Novavax Annual Report 1999

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 1999Commission File No. 0-26770NOVAVAX, INC.(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction of incorporation or organization)22-2816046(I.R.S. Employer Identification No.)8320 Guilford Road, Columbia, Maryland21046(Address of principal executive offices)(Zip code)Registrant’s telephone number, including area code: (301) 854-3900Securities registered pursuant to Section 12(b) of the Act: Title of each class:Name of each exchange on which registeredCommon Stock ($.01 par value)American Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to 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 or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. [X] The aggregate market value of 16,437,216 shares of the registrant’s Common Stock, par value $.01 per share, held by non-affiliates ofthe registrant at March 3, 2000, as computed by reference to the closing price of such stock, was approximately $164,372,160. The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding at March 3, 2000 was18,100,716 shares.Documents Incorporated By ReferencePortions of the 2000 Novavax, Inc. Proxy Statement are incorporated by reference into Part III of this Report.TABLE OF CONTENTSItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Market For Registrant’s Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 7a. Quantitative and Qualitative Disclosures about Market RisksItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-KPART IItem 1. Business Novavax, Inc. (“Novavax” or the “Company”) is a biopharmaceutical company focused on the research and development of proprietarydrug delivery and vaccine technologies and the applications of those technologies. The Company’s technology platforms involve the use ofproprietary, microscopic, organized, non-phospholipid structures as vehicles for the delivery of a wide variety of drugs and other therapeuticproducts, including certain hormones, anti-bacterial and anti-viral products and vaccine adjuvants. These technology platforms support threeproduct development programs: hormone replacement therapies, third party drug delivery and vaccine adjuvant applications and anti-microbial agents. Novavax’s recently acquired Biomedical Services Division is engaged in contract research and development and Phase Iand Phase II vaccine manufacturing of human vaccines for the Company’s own use and for government laboratories and other vaccinecompanies. Novavax, Inc. was incorporated in Delaware in 1987. On December 12, 1995, the Company’s former parent, IGI, Inc. (“IGI”) distributedits majority interest in Novavax to the IGI stockholders (the “Distribution”). The Company’s principal executive offices are located at 8320Guilford Road, Columbia, Maryland 21046. 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 it to the exclusive use of the Company’s technologies in the fields of (i) animal pharmaceuticals, biologicals and other animal careproducts; (ii) foods, food applications, nutrients and flavorings (except to the extent used in human pharmaceuticals and vaccines);(iii) cosmetics, consumer products and topical dermatological products for localized usage at the delivery zone, (specifically excludingdermatologically administered pharmaceuticals which are delivered systemically 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 chemicals including blood substitutes containing hemoglobin andother oxygen carrying materials; and the processes for making the same. IGI has the option, exercisable within the last year of the ten-yearterm, to extend the License Agreement for an additional ten-year period for $1,000,000. Novavax retains the right to use its technologies for allother applications, including but not limited to, human vaccines and pharmaceuticals.Novavax Product Development Programs Hormone Replacement Therapies. The Company’s hormone replacement therapy program includes its two lead product candidates:ESTRASORB™, topical estrogen cream, and ANDROSORB™, a topical testosterone cream. The Company has completed variouspreclinical and human safety studies for both ESTRASORB and ANDROSORB. In addition, the Company initiated a multicenter Phase IIIstudy of ESTRASORB, during the third quarter of 1999. The study is designed to measure ESTRASORB’s ability to deliver estradiolthrough the skin, when applied as a topical lotion. The Company has completed Phase I safety study in men of ANDROSORB; Phase IItrials in testosterone deficient women are to begin in the first quarter of 2000. In addition, the Company is undergoing preclinical developmentof Andro-Ject™, a depot delivery of testosterone for testosterone deficient men. The Investigational New Drug application (“IND”) for Andro-Ject is expected to be filed in the fourth quarter of 2000. Third Party Drug Delivery and Vaccine Adjuvant Applications. Formulations of the Company’s lipid technologies are expected to havebroad application as vehicles for the encapsulation and delivery of drugs developed by other companies. Moreover, the Company believes thatcertain of its organized lipid structures may provide effective and safe adjuvant carrier systems for a variety of vaccines. The Company plansto leverage these technologies by licensing its drug delivery, encapsulation and adjuvant technologies to third parties for specific therapeuticindications. The Company currently has several research contracts in place to provide anti-microbial products, vaccine products, services andadjuvant technologies. One of these contracts is for the development of an adjuvant for an immunotherapeutic vaccine for cervical dysplasia,a precancerous disease of the cervix, for a British vaccine company, Cantab Pharmaceuticals. The Company also has a licensing agreementwith Parkedale Pharmaceuticals,2Table of ContentsInc., a wholly owned subsidiary of King Pharmaceuticals, Inc., for the right to a series of Novavax Novasome adjuvants to be used withParkedale’s FLUOGEN®, an influenza virus vaccine. In August 1999, the Company acquired substantially all of the assets of DynCorp’s vaccine manufacturing and development division,which is now called the Novavax Biomedical Services Division (“BSD”). Established in 1964, the BSD is engaged in contract research,development and pilot manufacturing of human vaccines for the Company’s own use and for government laboratories and other vaccinecompanies. The Director of this division is Louis Potash, Ph.D., one of the original scientists to work on both the Salk-type inactivated poliovaccines and inactivated whole influenza virus vaccines during the 1950s. This acquisition significantly expands Novavax’s internal vaccinedevelopmental capabilities and allows the Company to combine its adjuvant technology with BSD’s 35 years of experience in developing andmanufacturing vaccines. Anti-Microbial Agents. The Company is also applying its lipid technologies to develop anti-microbial agents that are capable of acting onviruses, bacteria, spores and sperm. Potential product candidates include Helicore®, an oral anti-bacterial preparation for the treatment ofHelicobacter pylori (“H. Pylori”) infection, and two anti-microbial agents targeting biological threat agents such as Bacillus anthracis andinfluenza A, respectively, as well as a spermicide product candidate.Novavax Product Technology Platforms Novavax has developed proprietary topical, oral and injectable drug delivery technologies using microscopic, organized, non-phospholipidstructures, including Novasome non-phospholipid vesicles (“Novasomes”), micellar nanoparticles (“MNPs”) and non-antibiotic, anti-microbial lipid emulsions. The Company believes these structures may be useful for targeted delivery and controlled release of certain drugs,along with inactivation of bacteria, enveloped viruses, spores and sperm. Moreover, the Company believes that certain of its organized lipidstructures may provide effective and safe adjuvant carrier systems for a variety of vaccines. Although other companies have developed liposome technologies, most commercial liposomes are composed of delicate phospholipids.Due to their inherent lack of stability and carrying capacity, only a limited number of drugs may be used with these phospholipid liposomes.While capable of encapsulating certain (principally water-soluble) drugs, phospholipid liposomes have a number of other significantdisadvantages including their expense and the need to use potentially 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 for a more cost-effective delivery of a wider variety of drugs and othertherapeutics than commercially available phospholipid liposomes and other delivery vehicles. Its technologies may also be preferred overother available transdermal delivery systems because its technologies may reduce side effects such as skin irritation. Future applicationsmay show advantages over injectable delivery technologies, which are invasive, inconvenient and sometimes painful. In addition, theCompany’s anti-microbial lipid emulsions may avoid the problem of pathogen mutation and resistance because of their non-antibioticmethod of action.Novasome Non-Phospholipid Vesicles Novasomes are proprietary structures in which drugs or other materials can be encapsulated for delivery into the body topically or orally.Novasomes are made using the Company’s patented manufacturing processes from a variety of readily available chemicals calledamphiphiles, which include fatty alcohols and acids, ethoxylated fatty alcohols and acids, glycol esters of fatty acids, glycerol fatty acid monoand diesters, ethoxylated glycerol fatty acid esters, glyceryl ethers, fatty acid diethanolamides and dimethyl amides, fatty acyl sarcosinates,“alkyds” and phospholipids. The Company plans to commercialize its Novasome technology in part through products it develops itself and in part through third partydrug delivery application licenses. The Company believes that certain of its organized lipid structures may provide effective and safe adjuvantcarrier systems for a variety of vaccines. In addition, the Company has developed structures for delivery of biologically active molecules likeantisense, genes and proteins.3Table of Contents The Company currently has several research contracts in place to provide vaccine products, services and adjuvant technologies. Thesecontracts include, but are not limited to, the development of an adjuvant for an immunotherapeutic vaccine for cervical dysplasia, aprecancerous disease of the cervix for a British vaccine company, Cantab Pharmaceuticals. Novasomes are also currently licensed to KingPharmaceuticals as an adjuvant for its marketed influenza vaccine, Fluogen®.Micellar Nanoparticle Emulsion MNPs are proprietary, submicron-sized, water miscible, non-phospholipid structures that have different structural characteristics and aregenerally smaller than Novasome non-phospholipid vesicles. MNPs, like Novasome non-phospholipid vesicles, are derived fromamphiphilic molecules. Novavax scientists have demonstrated that MNPs are able to incorporate alcohol soluble drugs, pesticides, vaccine adjuvants, proteins,whole viruses, flavors, fragrances and colors. MNPs also have the ability to entrap ethanol or methanol soluble drugs, and to deliver certainof these drugs transdermally through intact skin. The MNP formulations used by Novavax for the transdermal delivery of drugs havecosmetic properties similar to creams and lotions. These transdermal formulations have the advantage over injectable delivery systems ofbeing less invasive and/or inconvenient and the may also cause less skin irritation than patch transdermal delivery systems. MNPs are thefundamental technology platform for Novavax’s hormone replacement therapies.Non-Antibiotic Lipid Emulsions The Company has developed proprietary lipid structures that it is using in the development of a non-antibiotic, anti-bacterial preparationfor the treatment of H. pylori infection in humans. In addition, the Company has developed a proprietary non-antibiotic lipid emulsion calledBCTP that may inactivate enveloped viruses that cause human disease, as well as certain spores, bacteria and sperm. BCTP is a highlyeffective microbe-killing agent. Preclinical studies indicate that BCTP has a low toxicity profile. The emulsion seems to act on variousmicrobials, including viruses, bacteria, sperm and spores, by first fusing or merging with the lipid envelope of the virus. Because BCTP is not an antibiotic, it is not associated with microbe mutation and resistance caused by antibiotic use, which is nowrecognized as an important public health problem. Novavax expects that BCTP-based products may be preferred in many circumstances asan alternative to conventional antibiotics. The Company currently has several research contracts in place to provide non-antibiotic lipidemulsion products and services. These contracts include, but are not limited to, a subcontract from the University of Michigan, which isdeveloping anti-infective defense systems against biological warfare agents for the U.S. military.Vaccines BSD is involved in three areas of vaccine development: virology, tissue culture and molecular virology. BSD’s experimental virologyresearch and development may lead to live virus vaccine production in the embryonated hens’ eggs and in designated tissue culturesystems. Tissue culture involves the growth, maintenance and characterization of cell systems as potential substrates for virus growth andvaccine production as well as cell systems for safety testing, plaque-purification and virus titers. BSD’s work in molecular virology involvesrecombinant DNA cloning of viral and human genes, protein expression of these genes in prokaryotic and eukaryotic systems includingbaculoviruses, protein purification of the recombinant protein products, and biophysical characterization of recombinant proteins leading tovaccine and related product development.Novavax Product Candidates Hormone Replacement Therapy The Company is using its MNP technology in the development of ESTRASORB, a cream designed for the delivery of 17b estradiol(estrogen hormone) through the skin. Estrogen replacement therapy is currently used worldwide by menopausal (and post-menopausal)women to prevent osteoporosis, cardiovascular disease and other menopausal symptoms (such as “hot flashes”). The hormone replacementmarket in the US is approximately4Table of Contents$1.7 billion. This market is believed to represent only 15-20% of the estimated 60.3 million women over 40 years of age in the US who couldpotentially benefit from hormone replacement therapy. Current estrogen replacement products include oral tablets and, more recently, transdermal patches. Oral estrogen tablets, however,have been associated with side effects primarily resulting from blood hormone level fluctuations. Because of these side effects, transdermalpatches for estrogen replacement were developed. While these patches help reduce blood hormone fluctuations, they may cause skinirritation and patient inconvenience associated with wearing and changing an external patch. The Company believes that ESTRASORB may offer several advantages over existing therapies used for estrogen replacement.ESTRASORB may be applied to the skin much like a typical cosmetic lotion. The Company believes ESTRASORB will be able to deliver acontinuous amount of estrogen to the patient without the fluctuations in blood hormone levels associated with oral tablets. In addition,ESTRASORB does not contain materials that may cause the skin irritation associated with transdermal patches. The Company has completed four clinical studies with ESTRASORB. The first was a multiple-dose, dose ranging, pharmacokineticstudy completed in the third quarter of 1997 involving 20 subjects. The second was a multiple-dose, pharmacokinetic, placebo-controlledstudy completed in the fourth quarter of 1997 involving 20 subjects. The third study was a single versus dual site application study completedin the third quarter of 1998 involving 10 subjects. These studies demonstrated transdermal delivery of the drug and no skin irritation wasnoted. A Phase II, randomized, double blind, placebo-controlled, dose-ranging ESTRASORB study was completed in the first quarter of1999. This study involved a 35 day dosing protocol and included 120 patients at six clinical sites located in the United States. This studyindicated that ESTRASORB, administered daily to menopausal women, significantly reduced the number of hot flashes per day andsignificantly increased their trough serum estradiol levels. During the third quarter of 1999, Novavax initiated a multi-center Phase III study of ESTRASORB in symptomatic menopausal women.The study, initiated ahead of schedule, will involve 200 subjects in at least 12 centers nationwide. The study is designed to measureESTRASORB’s ability to deliver 17b estradiol through the skin, when applied as a topical lotion. The clinical endpoint is reduction of hotflashes associated with menopause. The positive reactions of the women in the Phase II study coupled with the Company’s promising clinical results indicate that estrogenreplacement therapy is an excellent initial target for the Company’s topical drug delivery system, representing a multi-billion dollar worldwidemarket opportunity. As the Company begins the final stages of clinical development with ESTRASORB, the Company will continue toinvestigate its topical delivery system to other products. Testosterone replacement therapy is currently used by males who are testosterone deficient as a result of either primary or secondaryhypogonadism. It is believed that testosterone in males is required to maintain sexual function and libido, maintain lean body mass,increase hemoglobin synthesis and maintain bone density. There are estimated to be one million testosterone deficient men in the US. It isfurther estimated that only 100,000 to 150,000 men are currently being treated for testosterone deficiency. These numbers are expected togrow with the aging of the population and the increasing awareness of the benefits of hormone replacement therapy. Current testosterone replacement therapy products include deep intramuscular injections or transdermal patches. The injections requirefrequent visits to a physician and may be associated with pain at the injection site and abscess. The transdermal patches may cause skinirritation and patient inconvenience associated with wearing and changing external patches. The Company believes that ANDROSORB (its testosterone hormone replacement therapy product) may offer several advantages overcurrent testosterone replacement therapies. ANDROSORB is a lotion that may be applied to the skin, thus eliminating the need forintramuscular injections. In addition, ANDROSORB does not contain materials that may cause the skin irritation associated withtransdermal patches. In September 1996, the Company completed the animal testing of ANDROSORB in its MNP transdermal drug delivery platform. Inthese tests, peak blood levels of testosterone were approximately three times higher than testosterone dissolved in ethanol alone. TheCompany completed human safety studies involving 10 subjects and5Table of Contentssubmitted the results to the FDA in the third quarter of 1997. A multiple-dose, pharmacokinetic study involving 9 subjects was completed inthe fourth quarter of 1997, and a dose-ranging pharmacokinetic study involving 8 subjects was completed in the second quarter of 1998. TheCompany completed Phase I testing of ANDROSORB in 1999, with results that indicated ANDROSORB did not cause skin irritation in thepatients tested, some of whom received daily dosages for 28 consecutive days at the same site. These studies have also all demonstrateddelivery of the drug successfully results in elevated blood hormone levels. The Company plans to initiate a Phase II dose ranging study intestosterone deficient women in the first quarter of 2000. Andro-Ject Andro-Ject is a new oil-free, cholesterol-free depot drug delivery system delivery for testosterone, which is in preclinical development.Andro-Ject is delivered subcutaneously with a small 25 gauge needle. In animal studies supra-therapeutic levels of testosterone weremaintained for two weeks after one subcutaneous injection. Microbicides The Company has developed proprietary lipid structures that it is using in the development of a non-antibiotic, anti-bacterial preparation,Helicore, for the treatment of H. pylori infection in humans. H. pylori was recognized in 1994 by the National Institutes of Health as acausative agent of peptic ulcer disease, antral gastritis and certain types of gastric cancer. Current therapies for the treatment of H. pyloriinclude the use of antibiotics alone or antibiotics in combination with drugs that inhibit acid production in the stomach. Problems associatedwith such therapies include, but are not limited to, cost, toxicity, failure to sufficiently eradicate all the bacteria, and acquired resistance to theantibiotic. In 1995, the Company began to test formulations of Helicore in both animal studies and Phase I human safety studies. Resultsfrom clinical studies completed in 1996 were submitted to the FDA. Novavax is not currently conducting preclinical or clinical studies onHelicore. The Company has also developed BCTP, a lipid emulsion that acts on various microbials, including enveloped viruses, as well as sporesand bacteria. The product has also demonstrated spermicidal action. The Company believes that the emulsion acts on the target by firstfusing or merging with the lipid envelope or outer membrane of the target. The Company believes that BCTP has many potentialapplications. Preclinical studies indicate that viruses and spores vulnerable to BCTP include influenza A and bacillus anthracis, but it mayalso be appropriate for herpes, measles, mumps, rubella and many other microbes and pathogens. While influenza vaccines are relativelyeffective at preventing the flu, BCTP unlike vaccines, does not appear to promote mutation and resistance. Other advantages of BCTP appearto include a low toxicity profile, inexpensive scale-up and manufacturing costs, and a rapid and broad spectrum of killing. The Company currently has several anti-microbial agents in preclinical studies pursuant to a research collaboration with the University ofMichigan. The studies are being performed at the University of Michigan and are being funded by Defense Advance Research ProjectsAgency’s (“DARPA”) Unconventional Pathogen Countermeasures Program. In August 1999, the Company received an extension on itssubcontract with The University of Michigan to continue supplying the University with the Company’s proprietary microbial products againstcertain biologic warfare agents. Vaccine Adjuvants Adjuvants are substances that make vaccines more effective. The Company believes that its Novasome lipid vesicles may provideeffective and safe adjuvant carrier systems for a variety of vaccines in a variety of circumstances, including: (i) encapsulation and protectionfrom destruction by the body’s normal enzymatic processes of delicate antigenic materials; (ii) encapsulation of toxic materials, such asendotoxins and other potent toxins, for gradual release, thereby providing protection of the body from the toxin while generating an immuneresponse to the toxic antigen; and (iii) presentation of small peptide antigens or proteins to elicit both heightened antibody and cellularimmune responses. The Company has recently entered into a licensing agreement with Parkedale Pharmaceuticals, Inc., a wholly owned subsidiary of KingPharmaceuticals, Inc. for the rights to Novavax’s adjuvants to be used in Parkedale’s US FDA licensed FLUOGEN® influenza virusvaccine, trivalent, type A and B. Under the terms of the agreement, the6Table of ContentsCompany has granted Parkedale an exclusive license to all Novasome adjuvants for use with influenza vaccine therapies, includingworldwide development and marketing rights, with the exception of six Pacific Rim countries. In return, Novavax received an upfrontlicensing fee of $1 million, milestone payments, research support and royalties on future product sales. In 1998, the total influenza marketwas valued at over $240 million. Novasome adjuvanted FLUOGEN is expected to enter clinical trials in 2000. Vaccine Projects The Company’s BSD operation currently has two products in clinical trials with collaborators at NIH. The first, an HPV-16 virus-likeparticle (VLP) vaccine is in Phase II clinical trials and is intended to prevent HPV-16 infection. The second product, a Hepatitis E vaccine, willbe tested in a Phase II trial in Nepal. In October 1999, Novavax signed its first contract since the acquisition of BSD with the National Cancer Institute (NCI), which awardedthe Company the contract to manufacture recombinant chimeric virus-like particle vaccines (VLP) against Human papilloma virus (HPV).The novel recombinant chimeric virus-like particles are non-infectious vaccine candidates designed to either treat or prevent HPV infectionsthat cause genital warts and cervical cancer. The HPV vaccines were developed by research and development teams lead by RobinRobinson, Ph.D., Associate Director of BSD and Douglas Lowy, M.D. of the Laboratory of Cellular Oncology at NCI. Dr. Robinson will serveas Principal Investigator on this new HPV vaccine project.Manufacturing The development and manufacture of the Company’s products are subject to good laboratory practices (“GLP”) and good manufacturingpractices (“GMP”) requirements prescribed by the FDA and to other standards prescribed by the appropriate regulatory agency in the countryof use. The Company has the ability to produce quantities of Novasome lipid vesicles and MNPs sufficient to support its needs for early-stageclinical trials. It does not presently have FDA-certified facilities capable of producing the larger quantities of pharmaceutical products requiredfor larger scale clinical trials or commercial production. The Company will need to rely on collaborators, licensees or contract manufacturersor acquire such manufacturing facilities for later stage clinical trials and commercial production of its own pharmaceuticals. There can be noassurance that the Company will be able to obtain such facilities or manufacture such products in a timely fashion at acceptable quality andprices, 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 anadequate supply of product.Marketing The Company plans to market the pharmaceuticals for which it obtains regulatory approvals either through joint ventures or corporatepartnering arrangements. The Company expects that such arrangements could include technology licenses, research funding, milestonepayments, collaborative product development, royalties and equity investments in Novavax. Implementation of this strategy will depend onmany factors, including the market potential of its products and technologies, the success in developing relationships with distributors ormarketing partners for the Company’s products and the financial resources available to the Company.Competition 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 preparationsfor clinical indications identical to those the Company proposes to target. SmithKline Beecham currently markets a transdermal testosteronepatch and Novartis markets an estrogen transdermal patch. The competition to develop FDA-approved hormone replacement therapies isintense and no assurance can be given that the Company’s product candidates will be developed into commercially successful products. A number of other companies have been working on vaccine adjuvants for use in human vaccines. These include, but are not limited to,Chiron, Ribi Immunochem Research, Aquila, Iscotec, Proteus International and7Table of ContentsBiomira. The competition to develop FDA-approved human vaccine adjuvants is intense and no assurance can be given that the Company’sadjuvant product candidates will be developed into commercially successful products. Primary competitors in the development of lipid structure and vesicle encapsulation technologies are The Liposome Company, SequusPharmaceuticals, Nexstar Pharmaceuticals and L’Oreal, as well as other pharmaceutical, vaccine and chemical companies. The Companybelieves that, except for L’Oreal, these companies have focused their development efforts on pharmaceutical carrier systems for thetreatment of