Novavax Annual Report 1998

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, 1998 COMMISSION FILE NO. 0-26770 NOVAVAX, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-2816046State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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: COMMON STOCK ($.01 PAR VALUE) Name of each exchange on which registered: AMERICAN STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 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 pursuantto Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of the registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. [X] The aggregate market value of 10,786,767 shares of the registrant'sCommon Stock, par value $.01 per share, held by non-affiliates of the registrantat March 31, 1999, as computed by reference to the closing price of such stock,was approximately $40,500,000. The number of shares of the registrant's Common Stock, par value$.01 per share, outstanding at March 31, 1999 was 13,253,119 shares.DOCUMENTS INCORPORATED BY REFERENCE: Portions of the 1999 Novavax, Inc. ProxyStatement are incorporated by reference into Part III of this Report. 2 PART IITEM 1. BUSINESS Novavax, Inc. ("Novavax" or the "Company") is a biopharmaceuticalcompany focused on the research and development of proprietary topical and oraldrug delivery and encapsulation technologies and the applications of thosetechnologies. The Company's technology platforms involve the use of proprietary,microscopic, organized, non-phospholipid 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. Thesetechnology platforms support three product development programs: hormonereplacement therapies, third party drug delivery and vaccine adjuvantapplications and anti-microbial agents. Hormone Replacement Therapies. The Company's hormone replacementtherapy program includes its two lead product candidates: ESTRASORB(TM), atopical estrogen cream, and ANDROSORB(TM), a topical testosterone cream. TheCompany has completed various pre-clinical and human safety studies for bothESTRASORB and ANDROSORB. In addition, the Company completed dosing in a PhaseII, randomized, double-blind, placebo-controlled, dose-ranging ESTRASORB studyin January, 1999. A Phase I, multiple dose, pharmacokinetic ANDROSORB study thatbegan in the third quarter of 1998 is currently underway. Third Party Drug Delivery and Vaccine Adjuvant Applications.Formulations of the Company's lipid technologies are expected to have broadapplication as vehicles for the encapsulation and delivery of drugs developed byother companies. Moreover, the Company believes that certain of its organizedlipid structures may provide effective and safe adjuvant carrier systems for avariety of vaccines. The Company plans to leverage these technologies bylicensing its drug delivery, encapsulation and adjuvant technologies to thirdparties for specific therapeutic indications. The Company currently has several research contracts in place toprovide anti-microbial products, vaccine products, services and adjuvanttechnologies. One of these contracts is for the development of an adjuvant foran immunotherapeutic vaccine for cervical dysplasia, a precancerous disease ofthe cervix for a British vaccine company, Cantab Pharmaceuticals. Anti-Microbial Agents. The Company is also applying its lipidtechnologies to develop anti-microbial agents that are capable of acting onviruses, bacteria, spores and sperm. Potential product candidates includeHelicore(TM), an oral anti-bacterial preparation for the treatment ofHelicobacter pylori ("H. Pylori") infection, and two anti-microbial agentstargeting Bacillus anthracis and influenza A, respectively, as well as twospermicide product candidates. Pre-clinical and clinical studies for theseproduct candidates are summarized below:- - The Company currently has completed several pre-clinical and Phase I safety studies with a number of formulations of Helicore.- - The Company currently has several anti-microbial agents in pre-clinical studies pursuant to a research collaboration with the University of Michigan. The studies are being performed at the University of Michigan and are being funded by Defense Advanced Research Projects Agency's ("DARPA") Unconventional Pathogen Countermeasures Program. Novavax is a subcontractor to the University of Michigan.- - The Company currently has two spermicide product candidates that are both expected to be part of clinical studies sponsored by the National Institutes of Health. The first of the product candidates is expected to enter Phase I clinical trials in the second quarter of 1999. 2 3 During the year ended December 31, 1998, the Company received$681,000 for services related to vaccine and adjuvant technologies, includingthe Cantab Pharmaceuticals contract, as well as from its BCTP developmentsubcontract from the University of Michigan. Future revenues that may resultfrom these and other partnerships include material transfer costs, technologyaccess fees, milestone payments and royalties. The Company also received net proceeds of $5,998,000 from theprivate placement of 6,500 shares of Series A Custom Convertible PreferredStock. The sale of the Preferred Stock closed on January 28, 1998 at anaggregate purchase price of $6,500,000. On October 1, 1998, the Company enteredinto agreements to repurchase the remaining Preferred Stock. This transactionwas closed on October 16, 1998 and the Company repurchased the outstandingbalance of $4,979,000 at par ($1,000 per share) plus accrued dividends at theannual rate of five percent. The repurchase was funded with cash balances onhand at October 16, 1998. Prior to the repurchase, Preferred Stock representing$1,522,000 of the original $6,500,000 had been converted into 1,043,956 commonshares. 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. In connection with the Distribution, IGI paid Novavax $5,000,000 inreturn for a fully paid-up, ten-year license (the "License Agreement") entitlingit to the exclusive use of the Company's technologies in the fields of (i)animal pharmaceuticals, biologicals and other animal care products; (ii) foods,food applications, nutrients and flavorings (except to the extent used in humanpharmaceuticals and vaccines); (iii) cosmetics, consumer products and topicaldermatological products for localized usage at the delivery zone, (specificallyexcluding dermatologically administered pharmaceuticals which are deliveredsystemically through the skin, anti-infectives for treating infectiouspathogens, replacement hormone therapy, spermicides and viracides)); (iv)fragrances; and (v) chemicals, including herbicides, insecticides, pesticides,paints and coatings, photographic chemicals and other specialty chemicalsincluding blood substitutes containing hemoglobin and other oxygen carryingmaterials; and the processes for making the same. IGI has the option,exercisable within the last year of the ten-year term, to extend the LicenseAgreement for an additional ten-year period for $1,000,000. Novavax retains theright to use its technologies for all other applications, including but notlimited to, human vaccines and pharmaceuticals.THE NOVAVAX TECHNOLOGY PLATFORMS Novavax has developed proprietary topical and oral drug deliverytechnologies using microscopic, organized, non-phospholipid structures,including Novasome(R) non-phospholipid vesicles ("Novasomes"), micellarnanoparticles ("MNPs") and non-antibiotic, anti-microbial lipid emulsions. TheCompany believes these structures may be useful for targeted delivery andcontrolled release of certain drugs, along with inactivation of bacteria,enveloped viruses, spores and sperm. Moreover, the Company believes that certainof its organized lipid structures may provide effective and safe adjuvantcarrier systems for a variety of vaccines. Although other companies have developed liposome technologies, mostcommercial liposomes are composed of delicate phospholipids. Due to theirinherent lack of stability and carrying capacity, only a limited number of drugsmay be used with these phospholipid liposomes. While capable of encapsulatingcertain (principally water soluble) drugs, phospholipid liposomes have a numberof other significant disadvantages including their expense and the need to use 3 4potentially hazardous organic solvents in their manufacture. In addition, thestandard, multi-step phospholipid manufacturing process is relatively expensive. The Company believes its non-phospholipid technologies may allow fora more cost-effective delivery of a wider variety of drugs and othertherapeutics than commercially available phospholipid liposomes and otherdelivery vehicles. Its technologies may also be preferred over other availabletransdermal delivery systems because its technologies may reduce side effectssuch as skin irritation. Future applications may show advantages over injectabledelivery technologies, which are invasive, inconvenient, and sometimes painful.In addition, the Company's anti-microbial lipid emulsions may avoid the problemof pathogen mutation and resistance because of their non-antibiotic method ofaction.MICELLAR NANOPARTICLE EMULSIONS MNPs are proprietary, submicron-sized, water miscible,non-phospholipid structures that have different structural characteristics andare generally smaller than Novasome non-phospholipid vesicles. MNPs, likeNovasome non-phospholipid vesicles, are derived from amphiphilic molecules. Novavax scientists have demonstrated that MNPs are able toincorporate alcohol soluble drugs, pesticides, vaccine adjuvants, proteins,whole viruses, flavors, fragrances and colors. MNPs also have the ability toentrap ethanol or methanol soluble drugs, and to deliver certain of these drugstransdermally through intact skin. The MNP formulations used by Novavax for thetransdermal delivery of drugs have cosmetic properties similar to creams andlotions. These transdermal formulations have the advantage over injectabledelivery systems of being less invasive and/or inconvenient and the may alsocause less skin irritation than patch transdermal delivery systems. MNPs are thefundamental technology platform for Novavax's hormone replacement therapies.NOVASOME NON-PHOSPHOLIPID VESICLES Novasomes are proprietary structures in which drugs or othermaterials can be encapsulated for delivery into the body topically or orally.Novasomes are made using the Company's patented manufacturing processes from avariety of readily available chemicals called amphiphiles, which include fattyalcohols and acids, ethoxylated fatty alcohols and acids, glycol esters of fattyacids, glycerol fatty acid mono and diesters, ethoxylated glycerol fatty acidesters, glyceryl ethers, fatty acid diethanolamides and dimethyl amides, fattyacyl sarcosinates, "alkyds" and phospholipids. The Company plans to commercialize its Novasome technology in partthrough products it develops itself and in part through third party drugdelivery application licenses. The Company believes that certain of itsorganized lipid structures (such as Novasome lipid vesicles) may provideeffective and safe adjuvant carrier systems for a variety of vaccines. Inaddition, the Company has developed structures for delivery of biologicallyactive molecules like antisense, genes and proteins. The Company currently has several research contracts in place toprovide vaccine products, services and adjuvant technologies. These contractsinclude, but are not limited to, the development of an adjuvant for animmunotherapeutic vaccine for cervical dysplasia, a precancerous disease of thecervix for a British vaccine company, Cantab Pharmaceuticals.NON-ANTIBIOTIC LIPID EMULSIONS The Company has developed proprietary lipid structures that it isusing in the development of a non-antibiotic, anti-bacterial preparation for thetreatment of H. pylori infection in humans. In 4 5addition, the Company has developed a proprietary non-antibiotic lipid emulsioncalled BCTP that may inactivate enveloped viruses that cause human disease, aswell as certain spores, bacteria and sperm. BCTP is a highly effective microbialkilling agent. Pre-clinical studies indicate that BCTP has a low toxicityprofile. The emulsion seems to act on various microbials, including viruses,bacteria, sperm and spores, by first fusing or merging with the lipid envelopeof the virus. Because BCTP is not an antibiotic, it is not associated with microbemutation and resistance caused by antibiotic use, which is now recognized as animportant public health problem. Novavax expects that BCTP-based products may bepreferred in many circumstances as an alternative to conventional antibiotics.The Company currently has several research contracts in place to providenon-antibiotic lipid emulsion products and services. These contracts include butare not limited to the development a subcontract from the University ofMichigan, which is developing anti-infective defense systems against biologicalwarfare agents for the U.S. military.NOVAVAX PRODUCT CANDIDATESHORMONE REPLACEMENT THERAPY The Company is using its MNP technology in the development ofESTRASORB, a cream designed for the delivery of 17b estradiol (estrogen hormonereplacement) through the skin. Estrogen replacement therapy is currently usedworldwide by menopausal (and post-menopausal) women to prevent osteoporosis,cardiovascular disease and other menopausal symptoms (such as "hot flashes").The hormone replacement market in the US is approximately $1.7 billion. Thismarket is believed to represent only 15-20% of the estimated 60.3 million womenover 40 years of age in the US who could potentially benefit from hormonereplacement therapy. Current estrogen replacement products include oral tablets and, morerecently, transdermal patches. Oral estrogen tablets, however, have beenassociated with side effects primarily resulting from blood hormone levelfluctuations. Because of these side effects, transdermal patches for estrogenreplacement were developed. While these patches help reduce blood hormonefluctuations, they may cause skin irritation and patient inconvenienceassociated with wearing and changing an external patch. The Company believes that ESTRASORB may offer several advantagesover existing therapies used for estrogen replacement. ESTRASORB may be appliedto the skin much like a typical cosmetic lotion. The Company believes ESTRASORBwill be able to deliver a continuous amount of estrogen to the patient withoutthe fluctuations in blood hormone levels associated with oral tablets. Inaddition, 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 these studies demonstrated that ESTRASORB can beutilized to deliver estradiol through intact skin with maintenance of serumestradiol levels for six days after a single topical application. Based on theseresults, the Company initiated a Phase I clinical trial of ESTRASORB involving10 symptomatic 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 has completed three additional clinical studies withESTRASORB. The first was a multiple-dose, dose ranging, pharmacokinetic studycompleted in the third quarter of 1997 involving 20 subjects. The second was amultiple-dose, pharmacokinetic, placebo controlled study completed in the fourthquarter of 1997 involving 20 subjects. The third study was a single versus dualsite application study completed in the third quarter of 1998 involving 10subjects. These studies demonstrated transdermal delivery of the drug and noskin irritation was noted. A Phase 5 6II, randomized, double-blind, placebo-controlled, dose-ranging ESTRASORB study,begun in the third quarter of 1998,was completed in the first quarter of 1999.This study involved a 35 day dosing protocol and included 120 patients at sixclinical sites located in the United States. Testosterone replacement therapy is currently used by males who aretestosterone deficient as a result of either primary or secondary hypogonadism.It is believed that testosterone in males is required to maintain sexualfunction and libido, maintain lean body mass, increase hemoglobin synthesis andmaintain bone density. There are estimated to be one million testosteronedeficient men in the US. It is further estimated that only 100,000 to 150,000men are currently being treated for testosterone deficiency. These numbers areexpected to grow with the aging of the population and the increasing awarenessof the benefits of hormone replacement therapy. Current testosterone replacement therapy products include deepintramuscular injections or transdermal patches. The injections require frequentvisits to a physician and may be associated with pain at the injection site andabscess. The transdermal patches may cause skin irritation and patientinconvenience associated with wearing and changing external patches. The Company believes that ANDROSORB (its testosterone hormonereplacement therapy product) may offer several advantages over currenttestosterone replacement therapies. ANDROSORB is a lotion that may be applied tothe skin, thus eliminating the need for intramuscular injections. In addition,ANDROSORB does not contain materials that may cause the skin irritationassociated with transdermal patches. In September, 1996, the Company completed the animal testing ofANDROSORB in its MNP transdermal drug delivery platform. In these tests, peakblood levels of testosterone were approximately three times higher thantestosterone dissolved in ethanol alone. The Company completed human safetystudies involving 10 subjects and submitted the results to the FDA in the thirdquarter of 1997. A multiple-dose, pharmacokinetic study involving 9 subjects wascompleted in the fourth quarter of 1997, and a dose-ranging pharmacokineticstudy involving 8 subjects was completed in the second quarter of 1998. Thesestudies have demonstrated delivery of the drug resulting in elevated bloodhormone levels and there has not been any evidence of skin irritation. Anotherdose-ranging pharmacokinetic study, begun in the third quarter of 1998, iscurrently underway, involving 20 subjects.MICROBICIDES The Company has developed proprietary lipid structures that it isusing in the development of a non-antibiotic, anti-bacterial preparation,Helicore, for the treatment of H. pylori infection in humans. H. pylori wasrecognized in 1994 by the National Institutes of Health as a causative agent ofpeptic ulcer disease, antral gastritis and certain types of gastric cancer.Current therapies for the treatment of H. pylori include the use of antibioticsalone or antibiotics in combination with drugs that inhibit acid production inthe stomach. Problems associated with such therapies include, but are notlimited to, cost, toxicity, failure to sufficiently eradicate all the bacteria,and acquired resistance to the antibiotic. In 1995, the Company began to testformulations of Helicore in both animal studies and Phase I human safetystudies. Results from clinical studies completed in 1996 were submitted to theFDA. Novavax is not currently conducting pre-clinical or clinical studies onHelicore. The Company has also developed BCTP, a lipid emulsion that acts onvarious microbials, including enveloped viruses, as well as spores and bacteria.The product has also demonstrated spermicidal action. The Company believes thatthe emulsion acts on the target by first fusing or merging with the lipidenvelope or outer membrane of the target. The Company believes that BCTP hasmany potential applications. Pre-clinical studies indicate that viruses andspores vulnerable to BCTP include influenza A and bacillus anthracis, but it mayalso be appropriate for 6 7herpes, measles, mumps, rubella and many other microbes and pathogens. Whileinfluenza vaccines are relatively effective at preventing the flu, BCTP unlikevaccines, does not appear to promote mutation and resistance. Other advantagesof BCTP appear to include a low toxicity profile, inexpensive scale-up andmanufacturing costs, and a rapid and broad spectrum of killing. Certain pre-clinical studies have been conducted using the Company'sBCTP technology under a subcontract from the University of Michigan. TheUniversity of Michigan is being funded by DARPA's Unconventional PathogenCountermeasures Program. Two studies have targeted Bacillus anthracis. In thefirst study, BCTP inactivated greater than 90% of Bacillus anthracis after fourhours of incubation. In the second study, which simulated wounds, mice treatedwith BCTP had greatly reduced skin lesions and swelling compared to untreatedmice. Two separate studies have targeted influenza A. In the first study, BCTPreduced viral antigen levels in incubation by 99.6%. In the second study, micereceiving influenza A and BCTP stayed healthy while all the mice who receivedthe virus only, developed severe pneumonia and two out of three mice died beforethe conclusion of the study.VACCINE ADJUVANTS Adjuvants are substances that make vaccines more effective. TheCompany believes that its Novasome lipid vesicles and MNPs may provide effectiveand safe adjuvant carrier systems for a variety of vaccines in a variety ofcircumstances, including: (i) encapsulation and protection from destruction bythe body's normal enzymatic processes of delicate antigenic materials; (ii)encapsulation of toxic materials, such as endotoxins and other potent toxins,for gradual release, 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 aresubject to good laboratory practices ("GLP") and good manufacturing practices("GMP") requirements prescribed by the FDA and to other standards prescribed bythe appropriate regulatory agency in the country of use. The Company has theability to produce quantities of Novasome lipid vesicles and MNPs sufficient tosupport its needs for early-stage clinical trials. It does not presently haveFDA-certified facilities capable of producing the larger quantities ofpharmaceutical products required for larger scale clinical trials or commercialproduction. The Company will need to rely on collaborators, licensees orcontract manufacturers or acquire such manufacturing facilities for later stageclinical trials and commercial production of its own pharmaceuticals. There canbe no assurance that the Company will be able to obtain such facilities ormanufacture such products in a timely fashion at acceptable quality and prices,that it or its suppliers will be able to comply with GLP or GMP, as applicable,or that it or its suppliers will be able to manufacture an adequate supply ofproduct.MARKETING The Company plans to market the pharmaceuticals for which it obtainsregulatory approvals either through joint ventures or corporate partneringarrangements. The Company expects that such arrangements could includetechnology licenses, research funding, milestone payments, collaborative productdevelopment, royalties and equity investments in Novavax. Implementation of thisstrategy will depend on many factors, including the market potential of itsproducts and technologies, the success in developing relationships withdistributors or marketing partners for the Company's products and the financialresources available to the Company. 7 8COMPETITION A number of large companies, such as Novartis, Procter & Gamble,American Home Products, Parke-Davis, Solvay Pharmaceuticals, SmithKline Beecham,Abbott Laboratories, Ortho Pharmaceuticals and Mead Johnson Laboratories,produce and sell estrogen preparations for clinical indications identical tothose the Company proposes to target. SmithKline Beecham currently markets atransdermal testosterone patch and Novartis markets an estrogen transdermalpatch. The competition to develop FDA-approved hormone replacement therapies isintense and no assurance can be given that the Company's product candidates willbe developed into commercially successful products. A number of other companies have been working on vaccine adjuvantsfor use in human vaccines. These include, but are not limited to, Chiron, RibiImmunochem Research, Aquila, Iscotec, Proteus International and Biomira. Thecompetition to develop FDA-approved human vaccine adjuvants is intense and noassurance can be given that the Company's adjuvant product candidates will bedeveloped into commercially successful products. Primary competitors in the development of lipid structure andvesicle encapsulation technologies are The Liposome Company, SequusPharmaceuticals, Nexstar Pharmaceuticals and L'Oreal, as well as otherpharmaceutical, vaccine and chemical companies. The Company believes that,except for L'Oreal, these companies have focused their development efforts onpharmaceutical carrier systems for the treatment of infections and certaincancers. To the Company's knowledge, The Liposome Company, Sequus and Nexstarall base their lipid vesicle technologies on phospholipids. Most of the Company's competitors are larger than the Company andhave substantially greater financial, marketing and technical resources. Inaddition, many of these competitors have substantially greater experience thanthe Company in developing, testing and obtaining FDA and other approvals ofpharmaceuticals. Furthermore, if the Company commences commercial sales ofpharmaceuticals, it will also be competing with respect to manufacturingefficiency and marketing capabilities, areas in which it has limited or noexperience. If any of the competitors develop new encapsulation technologiesthat are superior to the Company's Novasome and MNP technologies, the ability ofthe Company to expand into the pharmaceutical and vaccine adjuvant markets willbe materially and adversely affected. Competition among products will be based, among other things, onproduct efficacy, safety, reliability, availability, price and patent position.An important factor will be the timing of market introduction of the Company'sor competitors' 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 andcommercialization 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, throughcollaborations, joint ventures or strategic alliances with other companies,particularly potential distributors of the Company's products. Because of thesubstantial funds required for clinical trials, the Company will have to obtainadditional financing for its future 8 9human clinical trials. No assurance can be given that such financing will beavailable on terms attractive to the Company, if at all. The Company bases its development decisions on costs and potentialreturn on investment, regulatory considerations, and the interest, sponsorshipand availability of funding from third parties. As of December 31, 1998, theCompany's research and development staff numbered 9 individuals. In addition toits internal research and development efforts, the Company encourages thedevelopment of product candidates in areas related to its present lines byworking with universities and government agencies. Novavax's research anddevelopment expenditures approximated $3,361,000, $2,874,000 and $3,716,000 andin the years ended December 31, 1998, 1997 and 1996, respectively.PATENTS AND PROPRIETARY INFORMATION The Company, through a wholly-owned subsidiary, holds 45 U.S.patents and has 125 foreign patents and patent applications covering itstechnologies (which include a wide variety of component materials, itscontinuous flow vesicle production process and its Novamix(R) productionequipment). The Company believes that these patents are important for theprotection of its technology as well as certain of the development processesthat underlie that technology. In addition, three U.S. patent applications arepending covering the composition, manufacture and use of its organized lipidstructures and related 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 bythe 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 to successfully 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 toregulation for safety, efficacy and quality by numerous governmental authoritiesin the United States and other countries. The development, manufacturing andmarketing of human pharmaceuticals are subject to regulation in the UnitedStates for safety and efficacy by the FDA in accordance with the Food, Drug andCosmetic Act. In the United States, human pharmaceuticals are subject to rigorousFDA regulation including preclinical and clinical testing. The process ofcompleting clinical trials and obtaining FDA approvals for a new drug is likelyto take a number of years, requires the expenditure of substantial resources andis often subject to unanticipated delays. There can be no assurance that anyproduct will receive such approval on a timely basis, if at all. The steps required before new products for use in humans may bemarketed in the United States include (i) preclinical tests, (ii) submission tothe FDA of an application for an Investigational New Drug application (IND),which must be approved before human clinical trials commence, (iii) adequate andwell-controlled human clinical trials to establish the safety and 9 10efficacy of the product, (iv) submission of a New Drug Application ("NDA") for anew drug or a Product License Application ("PLA") for a new biologic to the FDAand (v) FDA approval of the NDA or PLA prior to any commercial sale or shipmentof the product. Preclinical tests include laboratory evaluation of productformulation, as well as animal studies (if an appropriate animal model isavailable) to assess the potential safety and efficacy of the product.Formulations must be manufactured according to GMP and preclinical safety testsmust be conducted by laboratories that comply with FDA regulations regardingGLP. The results of the preclinical tests, are submitted to the FDA as part ofan IND and are reviewed by the FDA prior to the commencement of human clinicaltrials. There can be no assurance that submission of an IND will result in FDAauthorization to commence clinical trials. Clinical trials involve theadministration of the investigational new drug to healthy volunteers and topatients under the supervision of a qualified principal investigator and aretypically conducted in three sequential phases, although the phases may overlap.The Company or the FDA may suspend clinical trials at any time if theparticipants are being exposed to an unacceptable health risk. The FDA may denyan NDA or PLA if applicable regulatory criteria are not satisfied, requireadditional testing or information, or require post marketing testing andsurveillance to monitor the safety 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. In addition to regulations enforced by the FDA, the Company also issubject to regulation under the Occupational Safety and Health Act, theEnvironmental Protection Act, the Toxic Substances Control Act, the ResourceConservation and Recovery Act and other present and potential future federal,state or local regulations. The Company's research and development involves thecontrolled use of hazardous materials, chemicals and viruses. Although theCompany believes that its safety procedures for handling and disposing of suchmaterials comply with the standards prescribed by state and federal regulations,the risk of accidental contamination or injury from these materials cannot becompletely eliminated. In the event of such an accident, the Company could beheld liable for any damages that result, and any such liability could exceed theresources 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. Ifadequate coverage and reimbursement levels are not provided by government andthird-party payers for uses of the Company's therapeutic products, the marketacceptance of these products would be adversely affected. There have been a number of federal and state proposals during thelast few years to subject the pricing of pharmaceuticals to government controland to make 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 theeffect 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. 