (2,202,868) Proceeds from payable to former parent............ 7,221,646 Proceeds from note payable to former parent............ 4,172,401 Restructuring and recapitalization... 1,263,253 License agreement with former parent............ 5,000,000 Options granted as compensation...... -- Amortization of deferred compensation...... 101,183 Exercise of stock options........... 37,500 Net loss............ (8,494,358) -----------Balance, December 31, 1995................ 7,098,757 Options and warrants granted as compensation...... -- Amortization of deferred compensation...... 1,506,790 Private sale of common stock, net............... 1,655,877 Exercise of stock options........... 350,639 Net loss............ (5,494,985) -----------Balance, December 31, 1996................ $ 5,117,078 =========== The accompanying notes are an integral part of the consolidated financial statements. F-5 26 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Novavax, Inc., a Delaware corporation ("Novavax" or the "Company"), is abiopharmaceutical company focusing on the research and development ofproprietary topical and oral drug delivery technologies. The Company'stechnology platforms involve the use of proprietary organized lipid structuresmade into microscopic vesicles for the delivery of a wide variety of drugs andother therapeutic products, including certain hormones, anti-bacterial andanti-viral products and vaccine adjuvants. The Company currently has three leadproduct candidates in human clinical trials. ESTRASORB, a topical estrogencream, and Helicore, an oral anti-bacterial preparation for the treatment ofHelicobacter pylori infection, have completed Phase I studies. ANDROSORB, atopical testosterone cream, recently entered Phase I studies. The regulatoryprocess is lengthy, requiring substantial funds, and the Company cannot predictwhen approval of any product or a license to sell any product might be issued.In addition, there can be no assurances the Company will have sufficient fundsnecessary or that the additional funds will be available at all or on acceptableterms. The Company also recognizes that the commercial launch of any product issubject to certain risk such as manufacturing scale-up and market acceptance. Basis of Presentation The accompanying consolidated financial statements include the accounts ofNovavax (formerly Molecular Packaging Systems, Inc.), its wholly-ownedsubsidiaries (Micro-Pak, Inc.) ("Micro-Pak") and Micro Vesicular Systems, Inc.("MVS")), and Lipovax, Inc. ("Lipovax", formerly known as Novavax, Inc.). All significant intercompany accounts and transactions have been eliminated inconsolidation. The financial statements for the period January 1, 1995 through December12, 1995 and for the year ended December 31, 1994 have been prepared for theaforementioned companies on a combined basis from books and records maintainedby IGI, Inc. ("IGI"). These combined financial statements reflect the financialposition and results of operations of the combined companies at their historicalbases, including allocations of certain costs by IGI. The accounts andtransactions between the companies have been eliminated. The financialstatements may not be indicative of the results that would have been attainedhad the entities operated together independently of IGI. 2. DISTRIBUTION On December 12, 1995 (the "Distribution Date"), IGI distributed to theholders of record of IGI's common stock, at the close of business on the RecordDate, November 28, 1995, one share of the Company's common stock for every oneshare of IGI common stock outstanding (the "Distribution"). The Distributionresulted in 93.2% of the outstanding shares of the Company's common stock beingdistributed to holders of IGI common stock on a proportionate basis after takinginto account the Restructuring and Recapitalization described in Note 3. As aresult of the Distribution, the Company is no longer a subsidiary of IGI but anindependent publicly-owned company whose shares are traded on the American StockExchange. 3. RESTRUCTURING AND RECAPITALIZATION Prior to the Distribution, IGI consolidated its animal health products andcosmetics and consumer products businesses (the "Core Businesses") within itselfand its subsidiaries and consolidated the biotechnology business (the"Biotechnology Business") within Novavax and its subsidiaries (the"Restructuring"). At the time of the Restructuring, IGI owned, through itswholly-owned subsidiary, IGEN, Inc. ("IGEN"), the following percentages of thevoting power of the subsidiaries conducting the Biotechnology Business: 84.7% ofthe voting power of Novavax, the sole stockholder of both Micro-Pak and MVS, and90.3% of the voting F-6 27 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) power of Lipovax. The Biotechnology Business resided, and continues to reside,within Novavax, Micro-Pak, MVS and Lipovax. Prior to the Restructuring, thecurrent and former employees of Novavax and Lipovax held approximately 15.3% and9.7% of the voting power of Novavax and Lipovax, respectively. On September 20, 1995, Novavax, Lipovax and Novavax Acquisition Subsidiary,Inc., a wholly-owned subsidiary of Novavax created for purposes of theRestructuring ("Acquisition Corporation"), entered into a merger agreement (the"Merger Agreement"). The Merger Agreement, which was approved by Lipovaxstockholders on October 12, 1995, provided, among other things, for a reversetriangular merger (the "Merger") in which Acquisition Corporation merged withand into Lipovax and Lipovax became a wholly-owned subsidiary of Novavax. Asconsideration for the Merger, Novavax issued an aggregate of 21,698 shares, ofwhich 90.3% were issued to IGEN and the remaining 9.7% to the minoritystockholders of Lipovax. The issuance of shares to the minority stockholders ofLipovax resulted in a charge to the statement of operations of $866,966 toreflect the purchase of in process research and development. After the Merger,IGEN owned 85.5% of the outstanding shares of Novavax, and the remaining 14.5%were held by the minority stockholders of Novavax (8.8%) and by the formerminority stockholders of Lipovax (5.7%). As part of the Restructuring, Novavax issued to IGEN 41,569 shares of Novavax Common Stock in exchange for the transfer by IGEN to Novavax of all ofIGEN's rights to the payment of $17,024,000 aggregate indebtedness owed toImmunoGenetics, Inc., a wholly-owned subsidiary of IGEN (and the primaryoperating entity of the Core Businesses ("Immunogentics")), by MVS ($9,996,504)and Lipovax ($7,027,496) (collectively, "Novavax Sub Debt"). The Novavax SubDebt resulted from loans made by ImmunoGenetics to MVS and Lipovax during theperiod from 1991 to the Distribution Date. The number of shares of Novavax Common Stock issued in exchange for theNovavax Sub Debt was based on the value of $409.54 per share of Novavax CommonStock. In connection with the Restructuring, Novavax converted $17,024,000 ofthese loans for 41,569 shares of Novavax stock. In addition to the Restructuring, Novavax recapitalized its capital stock(the "Recapitalization"). Immediately prior to the Recapitalization, Novavax'sissued and outstanding capital stock consisted of approximately 75,240 shares ofClass A Common Stock and 3,000 shares of Class B Common Stock. As a result ofthe Recapitalization, each share of Class A and Class B Common Stock wasconverted into approximately 126.37944 shares of Novavax Common Stock. After theRestructuring and Recapitalization, there were 9,887,936 shares of NovavaxCommon Stock outstanding. To complete the separation of the Core Businesses from the BiotechnologyBusiness, on December 12, 1995, IGEN distributed all of the shares of NovavaxCommon Stock held by IGEN (approximately 93.2% of the voting securities ofNovavax) to IGI in a transaction intended to qualify as a tax-free distributionunder section 355 of the Code. IGI received a private letter ruling from theInternal Revenue Service("IRS") that the Distribution would not be taxable toIGI or its shareholders. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents and Marketable Securities Cash equivalents are considered to be short-term highly liquid investmentswith original maturities of 90 days or less. Marketable securities consist ofinvestments in fixed income securities with original maturities of greater thanthree months and less than one year. Marketable securities are stated at costwhich approximates market. Interest income is accrued as earned. Property and Equipment Property and equipment are recorded at cost. Depreciation of furniture,fixtures and equipment is provided under the straight-line method over theestimated useful lives, generally five years. Amortization of F-7 28 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) leasehold improvements is provided over the estimated useful lives of theimprovements or the term of the lease, which ever is shorter. Furniture andequipment held under capital leases are amortized under the straight-line methodover the shorter of the lease term or the estimated useful life of the asset. Repair and maintenance costs are charged to operations as incurred whilemajor improvements are capitalized. When assets are retired or disposed of, thecost and accumulated depreciation thereon are removed from the accounts and anygains or losses are included in operations. Patent Cost Costs associated with obtaining patents, principally legal costs and filingfees, are being amortized on a straight line basis over the remaining economic lives of the respective patents. The Company periodically evaluates the carryingamount of these assets based on current licensing and future commercializationefforts and if warranted, impairment would be recognized. Accumulatedamortization of patent costs were $430,057 and $323,069 at December 31, 1996 and1995, respectively. Revenue Recognition Revenues from the sale of scientific prototype vaccines and adjuvants arerecorded as the products are produced and shipped. Revenues earned underresearch contracts are recognized when the related contract provisions are met. Net loss per share Net loss per share of common stock is computed by dividing the net loss bythe weighted average number of shares of common stock and dilutive common stockequivalents outstanding during the twelve month period ended December 31, 1996.Pro forma net loss per common and common equivalent share for the year endedDecember 31, 1995 is based upon weighted average shares outstanding of 9,937,936representing primarily shares issued in connection with the Recapitalization.These shares have been treated as outstanding as if the transaction had occurredon January 1, 1995. Options and warrants granted subsequent to the DistributionDate are antidilutive and therefore have not been included in sharesoutstanding. Income Taxes The Company's income taxes are determined in accordance with the provisionsof Statement of Financial Accounting Standards (SFAS) No. 109 which requires theasset and liability method of accounting for income taxes. Under the asset andliability method deferred income taxes are recognized for the tax consequencesof temporary differences by applying enacted statutory tax rates applicable tofuture years to differences between the financial statement carrying amounts andthe tax basis of existing assets and liabilities. The effect on deferred taxes of changes in tax rates is recognized inincome in the period that includes the enactment date. A valuation allowance isrecord based on management's determination of the ultimate realizability offuture deferred tax assets. Novavax was included in IGI's consolidated federalincome tax return through the effective date of the Distribution. Provisions forincome taxes were calculated on a separate return basis and were determined inaccordance with the provisions of SFAS No. 109. Use of Estimates The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Significant estimates include F-8 29 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) valuation of patent costs and benefits for income taxes and related valuationallowances. Actual results could differ from those estimates. 5. TRANSACTIONS WITH FORMER PARENT Charges Through the Distribution Date, IGI charged Novavax for expenses incurred on its behalf, including executive, legal, accounting, data processing, consulting,cash management, human resources and employee benefits. These costs wereallocated on a variety of methods, including: - Specific identification based on estimates of time and services provided - Relative identification allocated based on Novavax's relationship to the entire pool of beneficiaries The allocation methods, while reasonable under the current circumstances,may not represent the cost of similar activities on a separate entity basis.Such costs have been included in general and administrative expenses, along withinterest expense on these accumulated amounts for the periods presented. Theseamounts have been accumulated on Novavax's accompanying Balance Sheet as payableto parent through the Distribution Date, at which time such amounts werereversed to the Deficit since these charges will not be repaid. The net change in the payable to former parent consists of: FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1995 1994 ----------- ---------- Allocated general and administrative expenses.............. $ 839,650 $ 779,223 Interest expense........................................... 434,592 201,099 Royalty revenues........................................... (268,002) (209,877) Payment of royalty revenues................................ 268,002 546,324 Credit for income taxes.................................... 797,000 -- Miscellaneous items........................................ 10,534 (2,388) Reversal against deficit of payable to former parent....... (7,221,646) -- ----------- ----------- Net change in payable to parent............................ $(5,139,870) $1,314,381 =========== =========== Borrowing Arrangements On the Distribution Date, Novavax had a note payable to IGI under whichborrowings bore interest at IGI's borrowing rate. The note was converted intoshares of Novavax common stock based on an appraisal of Novavax common stock.The outstanding loan balance of $17,024,000 was converted into 5,253,494 sharesof Novavax common stock after the Restructuring and Recapitalization. Suchamount was included in the Distribution and, accordingly, has been included instockholders' equity in the accompanying balance sheets. In accordance with theplan of Distribution, $250,000, representing loans made by IGI to Novavax inexcess of $17,024,000, was deducted from IGI's $5,000,000 payment due under theLicense Agreement. Novavax has no outside borrowing arrangements. Transition Services Under a Transition Services Agreement, established at the time of theDistribution, IGI continued to provide certain administrative services toNovavax, including services relating to human resources, purchasing andaccounting, data processing and payroll services from the day of theDistribution until June 30, 1996. Novavax paid IGI a fee for all servicesprovided by IGI employees, based on IGI's cost. The agreement was F-9 30 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) terminated on June 30, 1996. Costs of $230,474 had been incurred for the six month period ended June 30, 1996. For the period December 13, 1995 throughDecember 31, 1995, $35,000 of such costs were incurred. These charges have beenoffset in part by receivables due from IGI and recorded as a payable to formerparent on the balance sheet. Royalty Revenues Novavax earned royalties from IGI at 10% of the sales of the licensedproducts. The agreements were terminated in connection with the Distribution andexecution of the License Agreement. In connection with the Distribution, IGIpaid Novavax $5,000,000 in return for a fully paid-up, ten-year license (the"License Agreement") entitling it to the exclusive use of the NovavaxTechnologies in the fields of (i) animal pharmaceuticals, biologicals and otheranimal health products; (ii) foods, food applications, nutrients and flavorings;(iii) cosmetics, consumer products and dermatological over-the-counter andprescription products (excluding certain topically delivered hormones); (iv)fragrances; and (v) chemicals, including herbicides, insecticides, pesticides,paints and coatings, photographic chemicals and other specialty chemicals; andthe processes for making the same. IGI has the option, exercisable within thelast year of the ten-year term, to extend the License Agreement for anadditional ten-year period for $1,000,000. Novavax will retain the right to useits Novavax Technologies for all other applications, including human vaccinesand pharmaceuticals. Novavax has presented the payment under the LicenseAgreement as a capital contribution in its financial statements to reflect theintercompany nature and substance of the transaction. The form was structured asa prepaid license agreement to address various considerations of theDistribution including tax and financing considerations. For tax purposes, thetransaction was treated as income for the period ended December 31, 1995. IGIhas no further obligations or intentions to fund Novavax. 6. SUPPLEMENTAL CASH FLOW INFORMATION The Company paid an alternative-minimum tax liability, related to the taxeffect of the licensing agreement with IGI and paid interest expense during1996. The balances as of December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 -------- ---- ---- Tax liability....................................... $100,000 -- -- Interest paid....................................... 10,955 -- -- For the years ended December 31, 1996, 1995 and 1994, the Company had thefollowing non-cash financing and investing activities: 1996 1995 1994 ------- ---------- ---- Reversal against deficit of payable to former -- $7,221,646 parent......................................... -- Options granted as compensation.................. -- $1,988,748 -- Capital lease obligation for the purchase of $36,285 furniture and equipment........................ F-10 31 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. PROPERTY AND EQUIPMENT Property and equipment, stated at cost, is comprised of the following: 1996 1995 ---------- ---------- Leasehold improvements.......................... $ 321,506 $ 335,898 Machinery and equipment......................... 993,202 1,645,272 Equipment under capital leases.................. 36,285 -- Furniture and fixtures.......................... 32,130 125,604 ---------- ---------- 1,383,123 2,106,774 Less accumulated depreciation................... (405,212) (705,776) ---------- ---------- $ 977,911 $1,400,998 ========== ========== During 1996, the disposal of $856,365, at cost, of property and equipmentand $521,801 of accumulated depreciation was recorded relating to the closing ofone of the Novavax subsidiaries' laboratory. Depreciation expense of $221,237,$189,085 and $193,401 was recorded in the years ended December 31, 1996, 1995and 1994, respectively. 8. STOCK OPTIONS AND WARRANTS 1995 Stock Option Plan Various directors, officers and employees of IGI including those employedby Novavax have been awarded stock options under various IGI stock option plansat 100% of the fair market value of IGI's stock at the date of grant. Inconnection with the Distribution, the Board of Directors of Novavax authorizedthe grant of Novavax options to all holders of options to purchase IGI CommonStock as of the Distribution Date ("Spin-off Options"). The Spin-off Optionswere granted to such holders on substantially similar terms to the correspondingoptions to purchase IGI Common Stock. The number of shares of Novavax commonstock under the options as compared to their IGI counterparts reflects thedistribution ratio of one share of Novavax common stock for one share of IGIcommon stock. Exercise prices of the options were based on the relative marketcapitalization of IGI and Novavax on the 20 trading days immediately followingthe Distribution Date to restore holders of each option to the economic positionprior to the Distribution Date. As of the Distribution Date, 2,034,015 Spin-offOptions to purchase shares of Novavax common stock were granted to holders ofoptions to purchase IGI common stock at $3.69 per share. Under the Novavax 1995 Stock Option Plan, options may be granted toofficers, employees and consultants or advisors to Novavax and any futuresubsidiary to purchase a maximum of 4,000,000 shares of Novavax common stock(including the Spin-off Options). Incentive options, having a maximum term often years, can be granted at no less than 100% of the fair market value ofNovavax's stock at the time of grant and are generally exercisable in cumulativeincrements over four years commencing one year from the date of grant. Bothincentive and non-statutory stock options may be granted under the 1995 plan.There is no minimum exercise price for non-statutory stock options. The Board of Directors of Novavax granted, as of the Distribution Date,options to purchase 600,000 shares of Novavax common stock to various employeesat an exercise price of $.01 per share. Concurrently, the Board granted optionsto purchase 415,000 shares of Novavax common stock at $3.24 per share to Novavaxemployees, the estimated fair market value. 890,000 of these options firstbecome exercisable on the six month anniversary of the Distribution Date as to50% of the shares covered thereby and as to an additional 25% of the shares oneach of the first and second anniversaries of the Distribution Date. 125,000 ofthese options first become exercisable in increments of 25% of the shares oneach of the first through fourth anniversaries of the Distribution Date. Theseoptions become immediately exercisable in the event of the F-11 32 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquisition of Novavax, including a merger in which Novavax is not the survivingentity, the sale of all or substantially all of the assets of Novavax or theacquisition of a majority of the equity securities of Novavax. The options alsobecome immediately exercisable in the event the optionee is terminated withoutcause. As of the Distribution Date, substitute options were issued in exchangefor options to purchase Lipovax and MPS shares, which existed prior to theDistribution Date. 22,749 substitute options were issued for 180 options topurchase MPS shares using the recapitalization rate of 126.37944 sharesdescribed in Note 3. 28,871 substitute options were issued to purchase Lipovaxshares. 1995 Director Stock Option Plan The 1995 Director Stock Option Plan provides for the issuance of up to500,000 shares of Novavax Common Stock. 80,000 and 120,000 options were grantedunder this plan in 1996 and 1995, respectively. In addition, each EligibleDirector then serving as a director on the last business day of each of 1997 and1998 will be granted a non-qualified option to purchase 10,000 shares of CommonStock. The exercise price per share is the fair market value on the date ofgrant. Options granted to Eligible Directors are exercisable in full beginningsix months after the date of grant and terminate ten years after the date ofgrant. Such options cease to be exercisable at the earlier of their expiration orthree years after an Eligible Director ceases to be a director for any reason.In the event that an Eligible Director ceases to be a director on account of hisdeath, his outstanding options (whether exercisable or not on the date of death)may be exercised within three years after such date (subject to the conditionthat no such option may be exercised after the expiration of ten years from itsdate of grant). Activity under the 1995 Stock Option Plan and 1995 Director Stock OptionPlan was: WEIGHTED AVERAGE SHARES PRICE PRICE PER SHARE ---------- ------------- ---------------- Balance January 1, 1993......................... 22,749 $0.04 $ 0.041995 Activity: Granted....................................... 3,197,886 $0.01 -- $5.37 $ 2.97 Exercised..................................... (50,000) $0.75 $ 0.75 Canceled...................................... (2,000) $3.66 $ 3.66 ----------December 31, 19951996 Activity: Shares under option........................... 3,168,635 $0.01 -- $5.37 $ 2.99 Granted....................................... 740,000 $3.38 -- $7.00 $ 4.96 Exercised..................................... (217,774) $0.01 -- $5.37 $ 1.61 Canceled...................................... (18,000) $3.66 -- $5.28 $ 3.84December 31, 1996 Shares under option........................... 3,672,861 $ 3.11 ==========Weighted average remaining contractual life (years)....................................... 5.7 ==========Shares available for grant at December 31, 1996.......................................... 559,365 ========== WEIGHTED AVERAGE PRICE PER SHARE ---------------- Shares subject to outstanding options: Exercisable at December 31, 1996.............. 2,903,170 $ 3.34 ========== Exercisable at December 31, 1995.............. 1,753,470 ========== F-12 33 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In connection with its stock option plans, Novavax makes no charges tooperations in connection with stock options granted at the fair market value atthe date of grant. With respect to options which were granted below fair marketvalue at the date of grant, the Company records compensation expense for thedifference between the fair market value at the date of grant and the exerciseprice as the options become exercisable. $1,410,648 ane $101,183 related to suchoptions has been included as compensation expense in 1996 and 1995,respectively. The Company has adopted the disclosure -- only provisions of Statement ofFinancial Accounting Standards No. 123 ("SFAS 123") as they pertain to financialstatement recognition of compensation expense attributable to option grants. Assuch, no compensation cost has been recognized on the Company's option plans. Ifthe Company had elected to recognize the compensation cost for the 1995 StockOption Plan and the 1995 Director Stock Option Plan consistent with SFAS 123,the Company's net loss and loss per share on a pro forma basis would be: 1996 1995 ----------- ------------ Net loss As reported.................................... $(5,494,985) $ (8,494,358) Pro forma...................................... (6,354,089) (10,110,754) Net loss per share As reported.................................... $(.54) $(.85) Pro forma...................................... $(.63) $(1.02) The fair value of each option grant was estimated using the Black-Scholesoption pricing model with the following weighted average assumptions: -- Risk-free interest rate: 5.97% -- Volatility: Options issued by Novavax after November 28, 1995 is 75%, prior to November 28, 1995 is 50%. -- Dividend yield: 0% -- Expected life of options: Employees -- 6 years Directors -- 3 years -- Forfeiture rate: 5% per year for options vesting over a four year period. Non-Employee Options The Company has entered into agreements to receive advisory and consultingservices from several individuals, four of whom serve on the Novavax ScientificAdvisory Board. Non-qualified stock options have been granted to theseindividuals under the 1995 Stock Option Plan. Using the Black-Scholes optionpricing model, a charge of $30,107 related to these options has been recorded inthe 1996 Statement of Operations. Common Stock Warrants In connection with the October 1996 private stock sale, the Companyprovided the underwriter warrants for the purchase of 50,000 shares of commonstock, par value $.01 per share. The warrants are fully exercisable at $3.75 pershare and expire on October 30, 2001. In November, in consideration for servicesperformed by a consultant, the Company also issued warrants for 50,000 shares ofcommon stock, par value $.01 per share. The warrants are exercisable at $5.00per share, with 50% vested as of December 31, 1996 and the remainder vesting inincrements of 25% upon completion of services. These warrants expire on November18, 2001. As of December 31, 1996, no warrants had been exercised. Using theBlack-Scholes option pricing model, a charge of $66,035 related to thesewarrants has been recorded in the 1996 Statement of Operations and $66,035 hasbeen recorded as Deferred Compensation on the 1996 Balance Sheet. F-13 34 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES Deferred tax assets (liabilities) included in the balance sheets consist ofthe following: 1996 1995 ----------- ----------- Net operating losses.............................. $ 3,516,909 $ 2,131,571 Research tax credits.............................. 