infections and certain cancers. To the Company’s knowledge, The Liposome Company, Sequus and Nexstar all base their lipidvesicle technologies on phospholipids. Most of the Company’s competitors are larger than the Company and have substantially greater financial, marketing and technicalresources. In addition, many of these competitors have substantially greater experience than the Company in developing, testing andobtaining FDA and other approvals of pharmaceuticals. Furthermore, if the Company commences commercial sales of pharmaceuticals, itwill also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which it has limited or no experience. Ifany of the competitors develop new encapsulation technologies that are superior to the Company’s Novasome and MNP technologies, theability of the Company to expand into the pharmaceutical and vaccine adjuvant markets will be materially and adversely affected. Competition among products will be based, among other things, on product efficacy, safety, reliability, availability, price and patentposition. An important factor will be the timing of market introduction of the Company’s or competitors’ products. Accordingly, the relativespeed with which the Company can develop products, complete the clinical trials and approval processes and supply commercial quantitiesof the products to the market is expected to be an important competitive factor. The Company’s competitive position will also depend upon itsability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes and to securesufficient capital resources for the often substantial period between technological conception and commercial sales.Research And Development The Company’s research is focused principally on the development and commercialization of formulations for topical drug delivery andtherapeutic products, including anti-bacterial and anti-viral products and adjuvants for vaccines. The Company intends to use third partyfunding when available, through collaborations, joint ventures or strategic alliances with other companies, particularly potential distributors ofthe Company’s products. Because of the substantial funds required for clinical trials, the Company will have to obtain additional financing forits future human clinical trials. No assurance can be given that such financing will be available on terms attractive to the Company, if at all. The Company bases its development decisions on costs and potential return on investment, regulatory considerations, and the interest,sponsorship and availability of funding from third parties. As of December 31, 1999, the Company’s research and development staffnumbered 29 individuals. In addition to its internal research and development efforts, the Company encourages the development of productcandidates in areas related to its present lines by working with universities and government agencies. Novavax’s research and developmentexpenditures approximated $3,354,000, $3,361,000 and $2,874,000 and in the years ended December 31, 1999, 1998 and 1997,respectively.Patents And Proprietary Information The Company, through a wholly-owned subsidiary, holds 50 U.S. patents and has 125 foreign patents and patent applications covering itstechnologies (which include a wide variety of component materials, its continuous flow vesicle production process and its NovamixRproduction equipment). The Company believes that these patents are important for the protection of its technology as well as certain of thedevelopment processes that underlie that technology. In addition, three U.S. patent applications are pending covering the composition,manufacture and use of its organized lipid structures and related technologies.8Table of Contents The Company expects to engage in collaborations, sponsored research agreements and preclinical testing agreements in connection withits future pharmaceutical products and vaccine adjuvants, as well as clinical testing agreements with academic and research institutions andU.S. government agencies, such as the NIH, to take advantage of the technical expertise and staff of these institutions and to gain access toclinical evaluation models, patients and related technologies. Consistent with pharmaceutical industry and academic standards, and therules and regulations promulgated under the federal Technology Transfer Act of 1986, these agreements may provide that developments andresults will be freely published, that information or materials supplied by the Company will not be treated as confidential and that theCompany will be required to negotiate a license to any such developments and results in order to commercialize products incorporating them.There can be no assurance that the Company will be able to successfully obtain any such license at a reasonable cost or that suchdevelopments and results will not be made available to competitors of the Company on an exclusive or nonexclusive basis.Government Regulation The Company’s research and development activities are subject to regulation for safety, efficacy and quality by numerous governmentalauthorities in the United States and other countries. The development, manufacturing and marketing of human pharmaceuticals are subjectto regulation in the United States for safety and efficacy by the FDA in accordance with the Food, Drug and Cosmetic Act. In the United States, human pharmaceuticals are subject to rigorous FDA regulation including preclinical and clinical testing. The processof completing clinical trials and obtaining FDA approvals for a new drug is likely to take a number of years, requires the expenditure ofsubstantial resources and is often subject to unanticipated delays. There can be no assurance that any product will receive such approval on atimely basis, if at all. The steps required before new products for use in humans may be marketed in the United States include (i) preclinical tests,(ii) submission to the FDA of an Investigational New Drug application (IND), which must be approved before human clinical trialscommence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) submission of a NewDrug Application (“NDA”) for a new drug or a Product License Application (“PLA”) for a new biologic to the FDA and (v) FDA approval of theNDA or PLA prior to any commercial sale or shipment of the product. Preclinical tests include laboratory evaluation of product formulation, 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 preclinicalsafety tests must be conducted by laboratories that comply with FDA regulations regarding GLP. The results of the preclinical tests, aresubmitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. There can be noassurance that submission of an IND will result in FDA authorization to commence clinical trials. Clinical trials involve the administration ofthe investigational new drug to healthy volunteers and to patients under the supervision of a qualified principal investigator and are typicallyconducted in three sequential phases, although the phases may overlap. The Company or the FDA may suspend clinical trials at any time ifthe participants are being exposed to an unacceptable health risk. The FDA may deny an NDA or PLA if applicable regulatory criteria are notsatisfied, require additional testing or information, or require post marketing testing and surveillance to monitor the safety of the Company’sproducts. In addition to obtaining FDA approval for each PLA, an Establishment License Application (“ELA”) must be filed and approved by the FDAfor the manufacturing facilities of a biologic product before commercial marketing of the biologic product is permitted. The regulatory processmay take many years and requires the expenditure of substantial resources. In addition to regulations enforced by the FDA, the Company also is subject to regulation under the Occupational Safety and Health Act,the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present andpotential future federal, state or local regulations. The Company’s research and development involves the controlled use of hazardousmaterials, chemicals and viruses. Although the Company believes that its safety procedures for handling and disposing of such materialscomply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury9Table of Contentsfrom these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damagesthat result, and any such liability could exceed the resources of the Company. In both domestic and foreign markets, the ability of the Company to commercialize its product candidates will depend, in part, on theavailability of reimbursement from third-party payers, such as government health administration authorities, private health insurers andother organizations. If adequate coverage and reimbursement levels are not provided by government and third-party payers for uses of theCompany’s therapeutic products, the market acceptance of these products would be adversely affected. There have been a number of federal and state proposals during the last few years to subject the pricing of pharmaceuticals togovernment control and to make other changes to the medical care system of the United States. It is uncertain what legislative proposals willbe adopted or what actions federal, state or private payers for medical goods and services may take in response to any medical reformproposals or legislation. The Company cannot predict the effect medical reforms may have on its business, and no assurance can be giventhat any such reforms will not have a material adverse effect on the Company.Employees The Company had 35 full-time employees as of December 31, 1999, of whom 29 are in research and development. The Company hasno collective bargaining agreement with its employees and believes that its employee relations are good.Item 2. Properties The Company leases approximately 12,000 square feet of administrative offices and laboratory space for its corporate headquarters,analytical laboratories and pharmaceutical product storage at 8320 Guilford Road, Columbia, Maryland. The Company also leases 2,700square feet of space located in Rockville, Maryland. This space contains the Company’s certified animal facility and laboratories for its drugresearch and biologics development, which includes the vaccine adjuvant product and services group. The Company’s Biomedical ServicesDivision also leases 12,000 square feet of space located in Rockville, Maryland. This space is for contract vaccine research, development andmanufacturing of Phase I and II products. The Company believes its facilities are adequate to produce quantities of Novasome lipid vesicles, micellar nanoparticles, vaccines andadjuvants to support Phase I and Phase II clinical trials. It does not presently have FDA certified facilities capable of producing the largerquantities of pharmaceutical products required for commercial production. The Company presently relies on collaborators, licensees orcontract manufacturers for Phase III clinical trial materials and commercial production of its own pharmaceuticals.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 the fourth quarter of the fiscal year ended December 31, 1999.Executive Officers Of The Registrant The Company’s executive officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholdersand until their successors are duly chosen and qualified, or until they resign or are removed from office in accordance with the Company’sBy-laws.10Table of Contents The following table provides certain information with respect to the Company’s executive officers. Principal Occupation and Other BusinessNameAgeExperience During the Past Five YearsJohn A. Spears50President, Chief Executive Officer and Director sinceMay 1999. President and Chief Executive Officer of VionPharmaceuticals, Inc. from 1995 to May 1999. President andChief Executive Officer of MelaRx Pharmaceuticals, Inc. from1993 to 1995. Senior Vice President of Immunex Corp from1989 to 1993.D. Craig Wright, M.D.49President — Research Division of Novavax since 1998 andChief Scientific Officer of Novavax since 1993. Founder andSenior Director of Medical Research of Univax Biologics, Inc.,a biopharmaceutical company, from 1988 to 1992.Donald J. MacPhee48Vice President, Chief Financial Officer and Treasurer sinceFebruary 1999. Corporate Controller of EnvironmentalTectonics Corporation from 1997 to 1998. Vice President ofIGI, Inc., from 1990 to 1997 and Chief Financial Officer ofIGI, Inc., from 1987 to 1997.11Table of ContentsPART IIItem 5. Market For Registrant’s Common Equity and Related Stockholder Matters The Company’s Common Stock was held by 904 stockholders of record as of March 3, 2000. The Company has never paid cashdividends on its Common Stock. The Company currently anticipates that it will retain all of its earnings for use in the development of itsbusiness and does not anticipate paying any cash dividends in the foreseeable future. The Company’s Common Stock ($.01 par value) is traded on the American Stock Exchange under the symbol “NOX”. The followingtable sets forth, for the periods presented, the high and low sales prices for the Company’s Common Stock. Quarter EndedHighLowDecember 31, 1999$6.1875$3.6250September 30, 19994.50003.1250June 30, 19994.18753.0625March 31, 19994.00001.8750December 31, 1998$3.2500$1.2500September 30, 19983.87501.2500June 30, 19984.75002.8125March 31, 19986.12503.7500Recent Sales of Unregistered Securities In April 1999, the Company entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,100 shares of itsCommon Stock to accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of theCompany. The issuance price of the Common Stock was $2.50 per share. Each share was sold together with a non-transferable warrant forthe purchase of .25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Gross proceeds from the PrivatePlacement were $4,128,000. Placement agents’ fees were approximately $215,000, which was paid with cash of $107,000 and 42,933shares of the Company’s Common Stock, which were issued together with non-transferable warrants for the purchase of 10,733 shares ofthe Company’s Common Stock at an exercise price of $3.75. These warrants have a three-year term. Additionally, non-transferable warrantsfor the purchase of 143,000 shares of the Company’s Common Stock, with an exercise price of $3.00 per share and a three-year term, wereissued to the placement agents. Other costs connected with the Private Placement, including legal, stock exchange listing and registrationfees, were approximately $67,000. Net proceeds to the Company from the Private Placement were approximately $4,000,000.12Table of ContentsItem 6. Selected Financial Data For the years ended December 31,19951996199719981999(amounts in thousands, except share and per share information)Statement of OperationsData:Revenues$268$56$520$681$1,181Loss from operations(6,744)(5,534)(4,791)(5,152)(4,566)Net loss(8,494)(5,495)(4,547)(4,817)(4,506)Loss applicable to commonstockholders(8,494)(5,495)(4,547)(7,045)(4,506)Per share information:(basic and diluted)Loss applicable to commonstockholders$(0.85)$(0.54)$(0.39)$(0.57)$(.31)Weighted average number ofshares outstanding9,937,93610,132,89611,667,42812,428,42614,511,081 As of December 31,19951996199719981999Balance Sheet Data:Total current assets$4,761$3,221$4,303$1,207$1,143Working capital4,3302,6404,014349270Total assets7,5305,7226,8233,8194,463Stockholders’ equity7,0995,1176,5222,9612,840 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 as may otherwise be incorporated by reference herein constitute“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include,but are not limited to, statements regarding future product development and related clinical trials and statements regarding future researchand development. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause theactual results, performance or achievements of the Company, or industry results, to be materially different from any future results,performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, thefollowing: general economic and business conditions; competition; technological advances; ability to obtain rights to technology; ability toobtain and enforce patents; ability to commercialize and manufacture products; results of preclinical studies; results of research anddevelopment activities; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure to comply with,governmental regulations; ability to obtain adequate financing in the future; and other factors referenced herein. All forward-lookingstatements included in this document are based on information available to the Company on the date hereof, and the Company assumes noobligation to update any such forward-looking statements. Accordingly, past results and trends should not be used by investors to anticipatefuture results or trends. The following is a discussion of the historical consolidated financial condition and results of operations of Novavax and its subsidiaries.The discussion should be read in conjunction with the consolidated financial statements and notes thereto set forth in Item 8 to this Report.Results of Operations The Company has incurred net losses since its inception from the development of its technologies for human pharmaceuticals, vaccinesand vaccine adjuvants. Novavax expects the losses to continue and to most likely increase in the near-term, as it conducts additional humanclinical trials and seeks regulatory approval for its product candidates. The Company also expects to continue to incur substantial operatinglosses over the extensive time period required to develop the Company’s products, or until such time as revenues, to offset the losses, aresufficient to fund its continuing operations.13Table of Contents In August 1999, the Company acquired substantially all of the assets (excluding cash and accounts receivable) of the BiomedicalServices Laboratory (“BSD”) division of DynCorp of Reston, Virginia for $592,000 and assumed liabilities of approximately $60,000. Inaddition, DynCorp entered into a five-year non-competition agreement, for which Novavax will make four quarterly payments of $37,000each, which commenced in November 1999. Also, the Company incurred approximately $60,000 in direct costs (legal, accounting, etc.)associated with the acquisition. The total consideration and direct costs for the acquisition were $860,000. The research and developmentactivities of BSD are conducted in a 12,000 square foot facility located in Rockville, Maryland. BSD is engaged in contract research,development and pilot manufacturing of human vaccines for government laboratories and other vaccine companies. The acquisition hasbeen accounted for under the purchase method of accounting for business combinations. (See Note 5 of the Notes to the ConsolidatedFinancial Statements).1999 Compared to 1998 The net loss of $4,506,000 for the year ended December 31, 1999 was $311,000 or 6% lower than the net loss for the year endedDecember 31, 1998. In 1998, charges for a dividend, a deemed dividend and offering costs totaling $2,228,000, related to the mandatorily-redeemable convertible preferred stock, resulted in a loss applicable to common stockholders for the year ended December 31, 1998 of$7,045,000. There were no similar charges for the year ended December 31, 1999. Revenues of $1,181,000 were recognized during 1999, compared to $681,000 in 1998. This $500,000 or 73% increase relates topayments made under license and research contracts for vaccines, vaccine adjuvants and microbicides. The Company’s BiomedicalServices division, which was acquired in August 1999, accounted for $370,000 or 31% of the 1999 total. In October 1999, the Companyentered into a licensing agreement with Parkedale Pharmaceuticals, Inc., a wholly-owned subsidiary of King Pharmaceuticals, Inc. for therights to Novavax’s technologies, including the Novasome adjuvants to be used with Parkedale’s U.S. Food and Drug Administrationlicensed influenza vaccine. Under the terms of the agreement, Novavax received a non-refundable license payment of $1,000,000. Novavaxhas recognized $250,000 under this agreement as revenue for the year ended December 31, 1999. The remaining $750,000 has beenrecorded in the accompanying balance sheet at December 31, 1999 as Deferred Revenue and will be recognized as revenue over the nextyear. Additional payments due under this agreement include milestone payments, research support and royalties on future product sales. General and administrative expenses were $2,393,000 for the year ended December 31, 1999, compared to $2,472,000 for 1998. The$79,000 or 3% decrease in these expenses related to reduced salary expense due to a reduction in the number of administrative employees.As a result of the BSD acquisition, headcount increased from 15 to 38 employees, and the Company expects the number of employees toincrease in future periods to meet its requirements. Research and development expenses were $3,354,000 and $3,361,000 for the years ended December 31, 1999 and 1998, respectively.Research costs of the newly acquired BSD operation accounted for $704,000 or 21% of Novavax’s research expenditures for 1999. Thisadditional cost was offset by reductions in the number of products in clinical development programs. The Company expects these efforts toresume during 2000. Interest income was $60,000 and $335,000 for the years ended December 31, 1999 and 1998, respectively. The reduction in interestincome relates to lower average cash balances during 1999 compared to 1998.1998 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 theyear ended December 31, 1997. The 1997 net loss includes non-cash compensation expense of $578,000 compared to $11,000 included inthe 1998 net loss. This compensation expense relates to the amortization of below-market priced stock options granted in 1995. Other 1998non-cash charges include $281,000 of depreciation and patent amortization expense, compared to $254,000 of similar expenses in 1997.The dividend on preferred stock of $225,000 and the accretion of offering costs of $420,000 relate to dividends paid and fees incurred with theplacement and subsequent conversion and repurchase of preferred stock. The deemed dividend on preferred stock of $1,583,000 relates tothe beneficial conversion feature of the preferred stock which allowed for conversion into common stock at a price per share discounted to thethen-quoted market price of the common stock.14Table of Contents Revenues of $681,000 were recognized during 1998, principally from contracts related to vaccine and adjuvant technologies services aswell as supplying new chemical structures designed to inactivate viruses, bacteria and bacterial spores. This reflects a $161,000 or 31%increase over revenues in 1997. General and administrative expenses include all costs associated with the marketing of the Company’s technology to potential industrypartners and those activities associated with identifying additional sources of capital. It also includes costs associated with management andadministrative activities. General and administrative expenses were approximately $2,472,000 and $2,437,000 for the years endedDecember 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 theNovavax technologies as well as the development of the Company’s product candidates. Research and development expenses wereapproximately $3,361,000 and $2,874,000 for the years ended December 31, 1998 and 1997, respectively. The $487,000 or 17% increasein these expenses was due principally to costs associated with the Company’s Phase II clinical trials. Interest income was approximately $335,000 and $245,000 for the years ended December 31, 1998 and 1997, respectively. Theseamounts reflect interest earned on the average cash balances on hand throughout the year.Liquidity and Capital Resources Novavax’s capital requirements depend on numerous factors, including but not limited to the progress of its research and developmentprograms, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the costs of filing,prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and marketdevelopments, and changes in Novavax’s development of commercialization activities and arrangements. The Company currently has threeproduct candidates in development. Future activities including clinical development and the establishment of commercial-scalemanufacturing capabilities are subject to the Company’s ability to raise funds through equity financing, or collaborative arrangements withcorporate partners. Novavax’s future growth will depend on its ability to commercialize its Novavax technologies for human pharmaceuticalapplications. In February 1997, Novavax received $5,003,000, net of fees and expenses, from the private placement of 1,200,000 shares of itsCommon Stock with an accredited institutional investor, a principal of which has subsequently become a director of Novavax. In connectionwith this transaction, Novavax granted warrants to purchase an additional 600,000 shares of the Company’s Common Stock at a price of$6.00 per share and 600,000 shares at $8.00 per share. 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 ACustom Convertible Preferred Stock, $1,000 par value (the “Preferred Stock”). The closing occurred on January 28, 1998 (the “IssuanceDate”) at an aggregate purchase 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 a conversion price equal to (i) during a period of 90 days followingthe Issuance Date, 100% of the average of the two lowest consecutive trade prices of the Common Stock as reported on the American StockExchange for the 25 trading days immediately preceding the conversion date (the “Two Day Average Trading Price”) or (ii) during the periodon and after the date which is 91 days after the Issuance Date, 94% of the Two Day Average Trading Price (the “Conversion Price”). From theIssuance Date, there was a ceiling price of $6.33 and within the 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 Preferred Stock, $1,522,000 of the original issue had been converted into1,043,956 shares of Common Stock, pursuant to the terms and conditions of the Preferred Stock. In October 1998, the Company enteredinto agreements to repurchase the remaining Preferred Stock. The Company repurchased the remaining outstanding $4,979,000 ofPreferred Stock plus accrued dividends at the annual rate of five percent. The repurchase was funded with cash balances on hand. The termsof the Preferred Stock required the Company to pay the holders of the Preferred Stock $225,000 in dividends. This amount was paid15Table of Contentsin cash of $179,000 and through the issuance of 32,492 shares of the Company’s Common Stock, valued at $46,000. The Companyincurred transaction fees associated with the placement, conversion and repurchase of the Preferred Stock of $502,000 which are included inthe accompanying financial statements as accretion of Preferred Stock. In April 1999, the Company entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,100 shares of itsCommon Stock to accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of theCompany. The issuance price of the Common Stock was $2.50 per share. Each share was sold together with a non-transferable warrant forthe purchase of .25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Gross proceeds from the PrivatePlacement were $4,128,000. Placement agents’ fees were approximately $215,000, which was paid with cash of $107,000 and 42,933shares of the Company’s Common Stock, which were issued together with non-transferable warrants for the purchase of 10,733 shares ofthe Company’s Common Stock at an exercise price of $3.75. These warrants have a three-year term. Additionally, non-transferable warrantsfor the purchase of 143,000 shares of the Company’s Common Stock, with an exercise price of $3.00 per share and a three-year term, wereissued to the placement agents. Other costs connected with the Private Placement, including legal, stock exchange listing and registrationfees, were approximately $67,000. Net proceeds to the Company from the Private Placement were approximately $4,000,000. In January 2000, the Company closed a private placement of 2,813,850 shares of its Common Stock to accredited investors (the “2000Private Placement”). The issuance price of the Common Stock was $4.00 per share. Each share was sold together with a non-transferablewarrant for the purchase of .25 additional shares at an exercise price of $6.75. The warrants have a three-year term. Gross proceeds from the2000 Private Placement were $11,255,400. Placement agent fees were approximately $675,000, which was paid in cash. Additionally, non-transferable warrants for the purchase of 281,385 shares of the Company’s Common Stock, with an exercise price of $6.75 per share and athree-year term, were issued to the placement agent. Other costs connected with the 2000 Private Placement, including legal, stockexchange listing and registration fees, were approximately $67,000. Net proceeds to the Company from the 2000 Private Placement wereapproximately $10,530,000. The Company used $3,700,000 during the year ended December 31, 1999 to fund the activities of its research and developmentprograms and costs associated with obtaining regulatory approvals, preclinical and clinical testing. In addition, Novavax acquired theBiomedical Services Laboratories division of DynCorp for $592,000 in cash. Funding for these transactions was available from the privateplacement of the Company’s Common Stock in April 1999 and from the $1,000,000 license payment due under the Parkedale agreement.On December 31, 1999, the Company had $732,000 in cash. Cash, cash equivalents and marketable securities on March 3, 2000, totaled $10,800,000. Novavax estimates that the money receivedfrom the most recent sale of Common Stock and its existing cash resources will be sufficient to finance its operations at current and projectedlevels of development activity for approximately 24 months. Past spending levels are not necessarily indicative of future spending. 