10 11EMPLOYEES The Company had 16 full-time employees as of December 31, 1998, ofwhom 9 are in research and development. The Company has no collective bargainingagreement with its employees and believes that its employee relations are good.ITEM 2. PROPERTIES The Company leases approximately 12,000 square feet ofadministrative offices and laboratory space for its corporate headquarters andpharmaceutical development, located at 8320 Guilford Road, Columbia, Maryland.The Company believes its facilities are adequate to produce quantities ofNovasome lipid vesicles and MNPs 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 rely oncollaborators, licensees or contract manufacturers or acquire such manufacturingfacilities for later stage clinical trials and commercial production of its ownpharmaceuticals. The Company also leases 2,363 square feet of space located inRockville, Maryland. This space contains the Company's certified animal facilityand laboratories for its biologics development which includes the vaccine andvaccine adjuvant product and services group.ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during thefourth quarter of the fiscal year ended December 31, 1998.EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers hold office until the first meetingof the Board of Directors following the annual meeting of stockholders and untiltheir successors are duly chosen and qualified, or until they resign or areremoved from office in accordance with the Company's By-laws. The following table provides certain information with respect to theCompany's executive officers. PRINCIPAL OCCUPATION AND OTHER BUSINESSNAME AGE EXPERIENCE DURING THE PAST FIVE YEARS- ---- --- ------------------------------------- Mitchell J. Kelly 39 Interim President and Chief Executive Officer since September, 1998 and Director since February, 1997. Chairman and Chief Executive Officer of Anaconda Capital Management, L.L.C., 1995 to present. Junction Partners and Junction Advisors, Inc., 1984 to 1994; President, 1992 to 1994; Vice President 1988 to 1992; Research Director, 11 12 1986 to 1988; Research Analyst and portfolio manager, 1984 to 1986.D. Craig Wright, M.D. 48 President--Biologics Division of Novavax since 1998 and Chief Scientific Officer of Novavax since 1993. Founder and Senior Director of Medical Research of Univax Biologics, Inc., a biopharmaceutical company, from 1988 to 1992. Richard J. Harwood, Ph.D. 55 Vice President, Pharmaceutical Product Development since March, 1998. Consultant K. W. Tunnell Company, Inc., 1995 to 1998. Vice President, Research and Development, Private Formulations, Inc., 1993 to 1995. Technical Planning Director, Worldwide Strategic Product Planning, Bristol-Myers Squibb, 1986 to 1993. Department Director, Product Development, Rorer Group, Inc., 1982 to 1986. Research Fellow, Merck and Co., Inc., 1970 to 1982.Donald J. MacPhee 47 Interim Chief Financial Officer since February, 1999. Controller, Environmental Tectonics Corporation, 1997 to 1998. Vice President of IGI, Inc., 1990 to 1997, and Chief Financial Officer of IGI, Inc., 1987 to 1997. PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock was held by 905 stockholders of record asof March 31, 1999. The Company has never paid cash dividends on its CommonStock. The Company currently anticipates that it will retain all of its earningsfor use in the development of its business and does not anticipate paying anycash dividends in the foreseeable future. The principal market for the Company's Common Stock ($.01 par value)is traded on the American Stock Exchange under the symbol "NOX". The followingtable shows the range of high and low closing prices of the Company's commonstock on the American Stock Exchange for the periods indicated. HIGH LOW ---- --- 1998First quarter $ 6 1/8 $ 3 3/4Second quarter 4 13/16 2 13/16Third quarter 3 7/8 1 1/4Fourth quarter 3 1/4 1 1/4 1997First quarter $ 4 3/4 $ 3 1/4Second quarter 4 7/16 2 5/8Third quarter 6 4Fourth quarter 5 3/4 4 1/8 12 13RECENT SALES OF UNREGISTERED SECURITIES On January 23, 1998, the Company sold 6,500 shares of Series ACustom Convertible Preferred Stock (the "Series A Preferred Stock") to fouraccredited investors in a private placement conducted pursuant to Section 4(2)of the Securities Act of 1933 for an aggregate purchase price of $6,500,000 withnet proceeds of $5,998,000. On October 16, 1998 the Company repurchased theoutstanding shares of Series A Preferred Stock for $4,979,000 ($1,000 per share)plus accrued interest of five percent per annum. Prior to the repurchase, sharesof Series A Preferred Stock representing $1,522,000 of the original $6,500,000investment had been converted into 1,043,956 common shares. On June 30, 1998, the Company sold 12,500 shares of treasury stockto the Secretary of the Company at $4.00 per share in an unregistered saleconducted under Section 4(2) of the Securities Act, resulting in aggregate grossand net proceeds to the Company of $50,000.ITEM 6. SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1994 1995 1996 1997 1998 STATEMENT OFOPERATIONS DATA:Revenues (1) 685 268 56 520 681Loss from operations (4,661) (6,744) (5,534) (4,791) (5,152)Net Loss (5,690) (8,494) (5,495) (4,547) (4,817)Loss applicable to commonstockholders (5,690) (8,494) (5,495) (4,547) (7,045)Per share information:(basic and diluted)Loss applicable to commonstockholders n/a ($0.85) ($0.54) ($0.39) ($0.57)Weighted average number N/A 9,937,936 10,132,896 11,667,428 12,428,426of shares outstanding (2) AS OF DECEMBER 31, ------------------ 1994 1995 1996 1997 1998 BALANCE SHEET DATA:Total current assets 502 4,761 3,221 4,303 1,207Working capital 306 4,330 2,640 4,014 349 13 14 Total assets 3,133 7.530 5,722 6,823 3,819Stockholders' (deficit)equity (3) (2,203) 7,099 5,117 6,522 2,961(1) Includes payments for licensing agreements and technology application review.(2) On December 12, 1995, IGI, Inc. ("IGI") distributed to the holders of record of IGI's common stock, at the close of business on the Record Date, November 28, 1995, one share of the Company's common stock for every share of IGI common stock outstanding (the "Distribution").(3) In connection with the Distribution, IGI paid Novavax $5,000,000 in return for a fully paid-up, ten-year license (the "License Agreement") entitling IGI to exclusive use of certain Novavax technology in specific fields. Novavax recorded this payment under the License Agreement as a capital contribution in its financial statements to reflect the intercompany nature and substance of the transaction. The form was structured as a prepaid license agreement to address various considerations of the Distribution including tax and financial considerations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements under Item 1 and Item 7 contained herein or asmay otherwise be incorporated by reference herein constitute "forward-lookingstatements" within the meaning of the Private Securities Litigation Reform Actof 1995. Forward-looking statements include, but are not limited to, statementsregarding future product development and related clinical trials and statementsregarding future research and development. Such forward-looking statementsinvolve known and unknown risks, uncertainties and other factors which may causethe actual results, performance or achievements of the Company, or industryresults, to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements. Suchfactors include, among other things, the following: general economic andbusiness conditions; competition; technological advances; ability to obtainrights to technology; ability to obtain and enforce patents; ability tocommercialize and manufacture products; results of preclinical studies; resultsof research and development activities; business abilities and judgment ofpersonnel; availability of qualified personnel; changes in, or failure to complywith, governmental regulations; ability to obtain adequate financing in thefuture; and other factors referenced herein. All forward-looking statementsincluded in this document are based on information available to the Company onthe date hereof, and the Company assumes no obligation to update any suchforward-looking statements. Accordingly, past results and trends should not beused by investors to anticipate future results or trends. The following is a discussion of the historical consolidatedfinancial condition and results of operations of Novavax and its subsidiaries.The discussion should be read in conjunction with the consolidated financialstatements and notes thereto set forth in Item 8 to this Report. RESULTS OF OPERATIONS The Company has incurred net losses since its inception from thedevelopment of its technologies for human pharmaceuticals, vaccines and vaccineadjuvants. Novavax expects the losses to continue and to most likely increase inthe near-term, as it conducts additional human clinical trials and seeksregulatory approval for its product candidates. The Company also expects tocontinue to incur substantial operating losses over the extensive time periodrequired to develop 14 15the Company's products, or until such time as revenues, to offset the losses,are sufficient to fund its continuing operations.1998 COMPARED TO 1997 The net loss of $4,817,000 for the year ended December 31, 1998 was$271,000 or 6% higher than the net loss of $4,547,000 for the year endedDecember 31, 1997. The 1997 net loss includes non-cash compensation expense of$578,000 compared to $11,000 included in the 1998 net loss. This compensationexpense relates to the amortization of below-market priced stock options grantedin 1995. Other 1998 non-cash charges include $281,000 of depreciation and patentamortization expense, compared to $254,000 of similar expenses in 1997. Thedividend on preferred stock of $225,000 and the accretion of offering costs of$420,000 relate to dividends paid and fees incurred with the placement and subsequent conversion and repurchase of preferred stock. The deemed dividend onpreferred stock of $1,583,000 relates to the beneficial conversion feature ofthe preferred stock which allowed for conversion into common stock at a price per share discounted to the then-quoted market price of the common stock. (SeeNotes 10 and 11 of the Notes to the Consolidated Financial Statements). Revenues of $681,000 were recognized during 1998, principally fromcontracts related to vaccine and adjuvant technologies services as well assupplying new chemical structures designed to inactivate viruses, bacteria andbacterial spores. This reflects a $161,000 or 31% increase over revenues in1997. General and administrative expenses include all costs associatedwith the marketing of the Company's technology to potential industry partnersand those activities associated with identifying additional sources of capital.It also includes costs associated with management and administrative activities.General and administrative expenses were approximately $2,472,000 and $2,437,000for the years ended December 31, 1998 and 1997, respectively. The increase of$35,000 was attributable to increased costs associated with securing strategicalliances and potential sources of financing. Research and development expenses include scientific staffing,supplies and other costs related to the ongoing development of the Novavaxtechnologies as well as the development of the Company's product candidates.Research and development expenses were approximately $3,361,000 and $2,874,000for the years ended December 31, 1998 and 1997, respectively. The $487,000 or17% increase in these expenses was due principally to costs associated with theCompany's Phase II clinical trials. Interest income was approximately $335,000 and $245,000 for theyears ended December 31, 1998 and 1997, respectively. These amounts reflectinterest earned on the average cash balances on hand throughout the year. 1997 COMPARED TO 1996 The net loss of $4,547,000 for the year ended December 31, 1997 was$948,000 or 17%, lower than the net loss of $5,495,000 for the year endedDecember 31, 1996. The 1997 net loss includes non-cash compensation expense of$578,000 compared to $1,507,000 included in the 1996 net loss. This compensationexpense relates to the amortization of below-market priced stock options grantedin 1995. Other 1997 non-cash charges include $254,000 of depreciation and patentamortization expense. Non-cash charges in 1996 included $335,000 for thedisposal of property and equipment and $328,000 of depreciation and patentamortization expense. Revenues of $520,000 were recognized during 1997 compared to $56,000during 1996. The increase was due primarily to two contracts related to vaccineproducts, services and adjuvant technologies. 15 16 General and administrative expenses include all costs associatedwith the marketing of the Company's technology to potential industry partnersand those activities associated with identifying additional sources of capital.It also includes costs associated with management and administrative activities.General and administrative expenses were approximately $2,437,000 and $1,874,000for the years ended December 31, 1997 and 1996, respectively. The increase of$563,000 was attributable to increased costs associated with securing strategicalliances and potential sources of financing as well as the increased staffingand infrastructure growth including the hiring of a new Chief Financial Officerand Chief Executive Officer. Research and development expenses include scientific staffing,supplies and other costs related to the ongoing development of the Novavaxtechnologies as well as the development of the Company's product candidates.Research and development expenses were approximately $2,874,000 and $3,716,000for the years ended December 31, 1997 and 1996, respectively. Although suchexpenses have decreased by $842,000, this change is primarily caused by the netdecrease in the amortization of below-market priced stock options granted in1995 of $934,000 and the non-recurring charge of $335,000 for the disposal ofassets in 1996. Research and development expenses, before these items were$2,407,000 and $1,908,000 for 1997 and 1996. After considering the impact ofthese aforementioned non-cash expenses, research and development costs increasedby $499,000. The increase was primarily due to the number of product candidatesin clinical trials and the growth of the underlying research and developmentinfrastructure including facility expansion. Interest income was approximately $244,000 and $138,000 for theyears ended December 31, 1997 and 1996, respectively. The increase in netinterest income was a direct result of an increase in the average cash balanceson hand throughout the year. YEAR 2000 The Company is evaluating and working to resolve the potentialimpact of the Year 2000 on the Company's computerized information systems'ability to accurately process information that may be date-sensitive. Any of theCompany's programs that recognize a date using "00" as the year 1900 rather thanthe year 2000, could result in errors or system failures. The Company primarilyuses personal computers for administrative and accounting systems. In addition,the Company has certain laboratory equipment with microprocessors. Along with a review of the hardware and software employed by theCompany, our business partners and suppliers have been surveyed to determinetheir Year 2000 readiness. A list of such business partners and suppliers thathave a material relationship with the Company has been compiled. The Company iscurrently in the process of seeking information from these third partiesregarding their state of readiness for Year 2000 compliance. The Companyconsiders many of its relationships with these third parties to be of a materialnature, such that if these third parties were unable to become Year 2000compliant, the Company would be adversely affected. These relationshipsencompass many areas that affect the Company's ability to do business including,but not limited to, financial institutions, utility companies and contractmanufacturers. The Company does not believe that it will incur material incrementalcosts in its efforts to address this issue and has not incurred incrementalcosts to date. The Company has not been given any indication that its businesspartners and suppliers will not be Year 2000 compliant by the Year 2000. TheCompany plans to continue, on a timely basis, to monitor and address anysignificant Year 2000 issues and will update estimates accordingly. LIQUIDITY AND CAPITAL RESOURCES 16 17 Novavax's capital requirements depend on numerous factors, includingbut not limited to the progress of its research and development programs, theprogress of preclinical and clinical testing, the time and costs involved inobtaining regulatory approvals, the costs of filing, prosecuting, defending andenforcing any patent claims and other intellectual property rights, competingtechnological and market developments, and changes in Novavax's development ofcommercialization activities and arrangements. The Company currently has threeproduct candidates in development. Future activities including clinicaldevelopment and the establishment of commercial-scale manufacturing capabilitiesare subject to the Company's ability to raise funds through equity financing, orcollaborative arrangements with corporate partners. Novavax's future growth willdepend on its ability to commercialize its Novavax technologies for humanpharmaceutical applications. Net cash used in 1998 for operating activities was $3,624,000. Fromthe date of the Distribution, Novavax has conducted its operations withapproximately $5,000,000 paid by IGI under the IGI License Agreement along withnet proceeds from several financing transactions completed and described herein.In addition, the Company has received sources of cash from the sale ofscientific prototype vaccines and adjuvants and from the exercise of stockoptions. In October 1996, Novavax received $1,656,000, net of all transactioncosts, from the sale of 505,000 common shares that were privately placed withaccredited institutional investors. In February 1997, Novavax received $5,003,000, net of fees andexpenses, from the private placement of 1,200,000 shares of its Common Stockwith an accredited institutional investor, a principal of which has subsequentlybecome a director of Novavax. In connection with this transaction, Novavaxgranted warrants to purchase an additional 600,000 shares of the Company'sCommon Stock at a price of $6.00 per share and 600,000 shares at $8.00 pershare. These warrants have a three-year term, expiring in March 2000. In January 1998, the Company entered into Subscription Agreements to effectuate the private placement of 6,500 shares of Series A CustomConvertible Preferred Stock, $1,000 par value (the "Preferred Stock"). Theclosing occurred on January 28, 1998 (the "Issuance Date") at an aggregatepurchase price of $6,500,000. The Company paid a placement agent fee of$425,000 in connection with this financing. The Preferred Stock was convertible into shares of Common Stock at aconversion price equal to (i) during a period of 90 days following the IssuanceDate, 100% of the average of the two lowest consecutive trade prices of theCommon Stock as reported on the American Stock Exchange for the 25 trading daysimmediately preceding the conversion date (the "Two Day Average Trading Price")or (ii) during the period on and after the date which is 91 days after theIssuance Date, 94% of the Two Day Average Trading Price (the "ConversionPrice"). From the Issuance Date, there was a ceiling price of $6.33 and withinthe first 180 days after the Issuance Date, the Conversion Price had applicablefloor prices, based on conversion dates. Prior to the subsequent repurchase of all the outstanding PreferredStock, $1,522,000 of the original issue had been converted into 1,043,956 sharesof Common Stock, pursuant to the terms and conditions of the Preferred Stock. OnOctober 1, 1998, the Company entered into agreements to repurchase the remainingPreferred Stock. This transaction closed on October 16, 1998 and the Companyrepurchased the remaining outstanding $4,979,000 of Preferred Stock plus accrueddividends at the annual rate of five percent. The repurchase was funded withcash balances on hand at October 16, 1998. The terms of the Preferred Stockrequired the Company to pay the holders of the Preferred Stock $225,000 individends. This amount was paid in cash of $179,000 and through the issuance of32,492 shares of the Company's Common Stock, valued at $46,000. The Companyincurred transaction fees associated with the placement, conversion andrepurchase of the Preferred Stock of $502,000 which are included in theaccompanying financial 17 18statements as accretion of Preferred Stock. On December 31, 1998, the Companyhad $1,031,000 in cash, cash equivalents and marketable securities on hand. In April, 1999, The Company entered into Stock and Warrant PurchaseAgreements for the private placement of 1,651,100 shares of its Common Stock toaccredited investors (the "Private Placement"). One of the principals of one ofthe investors is also a director of the Company. The issuance price of theCommon Stock was $2.50 per share. Each share was sold together with anon-transferable warrant for the purchase of .25 additional shares at anexercise price of $3.75. The warrants have a three-year term. Gross proceedsfrom the Private Placement were $4,128,000. Placement agent fees wereapproximately $215,000, which was paid with cash of $107,000 and 42,933 sharesof the Company's Common Stock, which were issued together with non-transferablewarrants for the purchase of 10,733 shares of the Company's Common Stock at anexercise price of $3.75. These warrants have a three-year term. Additionally,non-transferable warrants for the purchase of 143,000 shares of the Company'sCommon Stock, with an exercise price of $3.00 per share and a three-year term,were issued to the placement agent. Other costs connected with the Private Placement, including legal, stock exchange listing and registration fees, wereapproximately $50,000. Net proceeds to the Company from the Private Placementwere approximately $4,000,000. As of April 14, 1999, Novavax estimates that the money received fromthe most recent sale of Common Stock and its existing cash resources will besufficient to finance its operations at current and projected levels ofdevelopment activity for approximately 12 to 13 months. Past spending levels are not necessarily indicative of futurespending. Future expenditures for product development, especially relating tooutside testing and human clinical trials, are discretionary and, accordingly,can be adjusted to available cash. Moreover, the Company will seek to establishone or more collaborations with industry partners to defray the costs ofclinical trials and other related activities. Novavax will also seek to obtainadditional funds through public or private equity or debt financings,collaborative arrangements with pharmaceutical companies or from other sources.There can be no assurance that additional funding or bank financing will beavailable at all or on acceptable terms to permit successful commercializationof Novavax's technologies and products. If adequate funds are not available,Novavax may be required to significantly delay, reduce the scope of or eliminateone or more of its research or development programs, or seek alternativemeasures including arrangements with collaborative partners or others that mayrequire Novavax to relinquish rights to certain of its technologies, productcandidates or products. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and notes thereto listed in theaccompanying index to financial statements (Item 14) are filed as part of thisAnnual Report and are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 18 19 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 June 8, 1999 (the "1999 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 1999 Proxy Statement within 120 days after the closeof the fiscal year ended December 31, 1998. Officers are elected on an annual basis and serve at the discretionof the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in the Company's1999 Proxy Statement under the captions "Executive Compensation" and "DirectorCompensation" 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's1999 Proxy Statement under the caption "Beneficial Ownership of Common Stock"and is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained the Company's1999 Proxy Statement under the caption "Certain Relationships and RelatedTransactions" and is incorporated herein by reference. 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 of December 31, 1998 and 1997; Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996; Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996; Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996; Notes to Consolidated Financial Statements. (a) (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. 19 20 (a) (3) Exhibits Required to be Filed by Item 601 of Regulation S-K: Exhibits marked with a single asterisk are filed herewith, and exhibits marked with a double plus sign reference management contracts, compensatory plans or arrangements, 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. [Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 0-26770, filed March 21, 1997 (the "1996 Form 10-K").] 3.2 Amended and Restated By-laws of Novavax, Inc. [Incorporated by reference to Exhibit 3.2 to the 1996 Form 10-K.] 3.3 Certificate of Designations of Series A Custom Convertible Preferred Stock dated January 28, 1998. [Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3, File No. 333-46409, filed February 17, 1998.] 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 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").] ++ 10.2 1995 Stock Option Plan. [Incorporated by reference to Exhibit 10.4 to the Form 10.] *++10.3 First Amendment to Novavax, Inc. 1995 Stock Option Plan approved by the stockholders of the Company on May 14, 1998, and by the Board of Directors on March 16, 1998. ++ 10.4 Director Stock Option Plan. [Incorporated by reference to Exhibit 10.5 to the Form 10.] 10.5 Stock Purchase Agreement dated October 9, 1996 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.] 10.6 Agreement of Lease by and between the Company and Rivers Center Associates Limited Partnership, dated September 25, 1996. [Incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K.] 10.7 Stock and Warrant Purchase Agreement dated February 10, 1997 by and 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").] 10.8 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.] 20 21 10.9 Forms of Subscription Agreement dated January 23, 1998 and Letter Agreement dated February 19, 1998, by and between the Company and each of the four purchasers, Delta Opportunity Fund, Ltd., Olympus Securities, Ltd., Nelson Partners, OTATO Limited Partnership. [Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3, File No. 333-46409, filed February 17, 1998.] ++10.10 Employment Agreement dated May 15, 1997, by and between the Company and Richard F. Maradie. [Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 0-26770, filed March 31, 1998.] *++10.11 Amended and Restated Employment Agreement dated July 24, 1998, by and between the Company and Brenda L. Fugagli. *++10.12 Employment Agreement dated February 23, 1998, by and between the Company and Thomas G. Tachovsky. *++10.13 Employment Agreement dated March 5, 1998, by and between the Company and Richard J. Harwood. *++10.14 Employment Agreement dated March 31, 1998, by and between the Company and D. Craig Wright. *++10.15 Separation and Release Agreement effective September 4, 1998, by and between the Company and Richard F. Maradie. *10.16 Form of Stock and Warrant Purchase Agreement dated April 14, 1999, by and between the Company and the purchasers named therein. 21 List of Subsidiaries [Incorporated by reference to Exhibit 21 to the 1995 Form 10-K.] * 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants. * 27 Financial Data Schedule (b) Reports on Form 8-K: Form 8-K filed November 19, 1998. 