721,333 670,641 Disqualifying stock options....................... 523,746 -- Deferred patent costs............................. (515,675) (388,760) Alt-min tax credit................................ 93,674 -- Other............................................. 10,927 (14,562) ----------- ----------- 4,350,914 2,398,890 Less valuation allowance.......................... (4,350,914) (2,398,890) ----------- ----------- Deferred taxes, net............................... $ -- $ -- =========== =========== In connection with the filing of the Company's 1995 tax return during 1996,it was determined that the Company had an Alternative Minimum Tax liabilityresulting from the cash received from IGI in return for the license. The 1996income tax expense is fully attributable to the Alternative Minimum Taxcalculation. Federal net operating losses and tax credits available to Novavax and areas follows: Net operating losses expiring through the year 2011...... $7,803,024 Research tax credits expiring through the year 2011...... 721,333 Alt-min tax credit (no expiration)....................... 93,674 10. COMMITMENTS AND CONTINGENCIES Novavax leases laboratory and office space, machinery and equipment undercapital and noncancelable operating lease agreements expiring at various datesthrough 2006. Future minimum rental commitments under noncancelable leases as ofDecember 31, 1996 are as follows: OPERATING LEASES CAPITAL LEASES ---------------- -------------- 1997............................................ $ 180,941 $ 14,822 1998............................................ 171,412 14,822 1999............................................ 145,409 12,062 2000............................................ 145,416 -- 2001............................................ 145,735 -- Thereafter...................................... 759,939 -- ---------- ------- Total lease payments............................ $1,554,852 $ 41,706 ========== Less: amount representing interest.............. (7,355) ------- Present value of net minimum lease payments..... $ 34,351 ======= Aggregate rental expenses approximated $183,327, $260,041, and $172,566 in1996, 1995, and 1994, respectively. In October 1996, the Company entered into a 10-year operating lease foroffice and laboratory facilities. In connection with this lease agreement,Novavax is required to maintain a "Net Asset Value" of $2,000,000. The term "NetAsset Value" is defined as the difference between the total assets and the totalliabilities. If the Net Asset Value falls below $2,000,000, the Company isrequired to provide other reasonable financial assurances to the Landlord withinfive (5) days of the Landlords request. The financial assurances may be, but F-14 35 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) without limitation to, the following: a bond for the Landlord's benefit, anincrease in the deposit, or a letter of credit, as reasonable believed necessaryby the Landlord or its lenders. Also in October 1996, the Company entered into a 2-year operating lease forapproximately 1750 square feet of laboratory space. This shared space houses theCompany's certified animal facility and laboratories for its biologicsdevelopment which includes the vaccine adjuvant program. Both leases includevarious renewal options, purchase options, and escalation clauses. 11. LITIGATION On February 6, 1996, Johnson & Johnson and its wholly-owned subsidiaryOrtho-McNeil, Inc. (collectively, "J & J") filed a lawsuit against the Company'ssubsidiary Micro-Pak, Inc. and the Company's former parent, IGI, Inc. and itssubsidiaries, in the United States District Court for the District of New Jerseyalleging trademark infringement and trademark dilution. J & J alleged that IGI'suse of the names NOVA SKIN, NOVA SKIN CARE, and NOVA-AESTHETICS infringed onrights associated with J & J's trademark RENOVA for a prescription drug. Thelawsuit has been settled, with no liability incurred by the Company. 12. SIGNIFICANT CUSTOMERS Novavax's research revenue includes amounts earned from arrangements withvarious industry partners. In the year ended December 31, 1994, four differentcustomers each represented in excess of 10% of research revenues. 13. SUBSEQUENT EVENTS On February 10, 1997, Novavax signed a definitive agreement to privately place 1,200,000 common shares with Anaconda Opportunity Fund L.P., an accreditedinstitutional investor, at an aggregate price of $5,100,000. As part of thetransaction, Novavax also granted warrants to purchase an additional 600,000shares at a price of $6.00 per share and 600,000 shares at a price of $8.00 pershare. The warrants have a three-year term. The transaction was closed on March14, 1997. Upon closing, the Company received $4,100,000 in cash and a promissorynote due March 27, 1997 in the amount of $1,000,000. Novavax estimates that themoney received from the sale of the privately placed stock, along with itsexisting cash resources, will be sufficient to finance its operations at currentlevels of development activity for approximately 20 to 24 months. F-15 36 EXHIBIT INDEX EXHIBIT PAGE- - ------- ---- 3.1 3.2 4 * 10.1 * 10.2 * 10.3 * 10.4 * 10.5 * 10.6 * 10.7 10.8 * 10.9 * 10.10 11 21 * 23 27 99 - - ---------------* These exhibits are incorporated by reference 1 EXHIBIT 3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NOVAVAX, INC. NOVAVAX, INC. (the "Corporation"), a corporation originallyorganized and incorporated under the name MPS, Inc. by the filing of aCertificate of Incorporation in the office of the Secretary of State of theState of Delaware on June 18, 1987, as amended by a Certificate of Amendmentdated July 30, 1987 and filed in the Office of the Secretary of State of theState of Delaware on August 3, 1987, a Certificate of Merger dated February 5,1988 filed in the Office of the Secretary of State of the State of Delaware onFebruary 9, 1988, a Certificate of Amendment dated October 4, 1991 and filed inthe Office of the Secretary of State of the State of Delaware on October 7,1991, and a Certificate of Amendment dated November 20, 1995 and filed in theOffice of the Secretary of State of the State of Delaware on November 20, 1995,and existing under and by virtue of the General Corporation Law of the State ofDelaware, does hereby certify as follows: The Board of Directors of the Corporation, at a meeting dulyheld on November 17, 1995, adopted a resolution, pursuant to Sections 242 and245 of the General Corporation Law of the State of Delaware, setting forth anAmended and Restated Certificate 3of Incorporation of the Corporation and declaring said Amended and RestatedCertificate of Incorporation advisable. The stockholders of the Corporationduly approved said proposed Amended and Restated Certificate of Incorporationby written consent in accordance with Sections 228, 242 and 245 of the GeneralCorporation Law of the State of Delaware, and written notice of such consenthas been given to all stockholders who have not consented in writing to saidrestatement. The resolution setting forth the Amended and Restated Certificateof Incorporation is as follows:RESOLVED: That the Restated Certificate of Incorporation of the Corporation,as amended, be and hereby is amended and restated in its entirety so that thesame shall read as follows: FIRST. The name of the Corporation is: Novavax, Inc. SECOND. The address of its registered office in the State ofDelaware is Corporation Trust Center, 1209 Orange Street, in the City ofWilmington, County of New Castle. The name of its registered agent at suchaddress is The Corporation Trust Company. THIRD. The nature of the business or purposes to beconducted or promoted by the Corporation is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stockwhich the Corporation shall have authority to issue is (i) thirty million(30,000,000) shares of Common Stock, $.01 par value per share ("Common Stock"),and (ii) two million (2,000,000) shares of Preferred Stock, $.01 par value pershare ("Preferred Stock"), which may be issued from time to time in one or moreseries as set forth in Part B of this Article FOURTH. - 2 - 4 The following is a statement of the designations and thepowers, privileges and rights, and the qualifications, limitations orrestrictions thereof in respect of each class of capital stock of theCorporation.A. COMMON STOCK. 1. General. The voting, dividend and liquidation rightsof the holders of the Common Stock are subject to and qualified by the rightsof the holders of the Preferred Stock of any series as may be designated by theBoard of Directors upon any issuance of the Preferred Stock of any series. 2. Voting. The holders of the Common Stock are entitledto one vote for each share held at all meetings of stockholders (and writtenactions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may beincreased or decreased (but not below the number of shares thereof thenoutstanding) by the affirmative vote of the holders of a majority of the stockof the Corporation entitled to vote, irrespective of the provisions of Section242(b)(2) of the General Corporation Law of Delaware. 3. Dividends. Dividends may be declared and paid on theCommon Stock from funds lawfully available therefor as and when determined bythe Board of Directors and subject to any preferential dividend rights of anythen outstanding Preferred Stock. 4. Liquidation. Upon the dissolution or liquidation ofthe Corporation, whether voluntary or involuntary, holders of Common Stock willbe entitled to receive all assets of the Corporation available for distributionto its stockholders, subject to any preferential rights of any then outstandingPreferred Stock.B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or moreseries, each of such series to have such terms as stated or expressed hereinand in the resolution or resolutions providing for the issue of such seriesadopted by the Board of Directors of the Corporation as hereinafter provided.Any shares of Preferred Stock which may be redeemed, purchased or acquired bythe Corporation may be reissued except as otherwise provided by law. Differ- - 3 - 5ent series of Preferred Stock shall not be construed to constitute differentclasses of shares for the purposes of voting by classes unless expresslyprovided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series,and in connection with the creation of any such series, by resolution orresolutions providing for the issue of the shares thereof, to determine and fixsuch voting powers, full or limited, or no voting powers, and suchdesignations, preferences and relative participating, optional or other specialrights, and qualifications, limitations or restrictions thereof, includingwithout limitation thereof, dividend rights, conversion rights, redemptionprivileges and liquidation preferences, as shall be stated and expressed insuch resolutions, all to the full extent now or hereafter permitted by theGeneral Corporation Law of Delaware. Without limiting the generality of theforegoing, the resolutions providing for issuance of any series of PreferredStock may provide that such series shall be superior or rank equally or bejunior to the Preferred Stock of any other series to the extent permitted bylaw. Except as otherwise specifically provided in this Certificate ofIncorporation, no vote of the holders of the Preferred Stock or Common Stockshall be a prerequisite to the issuance of any shares of any series of thePreferred Stock authorized by and complying with the conditions of theCertificate of Incorporation, the right to have such vote being expresslywaived by all present and future holders of the capital stock of theCorporation. FIFTH. The Corporation shall have a perpetual existence. SIXTH. _________ In furtherance of and not in limitation ofpowers conferred by statute, it is further provided that the Board of Directorsis expressly authorized to adopt, amend or repeal the By-Laws of theCorporation. SEVENTH. _______ Whenever a compromise or arrangement isproposed between this corporation and its creditors or any class of them and/orbetween this corporation and its stockholders or any class of them, any courtof equitable jurisdiction within the State of Delaware may, on the applicationin a summary way of this corporation or of any creditor or stockholder thereof,or on the application of any receiver or receivers appointed for thiscorporation under the provisions of section 291 of Title 8 of the Delaware Codeor on the application of trustees in dissolution or of any receiver orreceivers appointed for this corporation under the provisions of section 279 ofTitle 8 of the Delaware Code order a meeting of the creditors or class ofcreditors, and/or of the stockholders or class of stockholders of thiscorporation, as the case may be, to be summoned in such manner as the saidcourt directs. If a majority in number representing three-fourths in value ofthe creditors or class of creditors, and/or of - 4 - 6the stockholders or class of stockholders of this corporation, as the case maybe, agree to any compromise or arrangement and to any promise or arrangement,the said compromise or arrangement and the said reorganization shall, ifsanctioned by the court to which the said application has been made, be bindingon all the creditors or class of creditors, and/or on all the stockholders orclass of stockholders, of this corporation, as the case may be, and also onthis corporation. EIGHTH. Except to the extent that the General Corporation Lawof the State of Delaware prohibits the elimination or limitation of liabilityof directors for breaches of fiduciary duty, no director of the Corporationshall be personally liable to the Corporation or its stockholders for monetarydamages for any breach of fiduciary duty as a director, notwithstanding anyprovision of law imposing such liability. No amendment to or repeal of thisprovision shall apply to or have any effect on the liability or allegedliability of any director of the Corporation for or with respect to any acts oromissions of such director occurring prior to such amendment. NINTH. 1. Action, Suits and Proceedings Other than byor in the Right of the Corporation. The Corporation shall indemnify eachperson who was or is a party or is threatened to be made a party to anythreatened, pending or completed action, suit or proceeding, whether civil,criminal, administrative or investigative (other than an action by or in theright of the Corporation), by reason of the fact that he is or was, or hasagreed to become, a director or officer of the Corporation, or is or wasserving, or has agreed to serve, at the request of the Corporation, as adirector, officer or trustee of, or in a similar capacity with, anothercorporation, partnership, joint venture, trust or other enterprise (includingany employee benefit plan) (all such persons being referred to hereafter as an"Indemnitee"), or by reason of any action alleged to have been taken or omittedin such capacity, against all expenses (including attorneys' fees) judgment,fines and amounts paid in settlement actually and reasonably incurred by him oron his behalf in connection with such action, suit or proceeding and any appealtherefrom, if he acted in good faith and in a manner he reasonably believed tobe in, or not opposed to, the best interests of the Corporation, and, withrespect to any criminal action or proceeding, had no reasonable cause tobelieve his conduct was unlawful. The termination of any action, suit orproceeding by judgment, order, - 5 - 7settlement, conviction or upon a plea of nolo contendere or its equivalent,shall not, of itself, create a presumption that the person did not act in goodfaith and in a manner which he reasonably believed to be in, or not opposed to,the best interests of the Corporation, and, with respect to any criminal actionor proceeding, had reasonable cause to believe that his conduct was unlawful.Notwithstanding anything to the contrary in this Article, except as set forthin Section 6 below, the Corporation shall not indemnify an Indemnitee seekingindemnification in connection with a proceeding (or part thereof) initiated bythe Indemnitee unless the initiation thereof was approved by the Board ofDirectors of the Corporation. 2. Actions or Suits by or in the Right of theCorporation. The Corporation shall indemnify any Indemnitee who was or is aparty or is threatened to be made a party to any threatened, pending orcompleted action or suit by or in the right of the Corporation to procure ajudgment in its favor by reason of the fact that he is or was, or has agreed tobecome, a director or officer of the Corporation, or is or was serving, or hasagreed to serve, at the request of the Corporation, as a director, officer ortrustee of, or in a similar capacity with, another corporation, partnership,joint venture, trust or other enterprise (including any employee benefit plan),or by reason of any action alleged to have been taken or omitted in suchcapacity, against all expenses (including attorneys' fees) and amounts paid insettlement actually and reasonably incurred by him or on his behalf inconnection with such action, suit or proceeding and any appeal therefrom, if heacted in good faith and in a manner he reasonably believed to be in, or notopposed to, the best interests of the Corporation, except that noindemnification shall be made in respect of any claim, issue or matter as towhich such person shall have been adjudged to be liable to the Corporationunless and only to the extent that the Court of Chancery of Delaware shalldetermine upon application that, despite the adjudication of such liability butin view of all the circumstances of the case, such person is fairly andreasonably entitled to indemnity for such expenses (including attorneys' fees)which the Court of Chancery of Delaware shall deem proper. 3. Indemnification for Expenses of Successful Party.Notwithstanding the other provisions of this Article, to the extent that anIndemnitee has been successful, on the merits or otherwise, in defense of anyaction, suit or proceeding referred to in Sections 1 and 2 of this Article, orin defense of any claim, issue or matter therein, or on appeal from any suchaction, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by - 6 - 8him or on his behalf in connection therewith. Without limiting the foregoing,if any action, suit or proceeding is disposed of, on the merits or otherwise(including a disposition without prejudice), without (i) the disposition beingadverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liableto the Corporation, (iii) a plea of guilty or nolo contendere by theIndemnitee, (iv) an adjudication that the Indemnitee did not act in good faithand in a manner he reasonably believed to be in or not opposed to the bestinterests of the Corporation, and (v) with respect to any criminal proceeding,an adjudication that the Indemnitee had reasonable cause to believe his conductwas unlawful, the Indemnitee shall be considered for the purposes hereof tohave been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a conditionprecedent to his right to be indemnified, the Indemnitee must notify theCorporation in writing as soon as practicable of any action, suit, proceedingor investigation involving him for which indemnity will or could be sought.With respect to any action, suit, proceeding or investigation of which theCorporation is so notified, the Corporation will be entitled to participatetherein at its own expense and/or to assume the defense thereof at its ownexpense, with legal counsel reasonably acceptable to the Indemnitee. Afternotice from the Corporation to the Indemnitee of its election so to assume suchdefense, the Corporation shall not be liable to the Indemnitee for any legal orother expenses subsequently incurred by the Indemnitee in connection with suchclaim, other than as provided below in this Section 4. The Indemnitee shallhave the right to employ his own counsel in connection with such claim, but thefees and expenses of such counsel incurred after notice from the Corporation ofits assumption of the defense thereof shall be at the expense of the Indemniteeunless (i) the employment of counsel by the Indemnitee has been authorized bythe Corporation, (ii) counsel to the Indemnitee shall have reasonably concludedthat there may be a conflict of interest or position on any significant issuebetween the Corporation and the Indemnitee in the conduct of the defense ofsuch action or (iii) the Corporation shall not in fact have employed counsel toassume the defense of such action, in each of which cases the fees and expensesof counsel for the Indemnitee shall be at the expense of the Corporation,except as otherwise expressly provided by this Article. The Corporation shallnot be entitled, without the consent of the Indemnitee, to assume the defenseof any claim brought by or in the right of the Corporation or as to whichcounsel for the Indemnitee shall have reasonably made the conclusion providedfor in clause (ii) above. - 7 - 9 5. Advance of Expenses. Subject to the provisions ofSection 6 below, in the event that the Corporation does not assume the defensepursuant to Section 4 of this Article of any action, suit, proceeding orinvestigation of which the Corporation receives notice under this Article, anyexpenses (including attorneys' fees) incurred by an Indemnitee in defending acivil or criminal action, suit, proceeding or investigation or any appealtherefrom shall be paid by the Corporation in advance of the final dispositionof such matter; provided, however, that the payment of such expense incurred byan Indemnitee in advance of the final disposition of such matter shall be madeonly upon receipt of an undertaking by or on behalf of the Indemnitee to repayall amounts so advanced in the event that it shall ultimately be determinedthat the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking shall be accepted withoutreference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtainindemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 ofthis Article, the Indemnitee shall submit to the Corporation a written request,including in such request such documentation and information as is reasonablyavailable to the Indemnitee and is reasonably necessary to determine whetherand to what extent the Indemnitee is entitled to indemnification or advancementof expenses. Any such indemnification or advancement of expenses shall be madepromptly, and in any event within 60 days after receipt by the Corporation ofthe written request of the Indemnitee, unless with respect to requests underSection 1, 2 or 5 the Corporation determines, by clear and convincing evidence,within such 60-day period that the Indemnitee did not meet the applicablestandard of conduct set forth in Section 1 or 2, as the case may be. Suchdetermination shall be made in each instance by (a) a majority vote of thedirectors of the Corporation consisting of persons who are not at that timeparties to the action, suit or proceeding in question ("disinteresteddirectors"), even though less than a quorum, (b) a majority vote of a quorum ofthe outstanding shares of stock of all classes entitled to vote for directors,voting as a single class, which quorum shall consist of stockholders who arenot at that time parties to the action, suit or proceeding in question, (c)independent legal counsel (who may be regular legal counsel to theCorporation), or (d) a court of competent jurisdiction. 7. Remedies. The right to indemnification or advancesas granted by this Article shall be enforceable by the Indemnitee in any courtof competent jurisdiction if the Corporation denies such request, in whole orin part, or if no disposition thereof is made - 8 - 10within the 60-day period referred to above in Section 6. Unless otherwiseprovided by law, the burden of proving that the Indemnitee is not entitled toindemnification or advanced of expenses under this Article shall be on theCorporation. Neither the failure of the Corporation to have made adetermination prior to the commencement of such action that indemnification isproper in the circumstances because the Indemnitee has met the applicablestandard of conduct, nor an actual determination by the Corporation pursuant toSection 6 that the Indemnitee has not met such applicable standard of conduct,shall be a defense to the action or create a presumption that the Indemniteehas not met the applicable standard of conduct. The Indemnitee's expenses(including attorneys' fees) incurred in connection with successfullyestablishing his right to indemnification, in whole or in part, in any suchproceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination orrepeal of this Article or of the relevant provisions of the General CorporationLaw of Delaware or any other applicable laws shall affect or diminish in anyway the rights of any Indemnitee to indemnification under the provisions hereofwith respect to any action, suit, proceeding or investigation arising out of orrelating to any actions, transactions or facts occurring prior to the finaladoption of such amendment, termination or repeal. 