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 willseek to establish one or more collaborations with industry partners to defray the costs of clinical trials and other related activities. Novavax willalso seek to obtain additional funds through public or private equity or debt financing, collaborative arrangements with pharmaceuticalcompanies or from other sources. There can be no assurance that additional funding or bank financing will be available at all or on acceptableterms to permit successful commercialization of Novavax’s technologies and products. If adequate funds are not available, Novavax may berequired to significantly delay, reduce the scope of or eliminate one or more of its research or development programs, or seek alternativemeasures including arrangements with collaborative partners or others that may require Novavax to relinquish rights to certain of itstechnologies, product candidates or products.Item 7a. Quantitative and Qualitative Disclosures about Market Risks Not applicable.16Table of ContentsItem 8. Financial Statements and Supplementary Data The financial statements and notes thereto listed in the accompanying 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.PART IIIItem 10. Directors and Executive Officers of the Registrant The information required by this item is contained in part under the caption “Executive Officers of the Registrant” in Part I hereof, and theremainder is contained in the Company’s Proxy Statement for the Company’s Annual Meeting of Stockholders to be held on May 9, 2000(the “2000 Proxy Statement”) under the captions “Proposal 1 — Election of Directors” and “Beneficial Ownership of Common Stock” and isincorporated herein by this reference. The Company expects to file the 2000 Proxy Statement within 120 days after the close of the fiscal yearended December 31, 1999. Officers are elected on an annual basis and serve at the discretion of the Board of Directors.Item 11. Executive Compensation The information required by this item is contained in the Company’s 2000 Proxy Statement under the captions “ExecutiveCompensation” and “Director Compensation” and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is contained in the Company’s 2000 Proxy Statement under the caption “Beneficial Ownership ofCommon Stock” and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions The information required by this item is contained in the Company’s 2000 Proxy Statement under the caption “Certain Relationships andRelated Transactions” and is incorporated herein by reference.17Table of ContentsPART IVItem 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, 1999 and 1998; ConsolidatedStatements of Operations for the years ended December 31, 1999, 1998 and 1997; Consolidated Statements of CashFlows for the years ended December 31, 1999, 1998 and 1997; Consolidated Statements of Stockholders’ Equity forthe years ended December 31, 1999, 1998 and 1997; 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 financialstatements or notes thereto. Condensed financial information of the Registrant is omitted since there are no substantialamounts of restricted net assets applicable to the Company’s consolidated subsidiaries.(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 referencemanagement contracts, compensatory plans or arrangements, filed in response to Item 14 (a)(3) of the instructions toForm 10-K. The other exhibits listed have previously been filed with the Commission and are incorporated herein byreference.3.1Amended and Restated Certificate of Incorporation of Novavax, Inc. [Incorporated by reference to Exhibit 3.1 to theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 0-26770, filedMarch 21, 1997 (the “1996 Form 10-K”).]3.2Amended and Restated By-laws of Novavax, Inc. [Incorporated by reference to Exhibit 3.2 to the 1996 Form 10-K.]3.3Certificate of Designations of Series A Custom Convertible Preferred Stock dated January 28, 1998. [Incorporated byreference 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”).]10.1License Agreement between IGEN, Inc. and Micro-Pak, Inc. [Incorporated by reference to Exhibit 10.3 to the Company’sAnnual 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”).]††10.21995 Stock Option Plan. [Incorporated by reference to Exhibit 10.4 to the Form 10.]††10.3First 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. [Incorporated by reference to Exhibit 10.3 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 1998, File No. 0-26770, filed April 15, 1999. (the“1998 Form 10-K”).]††10.4Director Stock Option Plan. [Incorporated by reference to Exhibit 10.5 to the Form 10.]10.5Agreement of Lease by and between the Company and Rivers Center Associates Limited Partnership, datedSeptember 25, 1996. [Incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K.]10.6Stock and Warrant Purchase Agreement dated February 10, 1997 by and between the Company and AnacondaOpportunity 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”).]18Table of Contents 10.7Form of Warrant issued by the Company to Anaconda Opportunity Fund, L.P. [Incorporated by reference to Exhibit 4.5to the Anaconda S-3.]10.8Forms of Subscription Agreement dated January 23, 1998 and Letter Agreement dated February 19, 1998, by andbetween 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 RegistrationStatement on Form S-3, File No. 333-46409, filed February 17, 1998.]††10.9Employment Agreement dated March 31, 1998, by and between the Company and D. Craig Wright [Incorporated byreference to Exhibit 10.14 to the 1998 Form 10-K]*††10.10Employment Agreement dated May 13, 1999, by and between the Company and John A. Spears.*††10.11Employment Agreement dated March 5, 1999, by and between the Company and Richard J. Harwood.10.12Form of Stock and Warrant Purchase Agreement dated April 14, 1999, by and between the Company and thepurchasers named therein [Incorporated by reference to Exhibit 10.16 to the 1998 Form 10-K]*10.13License Agreement by and between the Company and Parkedale Pharmaceuticals, Inc. dated October 21, 1999.*10.14License Agreement by and between the Company and Cantab Pharmaceuitcals Research Limited, dated April 22,1999.*10.15Form of Stock and Warrant Purchase Agreement dated January 28, 2000, by and between the Company and thepurchasers named therein.21List of Subsidiaries [Incorporated by reference to Exhibit 21 to the 1995 Form 10-K.]*23Consent of PricewaterhouseCoopers LLP, Independent Accountants.*27Financial Data Schedule(b)Reports on Form 8-K:The Company filed a current report on Form 8-K on August 25, 1999 to report under Item 2 its acquisition ofDynCorp’s Biomedical Services Laboratory division. In addition, the Company filed an amendment to the Form 8-K onOctober 12, 1999 to include under Item 7 the following financial information:Financial statements of DynCorp Biomedical Services Laboratory.(1) Report of Independent Accountants dated October 6, 1999.(2) Statement of Assets Acquired and Liabilities Assumed as of December 31, 1998 and June 30, 1999 (unaudited)(3) Statement of Operating Revenue and Expenses for the year ended December 31, 1998 and for the six monthsended June 30, 1999 (unaudited) and 1998 (unaudited).(4) Notes to Financial Statements.Unaudited Pro Forma Combined Financial Information of Novavax, Inc.(1) Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1998.(2) Unaudited Pro Forma Combined Statement of Operations for the six months ended June 30, 1999.(3) Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1999.(4) Notes to the Unaudited Pro Forma Combined Financial Information19Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.Date: March 7, 2000 NOVAVAX, INC. By: /s/ JOHN A. SPEARS John A. Spears, 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 onbehalf of the Registrant in the capacity and on the date indicated. NameTitleDate/s/ JOHN A. SPEARSJohn A. SpearsPresident and Chief Executive Officerand DirectorMarch 7, 2000 /s/ DONALD J. MACPHEEDonald J. MacPheeVice President and Chief FinancialOfficer (Principal Financial andAccounting Officer)March 7, 2000/s/ GARY C. EVANSGary C. EvansDirectorMarch 7, 2000/s/ MITCHELL J. KELLYMitchell J. KellyDirectorMarch 7, 2000/s/ J. MICHAEL LAZARUSJ. Michael Lazarus, M.D.DirectorMarch 7, 2000/s/ JOHN O. MARSH, JR.John O. Marsh, Jr.DirectorMarch 7, 2000/s/ MICHAEL A. MCMANUSMichael A. McManusDirectorMarch 7, 2000/s/ DENIS M. O’DONNELLDenis M. O’Donnell, M.D.DirectorMarch 7, 2000/s/ RONALD H. WALKERRonald H. WalkerDirectorMarch 7, 200020Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS DescriptionPageReport of Independent AccountantsF-2Consolidated Statements of Operations for each of the three years in theperiod ended December 31, 1999F-3Consolidated Balance Sheets as of December 31, 1999 and 1998F-4Consolidated Statements of Cash Flows for each of the three years in theperiod ended December 31, 1999F-5Consolidated Statements of Changes in Stockholders’ Equity for each of thethree years in the period ended December 31, 1999F-6Notes to the Consolidated Financial StatementsF-7F-1Table of ContentsREPORT OF INDEPENDENT ACCOUNTANTSTo the Board of Directors and Stockholders of Novavax, Inc. In our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations, of cash flows and ofchanges in stockholders’ equity, present fairly, in all material respects, the consolidated financial position of Novavax, Inc. and subsidiaries atDecember 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the periodended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements arethe responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on ouraudits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, whichrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for the opinion expressed above.PricewaterhouseCoopers LLPMcLean, VirginiaFebruary 26, 2000F-2Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(amounts in thousands, except share and per share information) For the years ended December 31,199919981997Revenues$1,181$681$520Operating expenses:General and administrative2,3932,4722,437Research and development3,3543,3612,874Total operating expenses5,7475,8335,311Loss from operations(4,566)(5,152)(4,791)Interest income, net60335244Net loss(4,506)(4,817)(4,457)Dividend on preferred stock—(225)—Deemed dividend on preferred stock—(1,583)—Accretion of offering cost—(420)—Loss applicable to common stockholders$(4,506)$(7,045)$(4,547)Per share information: (basic and diluted) Lossapplicable to common stockholders$(0.31)$(0.57)$(0.39)Weighted average number of common sharesoutstanding (basic and diluted)14,511,08112,428,42611,667,428The accompanying notes are an integral part of the consolidated financial statements.F-3Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(amounts in thousands, except share and per share information) As of December 31,19991998ASSETSCurrent assets:Cash and cash equivalents$732$1,031Accounts receivable341138Prepaid expenses and other current assets7038Total current assets1,1431,207Property and equipment, net1,0531,020Patent costs, net1,6191,590Other assets, net6482Total assets$4,463$3,819LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Debt obligations$111$36Accounts payable637793Accrued payroll12529Total current liabilities873858Deferred revenue750—Total liabilities1,623858Commitments and contingencies Stockholders’ equity:Preferred stock, $.01 par value, 2,000,000 shares authorized; noshares issued and outstanding——Common stock, $.01 par value, 30,000,000 shares authorized;15,173,688 issued and 15,167,166 outstanding at December 31,1999, and 13,253,118 issued and outstanding at December 31, 1998152133Additional paid-in capital45,62241,231Accumulated deficit(42,894)(38,388)Accumulated deficit(42,894)(38,388)Deferred compensation on stock options granted(5)(15)Treasury stock, 6,522 shares, cost basis at December 31, 1999(35)—Total stockholders’ equity2,8402,961Total liabilities and stockholders’ equity$4,463$3,819The accompanying notes are an integral part of the consolidated financial statements.F-4Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands) For the years ended December 31,199919981997Cash flows from operating activities:Net loss$(4,506)$(4,817)$(4,547)Reconciliation of net loss to net cash used by operatingactivities:Gain on sale of asset(23)——Non-cash compensation expense1010577Depreciation and amortization382281254Issuance of stock to 401(k) plan—2210Issuance of stock as compensation115——Changes in operating assets and liabilities:Accounts receivable(203)112(257)Prepaid expenses and other assets(45)2244Accounts payable and accrued expenses(180)544(286)Deferred revenue750——Net cash used by operating activities(3,700)(3,624)(4,245)Cash flows from investing activities:Proceeds from the sale of marketable securities——501Acquisition of business(592)——Capital expenditures(48)(231)(45)Deferred patent costs(171)(146)(198)Proceeds from sale of asset25——Net cash (used) provided by investing activities(786)(377)258Cash flows from financing activities:Payment of capital lease obligations(73)(38)(11)Issuance of preferred stock—6,500—Dividend on preferred stock—(179)—Offering costs of preferred and common stock(173)(502)—Repurchase of preferred stock—(4,979)—Proceeds from private placements of common stock4,128505,003Proceeds from the exercise of stock options305333361Net cash provided by financing activities4,1871,1855,353Net change in cash and cash equivalents(299)(2,816)1,366Cash at beginning of period1,0313,8472,481Cash and cash equivalents at end of period$732$1,031$3,847The accompanying notes are an integral part of the consolidated financial statements.F-5Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the years ended December 31, 1999, 1998 and 1997(amounts in thousands, except share information) DeferredCompensationCommon StockAdditionalOn StockTotalPaid-inOptionsTreasuryStockholdersSharesDollarsCapitalDeficitGrantedStockEquityBalance, December 31,199610,660,710$106$32,410$(26,796)$(603)$—$5,117Company contribution toemployee 401(k) plan771—3——710Amortization of deferredcompensation————578—578Private sale of commonstock, net1,200,000124,991——5,003Exercise of stock options170,2762450——(90)362Net loss———(4,547)——(4,547)Balance, December 31,199712,031,75712037,853(31,343)(25)(83)6,522Company contribution toemployee 401(k) plan421(12)——3322Amortization of deferredcompensation————10—10Private sale of preferredstock, net——1,583———1,583Conversion of preferredstock1,043,956111,475———1,486Dividend on preferredstock32,944——(225)——(225)Deemed dividend onpreferred———(1,583)——(1,583)Accretion of offering costs———(420)——(420)Private sale of commonstock, net—————5050Exercise of stock options144,4191332———333Net loss———(4,817)——(4,817)Balance, December 31,199813,253,11813341,231(38,388)(15)—2,961Amortization of deferredcompensation————10—10Private sale of commonstock1,651,100174,111———4,128Offering costs42,933—(173)———(173)Stock issued ascompensation——(43)——158115Exercise of stock options226,5372496——(193)305Net loss———(4,506)——(4,506)Balance, December 31,199915,173,688$152$45,622$(42,894)$(5)$(35)$2,840The accompanying notes are an integral part of the consolidated financial statements.F-6Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. Description of Business and Basis of Presentation Description of Business Novavax, Inc., a Delaware corporation (“Novavax” or the “Company”), is a biopharmaceutical company focused on the research anddevelopment of proprietary topical and oral drug delivery technologies and applications of those technologies. The Company’s technologyplatforms involve the use of proprietary, microscopic, organized, non-phospholipid structures as vehicles for the delivery of a wide variety ofdrugs and other therapeutic products, including certain hormones, anti-bacterial and anti-viral products and vaccine adjuvants. Thesetechnology platforms support three product development programs: hormone replacement therapies, third party drug delivery and vaccineadjuvant applications and anti-microbial agents. Novavax’s recently acquired Biomedical Services Division is engaged in contract researchand development and Phase I and Phase II vaccine manufacturing of human vaccines for the Company’s own use and for governmentlaboratories and other vaccine companies. The regulatory process is lengthy, requiring substantial funds, and the Company cannot predictwhen approval of any product or a license to sell any product might occur. In addition, there can be no assurance the Company will havesufficient funds necessary or that the additional funds will be available at all or on acceptable terms. The Company also recognizes that thecommercial launch of any product is subject to certain risks including but not limited to manufacturing scale-up and market acceptance. Basis of Presentation The accompanying consolidated financial statements include the accounts of Novavax and its wholly owned subsidiaries Micro-Pak, Inc.,Micro Vesicular Systems, Inc. and Lipovax, Inc. All significant intercompany accounts and transactions have been eliminated inconsolidation. Financing Requirements Past spending levels are not necessarily indicative of future spending. The Company will seek to establish one or more collaborationswith industry partners to defray the costs of clinical trials and other related activities. Novavax will also seek to obtain additional funds throughpublic or private equity or debt financing, collaborative arrangements with pharmaceutical companies or from other sources. If adequate fundsare not available, Novavax may be required to significantly delay, reduce the scope of or eliminate one or more of its research or developmentprograms, or seek alternative measures. Subsequent Event In January 2000, the Company closed a private placement of 2,813,850 shares of its Common Stock to accredited investors (the “2000Private Placement”). The issuance price of the Common Stock was $4.00 per share. Each share was sold together with a non-transferablewarrant for the purchase of .25 additional shares at an exercise price of $6.75. The warrants have a three-year term. Gross proceeds from the2000 Private Placement were $11,255,400. Placement agent fees were approximately $675,000, which was paid in cash. Additionally, non-transferable warrants for the purchase of 281,385 shares of the Company’s Common Stock, with an exercise price of $6.75 per share and athree-year term, were issued to the placement agent. Other costs connected with the 2000 Private Placement, including legal, stockexchange listing and registration fees, were approximately $50,000. Net proceeds to the Company from the 2000 Private Placement wereapproximately $10,530,000.2. Summary of Significant Accounting Policies Cash and Cash Equivalents Cash equivalents are considered to be short-term highly liquid investments with original maturities of 90 days or less.F-7Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2. Summary of Significant Accounting Policies — (Continued) Property and Equipment Property and equipment are recorded at cost. Depreciation of furniture, fixtures and equipment is provided under the straight-line methodover the estimated useful lives, generally five years. Amortization of leasehold improvements is provided over the estimated useful lives ofthe improvements or the term of the lease, which ever is shorter. Furniture and equipment held under capital leases are amortized under thestraight-line method over the shorter of the lease term or the estimated useful life of the asset. Repair and maintenance costs are charged to operations as incurred while major improvements are capitalized. When assets are retiredor disposed of, the cost and accumulated depreciation thereon are removed from the accounts and any gains or losses are included inoperations. Accumulated depreciation was $871,000 and $691,000 at December 31, 1999 and 1998, respectively. Patent Cost Costs associated with obtaining patents, principally legal costs and filing fees, are being amortized on a straight-line basis over theremaining economic lives of the respective patents. Accumulated amortization of patent costs was $820,000 and $678,000 at December 31,1999 and 1998, respectively. Stock Based Compensation The Company measures compensation expense for its employee stock-based compensation using the intrinsic value method andprovides pro forma disclosures of net loss as if the fair value method had been applied in measuring compensation expense. Under theintrinsic value method of accounting for stock-based compensation, when the exercise price of options granted to employees is less than theestimated fair value of the underlying stock on the date of grant, deferred compensation is recognized and is amortized to compensationexpense over the applicable vesting period. Impairment of Long-lived Assets The Company evaluates the recoverability of the carrying value of its long-lived assets periodically. The Company considers historicalperformance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present,the Company evaluates the carrying value of these assets in relation to the operating performance of the business and future discounted andundiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of expected futurecash flows are less than the assets’ carrying value. No such impairment losses have been recognized to date. Research and Development Costs Research and development costs are expensed as incurred. Revenue Recognition Revenues from the sale of scientific prototype vaccines and adjuvants are recorded as the products are produced and shipped. Revenuesearned under research contracts are recognized when the related contract provisions are met. Net Loss Per Share Basic earnings per share is computed by dividing the net loss available to common shareholders by the weighted average number ofcommon share outstanding during the period. Diluted loss per share is computedF-8Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2. Summary of Significant Accounting Policies — (Continued) Net Loss Per Share — (Continued)by dividing net loss available to common shareholders by the weighted average number of common shares outstanding after giving effect toall dilutive potential common shares that were outstanding during the period. Potential common shares are not included in the computation of dilutive earnings per share if they are antidilutive. Net loss per share asreported was not adjusted for potential common shares as they are antidilutive. Income Taxes The Company’s income taxes are determined in accordance with the provisions of Statement of Financial Accounting Standards(SFAS) No. 109, which requires the asset and liability method of accounting for income taxes. Under the asset and liability method deferredincome taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to futureyears to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of changes in tax rates is recognized in income in the period that includes the enactment date. A valuationallowance is recorded based on management’s determination of the ultimate realizability of future deferred tax assets. The Company hasprovided a full valuation allowance against its net deferred tax asset as of December 31, 1999 and 1998. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimatesinclude valuation of patent costs and benefits for income taxes and related valuation allowances. Actual results could differ from thoseestimates. Comprehensive Income The Company has adopted the accounting treatment prescribed by SFAS 130, Comprehensive Income. The adoption of this statementhad no impact on the Company’s financial statements because the Company did not have any other comprehensive income components. Concentration of Credit Risk Financial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cash equivalentsand accounts receivable. The Company maintains its cash and cash equivalents in bank accounts which, at times, may exceed federallyinsured limits. The Company has not experienced any losses on such accounts. Accounts receivable consist principally of amounts due fromthe Federal Government, other large institutions and credit worthy companies. The Company monitors the balances of individual accounts toassess any collectibility issues. The Company has not experienced losses related to receivables in the past. As of December 31, 1999, threecustomers accounted for 53%, 11% and 10% of accounts receivable, which totaled $341,000. As of December 31, 1998, two customersaccounted for 65% and 27% of accounts receivable, which totaled $138,000. New Accounting Standards The Financial Accounting Standards Board (“FASB”) has issued Statement of Accounting Standards No. 137 (SFAS 137), Accounting forDerivative Instruments and Hedging Activities — Deferral of theF-9Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2. Summary of Significant Accounting Policies — (Continued) New Accounting Standards — (Continued)Effective Date of SFAS No. 133. This statement amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years beginning afterJune 15, 2000. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, requires that every derivative instrument be recorded in thebalance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivatives fair value berecognized in earnings unless specific hedge accounting criteria are met. The Company will adopt SFAS No. 133 by January 1, 2001.Because of the Company’s minimal use of derivatives, management does not anticipate that adoption of this statement will have a materialeffect on the earnings or financial position of the Company.3. Supplemental Cash Flow Information 199919981997(amountsin thousands)Cash paid for:Interest$9$9— For the years ended December 31, 1999, 1998 and 1997, the Company had the following non-cash financing and investing activities: 199919981997(amountsin thousands)Capital lease obligation for the purchase of furnitureand equipment$—$50$—4. Property and Equipment Property and equipment, stated at cost, is comprised of the following: 19991998(amountsin thousands)Machinery and equipment$1,433$1,249Leasehold improvements428329Equipment under capital leases—87Furniture and fixtures63461,9241,711Less accumulated depreciation(871)(691)$1,053$1,020 Depreciation expense of $183,500, $152,000 and $134,000 was recorded in the years ended December 31, 1999, 1998 and 1997,respectively. Accumulated depreciation on equipment under capital leases was $33,000 at December 31, 1998.5. Acquisition of Biomedical Services Laboratories On August 10, 1999, the Company acquired substantially all of the assets (excluding cash and accounts receivable) of the BiomedicalServices Laboratory (“BSD”) division of DynCorp of Reston, Virginia forF-10Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 5. Acquisition of Biomedical Services Laboratories — (Continued)$592,000 in cash and assumed liabilities of approximately $60,000. In addition, DynCorp entered into a five-year non-competitionagreement, for which Novavax will make four quarterly payments of $37,000 each, commencing on November 10, 1999. The research anddevelopment activities of BSD are conducted in a leased 12,000 square foot facility located in Rockville, Maryland. BSD is engaged in contractresearch, development and pilot manufacturing of human vaccines for government laboratories and other vaccine companies. The acquisition has been accounted for under the purchase method of accounting for business combinations. The total consideration anddirect costs (which include legal and accounting fees of approximately $60,000) for the acquisition was $860,000. The following summarizesmanagement’s allocation of the purchase price based on estimated fair value as of the acquisition date. EstimatedCostlives(thousands)Property and equipment$1703-7 yearsGoodwill and other intangible assets$690 5 years Property and equipment consists primarily of laboratory equipment that the Company believes will continue to be used in the operationsof the Division. Other intangible assets included patents, workforce, favorable lease and approved FDA facility. Goodwill and other intangibleassets of $690,000 are included in non-current other assets at December 31, 1999. Goodwill and other intangible assets are being amortizedover their useful lives of five years. At December 31, 1999, accumulated amortization was $57,500. The operating results of BSD have been included in the consolidated statement of operations from the acquisition date. The followingsummary represents pro forma results of operations as if the acquisition had occurred at the beginning of 1998. These pro forma resultshave been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have actuallyresulted had the combination been in effect and are not intended to be indicative of future results. Year endedDecember 31,19991998(amounts in thousands,except per shareinformation)Revenue$3,597$3,037Net loss$(4,484)$(4,798)Loss per share$(.31)$(.57)6. Stock Options and Warrants 1995 Stock Option Plan Under the Novavax 1995 Stock Option Plan (the “Plan”), options may be granted to officers, employees and consultants or advisors toNovavax and any present or future subsidiary to purchase a maximum of 4,400,000 shares of Novavax common stock. Incentive options,having a maximum term of ten years, can be granted at no less than 100% of the fair market value of Novavax’s stock at the time of grantand are generally exercisable in cumulative increments over several years from the date of grant. Both incentive and non-statutory stockoptions may be granted under the Plan. There is no minimum exercise price for non-statutory stock options.F-11Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 6. Stock Options and Warrants — (Continued) 1995 Director Stock Option Plan The 1995 Director Stock Option Plan (the “Director Plan”) provides for the issuance of up to 500,000 shares of Novavax Common Stock.The exercise price per share is the fair market value on the date of grant. Options granted to eligible directors are exercisable in full beginningsix months after the date of grant and terminate ten years after the date of grant. Such options cease to be exercisable at the earlier of their expiration or three years after an eligible director ceases to be a director for anyreason. In the event that an eligible director ceases to be a director on account of his death, his outstanding options (whether exercisable ornot on the date of death) may be exercised within three years after such date (subject to the condition that no such option may be exercisedafter the expiration of ten years from its date of grant). Activity under the 1995 Stock Option Plan and 1995 Director Stock Option Plan was: 1995 Stock1995 DirectorOption PlanStock Option PlanBalance, December 31, 19963,472,861200,000Granted at weighted average price of $4.18 per share300,000110,000Exercised at weighted average price of $2.86 per share(190,693)—Expired or canceled at weighted average price of $3.58 pershare(378,610)—Balance, December 31, 19973,203,558310,000Granted at weighted average price of $4.03 per share501,000140,000Exercised at weighted average price of $2.06 per share(124,419)—Expired or canceled at weighted average price of $3.74 pershare(465,892)(10,000)Balance, December 31, 19983,114,247440,000Granted at weighted average price of $3.80 per share1,078,500—Exercised at weighted average price of $2.20 per share(226,537)—Expired or canceled at weighted average price of $4.28 pershare(577,757)—Balance, December 31, 19993,388,453440,000Price range$0.01 to 7.00$1.94 to 5.81Weighted average exercise price$3.58$3.45Exercisable2,386,499440,000Available for grant:December 31, 1999.202,12460,000F-12Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 6. Stock Options and Warrants — (Continued) 1995 Director Stock Option Plan — (Continued) Information with respect to stock options outstanding at December 31, 1999 is as follows: WeightedNumberAverageWeightedofRemainingAverageOptionsContractualExercisePrice RangeOutstandingLifePriceOptions issued at below market value:$0.01447,3086.0$0.01Options issued at market value:$1.21 to 2.50102,8118.7$1.86$2.51 to 3.50793,5665.8$3.18$3.51 to 4.501,666,5187.6$3.81$4.51 to 7.00818,2506.2$5.603,828,4536.8$3.56 In connection with its stock option plans, Novavax makes no charges to operations in connection with stock options granted at the fairmarket value at the date of grant. With respect to options which were granted below fair market value at the date of grant, the Companyrecords compensation expense for the difference between the fair market value at the date of grant and the exercise price, as the optionsbecome exercisable. $10,000, $9,000 and $472,000 related to such options has been included as compensation expense in 1999, 1998 and1997, respectively. The Company has adopted the disclosure-only provisions of SFAS No. 123 as they pertain to financial statement recognition ofcompensation expense attributable to option grants. As such, no compensation cost has been recognized on the Company’s option plans. Ifthe Company had elected to recognize the compensation cost for the 1995 Stock Option Plan and the 1995 Director Stock Option Planconsistent with SFAS 123, the Company’s net loss and loss per share on a pro forma basis would be: 199919981997Net loss applicable to common stockholders (amounts in thousands):As reported$(4,506)$(7,045)$(4,547)Pro forma$(6,430)$(7,983)$(5,114)Basic and diluted loss per share:As reported$(.31)$(.57)$(.39)Pro forma$(.44)$(.64)$(.44)Risk-free interest rates5.8%6.0%5.2%- 7.2%Expected life in years:Employees6.06.06.0Directors3.03.03.0Dividend yield0.0%0.0%0.0%Volatility69%105%47%Weighted average remaining contractual life in years6.86.76.9Weighted average fair value at date of grant$3.56$1.21$3.41 Non-Employee Options The Company has entered into agreements to receive advisory and consulting services from several individuals, four of whom serve onthe Novavax Scientific Advisory Board. Non-qualified stock options haveF-13Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 6. Stock Options and Warrants — (Continued) Non-Employee Options — (Continued)been granted to these individuals under the 1995 Stock Option Plan. Using the Black-Scholes option-pricing model, charges of $2,000,$2,000 and $40,000 related to these options have been recorded in the Consolidated Statements of Operations during 1999, 1998 and 1997,respectively. Common Stock Warrants In connection with the October 1996 private stock sale, the Company provided the underwriter warrants for the purchase of 50,000 sharesof common stock. The warrants are fully exercisable at $3.75 per share and expire in October 2001. After giving effect to the anti-dilutionprovision of these warrants for the April 1999 private placement of the Company’s common stock, the warrants have been revised to allowfor the purchase of 51,911 shares at $3.61 per share. In November 1996, in consideration for services performed by a consultant, theCompany also issued warrants for 50,000 shares of common stock. The warrants are exercisable at $5.00 per share and expire inNovember 2001. In March 1997, Novavax privately placed 1,200,000 shares of common stock. As part of the transaction, Novavax alsogranted warrants to purchase an additional 600,000 shares at a price of $6.00 per share and 600,000 shares at a price of $8.00 per share. Aftergiving effect to the anti-dilution provision of these warrants for the April 1999 private placement of the Company’s common stock, thewarrants have been revised to allow for the purchase of 622,937 shares at $5.77 per share and 622,937 at $7.70 per share. The warrantshave a three-year term and expire in March 2000. In April 1999, Novavax privately placed 1,651,100 shares of common stock. As part of thetransaction, Novavax also granted warrants to purchase 412,775 additional shares at an exercise price of $3.75. The placement agent for thistransaction was given warrants to purchase 10,733 additional shares at $3.75 and 143,000 additional shares at $3.00. These warrants havea three-year term and expire in April 2002. As of December 31, 1999, no warrants had been exercised. Using the Black-Scholes option-pricing model, charges related to these warrants of $66,000 in 1997 are included in the Statement of Operations. Information with respect to warrants to purchase the Company’s common stock at December 31, 1999 is as follows: Number ofWarrantsExerciseExpirationOutstandingPriceDate51,911$3.61October 200150,000$5.00November 2001622,937$5.77March 2000622,937$7.70March 2000423,508$3.75April 2002143,000$3.00April 20021,914,293F-14Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)7. Income Taxes Deferred tax assets (liabilities) included in the balance sheets consist of the following: 19991998(amounts in thousands)Net operating losses$8,420$6,880Research tax credits1,024826Disqualifying stock options671719Alternative-minimum tax credit9494Equipment and furniture5130Intangibles from acquisition15—Deferred patent costs(626)(614)Accrued vacation pay286Deferred revenues290—9,9677,941Less valuation allowance(9,967)(7,941)Deferred taxes, net$—$— The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows: 19991998Statutory federal tax rate(34)%(34)%State income taxes, net of federal benefit(4)%(4)%Disqualifying stock options3%1%Research and development credit(8)%(6)%Alt-min credits(1)%(1)%Other(1)%2%Change in valuation allowance45%42%—%—% Realization of net deferred tax assets at the balance sheet dates is dependent on the Company’s ability to generate future taxable income,which is uncertain. Accordingly, a full valuation allowance was recorded against these assets as of December 31, 1999 and 1998. Novavax has recorded no net provision for income taxes in 1999, 1998 and 1997 in the accompanying financial statements due to theuncertainty regarding ultimate realization of certain net operating losses and other tax credit carryforwards. Federal net operating losses and tax credits available to Novavax are as follows: (amountsin thousands)Federal net operating losses expiring through the year 2019$21,235State net operating losses expiring through the year 2014.25,977Research tax credits expiring through the year 2019.1,024Alternative-minimum tax credit (no expiration)94F-15Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)8. Commitments and Contingencies Novavax leases laboratory and office space, machinery and equipment under capital and non-cancelable operating lease agreementsexpiring at various dates through 2006. Future minimum rental commitments under non-cancelable leases as of December 31, 1999 are asfollows: OperatingYearLeases(amountsin thousands)2000$3932001347200235620033662004364Thereafter537Total lease payments$2,363 Aggregate rental expenses approximated $299,000, $219,000 and $279,000 in 1999, 1998 and 1997, respectively. In October 1996, the Company entered into a 10-year operating lease for office and laboratory facilities. In connection with this leaseagreement, Novavax is required to maintain a “Net Asset Value” of $2,000,000. The term “Net Asset Value” is defined as the differencebetween the total assets and the total liabilities. If the Net Asset Value falls below $2,000,000, the Company is required to provide otherreasonable financial assurances to the landlord within five days of the landlord’s request. The financial assurances may be, but withoutlimitation to, the following: a bond for the landlord’s benefit, an increase in the deposit, or a letter of credit, as reasonably believed necessaryby the landlord or its lenders. In connection with the BSD acquisition, the Company entered into a five-year operating lease for office and laboratory facilities, whichextends through March 2005.9. Significant Customers Novavax’s revenue includes amounts earned from arrangements with various industry partners. In the year ended December 31, 1999,three customers accounted for 15%, 23% and 35% of the Company’s total revenue. For the year ended December 31, 1998, threecustomers accounted for 56%, 25% and 11%, compared to 46%, 1% and 43% for the same respective customers for 1997.10. Employee Benefits The Company has a defined contribution 401(k) retirement plan (the “Plan”), pursuant to which employees who have completed ninetydays of employment with the Company as of specified dates may elect to contribute to the Plan, in whole percentages, up to 15% of theircompensation and a maximum contribution of $10,500 and $10,000 in 1999 and 1998, respectively. The Company matches 25% of the first5% of compensation contributed by the participant and $4.00 per week of employment during the year. All contributions by the Company aremade quarterly in the form of the Company’s Common Stock and are immediately vested. The Company has recorded charges to expensesrelated to the Plan of approximately $16,000, $23,000 and $16,000 in 1999, 1998 and 1997, respectively.11. Financing Transactions In March 1997, the Company received $5,003,000, net of fees and expenses, from the private placement of 1,200,000 shares of itsCommon Stock with an accredited institutional investor, a principal of which hasF-16Table of ContentsNOVAVAX, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 11. Financing Transactions — (Continued)subsequently become a director of Novavax. In connection with this transaction, Novavax granted warrants to purchase an additional 600,000shares of the Company’s Common Stock at $6.00 per share and 600,000 shares at $8.00 per share. These warrants have a three-year term,expiring in March 2000. On January 23, 1998, the Company entered into Subscription Agreements to effectuate the private placement of 6,500 shares ofSeries A Custom Convertible Preferred Stock, $1,000 par value per share (the “Preferred Stock”). The closing occurred on January 28, 1998(the “Issuance Date”) at an aggregate purchase price of $6,500,000. The Preferred Stock was convertible into shares of Common Stock at a conversion price equal to (i) during a period of 90 days followingthe Issuance Date, 100% of the average of the two lowest consecutive trade prices of the Common Stock as reported on the American StockExchange for the 25 trading days immediately preceding the conversion date (the “Two Day Average Trading Price”) or (ii) during the periodon and after the date which is 91 days after the Issuance Date, 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 into1,043,956 shares of Common Stock, pursuant to the terms and conditions of the Preferred Stock. On October 1, 1998, the Companyentered into agreements to repurchase the remaining Preferred Stock. This transaction closed on October 16, 1998 and the Companyrepurchased the outstanding $4,979,000 of Preferred Stock. The Company incurred placement agent and other transaction fees relating tothe placement, conversion and repurchase of the Preferred Stock of $502,000, which are included in the accompanying financial statementsas preferred stock offering costs. The terms of the Preferred Stock required the Company to pay the holders of the Preferred Stock $225,000in dividends. This amount was paid in cash of $179,000 and through the issuance of 32,942 shares of common stock valued at $46,000.The preferred stock transactions were: (amountin thousands)Private sale of preferred stock, net$4,415Deemed dividend of preferred stock1,583Conversion of preferred stock(1,439)Accretion of offering costs420Repurchase of preferred stock(4,979)— In April 1999, the Company entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,100 shares of itsCommon Stock to accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of theCompany. The issuance price of the Common Stock was $2.50 per share. Each share was sold together with a non-transferable warrant forthe purchase of .25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Gross proceeds from the PrivatePlacement were $4,128,000. Placement agents’ fees were approximately $215,000, which was paid with cash of $107,000 and 42,933shares of the Company’s Common Stock, which were issued together with non-transferable warrants for the purchase of 10,733 shares ofthe Company’s Common Stock at an exercise price of $3.75. These warrants have a three-year term. Additionally, non-transferable warrantsfor the purchase of 143,000 shares of the Company’s Common Stock, with an exercise price of $3.00 per share and a three-year term, wereissued to the placement agents. Other costs connected with the Private Placement, including legal, stock exchange listing and registrationfees, were approximately $67,000. Net proceeds to the Company from the Private Placement were approximately $4,000,000.F-17Table of ContentsEXHIBIT INDEX Exhibit3.1*3.2*3.3*4*10.1*10.2*10.3*10.4*10.5*10.6*10.7*10.8*10.9*10.1010.1110.1210.1310.1410.1521*2327* These exhibits are incorporated by reference 1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Employment Agreement" or this"Agreement") dated as of May 13, 1999, between Novavax, Inc., a Delawarecorporation having its principal office at 8320 Guilford Road, Columbia,Maryland 21046 (the "Company") and John A. Spears ("Employee") residing at 5White Pine Lane, Guilford, Connecticut 06437. 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 President and Chief Executive Officer and such othersenior management services as may from time to time be designated by theCompany's Board of Directors. During the term of this Agreement, Employee'sservices shall be completely exclusive to the Company and he shall devote hisentire business time, attention and energies to the business of the Company andthe duties to which the Company shall assign him from time to time; provided,however, that nothing contained herein shall prevent Employee from being apassive investor in any business or venture, except as prohibited pursuant toSection 10 hereof. 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 a period beginning on May17, 1999 and ending May 16, 2002, provided, however, that this Agreement shallbe automatically extended for periods of one year after such date, unless anduntil the Company or Employee shall have delivered to the other written noticeof its or his election to terminate this Agreement as of May 16, 2002, or as ofthe end of any such one-year extension period, such notice to be delivered atleast 30 days prior to the date of termination (the "Term"). 4. Compensation. (a) Base Compensation. For all Employee's services and covenantsunder this Agreement, the Company shall pay Employee an initial annual andminimum salary of $250,000, subject to annual review by the Board of Directorsof the Company and payable in accordance with the Company's payroll policy asconstituted from time to time. (b) Performance Bonus. In addition to the base compensationpayable to Employee, the Employee shall be eligible to receive an annualperformance bonus in such amount, if any, as the Compensation and Stock OptionCommittee of the Company's Board of Directors (or any committee of the Board ofDirectors which shall replace such committee, or in the absence of any suchcommittee, the Board of Directors) shall, in its sole discretion, deemappropriate. Such determination will be based, in part, upon the achievement ofcertain specified goals, which shall be determined in consultation with theEmployee. Payment of the performance bonus, if any, will be made in cash orrestricted stock of the Company, or a combination thereof, at the discretion ofthe Board of Directors, within 60 days following the end of the Company's fiscalyear. 2 (c) Stock Options. In connection with his employment, Employee hasreceived stock options to purchase 400,000 shares of the Company's Common Stock,$.01 par value, at an exercise price equal to the closing price of the Company'sCommon Stock on the date of grant, May 7, 1999. The options are subject to aIncentive Stock Option Agreement (and, to the extent required by the InternalRevenue Code, a Non-Statutory Stock Option Agreement) which includes an optionvesting schedule as follows: one-third of the shares shall vest on May 7, 2000,one-third of the shares shall vest on May 7, 2001 and one-third of the sharesshall vest on May 7, 2002. Employee will also be eligible to receive additionalstock options annually, based on job performance, in an amount to be determinedby the Compensation and Stock Option Committee of the Board of Directors at theDecember Board meetings. 5. Reimbursable Expenses. (a) Employee is expected to relocate to the Columbia, Marylandarea within six months of the date hereof, for which the Company will reimburseEmployee, or cover expenses in connection with a relocation management serviceprogram established by the Company, for actual moving expenses in an amount notto exceed $50,000, which expenses may include those related to the sale andpurchase of Employee's residence. (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 four weeks of paid vacation timeper year, calculated on a calendar year basis in accordance with Companypolicies in effect from time to time. (b) Employee shall be entitled to participate in all groupinsurance programs, stock option plans or other fringe benefit plans which theCompany may now or hereafter in its sole and absolute discretion make availablegenerally to its employees, but the Company shall not be required to establishany such program 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 (i) Employee's willful failureor refusal to perform in all material respects the services required of himhereby, or his willful failure or refusal to carry out any proper direction bythe Board of Directors with respect to the services to be rendered by himhereunder or the manner of rendering such services, or his willful misconduct inthe performance of his duties hereunder, in each case after a specific writtenwarning with regard thereto, which shall include a statement of correctiveactions and a 30 day period for the Employee to respond and implement suchactions, has been given to Employee by the Board of Directors, or (ii)Employee's commission of a felony involving moral turpitude; (b) By the Company, upon 30 days' notice to Employee, if he shouldbe prevented 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 "GoodReason" (as hereinafter defined), provided that if Employee's employment isterminated pursuant to this Section 7(c), Employee shall be entitled to receivehis then current salary as set forth in Section 4(a) above, but not aperformance bonus, for one year from the date of termination, payable inaccordance with 2 3the Company'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 shall be entitled to terminate his employmentfor "Good Reason" if his responsibilities or authority are reduced or diluted inany material way 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 businessof the 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 3 4business and as Employee recognizes that the Company would be substantiallyinjured by Employee competing with the Company, Employee agrees and warrantsthat within the United States, he will not, unless acting with the Company'sexpress prior written consent, directly or indirectly, while an employee of theCompany 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, any business orentity which competes with the business of the Company (or its successors orassigns) as such business is now constituted or as it may be constituted at anytime during the term of this Agreement; provided, however, that Employee may ownless than one percent of the equity of a publicly traded company. The"Non-Competition Period" shall be a period of one year following termination ofemployment. 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, client, 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: Chairman of the Board, with a copy to David A. White, Esq., White &McDermott, P.C., 65 William Street, Wellesley, Massachusetts 02481, or to suchother person(s) or address(es) as the Company shall have furnished to theEmployee 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 4 5any activities prohibited by this Agreement, he agrees to pay over to theCompany all compensation, remuneration or monies or property of any sortreceived in connection with such activities; such payment shall not impair anyrights 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 toprinciples of conflict of law. 20. Resolution of Disputes. With the exception of proceedings forequitable relief brought pursuant to Section 15 of this Agreement or any stockoption agreement, any controversy, claim or dispute of whatever nature arisingbetween the parties, including but not limited to those arising out of orrelating to this Agreement or any stock option agreement or the construction,interpretation, performance, breach, termination, enforceability or validity ofsuch agreements or the arbitration provisions contained in this Agreement,whether such claim existed prior to or arises on or after the date of thisAgreement, including the determination of the scope of this agreement toarbitrate, shall be determined by arbitration in Baltimore, Maryland by onearbitrator in accordance with the Commercial Arbitration Rules of the AmericanArbitration Association, except that (a) every person named on all lists ofpotential arbitrators shall be a neutral and impartial lawyer with excellentacademic and professional credentials (i) who has practiced law for at least 15years, specializing in either general commercial litigation or general corporateand commercial matters, with substantial experience in the preparation,negotiation and/or litigation of employment agreements and the grant of stockoptions, and (ii) who has had experience, and is generally available to serve,as an arbitrator, and (b) each party shall be entitled to strike on a peremptorybasis, for any reason or no reason, any or all of the names of potentialarbitrators on any list submitted to the parties by the AAA as well as anyperson selected by the AAA to serve as an arbitrator by administrativeappointment. In the event the parties cannot agree on the selection of thearbitrator from the one or more lists submitted by the AAA within 30 days afterthe AAA transmits to the parties its first list of potential arbitrators, thePresident of the Maryland Bar Association shall nominate three persons who, inhis or her opinion, meet the criteria set forth herein, which nominees may notinclude persons named on any list submitted by the AAA. Each party shall beentitled to strike one of such three nominees on a peremptory basis within 10days after its receipt of such list of nominees, indicating its order ofpreference with respect to the remaining nominees. If two such nominees havebeen stricken by the parties, the unstricken nominee shall be the arbitrator.Otherwise, the selection of the arbitrator shall be made by the AAA from theremaining nominees in accordance with the parties' mutual order of preference,or by random selection in the absence of a mutual order of preference. Thearbitrator shall base his award on applicable law and judicial precedent, shallinclude in such award written findings of fact and conclusions of law upon whichthe award is based and shall not grant any remedy or relief that a court couldnot grant under applicable law. Judgment on the award rendered by the arbitratormay be entered in any court having jurisdiction thereof. 