21 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized. NOVAVAX, INC. Date: April 14, 1999 By: /s/ Mitchell J. Kelly -------------------------- Mitchell J. Kelly, Interim President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theRegistrant in the capacity and on the date indicated. NAME TITLE DATE ---- ----- ---- /s/ Mitchell J. Kelly Interim President and April 14, 1999 --------------------- Chief Executive Officer Mitchell J. Kelly and Director /s/Donald J. MacPhee Principal Financial & April 14, 1999 -------------------- Accounting Officer Donald J. MacPhee /s/Gary C. Evans Director April 14, 1999- ----------------- Gary C. Evans /s/ J. Michael Lazarus Director April 9, 1999 ---------------------- J. Michael Lazarus /s/ John O. Marsh, Jr. Director April 14, 1999 ---------------------- John O. Marsh, Jr. /s/Michael A. McManus Director April 14, 1999 --------------------- Michael A. McManus 22 23 /s/Denis M. O'Donnell Director April 14, 1999 --------------------- Denis M. O'Donnell /s/ Ronald A. Schiavone Director April 14, 1999 ----------------------- Ronald A. Schiavone /s/ Ronald H. Walker Director April 8, 1999 -------------------- Ronald H. Walker 23 24INDEX TO THE CONSOLIDATEDFINANCIAL STATEMENTS DESCRIPTION Report of Independent Accountants F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998 F-3 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 F-5 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1998 F-6 Notes to the Consolidated Financial Statements F-7 F-1 25REPORT OF INDEPENDENT ACCOUNTANTSTo the Board of Directors and Stockholders of Novavax, Inc.In our opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of operations, of cash flows and of changes instockholders' equity present fairly, in all material respects, the financialposition of Novavax, Inc. and it subsidiaries at December 31, 1998 and 1997,and the results of their operations and their cash flows for each of the threeyears in the period ended December 31, 1998, in conformity with generallyaccepted accounting principles. These financial statements are theresponsibility of the Company's management; our responsibility is to express anopinion on these financial statements based on our audits. We conducted ouraudits of these statements in accordance with generally accepted auditingstandards which require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for the opinion expressed above.PricewaterhouseCoopers LLPMcLean, VirginiaMarch 17, 1999, except for the fourthparagraph of Note 1 which is as ofApril 14, 1999 F-2 26NOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION) FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------- 1998 1997 1996 -------------- ------------- ------------ Revenues $ 681 $ 520 $ 56 -------------- ------------- ------------ Operating expenses: General and administrative 2,472 2,437 1,874 Research and development 3,361 2,874 3,716 -------------- ------------- ------------ Total operating expenses 5,833 5,311 5,590 -------------- ------------- ------------ Loss from operations (5,152) (4,791) (5,534) Interest income, net 335 244 137 -------------- ------------- ------------ Loss before income taxes (4,817) (4,457) (5,397) Provision for income taxes -- -- (98) -------------- ------------- ------------ Net loss (4,817) (4,547) (5,495) Dividend on preferred stock (225) -- -- Deemed dividend on preferred stock (1,583) -- -- Accretion of offering costs (420) -- -- -------------- ------------- ------------ Loss applicable to common stockholders $ (7,045) $ (4,547) $ (5,495) ============== ============= ============ Per share information (basic and diluted) Loss applicable to common stockholders $ (0.57) $ (0.39) $ (0.54) ============== ============= ============ Weighted average number of common shares outstanding (basic and diluted) 12,428,426 11,667,428 10,132,896 ============== ============= ============The accompanying notes are an integral part of the consolidated financialstatements. F-3 27NOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION) AS OF DECEMBER 31, ------------------------------------- 1998 1997 ---------------- ---------------ASSETS Current assets: Cash and cash equivalents $ 1,031 $ 3,847 Accounts receivable 138 250 Prepaid expenses and other current assets 38 206 ---------------- --------------- Total current assets 1,207 4,303 ---------------- ---------------Property and equipment, net 1,020 889 ---------------- ---------------Patent costs, net 1,590 1,573 ---------------- ---------------Other assets 2 58 ---------------- ---------------Total assets $ 3,819 $ 6,823 ================ ===============LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Capital lease obligations, current maturities $ 36 $ 11 Accounts payable 793 238 Accrued payroll 29 40 ---------------- --------------- Total current liabilities 858 289Capital lease obligations, less current maturities -- 13 ================ ===============Total liabilities 858 302 ---------------- ---------------Commitments and contingenciesStockholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized; -- -- no shares issued and outstanding Common stock, $.01 par value, 30,000,000 shares authorized; 13,253,118 issued and outstanding at December 31, 1998, and 12,031,757 shares issued and 12,012,013 outstanding at December 31, 1997 133 120 Additional paid-in capital 41,231 37,853 Accumulated deficit (38,388) (31,343) Deferred compensation on stock options granted (15) (25) Treasury stock, 19,744 shares, cost basis at December 31, 1997 -- (83) ---------------- ---------------Total stockholders' equity 2,961 6,522 ---------------- ---------------Total liabilities and stockholders' equity $ 3,819 $ 6,824 ================ ===============The accompanying notes are an integral part of the consolidated financialstatements. F-4 28NOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(AMOUNTS IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------ 1998 1997 1996 --------- -------- --------- Cash flows from operating activities: Net loss $(4,817) $(4,547) $(5,495) Reconciliation of net loss to net cash used by operating activities: Non-cash compensation expense 10 577 1,507 Depreciation and amortization 281 254 328 Disposal of property and equipment -- -- 335 Issuance of stock to 401(k) plan 22 10 -- Changes in operating assets and liabilities: Accounts receivable 112 (257) 61 Prepaid expenses and other assets 224 4 (185) Accounts payable and accrued expenses 544 (286) (185) --------- -------- ---------Net cash used by operating activities (3,624) (4,245) (3,316) --------- -------- ---------Cash flows from investing activities: Proceeds from the sale of marketable securities -- 501 (501) Capital expenditures (231) (45) (99) Deferred patent costs (146) (198) (244) --------- -------- ---------Net cash used by investing activities (377) 258 (844) --------- -------- ---------Cash flows from financing activities: Payment of capital lease obligations (38) (11) -- Issuance of preferred stock 6,500 -- -- Dividend on preferred stock (179) -- -- Offering costs of preferred stock (502) -- -- Repurchase of preferred stock (4,978) -- -- Proceeds from private placements of common stock 50 5,003 1,656 Proceeds from the exercise of stock options 332 361 351 --------- -------- ---------Net cash provided from financing activities 1,185 5,353 2,007 --------- -------- ---------Net change in cash and cash equivalents (2,816) 1,366 (2,153)Cash at beginning of period 3,847 2,481 4,634 --------- -------- ---------Cash and cash equivalents at end of period $ 1,031 $ 3,847 $ 2,481 ========= ======== =========The accompanying notes are an integral part of the consolidated financialstatements. F-5 29NOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) DEFERRED COMPENSATION COMMON STOCK ADDITIONAL ON STOCK TOTAL PAID-IN OPTIONS TREASURY STOCKHOLDERS SHARES DOLLARS CAPITAL DEFICIT GRANTED STOCK EQUITY ------ ------- ------- ------- ------- ----- ------ BALANCE, DECEMBER 31, 1995 9,937,936 $ 99 $ 30,188 $ (21,301) $ (1,887) $ $ 7,099 -- Options and warrants granted as -- -- 222 -- (222) -- -- compensation Amortization of deferred -- -- -- -- 1,506 -- 1,506 compensation Private sale of common stock, net 505,000 5 1,651 -- -- -- 1,656Exercise of stock options 217,774 2 349 -- -- -- 351 Net loss -- -- -- (5,495) -- -- (5,495) --------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 10,660,710 106 32,410 (26,796) (603) -- 5,117 Options granted as compensation -- -- -- -- -- -- --Company contribution to employee 771 -- 3 -- -- 7 10401(k) plan Amortization of deferred -- -- -- -- 578 -- 578 Compensation Private sale of common stock, net 1,200,000 12 4,991 -- -- 5,003Exercise of stock options 170,276 2 450 -- -- (90) 362Net loss -- -- -- (4,547) -- -- (4,547) --------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 12,031,757 120 37,853 (31,343) (25) (83) 6,522 Company contribution to employee 42 1 (12) -- -- 33 22401(k) plan Amortization of deferred -- -- -- -- 10 -- 10 compensation Value of beneficial conversion feature of preferred stock -- -- 1,583 -- -- -- 1,583Conversion of preferred stock 1,043,956 11 1,475 -- -- -- 1,486Dividend on preferred stock 32,944 -- -- (225) -- -- (225)Deemed dividend on preferred stock -- -- -- (1,583) -- -- (1,583)Accretion of offering costs -- -- -- (420) -- -- (420)Private sale of common stock, net -- -- -- -- -- 50 50Exercise of stock options 144,419 1 332 -- -- -- 333Net loss -- -- -- (4,817) -- -- (4,817) --------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 13,253,118 $ 133 $ 41,231 $ (38,388) $ (15) $ -- $ 2,961 =============================================================================================The accompanying notes are an integral part of the consolidated financialstatements. F-6 30NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATIONDESCRIPTION OF BUSINESSNovavax, Inc., a Delaware corporation ("Novavax" or the "Company"), is abiopharmaceutical company focused on the research and development ofproprietary topical and oral drug delivery technologies and applications ofthose technologies. The Company's technology platforms involve the use ofproprietary, microscopic, organized, non-phospholipid structures as vehiclesfor the delivery of a wide variety of drugs and other therapeutic products,including certain hormones, anti-bacterial and anti-viral products and vaccineadjuvants. These technology platforms support three product developmentprograms: hormone replacement therapies, third party drug delivery and vaccineadjuvant applications and anti-microbial agents. The regulatory process islengthy, requiring substantial funds, and the Company cannot predict whenapproval of any product or a license to sell any product might occur. Inaddition, there can be no assurance the Company will have sufficient fundsnecessary or that the additional funds will be available at all or onacceptable terms. The Company also recognizes that the commercial launch ofany product is subject to certain risks including but not limited tomanufacturing scale-up and market acceptance.BASIS OF PRESENTATIONThe accompanying consolidated financial statements include the accounts ofNovavax and its wholly owned subsidiaries Micro-Pak, Inc., Micro VesicularSystems, Inc. and Lipovax, Inc. All significant intercompany accounts andtransactions have been eliminated in consolidation.FINANCING REQUIREMENTSPast spending levels are not necessarily indicative of future spending. TheCompany will seek to establish one or more collaborations with industrypartners to defray the costs of clinical trials and other related activities.Novavax will also seek to obtain additional funds through public or privateequity or debt financings, collaborative arrangements with pharmaceuticalcompanies or from other sources. If adequate funds are not available, Novavaxmay be required to significantly delay, reduce the scope of or eliminate one ormore of its research or development programs, or seek alternative measures.As of April 14, 1999, Novavax estimates that the money received from the mostrecent sale of Common Stock (discussed below) and its existing cash resourceswill be sufficient to finance its operations at current and projected levels ofdevelopment activity for the next 12 to 13 months. F-7 31NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION, CONTINUEDSUBSEQUENT EVENTIn April 1999, the Company entered into Stock and Warrant Purchase Agreementsfor the private placement of 1,651,100 shares of its Common Stock to accreditedinvestors (the "Private Placement"). One of the principals of one of theinvestors is also a director of the Company. The issuance price of the CommonStock was $2.50 per share. Each share was sold together with a non-transferablewarrant for the purchase of .25 additional shares at an exercise price of $3.75.The warrants have a three-year term. Gross proceeds from the Private Placementwere $4,128,000. Placement agent fees were approximately $215,000, which waspaid with cash of $107,000 and 42,933 shares of the Company's Common Stock,which were issued together with non-transferable warrants for the purchase of10,733 shares of the Company's Common Stock at an exercise price of $3.75. Thesewarrants have a three-year term. Addititionally, non-transferable warrants forthe purchase of 143,00 shares of the Company's Common Stock, with an exerciseprice of $3.00 per share and a three-year term, were issued to the placementagent. Other costs connected with the Private Placement, including legal, stockexchange listing and registration fees, were approximately $50,000. Netproceeds to the Company from the Private Placement were approximately$4,000,000.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIESCash equivalents are considered to be short-term highly liquid investments withoriginal 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 cost,which approximates market. Interest income is accrued as earned. F-8 32NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUEDPROPERTY AND EQUIPMENTProperty 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 leaseholdimprovements is provided over the estimated useful lives of the improvements orthe term of the lease, which ever is shorter. Furniture and equipment heldunder capital leases are amortized under the straight-line method over theshorter of the lease term or the estimated useful life of the asset.Repair and maintenance costs are charged to operations as incurred while majorimprovements are capitalized. When assets are retired or disposed of, the costand accumulated depreciation thereon are removed from the accounts and anygains or losses are included in operations. Accumulated depreciation was$691,000 and $539,000 at December 31, 1998 and 1997, respectively.PATENT COSTCosts associated with obtaining patents, principally legal costs and filingfees, are being amortized on a straight-line basis over the remaining economiclives of the respective patents. The Company periodically evaluates thecarrying amount of these assets based on current licensing and futurecommercialization efforts and if warranted, impairment would be recognized.Accumulated amortization of patent costs was $678,000 and $549,000 at December31, 1998 and 1997, respectively.REVENUE RECOGNITIONRevenues 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. F-9 33NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)NET LOSS PER SHAREBasic earnings per share is computed by dividing the net loss available tocommon shareholders by the weighted average number of common share outstandingduring the period. Diluted loss per share is computed by dividing net lossavailable to common shareholders by the weighted average number of commonshares outstanding after giving effect to all dilutive potential common sharesthat were outstanding during the period.Potential common shares are not included in the computation of dilutiveearnings per share if they are antidilutive. Net loss per share as reportedwas not adjusted for potential common shares as they are antidilutive.INCOME TAXESThe Company's income taxes are determined in accordance with the provisions ofStatement 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 amountsand the tax basis of existing assets and liabilities.The effect on deferred taxes of changes in tax rates is recognized in income inthe period that includes the enactment date. A valuation allowance is recordedbased on management's determination of the ultimate realizability of futuredeferred tax assets.USE OF ESTIMATESThe preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Significant estimates include valuation of patent costs and benefits for incometaxes and related valuation allowances. Actual results could differ from thoseestimates. F-10 34NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)NEW ACCOUNTING STANDARDSThe Financial Accounting Standards Board ("FASB") has issued two new standards,which became effective for reporting periods beginning after December 15, 1997.SFAS No. 130, Reporting Comprehensive Income, requires additional disclosureswith respect to certain changes in assets and liabilities that previously werenot required to be reported as results of operations for the period. There wasno impact of this pronouncement on the Company's financial statements.SFAS No. 131, Disclosures about Segments of an Enterprise and RelatedInformation, requires financial and descriptive information with respect to"operating segments" of an entity based on the way management makes internaloperating decisions. The Company considers its operations to be in one businesssegment, biotechnology, therefore there was no impact of this pronouncement onthe Company's financial statements..The FASB has issued SFAS No. 133, Accounting for Derivative Instruments andHedging Activities, which becomes effective for years beginning after June 15,1999. SFAS No. 133 requires that every derivative instrument be recorded inthe balance sheet as either an asset or liability measured at its fair value.The statement requires that changes in the derivatives fair value be recognizedin earnings unless specific hedge accounting criteria are met. The Companywill adopt SFAS No. 133 by January 1, 2000. Because of the Company's minimaluse of derivatives, management does not anticipate that adoption of thisstatement will have a material effect on the earnings or financial position ofthe Company.3. SUPPLEMENTAL CASH FLOW INFORMATION (AMOUNTS IN THOUSANDS)Cash paid for: 1998 1997 1996 ------- ------- --------- Taxes $ -- $ -- $ 100 Interest 9 -- 11 For the years ended December 31, 1998, 1997 and 1996, the Company had thefollowing non-cash financing and investing activities: (AMOUNTS IN THOUSANDS) 1998 1997 1996 -------- --------- --------- Capital lease obligation for the purchase of furniture and $ 50 $ -- $ 36 equipment F-11 35NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED4. PROPERTY AND EQUIPMENTProperty and equipment, stated at cost, is comprised of the following: (AMOUNTS IN THOUSANDS) 1998 1997 ------ ------ Machinery and equipment $ 1,249 $ 1,021 Machinery and equipment $ 1,249 $ 1,021 Leasehold improvements 329 327 Equipment under capital leases 87 36 Furniture and fixtures 46 44 ------------- ------------- 1,711 1,428 Less accumulated depreciation (691) (539) ------------- ------------- $ 1,020 $ 889 ============= =============During 1996, the disposal of property and equipment having a net book value of$335,000 was recorded relating to the closing of one of the Novavaxsubsidiaries' laboratory. Depreciation expense of $152,000, $134,000, and$221,000 was recorded in the years ended December 31, 1998, 1997 and 1996,respectively.5. STOCK OPTIONS AND WARRANTS1995 STOCK OPTION PLANUnder the Novavax 1995 Stock Option Plan (the "Plan"), options may be grantedto officers, employees and consultants or advisors to Novavax and any presentor future subsidiary to purchase a maximum of 4,400,000 shares of Novavaxcommon stock. Incentive options, having a maximum term of ten years, can begranted at no less than 100% of the fair market value of Novavax's stock at thetime of grant and are generally exercisable in cumulative increments overseveral years from the date of grant. Both incentive and non-statutory stockoptions may be granted under the Plan. There is no minimum exercise price fornon-statutory stock options.1995 DIRECTOR STOCK OPTION PLANThe 1995 Director Stock Option Plan (the "Director Plan") provides for theissuance of up to 500,000 shares of Novavax Common Stock. 140,000, 110,000 and80,000 options were granted under this plan in 1998, 1997 and 1996,respectively. The exercise price per share is the fair market value on thedate of grant. Options granted to eligible directors are exercisable in fullbeginning six months after the date of grant and terminate ten years after thedate of grant. F-12 36NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED5. STOCK OPTIONS AND WARRANTS, CONTINUEDSuch 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 ofhis death, his outstanding options (whether exercisable or not on the date ofdeath) may be exercised within three years after such date (subject to thecondition that no such option may be exercised after the expiration of tenyears from its date of grant). Activity under the 1995 Stock Option Plan and 1995 Director Stock OptionPlan was: 1995 STOCK 1995 DIRECTOR OPTION PLAN STOCK OPTION PLAN ----------- ----------------- BALANCE, JANUARY 1, 1996 3,048,635 120,000 Granted at weighted average price of $4.96 per share 660,000 80,000 Exercised at weighted average price of $1.61 per share (217,774) Expired or canceled weighted at average price of $3.84 per share (18,000) ------------- ----------------- BALANCE, DECEMBER 31, 1996 3,472,861 200,000 Granted at weighted average price of $4.18 per share 300,000 110,000 Exercised at weighted average price of $2.86 per share (190,693) Expired or canceled at weighted average price of $3.58 per share (378,610) ------------- ----------------- BALANCE, DECEMBER 31, 1997 3,203,558 310,000 Granted at weighted average price of $4.03 per share 501,000 140,000 Exercised at weighted average price of $2.06 per share (124,419) Expired or canceled at weighted average price of $3.74 per share (465,892) (10,000) ------------- ----------------- BALANCE, DECEMBER 31, 1998 3,114,247 440,000 ------------- ----------------- Price range $0.01 to 7.00 $1.94 to 5.81 Weighted average exercise price $ 3.53 $ 3.45 Exercisable 2,443,680 440,000 Available for grant: December 31, 1998 702,867 60,000 F-13 37NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED5. STOCK OPTIONS AND WARRANTS, CONTINUEDInformation with respect to stock options outstanding at December 31, 1998 isas follows: WEIGHTED NUMBER AVERAGE WEIGHTED OF REMAINING AVERAGE PRICE RANGE OPTIONS CONTRACTUAL EXERCISE OUTSTANDING LIFE PRICE ----------------------------------------- ------------------------------------------------------------ Options issued at below market value: $0.01 487,814 7.0 $0.01- ----------------------------------------- ----------------- ------------------- ---------------- Options issued at market value: $1.21 to 2.50 112,811 9.1 $1.84 $2.51 to 3.50 1,040,735 5.9 $3.13 $3.51 to 4.50 972,922 5.9 $4.00 $4.51 to 7.00 939,965 6.5 $5.49 ----------------- ------------------- ---------------- 3,554,247 6.3 $3.52 ================= =================== ================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 fairmarket value at the date of grant, the Company records compensation expense forthe difference between the fair market value at the date of grant and theexercise price, as the options become exercisable. $9,000, $472,000 and$1,411,000 related to such options has been included as compensation expense in1998, 1997 and 1996, respectively. F-14 38NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED5. STOCK OPTIONS AND WARRANTS, CONTINUEDThe Company has adopted the disclosure-only provisions of SFAS No. 123 as theypertain to financial statement recognition of compensation expense attributableto option grants. As such, no compensation cost has been recognized on theCompany's option plans. If the Company had elected to recognize thecompensation cost for the 1995 Stock Option Plan and the 1995 Director StockOption Plan consistent with SFAS 123, the Company's net loss and loss per shareon a pro forma basis would be: 1998 1997 1996 ----------------- ------------ ------------- Net loss applicable to common stockholders (amounts in thousands): As reported $ (7,045) $ (4,547) $ (5,495) Pro forma $ (7,983) $ (5,114) $ (6,354) Basic and diluted loss per share As reported $ (.57) $ (.39) $ (.54) Pro forma $ (.64) $ (.44) $ (.63) Risk-free interest rates 6.0% 5.2%-7.2% 5.97% Expected life in years: Employees 6.0 6.0 6.0 Directors 3.0 3.0 3.0 Dividend yield 0.0% 0.0% 0.0% Volatility: Options issued by Novavax after November 28, 1995 105% 47% 75% Options issued by Novavax prior to November 28, 1995 -- -- 50% Weighted average remaining Contractual life in years 6.7 6.9 5.7 Weighted average fair value at date of Grant $ 1.21 $ 3.41 $ 3.11NON-EMPLOYEE OPTIONSThe 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-Scholesoption-pricing model, charges of $2,000, $40,000 and $30,000 related to theseoptions have been recorded in the Consolidated Statements of Operations during1998, 1997 and 1996, respectively. F-15 39NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED5. STOCK OPTIONS AND WARRANTS, CONTINUEDCOMMON STOCK WARRANTSIn connection with the October 1996 private stock sale, the Company providedthe underwriter warrants for the purchase of 50,000 shares of common stock, parvalue $.01 per share. The warrants are fully exercisable at $3.75 per shareand expire on October 30, 2001. In November 1996, in consideration forservices performed by a consultant, the Company also issued warrants for 50,000shares of common stock, par value $.01 per share. The warrants are exercisableat $5.00 per share, and are fully vested at December 31, 1998. These warrantsexpire in November 2001. In March 1997, Novavax privately placed 1,200,000shares of common stock. As part of the transaction, Novavax also grantedwarrants to purchase an additional 600,000 shares at a price of $6.00 per shareand 600,000 shares at a price of $8.00 per share. The warrants have athree-year term and expire in March 2000. As of December 31, 1998, nowarrants had been exercised. Using the Black-Scholes option-pricing model,charges related to these warrants of $66,000 in 1997 and 1996 are included inthe Statement of Operations.6. INCOME TAXESDeferred tax assets (liabilities) included in the balance sheets consist of thefollowing: (AMOUNTS IN THOUSANDS) 1998 1997 -------------- ------------- Net operating losses $ 6,880 $ 4,888 Research tax credits 826 821 Disqualifying stock options 719 717 Alt-min tax credit 94 94 Equipment and furniture 30 18 Deferred patent costs (614) (608) Accrued vacation pay 6 -- Other -- (1) -------------- ------------- 7,941 5,929 Less valuation allowance (7,941) (5,929) -------------- ------------- Deferred taxes, net $ -- $ -- ============== =============Realization of net deferred tax assets at the balance sheet dates is dependenton the Company's ability to generate future taxable income, which is uncertain.Accordingly, a full valuation allowance was recorded against these assets as ofDecember 31, 1998 and 1997. F-16 40NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED6. INCOME TAXES, CONTINUEDNovavax has recorded no net provision for income taxes in 1998 and 1997 and$98,000 in 1996 in the accompanying financial statements due to the uncertaintyregarding ultimate realization of certain net operating losses and other taxcredit carryforwards. Federal net operating losses and tax credits available to Novavax are asfollows: (AMOUNTS IN THOUSANDS) Federal net operating losses expiring through the year 2018 $ 17,246 State net operating losses expiring through the year 2013 21,991 Research tax credits expiring through the year 2018 827 Alternative-minimum tax credit (no expiration) 947. COMMITMENTS AND CONTINGENCIESNovavax leases laboratory and office space, machinery and equipment undercapital and non-cancelable operating lease agreements expiring at various datesthrough 2006. Future minimum rental commitments under noncancelable leases asof December 31, 1998 are as follows: (AMOUNTS IN THOUSANDS) OPERATING CAPITAL YEAR LEASES LEASES ---- ------------ ---------- 1999 $ 177 $ 39 2000 157 -- 2001 146 -- 2002 149 -- 2003 153 -- Thereafter 483 -- ------------ ----------Total lease payments $1,265 39 ============Less: amount representing interest 3 ==========Present value of net minimum lease payments $ 36 ==========Aggregate rental expenses approximated $219,000, $279,000 and $183,000 in 1998,1997 and 1996, respectively. F-17 41NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED7. COMMITMENTS AND CONTINGENCIES , CONTINUEDIn October 1996, the Company entered into a 10-year operating lease for officeand laboratory facilities. In connection with this lease agreement, Novavax isrequired to maintain a "Net Asset Value" of $2,000,000. The term "Net AssetValue" 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 landlordwithin five days of the landlord's request. The financial assurances may be,but without limitation to, the following: a bond for the landlord's benefit, anincrease in the deposit, or a letter of credit, as reasonably believednecessary by the landlord or its lenders.Also in October 1996, the Company entered into a 2-year operating lease forapproximately 2,363 square feet of laboratory space. This shared space housesthe Company'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. In October1998, the Company exercised its option to extend the lease for one year.8. SIGNIFICANT CUSTOMERSNovavax's revenue includes amounts earned from arrangements with variousindustry partners. In the year ended December 31, 1998, three differentcustomers each represented in excess of 10% of revenues. These three customersaccounted for 56%, 25% and 11% of the Company's total revenue for 1998,compared to 46%, 1% and 43% for the same respective customers for 1997. Revenuefor 1996 was not material.9. EMPLOYEE BENEFITSThe Company has a defined contribution 401(k) retirement plan (the "Plan"),pursuant to which employees who have completed ninety days of employment withthe Company as of specified dates may elect to contribute to the Plan, in wholepercentages, up to 15% of their compensation and a maximum contribution of$10,000 and $9,500, in 1998 and 1997, respectively. The Company matches 25% ofthe first 5% of compensation contributed by the participant and $4.00 per weekof employment during the year. All contributions by the Company are madequarterly in the form of the Company's Common Stock and are immediately vested.The Company has recorded charges to expenses related to the Plan ofapproximately $23,000 and $16,000 in 1998 and 1997, respectively. F-18 42NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED10. FINANCING TRANSACTIONSIn October 1996, the Company received $1,656,000, net of fees and expenses,from the private placement of 505,000 share of its Common Stock with accreditedinstitutional investors.In March 1997, the Company received $5,003,000, net of fees and expenses, fromthe private placement of 1,200,000 shares of its Common Stock with anaccredited institutional investor, a principal of which has subsequently becomea director of Novavax. In connection with this transaction, Novavax grantedwarrants to purchase an additional 600,000 shares of the Company's Common Stockat $6.00 per share and 600,000 shares at $8.00 per share. These warrants havea three-year term, expiring in March 2000.In January, 1998, the Company entered into Subscription Agreements to effectuatethe private placement of 6,500 shares of mandatorily redeemable Series A CustomConvertible Preferred Stock, $1,000 par value per share (the "Preferred Stock").The closing occurred on January 28, 1998 (the "Issuance Date") at an aggregatepurchase price of $6,500,000.The Preferred Stock was convertible into shares of Common Stock at a conversionprice equal to (i) during a period of 90 days following the Issuance Date, 100%of the average of the two lowest consecutive trade prices of the Common Stockas reported on the American Stock Exchange for the 25 trading days immediatelypreceding the conversion date (the "Two Day Average Trading Price") or (ii)during the period on and after the date which is 91 days after the IssuanceDate, 94% of the Two Day Average Trading Price.Prior to the subsequent repurchase of all the outstanding Preferred Stock,$1,522,000 of the original shares had been converted into 1,043,956 shares ofCommon Stock, pursuant to the terms and conditions of the Preferred Stock. OnOctober 1, 1998, the Company entered into agreements to repurchase theremaining Preferred Stock. This transaction closed on October 16, 1998 and theCompany repurchased the outstanding $4,979,000 of Preferred Stock. The Companyincurred placement agent and other transaction fees relating to the placement,conversion and repurchase of the Preferred Stock of $502,000, which areincluded in the accompanying financial statements as preferred stock offeringcosts. The terms of the Preferred Stock required the Company to pay theholders of the Preferred Stock $225,000 in dividends. This amount was paid incash of $179,000 and through the issuance of 32,942 shares of common stockvalued at $46,000. The preferred stock transactions were: Private sale of preferred stock, net $ 4,415 Deemed dividend of preferred stock 1,583 Conversion of preferred stock (1,439) Accretion of offering costs 420 Repurchase of preferred stock (4,979) ------- -- ------- F-19 43NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)The consolidated results of operations included in the Company's 1998 Form10-Qs for the periods ended March 31, June 30 and September 30 have beenrestated to account for, in accordance with Topic D-60, the beneficialconversion feature relating to the Preferred Stock issued in January 1998. InTopic D-60 the SEC staff addressed the issuance of convertible preferred stockwith a non-detachable conversion feature that is "in the money" at the date ofissue (a "beneficial conversion feature"). Topic D-60 requires the beneficialconversion feature be recognized and measured by allocating a portion of theproceeds equal to the intrinsic value of that feature to additional paid-incapital. For convertible preferred securities, the SEC staff believes that anydiscount resulting from an allocation of proceeds to the beneficial conversionfeature is analogous to a dividend and should be recognized as a return to thepreferred stockholders over the minimum period in which the preferredstockholders can realize the return of the beneficial conversion. The originalamount of $455,000 allocable to the beneficial conversion feature was recordedas a charge to accumulated deficit by the Company in its March 31, 1998 Form10-Q was an error. The correct amount is $1.58 million, which has been recordedto additional paid-in capital and recognized as a charge to accumulateddeficit. The original amount attributable to the beneficial conversion wasrecognized as a return to the preferred stockholders in the first quarter of1998. The restated amount has been recognized over 180 days, the minimum periodin which the preferred stockholders can realize the maximum beneficialconversion. In addition, with respect to the preferred stock the Company didnot properly accrue the related dividends or accrete the offering costs in theappropriate quarters during 1998. The restated amounts recognize the dividendsas earned and offering cost have been accretedQuarterly results of operations (unaudited) for the years ended December 31,1998 and 1997 are as follows (in thousands, except per share information): AS PREVIOUSLY REPORTED SECOND FOURTH1998 FIRST QUARTER QUARTER THIRD QUARTER QUARTER Revenues $ 205 $ 120 $ 199 $ 157Loss from operations $ (927) $(1,278) $(1,286) $(1,661)Net Loss $ (834) $(1,159) $(1,181) $(1,690)Deemed dividend on preferred stock $ (455) $ - $ - $ -Dividend on preferred stock $ - $ - $ - $ (11)Accretion of preferred stock offering costs $ - $ - $ - $ (260)Loss applicable to common stockholders $ (1,289) $( 1,159) $(1,181) $(1,961)Basic and diluted loss per share $ (.11) $ (.10) $ (.10) $ (.15) F-20 44NOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) AS RESTATED SECOND FOURTH1998 FIRST QUARTER QUARTER THIRD QUARTER QUARTER Revenues $ 205 $ 120 $ 199 $ 157Loss from operations $ (927) $(1,278) $(1,286) $(1,661)Net Loss $ (834) $(1,149) $(1,144) $(1,690)Deemed dividend on preferred stock $ (479) $(1,104) $ - $ -Dividend on preferred stock $ (55) $ (81) $ (78) $ (11)Accretion of preferred stock offering costs $ (41) $ (61) $ (58) $ (260)Loss applicable to common stockholders $(1,409) $(2,395) $(1,280) $(1,961)Basic and diluted loss per share $ (.12) $ (.20) $ (.10) $ (.15) AS PREVIOUSLY REPORTED SECOND FOURTH1997 FIRST QUARTER QUARTER THIRD QUARTER QUARTER Revenues $ - $ 150 $ 80 $ 290Loss from operations $(1,244) $(1,213) $(1,205) $(1,129)Net loss $(1,210) $(1,134) $(1,139) $(1,064)Basic and diluted net loss per share $ (.11) $ (.10) $ (.10) $ (.08)The effect of the restatement noted above on the Company's previously reportedquarterly results of operations for the year ended December 31, 1998 is asfollows (in thousands except per share information): INCREASE (DECREASE) SECOND FOURTH1998 FIRST QUARTER QUARTER THIRD QUARTER QUARTER Revenues $ - $ - $ - $ -Loss from operations $ - $ - $ - $ -Net loss $ - $ (10) $ (37) $ -Deemed dividend on preferred stock $ 24 $ 1,104 $ - $ -Dividend on preferred stock $ 55 $ 81 $ 78 $ -Accretion of preferred stock offering costs $ 41 $ 61 $ 58 $ -Loss applicable to common stockholders $ 120 $ 1,236 $ 99 $ -Basic and diluted loss per share $ .01 $ .10 $ - $ - F-21 45 EXHIBIT INDEX Exhibit 3.1 * 3.2 * 3.3 * 4 * 10.1 * 10.2 * 10.3 10.4 * 10.5 * 10.6 * 10.7 * 10.8 * 10.9 * 10.10 * 10.11 10.12 10.13 10.14 10.15 10.16 21 * 23 27* These exhibits are incorporated by reference 1 EXHIBIT 10.3 NOVAVAX, INC. AMENDMENT TO STOCK OPTION PLAN Pursuant to the resolution of the Board of Directors of Novavax, Inc.adopted on March 16, 1998, and approved by the stockholders of Novavax, Inc. onMay 14, 1998, Section 4 of the Novavax, Inc. 1995 Stock Option Plan is herebyamended by deleting the number "4,000,000" and inserting in its place the number"4,400,000" so that the first sentence of Section 4 now reads in its entirety asfollows: "Subject to adjustment as provided in Section 15 below, the maximum number of shares of Common Stock which may be issued and sold under the Plan is 4,400,000 shares." NOVAVAX, INC. /s/ David A. White ----------------------------------- David A. White, Secretary 1 EXHIBIT 10.11 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "EmploymentAgreement" or this "Agreement") dated as of July 24, 1998, between Novavax,Inc., a Delaware corporation having its principal office at 8320 Guilford Road,Columbia, Maryland 21046 (the "Company") and Brenda Fugagli ("Employee")residing at 988 Stonington Drive, Arnold, Maryland 21012, amends and restates inits entirety the Employment Agreement between the Company and Employee dated asof July 24, 1997. The Company and Employee hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee herebyaccepts employment upon the terms and conditions hereinafter set forth. (As usedthroughout this Agreement, "Company" shall mean and include any and all of itspresent and future subsidiaries and any and all subsidiaries of a subsidiary.)Employee warrants that she is free to enter into and perform this Agreement andis not subject to any employment, confidentiality, non-competition or otheragreement which prohibits, restricts, or would be breached by either heracceptance of or her performance under this Agreement. 2. Duties. Employee shall devote her full business time to theperformance of services as Vice President, Treasurer and Chief Financial Officeror such other senior management services as may from time to time be designatedby the Company's Chief Executive Officer or the Board of Directors. During theterm of this Agreement, Employee's services shall be completely exclusive to theCompany and she shall devote her entire business time, attention and energies tothe business of the Company and the duties to which the Company shall assign herfrom time to time. Employee agrees to perform her services faithfully and to thebest of her ability and to carry out the policies and directives of the Company.Employee agrees to take no action which is in bad faith and prejudicial to theinterests of the Company during her employment hereunder. Employee shall bebased in Columbia, Maryland but she may be required from time to time to performduties hereunder for reasonably short periods of time outside said area. 3. Term. The term of this Agreement shall be one year beginning July 21,1997 and ending July 20, 1999, provided, however, that this Agreement shall beautomatically extended for periods of one year after such date, unless and untilthe Company or Employee shall have delivered to the other written notice of itsor her election to terminate this Agreement as of July 20, 1999, or as of theend of any such one-year extension period, such notice to be delivered at least30 days prior to the date of termination (the "Term"). 4. Compensation. (a) Base Compensation. For all Employee's services and covenants underthis Agreement, the Company shall pay Employee an initial annual salary of$135,000, subject to annual review by the Board of Directors of the Company andpayable in accordance with the Company's payroll policy as constituted from timeto time. (b) Stock Options. In connection with her employment, Employee hasreceived stock options to purchase 100,000 shares of the Company's Common Stock,$.01 par value, at an exercise price equal to the closing price of the Company'sCommon Stock on the date of grant. The options are subject to a Incentive StockOption Agreement (and, to the extent required by the Internal Revenue Code, aNon-Statutory Stock Option Agreement) which includes an option vesting scheduleas follows: one-third of the shares on the six-month anniversary of the date ofgrant, one-third of the shares on the eighteen-month anniversary of the date ofgrant and one-third of the shares on the thirty-month anniversary of the date ofgrant. Employee will also be eligible to receive additional stock optionsannually, based on job performance, in an amount to be 2determined by the Compensation and Stock Option Committee of the Board ofDirectors at the December Board meetings. (c) Bonus Program. During the Term, the Employee shall be entitled toparticipate in a bonus program, if any, maintained from time to time by theCompany for the benefit of senior executives and other employees of the Companyunder which award payments, if any, are based on performance criteria mutuallydetermined by the Employee and the Company. 5. Expenses. Employee shall be entitled to reimbursement for reasonableexpenses incurred by Employee in connection with the performance of her dutieshereunder upon receipt of vouchers therefor in accordance with such proceduresas the Company has heretofore or may hereafter establish. 6. Employee Benefits. (a) Employee shall be entitled to three weeks of paid vacation timeduring the first year, calculated on a calendar year basis in accordance withCompany policies in effect from time to time. Thereafter, Employee shall beentitled to three weeks of vacation plus one day for each year of Employee'semployment after the first year, up to a maximum of four weeks per year. (b) Employee shall be entitled to the use of a Company automobileduring the Term in accordance with Company policies in effect from time to time. (c) Employee shall be entitled to participate in all group insuranceprograms, stock option plans or other fringe benefit plans which the Company maynow or hereafter in its sole and absolute discretion make available generally toits employees, but the Company shall not be required to establish any suchprogram or plan. 7. Termination of Employment. Notwithstanding any other provision of thisAgreement, Employee's employment may be terminated: (a) By the Company, in the event of Employee's willful failure orrefusal to perform in all material respects the services required of her hereby,after a specific written warning with regard thereto, which shall include astatement of corrective actions and a 30 day period for the Employee to respondand implement such actions, has been given to Employee by the Chief ExecutiveOfficer of the Company or its Board of Directors, her willful failure or refusalto carry out any proper direction by the Chief Executive Officer or the Board ofDirectors with respect to the services to be rendered by her hereunder or themanner of rendering such services, her willful misconduct in the performance ofher duties hereunder or her commission of a felony involving moral turpitude; (b) By the Company, upon 30 days' notice to Employee, if she should beprevented by illness, accident or other disability (mental or physical) fromdischarging her duties hereunder for one or more periods totalling three monthsduring any twelve-month period; (c) By the Company, without cause, or by Employee with "Good Reason"(as hereinafter defined), provided that if Employee's employment is terminatedpursuant to this Section 7(c), Employee shall be entitled to receive her thencurrent salary as set forth in Section 4(a) above, but not a performance bonus,for one year from the date of termination, payable in accordance with theCompany's payroll policy as constituted from time to time, together with anyaccrued vacation pay at her then current salary and in the amounts set forth inSection 4(a) above. The Employee shall be entitled to terminate her employmentfor "Good Reason" if her responsibilities and authority are reduced or dilutedin any material way (other than for cause) without her consent or if she isrelocated to another Company office or facility more than 50 miles fromColumbia, Maryland without her consent. 2 3 (d) By the event of Employee's death during the term of heremployment, whereupon the Company's obligation to pay further compensationhereunder shall cease forthwith, except that Employee's legal representativeshall be entitled to receive her fixed compensation for the period up to thelast day of the month in which such death shall have occurred. 8. All Business to be Property of the Company; Assignment of IntellectualProperty. (a) Employee agrees that any and all presently existing business ofthe Company and all business developed by her or any other employee of theCompany including without limitation all contracts, fees, commissions,compensation, records, customer or client lists, agreements and any otherincident of any business developed, earned or carried on by Employee for theCompany is and shall be the exclusive property of the Company, and (whereapplicable) shall be payable directly to the Company. (b) Employee hereby grants to the Company (without any separateremuneration or compensation other than that received by her from time to timein the course of her employment) her entire right, title and interest throughoutthe world in and to, all research, information, procedures, developments, allinventions and improvements whether patentable or nonpatentable, patents andapplications therefor, trademarks and applications therefor, copyrights andapplications therefor, programs, trade secrets, plans, methods, and all otherdata and know-how (herein sometimes "Intellectual Property") made, conceived,developed and/or acquired by her solely or jointly with others during the periodof her employment with the Company, which are either (i)made, conceived,developed or acquired during regular business hours or on the premises of, orusing properties of, the Company or in the regular scope of Employee'semployment by the Company or (ii) if related to the Company's business, whetheror not made, conceived, developed or acquired during regular business hours oron the premises of, or using properties of, the Company or in the regular scopeof Employee's employment by the Company. 9. Confidentiality. Except as necessary in performance of services forthe Company or if required by law and except for such information that becomesgenerally available to the public through no fault of Employee, Employee shallnot, either during the period of her employment with the Company or thereafter,use for her own benefit or disclose to or use for the benefit of any personoutside the Company, any information concerning any Intellectual Property, orother confidential or proprietary information of the Company, including withoutlimitation, any of the materials listed in Section 8(a), whether Employee hassuch information in her memory or embodied in writing or other tangible form.All originals and copies of any of the foregoing, however and whenever produced,shall be the sole property of the Company, not to be removed from the premisesor custody of the Company without in each instance first obtaining authorizationof the Company, which authorization may be revoked by the Company at any time.Upon the termination of Employee's employment in any manner or for any reason,Employee shall promptly surrender to the Company all copies of any of theforegoing, together with any documents, materials, data, information andequipment belonging to or relating to the Company's business and in herpossession, custody or control, and Employee shall not thereafter retain ordeliver to any other person any of the foregoing or any summary or memorandumthereof. 10. Non-Competition Covenant. As the Employee is being granted options topurchase stock in the Company and as such has a financial interest in thesuccess of the Company's business and as Employee recognizes that the Companywould be substantially injured by Employee competing with the Company, Employeeagrees and warrants that within the United States, she will not, unless actingwith the Company's express prior written consent, directly or indirectly, whilean employee of the Company and during the Non-Competition Period, as definedbelow, own, operate, join, control, participate in, or be connected as anofficer, director, employee, partner, stockholder, consultant, or otherwisewith, any business or entity which competes with the business of the Company (orits successors or assigns) as such business is now constituted or 3 4as it may be constituted at any time during the term of this Agreement;provided, however, that Employee may own less than one percent of the equity ofa publicly traded company. The "Non-Competition Period" shall be a period of oneyear following termination of employment. Employee and the Company are of the belief that the period of time andthe area herein specified are reasonable in view of the nature of the businessin which the Company is engaged and proposes to engage, the state of itsbusiness development and Employee's knowledge of this business. However, if suchperiod or such area should be adjudged unreasonable in any judicial proceeding,then the period of time shall be reduced by such number of months or such areashall be reduced by elimination of such portion of such area, or both, as aredeemed unreasonable, so that this covenant may be enforced in such area andduring such period of time as is adjudged to be reasonable. 11. Non-Solicitation Agreement. Employee agrees and covenants that shewill not, unless acting with the Company's express written consent, directly orindirectly, during the term of this Agreement or for a period of one yearthereafter solicit, entice away or interfere with the Company's contractualrelationships with any customer, officer or employee of the Company. 12. Notices. All notices and other communications hereunder shall be inwriting and shall be deemed to have been given upon the earlier of actualreceipt or three days after having been mailed by first class mail, postageprepaid, or twenty-four hours after having been sent by Federal Express orsimilar overnight delivery services, as follows: (a) if to Employee, at theaddress shown at the head of this Agreement, or to such other person(s) oraddress(es) as Employee shall have furnished to the Company in writing; and (b)if to the Company, at the address shown at the head of this Agreement,Attention: Richard F. Maradie, with a copy to David A. White, Esq., White &McDermott, P.C., 65 William Street, Suite 209, Wellesley, Massachusetts 02481,or to such other person(s) or address(es) as the Company shall have furnished tothe Employee in writing. 13. Assignability. In the event that the Company shall be merged with, orconsolidated into, any other corporation, or in the event that it shall sell andtransfer substantially all of its assets to another corporation, the terms ofthis Agreement shall inure to the benefit of, and be assumed by, the corporationresulting from such merger or consolidation, or to which the Company's assetsshall be sold and transferred. This Agreement shall not be assignable byEmployee, but it shall be binding upon, and to the extent provided in Section 7shall inure to the benefit of, her heirs, executors, administrators and legalrepresentatives. 14. Entire Agreement. This Agreement contains the entire agreementbetween the Company and Employee with respect to the subject matter hereof andthere have been no oral or other prior agreements of any kind whatsoever as acondition precedent or inducement to the signing of this Agreement or otherwiseconcerning this Agreement or the subject matter hereof. 15. Equitable Relief. Employee recognizes and agrees that the Company'sremedy at law for any breach of the provisions of Sections 8, 9, 10 or 11 hereofwould be inadequate, and she agrees that for breach of such provisions, theCompany shall, in addition to such other remedies as may be available to it atlaw or in equity or as provided in this Agreement, be entitled to injunctiverelief and to enforce its rights by an action for specific performance. ShouldEmployee engage in any activities prohibited by this Agreement, she agrees topay over to the Company all compensation, remuneration or monies or property ofany sort received in connection with such activities; such payment shall notimpair any rights or remedies of the Company or obligations or liabilities ofEmployee which such parties may have under this Agreement or applicable law. 4 5 16. Amendments. This Agreement may not be amended, nor shall any change,waiver, modification, consent or discharge be effected except by writteninstrument executed by the Company and Employee. 17. Severability. If any part of any term or provision of this Agreementshall be held or deemed to be invalid, inoperative or unenforceable to anyextent by a court of competent jurisdiction, such circumstances shall in no wayaffect any other term or provision of this Agreement, the application of suchterm or provision in any other circumstances, or the validity or enforceabilityof this Agreement. 18. Paragraph Headings. The paragraph headings used in this Agreement areincluded solely for convenience and shall not affect, or be used in connectionwith, the interpretation hereof. 19. Governing Law. This Agreement shall be governed by and construed andenforced in accordance with the law of the State of Delaware, without regard tothe principles of conflict of law thereof. 20. Resolution of Disputes. With the exception of proceedings forequitable relief brought pursuant to Section 15 of this Agreement or any stockoption agreement, any disputes arising under or in connection with thisAgreement or any stock option agreement including, without limitation, anyassertion by any party hereto that the other party has breached any provision ofthis Agreement, shall be resolved by arbitration, to be held in Baltimore,Maryland, in accordance with the rules and procedures of the AmericanArbitration Association. All costs, fees and expenses, including reasonableattorney fees, of any arbitration or equitable relief proceeding in connectionwith this Agreement shall be borne by, and be the obligation of, the Company. Inno event shall the Employee be required to reimburse the Company for any of thecosts and expenses incurred by the Company relating to any arbitration. Theobligation of the Company under this Section 20 shall survive the terminationfor any reason of the Term (whether such termination is by the Company or by theEmployee). 21. Indemnification. The Employee shall be entitled to liability andexpense indemnification to the fullest extent permitted by the Company's currentBy-laws and Certificate of Incorporation, whether or not the same aresubsequently amended. 22. Survivorship. The respective rights and obligations of the parties tothis Agreement shall survive any termination of this Agreement or the Employee'semployment hereunder for any reason to the extent necessary to the intendedpreservation of such rights and obligations. IN WITNESS WHEREOF, the parties have executed or caused to be executedthis Agreement as of the date first above written. NOVAVAX, INC.[SEAL] By: /s/ Richard F. Maradie, --------------------------------------- Richard F. Maradie, President and Chief Executive Officer /s/ Brenda Fugagli ------------------------------------------ Brenda Fugagli 5 1 EXHIBIT 10.12 EMPLOYMENT AGREEMENT AGREEMENT (the "Employment Agreement" or this "Agreement") effective asof the 23rd day of February, 1998, between Novavax, Inc., a Delaware corporationhaving its principal office at 8320 Guilford Road, Columbia, Maryland 21046 (the"Company") and Thomas G. Tachovsky ("Employee") residing at 39 RiversideTerrace, North Easton, Massachusetts 02356. The Company and Employee hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee herebyaccepts employment upon the terms and conditions hereinafter set forth. (As usedthroughout this Agreement, "Company" shall mean and include any and all of itspresent and future subsidiaries and any and all subsidiaries of a subsidiary.)Employee warrants that he is free to enter into and perform this Agreement andis not subject to any employment, confidentiality, non-competition or otheragreement which prohibits, restricts, or would be breached by either hisacceptance of or his performance under this Agreement. 2. Duties. Employee shall devote his full business time to theperformance of services as Vice President, Business Development or such othersenior management services as may from time to time be designated by theCompany's Chief Executive Officer or the Board of Directors. During the term ofthis Agreement, Employee's services shall be completely exclusive to the Companyand he shall devote his entire business time, attention and energies to thebusiness of the Company and the duties to which the Company shall assign himfrom time to time. Employee agrees to perform his services faithfully and to thebest of his ability and to carry out the policies and directives of the Company.Employee agrees to take no action which is in bad faith and prejudicial to theinterests of the Company during his employment hereunder. 3. Term. The term of this Agreement shall be one year beginning on thedate hereof and ending February 22, 1999, provided, however, that this Agreementshall be automatically extended for periods of one year after such date, unlessand until the Company or Employee shall have delivered to the other writtennotice of its or his election to terminate this Agreement as of February 22,1999, or as of the end of any such one-year extension period, such notice to bedelivered at least 30 days prior to the date of termination (the "Term") 4. Compensation. (a) Base Compensation. For all Employee's services and covenants underthis Agreement, the Company shall pay Employee an initial annual salary of$130,000, subject to annual review by the Board of Directors of the Company andpayable in accordance with the Company's payroll policy as constituted from timeto time. (b) Stock Options. Employee shall be entitled to receive stock optionsto purchase 75,000 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, February 11, 1998. The options will be subject to a IncentiveStock Option Agreement (and, to the extent required by the Internal RevenueCode, a Non-Statutory Stock Option Agreement) which shall vest as follows:one-third of the shares on the six-month anniversary of the date of grant,one-third of the shares on the eighteen-month anniversary of the date of grant,and one-third of the shares on the thirty-month anniversary of the date ofgrant. (c) Bonus Program. During the Term, the Employee shall be entitled toparticipate in a bonus program, if any, maintained from time to time by theCompany for the benefit of senior executives and other employees of the Companyunder which award payments, if any, are based 2on performance criteria and milestones to be mutually determined by the Employeeand the Company. 5. Reimbursable Expenses. (a) Employee shall be entitled to reimbursement for reasonableexpenses incurred by Employee in connection with the performance of his dutieshereunder upon receipt of vouchers therefor in accordance with such proceduresas the Company has heretofore or may hereafter establish. (b) Employee shall be entitled to reimbursement for reasonableexpenses associated with commuting from his residence in Massachusetts to theCompany's office in Columbia, Maryland, including airfare, parking, tolls,rental cars and up to $200 per month for living accommodations in the Columbia,Maryland area, provided that Employee makes reasonable efforts to minimize allsuch expenses. Employee will be reimbursed for such expenses upon receipt ofvouchers therefor in accordance with such procedures as the Company hasheretofore or may hereafter establish. Employee is responsible for all incomeand other applicable taxes due and payable with respect to any reimbursementreceived hereunder. 6. Employee Benefits. (a) Employee shall be entitled to three weeks of paid vacation timeduring the first year, calculated on a calendar year basis in accordance withCompany policies in effect from time to time. Thereafter, Employee shall beentitled to three weeks of vacation plus one day for each year of Employee'semployment after the first year, up to a maximum of four weeks per year. (b) Employee shall be entitled to participate in all group insuranceprograms, stock option plans or other fringe benefit plans which the Company maynow or hereafter in its sole and absolute discretion make available generally toits employees, but the Company shall not be required to establish any suchprogram or plan. 7. Termination of Employment. Notwithstanding any other provision of thisAgreement, Employee's employment may be terminated: (a) By the Company, in the event of Employee's willful failure orrefusal to perform in all material respects the services required of him hereby,after a specific written warning with regard thereto, which shall include astatement of corrective actions and a 30 day period for the Employee to respondand implement such actions, has been given to Employee by the Chief ExecutiveOfficer of the Company or its Board of Directors, his willful failure or refusalto carry out any proper direction by the Chief Executive Officer or the Board ofDirectors with respect to the services to be rendered by him hereunder or themanner of rendering such services, his willful misconduct in the performance ofhis duties hereunder or his commission of a felony involving moral turpitude; (b) By the Company, upon 30 days' notice to Employee, if he should beprevented by illness, accident or other disability (mental or physical) fromdischarging his duties hereunder for one or more periods totalling three monthsduring any twelve-month period; (c) By the Company, without cause, or by Employee with "Good Reason"(as hereinafter defined), provided that if Employee's employment is terminatedpursuant to this Section 7(c), Employee shall be entitled to receive his thencurrent salary as set forth in Section 4(a) above, but not a performance bonus,for one year from the date of termination, payable in accordance with theCompany's payroll policy as constituted from time to time, together with anyaccrued vacation pay at his then current salary and in the amounts set forth inSection 4(a) above. The Employee 2 3shall be entitled to terminate his employment for "Good Reason" if hisresponsibilities and authority are reduced or diluted in any material way (otherthan for cause) without his consent or if he is relocated to another Companyoffice or facility more than 50 miles from Columbia, Maryland without hisconsent. (d) By the event of Employee's death during the term of hisemployment; whereupon the Company's obligation to pay further compensationhereunder shall cease forthwith, except that Employee's legal representativeshall be entitled to receive his fixed compensation for the period up to thelast day of the month in which such death shall have occurred. 