9. Other Rights. The indemnification and advancement ofexpenses provided by this Article shall not be deemed exclusive of any otherrights to which an Indemnitee seeking indemnification or advancement ofexpenses may be entitled under any law (common or statutory), agreement or voteof stockholders or disinterested directors or otherwise, both as to action inhis official capacity and as to action in any other capacity while holdingoffice for the Corporation, and shall continue as to an Indemnitee who hasceased to be a director or officer, and shall inure to the benefit of theestate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation isspecifically authorized to enter into, agreements with officers and directorsproviding indemnification rights and procedures different from those set forthin this Article. In addition, the Corporation may, to the extent authorizedfrom time to time by its Board of Directors, grant indemnification rights toother employees or agents of the Corporation or other persons serving theCorporation and such rights may be equivalent to, or greater or less than,those set forth in this Article. - 9 - 11 10. Partial Indemnification. If an Indemnitee isentitled under any provision of this Article to indemnification by theCorporation for some or a portion of the expenses (including attorneys' fees),judgments, fines or amounts paid in settlement actually and reasonably incurredby him or on his behalf in connection with any action, suit, proceeding orinvestigation and any appeal, therefrom but not, however, for the total amountthereof, the Corporation shall nevertheless indemnify the Indemnitee for theportion of such expenses (including attorneys' fees), judgments, fines oramounts paid in settlement to which the Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintaininsurance, at its expense, to protect itself and any director, officer,employee or agent of the Corporation or another corporation, partnership, jointventure, trust or other enterprise (including any employee benefit plan)against any expense, liability or loss incurred by him in any such capacity, orarising out of his status as such, whether or not the Corporation would havethe power to indemnify such person against such expense, liability or lossunder the General Corporation law of Delaware. 12. Merger or Consolidation. If the Corporation ismerged into or consolidated with another corporation and the Corporation is notthe surviving corporation, the surviving corporation shall assume theobligations of the Corporation under this Article with respect to any action,suit, proceeding or investigation arising out of or relating to any actions,transactions or facts occurring prior to the date of such merger orconsolidation. 13. Savings Clause. If this Article or any portionhereof shall be invalidated on any ground by any court of competentjurisdiction, then the Corporation shall nevertheless indemnify each Indemniteeas to any expenses (including attorneys' fees) judgments, fines and amountspaid in settlement in connection with any action, suit, proceeding orinvestigation, whether civil, criminal or administrative, including an actionby or in the right of the Corporation, to the fullest extent permitted by anyapplicable portion of this Article that shall not have been invalidated and tothe fullest extent permitted by applicable law. 14. Definitions. Terms used herein and defined inSection 145(h) and Section 145(i) of the General Corporation Law of Delawareshall have the respective meanings assigned to such terms in such Section145(h) and Section 145(i). - 10 - 12 15. Subsequent Legislation. If the General CorporationLaw of Delaware is amended after adoption of this Article to expand further theindemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law ofDelaware, as so amended. TENTH. The Corporation reserves the right to amend, alter,change or repeal any provision contained in this Amended and RestatedCertificate of Incorporation, in the manner now or hereafter prescribed bystatute and this Amended and Restated Certificate of Incorporation, and allrights conferred upon stockholders herein are granted subject to thisreservation. ELEVENTH. This Article is inserted for the management of thebusiness and for the conduct of the affairs of the Corporation. 1. Number of Directors. The number of directors of theCorporation shall not be less than three. The exact number of directors withinthe limitations specified in the preceding sentence shall be fixed from time totime by, or in the manner provided in, the Corporation's By-Laws. 2. Classes of Directors. The Board of Directors shallbe and is divided into three classes: Class I, Class II and Class III. No oneclass shall have more than one director more than any other class. If afraction is contained in the quotient arrived at by dividing the designatednumber of directors by three, then, if such fraction is one-third, the extradirector shall be a member of Class I, and if such fraction is two-thirds, oneof the extra directors shall be a member of Class I and one of the extradirectors shall be a member of Class II, unless otherwise provided from time totime by resolution adopted by the Board of Directors. 3. Election of Directors. Elections of directors neednot be by written ballot except as and to the extent provided in the By-Laws ofthe Corporation. 4. Terms of Office. Each director shall serve for aterm ending on the date of the third annual meeting following the annualmeeting at which such director was elected; provided, that each initialdirector in Class I shall serve for a term ending on the date of the annualmeeting in 1996; each initial director in Class II shall serve for a termending on the date of the annual meeting in 1997; and each initial director inClass III shall serve for a term ending on the date of the annual meeting in1998; - 11 - 13and provided further, that the term of each director shall be subject to theelection and qualification of his successor and to his earlier death,resignation or removal. 5. Allocation of Directors Among Classes in the Event ofIncreases or Decreases in the Number of Directors. In the event of anyincrease or decrease in the authorized number of directors, (i) each directorthen serving as such shall nevertheless continue as a director of the class ofwhich he is a member and (ii) the newly created or eliminated directorshipsresulting from such increase or decrease shall be apportioned by the Board ofDirectors among the three classes of directors so as to ensure that no oneclass has more than one director more than any other class. To the extentpossible, consistent with the foregoing rule, any newly created directorshipsshall be added to those classes whose terms of office are to expire at thelatest dates following such allocation, and any newly eliminated directorshipsshall be subtracted from those classes whose terms of offices are to expire atthe earliest dates following such allocation, unless otherwise provided fromtime to time by resolution adopted by the Board of Directors. 6. Quorum; Action at Meeting. A majority of the directors at any time in office shall constitute a quorum for the transactionof business. In the event one or more of the directors shall be disqualifiedto vote at any meeting, then the required quorum shall be reduced by one foreach director so disqualified, provided that in no case shall less thanone-third of the number of directors fixed pursuant to Section 1 aboveconstitute a quorum. If at any meeting of the Board of Directors there shallbe less than such a quorum, a majority of those present may adjourn the meetingfrom time to time. Every act or decision done or made by a majority of thedirectors present at a meeting duly held at which a quorum is present shall beregarded as the act of the Board of Directors unless a greater number isrequired by law, by the By-Laws of the Corporation or by this Amended andRestated Certificate of Incorporation. 7. Removal. Directors of the Corporation may be removedonly for cause by the affirmative vote of the holders of at least two-thirds ofthe shares of the capital stock of the Corporation issued and outstanding andentitled to vote. 8. Vacancies. Any vacancy in the Board of Directors,however occurring, including a vacancy resulting from an enlargement of theboard, shall be filled only by a vote of a majority of the directors then inoffice, although less than a quorum, or by a sole remaining director. Adirector elected to - 12 - 14fill a vacancy shall be elected to hold office until the next election of theclass for which such director shall have been chosen, subject to the electionand qualification of his successor and to his earlier death, resignation orremoval. 9. Stockholder Nominations and Introduction of Business,Etc. Advance notice of stockholder nominations for election of directors andother business to be brought by stockholders before a meeting of stockholdersshall be given in the manner provided by the By-Laws of the Corporation. 10. Amendments to Article. Notwithstanding any otherprovisions of law, this Amended and Restated Certificate of Incorporation orthe By-Laws of the Corporation, and notwithstanding the fact that a lesserpercentage may be specified by law, the affirmative vote of the holders of atleast seventy-five percent (75%) of the shares of capital stock of theCorporation issued and outstanding and entitled to vote shall be required toamend or repeal, or to adopt any provision inconsistent with, this ArticleELEVENTH. TWELFTH. Stockholders of the Corporation may not take anyaction by written consent in lieu of a meeting. Notwithstanding any otherprovisions of law, the Amended and Restated Certificate of Incorporation or theBy-Laws of the Corporation, and notwithstanding the fact that a lesserpercentage may be specified by law, the affirmative vote of the holders of atleast seventy-five percent (75%) of the shares of capital stock of theCorporation issued and outstanding and entitled to vote shall be required toamend or repeal, or to adopt any provision inconsistent with, this ArticleTWELFTH. THIRTEENTH. Special meetings of stockholders may be called atany time by only the Chief Executive Officer (or, if there is no ChiefExecutive Officer, the President) or by the Board of Directors. Businesstransacted at any special meeting of stockholders shall be limited to mattersrelating to the purpose or purposes stated in the notice of meeting.Notwithstanding any other provision of law, this Amended and RestatedCertificate of Incorporation or the Corporation's By-Laws, and notwithstandingthe fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the shares of capitalstock of the Corporation issued and outstanding and entitled to vote shall berequired to amend or repeal, or to adopt any provision inconsistent with, thisArticle THIRTEENTH. - 13 - 15 IN WITNESS WHEREOF, the Corporation has caused its corporateseal to be affixed hereto and this Amended and Restated Certificate ofIncorporation to be signed by its Chairman this 20th day of November, 1995. NOVAVAX, INC. By: /s/ EDWARD B. HAGER, M.D. -------------------------------------- Edward B. Hager, M.D. Chairman - 14 - 1 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF NOVAVAX, INC. 2 AMENDED AND RESTATED BY-LAWS TABLE OF CONTENTS Page ---- ARTICLE 1 - Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.4 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.5 Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.7 Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.8 Voting and Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.9 Action at Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 1.10 Nomination of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 1.11 Notice of Business at Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 1.12 Action without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 1.13 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5ARTICLE 2 - Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.1 General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.2 Number; Election and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.3 Classes of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 2.4 Terms of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 2.5 Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 2.6 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.7 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.8 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.9 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.10 Notice of Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.11 Meetings by Telephone Conference Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.12 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.13 Action at Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.14 Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.15 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.16 Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.17 Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 -1- 3 ARTICLE 3 - Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.1 Enumeration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.2 Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.3 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.4 Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.5 Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.6 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.7 Chairman of the Board and Vice Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.8 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.9 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.10 Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.11 Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.12 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12ARTICLE 4 - Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.1 Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.2 Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.3 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.4 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.5 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13ARTICLE 5 - General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.2 Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.3 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.4 Voting of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.5 Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 5.6 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 5.7 Transactions with Interested Parties . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 5.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 5.9 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15ARTICLE 6 - Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.1 By the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.2 By the Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.3 Certain Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4 AMENDED AND RESTATED BY-LAWS OF NOVAVAX, INC. ARTICLE 1 - Stockholders 1.1 Place of Meetings. All meetings of stockholdersshall be held at such place within or without the State of Delaware as may bedesignated from time to time by the Board of Directors or the President or, ifnot so designated, at the registered office of the corporation. 1.2 Annual Meeting. The annual meeting of stockholdersfor the election of directors and for the transaction of such other business asmay properly be brought before the meeting shall be held within six monthsafter the end of each fiscal year of the corporation on a date to be fixed bythe Board of Directors or the President (which date shall not be a legalholiday in the place where the meeting is to be held) at the time and place tobe fixed by the Board of Directors or the President and stated in the notice ofthe meeting. If no annual meeting is held in accordance with the foregoingprovisions, the Board of Directors shall cause the meeting to be held as soonthereafter as convenient. If no annual meeting is held in accordance with theforegoing provisions, a special meeting may be held in lieu of the annualmeeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case allreferences in these By-Laws to the annual meeting of the stockholders shall bedeemed to refer to such special meeting. 1.3 Special Meetings. Special meetings of stockholdersmay be called at any time by the Chief Executive Officer (or, if there is noChief Executive Officer, the President) or by the Board of Directors. Businesstransacted at any special meeting of stockholders shall be limited to mattersrelating to the purpose or purposes stated in the notice of meeting. 1.4 Notice of Meetings. Except as otherwise provided bylaw, written notice of each meeting of stockholders, whether annual or special,shall be given not less than 10 nor more than 60 days before the date of themeeting to each stockholder entitled to vote at such meeting. The notices ofall meetings shall state the place, date and hour of the meeting. The noticeof a special meeting shall state, in addition, the purpose or -1- 5purposes for which the meeting is called. If mailed, notice is given whendeposited in the United States mail, postage prepaid, directed to thestockholder at his address as it appears on the records of the corporation. 1.5 Voting List. The officer who has charge of the stockledger of the corporation shall prepare, at least 10 days before every meetingof stockholders, a complete list of the stockholders entitled to vote at themeeting, arranged in alphabetical order, and showing the address of eachstockholder and the number of shares registered in the name of eachstockholder. Such list shall be open to the examination of any stockholder,for any purpose germane to the meeting, during ordinary business hours, for aperiod of at least 10 days prior to the meeting, at a place within the citywhere the meeting is to be held. The list shall also be produced and kept atthe time and place of the meeting during the whole time of the meeting, and maybe inspected by any stockholder who is present. 1.6 Quorum. Except as otherwise provided by law, theCertificate of Incorporation or these By-Laws, the holders of a majority of theshares of the capital stock of the corporation issued and outstanding andentitled to vote at the meeting, present in person or represented by proxy,shall constitute a quorum for the transaction of business. 1.7 Adjournments. Any meeting of stockholders may beadjourned to any other time and to any other place at which a meeting ofstockholders may be held under these By-Laws by the stockholders present orrepresented at the meeting and entitled to vote, although less than a quorum,or, if no stockholder is present, by any officer entitled to preside at or toact as Secretary of such meeting. It shall not be necessary to notify anystockholder of any adjournment of less than 30 days if the time and place ofthe adjourned meeting are announced at the meeting at which adjournment istaken, unless after the adjournment a new record date is fixed for theadjourned meeting. At the adjourned meeting, the corporation may transact anybusiness which might have been transacted at the original meeting. 1.8 Voting and Proxies. Each stockholder shall have onevote for each share of stock entitled to vote held of record by suchstockholder and a proportionate vote for each fractional share so held, unlessotherwise provided by the General Corporation Law of the State of Delaware, theCertificate of Incorporation or these By-Laws. Each stockholder of recordentitled to vote at a meeting of stockholders, or to express consent or dissentto corporate action in writing without a meeting, may vote or express suchconsent or dissent in person or -2- 6may authorize another person or persons to vote or act for him by written proxyexecuted by the stockholder or his authorized agent and delivered to theSecretary of the corporation. No such proxy shall be voted or acted upon afterthree years from the date of its execution, unless the proxy expressly providesfor a longer period. 1.9 Action at Meeting. When a quorum is present at anymeeting, the holders of a majority of the stock present or represented andvoting on a matter (or if there are two or more classes of stock entitled tovote as separate classes, then in the case of each such class, the holders of amajority of the stock of that class present or represented and voting on amatter) shall decide any matter to be voted upon by the stockholders at suchmeeting, except when a different vote is required by express provision of law,the Certificate of Incorporation or these By-Laws. Any election bystockholders shall be determined by a plurality of the votes cast by thestockholders entitled to vote at the election. 1.10 Nomination of Directors. Only persons who arenominated in accordance with the following procedures shall be eligible forelection as directors. Nomination for election to the Board of Directors ofthe corporation at a meeting of stockholders may be made by the Board ofDirectors or by any stockholder of the corporation entitled to vote for theelection of directors at such meeting who complies with the notice proceduresset forth in this Section 1.10. Such nominations, other than those made by oron behalf of the Board of Directors, shall be made by notice in writingdelivered or mailed by first class United States mail, postage prepaid, to theSecretary, and received not less than 60 days nor more than 90 days prior tosuch meeting; provided, however, that if less than 70 days' notice or priorpublic disclosure of the date of the meeting is given to stockholders, suchnomination shall have been mailed or delivered to the Secretary not later thanthe close of business on the 10th day following the date on which the notice ofthe meeting was mailed or such public disclosure was made, whichever occursfirst. Such notice shall set forth (a) as to each proposed nominee (i) thename, age, business address and, if known, residence address of each suchnominee, (ii) the principal occupation or employment of each such nominee,(iii) the number of shares of stock of the corporation which are beneficiallyowned by each such nominee, and (iv) any other information concerning thenominee that must be disclosed as to nominees in proxy solicitations pursuantto Regulation 14A under the Securities Exchange Act of 1934, as amended(including such person's written consent to be named as a nominee and to serveas a director if elected); and (b) as to the stockholder giving the notice (i)the name and address, as they -3- 7appear on the corporation's books, of such stockholder and (ii) the class andnumber of shares of the corporation which are beneficially owned by suchstockholder. The corporation may require any proposed nominee to furnish suchother information as may reasonably be required by the corporation to determinethe eligibility of such proposed nominee to serve as a director of thecorporation. The chairman of the meeting may, if the facts warrant,determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shallso declare to the meeting and the defective nomination shall be disregarded. 1.11 Notice of Business at Annual Meetings. At an annualmeeting of the stockholders, only such business shall be conducted as shallhave been properly brought before the meeting. To be properly brought beforean annual meeting, business must be (a) specified in the notice of meeting (orany supplement thereto) given by or at the direction of the Board of Directors,(b) otherwise properly brought before the meeting by or at the direction of theBoard of Directors, or (c) otherwise properly brought before an annual meetingby a stockholder. For business to be properly brought before an annual meetingby a stockholder, if such business relates to the election of directors of thecorporation, the procedures in Section 1.10 must be complied with. If suchbusiness relates to any other matter, the stockholder must have given timelynotice thereof in writing to the Secretary. To be timely, a stockholder'snotice must be delivered to or mailed and received at the principal executiveoffices of the corporation not less than 60 days nor more than 90 days prior tothe meeting; provided, however, that in the event that less than 70 days'notice or prior public disclosure of the date of the meeting is given or madeto stockholders, notice by the stockholder to be timely must be so received notlater than the close of business on the 10th day following the date on whichsuch notice of the date of the meeting was mailed or such public disclosure wasmade, whichever occurs first. A stockholder's notice to the Secretary shallset forth as to each matter the stockholder proposes to bring before the annualmeeting (a) a brief description of the business desired to be brought beforethe annual meeting and the reasons for conducting such business at the annualmeeting, (b) the name and address, as they appear on the corporation's books,of the stockholder proposing such business, (c) the class and number of sharesof the corporation which are beneficially owned by the stockholder, and (d) anymaterial interest of the stockholder in such business. Notwithstandinganything in these By-Laws to the contrary, no business shall be conducted atany annual meeting except in accordance with the procedures set forth -4- 8in this Section 1.11 and except that any stockholder proposal which complieswith Rule 14a-8 of the proxy rules (or any successor provision) promulgatedunder the Securities Exchange Act of 1934, as amended, and is to be included inthe corporation's proxy statement for an annual meeting of stockholders shallbe deemed to comply with the requirements of this Section 1.11. The chairman of the meeting shall, if the facts warrant,determine and declare to the meeting that business was not properly broughtbefore the meeting in accordance with the provisions of this Section 1.11, andif he should so determine, the chairman shall so declare to the meeting thatany such business not properly brought before the meeting shall not betransacted. 1.12 Action without Meeting. Stockholders may not takeany action by written consent in lieu of a meeting. 1.13 Organization. The Chairman of the Board, or in hisabsence the Vice Chairman of the Board designated by the Chairman of the Board,or the President, in the order named, shall call meetings of the stockholdersto order, and shall act as chairman of such meeting; provided, however, thatthe Board of Directors may appoint any stockholder to act as chairman of anymeeting in the absence of the Chairman of the Board. The Secretary of thecorporation shall act as secretary at all meetings of the stockholders; but inthe absence of the Secretary at any meeting of the stockholders, the presidingofficer may appoint any person to act as secretary of the meeting. ARTICLE 2 - Directors 2.1 General Powers. The business and affairs of thecorporation shall be managed by or under the direction of a Board of Directors,who may exercise all of the powers of the corporation except as otherwiseprovided by law, the Certificate of Incorporation or these By-Laws. In theevent of a vacancy in the Board of Directors, the remaining directors, exceptas otherwise provided by law, may exercise the powers of the full Board untilthe vacancy is filled. 2.2 Number; Election and Qualification. The number ofdirectors which shall constitute the whole Board of Directors shall bedetermined by resolution of the Board of Directors, but in no event shall beless than three. The number of directors may be decreased at any time and fromtime to time by a majority of the directors then in office, but only toeliminate vacancies -5- 9existing by reason of the death, resignation, removal or expiration of the termof one or more directors. The directors shall be elected at the annual meetingof stockholders by such stockholders as have the right to vote on suchelection. Directors need not be stockholders of the corporation. 