5 6 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: ---------------------------------------- Mitchell J. Kelly, Interim President and Chief Executive Officer ------------------------------------------- John A. Spears 6 1 EMPLOYMENT AGREEMENT AGREEMENT (the "Employment Agreement" or this "Agreement") effective asof March 5, 1999, between Novavax, Inc., a Delaware corporation having itsprincipal office at 8320 Guilford Road, Columbia, Maryland 21046 (the "Company")and Richard J. Harwood ("Employee") residing at 3219 Adams Court North,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 Product Development orsuch other senior management services as may from time to time be designated bythe Company's Chief Executive Officer or the Board of Directors. During the termof this Agreement, Employee's services shall be completely exclusive to theCompany and he shall devote his entire business time, attention and energies tothe business of the Company and the duties to which the Company shall assign himfrom time to time. Notwithstanding the foregoing, Employee may serve on theboard of directors of civic and charitable organizations during his employmentand may serve on the board of directors of one or two noncompeting businessentities, provided that his time devoted to such entities is during non-businesshours or on vacation days. Employee agrees to perform his services faithfullyand to the best of his ability and to carry out the policies and directives ofthe Company. Employee agrees to take no action which is in bad faith andprejudicial to the interests of the Company during his employment hereunder.Employee shall be based in Columbia, Maryland but he may be required from timeto time to perform duties hereunder for reasonably short periods of time outsidesaid area. Notwithstanding the foregoing paragraph, Employee shall be entitled toengage in teaching and consulting services for third parties with the priorconsent of the Chief Executive Officer of the Company, provided, however, thatsuch services shall not interfere with the satisfactory performance of hisduties hereunder and shall not exceed 20 days per year. The provisions of thisAgreement including, without limitation, Sections 8, 9, 10 and 11 shall continueto apply with respect to such teaching and consulting services. 3. Term. The term of this Agreement shall be one year beginning on March5, 1999 and ending March 4, 2000, provided, however, that this Agreement shallbe automatically extended for periods of one year after such date, unless anduntil the Company or Employee shall have delivered to the other written noticeof its or his election to terminate this Agreement as of March 4, 2000, or as ofthe end of any such one-year extension period, such notice to be delivered atleast 30 days prior to the date of termination (the "Term"). 4. Compensation. (a) Base Compensation. For all Employee's services and covenantsunder this Agreement, the Company shall pay Employee an initial annual salary of$168,000 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. To the extent Employee's engagement in teaching 2or consulting services as permitted by Section 2 above require him to be absentfrom work or to work less than a full day, Employee's salary shall be reducedproportionately. (b) Stock Options. Employee shall be entitled to receive stockoptions to purchase 25,000 shares of the Company's Common Stock, $.01 par value,at an exercise price equal to the closing price of the Company's Common Stock onthe date of grant. The options will be subject to an Incentive Stock OptionAgreement (and, to the extent required by the Internal Revenue Code, aNon-Statutory Stock Option Agreement) and shall vest as to one-third of theshares on each of the first three anniversaries of the date of grant. (c) Bonus Program. During the Term, the Employee shall be entitledto participate 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 andmilestones to be mutually determined by the Employee and the Company. (d) Patent Assignment Bonus. Employee shall be entitled to receivea bonus of $5,000 for each patent application in which Employee is listed as theinventor that is assigned to the Company. If such patent application lists morethan one inventor, the amount of the bonus to Employee shall be reducedproportionately. 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 incurred by Employee in connection with his attendance at scientificmeetings and professional seminars outside the Company, provided, however, thatin each instance Employee will obtain the prior consent of the Chief ExecutiveOfficer of the Company. 6. Employee Benefits. (a) Employee shall be entitled to three weeks of paid vacationtime during the first year of his employment by the Company, calculated on acalendar year basis in accordance with Company policies in effect from time totime. Thereafter, Employee shall be entitled to three weeks of vacation plus oneday for each year of Employee's employment after the first year, up to a maximumof four weeks per year. (b) Employee shall be entitled to participate in all groupinsurance programs, stock option plans or other fringe benefit plans which theCompany may now or hereafter in its sole and absolute discretion make availablegenerally to its employees, but the Company shall not be required to establishany such program 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 2 3rendered by him hereunder or the manner of rendering such services, his willfulmisconduct in the performance of his duties hereunder or his commission of afelony involving moral turpitude; (b) By the Company, upon 30 days' notice to Employee, if he shouldbe prevented 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 "GoodReason" (as hereinafter defined), provided that if Employee's employment isterminated pursuant to this Section 7(c), Employee shall be entitled to receivehis then current salary as set forth in Section 4(a) above, but not aperformance bonus, for one year from the date of termination, payable inaccordance with the Company's payroll policy as constituted from time to time,together with any accrued vacation pay at his then current salary and in theamounts 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 Employee, upon 30 days' notice to the Company, whereuponEmployee shall be entitled to receive his then current salary as set forth inSection 4(a) above, but not a performance bonus, through the date oftermination, together with any accrued vacation pay at his then current salary. (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 businessof the 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 3 4the Company or thereafter, use for his own benefit or disclose to or use for thebenefit of any person outside the Company, any information concerning anyIntellectual Property, or other confidential or proprietary information of theCompany, including without limitation, any of the materials listed in Section8(a), whether Employee has such information in his memory or embodied in writingor 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 tobe removed from the premises or custody of the Company without in each instancefirst obtaining authorization of the Company, which authorization may be revokedby the Company at any time. Upon the termination of Employee's employment in anymanner or for any reason, Employee shall promptly surrender to the Company allcopies of any of the foregoing, together with any documents, materials, data,information and equipment belonging to or relating to the Company's business andin his possession, custody or control, and Employee shall not thereafter retainor deliver 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 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: President, with a copy to David A. White, White & McDermott, P.C., 65William Street, Wellesley, Massachusetts 02481, or to such other person(s) oraddress(es) as the Company shall have furnished to the 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, 4 5the corporation resulting from such merger or consolidation, or to which theCompany's assets shall be sold and transferred. This Agreement shall not beassignable by Employee, but it shall be binding upon, and to the extent providedin Section 7 shall inure to the benefit of, his heirs, executors, administratorsand legal representatives. 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 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. 5 6 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: ------------------------------------------- John A. Spears, President ---------------------------------------------- Richard J. Harwood 6 1 LICENSE AND SUPPLY AGREEMENT THIS AGREEMENT (the "License and Supply Agreement") is made as ofOctober 21, 1999 (the "Effective Date") by and between ParkedalePharmaceuticals, Inc., a Michigan corporation having its principal place ofbusiness at 870 Parkedale Road, Rochester, Michigan 48307 ("Parkedale"), andNovavax, Inc., a Delaware corporation having its principal place of business at8320 Guilford Road, Columbia, Maryland 21046 ("Novavax"). WITNESSETH: WHEREAS, Novavax has certain proprietary know-how in the field ofencapsulated drug delivery systems and has developed certain proprietaryadjuvants, such as a Novasome(R) delivery system; and WHEREAS, Parkedale has certain proprietary know-how in the field ofvaccines and has developed and continues to develop proprietary vaccines,especially a vaccine comprising antigenic determinants of an influenza virus; WHEREAS, Parkedale has developed and currently markets, distributes andsells a Fluogen(R) trivalent influenza vaccine; WHEREAS, the parties hereto desire for Parkedale to develop,manufacture, market, distribute and sell a product for treating or preventinginfluenza virus and/or infection, such as a vaccine comprising antigenicdeterminants of an influenza virus, like Fluogen(R), which includes aproprietary adjuvant developed by Novavax; and WHEREAS, the parties hereto desire for Novavax to supply suchproprietary adjuvants to Parkedale, so that Parkedale can develop products, suchas a vaccine comprising antigenic determinants of an influenza virus, likeFluogen(R), which incorporate proprietary adjuvants developed by Novavax totreat or prevent influenza virus and/or infection; NOW, THEREFORE, for and in consideration of the premises and mutualcovenants and agreements hereinafter set forth, and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged andaccepted, the parties hereto agree as follows; 2 ARTICLE I Definitions 1.01 "Adjuvant(s)" shall mean any and all agents which enhance aproduct or method involved in or concerned with the treatment or prevention orinfection of influenza virus, e.g., an immune response of an influenza virusvaccine, which are owned, controlled, and/or developed by Novavax and/or itsAffiliate(s), or to which Novavax and/or its Affiliate(s) has a license or rightto use, such as Novasome(R) delivery system(s). 1.02 "Affiliate(s)" shall mean any corporation or other businessentity controlled by, controlling, or under common control with Parkedale orNovavax, as the case may be. For this purpose, "control" means direct orindirect beneficial ownership of at least fifty percent (50%) of the votingstock in the case of a corporation, or of the right to receive distributable netincome in the case of any other business entity. 1.03 "Confidential Information" as used in this License and SupplyAgreement shall mean and include any and all confidential and proprietaryinformation and Know-How which is not in the public domain, whether in oral,written, machine-readable or graphic form, and all prototypes or samples of anAdjuvant, a Novasome(R) delivery system, a Parkedale Product and/or an InfluenzaProduct, which is furnished by one Party or its Affiliate (the "DisclosingParty"), either directly or indirectly, pursuant to and under this License andSupply Agreement, to the other Party or its Affiliate (the "Receiving Party"),and which the Receiving Party has a reasonable basis to believe is confidentialto the Disclosing Party or is treated by the Disclosing Party as confidential,unless such information: (a) was known to the Receiving Party prior to receiptfrom the Disclosing Party, as documented in written records or publications thatlawfully are in the possession of the Receiving Party; (b) was lawfullyavailable to the trade or to the public prior to receipt from the DisclosingParty; (c) becomes lawfully available to the trade or to the public afterreceipt from the Disclosing Party through no act on the part of the ReceivingParty; (d) was received in good faith by the Receiving Party from any thirdParty without an obligation of confidentiality; (e) is in the general publicdomain other than as a result of a breach of this confidential relationship; (f)information is embodied in an agreement entered into by the parties hereto inwriting which releases such information from the terms of this confidentialityobligation; (g) information that at any time is received in good faith by theReceiving Party from a third Party, which information was lawfully in possessionof the third Party, and which the third Party had the right to disclose and didnot receive from either of the parties to this License and Supply Agreement; or(h) is independently developed by an employee or agent of the Receiving Partywithout access to the Confidential Information, prior to receipt of suchConfidential Information from the Disclosing Party, as demonstrated bycontemporaneous written records. A Party receiving Confidential Information maydisclose such information to the extent required by applicable law or pursuantto the requirement of a governmental or judicial entity; provided, however, thatsuch Receiving Party shall give notice to the Disclosing Party of suchrequirement and shall cooperate with the Disclosing Party in its efforts tomaintain the confidentiality of the Confidential Information. 2 3 1.04 "Field" shall mean (a) the use of Novavax IP in any mannerwhatsoever to develop, create, invent, manufacture, promote, market,offer-for-sale, sell, import and/or export an Influenza Product involved in orconcerned with the treatment or prevention of influenza virus or any otherpurpose for which an Influenza Product may be indicated, and (b) the subsequentexploitation of an Influenza Product in the Territory. 1.05 "Influenza Product(s)" shall mean any Parkedale Product togetherwith at least some portion or aspect of the Novavax IP, such as an Adjuvant andespecially a Novasome(R) delivery system which is used to treat influenza. 1.06 "Joint Improvement(s)" shall mean any and all ideas, conceptions,reductions to practice, modifications, changes, alterations, adaptations,revisions, or improvements relating to and/or derivatives of any intellectualproperty or product that accrue or result from the joint activities of Novavaxand/or its Affiliates with Parkedale and/or its Affiliates outside of the Fieldduring the term of this License and Supply Agreement. 1.07 "Know-How" shall mean all tangible and intangible technical andother information including, but not limited to ideas, conceptions,reductions-to-practice, discoveries, data, designs, chemical structures,formulae, materials, intermediates, inventions (whether patentable or not),methods, models, prototypes, samples, influenza technology, works (whethercopyrightable or not), assays, research plans, procedures, designs, experiments,tests, results of experimentation and testing (including results of research ordevelopment), processes (including manufacturing processes, uses, specificationsand techniques), laboratory records, note books, chemical, pharmacological,toxicological, clinical, analytical and quality control data, trial data, casereport forms, data analyses, reports, manufacturing data, summaries andinformation contained in submissions to and from ethical committees andregulatory authorities, which relates to or concerns an Adjuvant, a ParkedaleProduct, Patent Rights, a Novasome(R) delivery system, a Novavax Improvement, aParkedale Improvement and/or an Influenza Product. Know-How includes alldocuments and copies thereof (whether in written, machine-readable, physical orgraphic form) and other things (such as prototypes, materials, samples, models,etc.) which contain, embody or refer to the Know-How. Such information,documents or things will not be excluded from being Know-How hereunder by reasonof the fact that they become available to the public only through a wrongful actor omission to act of a Party hereto or a sublicensee or distributor of a Partyhereto. The fact that an item is known to the public shall not be taken toexclude the possibility that a compilation including the item, and/or adevelopment relating to the item, is (and remains) not known to the public.Know-How includes, but is not limited to, any and all rights that protect theKnow-how, such as copyrights software, rights, trade secret rights, databaserights and/or design rights. 1.08 "Novavax IP" shall mean the Adjuvants, Novasome(R) deliverysystem, Patent Rights, Novavax Improvements, and Novavax's Know-How, which isuseful in the Field. 1.09 "Novavax Improvement(s)"shall mean any and all ideas, conceptions,reductions to practice, modifications, changes, alterations, adaptations,revisions, or improvements relating 3 4to and/or derivatives of an Adjuvant, a Novasome(R) delivery system, PatentRights, and/or Novavax Know-How that accrue or result from the activities ofNovavax and/or Novavax' Affiliates or which are assignable to Novavax and/orNovavax' Affiliates. 1.10 "Net Sales" or "Net Selling Price" shall mean, with respect to theInfluenza Products, the gross amount invoiced by Parkedale or its Affiliates tounrelated third parties for sales of the Influenza Products, less: (a) Transportation, freight, and insurance charges and/orallowances actually or granted; (b) Trade, quantity, cash and/or other discounts, if any,allowed and paid by Parkedale to unrelated third parties in arms-lengthtransactions; (c) Credits or allowances made or given on account ofrejects, returns, recalls or retroactive price reductions for any amount notcollected; (d) Any tax, customs, duty and/or other governmental chargesrelating to the sale, transportation, use, delivery or services, which is paidby Parkedale and not recovered from the unrelated third Party purchaser; and (e) Any and all costs paid to Novavax by Parkedale concerningany Novavax raw materials, including but not limited to an Adjuvant, which areused in connection with, inter alia, the development and/or manufacture of anInfluenza Product. For purposes of calculating and paying royalties, InfluenzaProducts shall be deemed "sold" the earlier of when invoiced or shipped. 1.11 "Parkedale Improvement(s)" shall mean any and all ideas,conceptions, reductions to practice, modifications, changes, alterations,adaptations, revisions, or improvements relating to and/or derivatives of aParkedale Product, Parkedale's Know-How, and/or an Influenza Product that accrueor result from the activities of Parkedale and/or Parkedale's Affiliates orwhich are assignable to Parkedale and/or Parkedale's Affiliates. 1.12 "Parkedale Product(s)" shall mean any preparations, product, orpharmaceutical which is free of Novavax IP involved in or concerned with thetreatment or prevention of an influenza virus, such as Fluogen(R), or any otherpurpose for which a Parkedale Product may be indicated. 1.13 "Patent Right(s)" shall mean: (a) any and all United States andforeign (i) pending and abandoned patent applications, (ii) patents issuing fromsuch patent applications, and (iii) issued patents, together with any and alldivisions, reissues, reexaminations, continuations, continuations-in part,extensions and additions thereof, which describe, relate to and/or claim anAdjuvant (including, but not limited to, an Adjuvant either alone or incombination, use of an 4 5Adjuvant. and manufacture of an Adjuvant or an intermediate therefor) as of thedate of this License and Supply Agreement; (b) any and all inventions whichdescribe, relate to or concern a Novavax Improvement; (c) any and all UnitedStates and foreign (i) pending and abandoned patent applications, and (ii)patents issuing from such patent applications, together with any and alldivisions, reissues, reexaminations, continuations, continuations-in part,extensions and additions thereof, which describe, relate to and/or claim aNovavax Improvement, now or in the future; and (d) any and all other UnitedStates and foreign pending and abandoned patent applications and issued patentsnecessary, useful or which permit Parkedale to accomplish the objectives of orto practice under the exclusive license and rights granted under this Licenseand Supply Agreement. Each Patent Right shall be identified in detail on EXHIBITA attached hereto by: (1) country; (2) serial number(s); (3) filing date(s); (4)priority date(s); (5) patent number; (6) issue date; (7) all related properties;(8) title; (9) assignee(s); (10) inventor(s); (11) applicant(s); and (12) statusthereof. 1.14 "Regulatory Authority(ies)" shall mean any national, supranational(e.g.. the FDA, the European Commission, the Council of the European Union orthe European Agency for the Evaluation of Medicinal Products), regional, stateor local regulatory agency, department, bureau, commission, counsel or othergovernmental entity other in each country of the Territory involved in thegranting of marketing authorization for the Influenza Product. 1.15 "Territory" shall mean the entire world, except for thosecountries specifically identified on EXHIBIT B attached hereto. ARTICLE II License for Novavax Know-How and Patent Rights 2.01 License. Novavax hereby grants to Parkedale the exclusive rightand license in, to, and under the Novavax IP in the Field within the Territory.Novavax shall retain all rights not expressly granted under this Article II, notinconsistent, however, with other rights granted to Parkedale under this License& Supply Agreement. The exclusive license shall be for the period in which anyNovavax IP or patents covering the Joint Improvement(s) shall remain valid andenforceable, unless earlier terminated as provided in Article IX hereof. 2.02 Parkedale Exclusivity. Consistent with Article II, Paragraph 2.01,Article IV, Paragraph 4.06 and Article V, Paragraph 5.07, Novavax agrees, duringthe term of this License and Supply Agreement, that it and its Affiliate(s) willnot license, sublicense, approve a license for, approve a sublicense for orassign to another Party or entity the Novavax IP for use in the Field withinthe Territory. 2.03 Ownership of Intellectual Property. Each Party will retainownership of all information, data, Know-How, inventions, discoveries, programs,copyrights, improvements, devices, designs, apparatus, patents, patentapplications, practices, processes, methods, products, techniques, tradesecrets, ideas, or other intellectual property owned by it at the commencementof this License and Supply Agreement. The parties hereto agree that Novavaxwill own the 5 6Novavax IP and an undivided joint interest in the Joint Improvements (withParkedale) and that Parkedale will own the Parkedale Products and the InfluenzaProducts (each to the extent that such products do not constitute Novavax IP,the Parkedale Know-How and an undivided joint interest in the Joint Improvements(with Novavax). Either Party shall be required to get approval from the otherParty to use a Joint Improvement outside of the Field. The joint rights setforth herein shall include, without limitation, the right to domestic andforeign copyright, copyright renewal, trademark, and/or patent protectiontherein, and the right to register and claim priority therein (jointly with theother Party hereto, under any applicable law, treaties, or conventions. Nothingin this section shall grant Novavax any rights to the Influenza Product,Improvements in the Field, or any other technology that Parkedale may acquire orlicense. 2.04 Development. The parties hereto acknowledge that development of anInfluenza Product and other related processes and products pursuant to thisLicense and Supply Agreement may necessitate the modification, adaptation,improvement or revision of Novavax IP, a Parkedale Product, Parkedale Know-How,an Influenza Product, a Parkedale Improvement, existing technology or Know-How which is proprietary, controlled or licensed by a Party or the development of new products or processes by a Party hereto based upon such existing technologyor Know-How. The parties hereto agree that each Party shall retain the sole andexclusive right, title and interest in and to any and all its own technology, information, data, Know-How, inventions, discoveries, programs, improvements, devices, designs, apparatus, practices, processes, methods, products, techniques, trade secrets, ideas or other intellectual property, which is proprietary, controlled or licensed by a Party and the development of new products or processes by a Party based upon such existing technology or Know-How, subject to its obligations and agreements set forth herein, and the right to domestic and foreign copyright, copyright renewal, trademark and/or patent protection therein, and the right to register and claim priority thereinunder any applicable law, treaties or conventions. 2.05 Execute and Deliver. Parkedale and Novavax each agree to executeand deliver to the other all reasonable copyright, patent and otherapplications, assignments and instruments tendered by the other, and performsuch acts, as may be reasonably necessary or advisable for obtaining such rightsand/or of vesting and maintaining the title to the rights of the tendering Partyset forth in this Article II. The provisions of this Article II, Paragraphs 2.03, 2.04, and 2.05, shall survive the termination or other expiration of thisLicense and Supply Agreement. 2.06 Novavax Trademark. Parkedale agrees that the Influenza Products,created, developed, invented, purchased, and/or licensed hereunder will be soldby Parkedale under the trademark or trade name of Parkedale and/or itsAffiliate(s). No Influenza Products shall be marketed or sold under any Novavaxtrademark, trade name, or logo. Novavax, however, agrees that Parkedale may usewith prior approval the Novavax trademark, Novasome(R) delivery system, on anonexclusive basis only for the duration of this License and Supply Agreementand solely for advertising, displaying, marketing, promoting, using,manufacturing, offering-for-sale, selling, distributing, importing and/orexporting the Influenza Products in accordance with this License and SupplyAgreement. 6 7 ARTICLE III License Payments 3.01 License Payments. Parkedale shall pay to Novavax the followingamounts: (a) One million U.S. dollars ($1,000,000.00) upon execution ofthis License and Supply Agreement by both parties hereto; (b) One hundred thousand U.S. dollars ($100,000.00) upon thecommencement of the first Phase I product study or the equivalent in any othercountry for the Influenza Product; (c) One hundred thousand U.S. dollars ($100,000.00) upon thedate of entry of the first patient into a Phase II study or the equivalent inany other country, for the Influenza Product; (d) One hundred thousand U.S. dollars ($100,000.00) upon theearliest of the date of entry of the first patient into a Phase III study, or the submission of an amended PLA filing, or, with respect to either, the equivalent in any other country, for the Influenza Product; and (e) Five hundred thousand U.S. dollars ($500,000.00) upon thegranting by a Regulatory Authority of a PLA (or amended PLA), or the equivalentin any other country, for the Influenza Product. The parties hereto agree that the maximum License Paymentsthat may be due under Paragraph 3.01(a) - (e) is $1,800,000.00. The partiestherefore agree that each of the License Payments set forth in this Paragraph3.01(a) - (e) shall be paid by Parkedale to Novavax only one time and that onceeach of the License Payments set forth in this Paragraph 3.01(a) - (e) have beenpaid one time by Parkedale, these License Payments shall be deemed paid in fulland Parkedale shall owe no Further License Payments under this Paragraph 3.01(a)- (e). 