8. All Business to be Property of the Company; Assignment of IntellectualProperty. (a) Employee agrees that any and all presently existing business ofthe Company and all business developed by him or any other employee of theCompany including without limitation all contracts, fees, commissions,compensation, records, customer or client lists, agreements and any otherincident of any business developed, earned or carried on by Employee for theCompany is and shall be the exclusive property of the Company, and (whereapplicable) shall be payable directly to the Company. (b) Employee hereby grants to the Company (without any separateremuneration or compensation other than that received by him from time to timein the course of his employment) his entire right, title and interest throughoutthe world in and to, all research, information, procedures, developments, allinventions and improvements whether patentable or nonpatentable, patents andapplications therefor, trademarks and applications therefor, copyrights andapplications therefor, programs, trade secrets, plans, methods, and all otherdata and know-how (herein sometimes "Intellectual Property") made, conceived,developed and/or acquired by him solely or jointly with others during the periodof his employment with the Company, which are either (i)made, conceived,developed or acquired during regular business hours or on the premises of, orusing properties of, the Company or in the regular scope of Employee'semployment by the Company or (ii) if related to the Company's business, whetheror not made, conceived, developed or acquired during regular business hours oron the premises of, or using properties of, the Company or in the regular scopeof Employee's employment by the Company. 9. Confidentiality. Except as necessary in performance of services forthe Company or if required by law and except for such information that becomesgenerally available to the public through no fault of Employee, Employee shallnot, either during the period of his employment with the Company or thereafter,use for his own benefit or disclose to or use for the benefit of any personoutside the Company, any information concerning any Intellectual Property, orother confidential or proprietary information of the Company, including withoutlimitation, any of the materials listed in Section 8(a), whether Employee hassuch information in his memory or embodied in writing or other tangible form.All originals and copies of any of the foregoing, however and whenever produced,shall be the sole property of the Company, not to be removed from the premisesor custody of the Company without in each instance first obtaining authorizationof the Company, which authorization may be revoked by the Company at any time.Upon the termination of Employee's employment in any manner or for any reason,Employee shall promptly surrender to the Company all copies of any of theforegoing, together with any documents, materials, data, information andequipment belonging to or relating to the Company's business and in hispossession, custody or control, and Employee shall not thereafter retain ordeliver to any other person any of the foregoing or any summary or memorandumthereof. 10. Non-Competition Covenant. As the Employee is being granted options topurchase stock in the Company and as such has a financial interest in thesuccess of the Company's business and as Employee recognizes that the Companywould be substantially injured by Employee competing with the Company, Employeeagrees and warrants that within the United States, he will 3 4not, unless acting with the Company's express prior written consent, directly orindirectly, while an employee of the Company and during the Non-CompetitionPeriod, as defined below, own, operate, join, control, participate in, or beconnected as an officer, director, employee, partner, stockholder, consultant,or otherwise with, any business or entity which competes with the business ofthe Company (or its successors or assigns) as such business is now constitutedor as it may be constituted at any time during the term of this Agreement;provided, however, that Employee may own less than one percent of the equity ofa publicly traded company. The "Non-Competition Period" shall be a period of oneyear following termination of employment. Employee and the Company are of the belief that the period of time andthe area herein specified are reasonable in view of the nature of the businessin which the Company is engaged and proposes to engage, the state of itsbusiness development and Employee's knowledge of this business. However, if suchperiod or such area should be adjudged unreasonable in any judicial proceeding,then the period of time shall be reduced by such number of months or such areashall be reduced by elimination of such portion of such area, or both, as aredeemed unreasonable, so that this covenant may be enforced in such area andduring such period of time as is adjudged to be reasonable. 11. Non-Solicitation Agreement. Employee agrees and covenants that hewill not, unless acting with the Company's express written consent, directly orindirectly, during the term of this Agreement or for a period of one yearthereafter solicit, entice away or interfere with the Company's contractualrelationships with any customer, officer or employee of the Company. 12. Notices. All notices and other communications hereunder shall be inwriting and shall be deemed to have been given upon the earlier of actualreceipt or three days after having been mailed by first class mail, postageprepaid, or twenty-four hours after having been sent by Federal Express orsimilar overnight delivery services, as follows: (a) if to Employee, at theaddress shown at the head of this Agreement, or to such other person(s) oraddress(es) as Employee shall have furnished to the Company in writing; and (b)if to the Company, at the address shown at the head of this Agreement,Attention: Richard F. Maradie, with a copy to David A. White, Esq., White &McDermott, P.C., 65 William Street, Suite 209, Wellesley, Massachusetts 02181,or to such other person(s) or address(es) as the Company shall have furnished tothe Employee in writing. 13. Assignability. In the event that the Company shall be merged with, orconsolidated into, any other corporation, or in the event that it shall sell andtransfer substantially all of its assets to another corporation, the terms ofthis Agreement shall inure to the benefit of, and be assumed by, the corporationresulting from such merger or consolidation, or to which the Company's assetsshall be sold and transferred. This Agreement shall not be assignable byEmployee, but it shall be binding upon, and to the extent provided in Section 7shall inure to the benefit of, his heirs, executors, administrators and legalrepresentatives. 14. Entire Agreement. This Agreement contains the entire agreementbetween the Company and Employee with respect to the subject matter hereof andthere have been no oral or other prior agreements of any kind whatsoever as acondition precedent or inducement to the signing of this Agreement or otherwiseconcerning this Agreement or the subject matter hereof. 15. Equitable Relief. Employee recognizes and agrees that the Company'sremedy at law for any breach of the provisions of Sections 8, 9, 10 or 11 hereofwould be inadequate, and he agrees that for breach of such provisions, theCompany shall, in addition to such other remedies as may be available to it atlaw or in equity or as provided in this Agreement, be entitled to injunctiverelief and to enforce its rights by an action for specific performance. ShouldEmployee engage in any activities prohibited by this Agreement, he agrees to payover to the Company all compensation, remuneration or monies or property of anysort received in connection with such 4 5activities; such payment shall not impair any rights or remedies of the Companyor obligations or liabilities of Employee which such parties may have under thisAgreement or applicable law. 16. Amendments. This Agreement may not be amended, nor shall any change,waiver, modification, consent or discharge be effected except by writteninstrument executed by the Company and Employee. 17. Severability. If any part of any term or provision of this Agreementshall be held or deemed to be invalid, inoperative or unenforceable to anyextent by a court of competent jurisdiction, such circumstances shall in no wayaffect any other term or provision of this Agreement, the application of suchterm or provision in any other circumstances, or the validity or enforceabilityof this Agreement. 18. Paragraph Headings. The paragraph headings used in this Agreement areincluded solely for convenience and shall not affect, or be used in connectionwith, the interpretation hereof. 19. Governing Law. This Agreement shall be governed by and construed andenforced in accordance with the law of the State of Delaware, without regard tothe principles of conflict of law thereof. 20. Resolution of Disputes. With the exception of proceedings forequitable relief brought pursuant to Section 15 of this Agreement or any stockoption agreement, any disputes arising under or in connection with thisAgreement or any stock option agreement including, without limitation, anyassertion by any party hereto that the other party has breached any provision ofthis Agreement, shall be resolved by arbitration, to be held in Baltimore,Maryland, in accordance with the rules and procedures of the AmericanArbitration Association. All costs, fees and expenses, including reasonableattorney fees, of any arbitration or equitable relief proceeding in connectionwith this Agreement shall be borne by, and be the obligation of, the Company. Inno event shall the Employee be required to reimburse the Company for any of thecosts and expenses incurred by the Company relating to any arbitration. Theobligation of the Company under this Section 20 shall survive the terminationfor any reason of the Term (whether such termination is by the Company or by theEmployee). 21. Indemnification. The Employee shall be entitled to liability andexpense indemnification to the fullest extent permitted by the Company's currentBy-laws and Certificate of Incorporation, whether or not the same aresubsequently amended. 22. Survivorship. The respective rights and obligations of the parties tothis Agreement shall survive any termination of this Agreement or the Employee'semployment hereunder for any reason to the extent necessary to the intendedpreservation of such rights and obligations. IN WITNESS WHEREOF, the parties have executed or caused to be executedthis Agreement as of the date first above written. NOVAVAX, INC.[SEAL By: /s/ Richard F. Maradie --------------------------------------- Richard F. Maradie, President and CEO /s/ Thomas G. Tachovsky ------------------------------------------ Thomas G. Tachovsky 5 1 EXHIBIT 10.13 EMPLOYMENT AGREEMENT AGREEMENT (the "Employment Agreement" or this "Agreement") effective asof the 5th day of March, 1998, between Novavax, Inc., a Delaware corporationhaving its principal office at 8320 Guilford Road, Columbia, Maryland 21046 (the"Company") and Richard J. Harwood ("Employee") residing at 3219 Adams CourtNorth, Bensalem, Pennsylvania 19020. The Company and Employee hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee herebyaccepts employment upon the terms and conditions hereinafter set forth. (As usedthroughout this Agreement, "Company" shall mean and include any and all of itspresent and future subsidiaries and any and all subsidiaries of a subsidiary.)Employee warrants that he is free to enter into and perform this Agreement andis not subject to any employment, confidentiality, non-competition or otheragreement which prohibits, restricts, or would be breached by either hisacceptance of or his performance under this Agreement. 2. Duties. Employee shall devote his full business time to theperformance of services as Vice President, Pharmaceutical Development or suchother senior management services as may from time to time be designated by theCompany's Chief Executive Officer or the Board of Directors. During the term ofthis Agreement, Employee's services shall be completely exclusive to the Companyand he shall devote his entire business time, attention and energies to thebusiness of the Company and the duties to which the Company shall assign himfrom time to time. Employee agrees to perform his services faithfully and to thebest of his ability and to carry out the policies and directives of the Company.Employee agrees to take no action which is in bad faith and prejudicial to theinterests of the Company during his employment hereunder. Employee shall bebased in Columbia, Maryland but he may be required from time to time to performduties hereunder for reasonably short periods of time outside said area. 3. Term. The term of this Agreement shall be one year beginning on thedate hereof and ending March 4, 1999, provided, however, that this Agreementshall be automatically extended for periods of one year after such date, unlessand until the Company or Employee shall have delivered to the other writtennotice of its or his election to terminate this Agreement as of March 4, 1999,or as of the end of any such one-year extension period, such notice to bedelivered at least 30 days prior to the date of termination (the "Term"). 4. Compensation. (a) Base Compensation. For all Employee's services and covenants underthis Agreement, the Company shall pay Employee an initial annual salary of$140,000, subject to annual review by the Board of Directors of the Company andpayable in accordance with the Company's payroll policy as constituted from timeto time. (b) Stock Options. Employee shall be entitled to receive stock optionsto purchase 100,000 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, February 11, 1998. The options will be subject to a IncentiveStock Option Agreement (and, to the extent required by the Internal RevenueCode, a Non-Statutory Stock Option Agreement) which shall vest as follows:one-third of the shares on the six-month anniversary of the date of grant,one-third of the shares on the eighteen-month anniversary of the date of grant,and one-third of the shares on the thirty-month anniversary of the date ofgrant. (c) Bonus Program. During the Term, the Employee shall be entitled toparticipate in a bonus program, if any, maintained from time to time by theCompany for the benefit of senior 2executives and other employees of the Company under which award payments, ifany, are based on performance criteria and milestones to be mutually determinedby the Employee and the Company. 5. Reimbursable Expenses. (a) Employee is expected to relocate to the Columbia, Maryland areawithin twelve months of the date hereof, for which the Company will reimburseEmployee for actual moving expenses in an amount not to exceed $30,000. Anadvanced sum of $15,000 will be paid to cover all commuting expenses untilEmployee is relocated. This $15,000 advance will be deducted from the $30,000relocation allowance provided to Employee. If Employee's employment with theCompany is terminated for any reason before March 4, 1999, the entire amount ofthe $15,000 advance shall be immediately due and payable to Novavax, Inc. andsuch amount may be offset against any amount then due and payable to Employee.The Employee is responsible for all income and other applicable taxes due andpayable with respect to the $30,000 relocation allowance, including the $15,000advance payment. (b) Employee shall be entitled to reimbursement for reasonableexpenses incurred by Employee in connection with the performance of his dutieshereunder upon receipt of vouchers therefor in accordance with such proceduresas the Company has heretofore or may hereafter establish. 6. Employee Benefits. (a) Employee shall be entitled to three weeks of paid vacation timeduring the first year, calculated on a calendar year basis in accordance withCompany policies in effect from time to time. Thereafter, Employee shall beentitled to three weeks of vacation plus one day for each year of Employee'semployment after the first year, up to a maximum of four weeks per year. (b) Employee shall be entitled to participate in all group insuranceprograms, stock option plans or other fringe benefit plans which the Company maynow or hereafter in its sole and absolute discretion make available generally toits employees, but the Company shall not be required to establish any suchprogram or plan. 7. Termination of Employment. Notwithstanding any other provision of thisAgreement, Employee's employment may be terminated: (a) By the Company, in the event of Employee's willful failure orrefusal to perform in all material respects the services required of him hereby,after a specific written warning with regard thereto, which shall include astatement of corrective actions and a 30 day period for the Employee to respondand implement such actions, has been given to Employee by the Chief ExecutiveOfficer of the Company or its Board of Directors, his willful failure or refusalto carry out any proper direction by the Chief Executive Officer or the Board ofDirectors with respect to the services to be rendered by him hereunder or themanner of rendering such services, his willful misconduct in the performance ofhis duties hereunder or his commission of a felony involving moral turpitude; (b) By the Company, upon 30 days' notice to Employee, if he should beprevented by illness, accident or other disability (mental or physical) fromdischarging his duties hereunder for one or more periods totalling three monthsduring any twelve-month period; (c) By the Company, without cause, or by Employee with "Good Reason"(as hereinafter defined), provided that if Employee's employment is terminatedpursuant to this Section 7(c), Employee shall be entitled to receive his thencurrent salary as set forth in Section 4(a) above, 2 3but not a performance bonus, for one year from the date of termination, payablein accordance with the Company's payroll policy as constituted from time totime, together with any accrued vacation pay at his then current salary and inthe amounts set forth in Section 4(a) above. The Employee shall be entitled toterminate his employment for "Good Reason" if his responsibilities and authorityare reduced or diluted in any material way (other than for cause) without hisconsent or if he is relocated to another Company office or facility more than 50miles from Columbia, Maryland without his consent. (d) By the event of Employee's death during the term of hisemployment; whereupon the Company's obligation to pay further compensationhereunder shall cease forthwith, except that Employee's legal representativeshall be entitled to receive his fixed compensation for the period up to thelast day of the month in which such death shall have occurred. 8. All Business to be Property of the Company; Assignment of IntellectualProperty. (a) Employee agrees that any and all presently existing business ofthe Company and all business developed by him or any other employee of theCompany including without limitation all contracts, fees, commissions,compensation, records, customer or client lists, agreements and any otherincident of any business developed, earned or carried on by Employee for theCompany is and shall be the exclusive property of the Company, and (whereapplicable) shall be payable directly to the Company. (b) Employee hereby grants to the Company (without any separateremuneration or compensation other than that received by him from time to timein the course of his employment) his entire right, title and interest throughoutthe world in and to, all research, information, procedures, developments, allinventions and improvements whether patentable or nonpatentable, patents andapplications therefor, trademarks and applications therefor, copyrights andapplications therefor, programs, trade secrets, plans, methods, and all otherdata and know-how (herein sometimes "Intellectual Property") made, conceived,developed and/or acquired by him solely or jointly with others during the periodof his employment with the Company, which are either (i)made, conceived,developed or acquired during regular business hours or on the premises of, orusing properties of, the Company or in the regular scope of Employee'semployment by the Company or (ii) if related to the Company's business, whetheror not made, conceived, developed or acquired during regular business hours oron the premises of, or using properties of, the Company or in the regular scopeof Employee's employment by the Company. 9. Confidentiality. Except as necessary in performance of services forthe Company or if required by law and except for such information that becomesgenerally available to the public through no fault of Employee, Employee shallnot, either during the period of his employment with the Company or thereafter,use for his own benefit or disclose to or use for the benefit of any personoutside the Company, any information concerning any Intellectual Property, orother confidential or proprietary information of the Company, including withoutlimitation, any of the materials listed in Section 8(a), whether Employee hassuch information in his memory or embodied in writing or other tangible form.All originals and copies of any of the foregoing, however and whenever produced,shall be the sole property of the Company, not to be removed from the premisesor custody of the Company without in each instance first obtaining authorizationof the Company, which authorization may be revoked by the Company at any time.Upon the termination of Employee's employment in any manner or for any reason,Employee shall promptly surrender to the Company all copies of any of theforegoing, together with any documents, materials, data, information andequipment belonging to or relating to the Company's business and in hispossession, custody or control, and Employee shall not thereafter retain ordeliver to any other person any of the foregoing or any summary or memorandumthereof. 3 4 10. Non-Competition Covenant. As the Employee is being granted options topurchase stock in the Company and as such has a financial interest in thesuccess of the Company's business and as Employee recognizes that the Companywould be substantially injured by Employee competing with the Company, Employeeagrees and warrants that within the United States, he will not, unless actingwith the Company's express prior written consent, directly or indirectly, whilean employee of the Company and during the Non-Competition Period, as definedbelow, own, operate, join, control, participate in, or be connected as anofficer, director, employee, partner, stockholder, consultant, or otherwisewith, any business or entity which competes with the business of the Company (orits successors or assigns) as such business is now constituted or as it may beconstituted at any time during the term of this Agreement; provided, however,that Employee may own less than one percent of the equity of a publicly tradedcompany. The "Non-Competition Period" shall be a period of one year followingtermination of employment. Employee and the Company are of the belief that the period of time andthe area herein specified are reasonable in view of the nature of the businessin which the Company is engaged and proposes to engage, the state of itsbusiness development and Employee's knowledge of this business. However, if suchperiod or such area should be adjudged unreasonable in any judicial proceeding,then the period of time shall be reduced by such number of months or such areashall be reduced by elimination of such portion of such area, or both, as aredeemed unreasonable, so that this covenant may be enforced in such area andduring such period of time as is adjudged to be reasonable. 11. Non-Solicitation Agreement. Employee agrees and covenants that hewill not, unless acting with the Company's express written consent, directly orindirectly, during the term of this Agreement or for a period of one yearthereafter solicit, entice away or interfere with the Company's contractualrelationships with any customer, officer or employee of the Company. 12. Notices. All notices and other communications hereunder shall be inwriting and shall be deemed to have been given upon the earlier of actualreceipt or three days after having been mailed by first class mail, postageprepaid, or twenty-four hours after having been sent by Federal Express orsimilar overnight delivery services, as follows: (a) if to Employee, at theaddress shown at the head of this Agreement, or to such other person(s) oraddress(es) as Employee shall have furnished to the Company in writing; and (b)if to the Company, at the address shown at the head of this Agreement,Attention: Richard F. Maradie, with a copy to David A. White, Esq., White &McDermott, P.C., 65 William Street, Suite 209, Wellesley, Massachusetts 02181,or to such other person(s) or address(es) as the Company shall have furnished tothe Employee in writing. 13. Assignability. In the event that the Company shall be merged with, orconsolidated into, any other corporation, or in the event that it shall sell andtransfer substantially all of its assets to another corporation, the terms ofthis Agreement shall inure to the benefit of, and be assumed by, the corporationresulting from such merger or consolidation, or to which the Company's assetsshall be sold and transferred. This Agreement shall not be assignable byEmployee, but it shall be binding upon, and to the extent provided in Section 7shall inure to the benefit of, his heirs, executors, administrators and legalrepresentatives. 14. Entire Agreement. This Agreement contains the entire agreementbetween the Company and Employee with respect to the subject matter hereof andthere have been no oral or other prior agreements of any kind whatsoever as acondition precedent or inducement to the signing of this Agreement or otherwiseconcerning this Agreement or the subject matter hereof. 15. Equitable Relief. Employee recognizes and agrees that the Company'sremedy at law for any breach of the provisions of Sections 8, 9, 10 or 11 hereofwould be inadequate, and he agrees that for breach of such provisions, theCompany shall, in addition to such other remedies as 4 5may be available to it at law or in equity or as provided in this Agreement, beentitled to injunctive relief and to enforce its rights by an action forspecific performance. Should Employee engage in any activities prohibited bythis Agreement, he agrees to pay over to the Company all compensation,remuneration or monies or property of any sort received in connection with suchactivities; such payment shall not impair any rights or remedies of the Companyor obligations or liabilities of Employee which such parties may have under thisAgreement or applicable law. 16. Amendments. This Agreement may not be amended, nor shall any change,waiver, modification, consent or discharge be effected except by writteninstrument executed by the Company and Employee. 17. Severability. If any part of any term or provision of this Agreementshall be held or deemed to be invalid, inoperative or unenforceable to anyextent by a court of competent jurisdiction, such circumstances shall in no wayaffect any other term or provision of this Agreement, the application of suchterm or provision in any other circumstances, or the validity or enforceabilityof this Agreement. 18. Paragraph Headings. The paragraph headings used in this Agreement areincluded solely for convenience and shall not affect, or be used in connectionwith, the interpretation hereof. 19. Governing Law. This Agreement shall be governed by and construed andenforced in accordance with the law of the State of Delaware, without regard tothe principles of conflict of law thereof. 20. Resolution of Disputes. With the exception of proceedings forequitable relief brought pursuant to Section 15 of this Agreement or any stockoption agreement, any disputes arising under or in connection with thisAgreement or any stock option agreement including, without limitation, anyassertion by any party hereto that the other party has breached any provision ofthis Agreement, shall be resolved by arbitration, to be held in Baltimore,Maryland, in accordance with the rules and procedures of the AmericanArbitration Association. All costs, fees and expenses, including reasonableattorney fees, of any arbitration or equitable relief proceeding in connectionwith this Agreement shall be borne by, and be the obligation of, the Company. Inno event shall the Employee be required to reimburse the Company for any of thecosts and expenses incurred by the Company relating to any arbitration. Theobligation of the Company under this Section 20 shall survive the terminationfor any reason of the Term (whether such termination is by the Company or by theEmployee). 21. Indemnification. The Employee shall be entitled to liability andexpense indemnification to the fullest extent permitted by the Company's currentBy-laws and Certificate of Incorporation, whether or not the same aresubsequently amended. 22. Survivorship. The respective rights and obligations of the parties tothis Agreement shall survive any termination of this Agreement or the Employee'semployment hereunder for any reason to the extent necessary to the intendedpreservation of such rights and obligations. 5 6 IN WITNESS WHEREOF, the parties have executed or caused to be executedthis Agreement as of the date first above written. NOVAVAX, INC.[SEAL] By: /s/ Richard F. Maradie --------------------------------------- Richard F. Maradie, President and CEO /s/ Richard J. Harwood ------------------------------------------ Richard J. Harwood 6 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT AGREEMENT (the "Employment Agreement" or this "Agreement") dated as ofthe 31st day of March, 1998, between Novavax, Inc., a Delaware corporationhaving its principal office at 8320 Guilford Road, Columbia, Maryland 21046(the "Company") and D. Craig Wright, M.D. ("Employee") residing at 14740 MaineCove Terrace, Gaithersburg, Maryland 20878. The Company and Employee hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee herebyaccepts employment upon the terms and conditions hereinafter set forth. (As usedthroughout this Agreement, "Company" shall mean and include any and all of itspresent and future subsidiaries and any and all subsidiaries of a subsidiary.)Employee warrants that he is free to enter into and perform this Agreement andis not subject to any employment, confidentiality, non-competition or otheragreement which would restrict his performance under this Agreement. 