2.3 Classes of Directors. The Board of Directors shallbe and is divided into three classes: Class I, Class II and Class III. No oneclass shall have more than one director more than any other class. If afraction is contained in the quotient arrived at by dividing the designatednumber of directors by three, then, if such fraction is one-third, the extradirector shall be a member of Class I, and if such fraction is two-thirds, oneof the extra directors shall be a member of Class I and one of the extradirectors shall be a member of Class II, unless otherwise provided from time totime by resolution adopted by the Board of Directors. 2.4 Terms of Office. Each director shall serve for aterm ending on the date of the third annual meeting following the annualmeeting at which such director was elected; provided, that each initialdirector in Class I shall serve for a term ending on the date of the annualmeeting of stockholders in 1996; each initial director in Class II shall servefor a term ending on the date of the annual meeting of stockholders in 1997;and each initial director in Class III shall serve for a term ending on thedate of the annual meeting of stockholders in 1998; and provided further, thatthe term of each director shall be subject to the election and qualification ofhis successor and to his earlier death, resignation or removal. 2.5 Allocation of Directors Among Classes in the Event ofIncreases or Decreases in the Number of Directors. In the event of anyincrease or decrease in the authorized number of directors, (i) each directorthen serving as such shall nevertheless continue as a director of the class ofwhich he is a member and (ii) the newly created or eliminated directorshipsresulting from such increase or decrease shall be apportioned by the Board ofDirectors among the three classes of directors so as to ensure that no oneclass has more than one director more than any other class. To the extentpossible, consistent with the foregoing rule, any newly created directorshipsshall be added to those classes whose terms of office are to expire at thelatest dates following such allocation, and any newly eliminated directorshipsshall be subtracted from those classes whose terms of offices are to expire atthe earliest dates following such allocation, unless otherwise provided fromtime to time by resolution adopted by the Board of Directors. -6- 10 2.6 Vacancies. Any vacancy in the Board of Directors,however occurring, including a vacancy resulting from an enlargement of theBoard, shall be filled only by vote of a majority of the directors then inoffice, although less than a quorum, or by a sole remaining director. Adirector elected to fill a vacancy shall be elected for the unexpired term ofhis predecessor in office, and a director chosen to fill a position resultingfrom an increase in the number of directors shall hold office until the nextelection of the class for which such director shall have been chosen, subjectto the election and qualification of his successor and to his earlier death,resignation or removal. 2.7 Resignation. Any director may resign by deliveringhis written resignation to the corporation at its principal office or to thePresident or Secretary. Such resignation shall be effective upon receiptunless it is specified to be effective at some other time or upon the happeningof some other event. 2.8 Regular Meetings. Regular meetings of the Board ofDirectors may be held without notice at such time and place, either within orwithout the State of Delaware, as shall be determined from time to time by theBoard of Directors; provided that any director who is absent when such adetermination is made shall be given notice of the determination. A regularmeeting of the Board of Directors may be held without notice immediately afterand at the same place as the annual meeting of stockholders. 2.9 Special Meetings. Special meetings of the Board ofDirectors may be held at any time and place, within or without the State ofDelaware, designated in a call by the Chairman of the Board, President, two ormore directors, or by one director in the event that there is only a singledirector in office. 2.10 Notice of Special Meetings. Notice of any specialmeeting of directors shall be given to each director by the Secretary or by theofficer or one of the directors calling the meeting. Notice shall be dulygiven to each director (i) by giving notice to such director in person or bytelephone at least 24 hours in advance of the meeting, (ii) by sending atelegram, telecopy, or telex, or delivering written notice by hand, to his lastknown business or home address at least 24 hours in advance of the meeting, or(iii) by mailing written notice to his last known business or home address atleast 72 hours in advance of the meeting. A notice or waiver of notice of ameeting of the Board of Directors need not specify the purposes of the meeting. 2.11 Meetings by Telephone Conference Calls. Directors orany members of any committee designated by the directors may -7- 11participate in a meeting of the Board of Directors or such committee by meansof conference telephone or similar communications equipment by means of whichall persons participating in the meeting can hear each other, and participationby such means shall constitute presence in person at such meeting. 2.12 Quorum. A majority of the total number of the whole Board of Directors shall constitute a quorum at all meetings of the Board ofDirectors. In the event one or more of the directors shall be disqualified tovote at any meeting, then the required quorum shall be reduced by one for eachsuch director so disqualified; provided, however, that in no case shall lessthan one-third (1/3) of the number so fixed constitute a quorum. In theabsence of a quorum at any such meeting, a majority of the directors presentmay adjourn the meeting from time to time without further notice other thanannouncement at the meeting, until a quorum shall be present. 2.13 Action at Meeting. At any meeting of the Board ofDirectors at which a quorum is present, the vote of a majority of those presentshall be sufficient to take any action, unless a different vote is specified bylaw, the Certificate of Incorporation or these By-Laws. Notwithstanding theforegoing, at any time during which the directors of the corporation who areaffiliated with IGI, Inc. shall constitute at least half of the membership ofthe Board of Directors, any matter requiring approval of the Board of Directorsshall be subject to the approval of not less than two-thirds of the directors. 2.14 Action by Consent. Any action required or permittedto be taken at any meeting of the Board of Directors or of any committee of theBoard of Directors may be taken without a meeting, if all members of the Boardor committee, as the case may be, consent to the action in writing, and thewritten consents are filed with the minutes of proceedings of the Board orcommittee. 2.15 Removal. Directors of the corporation may be removedonly for cause by the affirmative vote of the holders of two-thirds of theshares of the capital stock of the corporation issued and outstanding andentitled to vote. 2.16 Committees. The Board of Directors may, byresolution passed by a majority of the whole Board, designate one or morecommittees, each committee to consist of one or more of the directors of thecorporation. The Board may designate one or more directors as alternatemembers of any committee, who may replace any absent or disqualified member atany meeting of the committee. In the absence or disqualification of a memberof a committee, the -8- 12member or members of the committee present at any meeting and not disqualifiedfrom voting, whether or not he or they constitute a quorum, may unanimouslyappoint another member of the Board of Directors to act at the meeting in theplace of any such absent or disqualified member. Any such committee, to theextent provided in the resolution of the Board of Directors and subject to theprovisions of the General Corporation Law of the State of Delaware, shall haveand may exercise all the powers and authority of the Board of Directors in themanagement of the business and affairs of the corporation and may authorize theseal of the corporation to be affixed to all papers which may require it. Eachsuch committee shall keep minutes and make such reports as the Board ofDirectors may from time to time request. Except as the Board of Directors mayotherwise determine, any committee may make rules for the conduct of itsbusiness, but unless otherwise provided by the directors or in such rules, itsbusiness shall be conducted as nearly as possible in the same manner as isprovided in these By-Laws for the Board of Directors. 2.17 Compensation of Directors. Directors may be paidsuch compensation for their services and such reimbursement for expenses ofattendance at meetings as the Board of Directors may from time to timedetermine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any othercapacity and receiving compensation for such service. ARTICLE 3 - Officers 3.1 Enumeration. The officers of the corporation shallconsist of a President, a Secretary, a Treasurer and such other officers withsuch other titles as the Board of Directors shall determine, including aChairman of the Board, a Vice Chairman of the Board, and one or more VicePresidents, Assistant Treasurers, and Assistant Secretaries. The Board ofDirectors may appoint such other officers as it may deem appropriate. 3.2 Election. The President, Treasurer and Secretaryshall be elected annually by the Board of Directors at its first meetingfollowing the annual meeting of stockholders. Other officers may be appointedby the Board of Directors at such meeting or at any other meeting. 3.3 Qualification. No officer need be a stockholder.Any two or more offices may be held by the same person. -9- 13 3.4 Tenure. Except as otherwise provided by law, by theCertificate of Incorporation or by these By-Laws, each officer shall holdoffice until his successor is elected and qualified, unless a different term isspecified in the vote choosing or appointing him, or until his earlier death,resignation or removal. 3.5 Resignation and Removal. Any officer may resign bydelivering his written resignation to the corporation at its principal officeor to the President or Secretary. Such resignation shall be effective uponreceipt unless it is specified to be effective at some other time or upon thehappening of some other event. Any officer may be removed at any time, with or without cause,by vote of a majority of the entire number of directors then in office. Except as the Board of Directors may otherwise determine, noofficer who resigns or is removed shall have any right to any compensation asan officer for any period following his resignation or removal, or any right todamages on account of such removal, whether his compensation be by the month orby the year or otherwise, unless such compensation is expressly provided in aduly authorized written agreement with the corporation. 3.6 Vacancies. The Board of Directors may fill anyvacancy occurring in any office for any reason and may, in its discretion,leave unfilled for such period as it may determine any offices other than thoseof President, Treasurer and Secretary. Each such successor shall hold officefor the unexpired term of his predecessor and until his successor is electedand qualified, or until his earlier death, resignation or removal. 3.7 Chairman of the Board and Vice Chairman of the Board.The Board of Directors may appoint a Chairman of the Board and may designatethe Chairman of the Board as Chief Executive Officer. If the Board ofDirectors appoints a Chairman of the Board, he shall perform such duties andpossess such powers as are assigned to him by the Board of Directors. If theBoard of Directors appoints a Vice Chairman of the Board, he shall, in theabsence or disability of the Chairman of the Board, perform the duties andexercise the powers of the Chairman of the Board and shall perform such otherduties and possess such other powers as may from time to time be vested in himby the Board of Directors. 3.8 President. The President shall, subject to thedirection of the Board of Directors, have general charge and supervision of thebusiness of the corporation. Unless otherwise -10- 14provided by the Board of Directors, he shall preside at all meetings of thestockholders, if he is a director, at all meetings of the Board of Directors.Unless the Board of Directors has designated the Chairman of the Board oranother officer as Chief Executive Officer, the President shall be the ChiefExecutive Officer of the corporation. The President shall perform such otherduties and shall have such other powers as the Board of Directors may from timeto time prescribe. 3.9 Vice Presidents. Any Vice President shall performsuch duties and possess such powers as the Board of Directors or the Presidentmay from time to time prescribe. In the event of the absence, inability orrefusal to act of the President, the Vice President (or if there shall be morethan one, the Vice Presidents in the order determined by the Board ofDirectors) shall perform the duties of the President and when so performingshall have all the powers of and be subject to all the restrictions upon thePresident. The Board of Directors may assign to any Vice President the titleof Executive Vice President, Senior Vice President or any other title selectedby the Board of Directors. 3.10 Secretary and Assistant Secretaries. The Secretaryshall perform such duties and shall have such powers as the Board of Directorsor the President may from time to time prescribe. In addition, the Secretaryshall perform such duties and have such powers as are incident to the office ofthe secretary, including without limitation the duty and power to give noticesof all meetings of stockholders and special meetings of the Board of Directors,to attend all meetings of stockholders and the Board of Directors and keep arecord of the proceedings, to maintain a stock ledger and prepare lists ofstockholders and their addresses as required, to be custodian of corporaterecords and the corporate seal and to affix and attest to the same ondocuments. Any Assistant Secretary shall perform such duties and possesssuch powers as the Board of Directors, the President or the Secretary may fromtime to time prescribe. In the event of the absence, inability or refusal toact of the Secretary, the Assistant Secretary (or if there shall be more thanone, the Assistant Secretaries in the order determined by the Board ofDirectors) shall perform the duties and exercise the powers of the Secretary. In the absence of the Secretary or any Assistant Secretary atany meeting of stockholders or directors, the person presiding at the meetingshall designate a temporary secretary to keep a record of the meeting. 3.11 Treasurer and Assistant Treasurers. The Treasurershall perform such duties and shall have such powers as may from -11- 15time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as areincident to the office of treasurer, including without limitation the duty andpower to keep and be responsible for all funds and securities of thecorporation, to deposit funds of the corporation in depositories selected inaccordance with these By-Laws, to disburse such funds as ordered by the Boardof Directors, to make proper accounts of such funds, and to render as requiredby the Board of Directors statements of all such transactions and of thefinancial condition of the corporation. The Assistant Treasurers shall perform such duties and possesssuch powers as the Board of Directors, the President or the Treasurer may fromtime to time prescribe. In the event of the absence, inability or refusal toact of the Treasurer, the Assistant Treasurer (or if there shall be more thanone, the Assistant Treasurers in the order determined by the Board ofDirectors) shall perform the duties and exercise the powers of the Treasurer. 3.12 Salaries. Officers of the corporation shall beentitled to such salaries, compensation or reimbursement as shall be fixed orallowed from time to time by the Board of Directors. ARTICLE 4 - Capital Stock 4.1 Issuance of Stock. Unless otherwise voted by thestockholders and subject to the provisions of the Certificate of Incorporation,the whole or any part of any unissued balance of the authorized capital stockof the corporation or the whole or any part of any unissued balance of theauthorized capital stock of the corporation held in its treasury may be issued,sold, transferred or otherwise disposed of by vote of the Board of Directors insuch manner, for such consideration and on such terms as the Board of Directorsmay determine. 4.2 Certificates of Stock. Every holder of stock of thecorporation shall be entitled to have a certificate, in such form as may beprescribed by law and by the Board of Directors, certifying the number andclass of shares owned by him in the corporation. Each such certificate shallbe signed by, or in the name of the corporation by, the Chairman or ViceChairman, if any, of the Board of Directors, or the President or a VicePresident, and the Treasurer or an Assistant Treasurer, or the Secretary or anAssistant Secretary of the corporation. Any or all of the signatures on thecertificate may be a facsimile. -12- 16 Each certificate for shares of stock which are subject to anyrestriction on transfer pursuant to the Certificate of Incorporation, theBy-Laws, applicable securities laws or any agreement among any number ofstockholders or among such holders and the corporation shall have conspicuouslynoted on the face or back of the certificate either the full text of therestriction or a statement of the existence of such restriction. 4.3 Transfers. Except as otherwise established by rulesand regulations adopted by the Board of Directors, and subject to applicablelaw, shares of stock may be transferred on the books of the corporation by thesurrender to the corporation or its transfer agent of the certificaterepresenting such shares properly endorsed or accompanied by a writtenassignment or power of attorney properly executed, and with such proof ofauthority or the authenticity of signature as the corporation or its transferagent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the corporation shall beentitled to treat the record holder of stock as shown on its books as the ownerof such stock for all purposes, including the payment of dividends and theright to vote with respect to such stock, regardless of any transfer, pledge orother disposition of such stock until the shares have been transferred on thebooks of the corporation in accordance with the requirements of these By-Laws. 4.4 Lost, Stolen or Destroyed Certificates. Thecorporation may issue a new certificate of stock in place of any previouslyissued certificate alleged to have been lost, stolen, or destroyed, upon suchterms and conditions as the Board of Directors may prescribe, including thepresentation of reasonable evidence of such loss, theft or destruction and thegiving of such indemnity as the Board of Directors may require for theprotection of the corporation or any transfer agent or registrar. 4.5 Record Date. The Board of Directors may fix inadvance a date as a record date for the determination of the stockholdersentitled to notice of or to vote at any meeting of stockholders, or entitled toreceive payment of any dividend or other distribution or allotment of anyrights in respect of any change, conversion or exchange of stock, or for thepurpose of any other lawful action. Such record date shall not be more than 60nor less than 10 days before the date of such meeting, nor more than 60 daysprior to any other action to which such record date relates. If no record date is fixed, the record date for determiningstockholders entitled to notice of or to vote at a meeting of stockholdersshall be at the close of business on the day before -13- 17the day on which notice is given, or, if notice is waived, at the close ofbusiness on the day before the day on which the meeting is held. The recorddate for determining stockholders for any other purpose shall be at the closeof business on the day on which the Board of Directors adopts the resolutionrelating to such purpose. A determination of stockholders of record entitled to noticeof or to vote at a meeting of stockholders shall apply to any adjournment ofthe meeting; provided, however, that the Board of Directors may fix a newrecord date for the adjourned meeting. ARTICLE 5 - General Provisions 5.1 Fiscal Year. Except as from time to time otherwisedesignated by the Board of Directors, the fiscal year of the corporation shallbegin on the first day of January in each year and end on the last day ofDecember in each year. 5.2 Corporate Seal. The corporate seal shall be in suchform as shall be approved by the Board of Directors. 5.3 Waiver of Notice. Whenever any notice whatsoever isrequired to be given by law, by the Certificate of Incorporation or by theseBy-Laws, a waiver of such notice either in writing signed by the personentitled to such notice or such person's duly authorized attorney, or bytelegraph, cable or any other available method, whether before, at or after thetime stated in such waiver, or the appearance of such person or persons at suchmeeting in person or by proxy, shall be deemed equivalent to such notice. 5.4 Voting of Securities. Except as the directors mayotherwise designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact forthis corporation (with or without power of substitution) at, any meeting ofstockholders or shareholders of any other corporation or organization, thesecurities of which may be held by this corporation. -14- 18 5.5 Evidence of Authority. A certificate by theSecretary, or an Assistant Secretary, or a temporary Secretary, as to anyaction taken by the stockholders, directors, a committee or any officer orrepresentative of the corporation shall as to all persons who rely on thecertificate in good faith be conclusive evidence of such action. 5.6 Certificate of Incorporation. All references inthese By-Laws to the Certificate of Incorporation shall be deemed to refer tothe Certificate of Incorporation of the corporation, as amended and in effectfrom time to time. 5.7 Transactions with Interested Parties. No contract ortransaction between the corporation and one or more of the directors orofficers, or between the corporation and any other corporation, partnership,association, or other organization in which one or more of the directors orofficers are directors or officers, or have a financial interest, shall be voidor voidable solely for this reason, or solely because the director or officeris present at or participates in the meeting of the Board of Directors or acommittee of the Board of Directors which authorizes the contract ortransaction or solely because his or their votes are counted for such purpose,if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determiningthe presence of a quorum at a meeting of the Board of Directors or of acommittee which authorizes the contract or transaction. 5.8 Severability. Any determination that any provisionof these By-Laws is for any reason inapplicable, illegal or ineffective shallnot affect or invalidate any other provision of these By-Laws. 5.9 Pronouns. All pronouns used in these By-Laws shallbe deemed to refer to the masculine, feminine or neuter, singular or plural, asthe identity of the person or persons may require. -15- 19 ARTICLE 6 - Amendments 6.1 By the Board of Directors. These By-Laws may bealtered, amended or repealed or new by-laws may be adopted by the affirmativevote of a majority of the directors present at any regular or special meetingof the Board of Directors at which a quorum is present. 6.2 By the Stockholders. Except as otherwise provided inSection 6.3, these By-Laws may be altered, amended or repealed or new by-lawsmay be adopted by the affirmative vote of the holders of a majority of theshares of the capital stock of the corporation issued and outstanding andentitled to vote at any regular or special meeting of stockholders, providednotice of such alteration, amendment, repeal or adoption of new by-laws shallhave been stated in the notice of such regular or special meeting. 6.3 Certain Provisions. Notwithstanding any otherprovision of law, the Certificate of Incorporation or these By-Laws, andnotwithstanding the fact that a lesser percentage may be specified by law, theaffirmative vote of the holders of at least seventy-five percent (75%) of theshares of the capital stock of the corporation issued and outstanding andentitled to vote shall be required to amend or repeal, or to adopt anyprovision inconsistent with Section 1.3, Section 1.10, Section 1.11, Section1.12, Section 1.13, Article 2 or Article 6 of these By-Laws. -16- 1 EXHIBIT 10.7 2 AGREEMENT OF LEASE by and between RIVERS CENTER ASSOCIATES LIMITED PARTNERSHIP (Landlord) and NOVAVAX, INC. (Tenant) R & D Lease Page 1. Leased Premises . . . . . . . . . . . . . . . . . . . . . . . . 12. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . 34. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35. Basic Annual Rent . . . . . . . . . . . . . . . . . . . . . . . 4 5.1. Definitions . . . . . . . . . . . . . . . . . . . . . 4 5.2. Rent Adjustment . . . . . . . . . . . . . . . . . . . 6 5.3. Tax Adjustment . . . . . . . . . . . . . . . . . . . 7 5.4. Summary of Payments . . . . . . . . . . . . . . . . . 7 5.5. Utilities . . . . . . . . . . . . . . . . . . . . . . 8 5.6. Payments . . . . . . . . . . . . . . . . . . . . . . 9 6. Requirements of Law . . . . . . . . . . . . . . . . . . . . . . 97. Tenant's Improvements . . . . . . . . . . . . . . . . . . . . . 98. Condition of Premises . . . . . . . . . . . . . . . . . . . . . 99. Conduct on Premises . . . . . . . . . . . . . . . . . . . . . 1010. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 1111. Mechanics' and Materialmen's Liens and Other Liens . . . . . 1112. Failure to Perform . . . . . . . . . . . . . . . . . . . . . 1113. Loss, Damage, Injury . . . . . . . . . . . . . . . . . . . . 1214. Destruction--Fire or Other Casualty . . . . . . . . . . . . . 1315. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . 1316. Environmental Assurances . . . . . . . . . . . . . . . . . . 14 (a) Covenants . . . . . . . . . . . . . . . . . . . . . . 14 (b) Indemnification by Tenant. . . . . . . . . . . . . . . 15 (c) Indemnification by Landlord . . . . . . . . . . . . . 15 (d) Representation by Landlord . . . . . . . . . . . . . . 15 (e) Office Supplies . . . . . . . . . . . . . . . . . . . 16 (f) Definitions . . . . . . . . . . . . . . . . . . . . . 16 17. Assignment/Subletting . . . . . . . . . . . . . . . . . . . . 1618. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 18 19. Acceptance of Leased Premises . . . . . . . . . . . . . . . . 2020. Access to Premises and Change in Services . . . . . . . . . . 2021. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . 2122. Subordination and Non-Disturbance . . . . . . . . . . . . . . 2123. Attornment . . . . . . . . . . . . . . . . . . . . . . . . . 21 3 24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 2125. Landlord's Liability . . . . . . . . . . . . . . . . . . . . 2226. Separability, Enforceability. . . . . . . . . . . . . . . . . 2227. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 2228. Recordation . . . . . . . . . . . . . . . . . . . . . . . . . 2229. Successors and Assigns . . . . . . . . . . . . . . . . . . . 2230. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . 2231. Commissions . . . . . . . . . . . . . . . . . . . . . . . . . 2332. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 2333. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 2334. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 2435. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . 2436. Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . 2537. Roof Access . . . . . . . . . . . . . . . . . . . . . . . . . 2538. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 2539. Intentionally Deleted . . . . . . . . . . . . . . . . . . . . 2540. Riders . . . . . . . . . . . . . . . . . . . . . . . . . . . 2541. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . 2542. Loading Dock . . . . . . . . . . . . . . . . . . . . . . . . 26 Exhibit A - Site Plan and Leased PremisesExhibit B - Intentionally OmittedExhibit C-1 - Base Finish WorkExhibit C-2 - Additional Finish WorkExhibit D - HVAC SpecificationsExhibit E - Howard County Zoning LetterRider No. 1 - Right of CancellationRider No. 2 - Right of First OfferRider No. 3 - Renewal Option Rider No. 4 - Exclusions 4 RIVERS CENTER ASSOCIATES LIMITED PARTNERSHIP LEASE AGREEMENT THIS AGREEMENT OF LEASE (this "Lease") is made this 25th day ofSeptember, 1996, by and between RIVERS CENTER ASSOCIATES LIMITED PARTNERSHIP, alimited partnership formed under the laws of the State of Maryland (hereinafterreferred to as "Landlord"), and NOVAVAX, INC., a corporation organized underthe laws of the State of Delaware (hereinafter referred to as "Tenant"). WITNESSETH, that the parties hereby covenant, promise and agree asfollows: 1. Leased Premises. (a) Landlord is the developer of the building known asBuilding E, 8320 Guilford Road (hereinafter referred to as the "Building"), inan office/warehouse/research and development complex containing three office/warehouse/research and development buildings and two office buildings locatedin the Rivers Corporate Park, Columbia, Maryland 21046. Landlord does herebylease unto Tenant and Tenant does hereby rent from Landlord, that portion ofthe Building known as Suite C-E and containing, as confirmed by Landlord'sarchitect, twelve thousand twelve (12,012) rentable square feet (which does notinclude any "core factor") (hereinafter referred to as the "Leased Premises")as more particularly described on "Exhibit A" attached hereto, incorporated byreference herein and initialed by the parties. In addition thereto, Landlordhas caused RECRA Environmental, Inc. ("RECRA"), the existing tenant of theLeased Premises, to vacate the Leased Premises early and leave those items (the"Personalty") now in the Leased Premises, thereby causing the Personalty to beowned by Landlord, which Personalty Landlord shall convey to Tenant effectiveon the Commencement Date (defined below). Tenant agrees to accept thePersonalty in its present, "as is" condition. As an inducement to Landlord toobtain the early release of the existing lease for the Leased Premises withRECRA, Tenant shall pay Landlord, on the Commencement Date, a fee of $2,500.00to cover Landlord's lost rent otherwise payable by RECRA. (b) Landlord, at Landlord's expense, shall cause to bemade those improvements to the Leased Premises described on "Exhibit C-1"attached hereto and incorporated herein by reference (the "Base Finish Work").In addition to the Base Finish Work, Tenant has requested, and Landlord hasagreed to make, those additional improvements to the Leased Premises (the"Additional Finish Work") all as described and for the cost shown on "ExhibitC-2" attached hereto and incorporated herein. Landlord shall contribute$36,036.00 towards the cost of the Additional Finish Work (the "Landlord'sContribution"). All charges and expenses, which shall be deemed additionalrent, incurred for work and material respecting the Additional Finish Workwhich are in excess of Landlord's Contribution, and are estimated to be$18,265.20, are to be paid by Tenant on the Commencement Date. The Base FinishWork and Additional Finish Work is hereinafter collectively referred to as"Landlord's Work". All charges and expenses incurred in connection with anychange orders authorized by Tenant will be paid by Tenant at the time Tenantexecutes such change order. Landlord further agrees to provide to Tenant arefurbishment allowance of $18,018.00 at the end of the fifth lease year; saidallowance shall be paid to Tenant upon submission 5by Tenant of invoices and other documentation for such refurbishment work tothe Leased Premises. (c) Landlord hereby agrees that, with respect toLandlord's Work or latent defects, Landlord, for a period of one hundred eighty(180) days from the Commencement Date, will repair or have repaired, alldefects in Landlord's Work or latent defects in the Leased Premises, to theextent that the need therefor is not caused by the negligence or willful misconduct of Tenant, its employees and invitees (in which case, such defectswill be repaired at Tenant's sole cost). 2. Term. This Lease shall be for a term of ten (10) years (the"Lease Term") commencing on or about five weeks after the date on which Tenantdelivers to Landlord this Lease, executed by Tenant, together with all paymentsdue at such time (the "Commencement Date") and terminating at 11:59 p.m. on thelast day of the tenth (10th) full lease year, unless otherwise terminated orextended in accordance with the provisions hereof. The term "Lease Year" meanseach respective period of twelve (12) successive calendar months during theLease Term or any renewals thereof. If the Commencement Date does not occur onthe first day of a month, the first Lease Year will include the twelve (12)calendar months and the period from the Commencement Date until the first dayof the following month. SEE RIDER NO. 1 - RIGHT OF CANCELLATION; RIDER NO. 2 -RIGHT OF FIRST OFFER; AND, RIDER NO. 3 - RENEWAL OPTION Landlord shall deliver the Leased Premises to Tenant on theCommencement Date in good condition (i) with all Landlord's Work complete inaccordance with "Exhibit C-1" and "Exhibit C-2", as applicable (minor punchlistitems excepted) and (ii) upon the Leased Premises passing final inspection, asmay be required by Howard County. At the time the Leased Premises aredelivered to Tenant, Landlord, Tenant and Landlord's architect shall conduct awalk-through of the Leased Premises and agree upon a "punchlist" of items, ifany, relating to Landlord's Work that need to be corrected or completed. Allitems on the punchlist shall promptly be completed by Landlord. In the event that Landlord shall be unable, by reason ofconstruction delays or otherwise, to deliver possession of the Leased Premiseson the estimated Commencement Date set forth in the first paragraph of thisSection 2, then this Lease shall nevertheless continue in full force andeffect, and Tenant shall have no right to rescind, cancel or terminate the sameif possession is given within forty-five (45) days thereafter; provided,however, that in such event Tenant's liability for rent shall commence on thedate on which Landlord shall deliver possession to Tenant, as provided in thepreceding paragraph, which date shall thereafter be deemed the CommencementDate for all purposes of this Lease. Whether or not Landlord shall deliverpossession of the Leased Premises on the Commencement Date, or within suchadditional forty-five (45) day period, Tenant agrees that in no event shallLandlord be liable for damages, if any, sustained by Tenant as a result ofLandlord's failure to deliver possession. In the event Landlord does not deliver the Leased Premises to Tenantwithin such five-week period, then Landlord shall provide Tenant with at leastfive (5) days written notice of the date on which it will deliver the LeasedPremises to Tenant. In the event Landlord shall not deliver the Leased Premises toTenant as provided hereinabove, on or before December - 2 - 61, 1996, then Tenant shall have the right to terminate this Lease by writtennotice sent to Landlord prior to Landlord's delivery of the Leased Premises, inwhich event Landlord and Tenant shall have no further obligations to oneanother under this Lease. Landlord agrees and warrants to Tenant, to Landlord's knowledge,the Building and Leased Premises (as modified by Landlord's Work) comply (tothe extent, if any, so required) with all applicable local, state and federallaws (including the law known as the Americans with Disabilities Act and theregulations promulgated thereunder (the "ADA")). On the Commencement Date or such later date as Landlord may request, Tenant shall promptly enter into one or more supplementary writtenagreements in such form as Landlord shall prescribe, thereby specifying thedate as of which the Lease Term shall have begun, and as of which the LeaseTerm shall end. 3. Security Deposit. Tenant, contemporaneously with the executionof this Lease, shall deposit with Landlord the sum of Nine Thousand FiveHundred Nine Dollars and Fifty Cents ($9,509.50) as a security deposit (the"Deposit"), which, to the extent the same has not been applied or exhaustedpursuant to the further terms hereof, shall be returned by Landlord to Tenantwithin forty-five (45) days following the expiration of the Lease Term.Landlord shall have the right to apply the Deposit to cure any breach by Tenantof any of Tenant's obligations or duties pursuant to this Lease, upon any suchapplication of the Deposit by Landlord, Tenant shall immediately restore thesame to the dollar amount set forth in this Section. Landlord shall beentitled to the full use of the Deposit, shall not be required to escrow orotherwise segregate the Deposit, and no interest shall accrue thereon or bepaid or payable by Landlord with respect to the Deposit. 4. Use. Landlord and Tenant expressly agree that the LeasedPremises shall be used or occupied by Tenant for the following purposes andnone other: general office, warehouse and laboratory. Notwithstanding theforegoing, Tenant shall be allowed to perform vaccine and/or pharmaceuticaltesting on only the following animals: mice, rats, rabbits and guinea pigs(with there being a prohibition against the presence of any other animals oranimal testing on the Leased Premises); and, further provided, that no morethan five hundred (500) contiguous square feet of the Leased Premises(regardless of whether such original Leased Premises have been expanded) may beused for animal testing and/or caging of such animals. The laboratory areashall be subject to Landlord's reasonable approval in all respects, includingwithout limitation, as to sound control, odor, controlled access, venting andother environmental or aesthetic conditions. Landlord hereby agrees that Tenantmay use those portions (and only those portions) of the Leased Premises sodesignated on Exhibit "A" for laboratory purposes. The Real Property (defined herein) is subject to certaincovenants and restrictions, referred to as the General Restrictions and theSpecial Restrictions (hereafter together the "Restrictions"), copies of whichhave been provided to Tenant by Landlord. Tenant acknowledges receipt of sameand that it is cognizant of the terms and provisions of those Restrictions andcovenants and agrees to be bound by them. Landlord and Tenant agree that TheHoward Research And Development Corporation ("HRD") is a third partybeneficiary to the covenants and representations herein made by Tenant and mayremedy any violation of the Restrictions occasioned by Tenant's use andoccupancy of the - 3 - 7Leased Premises, in the manner and to the extent provided in the Restrictions,including but not limited to, bringing suit, at law or in equity, directlyagainst Tenant. 5. Basic Annual Rent. Tenant shall pay to Landlord during theLease Term "Basic Annual Rent" as follows:=========================================================================== Basic Annual Rent Monthly Annual Installment Square foot Amount - - --------------------------------------------------------------------------- Lease Year 1 $119,759.64 $9,979.97 $9.97- - --------------------------------------------------------------------------- Lease Year 2 $119,759.64 $9,979.97 $9.97- - --------------------------------------------------------------------------- Lease Year 3 $125,165.04 $10,430.42 $10.42- - --------------------------------------------------------------------------- Lease Year 4 $128,768.64 $10,730.72 $10.72- - --------------------------------------------------------------------------- Lease Year 5 $132,492.36 $11,041.03 $11.03- - --------------------------------------------------------------------------- Lease Year 6 $136,216.08 $11,351.34 $11.34- - --------------------------------------------------------------------------- Lease Year 7 $140,180.04 $11,681.67 $11.67- - --------------------------------------------------------------------------- Lease Year 8 $144,264.12 $12,022.01 $12.01- - --------------------------------------------------------------------------- Lease Year 9 $148,348.20 $12,362.35 $12.35- - --------------------------------------------------------------------------- Lease Year 10 $152,672.52 $12,722.71 $12.71=========================================================================== All monthly installments of Basic Annual Rent shall be made withoutany deductions or set-offs, and without demand, in advance on the first (1st)day of each and every month for which payment is applicable; provided, however,that if the Lease Term shall commence on a day other than the first day of amonth, Tenant shall pay on the Commencement Date for the fractional part of amonth at the beginning of the term, a prorated amount of one month's rent. The annual square foot amount shown for each Lease Year includes$0.47, which represents that certain portion of Landlord's Contribution equalto $36,036.00, which has been amortized at ten percent (10%) per annum over theten (10) year Lease Term; such amount of $0.47 shall be referred to in RiderNo. 2 as the "Additional Improvement Allowance" and shall be deducted from theBasic Annual Rent for the Expansion Space, if Tenant elects to lease theExpansion Space as provided in Rider No. 2. 5.1. Definitions. For purposes of this Lease, thefollowing meanings or definitions shall apply: (a) "Rentable Area of the Building" shall, asconfirmed by Landlord's architect, for all purposes of this Lease, be deemed tobe thirty-nine thousand six hundred fifty (39,650) square feet. The RentableArea of the three research/development buildings on the Real Property withwhich Tenant shares certain common maintenance and repair expenses shall bedeemed to be, as confirmed by Landlord's architect, 116,350 square feet. (b) "Rentable Area of the Leased Premises" shall,for all purposes of this Lease, as confirmed by Landlord's architect, be deemedto be twelve thousand twelve (12,012) square feet. Therefore, Tenant'spro-rata portion of those expenses payable in accordance with Section 5.2 shallbe thirty and three-tenths percent (30.3%) (12,012/39,650) ("Tenant'sPortion"). - 4 - 8 (c) The term "Common Area Expenses" shall mean allactual expenses directly paid or incurred by Landlord in connection withLandlord's management of the Real Property and the management, maintenance,operation and repair of the common areas of the Real Property, including, but not limited to, (i) keeping the driveways, parking areas, sidewalks and stepsfree and clear of ice, snow and debris; (ii) maintaining all grass andlandscaping on the Real Property; (iii) maintaining the common areas of thebuildings of the Real Property (including the Building), including the utilityrooms and security systems, if any, and repair of normal wear and tear of theroof and caulking; (iv) trash removal from dumpsters on the Real Property, ifany; (v) monitoring, repairing and payment of all common utilities, includingwater, sewerage, unmetered or metered sprinkler and exterior electricalutilities on the Real Property; (vi) repairing and maintaining the drivewaysand parking areas of the Real Property; (vii) reasonable reserves fornon-recurring expenses; and, (viii) a management fee not to exceed threepercent (3%) of the Basic Annual Rent for the applicable Lease Year.Notwithstanding the foregoing, Landlord will be allowed reasonably to allocatethe costs of trash removal based on actual use of such service. SEE RIDER NO. 4- - - EXCLUSIONS. (d) The term "HVAC Expense" shall mean the totalcosts and expenses incurred by Landlord in maintaining a full service contracton the heating, ventilating and air conditioning systems servicing the LeasedPremises (the "HVAC System"). Landlord shall provide Tenant with copies of anyservice contract it is then maintaining on the HVAC System. (e) "Taxes" shall mean any present or futurefederal, state, municipal, local and/or any other taxes, assessments, levies,benefit charges, and/or other governmental and/or private impositions(including business park charges and dues), levied, assessed and/or agreed tobe imposed upon the Real Property of which the Leased Premises are a part orany part or parts of said Real Property, or upon the rent due and payablehereunder (other than income taxes thereon), whether or not now customary orwithin the contemplation of the parties hereto and regardless of whether thesame shall be extraordinary or ordinary, general or special, foreseen orunforeseen, or similar or dissimilar to any of the foregoing but shall notinclude any inheritance, estate, succession, income, profits or franchise tax,provided, however, if at any time during the Lease Term or any extensionthereof the method of taxation prevailing at the commencement of the Term shallbe altered or eliminated so as to cause the whole or any part of the itemsdefined as Taxes above to be replaced by a levy, assessment or imposition,wholly or partly as a capital levy, or otherwise, on the rents or income(provided the tax on such income is not a tax levied on taxable incomegenerally) received from the Building, wholly or partly in place of animposition on or as a substitute for, or an increase of, taxes in the nature ofreal estate taxes issued against the Real Property, then the charge to Landlordresulting from such altered or replacement method of taxation shall be deemedto be within the definition of "Taxes". All reasonable expenses incurred byLandlord (including attorneys' fees and costs) in contesting any increase inTaxes or any increase in the assessment of the Real Property shall be includedas an item of Taxes for the purpose of computing additional rent due hereunder. (f) "Real Property" shall mean the two lots (the"lots") more particularly described as Parcels N-1 and N-2 on plat 5473 ofRivers Corporate Park, Howard County, Maryland, and all fixtures, equipment andother improvements in or upon said - 5 - 9lots, and shall include the sidewalks, areaways, parking areas, loading areas,gardens and lawns. (g) "Insurance" shall mean all insurance, thatare of the types and amounts of insurance coverage reasonable and customary fora first-class office/warehouse/research and development complex in theColumbia, Maryland area, kept or caused to be kept by Landlord out of or inconnection with its ownership of the Real Property, the buildings, equipment, fixtures and other improvements installed and/or owned by Landlord and used inconnection with the buildings and/or the Real Property and/or all alterations,rebuildings, replacements and additions thereto, including, but not limited to,insurance insuring the same against loss or damage by, resulting from fire, andother such hazards, casualties and contingencies (including, but not limitedto, war risk insurance, if available), liability and indemnity insurance. (h) "Lot" shall mean Parcel N-2 upon which theBuilding is situated. (i) The term "Operating Year" shall mean: (i)when used in context with Common Area Expenses, Insurance and HVAC Expense,such applicable fiscal year as Landlord may adopt from time to time during theLease Term, and (ii) when used in context with Taxes, each respective tax year(i.e., the fiscal year beginning July 1) during the Lease Term, or such otherfiscal year as the applicable authorities may select. 5.2. Rent Adjustment. Tenant agrees to pay to Landlord,as additional rent, with and at the same time as the payments of Basic AnnualRent, the following amounts: (a) Seven Hundred Eighty Dollars andSeventy-eight Cents ($780.78) per month as one-twelfth of Tenant's estimatedPortion of Common Area Expenses (calculated on the basis of $0.78 per squarefoot); and (b) Seventy Dollars and Seven Cents ($70.07) permonth as one-twelfth of Tenant's estimated Portion of Insurance premiums(calculated on the basis of $0.07 per square foot); and (c) Two Hundred Dollars and Twenty Cents($200.20) per month as one-twelfth of Tenant's estimated HVAC Expense(calculated on the basis of $0.20 per square foot). At any time during a Lease Year (but not more often than onceper calendar year), Landlord may revise its estimate of Tenant's Portion ofCommon Area Expenses, Insurance and of Tenant's HVAC Expense (collectively, the"Expenses") as set forth above and adjust Tenant's monthly installments toreflect the revised estimate. Landlord will give Tenant prior written notice ofthe revised estimate and the amount by which Tenant's monthly installments willbe adjusted, and Tenant will pay the adjusted installments with each payment ofthe rent, beginning with the first payment of the Basic Annual Rent to come dueafter Tenant's receipt of such notice. Notwithstanding anything to thecontrary in the foregoing, those Common Area Expenses within Landlord'sreasonable control shall not increase by more than five percent (5%) of thecost of such controllable item during the previous Operating Year. Landlord will deliver to Tenant, within one hundred twenty (120)days (or such longer time as is reasonable under the circumstances) after theend of each applicable - 6 - 10Operating Year for the Expenses, a statement for such Operating Year (the"Statement"), showing Tenant's applicable portion of such Expenses (that is,either its applicable percentage or with respect to the HVAC Expense, 100%).Tenant will pay Landlord within thirty (30) days of the receipt of theStatement, such amounts as may be necessary to adjust Tenant's estimatedpayments for such preceding Operating Year so that such payments will equalTenant's applicable portion of the actual Expenses for such Operating Year. Ifthe actual amount of Tenant's applicable portion of such Expenses is less thanthe amounts paid by Tenant as installments of its applicable portion of suchExpenses, then Landlord will credit Tenant's account by the amount of the excess or, if at the end of the Lease Term, refund to Tenant the amount of theexcess. Failure of Landlord to provide any Statement withinthe time prescribed will not relieve Tenant of its obligations under thisSection 5.2. Upon reasonable written notice, Landlord shall makeavailable for Tenant's inspection or audit at Landlord's office, during normalbusiness hours, Landlord's records relating to the Expenses for the immediatelypreceding Lease Year; provided, however, that unless Tenant shall have givenLandlord written notice of its exception to any such Statement for additionalrent within sixty (60) days after delivery thereof, the same shall beconclusive and binding on Tenant; and provided further, that in the event thatTenant shall give to Landlord written notice of its exception to such Statementwithin such sixty (60) day period, Tenant shall nevertheless be obligated topay the additional rent pursuant to the provisions of this Section, but shallhave the right, following such payment, to contest the amount set forth in suchStatement in a court of competent jurisdiction without being in breach ordefault of this Lease. In the event as a result of such audit it shall bedetermined that Landlord overcharged Tenant more than three percent (3%) ofTenant's share of any such items, Landlord shall reimburse Tenant allreasonable costs incurred by Tenant with respect to its audit. Any amounts dueLandlord or Tenant, determined as a result of such audit, shall be paid orcredited as provided above for reconciliation of Tenant's estimated paymentswith the actual costs. 5.3. Tax Adjustment. Tenant acknowledges thatLandlord must pay the Taxes for an entire tax year (i.e., July 1 - June 30) inadvance. Therefore, on the Commencement Date, Tenant shall reimburse Landlordfor Tenant's Portion of Taxes for the portion of the tax year (the"Commencement Tax Year") from the Commencement Date to the next succeeding June30. Thereafter, Tenant shall pay to, or reimburse, Landlord for Tenant'sPortion of Taxes, by paying to Landlord, within thirty (30) days after receiptof Landlord's invoice therefor (to be sent on or about July 1 of each year)such Tenant's Portion of Taxes for each of the next succeeding Tax Years.Following termination of the Lease Term by passage of time or for any reasonother than Tenant's default of this Lease (the "Termination Date"), Tenantshall be reimbursed by Landlord to the extent of any Portion of Taxes which ithas pre-paid as of such Termination Date for the period beyond such TerminationDate. 5.4. Summary of Payments. The following is a listof the various payments and installments of Basic Annual Rent and additionalrent under this Lease pursuant to this Section 5 as of the Commencement Date.The amounts for Common Area Expenses, Insurance and HVAC Expense may changeduring the Lease Term. - 7 - 11=========================================================================== Monthly Annual s.f. Installments Amounts- - --------------------------------------------------------------------------- Basic Annual Rent - Lease Year 1 $9,979.97 $9.97 Lease Year 2 $9,979.97 $9.97 Lease Year 3 $10,430.42 $10.42 Lease Year 4 $10,730.72 $10.72 Lease Year 5 $11,041.03 $11.03 Lease Year 6 $11,351.34 $11.34 Lease Year 7 $11,681.67 $11.67 Lease Year 8 $12,022.01 $12.01 Lease Year 9 $12,362.35 $12.35 Lease Year 10 $12,722.71 $12.71- - --------------------------------------------------------------------------- Common Area Expenses $780.78 $0.78 (estimate) - - --------------------------------------------------------------------------- Insurance (estimate) $70.07 $.07- - --------------------------------------------------------------------------- HVAC Expense (estimate) $200.20 $.20- - --------------------------------------------------------------------------- Total - Lease Year 1 $11,031.02 $11.02 Lease Year 2 $11,031.02 $11.02 Lease Year 3 $11,481.47 $11.47 Lease Year 4 $11,781.77 $11.77 Lease Year 5 $12,092.08 $12.08 Lease Year 6 $12,402.39 $12.39 Lease Year 7 $12,732.72 $12.72 Lease Year 8 $13,073.06 $13.06 Lease Year 9 $13,413.40 $13.40 Lease Year 10 $13,773.76 $13.76=========================================================================== 5.5. Utilities. (a) Notwithstanding that certainutilities are commonly metered on the Real Property and the costs of suchutilities are included within the Common Area Expenses set forth above,Landlord (if it reasonably determines that Tenant's water usage is excessive,as compared to other tenants of the Building) or Tenant shall have the right,at Tenant's sole cost and expense, to have a water meter (but only one (1) suchwater meter, if so required by Landlord) installed upon the Leased Premises andthereafter to pay to Landlord all charges respecting the Leased Premises basedupon readings of said meter. (b) Tenant shall pay on a timely basis tothe appropriate utility or other supplier, all charges for gas, steam,electricity, light, heat, power, telephone and all other utility andcommunication services, used, rendered and/or supplied upon or in connectionwith the Leased Premises. - 8 - 12 5.6. Payments. All payments or installments ofany rent hereunder (except Basic Annual Rent) and all sums whatsoever due underthis Lease (including attorneys' fees) shall be deemed additional rent andshall be paid to Landlord at the address designated for notice to Landlordherein, or as otherwise designated by Landlord. If any rent or additional rentis not paid within five days of when due, such arrearage shall bear a latecharge equal to $25.00 for each day such sum is in arrears in consideration ofLandlord's additional expense caused by such failure to pay. Such late chargesshall be payable simultaneously with the arrearage payment, without demand.Time is of the essence with respect to Tenant's monetary obligations in thisLease. Unless otherwise stated, any additional rent shall be due within thirty(30) days after the Landlord has submitted a written statement to Tenantshowing the amount due, and Tenant's obligation to pay any such additional rent shall survive the termination of this Lease. 