3.02 Research and Development Support Payments. Parkedale shall pay toNovavax its cost of research and development for the Adjuvant for the termduring which Novavax supplies Adjuvant to Parkedale, to a maximum of $100,000per year. Notwithstanding the foregoing, Parkedale agrees to pay Novavax suchmaximum research and development costs for a period of not less than 24 monthsfrom the execution of this License and Supply Agreement. Novavax agrees to usecommercially reasonable efforts to support the development and supply of theInfluenza Product in accordance with the time-lines set forth herein, includingthe provision of reasonable research and development resources. One-twelfth ofsuch costs will be paid monthly, on the 15th day of each month (except for theinitial such payment, which will be 7 8made upon execution of this License and Supply Agreement, in the event that thisLicense and Supply Agreement is executed in any month after the 15th daythereof). 3.03 Royalties. Parkedale agrees to pay royalties only on the Net Salesof Influenza Products as follows: (a) an annual rate of 4% of Net Sales of theInfluenza Products in the United States of America and its territories, Canada,all European countries, Finland, Norway, South Africa, South America and Sweden;and (b) an annual rate of 5% of Net Sales of Influenza Products in all othercountries in the Territory. Such royalties on Net Sales are payable ninety (90)days after the end of each calendar year in which Influenza Products are soldduring the term of this License and Supply Agreement. Parkedale shall keepadequate and complete records showing all Net Sales of Influenza Products withrespect to which royalties are due under this License and Supply Agreement. Suchrecords shall include all information necessary to verify the total amount andcomputation of royalties due hereunder, and shall be available once per year toinspection by or on behalf of Novavax during normal business hours to verify theamounts thereof or to ascertain such amounts in the event of a failure ofParkedale to report. Parkedale shall retain such records for not fewer than five(5) years after the close of any calendar year to which they relate or suchperiod as required by FDA. Parkedale agrees to make prompt adjustment, ifnecessary, to compensate for any errors or omissions disclosed by suchinspection. Should such inspection reveal a shortfall of more than three percent(3%) between the royalties reported and those actually owed by Parkedale, thecost of such inspection shall be paid by Parkedale. ARTICLE IV Clinical Influenza Product Supply 4.01 Clinical Influenza Product Supply. Parkedale shall place purchaseorders for Adjuvant for combination with a Parkedale Product, to be used for thephase I and phase II clinical trials of an Influenza Product (the "ClinicalInfluenza Product") pursuant to the terms and conditions set forth in thisLicense and Supply Agreement (an "Order") and Novavax agrees to use commerciallyreasonably efforts to produce the Clinical Influenza Product in accordance withthe terms and conditions set forth in this License and Supply Agreement.Consistent with this License and Supply Agreement, Novavax grants Parkedale theright to use the proprietary Know-How of Novavax required to combine an Adjuvantand a Parkedale Product and agrees to train Parkedale and its Affiliate(s), atParkedale's expense, to perform such combination, for the purpose of permittingParkedale and/o its Affiliate(s) to manufacture an Influenza Product for PhaseIII clinical trials and for production of an Influenza Product. The transfer oftechnology and training necessary to enable Parkedale and its Affiliate(s) toproduce an Influenza Product with an Adjuvant will be made at Parkedale'sexpense; Parkedale shall reimburse Novavax for all reasonable costs and expensesNovavax incurs in connection with such transfer and training, including withoutlimitation equipment, material, labor and travel expense (coach airfare andcompact car rental only). Novavax agrees to produce Adjuvant for the ClinicalInfluenza Product in accordance with its product specifications and otherapplicable U.S. federal, state and local laws. Novavax agrees to notifyParkedale of any information of which it becomes aware which would be reasonablylikely to have a material adverse effect on Parkedale's ability to 8 9obtain marketing approval from a Regulatory Authority for an Influenza Productin the Territory, or which is reasonably likely to result in an action by aRegulatory Authority materially adverse to the marketing of an InfluenzaProducts in the Territory, after the granting of marketing approval by suchRegulatory Authority. 4.02 Forecasts and Purchase Orders. Parkedale shall provide Novavax with a rolling 12-month forecast of the quantity of Clinical Influenza Product that Parkedale reasonably anticipates it will order. The first three months of such forecast shall be binding upon Parkedale, and the last nine months shall bea non-binding planning estimate. Parkedale will provide a written Order to Novavax in support of the deliveries that are scheduled in the three firm monthsof the forecast. On the first of each month, Parkedale will provide Novavax withan updated 12 month forecast and new Orders for deliveries in the three-month firm period. In the event of any cancellation of an order, Parkedale shall reimburse Novavax for the reasonable cost of the materials required for such Order. Unless Parkedale requests otherwise, all Clinical Influenza Products shall be packed for shipment and storage in accordance with Novavax' standard commercial practices. Except to the extent expressly otherwise provided herein, and notwithstanding any provisions of any purchase order submitted by Parkedale,shipment of and payment for Clinical Influenza Product shall be made in accordance with the terms and conditions of sale set forth in this License and Supply Agreement. Such terms shall replace and supersede Novavax' and Parkedale's standard purchase Order forms, if any, and any other documentation presented by either Party, including without limitation, any and all standard terms and conditions appearing thereon. 4.03 Shipment and Delivery. Shipments will be made to an addressdesignated by Parkedale. Unless specified by Parkedale, Novavax will select thecarrier on behalf of Parkedale. Novavax will use reasonable efforts to meetParkedale's requested delivery schedules for Clinical Influenza Product. It iseach Party's obligation to notify the other Party of any special packagingrequirements in writing. In the event that Novavax fails or is unable to timelymeet Parkedale's delivery schedule for Clinical Influenza Product, Parkedaleshall have the right to seek alternative suppliers of the Adjuvants, and Novavaxshall be responsible for and pay immediately any and all costs and expensesincurred by Parkedale resulting therefrom or associated therewith. 4.04 Prices and Payment. All prices are FCA Novavax' facility (inaccordance with INCOTERMS 1990) and are exclusive of all taxes, assessments orduties of any nature, other than taxes measured solely by Novavax' net income,now in force or enacted in the future, all of which shall be paid by Parkedale.In the event Novavax is required to pay or pays any such tax, the amount thereofshall be added to and become a part of the amounts payable by Parkedalehereunder. Parkedale agrees to pay all expenses incurred by Novavax in theshipment and delivery of ordered Adjuvant, including without limitation freightcharges, export and import duties and insurance premiums. The purchase price forthe Clinical Influenza Product sold under the License and Supply Agreement shallbe Novavax's fully allocated costs therefor plus 30%. The parties hereto agree,however, that Parkedale shall not pay or owe any royalty under Article III forany Clinical Influenza Product for which Parkedale has paid Novavax. 9 10 4.05 Payment with Offset. Parkedale agrees to pay appropriate amountsinvoiced by Novavax, for the Clinical Influenza Product within thirty (30) daysfrom the date of invoice. All payments are to be made in U.S. dollars. 4.06 Exclusivity of Supply. Consistent with Article II, Paragraphs2.0l and 2.02, Novavax agrees that it and its Affiliate(s) shall notsupply or caused to be supplied Adjuvant or any other Novavax IP to any thirdParty or entity in any manner whatsoever for use in the Field within theTerritory during the term of this License and Supply Agreement. Also consistentwith Article II, Paragraphs 2.01 and 2.02, and to the extent that the Novavax IPqualifies as Confidential Information, Novavax agrees that it and itsAffiliate(s) shall not disclose, teach or make available or cause to teach,disclose or make available the Novavax IP to any third Party or entity in anymanner whatsoever for use in the Field within the Territory. ARTICLE V Obligations. 5.01 Efforts. Parkedale hereto shall use all reasonable efforts,whenever applicable, to develop, create, invent, manufacture, market, distributeand sell and to assist in the developing, creating, inventing, manufacturing,marketing, distributing and selling of Influenza Products in the Field withinthe Territory, or to procure the same. 5.02 Notification of Information. Each Party hereto shall promptlynotify the other Party in writing of any product safety, regulatory or marketinginformation of which it becomes aware that has the potential to adversely affectsales of the Influenza Product. Each Party shall promptly notify the other Partyhereto in writing of any actual or suspected infringement of the Novavax IP orInfluenza Products within the Territory which may come to its attention. 5.03 Meetings and Presentations. Each Party hereto shall provide at itsown expense personnel, including a named contact involved in the development ofNovavax IP and an Influenza Product, for all meetings and presentations (whichmay include, for example, in person or teleconference meetings orpresentations,) with one another or a third Party to review research andclinical testing results and developments and whenever required by a regulatoryor other governmental body, agency or entity, but in no event less frequentlythan quarterly. Each Party also agrees to provide at its own expense personnel,including a named contact involved in the development of Novavax IP and anInfluenza Product, for meetings and presentations concerning the Novavax IP andan Influenza Product which is required by law or involves a regulatory or othergovernmental body, agency or entity. 5.04 Studies. Each Party hereto shall cooperate to its fullest with oneanother and use its reasonable commercial efforts to comply with its respectiveobligations pursuant to this License and Supply Agreement to ensure that allsteps, studies and other actions necessary 10 11for the development of the Influenza Product can be accomplished to thesatisfaction of Parkedale. 5.05 Reports. Each Party, to the extent applicable, shall provide, notless frequently than annually, any development reports, research reports, studyrecords, or other material documents in its possession related to the Novavax IPor the Influenza Product, by reliable overnight delivery service. 5.06 Indemnification. Parkedale hereto shall indemnify and holdharmless Novavax from and against all liability, damages, or claims arising fromits own development, manufacture, and/or use of the Influenza Product forresearch or clinical studies, and subsequently the exploitation of the InfluenzaProduct, only in the event that such liability, damages, or claims concern onlyParkedale know-how or a Parkedale product and not Novavax IP unless suchliability arises from the negligence or willful default of Novavax or otherwiseby reason of any breach by Novavax warranties given in this License and SupplyAgreement. Novavax hereto shall indemnify Parkedale and hold Parkedale harmlessfrom and against all liability, damages, or claims concerning or arising out ofthe Novavax IP. 5.07 Non-Compete. Novavax agrees that, during the term of this Licenseand Supply Agreement, it and/or its Affiliate(s) shall not, directly orindirectly: (a) compete with or against Parkedale or its Affiliates in the Fieldwithin the Territory in the Field; (b) compete with or against Parkedale or itsAffiliates in connection with the manufacture, use, sale, importation orexportation of any Influenza Product in the Field within the Territory; (c)engage in any activity or take any action that is inconsistent with this Licenseand Supply Agreement or that will cause or result in the manufacture, marketing,introduction, distribution, offer-for-sale, sale, importation or exportation ofany product that will directly or indirectly compete with any Influenza Productin the Field within the Territory; or (d) collaborate with any person, thirdParty or entity that will cause or result in the manufacture, marketing,introduction, distribution, offer-for-sale, sale, importation or exportation ofa product that will compete with any Influenza Product in the Field within theTerritory. Novavax further agrees that it and its Affiliate shall not provideor caused to be provided any Novavax IP to any person, third Party or entity that Novavax knows or should reasonably know directly or indirectly use the Novavax IP or cause the Novavax IP to be used in the Field within the Territoryduring the term of this License and Supply Agreement. ARTICLE VI Confidential Information 6.01 Use of confidential Information. Consistent with Article I,Paragraph 1.03, the Receiving Party (which term, for purposes of this paragraphshall include such parties' employees, agents, shareholders, officers, directorsand Affiliates) shall not, either during the Term of this License and SupplyAgreement or at any time thereafter, use for its own benefit or disclose to oruse for the benefit of any person, third Party or entity other than theReceiving Party, any Confidential 11 12Information or other confidential or proprietary information of the DisclosingParty, whether or not embodied in writing or other tangible form. All originalsand copies of any of the foregoing, however, and whenever produced, shall be thesole property of the Disclosing Party of such Confidential Information. TheReceiving Party agrees that it sha1l make the Confidential Information of theDisclosing Party available to its employees or agents, only on a "need to know"basis, and further agrees that it shall require all of such employees, agents,or others who have access to any of such Confidential Information to comply withthe obligations in Article I, Paragraph 1.03 and this Paragraph 6.01 and shallexercise reasonable diligence to obtain compliance with such obligations. Uponthe termination or expiration of this License and Supply Agreement, theReceiving Party shall promptly surrender to the Disclosing Party allConfidential Information of the Disclosing Party that is in tangible form,including that Confidential Information which has been reduced to or placed onone or more writings, drawings, schematics, tapes, disks, or other forms ofdocumentation, together with any materials, things, prototypes, samples andequipment belonging to the Disclosing Party, and the Receiving Party shall notthereafter retain or deliver to any other person, third Party or entity any ofthe foregoing or any summary memorandum thereof. Each Party hereby agrees thatit shall be responsible for the obligations of its employees and agents hereunder and executes this License and Supply Agreement on behalf of itself andsuch employees and agents. 6.02 Degree of Care. In addition to its other obligations under thisArticle VI, the parties hereto agree that the Receiving Party shall use at leastthe same degree of care (which at a minimum shall be reasonable) to avoidunauthorized dissemination of Confidential Information as it employs for its owninformation of a similar nature that it does not want to have disseminated. Inthe event a Receiving Party is requested or required by a governmental,quasi-governmental, judicial or quasi-judicial entity to disclose ConfidentialInformation it received from the Disclosing Party, it shall not be a violationof this License and Supply Agreement to comply provided, however, that theReceiving Party so requested or required shall notify the Disclosing Party ofsuch request or requirement, promptly upon receipt of the same. 6.03 Commercial Use. The parties hereto agree that neither shall putthe Confidential Information of the other Party to any use, except as expresslyprovided under this License and Supply Agreement. ARTICLE VII Representations and Warranties 7.01 Laws. Each Party hereto, at its own expense, shall at all timesduring the term of this License and Supply Agreement, and any extension orrenewal thereof, comply with all applicable laws, statutes, codes, regulations,rules, ordinances, orders or directives of any applicable country, state,county, city, town, province, territory, government entity, agency or bodywheresoever in effect including all export laws and regulations. 7.02 Licensee's Remedy. Except as set forth in Paragraph 7.03 below, aremedy in the event of defect is repair or replacement of all defectiveAdjuvant. Unless otherwise instructed in writing 12 13by Parkedale, Novavax shall replace all defective Adjuvant with new Adjuvant atNovavax's sole expense. Novavax warrants such replacement Adjuvant on the sameterms and conditions as the original. 7.03 Limitations. The warranties and remedies specified in this ArticleVII shall not apply if an Adjuvant is defective due to (i) natural disasters,including fire, smoke, water, earthquakes or lightning, (ii) the misuse orimproper storage of an Adjuvant or other failure to comply with the instructionsset forth in the documentation accompanying an Adjuvant, or (iii) use of anAdjuvant in a manner for which it was not designed. 7.04 Infringement Warranty. Novavax represents and warrants that theAdjuvants, the Novasome(R) delivery system, the Novasome(R) delivery systemtrademark, the Novavax Improvements, the Novavax Know-How, the Patent Rights andthe Novavax IP do not and will not infringe upon or violate any valid patent,copyright, trademark or any other intellectual property rights in the Territory. 7.05 Validity and Ownership. Novavax represents and warrants that thePatent Rights and the trademark, Novasome(R) delivery system, are valid andenforceable, and that Novavax is the rightful, lawful and sole owner of thePatent Rights, the Adjuvants, the Novasome(R) delivery system, the Novasome(R)delivery system trademark, the Novavax Improvements, the Novavax Know-How, andthe Novavax IP. 7.06 Organization and Standing. Novavax represents and warrants that itis a company duly organized, validly existing and in good standing under thelaws of the jurisdiction of its incorporation or formation. 7.07 Power and Authority. Novavax represents and warrants that it hasall requisite corporate power and authority to execute, deliver, and performthis License and Supply Agreement and the other agreements and instruments to beexecuted and delivered by it pursuant hereto and thereto and to consummate thetransactions contemplated herein and therein. The execution, delivery, andperformance of this License and Supply Agreement by Novavax does not, and theconsummation of the transactions contemplated hereby will not, violate anyprovisions of Novavax's organizational documents, by laws, any law or regulationapplicable to Novavax, or any agreement, mortgage, lease, instrument, order,judgment, or decree to which Novavax is a Party or by which Novavax is bound orresult in the creation or acceleration of any lien charge, security interest, orother encumbrance on or concerning the Adjuvants, the Novasome(R) deliverysystem, the Novasome(R) delivery system trademark, the Patent Rights, theNovavax Know-How and/or the Novavax Improvements. 7.08 Corporate Action; Binding Effect. Novavax represents and warrantsthat it has duly and properly taken all action required by law, theirorganizational documents, or otherwise, to authorize the execution, delivery,and performance of this License and Supply Agreement and the other instrumentsto be executed and delivered by them pursuant hereto and thereto and theconsummation of transactions contemplated hereby and thereby. This License andSupply 13 14Agreement has been duly executed and delivered by Novavax and constitutes, andthe other instruments contemplated hereby when duly executed and delivered byNovavax will constitute, legal, valid, and binding obligations of Novavaxenforceable against them in accordance with their respective terms, except asenforcement may be affected by bankruptcy, insolvency, or other similar laws andby general principles of equity. 7.09 Consents. Novavax represents and warrants that no consent orapproval of, or filing with or notice to, any federal, state, or localgovernmental or regulatory authority, agency, or department or any other personnot a Party to this License and Supply Agreement is required or necessary to beobtained by Novavax or on its behalf in connection with the execution, delivery,and performance of this License and Supply Agreement or to consummate thetransactions contemplated hereby, except which has been obtained prior to theexecution of this License and Supply Agreement. 7.10 Litigation or Disputes. Except as disclosed in EXHIBIT C attachedhereto, Novavax represents and warrants that there is no actual or potentialclaim, outstanding commitment to any governmental regulatory agency, action,suit, proceeding, investigation or arbitration, either pending, known to Novavaxor threatened against Novavax, which relates to or concerns the Adjuvants, theNovasome(R) delivery system, the Novasome(R) delivery system trademark, thePatent Rights, the Novavax Know-How, the Novavax Improvements and/or the NovavaxIP. Novavax further represents and warrants that it is not in violation of or indefault with respect to any applicable law, rule, regulation, judgment, order,writ, injunction, award, or decree of any arbitrator, court, or administrativebody, the result of any of which, either individually or cumulatively, wouldhave a materially adverse effect on the Adjuvants, the Novasome(R) deliverysystem, the Patent Rights, the Novavax Know-How, the Novavax Improvements or theNovavax IP in the Territory or Novavax's compliance with and performance underthe terms of this License and Supply Agreement. 7.11 Influenza Product Competition. Novavax represents and warrantsthat: (a) Novavax and its Affiliates have no plans or intentions to manufacture,market, license, sublicense, distribute, introduce, offer-for-sale and/or sellan Influenza Product in the Territory; and (b) Novavax and its Affiliates haveno plans or intentions to import into or export from the Territory an InfluenzaProduct or import or export within the Territory an Influenza Product. 7.12 Patent Rights. Novavax represents and warrants that: (a) all Patent Rights to accomplish the objectives of this License andSupply Agreement, i.e., to develop, manufacture, market, introduce, distribute,offer-for-sale, sell, import and/or export an Influenza Product in the Fieldwithin the Territory, are identified in detail on EXHIBIT A pursuant to ArticleI, Paragraph 1.12, and that EXHIBIT A recites all Patent Rights to which Novavaxand/or its Affiliates has a right, title and/or interest which concern or relateto the objectives of this License and Supply Agreement, e.g., all issued patentsand pending and abandoned patent applications, domestic or foreign, whichconcern, refer to, describe, disclose 14 15and/or claim one more Adjuvants, the use of one or more Adjuvants and/or themanufacture of one or more Adjuvants or intermediates therefor, either alone orin combination; (b) Other than those Patent Rights identified on EXHIBIT A, Novavax andits Affiliates have no interests, rights and/or titles of any kind or naturewhatsoever in any other issued patents and/or pending or abandoned patentapplications, domestic or foreign, which concern, refer to, describe, discloseand/or claim one more Adjuvants, use of one or more Adjuvants and/or manufactureof one or more Adjuvants or intermediates therefor, either alone or incombination, and/or which concern or relate to the objectives of this Licenseand Supply Agreement; (c) However, should Novavax, after the date of this License and SupplyAgreement (and during the term of this License and Supply Agreement), discoverthat Novavax has omitted one or more patents or patent applications from thePatent Rights as set forth on EXHIBIT A, the parties shall immediately amendEXHIBIT A following such discovery to include such omitted patents and/or patentapplications; (d) No other person, entity or third Party has any option, license,sublicense or other right with respect to any Influenza Products or the PatentRights, as identified on EXHIBIT A, which concern, relate to, describe, discloseand/or claim any Influenza Products; and (e) Novavax and its Affiliates have disclosed to Parkedale all mattersof fact and known allegations which under the circumstances could materiallyadversely impact, defeat and/or contradict the rights granted to Parkedalepursuant to this License and Supply Agreement. 7.13 Rights. Novavax represents and warrants that it and its Affiliatesown or otherwise possess all rights in, to and under the Novavax IP that arenecessary to grant the rights and licenses to Parkedale pursuant to this Licenseand Supply Agreement. 7.14 Disclosure. Novavax represents and warrants that this License andSupply Agreement, including the exhibits attached hereto, do not contain andwill not contain any untrue or materially misleading statement or fact, and donot omit and will not omit to state a material statement or fact necessary inorder to make the statements made herein or therein, in light of thecircumstances under which they were made, not materially misleading. 7.15 Influenza Product Infringement. Novavax represents and warrantsthat to the best of its and its Affiliates knowledge, the manufacture, use,distribution, offer-for-sale, sale, importation or exportation of the influenzaProducts do not and will not infringe upon or violate any patent, trademark,copyright or other intellectual property right in the Territory. 7.16 Adjuvants. Novavax hereby represents and warrants that, during theterm of this License and Supply Agreement, it and its Affiliates shall not, andit and its Affiliates shall cause their respective, licensees, sublicensees anddistributors and any person, third Party or entity to not, directly orindirectly, market, license, sublicense, distribute, offer-for-sale or sell anyAdjuvant, 15 16including the Novasome(R) delivery system, to anyone who will or intends to: (a)use or cause to be used, directly or indirectly, such an Adjuvant with or in anInfluenza Product in the Territory; (b) market, license, sublicense, distribute,offer-for-sale or sell, directly or indirectly, an Influenza Product in theTerritory; (c) cause to be marketed, licensed, sublicensed, distributed,offered-for-sale or sold, directly or indirectly, an Influenza Product in theTerritory; (d) develop or manufacture or cause to be developed or manufactured,directly or indirectly, an Influenza Product in the Territory or outside of theTerritory for importation into the Territory; or (e) import or export, directlyor indirectly, an Influenza Product into or from the Territory, respectively, orcause an Influenza Product to be directly or indirectly imported into orexported from the Territory. 7.17 Organization and Standing. Parkedale represents and warrants thatit is a corporation duly organized, validly existing and in good standing underthe laws of the State of Michigan. 7.18 Power and Authority. Parkedale represents and warrants that it hasall requisite corporate power and authority to execute, deliver, and performthis License and Supply Agreement, and the other agreements and instruments tobe executed and delivered by it pursuant hereto and to consummate thetransactions contemplated herein and therein. The execution, delivery, andperformance of this License and Supply Agreement by Parkedale do not, and theconsummation of the transactions contemplated hereby will not, violate anyprovision of Parkedale's articles of incorporation, by laws, any law orregulation applicable to Parkedale, or any agreement, mortgage, lease,instrument, order, judgment, or decree to which Parkedale is a Party or by whichParkedale is bound. 