2. Duties. Employee shall devote his full business time to theperformance of services as President and Chief Scientific Officer of the NovavaxBiologics division of the Company or such other senior management services asmay from time to time be designated by the Company's Chief Executive Officer orthe Board of Directors. During the term of this Agreement, Employee's servicesshall be completely exclusive to the Company and he shall devote his entirebusiness time, attention and energies to the business of the Company and theduties to which the Company shall assign him from time to time. Notwithstandingthe foregoing, it is understood and acknowledged by the parties that Employeemay serve on the boards of civic and charitable organizations during hisemployment, may serve on the boards of one or two business entities during hisemployment, may accept academic appointments to teach in medical schools duringone quarter of each year during his employment and may become a partner ininvestment entities (such as a mutual fund or a venture capital fund) providedthat his time devoted to such investment entities is during non-business hoursor on vacation days. Employee agrees to perform his services faithfully and tothe best of his ability and to carry out the policies and directives of theCompany. Employee agrees to take no action which is in bad faith and prejudicialto the interests of the Company during his employment hereunder. 3. Term. The term of this Agreement shall begin on the date of thisAgreement and shall end on June 30, 2002, unless earlier terminated inaccordance with Section 7 hereof (the "Term"). 4. Compensation. (a) Base Compensation. For all Employee's services and covenants underthis Agreement, the Company shall pay Employee an initial annual salary of$170,000, subject to annual review by the Board of Directors of the Company andpayable in accordance with the Company's payroll policy as constituted from timeto time. (b) Stock Options. Employee shall be entitled to receive stock optionsto purchase 60,000 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 March11, 1998. The options will be subject to a Incentive Stock Option Agreement(and, to the extent required by the Internal Revenue Code, a Non-Statutory StockOption Agreement) which shall include an option vesting schedule as follows:one-third of the shares on the six-month anniversary of the date of grant,one-third of the shares on the eighteen-month anniversary of the date of grantand one-third of the shares on the thirty-month anniversary of the date ofgrant. (c) Bonus Program. During each calendar year of the Term, a bonus poolshall be established consisting of 5% of the revenues received during the prioryear by the Novavax 2Biologics division of the Company, such bonus pool not to exceed $100,000 peryear. Employee shall have exclusive discretion to determine which employees ofthe Novavax Biologics division of the Company, including Employee, shall receivebonuses from such bonus pool and the amounts of such bonuses. (d) Patent Assignment Bonus. Employee shall be entitled to receive abonus of $5,000 for each patent application in which Employee is listed as theinventor that is assigned to the Company. If on any such patent applicationthere is listed more that one inventor, the amount of the bonus shall be reducedproportionately. 5. Expenses. Employee shall be entitled to reimbursement for reasonableexpenses incurred by Employee in connection with the performance of his dutieshereunder upon receipt of vouchers therefor in accordance with such proceduresas the Company has heretofore or may hereafter establish. 6. Employee Benefits. (a) Employee shall be entitled to four weeks paid vacation time peryear, calculated on a calendar year basis in accordance with Company policies ineffect from time to time. (b) Employee shall be entitled to participate in all group insuranceprograms, stock option plans or other fringe benefit plans which the Company maynow or hereafter in its sole and absolute discretion make available generally toits employees, but the Company shall not be required to establish any suchprogram or plan. (c) Employee shall be entitled to the use of a Company automobileduring the Term in accordance with Company policies in effect from time to time. 7. Termination of Employment. Notwithstanding any other provision of thisAgreement, Employee's employment may be terminated: (a) By the Company, in the event of Employee's willful failure orrefusal to perform in all material respects the services required of him hereby,after a specific written warning with regard thereto, which shall include astatement of corrective actions and a 30 day period for the Employee to respondand implement such actions, has been given to Employee by the Chief ExecutiveOfficer of the Company or its Board of Directors, his willful failure or refusalto carry out any proper direction by the Chief Executive Officer or the Board ofDirectors with respect to the services to be rendered by him hereunder or themanner of rendering such services, his willful misconduct in the performance ofhis duties hereunder or his commission of a felony involving moral turpitude; (b) By the Company, upon 30 days' notice to Employee, if he should beprevented by illness, accident or other disability (mental or physical) fromdischarging his duties hereunder for one or more periods totalling three monthsduring any twelve-month period; (c) By the Company, without cause, provided that if Employee'semployment is terminated pursuant to this Section 7(c), Employee shall beentitled to receive his then current salary as set forth in Section 4(a) above,but not a performance bonus, for two years from the date of termination, payablein accordance with the Company's payroll policy as constituted from time to timetogether with any accrued vacation pay and in the amounts set forth in Section4(a) above; (d) By Employee with "Good Reason" (as hereinafter defined), providedthat if Employee's employment is terminated pursuant to this Section 7(d),Employee shall be entitled to receive his then current salary as set forth inSection 4(a) above, but not a performance bonus, for 2 3one year from the date of termination, payable in accordance with the Company'spayroll policy as constituted from time to time together with any accruedvacation pay at his then current salary and in the amounts set forth in Section4(a) above. The Employee shall be entitled to terminate his employment for "GoodReason" if his responsibilities and authority are reduced or diluted in anymaterial way (other than for cause) without his consent. (e) By the event of Employee's death during the term of hisemployment; whereupon the Company's obligation to pay further compensationhereunder shall cease forthwith, except that Employee's legal representativeshall be entitled to receive his fixed compensation for the period up to thelast day of the month in which such death shall have occurred. 8. All Business to be Property of the Company; Assignment of IntellectualProperty. (a) Employee agrees that any and all presently existing business ofthe Company and all business developed by him or any other employee of theCompany including without limitation all contracts, fees, commissions,compensation, records, customer or client lists, agreements and any otherincident of any business developed, earned or carried on by Employee for theCompany is and shall be the exclusive property of the Company, and (whereapplicable) shall be payable directly to the Company. (b) Employee hereby grants to the Company (without any separateremuneration or compensation other than that received by him from time to timein the course of his employment) his entire right, title and interest throughoutthe world in and to, all research, information, procedures, developments, allinventions and improvements whether patentable or nonpatentable, patents andapplications therefor, trademarks and applications therefor, copyrights andapplications therefor, programs, trade secrets, plans, methods, and all otherdata and know-how (herein sometimes "Intellectual Property") made, conceived,developed and/or acquired by him solely or jointly with others during the periodof his employment with the Company, which are either (i)made, conceived,developed or acquired during regular business hours or on the premises of, orusing properties of, the Company or in the regular scope of Employee'semployment by the Company or (ii) if related to the Company's business, whetheror not made, conceived, developed or acquired during regular business hours oron the premises of, or using properties of, the Company or in the regular scopeof Employee's employment by the Company. (c) Subject to any prior rights granted to IGEN, Inc., a subsidiary ofIGI, Inc., if the Company decides to abandon an application or patent, for whichEmployee was the inventor, the Company will give 30 days' notice to Employee ofits intent to abandon such patent or application and, upon notice from Employeethat he desires to receive an assignment of such patent or application, theCompany shall assign all of its rights in and to such patent or application toEmployee for no additional consideration from the Employee. 9. Confidentiality. Except as necessary in performance of services forthe Company or if required by law and except for such information that becomesgenerally available to the public through no fault of Employee, Employee shallnot, either during the period of his employment with the Company or thereafter,use for his own benefit or disclose to or use for the benefit of any personoutside the Company, any information concerning any Intellectual Property, orother confidential or proprietary information of the Company, including withoutlimitation, any of the materials listed in Section 8(a), whether Employee hassuch information in his memory or embodied in writing or other tangible form.All originals and copies of any of the foregoing, however and whenever produced,shall be the sole property of the Company, not to be removed from the premisesor custody of the Company without in each instance first obtaining authorizationof the Company, which authorization may be revoked by the Company at any time.Upon the termination of Employee's employment in any manner or for any reason,Employee shall promptly surrender to the Company all copies of any of theforegoing, together with any documents, 3 4materials, data, information and equipment belonging to or relating to theCompany's business and in his possession, custody or control, and Employee shallnot thereafter retain or deliver to any other person any of the foregoing or anysummary or memorandum thereof. 10. Non-Competition Covenant. As the Employee is a significantstockholder of the Company and as such has a financial interest in the successof the Company's business and as Employee recognizes that the Company would besubstantially injured by Employee competing with the Company, Employee agreesand warrants that within the United States, he will not, unless acting with theCompany's express prior written consent, directly or indirectly, while anemployee of the Company and during the Non-Competition Period, as defined below,own, operate, join, control, participate in, or be connected as an officer,director, employee, partner, stockholder, consultant, or otherwise with, anybusiness or entity which competes with the business of the Company (or itssuccessors or assigns) as such business is now constituted or as it may beconstituted at any time during the term of this Agreement; provided, however,that Employee may own less than one percent of the equity of a publicly tradedcompany. The "Non-Competition Period" shall be a period of two years followingtermination of employment. Employee and the Company are of the belief that the period of time andthe area herein specified are reasonable in view of the nature of the businessin which the Company is engaged and proposes to engage, the state of itsbusiness development and Employee's knowledge of this business. However, if suchperiod or such area should be adjudged unreasonable in any judicial proceeding,then the period of time shall be reduced by such number of months or such areashall be reduced by elimination of such portion of such area, or both, as aredeemed unreasonable, so that this covenant may be enforced in such area andduring such period of time as is adjudged to be reasonable. 11. Non-Solicitation Agreement. Employee agrees and covenants that hewill not, unless acting with the Company's express written consent, directly orindirectly, during the term of this Agreement or for a period of two yearsthereafter, solicit, entice away or interfere with the Company's contractualrelationships with any customer, officer or employee of the Company. 12. Notices. All notices and other communications hereunder shall be inwriting and shall be deemed to have been given upon the earlier of actualreceipt or three days after having been mailed by first class mail, postageprepaid, or twenty-four hours after having been sent by Federal Express orsimilar overnight delivery services, as follows: (a) if to Employee, at theaddress shown at the head of this Agreement, or to such other person(s) oraddress(es) as Employee shall have furnished to the Company in writing; and (b)if to the Company, at the address shown at the head of this Agreement,Attention: Richard F. Maradie, with a copy to David A. White, Esq., White &McDermott, P.C., 65 William Street, Suite 209, Wellesley, Massachusetts 02181,or to such other person(s) or address(es) as the Company shall have furnished tothe Employee in writing. 13. Assignability. In the event that the Company shall be merged with, orconsolidated into, any other corporation, or in the event that it shall sell andtransfer substantially all of its assets to another corporation, the terms ofthis Agreement shall inure to the benefit of, and be assumed by, the corporationresulting from such merger or consolidation, or to which the Company's assetsshall be sold and transferred. This Agreement shall not be assignable byEmployee, but it shall be binding upon, and to the extent provided in Section 7shall inure to the benefit of, his heirs, executors, administrators and legalrepresentatives. 14. Entire Agreement. This Agreement contains the entire agreementbetween the Company and Employee with respect to the subject matter hereof andthere have been no oral or other prior agreements of any kind whatsoever as acondition precedent or inducement to the signing of this Agreement or otherwiseconcerning this Agreement or the subject matter hereof. 4 5 15. Equitable Relief. Employee recognizes and agrees that the Company'sremedy at law for any breach of the provisions of Sections 8, 9, 10 or 11 hereofwould be inadequate, and he agrees that for breach of such provisions, theCompany shall, in addition to such other remedies as may be available to it atlaw or in equity or as provided in this Agreement, be entitled to injunctiverelief and to enforce its rights by an action for specific performance. ShouldEmployee engage in any activities prohibited by this Agreement, he agrees to payover to the Company all compensation, remuneration or monies or property of anysort received in connection with such activities; such payment shall not impairany rights or remedies of the Company or obligations or liabilities of Employeewhich such parties may have under this Agreement or applicable law. 16. Amendments. This Agreement may not be amended, nor shall any change,waiver, modification, consent or discharge be effected except by writteninstrument executed by the Company and Employee. 17. Severability. If any part of any term or provision of this Agreementshall be held or deemed to be invalid, inoperative or unenforceable to anyextent by a court of competent jurisdiction, such circumstances shall in no wayaffect any other term or provision of this Agreement, the application of suchterm or provision in any other circumstances, or the validity or enforceabilityof this Agreement. 18. Paragraph Headings. The paragraph headings used in this Agreement areincluded solely for convenience and shall not affect, or be used in connectionwith, the interpretation hereof. 19. Governing Law. This Agreement shall be governed by and construed andenforced in accordance with the law of the State of Delaware, without regard tothe principles of conflict of law thereof. 20. Resolution of Disputes. With the exception of proceedings forequitable relief brought pursuant to Section 15 of this Agreement or any stockoption agreement, any disputes arising under or in connection with thisAgreement or any stock option agreement including, without limitation, anyassertion by any party hereto that the other party has breached any provision ofthis Agreement, shall be resolved by arbitration, to be held in Baltimore,Maryland, in accordance with the rules and procedures of the AmericanArbitration Association. All costs, fees and expenses, including reasonableattorney fees, of any arbitration or equitable relief proceeding in connectionwith this Agreement shall be borne by, and be the obligation of, the Company. Inno event shall the Employee be required to reimburse the Company for any of thecosts and expenses incurred by the Company relating to any arbitration. Theobligation of the Company under this Section 20 shall survive the terminationfor any reason of the Term (whether such termination is by the Company or by theEmployee). 21. Indemnification. The Employee shall be entitled to liability andexpense indemnification to the fullest extent permitted by the Company's currentBy-laws and Certificate of Incorporation, whether or not the same aresubsequently amended. 22. Survivorship. The respective rights and obligations of the parties tothis Agreement shall survive any termination of this Agreement or the Employee'semployment hereunder for any reason to the extent necessary to the intendedpreservation of such rights and obligations. 5 6 IN WITNESS WHEREOF, the parties have executed or caused to be executedthis Agreement as of the date first above written. NOVAVAX, INC.[SEAL] By: /s/ Richard F. Maradie ---------------------------------------- Richard F. Maradie, President and CEO /s/ D. Craig Wright ------------------------------------------- D. Craig Wright, M.D. 6 1 EXHIBIT 10.15 [Novavax Letterhead]September 10, 1998 (as amended by letter dated September 25, 1998)Richard F. Maradie325 Epping WayAnnapolis, MD 21401Dear Rick:This letter contains information regarding your separation from employment withNovavax on September 4, 1998. The Company has agreed to offer you separationbenefits as summarized below.Separation PayYou have been paid through September 4, 1998, and you will be paid two weeks inlieu of notice in your last paycheck. If you sign your separation agreement andyour period of revocation has expired, you will receive 50 weeks of separationpay, not including the two weeks pay in lieu of notice, at your basecompensation rate.Medical and Dental BenefitsYour medical, dental and vision coverage with Great West will end on September30, 1998. Information on extending this coverage through COBRA is attached. YourCOBRA payments will be paid by Novavax for a period of one year from October 1,1998 through September 30, 1999.Life Insurance And DisabilityYour group term life insurance policy will end on September 30, 1998. You mayconvert to an individual policy, as described in the information attached. Yourshort and long term disability coverage will end as of September 4, 1998.401(k) Savings PlanOur records indicate that you are participating in the Employee Savings andInvestment Plan. There is information attached describing your distributionoptions for funds currently in your account. Please be aware that you have 60days from the date you receive this information to chose a distribution option.Manchester Transition ProgramNovavax has negotiated a contract for outplacement support with a CareerConsultant to assist you during the transition process. Your six month programbegins with your first appointment on Monday September 21, 1998 at 9:00 a.m.Documentation is required.Legal ServicesNovavax has agreed to cover a maximum of $5,000.00 in costs for legal counselregarding corporate indemnification. Invoices from the attorney should besubmitted directly to Novavax.If you have any questions relating to any of the benefits described above,please contact me.Sincerely,/s/ Brenda FugagliBrenda FugagliExecutive Vice President and COOenclosures 2 NOVAVAX, INC. SEPARATION AND RELEASE AGREEMENTNovavax, Inc. and Richard F. Maradie hereby agree the following sets out thecomplete agreement and understanding regarding the termination of my employmentwith Novavax, Inc. (the "Company" or "Novavax"), which shall be effectiveSeptember 4, 1998.1. I hereby acknowledge that the separation compensation offered to me has been explained. I also acknowledge that I have been given at least twenty-one (21) days to review Novavax' Separation and Release Agreement ("Agreement") required for my receipt of separation benefits. I certify that I have been advised in writing to consult an attorney, and that I have had the opportunity to obtain all advice and information deemed necessary with respect to the matters covered by this Agreement, including the opportunity to consult with legal counsel or anyone else of my choosing.2. In consideration for the separation benefits I am eligible to receive, as described to me by letter dated September 10, 1998 as amended September 25, 1998: (i) I agree not to take any action which disparages or criticizes the Company, its management, or its practices or which disrupts or impairs its normal operations, including actions that would result in the filing of any claims, lawsuits or charges against the Company as a result of anything which has occurred up to and including the present date. (ii) I also understand and agree that the Company may terminate my continued eligibility for separation benefits and immediately recover all benefits previously paid to me if I engage in misconduct or otherwise violate Company policy, including, but not limited to any action that violates this Agreement or harms the reputation of the Company with its customers, suppliers or the public; interferes with existing contractual or employment relationships with customers, suppliers or Company employees; or misappropriates, misuses, or discloses any trade secret or other confidential information I learned while actively employed by the Company. (iii) In addition, and in further consideration of my eligibility for the separation pay and benefits described to me, the sufficiency of which consideration I acknowledge, I hereby agree to release and discharge the Company, its affiliate corporations, and all of its officers, directors, employees, agents and attorneys from any and all losses, expenses, claims, rights, entitlements, whether known or unknown, I now have or have had or may later claim to have had arising out of any alleged violation of my rights while employed by the Company, including but not limited to, claims for back pay, for reinstatement or for recovery of any losses or other damages to me or my property resulting from any alleged violation of local, state or federal law, such as (but not limited to) claims arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 200 et seq. (prohibiting discrimination on account of race, sex, national origin or religion); the Age Discrimination in Employment Act of 1967, 29 U.S.C. Section 621 et seq. (prohibiting discrimination on account of age), the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12, 101 et seq., (prohibiting discrimination on account of disabilities), or any similar federal, state, or local law relating to my employment. (iv) I will not hereafter pursue any individual claim against the Company, its affiliated corporations, or any of its officers, directors, employees or agents, by filing a lawsuit in any local, state or federal court for or on account of anything which has occurred up to the present time as a result of my previous employment. 33. I understand that I may revoke this Agreement entirely by delivering a signed notice of revocation to the Company within seven (7) days after I sign this Agreement. In that event, this Agreement will be canceled and void, I will not be entitled to any of the separation benefits provided by this Agreement, and neither party to this Agreement shall have any rights or obligations arising under it.4. This Agreement shall be binding upon and shall be for the benefit of the Company and myself, as well as our respective heirs, personal representatives, successors and assigns.5. The provisions of this Agreement shall be severable, and the invalidity of any provision shall not affect the validity of other provisions.6. I have carefully read this Agreement, I understand its meaning and intent, I have not been coerced into signing this Agreement, and I voluntarily agree to abide by its terms. I acknowledge that the separation benefits described in this Agreement are adequate consideration for my signing it and that no other promise or agreement of any kind has been made to me by the Company to cause me to execute this Agreement and that the only consideration for my execution of this Agreement is set forth in this document./s/ Richard F. Maradie 9/22/98- -------------------------------- ----------------------Employee Signature DatedFor Novavax,In exchange for the employee's execution of this release, the Company promisesto provide separation benefits as described to him or her.Witnessed: /s/ Sally Kiernan Dated: 9/22/98 -------------------------- ---------------NOTE: This Agreement must be signed, dated and returned to the Company withoutany alternation. Any modification or alternation of any terms of this Agreementwill void the Agreement in its entirety. 1 EXHIBIT 10.16 NOVAVAX, INC. STOCK AND WARRANT PURCHASE AGREEMENT This Stock and Warrant Purchase Agreement (the "Agreement") is made asof April 14, 1999 between Novavax, Inc., a Delaware corporation (the"Company"), and the purchasers who are signatories hereto (the "Purchasers"). WHEREAS, the Company wishes to sell and the Purchasers desire topurchase shares of the Company's Common Stock, $.01 par value per share (the"Shares") and warrants for the purchase of shares of Common Stock exercisablefor a term of three years from the date of issuance at an exercise price equalof $3.75 per share (the "Warrants"), as such are being offered by the Companypursuant to a Private Placement Memorandum dated January 25, 1999 (togetherwith its Appendices, the "Memorandum"); NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Purchase and Sale of Shares and Warrants. 1.1 Sale to the Purchasers. Subject to the terms andconditions hereof, the Company will issue and sell to the Purchasers, and eachPurchaser will purchase from the Company the nearest whole number of Sharesthat can be purchased at the Purchase Price (as defined in Section 1.4) on theClosing Date for the dollar amount of the Purchaser's Investment (a"Purchaser's Investment Amount") as set forth opposite such Purchaser's name onthe signature page hereto. The obligations of each Purchaser hereunder areseveral and not joint and no Purchaser shall be obligated to purchase anynumber of Shares in excess of the number that may be acquired for suchPurchaser's Investment Amount. 1.2 Warrants. Each Share sold shall be sold together with aWarrant, substantially in the form of the Warrant appearing as Exhibit Bhereto, for the purchase of 0.25 additional shares of Common Stock (the"Warrant Shares") at an exercise price equal of $3.75 per share. 1.3 Aggregate Sale. Pursuant to this Agreement, the Companyshall sell Shares for aggregate Purchaser's Investment Amounts totaling between$2,000,000 and $6,000,000. 1.4 Purchase Price. The Purchase Price for each Share shallbe $2.50. 2. Closing Date and Delivery. 2.1 Closing Date. The closing of the purchase and sale ofthe Shares and Warrants hereunder (the "Closing") will be held at 10:00 a.m. onApril 13, 1999 or such later date as the Company may designated by writtennotice to all offerees and Purchasers but not later than April 30, 1999 (the"Closing Date"). The Closing will be conducted at the offices of White &McDermott, P.C., 65 William Street, Wellesley, Massachusetts 02481. 2.2 Delivery. On the Closing Date, the Company shall deliverthe following to each Purchaser: (a) a stock certificate registered in eachPurchaser's name representing the Shares purchased by such Purchaser, (b) aWarrant in such Purchaser's name representing the right to acquire 0.25 WarrantShares for each Share purchased and (c) an opinion of White & McDermott, P.C.dated the Closing Date and substantially in the form attached hereto as ExhibitA. Before 5:00 p.m. eastern time on April 12, 1999, each Purchaser shall payto the Company by certified check or wire transfer the amount of thePurchaser's Investment Amount as set forth opposite such Purchaser's name onthe signature page hereto. 2 3. Representations and Warranties by the Company. The Companyrepresents and warrants to the Purchasers as of the date hereof that: 3.1 Organization and Standing. The Company is a corporationduly organized, validly existing and in good standing under the laws of theState of Delaware, and has the requisite corporate power and authority to own,lease and operate its properties and to carry on its business as now beingconducted. The Company is qualified to do business and is in good standing asa foreign corporation in every jurisdiction in which the failure to so qualifywould have a material adverse effect on the financial condition or business ofthe Company. 3.2 Changes. Except as set forth in the Memorandum, sinceSeptember 30, 1998, the Company has not, to the extent material to the Company,(i) incurred any debts, obligations or liabilities, absolute, accrued orcontingent, whether due or to become due, other than in the ordinary course ofbusiness, (ii) mortgaged, pledged or subjected to lien, charge, securityinterest or other encumbrance any of its assets, tangible or intangible, (iii)waived any debt owed to the Company or its subsidiaries, (iv) satisfied ordischarged any lien, claim or encumbrance or paid any obligation other than inthe ordinary course of business, (v) declared or paid any dividends, or (vi)entered into any transaction other than in the usual and ordinary course ofbusiness. 3.3 Litigation. There are no legal actions, suits,arbitrations or other legal, administrative or governmental proceedings pendingor, to the best of the Company's knowledge, threatened against the Company orits properties, assets or business, and the Company is not aware of any factswhich might result in or form the basis for any such action, suit or otherproceeding, in each case which, if adversely determined, would individually orin the aggregate have a material adverse effect on the financial condition orbusiness of the Company. 