6. Requirements of Law. Tenant shall, at Tenant's solecost and expense, observe and comply with all laws, requirements, rules,orders, ordinances and regulations applicable to its use of the LeasedPremises, the Real Property or the Building. 7. Tenant's Improvements. Tenant shall not make anyalterations, decorations, installations, additions and/or improvements to theLeased Premises, including, but not limited to, the installation of anyfixtures (except trade fixtures), equipment (except movable equipment), orother apparatus (collectively, the "Work"), without Landlord's prior writtenconsent (which consent shall not be unreasonably withheld or delayed), and thenonly by contractors or mechanics reasonably acceptable to Landlord. All suchWork shall be done at Tenant's sole cost and expense and at such times and insuch manner as Landlord may from time to time reasonably and timely designate.All such Work shall be done under the general supervision of Landlord to assurestandard quality improvements on the Real Property for which Landlord shall bepaid a reasonable supervisory fee, which supervisory fee shall be at prevailingmarket rates for such services (but not to exceed $150 per hour); Landlordagrees to cause such supervision to be limited to such periodic inspections asmay be required based on the Work and otherwise to use its best efforts tominimize the fees in connection therewith. All such Work done by either of theparties hereto upon the Leased Premises (including those items set forth inExhibits C-1 and C-2), except other movable furniture and trade fixtures put inat the expense of Tenant, shall be the property of Landlord and shall remainupon and be surrendered with the Leased Premises at the termination of thisLease without molestation or injury; provided, however, that Landlord mayelect, at the time it approves such Work, to require Tenant to remove all orany part of said Work (including those items set forth on Exhibits C-1 and C-2)at the expiration of this Lease, in which event such removal shall be done atTenant's sole cost and expense. Tenant shall, at its sole cost and expense,repair any damage to the Leased Premises and/or the Building caused by suchremoval or by the removal of its personalty. 8. Condition of Premises. (a) Except as otherwise expressly provided inthis Lease, Tenant shall at all times during the Lease Term take good care ofand keep the Leased Premises and the improvements, fixtures, equipment andappurtenances therein and thereto (including, but not limited to, interior andexterior windows, interior and exterior doors, including locks and hardware,pipes, - 9 - 13plumbing, water and sewer connections, and light fixtures) in the same orderand condition it received the Leased Premises (normal wear and tear and insuredcasualty excepted) and, at Tenant's sole cost and expense, shall make allnecessary repairs thereto, which repairs shall be in quality and class at leastequal to the original work. Tenant shall not commit or suffer any waste of theLeased Premises. At the expiration of the Lease Term, or at the soonertermination of this Lease as herein provided, Tenant shall deliver up theLeased Premises in the same order and condition, reasonable wear and tearexcepted, as at the beginning of the tenancy, broom clean and (subject to theprovisions of the preceding Section hereof) Tenant shall remove all of itsproperty and/or property maintained and/or stored for or on the account ofothers therefrom prior to such termination. Any items of Tenant's personaltyremaining in the Leased Premises after the termination of the Lease shall bedeemed abandoned by Tenant and become the sole property of Landlord. Landlordshall maintain exterior walls (excluding windows), downspouts and the roof aswell as all common areas of the Building and Real Property (including, withoutlimitation, the parking areas and sidewalks servicing the Building), so long as such maintenance is not required as a result of any negligent or willful actsof Tenant, or Tenant's agents, employees or invitees. Notwithstanding theforegoing, any costs incurred by Landlord in storing and/or disposing of suchabandoned property shall remain the sole obligation of Tenant, which obligationshall survive the termination of this Lease. (b) Landlord will secure and maintain a full servicecontract on the HVAC System, the cost of which will be paid by Tenant as theHVAC Expense as set forth above. Landlord will make all necessary repairs orreplacements to the HVAC System which are not covered under the full servicecontract (a copy of which was previously delivered to Tenant). All costsincurred which are not covered by the full service contract shall be paid forby Tenant except for the cost of replacing or making any repairs of a capitalnature to the compressor or heat exchanger (the "Shared Expenses"), the cost ofwhich shall be shared between Tenant and Landlord as described below. Tenantwill pay that percentage of the cost of any Shared Expenses which is equal tothe ratio by which the length of the remaining years of Tenant's Lease Term(without taking into consideration any renewal or cancellation options not yetexercised by Tenant) bears to the useful life of such repair or replacement, asdetermined in accordance with generally accepted accounting principles;provided, however, in no event may such percentage be greater than 100%.Notwithstanding the foregoing, any maintenance or repair to the HVAC Systemwhich is required as a result of any acts or omissions of Tenant, or Tenant'sagents, employees or visitors, or as a result of Tenant's use of such HVACSystem in excess of the customary use of 12 hours per day, six days per week,will be made by Landlord at Tenant's sole cost and expense. Notwithstanding theforegoing, Landlord (i) warrants that the HVAC System shall be in good andoperable condition as of the Commencement Date and operating in conformity withthe specifications for such HVAC equipment a copy of which is attached heretoas "Exhibit D", and incorporated herein by reference, and (ii) agrees that anyrepair or replacement of the HVAC System, that may be required to maintain theHVAC System in good operating condition during the six (6) month periodcommencing with the Commencement Date, shall be made at Landlord's sole costand expense. 9. Conduct on Premises. Tenant shall not do, or permitanything to be done in the Leased Premises, or bring or keep anything thereinwhich will, in any way invalidate or conflict with the fire insurance policieson the Real Property; - 10 - 14obstruct or interfere with the rights of Landlord or other tenants; orinterfere with the good order of the Building. Tenant agrees that any increasein fire or other insurance premiums on the Real Property and/or the contentsthereof caused by the use or occupancy of Tenant shall, as they occur oraccrue, be added to the rent heretofore reserved and be paid as a part thereof;and Landlord shall have all the rights and remedies for the collection of sameas are conferred upon Landlord for the collection of rent provided to be paidpursuant to the terms of this Lease. Notwithstanding the foregoing, Landlord has been advised byits insurance carrier that the uses of the Leased Premises as described inSection 4 of this Lease, will not cause, at this time, any increase in anyinsurance premiums on the Real Property. Landlord warrants, in reliance solelyon the letter dated August 23, 1996 (the "Zoning Letter") from the Departmentof Planning & Zoning of Howard County, Maryland, a copy of which is attachedhereto as "Exhibit E", that the proposed uses of the Leased Premises asdescribed in the Zoning Letter are permitted under current applicable laws,ordinances and the Restrictions. 10. Insurance. (a) At all times during the Lease Term, Tenant,at its sole cost and expense, shall provide and keep in full force and effect apolicy of public liability and property damage insurance, naming Landlord andManekin Corporation as insureds, as their interests may appear, with respect tothe Leased Premises and the business of Tenant in, on, within, from orconnected with the Leased Premises, pursuant to which the limits of liabilityshall be $1,000,000.00 in respect to any one occurrence, and in respect to theaggregate, at least $2,000,000.00 in respect to the combined limit ofliability. Tenant shall use its best efforts to cause all insurance policies tocontain a clause that the insurer will not cancel or change the insurancewithout first giving Landlord thirty (30) days' prior written notice. Saidinsurance policy shall be carried with an insurance company reasonablysatisfactory to Landlord, and a certificate of insurance shall be delivered toLandlord at the inception of each policy and renewal thereof. (b) Landlord shall maintain fire and extendedcoverage insurance covering the Building for one hundred percent (100%)replacement value. 11. Mechanics' and Materialmen's Liens and Other Liens.Tenant shall not do or suffer to be done any act, matter or thing whereby theLeased Premises (or Tenant's interest therein), or any part thereof, may beencumbered by any mechanics' or materialmen's lien and/or any other lien orencumbrance. Tenant shall discharge, within ten (10) days after noticethereof, any mechanics' or materialmen's liens filed against the LeasedPremises (or Tenant's interest therein), or any part thereof, purporting to befor work or material furnished or to be furnished to Tenant. 12. Failure to Perform. (a) In the event that Tenant shall fail, afterfifteen (15) days written notice from Landlord, to keep the Leased Premises inthe state of condition and repair required by this Lease; to do any act; makeany payment; and/or perform any term or covenant on Tenant's part requiredunder this Lease, Landlord may (at its option, but without being required to doso) immediately, or at any time thereafter and without notice, perform - 11 - 15the same for the account of Tenant (including, but not limited to, enteringupon the Leased Premises at any time to make repairs). Any costs incurred byLandlord in so performing Tenant's obligations, together with a reasonable rateof interest on such sums, shall be deemed additional rent and shall be duewithin ten (10) days of receipt of a statement therefor from Landlord. Allrights given to Landlord in this Section shall be in addition to any otherright or remedy of Landlord herein contained. (b) In addition to all other remedies availableat law, Tenant shall have the right, after providing thirty days written noticeto Landlord (which period may be extended for whatever period of time isreasonably required if such default cannot be reasonably cured within thirtydays so long as Landlord commences such cure within said thirty day period andthereafter diligently prosecutes such cure until completion), to cure a defaultof Landlord in which event Landlord shall be liable to Tenant for allreasonable costs and expenses incurred by Tenant in curing such default;provided, however, in no event shall Tenant be entitled to deduct the costs andexpenses of curing such default from any amounts payable by Tenant pursuant tothe terms of the Lease, including all Basic Annual Rent and additional rent. 13. Loss, Damage, Injury. (a) Tenant hereby expressly agrees that Landlordshall not be liable or responsible in any manner for any damage or destruction to the property of Tenant or of any other person or entity and/or for injury ordeath to the person of Tenant or of any other person or entity directly orindirectly due to any cause whatsoever other than the willful misconduct ornegligence of Landlord or Landlord's contractors, agents, servants, employees,licensees or invitees. (b) Subject to Section 13(c) below, Tenant shallindemnify and hold harmless Landlord for all losses, costs and expenses(including reasonable attorneys' fees), settlement payments and, whether or notreduced to final judgment, all liabilities, damages and/or fines paid, incurredor suffered by Landlord: (i) by reason of any breach, violation and/ornonperformance by Tenant and/or Tenant's servants, employees, agents, licenseesor invitees, of any covenant or provision of this Lease; (ii) by reason of orarising out of the occupancy or use by Tenant of the Leased Premises, theBuilding and/or the Real Property, or any part thereof; (iii) by reason of orarising out of any claim, action, suit or proceeding, threatened, institutedand/or made against Landlord arising out of or in connection with Tenant's useand/or occupancy of the Leased Premises; and/or (iv) from any other causewhatsoever due to the negligence or intentional act or omission of Tenantand/or Tenant's contractors, servants, employees, agents, licensees and/orinvitees. This indemnification by Tenant shall survive the termination orexpiration of this Lease. (c) Landlord and Tenant hereby mutually waive allclaims for recovery from the other for any insured or insurable loss or damageto any of Landlord's property or Tenant's property and each party agrees tolook to its own insurance for collection and, to that end, the parties agree toa mutual subrogation clause to be inserted or endorsed on each policy settingforth that the insurance shall not be invalidated in the event that the insuredshould waive in writing prior to any loss, any or all right of recovery againstthe other party for any insured loss. - 12 - 16 (d) Notwithstanding anything in this Lease to thecontrary, neither party shall be liable to the other for, and hereby waives itsrights to any, incidental, consequential or special damages or lost profits. 14. Destruction--Fire or Other Casualty. In the event ofpartial or total damage or destruction insured against by Landlord to theLeased Premises by fire, other casualty, or any other cause whatsoever (exceptcondemnation), Tenant shall give immediate notice thereof to Landlord and: (a)this Lease shall continue in full force and effect, and (b) Landlord, to theextent that insurance proceeds respecting such damage or destruction aresubject to being utilized for and, in fact, may be utilized by Landlordtherefor, shall thereupon cause such damage or destruction to property owned byLandlord to be repaired with reasonable speed at the expense of Landlord, dueallowance being made for reasonable delay which may arise by reason ofadjustment of loss under insurance policies on the part of Landlord and/orTenant, and for reasonable delay on account of "labor troubles" or any othercause beyond Landlord's control. To the extent that the Leased Premises arerendered untenable, in whole or in part, the rent shall proportionately abate.In the event the damage or destruction shall be so extensive to the Building asto render it uneconomical, in Landlord's reasonable opinion, to restore theBuilding, or Landlord shall decide within sixty (60) days after the date ofsuch damage not to repair or rebuild the Building, this Lease, at the option ofLandlord, shall be terminated upon written notice to Tenant within seventy-five(75) days after the date of such damage and the rent shall, in such event, bepaid to or adjusted as of the date of such damage, and the terms of this Leaseshall expire by lapse of time upon the third day after such notice is mailed.Tenant shall thereupon vacate the Leased Premises and surrender the same toLandlord, but no such termination shall release Tenant from any liability toLandlord arising from such damage or from any of the obligations or duties imposed on Tenant hereunder prior to such termination. Notwithstanding the foregoing, Tenant shall have theright to terminate this Lease (i) if it can reasonably be expected, asdetermined by Landlord, that the repair, restoration or reconstruction of theBuilding cannot be completed within one hundred eighty days from the date ofsuch damage, provided Tenant is not then in default and Tenant gives Landlordwritten notice of such election within forty-five (45) days after the date ofsuch damage, or, (ii) Landlord is unable to restore the Leased Premises withintwo hundred ten (210) days after the date of such damage. 15. Eminent Domain. If the entire Leased Premises shallbe substantially taken (either temporarily or permanently) for public purposes,or in the event Landlord shall convey or lease the Leased Premises to anypublic authority in settlement of a threat of condemnation or taking, the rentshall be adjusted to the date of such taking or leasing or conveyance, and thisLease shall thereupon terminate. If only a portion of the Leased Premises shallbe so taken, leased or condemned, and as a result of such partial taking,Tenant, in Tenant's reasonable judgment, is reasonably able to conduct itsbusiness in the ordinary course, then this Lease shall not terminate but,effective as of the date of such taking, leasing or condemnation, the renthereunder shall be abated in an amount thereof proportionate to the area of theLeased Premises so taken, leased or condemned, and Landlord, at Landlord'sexpense, shall construct any necessary demising walls. If, following suchpartial taking, Tenant, in Tenant's reasonable judgment, is not reasonably ableto conduct its business in the ordinary course, then this Lease shall terminateas if the entire - 13 - 17Leased Premises had been taken, leased or condemned. In the event of a taking,leasing or condemnation as described in this Section, whether or not there is atermination hereunder, Tenant shall have no claim against Landlord, other thanan adjustment of rent, to the date of taking, leasing or condemnation, andTenant shall not be entitled to any portion of any amount that may be awardedas damages or paid as a result or in settlement of such proceedings or threat,except that Tenant may assert a separate claim to an award for its movingexpenses and for fixtures and personal property installed by Tenant at itsexpense. 16. Environmental Assurances. (a) Covenants. Tenant covenants with Landlord: (1) that it shall not Generate HazardousSubstances at, to or from the Leased Premises unless the same is specificallyapproved in advance by Landlord in writing, which approval shall not beunreasonably withheld or delayed; provided, however, that Landlord herebyconsents to Tenant's use on the Leased Premises of Hazardous Substancesassociated or otherwise used in connection with the operation of Tenant'svaccine and/or pharmaceutical testing laboratory, so long as such HazardousSubstances are used, kept and stored in a manner that complies with all laws,rules, statutes and ordinances regulating any such Hazardous Substances orotherwise regulating bio-pharmaceutical research and development including allapplicable laws and regulations of the United States Food and DrugAdministration (collectively, the "Environmental Laws"), so brought upon orused or kept in or about the Leased Premises; (2) to comply with all obligationsimposed by applicable law, and regulations promulgated thereunder, and allother restrictions and regulations upon the Generation of Hazardous Substances(whether or not at, to or from the Leased Premises); (3) to deliver promptly to Landlord trueand complete copies of all notices received by Tenant from any governmentalauthority with respect to the Generation by Tenant of Hazardous Substances(whether or not at, to or from the Leased Premises); (4) to complete fully, truthfully andpromptly any questionnaires sent by Landlord with respect to Tenant's use ofthe Leased Premises and Generation of Hazardous Substances; (5) to permit entry onto the LeasedPremises by Landlord or Landlord's representatives at any reasonable time withreasonable notice (which may be verbal) and accompanied by a representative ofTenant (and otherwise in conformity with Tenant's security requirements ofwhich Tenant has provided Landlord notice) to verify and monitor Tenant'scompliance with its representations, warranties and covenants set forth in thisSection; (6) to pay to Landlord, as additionalrent, the reasonable actual costs incurred by Landlord hereunder, including thecosts of such monitoring and verification (such routine monitoring costs not toexceed $1,000.00 in any twelve (12) month period); and (7) to furnish to Landlord, at theexpiration of the Lease Term or at the sooner termination of the - 14 - 18Lease Term as herein provided, a certification in form and content reasonablysatisfactory to Landlord from an environmental audit company reasonablyacceptable to Landlord to the effect that, based upon an inspection conductedby such environmental audit company not more than thirty (30) days prior to theexpiration or termination of the Lease Term, the Leased Premises are free fromHazardous Substances. (b) Compliance and Indemnification by Tenant. Ifas a result of an inspection conducted pursuant to Sections 16(a)(5) or (6) orotherwise, it appears that Tenant is in violation of any Environmental Laws,(i) Landlord shall notify Tenant and Tenant shall promptly take all actions asmay be necessary to conform in all respects to the Environmental Laws and (ii)Landlord may request and Tenant shall then provide Landlord with reasonablefinancial assurances (for example, but without limitation, a bond forLandlord's and its lender's benefit; an increase in the security deposit; aletter of credit, etc.) with regard to such use of Hazardous Substances as maybe reasonably requested in writing by Landlord (or Landlord's lenders) asreasonably believed necessary by Landlord (or Landlord's lenders) based uponthe actual business practices of Tenant at the Leased Premises as determined byan inspection thereof by Landlord's environmental consultants. Tenant agrees toindemnify and defend Landlord (with legal counsel reasonably acceptable toLandlord) from and against any costs, fees or expenses (including, withoutlimitation, environmental assessment, investigation and environmentalremediation expenses, third party claims and environmental impairment expensesand reasonable attorneys' fees and expenses) incurred by Landlord in connectionwith Tenant's Generation of Hazardous Substances at, to or from the LeasedPremises or in connection with Tenant's failure to comply with itsrepresentations, warranties and covenants set forth in this Section. Thisindemnification by Tenant shall survive the termination or expiration of thisLease. (c) Indemnification by Landlord.. Landlordagrees to indemnify and defend Tenant (with legal counsel reasonably acceptableto Tenant) from and against any costs, fees or expenses (including, withoutlimitation, environmental assessment, investigation and environmentalremediation expenses, third party claims and environmental impairment expenses and reasonable attorneys' fees and expenses) incurred by Tenant in connectionwith Landlord's Generation of Hazardous Substances at, to or from the LeasedPremises. This indemnification by Landlord will remain in effect after thetermination or expiration of this Lease. (d) Representation by Landlord. Landlord, to itsactual knowledge, and without investigation, warrants to Tenant that as of theCommencement Date no Hazardous Substances exist on the Leased Premises exceptas set forth in the Environmental Report dated July 25, 1996, prepared by E.A.Engineering, Science and Technology. If the Leased Premises, the Building orthe Real Property is found to be contaminated or otherwise affected byHazardous Substances, through no fault of Tenant or Tenant's agents, employees,contractors or invitees, then Landlord shall diligently institute or cause tobe instituted proper clean-up procedures at no cost to Tenant. Landlord furtheragrees that neither it nor its agents, employees or contractors will introduce,store or dispose of Hazardous Substances within the Leased Premises, theBuilding or the Real Property in violation of any federal, state or local law,ordinance or other statute of a governmental or quasi-governmental authorityrelating to pollution or protection of the environment, and Landlord agrees toindemnify - 15 - 19and hold Tenant harmless from all claims, demands, actions, liabilities, costs,expenses, damages and obligations of any nature arising from or as a result ofany breach of the foregoing covenant by Landlord. The foregoing indemnificationand the responsibility of Landlord shall survive the termination or expirationof this Lease. (e) Office Supplies . Notwithstanding anything tothe contrary contained in this Section 16, Tenant may use and store within theLeased Premises such reasonable quantities of consumable Hazardous Substancesas are used by Tenant in the ordinary course of its office operations (and notin its laboratory or testing operations) and which are customarily found infirst-class offices; provided such reasonable quantities and use do notconstitute a danger to health of individuals or a danger to the environment andwhich are used, stored and disposed of in accordance with all applicablegovernmental laws, rules and regulations. (f) Definitions. The term "Hazardous Substance"means (i) any "hazardous waste" as defined by the Resource Conservation andRecovery Act of 1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and regulations promulgated thereunder; (ii) any "hazardous substance"as defined by the Comprehensive Environmental Response, Compensation andLiability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended from time totime, and regulations promulgated thereunder; (iii) any "oil, petroleumproducts, and their by-products" as defined by the Maryland Environment CodeAnn. Section 4-411(3)(i), as amended from time to time, and regulationspromulgated thereunder; (iv) any "controlled hazardous substance" or "hazardoussubstance" as defined by the Maryland Environment Code Ann., Title 