7.19 Corporate Action: Binding Effect. Parkedale represents andwarrants that it has duly and properly taken all action required by law, itsarticles of incorporation, its by laws, or otherwise, to authorize theexecution, delivery, and performance by it of this License and Supply Agreementand the other instruments to be executed by it pursuant hereto and theconsummation of the transactions contemplated hereby and thereby. This Licenseand Supply Agreement has been duly executed and delivered by Parkedale andconstitutes, and the other instruments contemplated hereby when duly executedand delivered by Parkedale will constitute, legal, valid, and bindingobligations of Parkedale enforceable against it in accordance with theirrespective terms, except as enforcement may be affected by bankruptcy,insolvency, or other similar laws and by general principles of equity. 7.20 Consents. Parkedale represents and warrants that no consent orapproval of, or filing with or notice to, any federal, state, or localgovernmental or regulatory authority, agency, or department or any other personnot a Party to this License and Supply Agreement is required or necessary to beobtained by Parkedale or on its behalf in connection with the execution,delivery, and performance of this License and Supply Agreement or to consummatethe transactions contemplated hereby, except which have been obtained prior tothe execution of this License and Supply Agreement. 7.21 Influenza Products. Novavax represents and warrants that, duringthe term of this License and Supply Agreement, it shall not, and Novavax shallcause its Affiliates and any person, third Party or entity: (a) to notmanufacture, advertise, market, promote, license, sublicense, deliver, 16 17introduce, distribute, offer-for-sale or sell or cause to be manufactured,advertised, marketed, promoted, licensed, sublicensed, delivered, introduced,distributed, offered-for-sale or sold, directly or indirectly, any InfluenzaProduct in the Territory; or (b) to import into or export from or cause to beimported into or exported from, directly or indirectly, the Territory anyInfluenza Product. 7.22 Adjuvants and Influenza Products. Novavax further represents andwarrants that, during the term of this License and Supply Agreement, it shallcause any person, third Party or entity, which is acquired by, or whichacquires, Novavax or any of its Affiliates through a stock or asset purchase,merger, consolidation or other transaction, or which merges with Novavax or anyof its Affiliates, whether through the formation of a new company or otherwise,in each case, whether in a single transaction or a series of transactions, tonot develop, manufacture, market, license, sublicense, introduce, distribute,offer-for-sale or sell, or cause to be developed, manufactured, marketed,licensed, sublicensed, introduced, distributed, offered-for-sale or sold,directly or indirectly, any Influenza Product in the Field within the Territory. 7.23 Competing Product. Novavax further represents and warrants that,during the term of this License and Supply Agreement, if Novavax or any of itsAffiliates divest a product that competes with an Influenza Product during thisLicense and Supply Agreement, Parkedale shall have a right of first offer toacquire such competing product. Novavax shall provide Parkedale with writtennotice of its intention to divest such competitor product, including thematerial terms upon which Parkedale may acquire such competitor product. ARTICLE VIII Infringement. 8.01 Claim. In the event of any claim, action or allegation by a thirdParty asserting or involving a patent, copyright or trademark or any otherintellectual property right, which concerns (a) an Influenza Product, or (b) anInfluenza Product in which an Adjuvant, a Novasome(R) delivery system, Novavax'sKnow-How, a Novavax Improvement, the Novavax IP and/or Patent Rights, or anyportion or aspect thereof, is utilized in connection therewith or incorporatedtherein, Novavax will pay all damages, royalties and costs awarded in any suchaction, and all attorney's fees and costs incurred by Parkedale in its defenseto any such allegation, claim, and/or action. Parkedale agrees to notify Novavaxpromptly upon learning that the claim might be asserted. Novavax agrees thatParkedale and Novavax shall have joint control over the defense of anyallegation, claim, and/or action and any negotiation for its settlement orcompromise, and Parkedale and Novavax shall have the right to jointly settle anyclaim on behalf of Parkedale and Novavax. Any recovery from a third Party for aninfringement action regarding Influenza Product shall belong to Parkedale andshall be subject to the royalty provisions of this Agreement. Both parties agreeto provide reasonable assistance in the defense of any such allegation, claim,and/or action without the express authorization of the other Party hereto. 8.02 Indemnification. In the event a claim, action or allegation ofinfringement or violation of any other intellectual property right is madeagainst the Novavax IP in connection with 17 18its use with or in an Influenza Product or Parkedale's use thereof, or aninjunction or order shall be obtained against Parkedale's use of the Novavax IP,or any portion or aspect thereof, by reason of any such claim, action orallegation, Parkedale shall have the right, without in any way limiting theforegoing, and at Novavax's expense, to (a) procure for Parkedale the right, tocontinue using the Novavax IP; (b) replace or modify the Novavax IP so that itbecomes non-infringing, or (c) in the event (a) and (b) are not practical,terminate the license, and this License and Supply Agreement shall terminate asof the date upon which Parkedale first notified Novavax, or Novavax otherwiseobtained knowledge, of the existence of the applicable allegation, claim and/orof infringement or violation. Novavax agrees to indemnify and hold Parkedaleharmless for all costs and damages incurred by Parkedale as a result of any suchallegation, claim, and/or action. 8.03 Non-Influenza Product Claim. In the event of any claim, action orallegation by a third Party asserting or involving a patent, copyright ortrademark or any other intellectual property right, which solely concerns anAdjuvant, a Novasome(R) delivery system, Novavax's Know-How, a NovavaxImprovement, the Novavax IP and/or Patent Rights, or any portion or aspectthereof, which is outside of the Field and has no bearing on the development,manufacture, use, offer-for-sale, sale, importation and/or exportation of anInfluenza Product of any kind whatsoever, Novavax will pay all damages,royalties and costs awarded in any such action, and all attorney's fees andcosts incurred by Novavax in its defense to any such allegation, claim and/oraction. Novavax agrees to notify Parkedale promptly upon learning of any suchallegation, claim and/or action and that such allegation, the claim and/oraction might be asserted. Novavax agrees that it shall not adopt, advocate orwillingly accept any position that will in any frustrate or negatively impactupon the terms and/or purpose of this License and Supply Agreement. Parkedaleagrees that Novavax shall have sole control over the defense of any suchallegation, claim and/or action and any negotiation for its settlement orcompromise, and Novavax shall have the right to settle any claim on behalf ofNovavax, so long as such settlement or compromise in no way frustrates ornegatively impact upon the terms and purpose of this License and SupplyAgreement. Parkedale agrees to provide Novavax with reasonable assistance, atNovavax's expense, in the defense of any such allegation, claim, and/or action. 8.03 Notice of Third Party Infringement. If either Novavax or Parkedalelearns that the Novavax IP, or any portion or aspect thereof, is allegedlyinfringed or contributorily infringed or misappropriated by a third Party, theParty learning of the alleged infringement or contributory infringement shallpromptly notify the other Party. Within 30 days after learning of suchinfringement or contributory infringement, the parties shall jointly determinewhether or not to bring an action against the alleged infringer ormisappropriator, and who shall bring such action. 8.04 Parkedale Action for Third Party Infringement. In the event thatParkedale brings an action for infringement, contributory infringement,misappropriation and/or violation of any other intellectual property rightconcerning an Influenza Product or the Novavax IP, or any aspect or portionthereof, in the name of Novavax and/or the name of Parkedale, Novavax shallcooperate with Parkedale, and Parkedale will bear all costs and the expensesrelating to the litigation, including those incurred by Novavax. Parkedale shallbe entitled to keep all damages, royalties, legal fees, costs, and otherrecoveries awarded in such litigation. Novavax agrees that Parkedale shall havethe 18 19first right to prosecute any claims and/or actions concerning an InfluenzaProduct or the Novavax IP, or any portion or aspect thereof, which relates to,concerns or results from its use with or in an Influenza Product. 8.05 Novavax Right to Prosecute Third Party Infringement. In the eventthat Parkedale decides not to initially bring an action for infringement, forcontributory infringement, misappropriation and/or any other intellectualproperty violation of the Novavax IP, then Novavax shall have the right, but notthe obligation, to bring an action in the name of Novavax and/or the name ofParkedale. Parkedale will cooperate with Novavax at Novavax's expense. Novavaxshall bear all costs and expenses relating to the litigation, including thoseincurred by Parkedale, and Novavax will be entitled to all damages and otherrecoveries awarded in such litigation. 8.06 Novavax Right to Join Parkedale Prosecution of Third PartyInfringement. If, after Novavax fails to cause such infringement,misappropriation or any other intellectual property right violation to terminateor cease or to bring a suit or action to compel termination or cessationpursuant to Paragraph 8.05 above, and Parkedale elects to initiate suit oraction to compel termination or cessation, Novavax independently shall have theright to join any such suit or action brought by Parkedale and, in such event,Novavax shall pay one-half of the cost of such suit or action from the date ofjoining. 8.07 Recovery in a Third Party Infringement Action. Upon finaldisposition of any event described in Paragraphs 8.05 or 8.06 above,any recovery obtained shall be distributed as follows: (a) each Party shall bereimbursed for any expenses incurred in the action; (b) as to ordinary damages,Parkedale shall receive an amount equal to its lost profits or a reasonableroyalty on the infringing sales (whichever measure of damages the court shallhave applied), less a reasonable approximation of the royalties (I) thatParkedale would have paid to Novavax if Parkedale had sold the infringingproducts and services rather than the infringer, or (ii) of the reasonableroyalty on the infringing sales awarded to Parkedale (whichever measure ofdamages the court shall have applied), which amount will be distributed toNovavax; and (c) Parkedale shall receive 100% of any special, punitive or otherdamages. Parkedale may offset any expenses incurred under this Article VIIIagainst any royalty payments due to Novavax. 8.08 Cooperation of Each Party in Third Party Infringement Action. Inany infringement, misappropriation and/or intellectual property violation suitas either Party may institute to enforce the Patent Rights pursuant to thisLicense and Supply Agreement, the other Party hereto shall, at the request andexpense of the Party initiating such suit, cooperate in all respects and, to theextent possible, have its employees testify when requested and make availablerelevant records, papers, information, samples and the like. 19 20 ARTICLE IX Term and Termination. 9.01 Term. The term of this License and Supply Agreement shall be theperiod beginning on the date of execution by both parties to this License andSupply Agreement, i.e., the Effective Date, and continuing for the period thatany portion or aspect of the Novavax IP is proprietary to Novavax, unlessearlier terminated under Paragraphs 9.02 and 9.03 below or otherwise,and so long as this License and Supply Agreement provides Parkedale withexclusivity with respect to the Influenza Product in the Territory (the "Term").Thereafter, this License and Supply Agreement shall automatically be renewed forsuccessive 12-month periods (the "Renewal Periods"), unless either Party givesnotice of non-renewal to the other Party at least ninety (90) days before thethen-current expiration date. In the event that a generic product to anInfluenza Product is approved for use in the Field within the Territory, Novavaxagrees that the obligation for Parkedale to pay royalties pursuant to ArticleIII, Paragraph 3.03 above shall cease and terminate upon such immediate genericapproval. 9.02 Termination by Novavax. Novavax may terminate this License andSupply Agreement upon ninety (90) days written notice to Parkedale, upon theoccurrence of any termination event as follows: (a) Parkedale or any of itsemployees breaches any obligation under this License and Supply Agreement,including without limitation violation of any payment terms, if such breach isnot cured within thirty (30) days after Novavax demands its cure in writing; or(b) Parkedale becomes insolvent, enters into reorganization or bankruptcy, makesa general assignment for the benefit of creditors, admits in writing itsinability to pay debts as they mature, suffers or permits the appointment of areceiver for its business or assets, or avails itself of or becomes subject toany other judicial or administrative proceeding related to insolvency orprotection of creditors' rights (and, if such action or proceeding isinvoluntary on the part of Parkedale, such action or proceeding is not dismissedwithin 90 days). 9.03 Termination by Parkedale. Parkedale may terminate this License andSupply Agreement upon ninety (90) days written notice to Novavax, upon theoccurrence of any termination event as follows: (a) Novavax or any of itsemployees breaches any obligation under this License and Supply Agreement,including without limitation violation of any payment terms, if such breach isnot cured within thirty (30) days after Parkedale demands its cure in writing;or (b) Novavax becomes insolvent, enters into reorganization or bankruptcy,makes a general assignment for the benefit of creditors, admits in writing itsinability to pay debts as they mature, suffers or permits the appointment of areceiver for its business or assets, or avails itself of or becomes subject toany other judicial or administrative proceeding related to insolvency orprotection of creditors' rights (and, if such action or proceeding isinvoluntary on the part of Novavax, such action or proceeding is not dismissedwithin 90 days). 9.04 Effect of Termination. From and after the date of any expirationor termination of this License and Supply Agreement, neither Party shall haveany further rights, privileges, or obligations hereunder except that: (a) suchexpiration or termination shall not relieve either Party of any 20 21liability or obligation accrued prior to the effective date of expiration ortermination; (b) such expiration or termination shall not affect the continuedoperation or enforcement of any provision of this License and Supply Agreementwhich is to survive expiration or termination; and (c) upon such expiration ortermination, each Party shall immediately return to the other Party allConfidential Information as required by Article VI of this License and SupplyAgreement. In no event upon the expiration or termination of this License andSupply Agreement shall the terminating Party (or in the case of expiration ofthis License and Supply Agreement, any Party) be liable to the other Party forany damages, indemnities, loss of profits, loss of revenues, or other losses byreason of any such expiration or termination, unless the License and SupplyAgreement is wrongfully terminated. ARTICLE X Miscellaneous 10.01 Authority. Each Party represents and warrants to the other thatit has the right, and has obtained all necessary corporate approvals, to enterinto this License and Supply Agreement and perform the obligations to beperformed by it under this License and Supply Agreement and that this Licenseand Supply Agreement constitutes its valid, binding and enforceable obligation,enforceable against it in accordance with its terms. 10.02 Force Majeure. The failure of either Party hereto to perform anyobligation under this License and Supply Agreement (except any paymentobligation hereunder of Parkedale to Novavax) due to acts of God, acts ofgovernment, civil disturbances, wars, strikes, transportation problems,unreasonable delay by vendors in delivery, failure to provide products ormaterials by its vendors, or other causes beyond its reasonable control shallnot be deemed to be a breach of this License and Supply Agreement; provided,however, that the Party so prevented from complying herewith shall immediatelygive notice thereof to the other Party and shall continue to take allcommercially reasonable actions to comply as fully as possible herewith. Afterremoval of the basis for the nonperformance, the Party failing to perform shallresume performance within a reasonable time. 10.03 Entire Agreement. This License and Supply Agreement, togetherwith its Exhibits, constitutes the sole and entire agreement between the partiesrelating to the subject matter herein, and terminates and supersedes any and allprior agreements and understandings between the parties. 10.04 Waiver and Amendment. No change in, addition to, or waiver ofany of the terms and provisions herein shall be binding upon any Party unlessapproved by it in writing by both parties hereto. 10.05 No Waiver. The failure by any Party to exercise or to enforce anyof the terms or conditions of this License and Supply Agreement shall notconstitute or be deemed a waiver of that Party's right thereafter to enforceeach and every term and condition of this License and Supply Agreement. 21 22 10.06 Severability. Should a court of law or arbitrator hold that anyone or more of the provisions in this License and Supply Agreement is invalid,illegal or unenforceable, no other provision of this License and SupplyAgreement shall be affected thereby, and the remaining provisions of thisLicense and Supply Agreement shall be both construed and reformed and shallcontinue with the same effect as if such unenforceable, illegal or invalidprovision shall not have been inserted in this License and Supply Agreement. 10.07 Governing Law. This License and Supply Agreement and therespective rights and obligations of the parties hereto shall be governed by anddetermined in accordance with the domestic internal laws of the State ofMaryland, without giving effect to conflict of laws principles thereof. 10.07 Independent Parties. Novavax and Parkedale are independentparties. It is understood and agreed that Novavax is not by this License andSupply Agreement or anything herein contained, constituted or appointed thelegal representative or agent of Parkedale, nor shall Novavax have the right orauthority to make any representation, warranty, covenant, guarantee orcommitment or assume, create or incur any liability or any obligation of anykind, expressed or implied, in the name of or otherwise on behalf of Parkedale,whether directly or indirectly. It is understood and agreed that Parkedale isnot by this License and Supply Agreement or anything herein contained,constituted or appointed the legal representative or agent of Novavax, nor shallParkedale have the right or authority to make any representation, warranty,covenant, guarantee or commitment or assume, create or incur any liability orany obligation of any kind, expressed or implied, in the name of or otherwise onbehalf of Novavax, whether directly or indirectly. 10.08 Notices. All notices and other communications which are requiredor permitted under the terms or conditions of this License and Supply Agreementshall be in writing and sent by overnight courier, or registered or certifiedmail, postage prepaid, to the receiving Party at the following addresses:If to Novavax: Novavax, Inc. 8320 Guilford Road Columbia, MD 21046with a copy to: White & McDermott, P.C. 65 William Street Wellsely, MA 02481 Attention: Sharon Goddard White, Esq.If to Parkedale: Parkedale Pharmaceuticals, Inc. 22 23 870 Parkedale Road Rochester, MI 48307 Attention: Corporate Counselwith a copy to: King Pharmaceuticals, Inc. 501 Fifth Street Bristol, Tennessee 37620 Attention: General Counselor to any other address that the receiving Party may have provided to thesending Party in writing as provided aforesaid. Any notice or othercommunication sent by overnight courier shall be deemed to have been received onthe business day after it is delivered to the courier. Any notice or othercommunication sent by registered or certified mail shall be deemed to have beenreceived on the third business day after its date of posting. 10.09 Binding on Successors: Assignment. This License and SupplyAgreement and each and every covenant, term, and condition herein shall bebinding upon and inure to the benefit of both the parties hereto and theirrespective successors. Neither this License and Supply Agreement nor any rightshereunder may be assigned or otherwise transferred by either Party without firstreceiving the express prior written consent of the other Party; except thatwithout such consent, either Party may assign or transfer this License andSupply Agreement and all of its rights hereunder to any corporation whichbeneficially owns a majority in interest of the equity of such Party or to amajority-owned subsidiary of such Party or to any successor of such Party bymerger or consolidation or to any person, third Party or entity to which all orsubstantially all of the assets of such Party are sold. 10.10 Counterparts. This License and Supply Agreement may be executedin one or more counterparts, each of which shall be deemed an original, but allof which together shall constitute one and the same instrument. 10.11 Survival. The provisions of Articles I, V, VI, VII, VIII, IX, andX shall survive the expiration or termination of this License and SupplyAgreement. 23 24 IN WITNESS WHEREOF, Novavax and Parkedale have caused this License andSupply Agreement to be executed by their duly authorized representatives as ofthe date first set forth above. NOVAVAX, INC. By: [SIG] -------------------------------------- Name: /s/ John Spears -------------------------------------- Title: President & CEO -------------------------------------- Dated: 10/21/99 -------------------------------------- PARKEDALE PHARMACEUTICALS, INC. By: [SIG] -------------------------------------- Name: Jefferson J. Gregory -------------------------------------- Title: President & CEO -------------------------------------- Dated: October 21, 1999 -------------------------------------- 24 25 EXHIBIT ANovavax Novasome Patent Portfolio Relative to Adjuvants and Vaccines Date of USAUSA Patent # Patent Title Issuance Expiration in USA Date--------------------------------------------------------------------------------------------------------- 4,853,228 Method of Manufacturing Unilamellar Lipid Vesicles 08/01/89 07/28/074,855,090 Method of Producing High Aqueous Volume 08/08/89 03/13/07 Multi-lamellar Vesicles4,895,452 Method and Apparatus for Producing Lipid Vesicles 01/23/90 03/03/084,911,928 Paucilamellar Lipid Vesicles 03/27/90 03/07/074,917,951 Lipid Vesicles Formed of Surfactants and Steroids 04/17/90 11/24/075,000,960 Protein Coupling to Lipid Vesicles 03/19/91 01/19/095,013,497 Method and Apparatus for Producing Lipid Vesicles 05/07/915,032,457 Paucilamellar Lipid Vesicles Using 07/16/91 07/16/06 Charge-Localized, Single-Chain, Nonphospholipid Surfactants5,104,736 Reinforced Paucilamellar Lipid Vesicles 04/14/92 06/26/095,147,723 Paucilamellar Lipid Vesicles 09/15/92 06/08/065,160,669 Method of Making Oil-Filled Paucilamellar Lipid 11/03/92 10/16/10 Vesicles5,234,767 Hybrid Paucilamellar Lipid Vesicles 08/10/93 03/27/075,256,422 Lipid Vesicle Containing Water-In-Oil Emulsion 10/26/93 03/28/115,474,848 Paucilamellar Lipid Vesicles 12/12/95 03/13/075,561.62 Method of Inhibiting Viral Reproduction Using 10/01/96 Nonphospholipid Paucilamellar LiposomesNVR 213CP Vaccines Containing Paucilamellar Lipid Vesicles as Immunological Adjuvants *CIP *Continuation in-part filing 25 26 EXHIBIT B Countries Excluded from the Territory Japan Australia Singapore Indonesia Malaysia Thailand 26 27 EXHIBIT C Nothing to Disclose 27 1April 22 1999 Novavax/Cantab - page: 1 NOVAVAX, INC. - and - CANTAB PHARMACEUTICALS RESEARCH LIMITED ------------------------------------------------------------------ LICENCE AGREEMENT ------------------------------------------------------------------April 22 1999 2April 22 1999 Novavax/Cantab - page: 2THIS AGREEMENT is made the day of 1999BETWEEN (1) NOVAVAX, INC. a company incorporated under the law of the State of Delaware, whose principal place of business is at Suite C, 8320 Guilford Road, Columbia, MD 21046, USA (together with its subsidiaries (including without limitation its wholly-owned subsidiaries Micro-Pak, Inc. and Micro Vesicular Systems Inc), "Novavax"); and (2) CANTAB PHARMACEUTICALS RESEARCH LIMITED (Company number 2270217) a company incorporated under the laws of England whose registered office is at 310 Cambridge Science Park, Milton Road, CB4 0WG ("Cantab").RECITALS (A) Pursuant to an agreement of 23 December 1997 between Novavax and Cantab, Novavax granted Cantab an exclusive option to acquire a worldwide exclusive licence under the Novavax IP (as defined herein). (B) Cantab has exercised that option and Novavax (including Novavax's wholly-owned subsidiaries Micro-Pak, Inc., and Micro Vesicular Systems, Inc., which is/are registered owner(s) of patent rights included in the Novavax IP as hereinbelow defined, and which have endorsed their consent to the transaction hereby effected and their agreement to be bound thereby insofar as their proprietary interests are affected) hereby grants Cantab an exclusive worldwide licence to the Novavax IP on the terms and conditions set out herein.IT IS AGREED AS FOLLOWS:- 1. DEFINITION AND INTERPRETATION 1.1 In this Agreement and in the Schedules to this Agreement the following words and phrases shall have the following meanings unless the context requires otherwise:- 1.1.1 "Affiliate" - any company, partnership or other entity which directly or indirectly Controls, is Controlled by or is under common Control with, either Party including as a Subsidiary or Holding Company. 1.1.2 "Agreement" - this agreement and any and all schedules, appendices and other addenda to it as may be varied from time to time in accordance with the provisions of this agreement. 1.1.3 "Business Day" - 9.30am to 5.30pm (local time at Cantab offices) on a day other than a Saturday, Sunday, bank or other public holiday in England and Wales. 1.1.4 "Cantab Net Sales" - shall mean all sums received by Cantab or an affiliate of Cantab upon the sale by Cantab or such affiliate of any Licensed Product (net only of any value added or other taxes thereon and of deductions for freight charges, insurance, allowances 3April 22 1999 Novavax/Cantab - page: 3 actually made for returned defective products and customary trade, quantity or cash discounts to non-affiliated customers to the extent actually allowed and taken); 1.1.5 "Commencement Date" - the date of execution of this Agreement. 1.1.6 "Competent Authority" - any local or national agency, authority, department, inspectorate, minister, ministry official, parliament or public or statutory person (whether autonomous or not) of or of any government of any country having jurisdiction over either any of the activities contemplated by this Agreement or the Parties, including the European Commission and the European Court of Justice. 1.1.7 "Confidential Information" - in the case of obligations on Cantab shall mean Novavax IP, in the case of obligations on Novavax shall mean Cantab IP and in the case of obligations on both Cantab and Novavax shall mean trade secrets, know how or confidential information relating to the business affairs or finances of the other supplied or otherwise made available to them or coming into their possession in relation to the performance of this Agreement. 1.1.8 "Control" - the ownership of more than 50% of the issued share capital or legal power to direct or cause the direction of the general management and policies of the Party in question. 