3.4 Compliance with Other Instruments. Except for suchmatters which, either individually or in the aggregate, would not have amaterial adverse effect on the financial condition or business of the Company,the execution and delivery of, and the performance and compliance with, thisAgreement and the Warrants and the transactions contemplated hereby or thereby,with or without the giving of notice or passage of time, will not (i) result inany breach of, or constitute a default under, or result in the imposition ofany lien or encumbrance upon any asset or property of the Company pursuant toany agreement or other instrument to which the Company is a party or by whichit or any of its properties, assets or rights is bound or affected, (ii)violate the Certificate of Incorporation or Bylaws of the Company, or any law,rule, regulation, judgment, order or decree, or (iii) except for theregistration of the Shares and the Warrant Shares under the Securities Act of1933, the listing of the Shares and the Warrant Shares on the American StockExchange, Inc. and such consents, approvals, authorizations, registrations orqualifications as may be required under the Securities Exchange Act of 1934 andapplicable state securities laws in connection with the purchase of the Sharesand the Warrants by the Purchasers, require any consent, approval,authorization or order of or filing with any court or governmental agency orbody. 3.5 Reports and Financial Statements. The Appendices to theMemorandum contain true and complete copies of the Company's Form 10-K/A forthe year ended December 31, 1997, the Company's Proxy Statement in connectionwith the 1998 Annual Meeting of Stockholders and all Forms 10-Q and 8-K filedby the Company with the Securities and Exchange Commission (the "SEC") afterJanuary 1, 1998, in each case without exhibits thereto (the "SEC Reports"). Asof their respective filing dates, the Company SEC Reports were prepared in allmaterial respects in accordance with the requirements of the Securities Act orthe Exchange Act, as the case may be, and the rules and regulations of the SECthereunder applicable to such Company SEC Reports. The audited consolidatedfinancial statements and unaudited interim financial statements of the Companyincluded in the Company SEC Reports have been prepared in accordance withUnited States generally accepted accounting principles applied on a consistentbasis (except as may be indicated therein or in the notes thereto) and fairlypresent, in all material respects, the financial 2 3position of the Company as at the dates thereof and the results of itsoperations and cash flows for the periods then ended subject, in the case ofthe unaudited interim financial statements, to normal year-end adjustments andany other adjustments described in such financial statements. 3.6 Shares. The Shares and the Warrant Shares, when issuedand paid for pursuant to the terms of this Agreement or the Warrants, as thecase may be, will be duly and validly authorized, issued and outstanding, fullypaid, nonassessable and free and clear of all pledges, liens, encumbrances andrestrictions (other than those arising from the private placement of the Sharesand the Warrant Shares). 3.7 Securities Laws. Based in part upon the representationsand warranties of the Purchasers contained in Article 4 of this Agreement, theoffer, sale and issuance of the Shares and the Warrants as contemplated by thisAgreement are exempt from the registration requirements of the Securities Act,and from the registration or qualifications requirements of the laws of anyapplicable state or other U.S. jurisdiction. 3.8 Capital Stock. On December 31, 1998, 13,253,188 sharesof the Company's Common Stock were issued and outstanding, no shares of theCompany's Preferred Stock were issued and outstanding, options to purchase3,554,247 shares of the Company's Common Stock were issued and outstanding andwarrants to purchase 1,300,000 shares of the Company's Common Stock were issuedand outstanding. All of the outstanding shares of the Company's capital stockare validly issued, fully paid and nonassessable. Except as set forth in thisSection 3.8 or the Memorandum, as of December 31, 1998, there are nooutstanding subscriptions, options, warrants, calls, contracts, demands,commitments, conversion rights or other agreements or arrangements of anycharacter or nature whatever under which the Company is or may be obligated toissue its Common Stock, preferred stock or warrants or options to purchaseCommon Stock or preferred stock. No holder of any security of the Company isentitled to any preemptive or similar rights to purchase any securities of theCompany. 3.9 Corporate Acts and Proceedings. This Agreement has beenduly authorized by the requisite corporate action and has been duly executedand delivered by an authorized officer of the Company, and is a valid andbinding obligation of the Company, enforceable in accordance with its terms,except as such enforceability may be limited by bankruptcy, insolvency,moratorium, reorganization or other similar laws affecting the enforcement ofcreditors' rights generally and as to limitations on the enforcement of theremedy of specific performance and other equitable remedies. The requisitecorporate action necessary to the authorization, reservation, issuance anddelivery of the Shares, the Warrants and the Warrant Shares has been taken bythe Company. Upon execution and delivery thereof by a duly authorized officerof the Company, the Warrants will be valid and binding obligations of theCompany, enforceable in accordance with their terms except as suchenforceability may be limited by bankruptcy, insolvency, moratorium,reorganization or other similar laws affecting the enforcement of creditors'rights generally and as to limitations on the enforcement of the remedy ofspecific performance and other equitable remedies. 3.10 No Implied Representations. All of the Company'srepresentations and warranties are contained in this Agreement, and no otherrepresentations or warranties by the Company shall be implied. 3.11 Filing of Reports. Since the Company's Annual Report onForm 10-K for the fiscal year ended December 31, 1995, the Company has filedwith the Commission all reports and other material required to be filed by ittherewith pursuant to Section 13, 14 or 15(d) of the Exchange Act and theCompany is eligible to register the offer and resale of the Shares and theWarrant Shares on a Registration Statement on Form S-3, or a successor form. 3 4 3.12 Closing Date. All the representations and warrantiesmade by the Company in this Section 3 shall be true and complete from the dateof this Agreement through the Closing Date and the Company shall provide eachPurchaser, before the Closing, with any documents or information necessary forsuch representations and warranties to remain true and complete as of theClosing Date. 4. Representations and Warranties by the Purchasers; Restrictions onTransfer. Each Purchaser severally represents and warrants to, and covenants andagrees with, the Company, as of the Closing Date, as follows: 4.1 Authorization. Purchaser has all requisite legal andcorporate or other power and capacity and has taken all requisite corporate orother action to execute and deliver the Agreement, to purchase the Shares andthe Warrants to be purchased by it and to carry out and perform all of itsobligations under the Agreement. This Agreement constitutes the legal, validand binding obligation of Purchaser, enforceable in accordance with its terms,except as such enforceability may be limited by bankruptcy, insolvency,moratorium, reorganization or other similar laws affecting the enforcement ofcreditors' rights generally and as to limitations on the enforcement of theremedy of specific performance and other equitable remedies. 4.2 Accredited Investor Status. Purchaser is an "AccreditedInvestor" as defined in Rule 501 of Regulation D under the Securities Act of1933. Purchaser acknowledges receiving and reviewing the Memorandum (includingits Appendices). Purchaser is aware of the Company's business affairs andfinancial condition and has had access to and has acquired sufficientinformation about the Company to reach an informed and knowledgeable decisionto acquire the Shares and the Warrants. Purchaser has such business andfinancial experience as is required to give it the capacity to protect its owninterests in connection with the purchase of the Shares and the Warrants and isable to bear the risks of an investment in the Shares and the Warrants.Purchaser is not itself a "broker" or a "dealer" as defined in the Exchange Actof 1934 and is not an "affiliate" of the Company as defined in Rule 405 of theSecurities Act, except as indicated below:_____________________________________________________________________. 4.3 Investment Intent. Purchaser is purchasing the Sharesand the Warrants for its own account as principal, for investment purposesonly, and not with a present view to or for resale, distribution orfractionalization thereof, in whole or in part, within the meaning of theSecurities Act. Purchaser understands that its acquisition of the Shares andthe Warrants has not been registered under the Securities Act or registered orqualified under any state securities law in reliance on specific exemptionstherefrom, which exemptions may depend upon, among other things, the bona fidenature of Purchaser's investment intent as expressed herein. Purchaser has, inconnection with its decision to purchase the number of Shares and the Warrantsset forth in this Agreement, relied solely upon the Memorandum and therepresentations and warranties of the Company contained herein. Purchaser willnot, directly or indirectly, offer, sell, pledge, transfer or otherwise disposeof (or solicit any offers to buy, purchase or otherwise acquire or take apledge of) any of the Shares or Warrants, except in compliance with theSecurities Act and the rules and regulations promulgated thereunder. 4.4 Registration or Exemption Requirements. Purchaserfurther acknowledges and understands that neither the Shares nor the Warrantsmay be resold or otherwise transferred except in a transaction registered underthe Securities Act or unless an exemption from such registration is available.Purchaser understands that until the Shares and Warrant Shares have beenregistered for resale by the Purchasers in compliance with applicablesecurities laws, the certificates evidencing the Shares, the Warrants andWarrant Shares will be imprinted with a legend that prohibits the transfer ofthe Shares, Warrants and Warrant Shares unless (a) such transaction is 4 5registered or such registration is not required, and (b) if the transfer ispursuant to an exemption from registration an opinion reasonably satisfactoryto the Company of counsel reasonably satisfactory to the Company is obtained tothe effect that the transaction is not required to be registered or is soexempt. 4.5 Restriction on Sales, Short Sales and HedgingTransactions. Purchaser represents and agrees that during the period from thedate Purchaser was first contacted with respect to the potential purchase ofShares and Warrants through the date of the execution of the Agreement byPurchaser, Purchaser did not, and from such date through the effectiveness ofthe Registration Statement (as defined below), Purchaser will not, directly orindirectly, execute or effect or cause to be executed or effected any shortsale, option or equity swap transactions in or with respect to the Company'sCommon Stock or any other derivative security transaction the purpose or effectof which is to hedge or transfer to a third party all or any part of the riskof loss associated with the ownership of the Shares and Warrants by thePurchaser. 4.6 No Legal, Tax Or Investment Advice. Purchaserunderstands that nothing in the Memorandum, this Agreement or any othermaterials presented to Purchaser in connection with the purchase and sale ofthe Shares and the Warrants constitutes legal, tax or investment advice.Purchaser has consulted such legal, tax and investment advisors as it, in itssole discretion, has deemed necessary or appropriate in connection with itspurchase of the Shares and the Warrants. 4.7 Closing Date. All the representations and warrantiesmade by each Purchaser in this Section 4 shall be true and complete from thedate of this Agreement through the Closing Date and each Purchaser shallprovide the Company, before the Closing, with any documents or informationnecessary for such representations and warranties to remain true and completeas of the Closing Date. 5. Covenants 5.1 Registration Requirements. (a) Within 14 days after the Closing Date, theCompany shall prepare and file a registration statement (the "RegistrationStatement") with the SEC under the Securities Act to register the offer andresale of the Shares and the Warrant Shares by the Purchasers (together, the"Registrable Securities"), and shall use its reasonable efforts to secure theeffectiveness of such Registration Statement as soon as reasonably practicablethereafter. (b) The Company shall pay all Registration Expenses(as defined below) in connection with any registration, qualification orcompliance hereunder and each Purchaser shall pay all Selling Expenses (asdefined below) and other expenses that are not Registration Expenses relatingto the Registrable Securities resold by such Purchaser. "RegistrationExpenses" shall mean all expenses, except for Selling Expenses, incurred by theCompany in complying with the registration provisions herein described,including, without limitation, all registration, qualification and filing fees,printing expenses, escrow fees, fees and disbursements of counsel for theCompany, blue sky fees and expenses and the expense of any special auditsincident to or required by any such registration. "Selling Expenses" shallmean all selling commissions, underwriting fees and stock transfer taxesapplicable to the Registrable Securities and all fees and disbursements ofcounsel for any Purchaser. (c) If the Registration Statement becomes effective,the Company will use its best efforts to: (i) keep such registration effectiveuntil the second anniversary of the date such Registration Statement isdeclared effective (or, in the case of Warrant Shares, the first anniversary ofthe date of issuance of such Warrant Shares, but in any event not later thanthe fourth anniversary of the date such Registration Statement is declaredeffective); provided, however, if Rule 144 is 5 6amended so that the longest period that Rule 144 restricts the manner in whichprivately placed securities may be sold is a period shorter than two years,then the period required by this clause shall be reduced to (A) such shorterperiod, (B) such date as all of the Registrable Securities have been resold, or(C) such date as all Registrable Securities may be sold pursuant to Rule 144(or any successor rule); (ii) except as provided in Section 5.1(e), prepare andfile with the SEC such amendments and supplements to the Registration Statementand the prospectus used in connection with the Registration Statement as may benecessary to comply with the provisions of the Securities Act with respect tothe disposition of all securities covered by the Registration Statement; (iii)furnish such number of prospectuses and other documents incident thereto,including any amendment of or supplement to the prospectus, as Purchaser fromtime to time may reasonably request; (iv) cause the Shares and the WarrantShares to be listed on the American Stock Exchange or any securities exchangeor quoted on each quotation service on which the Common Stock of the Company isthen listed or quoted; (v) provide a transfer agent and registrar for allsecurities registered pursuant to the Registration Statement and a CUSIP numberfor all such securities; and (vi) file the documents required of the Companyand otherwise use its best efforts to maintain requisite blue sky clearance inall U.S. jurisdictions in which any of the Shares are originally sold and allother states specified in writing by Purchaser, provided, however, that theCompany shall not be required to qualify to do business in any state in whichit is not now so qualified or has not so consented. (d) The Company shall furnish to each Purchaser uponrequest a reasonable number of copies of a supplement to or an amendment of theprospectus used in connection with the Registration Statement as may benecessary to facilitate the public sale or other disposition of all or any ofthe Registrable Securities held by Purchaser. (e) At any time after the effective date of theRegistration Statement, the Company may by notice to the Purchasers refuse topermit any Purchaser to resell any Registrable Securities pursuant to theRegistration Statement for a period not to exceed 30 days; provided, however,that to exercise this right, the Company must deliver a certificate in writingto each Purchaser to the effect that a delay in such sale is necessary becausea sale pursuant to such Registration Statement in its then-current form wouldnot be in the best interests of the Company and its shareholders due todisclosure obligations of the Company. Notwithstanding the foregoing, theCompany shall not be entitled to exercise its right to block such sales morethan three times during the effectiveness of the Registration Statement normore than one time in any four month period. Each Purchaser hereby covenantsand agrees that it will not sell any Registrable Securities pursuant to theRegistration Statement during such blockage periods as set forth in thisSection 5.1(e). (f) In the event that the Registration Statement hasnot become effective on or before 120 days from the Closing Date, the Companyshall issue to each Purchaser an additional warrant to purchase the nearestwhole number of shares equal to five percent of the number of Shares purchasedby such Purchaser on the Closing Date, at an exercise price of $3.75 per share. Similarly, in the event that the Registration Statement has not becomeeffective on or before the dates which are 150 days from the Closing Date, 180days from the Closing Date, 210 days from the Closing Date and 240 days fromthe Closing Date, the Company shall issue to each Purchaser on each suchoccasion an additional warrant to purchase the nearest whole number of sharesequal to five percent of the number of Shares purchased by such Purchaser onthe Closing Date, at an exercise price of $3.75 per share. The maximum numberof shares purchasable pursuant to warrants issued pursuant to this Agreementshall be equal to twenty five percent of the number of Shares purchased by eachsuch Purchaser on the Closing Date. 6 7 5.2. Indemnification and Contribution (a) The Company agrees to indemnify and hold harmlesseach Purchaser from and against any losses, claims, damages or liabilities (oractions or proceedings in respect thereof) to which such Purchaser may becomesubject (under the Securities Act or otherwise) insofar as such losses, claims,damages or liabilities (or actions or proceedings in respect thereof) arise outof, or are based upon, any untrue statement or alleged untrue statement of amaterial fact or omission to state a material fact in the RegistrationStatement on the effective date thereof, or arise out of any failure by theCompany to fulfill any undertaking included in the Registration Statement, andthe Company will, as incurred, reimburse such Purchaser for any legal or otherexpenses reasonably incurred in investigating, defending or preparing to defendany such action, proceeding or claim; provided, however, that the Company shallnot be liable in any such case to the extent that such loss, claim, damage orliability arises out of, or is based upon (i) an untrue statement or omissionin such Registration Statement in reliance upon and in conformity with writteninformation furnished to the Company by or on behalf of such Purchaserspecifically for use in preparation of the Registration Statement or (ii) anuntrue statement or omission in any prospectus that is corrected in anysubsequent prospectus, or supplement or amendment thereto, that was deliveredto a Purchaser prior to the pertinent sale or sales by such Purchaser and notdelivered by such Purchaser to the entity to which it made such sale(s) priorto such sale(s). (b) Each Purchaser, severally and not jointly, agreesto indemnify and hold harmless the Company from and against any losses, claims,damages or liabilities (or actions or proceedings in respect thereof) to whichthe Company may become subject (under the Securities Act or otherwise) insofaras such losses, claims, damages or liabilities (or actions or proceedings inrespect thereof) arise out of, or are based upon (i) an untrue statement oralleged untrue statement of a material fact or omission to state a materialfact in the Registration Statement in reliance upon and in conformity withwritten information furnished to the Company by or on behalf of such Purchaserspecifically for use in preparation of the Registration Statement (provided,however, that no Purchaser shall be liable in any such case for any untruestatement or omission in any prospectus which statement has been corrected, inwriting, by such Purchaser and delivered to the Company at least 14 days beforethe sale from which such loss occurred), or (ii) an untrue statement oromission in any prospectus that is corrected in any subsequent prospectus orsupplement or amendment thereto, that was delivered to a Purchaser prior to thepertinent sale or sales by such Purchaser and not delivered by such Purchaserto the entity to which it made such sale(s) prior to such sale(s), and eachPurchaser, severally and not jointly, will, as incurred, reimburse the Companyfor any legal or other expenses reasonably incurred in investigating, defendingor preparing to defend any such action, proceeding or claim. Notwithstandingthe foregoing, no Purchaser shall be liable, or required to indemnify theCompany, in the aggregate, for any amount in excess of the net proceedsreceived by the Purchaser from the sale of the Shares or the Warrant Shares, asthe case may be, to which such loss, claim, damage or liability relates. (c) Promptly after receipt by any indemnified personof a notice of a claim or the beginning of any action in respect of whichindemnity is to be sought against an indemnifying person pursuant to thisSection 5.2, such indemnified person shall notify the indemnifying person inwriting of such claim or of the commencement of such action and, subject to theprovisions hereinafter stated, in case any such action shall be brought againstan indemnified person, the indemnifying person shall be entitled to participatetherein, and, to the extent that it shall wish, to assume the defense thereof,with counsel reasonably satisfactory to the indemnified person. After noticefrom the indemnifying person to such indemnified person of the indemnifyingperson's election to assume the defense thereof, the indemnifying person shallnot be liable to such indemnified person for any legal expenses subsequentlyincurred by such indemnified person in connection with the defense thereof;provided, however, that if there exists or shall exist a conflict of interestthat would make it inappropriate in the reasonable judgment of the indemnifiedperson for the same counsel to represent both the indemnified person and suchindemnifying person or 7 8any affiliate or associate thereof, the indemnified person shall be entitled toretain its own counsel at the expense of such indemnifying person; provided,further, that the indemnifying person shall not be obligated to assume theexpenses of more than one counsel to represent all indemnified persons. (d) If the indemnification provided for in thisSection 5.2 is unavailable to or insufficient to hold harmless an indemnifiedparty under subsection (a) or (b) above in respect of any losses, claims,damages or liabilities (or actions or proceedings in respect thereof) referredto therein, then each indemnifying party shall contribute to the amount paid orpayable by such indemnified party as a result of such losses, claims, damagesor liabilities (or actions in respect thereof) in such proportion as isappropriate to reflect the relative fault of the Company on the one hand andthe Purchasers on the other in connection with the statements or omissionswhich resulted in such losses, claims, damages or liabilities (or actions inrespect thereof), as well as any other relevant equitable considerations. Therelative fault shall be determined by reference to, among other things, whetherthe untrue or alleged untrue statement of a material fact or the omission oralleged omission to state a material fact relates to information supplied bythe Company on the one hand or a Purchaser on the other and the parties'relative intent, knowledge, access to information and opportunity to correct orprevent such statement or omission. The Company and the Purchasers agree thatit would not be just and equitable if contribution pursuant to this subsection(d) were determined by pro rata allocation (even if the Purchasers were treatedas one entity for such purpose) or by any other method of allocation which doesnot take into account the equitable considerations referred to above in thissubsection (d). The amount paid or payable by an indemnified party as a resultof the losses, claims, damages or liabilities (or actions in respect thereof)referred to above in this subsection (d) shall be deemed to include any legalor other expenses reasonably incurred by such indemnified party in connectionwith investigating or defending any such action or claim. Notwithstanding theprovisions of this subsection (d), no Purchaser shall be required to contributein the aggregate any amount in excess of the net proceeds received by thePurchaser from the sale of the Shares or Warrant Shares, as the case may be, towhich such loss, claim, damage or liability relates. No person guilty offraudulent misrepresentation (within the meaning of Section 11(f) of theSecurities Act) shall be entitled to contribution from any person who was notguilty of such fraudulent misrepresentation. The Purchaser's obligations inthis subsection (d) to contribute are several in proportion to their sales ofShares or Warrant Shares, as the case may be, to which such loss relates andnot joint. (e) The obligations of the Company and the Purchasersunder this Section 5.2 shall be in addition to any liability which the Companyand the respective Purchasers may otherwise have and shall extend, upon thesame terms and conditions, to directors, officers, employees and agents of theCompany and the Purchasers and to each person, if any, who controls the Companyor any Purchaser within the meaning of the Securities Act and the Exchange Act. 6. Restrictions on Transferability of Shares and Warrants; Compliancewith Securities Act. 6.1 Restrictions on Transferability. Neither the Shares northe Warrants shall be transferable in the absence of registration under theSecurities Act or an exemption therefrom or in the absence of compliance withany term of the Agreement. 6.2 Restrictive Legend. Until and unless the Shares andWarrant Shares are registered under the Securities Act, each certificaterepresenting the Shares and the Warrant Shares and each Warrant shall bearsubstantially the following legend (in addition to any legends required underapplicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE SECURI- 8 9 TIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. 6.3 Transfer of Shares and Warrants. Each Purchaser herebycovenants with the Company not to make any sale of the Shares or Warrantsexcept either (a) a sale of Shares or Warrant Shares in accordance with theRegistration Statement, in which case the Purchaser covenants to comply withthe requirement of delivering a current prospectus, (b) a sale of Shares orWarrant Shares in accordance with Rule 144, in which case the Purchasercovenants to comply with Rule 144 and to deliver such additional certificatesand documents as the Company may reasonably request, or (c) subject to suchconditions as the Company in its sole discretion shall impose, in accordancewith another exemption from the registration requirements of the SecuritiesAct. The legend set forth in Section 6.2 will be removed from a certificaterepresenting Shares or the Warrant Shares, as the case may be, following and inconnection with any sale of Shares or Warrant Shares pursuant to subsection (a)or (b) hereof but not in connection with any sale of Shares or Warrant Sharespursuant to subsection (c) hereof. 7. Miscellaneous. 7.1 Survival of Representations and Warranties. Allrepresentations and warranties contained herein shall survive the execution anddelivery of this Agreement, any investigation at any time made by or on behalfof the Purchaser, and the sale and purchase of the Shares and the Warrants andpayment therefor. 7.2 Headings. The headings of the sections of this Agreementhave been inserted for convenience of reference only and do not constitute apart of this Agreement. 7.3 Choice of Law. It is the intention of the parties thatthe internal laws of the State of Delaware, without regard to the body of lawcontrolling conflicts of law, shall govern the validity of this Agreement, theconstruction of its terms and the interpretation of the rights and duties ofthe parties set forth herein. 7.4 Counterparts. This Agreement may be executedconcurrently in two or more counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the sameinstrument. 