7, subtitle2, as amended from time to time, and regulations promulgated thereunder; (v) any"infectious waste" as defined by the Maryland Environment Code Ann. Section9-227, as amended from time to time, and regulations promulgated thereunder;(vi) any substance the presence of which on the Real Property is prohibited,regulated or restricted by any law or regulation similar to those set forth inthis definition; and (vii) any other substance which by law or regulationrequires special handling in its Generation. The term "To Generate" means touse, collect, generate, store, transport, treat or dispose of. 17. Assignment/Subletting. Except as otherwise providedin this Section 17, Tenant is the only party that may use or occupy the LeasedPremises. No assignment of this Lease or subletting of all or any part of theLeased Premises is permitted without the prior written consent of Landlord. The granting or withholding of such consent will be given solely within thediscretion of Landlord. Notwithstanding the foregoing, Landlord's consent to anAssignment of the types described in clauses (1), (2) and (6) of the followingparagraph shall not be unreasonably withheld, delayed or conditioned so long asthe proposed assignee is no less creditworthy than Tenant as of the datehereof, and the proposed use is acceptable to Landlord, in each instance asdetermined by Landlord in its sole, but reasonable, discretion. The foregoing restriction will include, but not belimited to, the following (all of which will be deemed to be an "Assignment"):(1) any assignment of this Lease or a subletting of the Leased Premises; (2)any permission to a third party to use all or part of the Leased Premises; (3)any mortgage or other encumbrance of this Lease or of the Leased Premises; (4)the appointment of a receiver or trustee of any of the Tenant's property; (5)any assignment or sale in bankruptcy or insolvency; - 16 - 20and (6) if Tenant is privately held, the transfer of majority control of Tenantby any means, including operation of law, to parties other than thosemaintaining majority control on the date on which the last party executes thisLease. Notwithstanding the foregoing, so long as Landlordreceives prior written notice of such Assignment and Tenant remains primarilyliable for all of the terms of this Lease, Tenant may assign all or part ofthis Lease, or sublease all or part of the Leased Premises without the consentof Landlord, to: (a) any corporation that has the powerto direct Tenant's management and operations, or any corporation whosemanagement and operations are controlled by Tenant; (b) any corporation, a majority of whosevoting stock is owned by Tenant; (c) any corporation in which or withwhich Tenant, its corporate successors or assigns, is merged or consolidated inaccordance with applicable statutory provisions for merger or consolidation ofcorporations, so long as the liabilities of the corporations participating insuch merger or consolidation are assumed by the corporation surviving suchmerger or created by such consolidation; or (d) any corporation acquiring this Leaseand a substantial portion of Tenant's assets. Even if Landlord consents to an Assignment, Tenantwill remain primarily liable under this Lease. Also, Tenant will bear allreasonable legal costs incurred by Landlord in connection with Landlord'sreview of documents concerning an Assignment, whether or not Landlord consentsto it, provided such costs and expenses do not exceed $1,000.00. Landlord'sconsent to a specific Assignment does not waive Landlord's right to withholdconsent to any future or additional Assignment. Tenant will give Landlordnotice of its intention to make an Assignment at least thirty (30) days priorto such Assignment, which notice will contain such details as Landlord mayreasonably request. If Tenant intends to Assign this Lease, Landlord mayterminate this Lease by giving fifteen (15) days prior written notice to Tenantafter Landlord has received written notice from Tenant of an intendedAssignment; provided, however, that Landlord's right to terminate this Leasepursuant to this sentence shall not apply if Tenant wishes to sublet a portion,but not all, of the Leased Premises. If the amount of rent and other sums received by Tenant under any Assignment is more than the Rent due from Tenant under thisLease, then Tenant will pay fifty percent (50%) of the full amount of theexcess to Landlord on a monthly basis and promptly upon Tenant's receipt ofsuch excess amounts. If, without Landlord's consent, this Lease isAssigned, or if the Leased Premises are occupied or used by any party otherthan Tenant, then all resulting expenses (including reasonable attorneys' andbrokerage fees) incurred by Landlord will be immediately due and payable byTenant upon receipt of an invoice. If Tenant defaults, Landlord may collectrent from the assignee, subtenant, occupant or user (the "Assignee") of theLeased Premises and apply it towards the Rent due under this Lease. Suchcollection will not be deemed an acceptance of the Assignee as tenant, will notwaive or prejudice Landlord's right to initiate legal action against Tenant toenforce Tenant's - 17 - 21fulfillment of its obligations under this Lease and will not release Tenantfrom such obligations. 18. Defaults. (a) Each of the following shall be deemed amaterial default by Tenant under this Lease and a substantial breach of thisLease: (1) The filing of a petition by oragainst Tenant for debtor relief as defined under the Federal Bankruptcy Code,as now or hereafter amended or supplemented, or for reorganization, arrangementor other rehabilitation within the meaning of the Bankruptcy Code, or thecommencement of any action or proceeding for the dissolution or liquidation ofTenant, whether instituted by or against Tenant, or for the appointment of areceiver or trustee of the property of Tenant, in each case filed by a partyother than Tenant, if not bonded or discharged within thirty (30) days of thedate of filing; for purposes of this subsection, the word "Tenant" shallinclude any guarantor of Tenant's obligations under this Lease; (2) The making by Tenant of anassignment for the benefit of creditors; (3) The suspension of business by Tenantor any act by Tenant amount to a business failure; (4) The filing of a tax lien against anyproperty of Tenant, which is not removed within fifteen (15) days of notice ofthe filing; (5) If the "Net Asset Value" (as hereinafter defined) of Tenant is less than Two Million Dollars ($2,000,000.00),provided, however, that such shall not be a default if Tenant provides Landlord,within five (5) days of Landlord's request therefor, with reasonable financialassurances (for example, but without limitation, a bond for Landlord's benefit,an increase in the Deposit, a letter of credit, etc.) as reasonably believednecessary by Landlord or its lenders. For purposes of this Section 18(a)(5),the term "Net Asset Value" shall mean the difference between the Total Assetsof Tenant less the Total Liabilities of Tenant as shown on Tenant's most recentForm 10-Q filed with the Securities and Exchange Commission. Tenant shallfurnish Landlord with such Forms promptly after request therefor by Landlord. (6) Failure of Tenant to make payment ofthe rent herein reserved, or any part thereof, or any other sum required by theterms of this Lease (including late charges on the foregoing as provided herein) within five (5) business days after Landlord has given Tenant writtennotice that such payment is due, provided, however, that no notice shall berequired to be given to Tenant, and Tenant shall be in immediate default, ifLandlord has given such notice to Tenant two (2) times in the preceding twelve(12) months; (7) A breach by Tenant in theperformance of any other term, covenant, agreement or condition of this Lease,on the part of Tenant to be performed, for a period of ten (10) days afterservice of notice by Landlord upon Tenant; provided, however, no default shallbe deemed to exist if Tenant shall use its best efforts to commence to cure thesame within the ten (10) day period and provided such efforts shall beprosecuted to - 18 - 22completion with reasonable diligence, but in any event, within ninety (90)days. (b) All rights and remedies of Landlord in thisLease enumerated shall be cumulative, and none shall exclude any other right orremedy, now or hereafter allowed by or available under any statute, ordinance,rule of court, or the common law, either at law or in equity or both. For thepurposes of any suit brought or based hereon, this Lease shall be construed tobe a divisible contract, to the end that successive actions may be maintainedon this Lease as successive periodic sums shall mature hereunder. The failureof Landlord to insist, in any one or more instances, upon a strict performanceof any of the covenants, terms and conditions of this Lease, or to exercise anyright or option herein contained, shall not be construed as a waiver, or arelinquishment for the future, of such covenant, term, condition, right oroption, but the same shall continue and remain in full force and effect unlessthe contrary is expressed by Landlord in writing. The receipt by Landlord ofrent, with knowledge of the breach of any covenant hereof, shall not be deemeda waiver of such breach, and no waiver by Landlord of any provision hereofshall be deemed to have been made unless expressed in writing and signed byLandlord. (c) In the event of a default of the nature setforth above, Landlord may, at any time thereafter, at its election, withoutfurther notice to Tenant, terminate this Lease and Tenant's right to possessionof the Leased Premises, and take possession of the Leased Premises, and removeTenant, any occupant, and any property therefrom, without relinquishing anyrights of Landlord against Tenant. (d) Tenant shall be obligated to, and shall payto Landlord as damages, upon demand, and Landlord shall be entitled to recoverof and from Tenant at the election of Landlord all expenses which shall havebeen incurred in connection with such breach including the expenses ofrerenting the Leased Premises (including, but not limited to, any commissionspaid to any real estate agent in connection therewith), and actual attorneys'fees at said attorneys' usual and customary rates; plus, in the event thisLease is terminated as set forth above, either: (1) liquidated damages, in an amountwhich, at the time of such termination is equal to the installments of BasicAnnual Rent and the aggregate of all sums payable hereunder as additionalrental (the "Additional Rental") (for such purpose considering the annualamount of such Additional Rental to be equal to the amount thereof due duringthe twelve months preceding such default, or if less than twelve months haveelapsed at such time, such amounts as would have been due on an annual basis)reserved hereunder, for the period which would otherwise have constituted theunexpired portion of the then current term of this Lease, said amount to bediscounted at the discount rate then in effect at the Federal Reserve Bank in Baltimore; or (2) damages (payable in monthlyinstallments, in advance, on the first day of each calendar month followingsuch termination and continuing until the date originally fixed herein for theexpiration of the then current term of this Lease) in an amount or amountsequal to the excess, if any, of the sum of (i) the aggregate expenses (otherthan Additional Rental) paid by Landlord during the month immediately precedingsuch calendar month for all such items as, by the terms of this Lease, arerequired to be paid by Tenant, plus (ii) an - 19 - 23amount equal to the amount of the installment of Basic Annual Rent which wouldhave been payable by Tenant hereunder in respect of such calendar month hadthis Lease and the Lease Term not been so terminated, and (iii) the monthlyaverage of the Additional Rental payable in the twelve months immediatelypreceding such default, over the rents, if any, in fact, collected by Landlordin respect of such calendar month pursuant to either rerenting, or from anyexisting permitted subleases. Any suit, action or proceeding brought tocollect the amount of the deficiency for any calendar month shall not prejudicein any way the rights of Landlord to collect the deficiency for any subsequentmonth by a similar proceeding. (e) No act or thing done by Landlord shall bedeemed to be an acceptance of a surrender of the Leased Premises, unlessLandlord shall execute a written release of Tenant. Tenant's liabilityhereunder shall not be terminated by the execution of a new lease of the LeasedPremises by Landlord, regardless of the term of such new lease. Separateactions may be maintained each month by Landlord against Tenant to recover thedamages then due, without waiting until the end of the Term of this Lease todetermine the aggregate amount of such damages. (f) Notwithstanding anything in this Section 18to the contrary, upon the occurrence of any breach by Tenant that is not curedwithin any applicable grace period, Landlord shall use its reasonable effortsto mitigate its damages, including using reasonable efforts to relet the LeasedPremises so long as there is no comparable space then available for leasingwithin the Rivers Corporate Park. If all amounts required to be paid by Tenantunder this Lease as damages and liquidated damages are actually paid to andcollected by Landlord, then any rent collected by Landlord with regard to theLeased Premises from a subsequent tenant and attributable to the period forwhich Tenant has paid liquidated damages, up to a maximum amount equal to theamount of rental paid by Tenant as liquidated damages for such period, shall berebated to Tenant as and when such amounts are actually collected by Landlord. 19. Acceptance of Leased Premises. Tenant's occupancy ofthe Leased Premises shall constitute acceptance thereof, subject to theprovisions of Section 1(c) and punchlist items as provided in Section 2, ascomplying with all requirements of Tenant and Landlord with respect to thecondition, order and repair thereof. 20. Access to Premises and Change in Services. Landlordand/or the authorized representative of Landlord or any mortgagee or deed oftrust holder shall have the right, without abatement of rent, to enter theLeased Premises at any reasonable hour with reasonable prior notice (which maybe verbal) and accompanied by a representative of Tenant, or otherwise inconformity with Tenant's security requirements of which Tenant has providedLandlord notice (or at any time without notice in the event of an emergency) toexamine the same and/or to make such repairs, improvements and alterations asLandlord and/or such authorized representatives shall deem necessary (butLandlord shall not be obligated to do so) for the safety and preservation ofthe Building, or for any other reasonable purpose whatsoever, including, but not limited to, showing the Leased Premises to prospective tenants during thelast six (6) months of the Lease Term. In connection with the foregoing,Landlord agrees to use it best efforts to minimize any interference to Tenant'sactivities on the Leased Premises. - 20 - 24 21. Estoppel Certificates. Tenant agrees at any time andfrom time to time upon not less than ten (10) days prior notice by Landlord toexecute, acknowledge and deliver to Landlord a statement in writing certifying,among other factual matters, that this Lease is unmodified and in full forceand effect (or if there have been modifications, that the same is in full forceand effect as modified and stating the modifications) and the dates to whichthe rent and other charges have been paid in advance, if any, and statingwhether or not, to the best knowledge of the signer of such certificate,Landlord is in breach and/or default in performance of any covenant, agreementor condition contained in this Lease and, if so, specifying each such breachand/or default of which the signer may have knowledge, and any other mattersreasonably requested in such estoppel certificate, it being intended that anysuch statement delivered hereunder may be relied upon by any party not a partyto this Lease. 22. Subordination and Non-Disturbance. Tenant acceptsthis Lease, and the tenancy created hereunder, subject and subordinate to anyground leases, security interests, mortgages, deeds of trust or other financingarrangements now or hereafter a lien upon or affecting the Building or any partor parts thereof and to any extensions, modifications or amendments thereof.Tenant shall, at any time hereafter, on request, execute any instruments whichmay be required to subordinate, or render prior, Tenant's interest hereunder tosuch lien and the failure of Tenant to execute any such instruments shallconstitute a default hereunder. Landlord agrees to use its best efforts, withLandlord and Tenant to equally bear any lender's charges, to obtain anon-disturbance agreement in form and substance acceptable to Landlord'slender. 23. Attornment. Tenant agrees that upon any terminationof Landlord's interest in the Leased Premises, Tenant shall, upon request,attorn to the person or entity then holding title to the reversion of theLeased Premises (the "Successor") and to all subsequent Successors, and shallpay to the Successor all rents and other monies required to be paid by theTenant, hereunder and perform all of the other covenants, agreements,provisions, conditions, obligations and/or duties of Tenant in this Leasecontained. 24. Notices. Except as otherwise provided in this Lease,any requirement for a notice, demand or request under this Lease will besatisfied by a writing (a) hand delivered with receipt; (b) mailed by UnitedStates registered or certified mail or Express Mail, return receipt requested,postage prepaid; or (c) sent by Federal Express or any other nationallyrecognized overnight courier service, and addressed: (i) if to Landlord, c/oManekin Corporation, 7165 Columbia Gateway Drive, Columbia, Maryland 21046,Attention: General Counsel with a copy to Ann Clary Gordon, Esquire c/o Shapiroand Olander, 36 South Charles Street, Baltimore, Maryland 21201; and (ii) if toTenant, at the Leased Premises. All notices that are sent in accordance withthis Section 24 will be deemed received by the other party on the earliest ofthe following applicable time periods (a) three business days after beingmailed in the aforesaid manner; (b) the date the return receipt is executed; or(c) the date delivered as documented by the overnight courier service or thehand delivery receipt. All rental payments and other charges payable by Tenantunder this Lease will be delivered to Landlord at Landlord's address set forthabove: Attention: Accounting Department. Either party may designate a changeof address by written notice to the other party. - 21 - 25 25. Landlord's Liability. The term "Landlord" as used inthis Lease means only the owner, the mortgagee, or the trustee or thebeneficiary under a deed of trust, as the case may be, for the time being, ofthe Building, so that in the event of any transfer of title to the Building,the transferring entity shall be and hereby is entirely freed and relieved ofall covenants and obligations of Landlord hereunder accruing after suchtransfer. It is understood that Landlord on the date hereof is a Marylandlimited partnership, and that no partner, general or limited, of said limitedpartnership, as it may now or hereafter be constituted, shall have any personalliability to Tenant and/or any person or entity claiming under, by or throughTenant upon any action, claim, suit or demand brought under or pursuant to theterms and conditions of this Lease and/or arising out of the use or occupancyby Tenant of the Leased Premises and as to Landlord, recourse shall be had onlyto the extent of Landlord's interest in the Building. 26. Separability, Enforceability. If any term orprovision of this Lease or the application thereof to any person orcircumstances shall, to any extent, be invalid or unenforceable, the remainderof this Lease or the application of such term or provision to persons orcircumstances other than those as to which it is held invalid or unenforceable,shall not be affected thereby, and each term and provision of this Lease shallbe valid and enforceable to the fullest extent permitted by law.Notwithstanding any language in this Lease to the contrary, if the Lease Termdoes not commence by January 1, 2010, this Lease shall terminate automaticallyand neither party shall have any further liability to the other. 27. Captions. All headings anywhere contained in thisLease are intended for convenience of reference only and are not to be deemedor taken as a summary of the provisions to which they pertain or as aconstruction thereof. 28. Recordation. Tenant covenants that if at any timeany mortgagee of Landlord's interest in the Leased Premises, any trustee orbeneficiary under a deed of trust constituting a lien upon the Building ofwhich deed of trust Landlord is grantor, or a landlord of Landlord in respectof the real property upon which the Building is situate, shall require therecordation of this Lease, or if the recordation of this Lease shall berequired by any valid governmental order, or if any governmental authorityhaving jurisdiction in the matter shall assess and be entitled to collecttransfer taxes or documentary stamp taxes, or both such taxes on this Lease,Tenant shall execute such acknowledgments as may be necessary to effect suchrecordations and whichever party requires such recordation shall pay the costof all recording fees, transfer taxes and/or documentary stamp taxes payableon, and/or in connection with this Lease and/or such recordation. 29. Successors and Assigns. The covenants, conditionsand agreements contained in this Lease shall bind and inure to the benefit ofLandlord and Tenant, and their respective heirs, distributees, executors,administrators, successors, personal and legal representatives and theirpermitted assigns. 30. Holding Over. If Tenant holds possession of theLeased Premises after the termination of this Lease without Landlord's writtenconsent, Tenant shall become a tenant from month to month at one and one-halftimes the rent due during the last year of the Term, and upon all other termsherein specified and shall continue to be such tenant from month to month untilsuch tenancy shall be terminated by either party giving the other - 22 - 26a written notice of at least thirty (30) days of its intention to terminatesuch tenancy. Nothing contained in this Lease shall be construed as a consentby Landlord to the occupancy or possession of the Leased Premises by Tenantafter termination of this Lease. Upon the termination of this Lease, Landlordshall be entitled to the benefit of all public general or public local lawsrelating to the speedy recovery of the possession of lands and tenements heldover by tenants, that may now or hereafter be in force. 31. Commissions. Tenant represents that Tenant has dealtdirectly with, and only with, MANEKIN CORPORATION and THE FRED EZRA COMPANY asbrokers in connection with this Lease (which commissions Landlord shall paypursuant to a separate agreement), and that insofar as Tenant knows, no otherbroker negotiated this Lease or is entitled to any commissions in connectionwith it. Tenant shall hold Landlord harmless from and indemnify Landlord forany costs incurred by Landlord arising out of any other broker's claim thatsuch other broker has assisted Tenant with respect to this Lease. 32. Waiver of Jury Trial. Landlord and Tenant desire aprompt resolution of any litigation between them with respect to this Lease.To that end, Landlord and Tenant waive trial by jury in any action, suit,proceeding and/or counterclaim brought by either against the other on anymatters whatsoever arising out of or in any way connected with this Lease, therelationship of Landlord and Tenant, Tenant's use or occupancy of the LeasedPremises, any claim of injury or damage and/or any statutory remedy. Thiswaiver is knowingly, intentionally and voluntarily made by Tenant. Tenantacknowledges that neither Landlord nor any person acting on behalf of Landlordhas made any representations of fact to induce this waiver of trial by jury orin any way to modify or nullify its effect. Tenant further acknowledges thatit has been represented (or has had the opportunity to be represented) in thesigning of this Lease and the making of this waiver by independent legalcounsel, selected of its own free will, and that it has had the opportunity todiscuss this waiver with counsel. Tenant further acknowledges that it has readand understands the meaning and ramifications of this waiver of jury trial. 33. Miscellaneous. (a) As used in this Lease, and where the contextrequires: (1) the masculine shall be deemed to include the feminine and neuterand vice- versa; and (2) the singular shall be deemed to include the plural andvice- versa. (b) This Lease was made in the State of Marylandand shall be governed by and construed in all respects in accordance with thelaws of the State of Maryland. (c) Tenant covenants and agrees that it shall notinscribe, affix, or otherwise display signs, advertisements or notices in, on,upon or behind any windows or on any door, partition or other part of theinterior or exterior of the Building without the prior written consent ofLandlord and HRD (if required). If such consent be given by Landlord, any suchsign, advertisement, or notice shall be inscribed, painted or affixed byLandlord, or a company approved by Landlord, but the cost of the same shall becharged to and be paid by Tenant, and Tenant agrees to pay the same promptly,on demand. (d) Tenant covenants and agrees that it shall notattach or place awnings, antennas or other projections to the - 23 - 27outside walls or any exterior portion of the Building, without the priorwritten consent of Landlord. No curtains, blinds, shades or screens shall beattached to or hung in, or used in connection with, any window or door of theLeased Premises, without the prior written consent of Landlord and HRD (ifrequired). (e) Tenant further covenants and agrees that itshall not pile or place or permit to be placed any goods on the sidewalks orparking lots in the front, rear or sides of the Building or in a place in anymanner so as to block said sidewalks, parking lots and loading areas and/or notto do anything that directly or indirectly will take away any of the rights ofingress or egress or of light from any other tenant of Landlord on the RealProperty. (f) Tenant, Tenant's servants, agents, invitees,employees and/or licensees shall not park on, store on, or otherwise utilizeany parking or loading areas on the Real Property, except as shown on Exhibit Aand then only in the parking places designated by Landlord for such parking andin accordance with such rules and regulations as Landlord may from time to timepromulgate with respect thereto. (g) Except as otherwise specifically provided inthis Lease or to a counterclaim which is mandatory or would be lost if notasserted, no abatement, refund, offset, counter-claim, recoupment, diminutionor any reduction of rent, charges or other compensation shall be claimed by orallowed to Tenant, or any person claiming under it, under any circumstances,whether for inconvenience, discomfort, interruption of business, or otherwise,arising from the making of alterations, changes, additions, improvements orrepairs to the Building or the Leased Premises, by virtue or because of anypresent or future governmental laws, ordinances, or for any other cause orreason. (h) All plats, exhibits, riders or other attachments to this Lease shall be deemed a part hereof and incorporated by reference herein. (i) This Lease contains the entire agreementamong the parties regarding the subject matter of this Lease. There are nopromises, agreements, conditions, undertakings, warranties or representations,oral or written, express or implied, among them, relating to this subjectmatter, other than as herein set forth. This Lease is intended by the partiesto be an integration of all prior or contemporaneous promises, agreements,conditions, negotiations and undertakings between them. This Lease may not bemodified orally or in any other manner than by an agreement in writing signedby all the parties or their respective successors in interest. This Lease maybe executed in several counterparts, each of which shall be an original, butall of which shall constitute one and the same instrument. 34. Confidentiality. Landlord (to the extent within itsreasonable control) and Tenant agree not to disclose to third parties (exceptif required by Landlord's lender, HRD, or any governmental authority),including without limitation, other tenants of the Building and RiversCorporate Park, the purposes for which Tenant is utilizing the Leased Premises. 35. Parking. Landlord agrees that, upon the payment ofBasic Annual Rent and additional rent provided herein and the performance byTenant of all the covenants, agreements and provisions of the Lease on Tenant'spart to be kept and performed, - 24 - 28Tenant shall be provided three (3) surface parking spaces (around the perimeter of the building) per each 1,000 square feet of leased space; ten (10) of suchparking spaces shall have signage reserving said spaces for Tenant and shall belocated as shown on Exhibit "A", provided, however, that Landlord shall have noobligation to enforce such reserved parking. The balance of such spaces shallbe available to Tenant in common with other tenants of the Real Property on afirst-come, first-served basis. 36. Signage. Tenant shall have the right, at its solecost and expense, to erect an identification sign on the exterior of theBuilding, subject, however, to Tenant's obtaining the prior written approval ofsuch signs from Landlord and HRD and provided that Tenant is then occupyingmore than fifty percent (50%) of the Building (or such lesser percentage as isapproved by HRD). Landlord shall not unreasonably withhold its consent to suchsigns provided same are reasonably similar to other corporate identificationsigns within Rivers Corporate Park. Such signs shall be installed by areputable contractor reasonably acceptable to Landlord. Tenant shall holdLandlord harmless from any damage caused to the Building as a result of theinstallation of such signs. Upon termination of the Lease, it shall beTenant's obligation, at its sole expense, to remove such signs and to restorethe exterior face of the Building to its condition prior to erecting suchsigns, normal wear and tear excepted. 37. Roof Access. Tenant shall have a limited right ofaccess to the roof of the Building to install, repair or replace anycommunications equipment (such as satellite dishes or other devices) on theroof of the Building used in connection with the Tenant's use and occupancy ofthe Leased Premises, provided the same is permitted by applicable law,regulations and other restrictions applicable to the Building; Tenant firstobtains the prior written consent of Landlord and HRD; and, such access,installation, repair or replacement is in accordance with all reasonable rulesand regulations therefor promulgated from time to time by Landlord. 38. Authority. (a) Tenant warrants to Landlord thatTenant is a corporation organized and validly existing in good standing underthe laws of the State of Delaware and qualified to transact business in theState of Maryland. In addition, Tenant warrants to Landlord that this Leasehas been properly authorized and executed by Tenant and is binding upon Tenantin accordance with its terms. Tenant's resident agent's name and address in theState of Maryland are The Corporation Trust Incorporated, 32 South Street,Baltimore, Maryland, 21201. Tenant agrees to notify Landlord in writing of anychange with respect to its resident agent. (b) Landlord warrants to Tenant that Landlord isa limited partnership formed and validly existing in good standing under thelaws of the State of Maryland. In addition, Landlord warrants to Tenant thatthis Lease has been properly authorized and executed by Landlord and is bindingupon Landlord in accordance with its terms. 39. Intentionally Deleted. 40. Riders. Four riders, numbered 1 through 4 andconsisting of seven (7) pages, are attached hereto and incorporated byreference herein. 41. Quiet Enjoyment. Landlord represents to Tenant that,so long as Tenant pays the Basic Annual Rent and all - 25 - 29additional rent and performs all other obligations imposed on Tenant under thisLease, Tenant will peaceably hold and enjoy the Leased Premises throughout theLease Term without hindrance or impairment from Landlord or those claimingthrough Landlord. 42. Loading Dock. Subject to the consent andrequirements of HRD, and Landlord's prior written approval, Landlord shallpermit the location of equipment in or on the exterior loading dock area of theBuilding; provided, however, that the expense in connection therewith shall beborne by Tenant. Tenant acknowledges that HRD may require the loading dock area(or any other area) to be modified to accommodate such equipment (such as, byway of example only, erection of permanent screening). IN WITNESS WHEREOF, Landlord and Tenant have respectivelysigned this Lease under seal as of the day and year first above written.ATTEST: RIVERS CENTER ASSOCIATES LIMITED PARTNERSHIP By: M.O.R. XX Associates Limited Partnership, a general partner By: RA & DM, INC., general partner [SIG] By: /s/ R. Colfax Schnorf,Jr. (SEAL)- - ------------------------- ----------------------------- Name: R.Colfax Schnorf, Jr. ------------------------------ Title: Vice President ------------------------------ Landlord WITNESS/ATTEST: NOVAVAX, INC. [SIG] By: /s/ Denis M. O'Donnell, MD (SEAL)- - -------------------------- ------------------------------ Name: Denis M. O'Donnell, MD ------------------------------ Title: President ------------------------------ Tenant 30STATE OF MARYLAND, CITY/COUNTY OF HOWARD, TO WIT: I HEREBY CERTIFY that on this 25th day of September, 1996, before me,the subscriber, a Notary Public of the State of Maryland, City/County of Howard,personally appeared R. Colfax Schnorf, Jr., Vice President of RA & DM, Inc.,general partner of M.O.R. XX Associates Limited Partnership, a general partnerof RIVERS CENTER ASSOCIATES LIMITED PARTNERSHIP, Landlord, and he acknowledgedthe foregoing Lease Agreement to be the act and deed of said limitedpartnership. WITNESS my hand and Notarial Seal.My Commission Expires: 07/1/99 /s/ Jo Ann Yost - - ---------------------------------- ------------------------------- Notary PublicSTATE OF MARYLAND, CITY/COUNTY OF HOWARD, TO WIT: I HEREBY CERTIFY that on this 25th day of September, 1996, before me,the subscriber, a Notary Public of the State of Maryland, City/County of Howard,personally appeared Denis M. O'Donnell,President of NOVAVAX, INC., Tenant, andshe/he acknowledged the foregoing Lease Agreement to be the act and deed of saidbody corporate. WITNESS my hand and Notarial Seal.My Commission Expires: 07/1/99 /s/ Jo Ann Yost - - ------------------------------ ------------------------------ Notary Public 31 EXHIBIT A Site Plan and Leased Premises 32 EXHIBIT B Intentionally Omitted 33 EXHIBIT C-1 Base Finish Work 34 EXHIBIT C-2 Additional Finish Work 35 EXHIBIT D HVAC Specifications 36 EXHIBIT E Howard County Zoning Letter 37 RIDER NO. 1 Right of Cancellation Rider to Section 2 - Term Tenant shall have the right to terminate this Lease as of the last day of the fifth (5) Lease Year (which date is hereinafter referred to asthe "Cancellation Date"), provided that: (a) Tenant shall have given to Landlord written notice ofsuch election to terminate at least six (6) months prior to the CancellationDate (the "Notice"); and (b) Tenant, on the date Landlord receives such Notice andon the Cancellation Date, shall not be in breach or default of any agreement,condition or covenant by which Tenant is obligated under this Lease; and (c) Tenant shall have paid to Landlord on or before theCancellation Date, in addition to any other amounts that may be due under thisLease prior to the Cancellation Date, the unamortized balance of Landlord'scost in finishing the Leased Premises pursuant to Section 1 of this Lease, plusthe unamortized balance of brokers' commission as of the Cancellation Date plus$41,161.12 (being equal to four (4) monthly installments of Basic Annual Rentfor the Sixth Lease Year). Such amounts so payable by Tenant representliquidated damages for terminating this Lease prior to the expiration of theoriginal Lease Term, such damages not otherwise being susceptible to reasonablecalculation. Time is of the essence with respect to Tenant's exercise ofits rights under this Rider, and Tenant acknowledges that Landlord requiresstrict adherence to the requirement that the Notice be timely made and inwriting. 38 RIDER NO. 2 RIGHT OF FIRST OFFER Tenant shall have the right of first offer (the "Expansion SpaceFirst Offer") to lease space (the "Expansion Space") contiguous to the LeasedPremises at a Basic Annual Rent equal to the Basic Annual Rent (as thenescalated but exclusive of the Additional Improvement Allowance of $0.47 persquare foot per annum described in Section 5 for the Leased Premises asdescribed in the chart below), plus additional rent as provided in the Lease.Tenant must provide written notice to Landlord on or before November 30, 1996(the "Expansion Notice") if it wants to expand into the approximately 6,780rentable square feet contiguous to the Leased Premises that will be availablefor lease commencing on or about January 1, 1997. In addition, throughout the Lease Term (including any renewals),Tenant shall have the right of first offer (the "First Offer") to lease anyspace in the Building that becomes available (the "Offer Space") before it isoffered for lease by Landlord. Said rent shall be payable at a Basic AnnualRent equal to the Basic Annual Rent (as then escalated but exclusive of theAdditional Improvement Allowance of $0.47 per square foot per annum describedin Section 5 for the Leased Premises as described in the chart below) plusadditional rent as provided for in the Lease in equal monthly installments (andfractions thereof), at the times and subject to the terms and conditions asprovided with respect to, and in addition to, the monthly installments of theBasic Annual Rent as set forth in Section 5 of this Lease. The Basic Annual Rent for the Expansion Space and any OfferSpace shall be determined in accordance with the then Lease Year for the LeasedPremises, at the following rates: Lease Year Annual Square Foot Amount ---------- ------------------------- 1 $9.50 2 $9.50 3 $9.95 4 $10.25 5 $10.56 6 $10.87 7 $11.20 8 $11.54 9 $11.88 10 $12.24 Tenant's exercise of the First Offer shall be effective onlyupon written notification by Tenant to Landlord thereof (the "Notice"). Suchnotification must be given to Landlord before the close of business on thesecond full business day after Tenant's receipt of Landlord's writtennotification to Tenant of the availability of the Offer Space and the terms onwhich Landlord intends to offer the Offer Space for rental (the "Offer"). AnOffer does not include the exercise by another tenant of its right of refusalor expansion. In the event Tenant fails to so notify Landlord within said twobusiness day period with respect to an offer, or by November 30, 1996 as to theExpansion Notice, Landlord shall be free to offer said Expansion Space or OfferSpace to third parties and Tenant shall have no further rights in such space. 39 This Expansion Space First Offer and First Offer are personal toTenant and shall not be separated from the Lease or transferred by Tenantindependently of the leasehold interest without the prior written consent ofLandlord. Notwithstanding any other provision hereof, the followingprovisions shall apply to the First Offer and Expansion Space First Offer andto Tenant's lease, if any, of the Expansion Space or Option Space: (i) Tenant shall not be entitled to exercise the rightsaccorded to Tenant in the first paragraph, unless at the date of such exerciseor at the date on which Tenant's lease, if any, of the Expansion Space or OfferSpace becomes effective, Tenant is in possession of the Leased Premises andTenant is not in default in the payment of any sums due hereunder or any otherobligation imposed upon Tenant by the Lease; (ii) Tenant shall have the right to lease and occupy theOffer Space commencing on the date set forth in Landlord's Offer of such spaceto Tenant and terminating on the termination of the Lease Term, on the sameterms, conditions, and provisions as are in this Lease set forth, except to theextent modified by the Offer, with the same force and effect as though thisLease had originally provided for the rental of the Leased Premises and theOffer Space; (iii) The Expansion Space shall be delivered to Tenant in"as is" condition, provided, however, that Landlord shall provide areconstruction/finishing allowance of $3.00 per square foot. The Offer Spaceshall be delivered to Tenant in the condition set forth in the Offer, provided,however, that Landlord shall provide a reconstruction allowance of $3.00 persquare foot so long as five or more years remain in the Lease Term, or aprorated amount thereof if less than five years remain; and (iv) The Lease shall be amended, as may be appropriate, to reflect the leasing of the Expansion Space or Offer Space. Time is of the essence with respect to Tenant's exercise of its rightsunder this Rider and Tenant acknowledges that Landlord requires strictadherence to the requirement that the Notice and the Expansion Notice be timelymade and in writing. 40 RIDER NO. 3 Renewal Option Rider to Section 2 (Term) Provided (i) this Lease is then in full force and effect, (ii) Tenantis not in default respecting any provision or condition of this Lease either onthe date Tenant elects to renew or on the date the renewal term commences, and,(iii) Tenant has not failed more than two times during the last two Lease Yearsof the original term of this Lease to pay any payments called for by this Leaseon the date such payment is due subject to any notice or grace periodprovisions, then Tenant shall have the right to renew this Lease for two (2)renewal terms of five (5) years each immediately following the expiration ofthe original term or the first renewal term, as the case may be, on the sameterms, conditions, and provisions as are set forth in this Lease with the sameforce and effect as though this Lease had originally provided for a fifteen(15) year or twenty (20) year term, save that: (i) there shall be no further right of renewal, after therenewal term, and (ii) the Basic Annual Rent payable with respect to theLeased Premises shall be adjusted to reflect ninety-five percent (95%) of theprevailing market rental rate for comparable space within Columbia, Maryland asof the commencement of the renewal term (as determined below), provided,however that in no event shall the Basic Annual Rent be less than $12.76 persquare foot per annum. Tenant shall be deemed to have waived the right to exercise thisrenewal option unless not less than nine (9) months prior to the date oftermination of the original Term or the first renewal term, as the case may be,Tenant shall have notified Landlord in writing of Tenant's election to renew(the "Renewal Notice"). Landlord shall give Tenant written notice of theprevailing rental rate within thirty (30) days after Landlord's receipt of theRenewal Notice (the "Rent Notice"). Tenant may elect to have the prevailingrent determined as set forth below if it does not agree with Landlord'sdetermination thereof provided it gives Landlord written notice (the "AppraisalNotice") within five (5) business days after Tenant's receipt of the RentNotice. Within five (5) business days after the Landlord receives theAppraisal Notice from Tenant, Landlord and Tenant shall give written notice tothe other that each, at its own expense, has hired and appointed adisinterested real estate broker of recognized competence and professionalexperience as a broker of comparable commercial and industrial real estate inthe Baltimore-Washington Metropolitan Area. The two brokers thus appointedshall mutually agree upon the appointment of a third broker, the cost of whichshall be shared equally by Landlord and Tenant, which broker shall also be adisinterested person of recognized competence and professional experience as abroker of comparable commercial and industrial real estate in theBaltimore-Washington Metropolitan Area. In the event that the two brokersshall be unable to agree within ten (10) days after their appointment, on theappointment of the third broker, then Tenant shall choose three brokers fromwhich Landlord shall choose one who shall serve as the third broker. Landlordshall notify Tenant of the selection of the third broker within ten (10) daysof Tenant's notice to Landlord of the selection of such 41three brokers from which Landlord is to choose. The third broker shall aspromptly as possible, but in no event more than thirty (30) days after the dateof his selection, conduct an appraisal of the Building for purposes ofdetermining the then prevailing rental rate therein. Upon completion of hisappraisal, the third broker shall immediately give written notice to theparties hereto stating his determination, and shall furnish to each partyhereto a copy of such determination signed by him which determination shall befinal and binding on the parties, provided, however, that Tenant shall have theright to withdraw its election to renew provided (i) it sends notice thereof toLandlord with five (5) days receipt of such rent determination (the "WithdrawalNotice"), and (ii) it solely bears the cost of the appraisal. Time is of the essence with respect to Tenant's exercise of its rightsunder this Rider and Tenant acknowledges that Landlord requires strictadherence to the requirement that the Renewal Notice, the Appraisal Notice andthe Withdrawal Notice be timely made and in writing. 42 RIDER NO. 4 Exclusions Rider to Section 5.1(c) "Common Area Expenses" shall not include any of the following: (i) Landlord's debt service, that is, principal orinterest payments on any mortgage, deed of trust or other borrowed funds orother costs associated therewith; (ii) rent payable under any ground or underlying lease; (iii) the costs of special services separately charged toan individual tenant of the Building or expenses incurred due to acts of anindividual tenant of the Building; (iv) costs for structural repairs of the Building whichare the result of Landlord's negligence in the maintenance of the Building; (v) general overhead of Landlord, that is, wages,salaries, fees, and benefits for the operation, maintenance and management ofpersonnel other than those persons involved in the management of the Building; (vi) costs of leasing or procuring tenants, that is,marketing fees, negotiation fees, concession fees, legal expenses and brokeragecommissions; (vii) costs incurred by Landlord which only benefit a particular tenant in the Building; (viii) costs incurred by Landlord due to Landlord'snegligence or violation of legal requirements in connection with theconstruction of the Building; (ix) insurance costs due to Landlord or any other tenant'sacts increasing the risk rating of any coverage carried on the Building; (x) costs for improving or preparing space for new orexisting tenants in the Building; (xi) any sum paid to any entity affiliated with Landlordwhich is excess of the amount that would have been payable in the absence ofsuch affiliation with Landlord; (xii) capital improvements, as determined under soundaccounting principles; (xiii) original construction costs of the Building; (xiv) accounting or legal fees incurred in tenant disputes,in procuring tenants or otherwise not related to the operation and maintenanceof the Building; (xv) costs of repairs to the extent Landlord receivesreimbursement therefor through insurance proceeds or condemnation awards; (xvi) interest or penalties arising by reason of Landlord'sfailure to timely pay any Common Area Expenses or Taxes. 43 (xvii) costs incurred to remove hazardous materials (exceptthose attributable to Tenant); and (xviii) income taxes. Common Area Expenses shall be credited with any reimbursement,discount, credit, reduction, warranty, insurance proceeds or other recovery of,or allowance for, expenses received by Landlord. 1 EXHIBIT 10.10 2 [NOVAVAX, INC. LETTERHEAD] February 26, 1997Mr. Richard F. Maradie86 Great Plain AvenueWellesley, MA 02181Dear Rick: On behalf of Novavax, Inc. (the "Company"), I am pleased to offer youthe position of Chief Executive Officer of the Company, subject to approval ofthe full Board of Directors of the Company and to satisfactory referencechecks. We are greatly looking forward to your joining the Company's team. JOB TITLE: Chief Executive Officer START DATE: March 4, 1997 SALARY: $220,000 per year payable in accordance withthe Company's payroll policies in effect from time to time. BONUS: You will be entitled to an annual cashincentive bonus based upon the achievement of certain specified goals. Thebonus for fiscal year 1997 is expected to be $25,000. Payment of your bonuswill be made within 60 days of the end of the Company's fiscal year. STOCK OPTIONS: The Company will grant you stock options topurchase 200,000 shares of the Company's Common Stock ($.01 par value) at anexercise price equal to the closing price of the Company's Common Stock on thedate of grant ($4.0625 per share). The options will vest as to one-third ofthe shares on the six-month anniversary of the date of grant, as to anadditional one-third of the shares on the eighteen-month anniversary of thedate of grant and as to the final one-third of the shares on the thirty-monthanniversary of the date of grant. Additional shares will be granted to youannually, based on your job performance. The amount will be determined andvoted on by the Board of Directors at the December board meetings. 3 BENEFITS: The Company will provide medical and dentalbenefits, life insurance, and disability insurance in accordance with theCompany's policies in effect from time to time. As of the date of this letter,the Company currently pays 100% of the premium for $200,000 of life insuranceunder the Company's group life insurance plan and 100% of the premium for theCompany's long-term disability insurance. VACATION: You will be entitled to two weeks of vacation time during the first year, calculated on a calendar year basis inaccordance with the Company's policies in effect from time to time. If youremain employed with the Company, you will be entitled to two weeks of vacationplus one day for each year of your employment after the first year, up to amaximum of four weeks per year. All vacation time will be calculated inaccordance with the Company's policies in effect from time to time. EMPLOYMENT REQUIREMENTS AND TERM: You will receive a one yearcontract which will contain the conditions of your employment as well as theobligations of Novavax and your employment. The contract will include a threemonth severance program. Your contract will be reviewed by the Chairman andthe Compensation Committee after six months from the date of hire for purposesof evaluation and possible extension. RELOCATION: You will be expected to relocate to theColumbia, Maryland location within six months from the date of hire. It isanticipated that your moving expenses will be approximately $50,000 which willbe fully refunded by Novavax. We urge you to be expeditious in thisrelocation. BOARD SEAT: You will be eligible to be considered for aboard seat after the March 20th board meeting. To become a board member, youmust be nominated by the Chairman of Novavax, with acceptance by the overallboard. The window for this nomination will be between the first week of Apriland the Shareholder's meeting. I repeat, there must be an accord between you,the Chairman of Novavax and the Board of Directors before the board seat isgranted. ENTIRE AGREEMENT: This agreement sets forth the entireagreement and understanding between you and the Company regarding all subjectscovered herein, the terms of which may not be changed or modified except byagreement in writing signed by you and the Company. SEVERABILITY: Should any provision of this agreement, orportion thereof, be found invalid and unenforceable, the remaining provisionsshall continue in full force and effect. 4 GOVERNING LAW: This agreement shall be governed, construed andenforced in accordance with the laws of Delaware, without regard to principlesof conflict of law. CONFLICT: You hereby acknowledge that you are not a party toany agreement that in any way prohibits or impose any restriction on youremployment with the Company, and your acceptance hereof will both breach anyagreement to which you are a party. Please acknowledge your acceptance of this offer by signing the copyof this letter and returning it to me. Very truly yours, Novavax, Inc. /s/ Edward B. Hager, MD ----------------------- Edward B. Hager, MD ChairmanEBH/tdACCEPTED: /s/ Richard F. Maradie- - ------------------------Richard F. Maradie 1 EXHIBIT 11 NOVAVAX, INC. AND SUBSIDIARIES COMPUTATION OF NET LOSS PER COMMON SHARE December 31, ----------- 1996 1995 ---- ---- Net loss $(5,494,985) $(8,494,358) =========== =========== Weighted average shares outstanding 10,132,896 9,937,936 ========== ========= Net loss and proforma net loss common and common equivalent share $(.54) $(.85) ===== ===== 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTSWe consent to the incorporation by reference in the Registration Statement of Novavax, Inc. on Form S-8 (No. 33-80277), the Registration Statement of Novavax,Inc. on Form S-8 (No. 33-80279), the Registration Statement of Novavax, Inc. onForm S-8 (No. 333-3384), the Registration Statement of Novavax, Inc. on FormS-3 (No. 333-14305), the Registration Statement of Novavax, Inc. on Form S-3(No. 333-5367) and the registration statement Novavax, Inc.on Form S-3 (No.333-22685) of our report, dated February 7, 1997: except as to Note 13 for whichthe date is March 14, 1997, on our audits of the consolidated financialstatements of Novavax, Inc. and subsidiaries as of December 31, 1996 and 1995,and for each of the three years in the period ended December 31, 1996, whichreport is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P.Rockville, MarylandMarch 21, 1997
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