7.5 Assignment; Parties in Interest. This Agreement may notbe pledged, assigned or otherwise transferred by the Purchasers except byoperation of law but all the terms and provision of this Agreement shall bebinding upon and inure to the benefit of and be enforced by the successors ininterest of the parties hereto. Each successive transferee of the Purchasersshall be deemed to be a Purchaser for the purpose of Section 5 of thisAgreement. [The remainder of this page is intentionally left blank] 9 10 IN WITNESS WHEREOF, the parties have caused this Agreement to be dulyexecuted and delivered by their proper and duly authorized representatives asof the day and year first above written. NOVAVAX, INC. By: /s/ Mitchell J. Kelly -------------------------- Title: President and CEO -----------------------No. of Shares Investment Amount Signature of Purchaser Date- ------------- ----------------- ---------------------- ---- $ - ------------- --------------- ----------------------- ------- (No. Shares x $2.50) Name: Address: 10 11 EXHIBIT A FORM OF OPINION OF COUNSEL TO BE DELIVERED TO THE PURCHASERS ONCLOSING DATE. The Company has been duly incorporated and is validly existing as acorporation in good standing under the laws of the State of Delaware. The Company has corporate power and authority to own, lease andoperate its properties and to conduct its business as now being conducted andto enter into and perform its obligations under this Agreement. The Shares and the Warrant Shares have been duly authorized forissuance and sale to the Purchasers pursuant to this Agreement and the Warrantsand, when issued and delivered by the Company pursuant to this Agreement or theWarrants against payment of the consideration set forth herein, will be validlyissued and fully paid and non-assessable. This Agreement and each Warrant have been duly authorized, executedand delivered by the Company and are enforceable in accordance with their termsexcept as such enforceability may be limited by bankruptcy, insolvency,moratorium, reorganization or other similar laws affecting the enforcement ofcreditors' rights generally and as to limitations on the enforcement of theremedy of specific performance and other equitable remedies. Except for such matters which, either individually or in theaggregate, would not have a material adverse effect on the financial conditionor business of the Company, the execution, delivery and performance of thisAgreement and the consummation of the transactions in the manner contemplatedherein and the compliance by the Company with its obligations hereunder andthereunder will not (i) conflict with or constitute a breach of, or defaultunder, or result in the creation or imposition of any lien, charge orencumbrance upon any property or assets of the Company pursuant to, anycontract or other instrument or agreement to which the Company is a party or bywhich it or any of them may be bound, or to which any of the property or assetsof the Company is subject, (ii) result in any violation of the provisions ofthe charter or bylaws of the Company or any applicable statute, law, rule,regulation, ordinance, code, or any applicable decision or order of any courtor regulatory agency exercising appropriate jurisdiction, and (iii) except forthe registration of the Shares and the Warrant Shares under the Securities Actand the listing of the Shares and the Warrant Shares on the American StockExchange, Inc. and such consents, approvals, authorizations, registrations orqualifications as may be required under the Exchange Act and applicable statesecurities laws in connection with the purchase of the Shares or the Warrantsby the Purchasers, no consents, approval, authorization or order of or filingwith any court or governmental agency or body is required for the execution,delivery and performance of the Agreement by the Company and the consummationof the transactions contemplated by the Agreement. 12 EXHIBIT B - FORM OF WARRANT AGREEMENT 13THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOTBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BETRANSFERRED EXCEPT AS PERMITTED HEREIN AND PURSUANT TO (i) AN EFFECTIVEREGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCHREGISTRATION OR QUALIFICATION AS MAY BE REQUIRED UNDER THE SECURITIES LAWS OFANY STATE OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCHSECURITIES LAWS. NONTRANSFERABLE WARRANT FOR THE PURCHASE OF COMMON STOCKNo. [99-1] _________ Shares THIS CERTIFIES that, for receipt in hand of $50.00 and other valuereceived, __________________________ (the "Holder") is entitled to subscribefor and purchase from Novavax, Inc., a Delaware corporation (the "Company"),upon the terms and conditions set forth herein, at any time or from time totime after the date hereof, and before 5:00 p.m. on April __, 2002, easterntime (the "Exercise Period"), _________ fully paid and nonassessable shares(the "Warrant Shares") of the Company's Common Stock, par value $.01 per share(the "Common Stock"), at a price of $3.75 per share (the "Exercise Price").This Warrant may not be sold, transferred, assigned or hypothecated, in wholeor in part, at any time except by will or the laws of descent and distribution(a "Permitted Transfer"). As used herein the term "this Warrant" shall meanand include this Warrant and any Warrant or Warrants hereafter issued as aconsequence of the exercise of this Warrant in whole or in part. The number of shares of Common Stock issuable at the Exercise Pricemay be adjusted from time to time as hereinafter set forth. 1. Exercise of Warrant. (a) Manner of Exercise. This Warrant may be exercised inwhole or in part at any time or from time to time during the Exercise Period bythe surrender of this Warrant (with the form of election to exercise attachedhereto duly executed) to the Company at its office at 8320 Guilford Road,Columbia, MD 21046 or such other place as is designated in writing by theCompany, together with a certified or bank cashier's check payable to the orderof the Company in an amount equal to the Exercise Price multiplied by thenumber of Warrant Shares for which this Warrant is being exercised. (b) Delivery of Stock Certificates, etc. Upon each exerciseof the Holder's rights to purchase the Warrant Shares granted pursuant to thisWarrant, as reissued from time to time, the Holder shall be deemed to be theholder of record of the Warrant Shares issuable upon such exercise,notwithstanding that the transfer books of the Company shall then be closed orcertificates representing such Warrant Shares shall not then have been actuallydelivered to the Holder. As soon as practicable after each such exercise ofthis Warrant, the Company shall issue and deliver to the Holder a certificateor certificates for the Warrant Shares issuable upon such exercise, registeredin the name of the Holder or its designee. If this Warrant should be exercisedin part only, the Company shall, upon surrender of this Warrant forcancellation, execute, and deliver a new Warrant evidencing the right of theHolder to purchase the balance of the Warrant Shares (or portions thereof)subject to purchase hereunder. (c) Warrant Register. Any Warrants issued upon a PermittedTransfer or exercise in part of this Warrant (together with this Warrant, the"Warrants") shall be numbered and shall be registered in a warrant register asthey are issued. The Company shall be entitled to treat the 14registered holder or his permitted transferees of any Warrant on the WarrantRegister as the owner in fact thereof for all purposes and shall not be boundto recognize any equitable or other claim to or interest in such Warrant on thepart of any other person, and shall not be liable for any registration ortransfer of such Warrants which are registered or to be registered in the nameof a fiduciary or the nominee of a fiduciary. Such Warrants shall betransferable on the books of the Company only upon delivery thereof dulyendorsed by the Holder or by his duly authorized attorney or representative, oraccompanied by proper evidence of succession, assignment, or authority totransfer. In all cases of transfer by an attorney, executor, administrator,guardian, or other legal representative, duly authenticated evidence of his orits authority shall be produced. Upon any registration of transfer, theCompany shall deliver a new Warrant or Warrants to the person entitled thereto.The Warrants may be exchanged, at the option of the Holder thereof, for anotherWarrant, or other Warrants of different denominations, of like tenor, andrepresenting in the aggregate the right to purchase a like number of WarrantShares (or portions thereof) upon surrender to the Company or its dulyauthorized agent. Notwithstanding the foregoing, the Company shall have noobligation to cause Warrants to be transferred on its books to any person if,in the written opinion of counsel to the Company, such transfer does not complywith the provisions of the Securities Act of 1933, as amended (the "SecuritiesAct"), and the rules and regulations thereunder. 2. Authorized Stock; Listing. The Company shall at all times reserveand keep available out of its authorized and unissued Common Stock, solely forthe purpose of providing for the exercise of the rights to purchase all WarrantShares granted pursuant to this Warrant, such number of shares of Common Stockas shall, from time to time, be sufficient therefor. The Company covenantsthat all shares of Common Stock issuable upon exercise of this Warrant, uponreceipt by the Company of the purchase price therefor, shall be validly issued,fully paid, nonassessable, and free of preemptive or similar contractual rightsto subscribe for shares of Common Stock. The Company shall list and maintainthe listing of the Warrant Shares on the American Stock Exchange (or othernational securities exchange upon which the Common Stock is listed). 3. Adjustments. (a) Stock Dividends, Splits, Combinations, etc. In case theCompany shall at any time after the date of this Warrant (i) declare adividend, or make a distribution, on the outstanding Common Stock in shares ofits capital stock, (ii) subdivide the outstanding Common Stock, (iii) combinethe outstanding Common Stock into a smaller number of shares, or (iv) issue anyshares of its capital stock by reclassification of the Common Stock (includingany such reclassification in connection with a consolidation or merger in whichthe Company is the continuing corporation), then, in each case, the ExercisePrice, and the number and kind of shares of Common Stock receivable uponexercise of this Warrant, in effect at the time of the record date for suchdividend or of the effective date of such subdivision, combination, orreclassification, shall be proportionately adjusted so that the Holder aftersuch time shall be entitled to receive the aggregate number and kind of shareswhich if such Warrant had been exercised immediately prior to such time, itwould have owned upon such exercise and been entitled to receive by virtue ofsuch dividend, subdivision, combination or reclassification. Such adjustmentshall be made successively whenever any event listed above shall occur. (b) Sale of Stock, Options, Rights, etc. In case the Companyshall issue, or fix a record date for the issuance of, shares of Common Stockor rights, options, or warrants entitling the holders thereof to subscribe foror purchase Common Stock (or securities convertible into or exchangeable forCommon Stock) at a price per share (or having a conversion price per share, ifa security convertible into or exchangeable for Common Stock) less than theCurrent Market Price, (as defined in Section 3(d)) the Exercise Price shall bereduced to a price determined by multiplying the then current Exercise Price bya fraction (i) numerator of which shall be (a) the number of shares of CommonStock outstanding immediately prior to such issue or sale plus (b) the number 2 15of shares of Common Stock which the aggregate consideration received by theCompany in connection with such issuance or sale would purchase at the CurrentMarket Price, and (ii) the denominator of which shall be the number of sharesof Common Stock outstanding immediately after such issuance or sale. Suchadjustment shall become effective at the close of business on such date ofissuance or record date; provided, however, that, to the extent the shares ofCommon Stock (or securities convertible into or exchangeable for shares ofCommon Stock) are not delivered, the Exercise Price shall be readjusted afterthe expiration of such rights, options, or warrants (but only with respect toWarrants exercised after such expiration), to the Exercise Price which wouldthen be in effect had the adjustments made upon the issuance of such rights,options, or warrants been made upon the basis of delivery of only the number ofshares of Common Stock (or securities convertible into or exchangeable forshares of Common Stock) actually issued. No readjustment shall have the effectof increasing the Exercise Price by an amount greater than the originaladjustment. In case part or all of any consideration may be paid in a formother than cash, the value of such consideration shall be as determined in goodfaith by the Board of Directors of the Company, whose determination shall beconclusive absent manifest error. Shares of Common Stock owned by or held forthe account of the Company or any majority-owned subsidiary shall not be deemedoutstanding for the purpose of any such computation. In the case of the issuance of options to purchase or rightsto subscribe for Common Stock, securities by their terms convertible into orexchangeable for Common Stock or options to purchase or rights to subscribe forsuch convertible or exchangeable securities, the following provisions shallapply: (i) the shares of Common Stock deliverable uponexercise of such options to purchase or rights to subscribe for Common Stockshall be deemed to have been issued at the time such options or rights wereissued and for a consideration equal to the consideration, if any, received bythe Company upon the issuance of such options or rights plus the purchase priceprovided in such options or rights for the Common Stock covered thereby; (ii) the shares of Common Stock deliverable uponconversion of or in exchange for any such convertible or exchangeablesecurities or upon the exercise of options to purchase or rights to subscribefor such convertible or exchangeable securities and subsequent conversion orexchange thereof shall be deemed to have been issued at the time suchsecurities were issued or such options or rights were issued and for aconsideration equal to the consideration, if any, received by the Company forany such securities and related options or rights (excluding any cash receivedon account of accrued interest or accrued dividends), plus the additionalconsideration, if any, to be received by the Company upon the conversion orexchange of such securities or the exercise of any related options or rights; (iii) in the event of any increase in theconsideration payable to the Company upon exercise of such options or rights orupon conversion of or in exchange for such convertible or exchangeablesecurities, including, but not limited to, a change resulting from anyantidilution provisions thereof, the Exercise Price with respect to theadjustment which was made upon the issuance of such options, rights orsecurities, and any subsequent adjustments based thereon, shall be recomputedto reflect such change, but no further adjustment shall be made for the actualissuance of Common Stock or any payment of such consideration upon the exerciseof any such options or rights or the conversion or exchange of such securities. (c) Extraordinary Dividends. In case the Company shalldistribute to all holders of Common Stock (including any such distribution madeto the stockholders of the Company in connection with a consolidation or mergerin which the Company is the continuing corporation) evidences of itsindebtedness or assets (other than dividends payable in shares of CommonStock), or subscription rights, options, or warrants or convertible orexchangeable securities containing the right to subscribe for or purchaseshares of Common Stock (excluding those referred to in 3 16paragraph 3(b) hereof), then, in each case, the Exercise Price shall beadjusted by multiplying the Exercise Price in effect immediately prior to therecord date for the determination of stockholders entitled to receive suchdistribution by a fraction, the numerator of which shall be the currentExercise Price per share of Common Stock on such record date, less the fairmarket value (as determined in good faith by the Board of Directors of theCompany, whose determination shall be conclusive absent manifest error) of theportion of the evidences of indebtedness or assets so to be distributed, or ofsuch subscription rights, options, or warrants or convertible or exchangeablesecurities containing the right to subscribe for or purchase shares of CommonStock, applicable to one share, and the denominator of which shall be suchcurrent Exercise Price per share of Common Stock. Such adjustment shall bemade whenever any such distribution is made, and shall become effective on thedate of such distribution retroactive to the record date for the determinationof stockholders entitled to receive such distribution. (d) Current Market Price. For the purpose of any computationunder this paragraph 3, Current Market Price per share of Common Stock on anydate shall be deemed to be the average daily closing price for the ten tradingdays immediately preceding such day. The closing price for any day shall bethe last reported sales price regular way or, in case no such reported saletakes place on such day, the closing bid price regular way, in either case onthe principal national securities exchange (including the NASDAQ NationalMarket System) on which the Common Stock is listed or admitted to trading or,if the Common Stock is not listed or admitted to trading on any nationalsecurities exchange, the highest reported bid price as furnished by theNational Association of Securities Dealers, Inc. through NASDAQ or a similarorganization if NASDAQ is no longer reporting such information. If on any suchdate the Common Stock is not quoted by any such organization, the fair value ofa share of Common Stock on such date, as determined in good faith by the Boardof Directors of the Company, whose determination shall be conclusive absentmanifest error, shall be used. (e) De Minimis Exception. No adjustment in the Exercise Priceshall be required if such adjustment is less than $.05; provided, however, thatany adjustments which by reason of this paragraph 3 are not required to be madeshall be carried forward and taken into account in any subsequent adjustment.All calculations under this paragraph 3 shall be made to the nearest cent or tothe nearest one-thousandth of a share, as the case may be. (f) Date of Issuance. In any case in which this paragraph 3shall require that an adjustment in the Exercise Price be made effective as ofa record date for a specified event, the Company may elect to defer, until theoccurrence of such event, issuing to any Holder who exercised any Warrantsafter such record date, the shares of Common Stock, if any, issuable upon suchexercise over and above the shares of Common Stock, if any, issuable upon suchexercise on the basis of the Exercise Price in effect prior to such adjustment. (g) Adjustment to Number of Shares. Upon each adjustment ofthe Exercise Price as a result of the calculations made in paragraphs 3(a),3(b), or 3(c) hereof, each Warrant outstanding prior to the making of theadjustment in the Exercise Price shall thereafter evidence the right topurchase, at the adjusted Exercise Price, that number of shares (calculated tothe nearest thousandth) obtained by dividing (i) the product obtained bymultiplying the number of shares purchasable upon exercise of a Warrant priorto adjustment of the number of shares by the Exercise Price in effect prior toadjustment of the Exercise Price by (ii) the Exercise Price in effect aftersuch adjustment of the Exercise Price. (h) Notice of Adjustments. Whenever there shall be anadjustment as provided in this paragraph 3, the Company shall promptly causewritten notice thereof to be sent by overnight courier, to the Holder, at itsprincipal office, which notice shall be accompanied by an officer's certificatesetting forth the number of Warrant Shares purchasable upon the exercise ofthis Warrant and the Exercise Price after such adjustment and setting forth abrief statement of the facts requiring 4 17such adjustment and the computation thereof, which officer's certificate shallbe conclusive evidence of the correctness of any such adjustment absent anyerror. (i) No Fractional Shares. The Company shall not be requiredto issue fractions of shares of Common Stock or other capital stock of theCompany upon the exercise of the Warrants. If any fraction of a share would beissuable on the exercise of any Warrant (or specified portions thereof), theCompany shall purchase such fraction for an amount in cash equal to the samefraction of the Current Market Price on the date of exercise of the Warrant. (j) Employee Stock Options; Outstanding Options/Warrants. Noadjustment in the Exercise Price shall be required in the case of the issuanceof shares under or grant by the Company of options to employees, directors orconsultants of the Company under any stock option plan of the Company approvedby the stockholders of the Company, or the issuance of any and all shares ofCommon Stock upon exercise of such options or upon the issuance of shares underany options, warrants, or convertible securities outstanding as of the datehereof. 4. Business Combinations. (a) In case the Company, after the date hereof (i) shallconsolidate with or merge into any other person and shall not be the continuingor surviving corporation of such consolidation or merger, or (ii) shall permitany other person to consolidate with or merge into the Company and the Companyshall be the continuing or surviving person but, in connection with suchconsolidation or merger, the Common Stock or other securities of the Companywhich the Holder of this Warrant may receive upon exercise ("Other Securities")shall be changed into or exchanged for stock or other securities of any otherperson or cash or any other property, or (iii) shall transfer all orsubstantially all of its properties or assets to any other person, or (iv)shall effect a capital reorganization or reclassification of the Common Stockor Other Securities (other than a capital reorganization or reclassificationresulting in the issue of additional shares of Common Stock for whichadjustment in the Exercise Price is provided in paragraph 3(a) or 3(b)), then,and in the case of each such transaction, proper provision shall be made sothat, upon the basis and the terms and in the manner provided in this Warrant,the Holder of this Warrant, upon the exercise hereof at any time after theconsummation of such transaction, shall be entitled to receive (at theaggregate Exercise Price in effect at the time of such consummation for allCommon Stock or Other Securities issuable upon such exercise immediately priorto such consummation), in lieu of the Common Stock or Other Securities issuableupon such exercise prior to such consummation, the highest amount ofsecurities, cash or other property to which such Holder would actually havebeen entitled as a shareholder upon such consummation if such Holder hadexercised the rights represented by this Warrant immediately prior thereto,subject to adjustments (subsequent to such consummation) as nearly equivalentas possible to the adjustments provided in paragraph 3; provided that if apurchase, tender or exchange offer shall have been made to and accepted by theholders of more than 50% of the outstanding shares of Common Stock, and if theHolder of this Warrant so designates in a notice given to the Company on orbefore the date immediately preceding the date of the consummation of suchtransaction, the Holder of this Warrant shall be entitled to receive thehighest amount of securities, cash or other property to which such Holder wouldactually have been entitled as a shareholder if the Holder of this Warrant hadexercised such Warrant prior to the expiration of such purchase, tender orexchange offer and accepted such offer, less the Exercise Price that would havebeen payable upon such exercise, subject to adjustments (from and after theconsummation of such purchase, tender or exchange offer) as nearly equivalentas possible to the adjustments provided for in paragraph 3. (b) In the event of any transaction described in clauses (i)through (iv) of paragraph 4(a), each person (other than the Company) which maybe required to deliver any stock, securities, cash or property upon theexercise of this Warrant as provided herein shall assume in writing (i) theobligations of the Company under this Warrant (and if the Company shall survivethe 5 18consummation of such transaction, such assumption shall be in addition to, andshall not release the Company from, any continuing obligations of the Companyunder this Warrant) and (ii) the obligation to deliver to such Holder suchshares of stock, securities, cash or property as, in accordance with theforegoing provisions of this paragraph 4, such Holder may be entitled toreceive. 5. Notice. In case at any time the Company shall propose: (a) to pay any dividend or make any distribution on shares ofCommon Stock in shares of Common Stock or make any other distribution to allholders of Common Stock; or (b) to issue any rights, warrants, or other securities to allholders of Common Stock entitling them to purchase any additional shares ofCommon Stock or any other rights, warrants, or other securities; or (c) to effect any consolidation, merger, sale, reorganizationor reclassification described in paragraph 4; or (d) to effect any liquidation, dissolution, or winding-up ofthe Company; or (e) to take any other action which would cause an adjustmentto the Exercise Price;then, and in any one or more of such cases, the Company shall give writtennotice thereof, by overnight courier, to the Holder at the Holder's address asit shall appear in the Warrant Register, mailed at least 20 business days priorto (i) the date as of which the holders of record of shares of Common Stock tobe entitled to receive any such dividend, distribution, rights, warrants, orother securities are to be determined, (ii) the date on which any suchconsolidation, merger, sale, reorganization or reclassification, liquidation,dissolution, or winding-up is expected to become effective, and the date as ofwhich it is expected that holders of record of shares of Common Stock shall beentitled to exchange their shares or warrants for securities or other property,if any, deliverable upon such reclassification, change of outstanding shares,consolidation, merger, sale, lease, conveyance of property, liquidation,dissolution, or winding-up; or (iii) the earlier of the date or record date inrespect of such action which would require an adjustment to the Exercise Price. 6. Taxes. The issuance of any shares or warrants or other securitiesupon the exercise of this Warrant, and the delivery of certificates or otherinstruments representing such shares, warrants, or other securities, shall bemade without charge to the Holder for any tax or other charge in respect ofsuch issuance. The Company shall not, however, be required to pay any taxwhich may be payable in respect of any transfer involved in the issue anddelivery of any certificate in a name other than that of the Holder and theCompany shall not be required to issue or deliver any such certificate unlessand until the person or persons requesting the issue thereof shall have paid tothe Company the amount of such tax or shall have established to thesatisfaction of the Company that such tax has been paid. 7. Certain Rights. (a) In case any event shall occur as to which the provisionsof paragraph 3 or 4 are not strictly applicable but the failure to make anyadjustment would not fairly protect the purchase rights represented by thisWarrant in accordance with the essential intent and principles of suchparagraphs, then in each such case, the Exercise Price and/or the amount of anyCommon Stock, cash, securities or other assets to be delivered upon exercise ofthis Warrant shall be adjusted on a basis consistent with the essential intentand principles established in paragraph 3 or 4, as necessary to preserve thepurchase rights represented by this Warrant. 6 19 (b) The Company will not, by amendment of its Certificate ofIncorporation or through any consolidation, merger, reorganization, transfer ofassets, dissolution, issue or sale of securities or any other voluntary action,avoid or seek to avoid the observance or performance of any of the terms ofthis Warrant. 8. Legend. The securities issued upon exercise of the Warrants shallbe subject to a stop transfer order and the certificate or certificatesevidencing any such securities shall bear the following legend:THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO (i) AN EFFECTIVEREGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANYSTATE SECURITIES LAW AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE REQUIREDUNDER THE SECURITIES LAWS OF ANY STATE OR (ii) AN EXEMPTION FROM REGISTRATIONUNDER SUCH ACT OR SUCH SECURITIES LAWS. 9. Miscellaneous. (a) Upon receipt of evidence satisfactory to the Company ofthe loss, theft, destruction, or mutilation of any Warrant (and upon surrenderof any Warrant if mutilated), and upon reimbursement of the Company'sreasonable incidental expenses, the Company shall execute and deliver to theHolder thereof a new Warrant of like date, tenor, and denomination. (b) The Holder of any Warrant shall not have, solely onaccount of such status, any rights of a stockholder of the Company, either atlaw or in equity, or to any notice of meetings of stockholders or of any otherproceedings of the Company, except as provided in this Warrant. (c) This Warrant and any term hereof may be changed, waived,discharged or terminated only by an instrument in writing signed by the partyagainst which enforcement of such change, waiver, discharge or termination issought. (d) This Warrant shall be construed in accordance with thelaws of the State of Delaware, without giving effect to conflict of laws. IN WITNESS WHEREOF, the undersigned have set their hand to thisWarrant Agreement as of April ___, 1999. NOVAVAX, INC. By: --------------------------------------- Mitchell J. Kelly, Interim President & Chief Executive Officer- --------------------------- 7 20To: Novavax, Inc. 8320 Guilford Road Columbia, MD 21046 Attention: President ELECTION TO EXERCISE The undersigned hereby exercises its or his rights to purchase WarrantShares covered by the within Warrant and tenders payment herewith in the amountof $__________ in accordance with the terms thereof, and requests thatcertificates for such securities be issued in the name of, and delivered to:- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Print Name, Address and Social Security or Tax Identification Number)and, if such number of Warrant Shares shall not be all the Warrant Sharescovered by the within Warrant, that a new Warrant for the balance of theWarrant Shares covered by the within Warrant be registered in the name of, anddelivered to, the undersigned at the address stated below.Dated: Name: ----------------------------------- --------------------------- (Print)Address: ------------------------------------------------------------------- ------------------------------------- (Signature) 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the RegistrationStatements on Form S-8 (Nos. 33-80277, 33-80279 and 333-3384) and in theProspectus constituting part of the Registration Statements on Form S-3 (Nos.333-14305, 333-5367, 333-22685 and 333-46409) of Novavax, Inc. of our reportdated March 17, 1999 except for the fourth paragraph of Note 1 which is as ofApril 14, 1999, appearing on page F-2 of this Annual Report on Form 10-K.PRICEWATERHOUSECOOPERS LLPMcLean, VirginiaApril 14, 1999

5 YEAR DEC-31-1998 DEC-31-1998 1,031 0 138 0 0 1,207 1,711 (691) 3,819 858 0 0 0 133 0 3,819 681 681 0 5,833 0 0 0 (4,817) 0 (4,817) 0 (2,228) 0 (7,045) (0.57) (0.57)

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Novavax Annual Report 1998

Plain-text annual report

Novavax
Annual Report 1998