1.1.9 "Directive" - includes any present or future directive, regulation, requirement, instruction, direction or rule of any Competent Authority including any amendment, extension or replacement thereof then in force. 1.1.10 "Field" - the use of the Novasomes Adjuvant in the development and subsequent exploitation of an immunopharmaceutical comprising antigenic determinants of human papillomavirus for the prevention or treatment of cervical disease including CIN (cervical intraepithelial neoplasia), and of an immunopharmaceutical comprising antigenic determinants of human papillomavirus type 16 or 18 for any other treatment purposes for which that immunopharmaceutical may be used; 1.1.11 "First Commercial Sale" - the first commercial sale by Cantab or its sub-licensees or distributors, in any country, of Licensed Product after grant of required Marketing Authorisation and pricing approval has been granted by the appropriate Regulatory Authority or other Competent Authority. 1.1.12 "Force Majeure - in relation to either Party any event or circumstances which is beyond the reasonable control of that Party which event that Party could not reasonably be expected to have taken into account at the date of this Agreement and which results in or causes the failure of that Party to perform any or all of its obligations under this Agreement, including act of God, lightning, fire, storm, flood, earthquake, accumulation of snow or ice, lack of water arising from weather or environmental problems, strike, lockout or other industrial disturbance, act of the public enemy, war declared or undeclared, threat of war, terrorist act, blockade, revolution, riot, insurrection, civil commotion, public demonstration, sabotage, act of vandalism, prevention from or hindrance in obtaining in any way materials energy or other supplies, explosion, fault or failure of plant or machinery (which could not have been prevented by good industry practice), Directive or requirement of a Competent Authority governing either Party provided that lack of funds shall not be interpreted as a cause beyond the reasonable 4April 22 1999 Novavax/Cantab - page: 4 control of that Party. 1.1.13 "Half Year" - shall mean each six month period in any year ending on 30 June or 31 December, and "Half Yearly" shall be construed accordingly. 1.1.14 "Insolvency Event" - in relation to Cantab, means any one of the following: (a) a notice shall have been issued to convene a meeting for the purpose of passing a resolution to wind up Cantab or such a resolution shall have been passed; or (b) a resolution shall have been passed by Cantab's directors to seek a winding up or administration order or a petition for a winding up or administration order shall have been presented against Cantab's or such an order shall have been made; or (c) a receiver, administrative receiver, receiver and manager, interim receiver, custodian, sequestrator or similar officer is appointed in respect of Cantab or over a substantial part of its assets or any third party takes steps to appoint such an officer in respect of Cantab or an encumbrancer takes steps to enforce or enforces its security; or (d) a proposal for a voluntary arrangement shall have been made in relation to Cantab under Part I Insolvency Act 1986; or (e) a step or event shall have been taken or arisen outside the United Kingdom which is similar or analogous to any of the steps or events listed at (a) to (d) above; or (f) that Cantab proposes to readjust, reschedule or defer all or substantially all of its indebtedness, or proposes or makes any general assignment, composition or arrangement with or for the benefit of all or some of its creditors or makes or suspends or threatens to suspend making payments to all or some of its creditors or submits to any type of voluntary arrangement; or (g) Cantab is deemed to be unable to pay its debts within the meaning of Section 123 Insolvency Act 1986. 1.1.15 "Know-How" - unpatented technical and other information which is not in the public domain including information comprising or relating to concepts, discoveries, data, designs, formulae, ideas, information relating to materials, inventions, methods, models, assays, research plans, procedures, designs for experiments and tests and results of experimentation and testing (including results of research or development) processes (including manufacturing processes, specifications and techniques), laboratory records, chemical, pharmacological, toxicological, clinical, analytical and quality control data, trial data, case report forms, data analyses, reports, manufacturing data or summaries and information contained in submissions to an information from ethical committees and regulatory authorities, but at any time does not include any matter that has become and remains available to the public through no wrongful act or omission to act of the party (or its sublicensee or distributor) owing obligation to the other in respect of such matter as part of Know-How, as from the time when that matter becomes available to the public. Know-How includes documents containing Know-How. Information will not be excluded from being Know-How hereunder by reason only of the fact that it becomes available to the public through a wrongful act or omission to act of a Party hereto or a sublicensee or distributor of a Party hereto. The fact that an item is known to the public shall not be taken to exclude the possibility that a compilation including the item, and/or a development relating to the item, is (and remains) not known to the public. Know- 5April 22 1999 Novavax/Cantab - page: 5 How includes any rights including copyright, database or design rights protecting such Know-How. 1.1.16 "Licensed IP" - the Licensed Patent Rights and the Licensed Know-How. 1.1.17 "Licensed Know-How" - any and all Know How within the Field which is owned by or licensed to Novavax at the Commencement Date or which becomes owned by or licensed to Novavax during the term of this Agreement, in either case insofar as it continues to be Know-How. 1.1.18 "Licensed Patent Rights" - the Patent Rights listed in Schedule 1 and any Patent Rights claiming or covering or otherwise based on inventions forming part of the Licensed Know How. 1.1.19 "Licensed Product" - a product made for use in the Field and either sold or to be sold for use in the Field, incorporating or using any part of the Licensed IP, such that in the absence of the licence granted by this agreement Cantab's (or Cantab's sublicensee's or distributor's) acts in relation to manufacture, use or sale of such product would constitute an infringement of the Licensed IP; 1.1.20 "Major Markets" - United States, United Kingdom, France, Germany, Spain, Italy and Japan. 1.1.21 "Marketing Authorisation" - any approval required from a Regulatory Authority to market and sell Licensed Product in any country. 1.1.22 "Materials Transfer Agreement" - the materials transfer agreement between the Parties dated 16 May 1997. 1.1.23 "Net Cantab Receipts" - shall mean all sums received by Cantab upon the sale of any Licensed Product by any sublicensee or otherwise received under the terms of any sublicense agreement authorised hereunder. 1.1.24 "Novasomes Adjuvant" - the adjuvant and associated technology specified in the Licensed Patent Rights with respect to Paucilamellar non-phospholipid liposomes. 1.1.25 "Novavax Materials" - physical samples of Novasomes Adjuvant and other compounds supplied by Novavax to Cantab under the Materials Transfer Agreement or corresponding term of this Agreement. 1.1.26 "Parties" - Cantab and Novavax. 1.1.27 "Patent Rights" - patent applications or patents, author certificates, inventor certificates, utility certificates, improvement patents and models and certificates of addition and all foreign counterparts of them and includes any divisions, renewals, continuations, continuations-in-part, extensions, reissues, substitutions, confirmations, registrations, revalidation or additions of or to them, as well as any supplementary protection certificate in respect of them. 1.1.28 "Regulatory Authority" - any national, supranational (e.g., the European Commission, the Council of the European Union, the European Agency for the Evaluation of Medicinal Products or the FDA), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity other in each country of the Territory involved in the granting of Marketing Authorisation for the Licensed Product. 1.1.29 "Subsidiary or Holding Company" - as relates to Cantab, shall have the meaning ascribed to such expressions by Section 736 of the Companies Act 1985 (as amended), 6April 22 1999 Novavax/Cantab - page: 6 and as it relates to Novavax, shall mean any legal entity (such as a corporation, partnership, or limited liability company) that is controlled by, under common control with, or controls Novavax. For the purpose of this definition, control means (i) beneficial ownership of at least 50% of the voting securities of a corporation or other business organisation with voting securities or (ii) a fifty percent or greater interest in the net assets or profits of a partnership or other business organisation without voting securities. 1.1.30 "Valid Claim" - either: (a) a claim of an issued and unexpired patent included within Patent Rights, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise; or (b) a claim of a pending patent application included within Patent Rights, which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of said application. 1.2 In this Agreement: 1.2.1 unless the context otherwise requires all references to a particular Clause, paragraph or Schedule shall be a reference to that Clause, paragraph or Schedule, in or to this Agreement as the same may be amended from time to time pursuant to this Agreement; 1.2.2 a table of contents and headings are inserted for convenience only and shall be ignored in construing this Agreement; 1.2.3 unless the contrary intention appears words importing the masculine gender shall include the feminine and vice versa and words in the singular include the plural and vice versa; 1.2.4 unless the contrary intention appears words denoting persons shall include any individual, partnership, company, corporation, joint venture, trust, association, organisation or other entity, in each case whether or not having separate legal personality; 1.2.5 reference to the words "include" or "including" are to be construed without limitation to the generality of the preceding words; and 1.2.6 reference to any statute or regulation includes any modification or re-enactment of that statute or regulation. 2. GRANT OF LICENCE 2.1 Subject to this Agreement and in consideration of all of its terms, Novavax grants Cantab an exclusive world-wide licence to develop, use, have used, manufacture, have made, exploit, market, sell and have sold Licensed Products solely for use in the Field and to use the Licensed IP within the Field. Subject to Cantab's rights under this Agreement, Novavax shall retain all rights not expressly granted in this Clause 2.1. The licence shall be for the period in which any Licensed IP shall remain valid and enforceable (the "License Period"), unless earlier terminated as provided in Section 10 7April 22 1999 Novavax/Cantab - page: 7 hereof. 2.2 Cantab shall be entitled to sublicense all or any part of its rights granted under Clause 2.1 above to third parties in such manner as it considers appropriate: Cantab shall promptly provide Novavax with information relating to the terms of such sublicence agreement and arrangements made in pursuance of such sublicence agreement to the extent appropriate to enable Novavax to ascertain Novavax's legal rights and financial expectations and enforce its legal rights arising in consequence of such sublicence, and such information shall without limitation include: parties to the agreement and its date of execution; the scope of the sublicence, as it relates to Licensed IP, including technical and geographical scope and whether the scope include the right to make, use and/or sell; the nature of measures taken by the sublicence terms to protect confidentiality of Novavax's Know-How and other confidential, proprietary or nonpublic information; and information relating to the development plan to be undertaken under such sublicense agreement, sufficient to ascertain the measures to be taken to achieve the milestones referred to in this agreement and to achieve and advance product marketing and sales. 2.3 Novavax shall during the term of this Agreement promptly notify Cantab of all information relating to improvements and/or developments to the Novasomes Adjuvant, the Licensed IP (including the legal status of the Licensed Patent Rights) or their application which are of relevance within the Field to the manufacturing or marketing of Licensed Product and any such improvements or developments shall form part of the Licensed IP licensed to Cantab free of any further charge or payment. 2.4 Novavax agrees to deliver, at the request and administrative expense of Cantab, such documents as may reasonably be necessary to permit Cantab to record its licensee interest in the Licensed IP, provided That no such filing shall contain any confidential proprietary or non-public information of Novavax, and Cantab shall take all action necessary to ensure that no right title or interest in any licensed IP vests in Cantab by such recordal except the licence granted Clause 2.1 hereof, and Cantab shall in the event of termination in whole or in part of such licence, (upon request of Novavax and at Cantab's administrative expense) execute or procure for Novavax the execution of and file all such documents as may reasonably be necessary to record the termination of any such rights granted to Cantab under this Agreement with any relevant registry or agency. 3. FEES 3.1 In consideration of the licence granted to Cantab under Clause 2 Cantab will pay to Novavax the following: 3.1.1 US$ 75,000 on the Commencement Date; and 3.1.2 US$ 75,000 on the first anniversary of the Commencement Date provided that such licence fees set out in Clauses 3.1.1 and 3.1.2 will be non-refundable 8April 22 1999 Novavax/Cantab - page: 8 and not subject to deduction or set-off for any reason against any amounts owing to Novavax, including future royalties. 3.1.3 US$ 25,000 upon the execution of the first sub-licence in the United States of America; 3.1.4 US$ 25,000 upon the execution of the first sub-licence in the United Kingdom or the European Union; 3.1.5 US$ 12,500 upon the execution of the first sub-licence in Japan; and 3.1.6 US$ 15,000 upon the execution of the first sub-licence in any country outside the USA, the European Union and Japan; provided that all such fees set out in Clauses 3.1.3 to 3.1.6 shall be credited against and deducted from royalties payable pursuant to paragraph 3.3. 3.2 In addition to the fees set out in Clause 3.1, Cantab shall pay to Novavax the following milestone fees:- 3.2.1 US$ 50,000 upon the earlier of: (a) the date of entry of the first patient into a Phase I/lI dose ranging study or the equivalent in any other country carried out by or on behalf of Cantab or its sublicensee; (b) 6 months after completion of a Phase I study or the equivalent in any other country carried out by or on behalf of Cantab or its sublicensee; or (c) 30 June, 2000; 3.2.2 US$ 50,000 upon the date of the first patient into a Phase II study or the equivalent in any other country carried out by or on behalf of Cantab or its sublicensee; 3.2.3 US$ 75,000 upon the date of the first patient into a pivotal efficacy clinical trial in humans or the equivalent in any other country carried out by or on behalf of Cantab or its sublicensee; and 3.2.4 US$ 100,000 upon the first PLA filing by or on behalf of Cantab or its sublicensee of a Licensed Product anywhere, or the equivalent in any country. All such milestone fees described in this Clause 3.2 shall be credited against and deducted from any royalties payable pursuant to Clause 3.3. Provided that the deduction actually made in any one year of royalty account is not more than $50,000. 3.3 Cantab shall also pay Novavax the following royalties in respect of sales of Licensed Product made during the Royalty Period (payable within 30 days of the end of each Half Year for sales effected in the preceding Half Year): 3.3.1 10% of Net Cantab Receipts on all sales of Licensed Product effected by any sublicensee; 3.3.2 2% of Cantab Net Sales on all sales of Licensed Product effected by Cantab or an affiliate of Cantab, or by a distributor of Cantab or of an affiliate of Cantab; Such royalties to continue to be payable in respect of sales of Licensed Product on a country by country basis until the last to expire of any Licensed Patent Rights in respect of such country ("Royalty Period"). 9April 22 1999 Novavax/Cantab - page: 9 3.4 Minimum annual fees in line with standard industry norms for minimum royalties (but in any event not exceeding US$ 300,000 pa for the first 12 month period commencing 1st January after the date of launch of a Licensed Product and for each subsequent calendar year) shall be payable in respect of each calendar year after First Commercial Sale of a Licensed Product, in respect of the Major Markets for the period in which royalties shall continue to be payable in respect of Licensed Product into such Major Markets at a rate to be negotiated in good faith prior to commercial launch of a Licensed Product by reference to anticipated and forecast sales of Licensed Product. For the abovementioned first 12 month period and for each of the three next following 12 month periods thereafter the minimum annual royalty shall be $50,000 per 12 month period. 3.5 Cantab shall and shall ensure that its Affiliates and other sub-licensees shall keep true and accurate records and books of account containing all data necessary for the calculation of the amounts payable by it to Novavax pursuant to this Agreement. Those records and books of account shall be kept for six years following the end of the calendar year to which they relate and shall, upon reasonable notice having been given by Novavax, be open on Business Days for inspection, under terms of confidentiality, by Novavax's accountants or by an independent firm of accountants appointed by agreement between the Parties. In the absence of any fraud, obvious error or in connection with the payment of taxes or other third party investigations, or actions or claims, any such examination shall take place not later than two years following the expiration of the period to which it relates and there shall be no more than one examination per year. The cost of the inspection shall be the responsibility of Cantab if the certificate is shown to have underestimated the monies payable to Novavax by more than two percent and the responsibility of Novavax otherwise. Following any such certification the Parties shall make any adjustments necessary in respect of the monies already paid to Novavax in relation to the period in question. 3.6 Within 60 days of the end of each Half Year, Cantab shall prepare a statement which shall show on a Product by Product and a country by country basis for the previous Half Year, all monies due to Novavax under this Agreement with respect to such Half Year period, including payments due under Clause 3.3. That statement shall be submitted to Novavax within 60 days of the end of the period to which it relates together with remittance for monies due to Novavax, if any. 3.7 All payments to Novavax under this Agreement shall be made in US Dollars to the account of Novavax at CITIBANK FSB WASHINGTON, sort code ABA# 254070116, account no. # 17511640, in the name of Novavax, Inc., by telegraphic transfer. 3.8 Where revenues are received from sales of Licensed Product or payments made under sublicense agreements, and for purposes of calculating the Net Cantab Sales and Net Cantab Receipts for purposes of this Section 3, in a currency other than US Dollars, the 10April 22 1999 Novavax/Cantab - page: 10 rate of exchange to be used for converting such other currency into US Dollars, shall be the rate published in the Wall Street Journal under the heading "Currency Trading, Exchange Rates, 135$ Equiv." for the last business day of the period to which the calculation applies. 4. SUPPLY It is agreed that the provisions, in regard to supply and purchase, of section 4 in Schedule 2 (form of licence) to the Option Agreement shall continue to apply until further agreement between the Parties. 5. INTELLECTUAL PROPERTY 5.1 The Licensed Patent Rights shall remain vested in Novavax. Novavax shall at Novavax' cost and expense be solely responsible for the prosecution and maintenance of the Licensed Patent Rights and for the conduct of any claims or proceedings relating to it including any interference or opposition proceedings. Should Novavax decide at any time that it does not wish to prosecute or maintain any of the Licensed Patent Rights it shall notify Cantab in writing and Cantab shall have the right, insofar as any such patent is not maintained by Novavax or by a party in privity with Novavax having a right to maintain the same, to take-over at its own cost and expense the prosecution and maintenance of the Licensed Patent Rights or part thereof upon giving written notice to Novavax within 30 days of the date of Novavax' notice. 5.2 Each of Novavax and Cantab shall as soon as practicable after it becomes aware thereof give to the other in writing reasonable particulars of any use or proposed use by another person which in that Party's view amounts to or might amount to an infringement of the Licensed Patent Rights. Novavax may, but shall not be obliged to, at its own cost and expense enforce and defend the Licensed Patent Rights. Where Novavax does, it shall notify Cantab and Cantab shall lend its name to any infringement proceedings and shall sign any documents that Novavax reasonably requests in relation to any such activity or proceedings and shall give Novavax all reasonable assistance requested by Novavax in relation to them (at no charge or expense to Novavax, other than with respect to reasonable out-of-pocket expenses, but Cantab shall not be bound to incur unreasonable expenses). Novavax shall keep Cantab informed of the progress of such enforcement or defence of the Licensed Patent Rights. If Novavax succeeds in any such proceedings whether at trial or by way of settlement, the parties shall negotiate in good faith for a reasonable share to Cantab of any sums recovered or awarded in respect of the infringement to compensate Cantab as well as Novavax for losses sustained by reason of the infringement, taking into account Cantab's interest relative to other interests in the Licensed IP and the nature of the infringement. 5.3 If Novavax decides not to enforce or defend the Licensed Patent Rights, it shall notify Cantab in writing and Cantab shall be entitled to do so at its own cost and expense upon 11April 22 1999 Novavax/Cantab - page: 11 giving written notice to Novavax within 30 days of the date of Novavax' notice. Where Cantab does so, Novavax shall lend its name to any infringement proceedings and shall sign any documents that Cantab reasonably requests in relation to any such activity or proceedings and shall give Cantab all reasonable assistance requested by Cantab in relation to them (at no charge or expense to Cantab, other than with respect to reasonable out-of-pocket expenses, but Novavax shall not be bound to incur unreasonable expenses). If Cantab succeeds in any such proceedings whether at trial or by way of settlement, the parties shall negotiate in good faith for a reasonable share to Cantab of any sums recovered or awarded in respect of the infringement to compensate Cantab as well as Novavax for losses sustained by reason of the infringement, taking into account Cantab's interest relative to other interests in the Licensed IP and the nature of the infringement. 5.4 If during the term of this Agreement either Party: (a) receives any notice, claim or proceedings from any third party alleging infringement of that third party's intellectual property as a result of either Party's activities or proposed activities in relation to this Agreement or use and exploitation of the Licensed Patent Rights; or (b) receives any information that could reasonably give rise to a potential claim or proceedings alleging such patent infringement, the Party receiving that notice shall: 5.4.1 forthwith notify the other Party of such notice, claim or proceedings; and 5.4.2 make no admission of liability. In the event of any such claim which alleges that the Licensed IP infringes such third party's patent or copyright, Novavax agrees to defend such claim and pay any settlement or judgment arising from such claim. Such obligation shall be subject to Novavax' receipt of prompt notice of such claim and its sole control of any such defence and/or the incurring of any expenses relating thereto. Such obligation shall not apply to any modification made to the Licensed IP, the method of practice of the Licensed IP by any person other than Novavax and/or the combination of any product provided by Novavax with any other product or technology. 5.5 In the event of any such claim which alleges that the Licensed Product infringes such third party's intellectual property rights, Cantab agrees to defend such claim, pay any settlement or judgment arising from such claim and to indemnify and hold Novavax harmless from and against any and all liability, loss, damage or expense arising from such claim other than a claim arising solely from the Licensed IP or the Novasome Adjuvant. Such obligation shall be subject to Cantab's prompt notice of such claim and its sole control of any such defence and/or the incurring of any expenses relating thereto. 6. WARRANTIES 6.1 Subject to the limitations set forth in Clause 11.2 hereto and to the disclosures set forth in Schedule 1 to this Agreement, Novavax warrants and undertakes as at the date of this Agreement that:- 12April 22 1999 Novavax/Cantab - page: 12 6.1.1 to the best of its knowledge and belief, it is the sole owner with full title the Licensed IP and, to the best of its knowledge and belief, the use, exploitation or commercialisation of the Licensed IP under the terms of this Agreement will not infringe the rights of any third party, and Novavax has not received notice of any claim or threat of a claim by a third party alleging that the exploitation of the licensed IP would infringe such third party's intellectual property; 6.1.2 it will use commercially reasonable efforts to apply for, pursue to grant, maintain and protect against infringement all Licensed Patent Rights except as permitted by this Agreement; and 6.1.3 it will not, subject to Clause 10.5 of this Agreement, at any time during the term of this Agreement while Cantab is in compliance with its payment and confidentiality obligations hereunder, grant to any third party any right, title or licence to manufacture, use or exploit the Licensed IP within the Field in any manner whatsoever nor itself manufacture, use or exploit any Licensed Product, in the Field (except for the benefit of Cantab or except as permitted by this Agreement). 6.2 Novavax will name a contact who shall be an authorized representative of Novavax to conduct Novavax's part in the contacts meetings and transfers of documentation and other arrangements with Cantab defined in clauses 7.1.6 and 7.1.7 below. 7. CANTAB'S OBLIGATIONS 7.1 Cantab shall:- 7.1.1 use all commercially reasonable endeavours to market, distribute, promote and sell the Licensed Product within the Field or procure the same through a sublicensee; 7.1.2 only to appoint sub-licensees and distributors who have the requisite experience, staff and resources adequately to perform their obligations and who will use all reasonable efforts to market, distribute, promote and sell the Licensed Products; 7.1.3 promptly notify Novavax of any infringement of the Licensed IP which may come to its attention; 7.1.4 ensure that all Licensed Products sold and developed by it, its distributors or sub-licensees under this Agreement are of satisfactory quality and that the manufacture, distribution, promotion, marketing and sale of such product complies with all laws and regulations in operation in the jurisdiction in which they are supplied; and 7.1.5 promptly notify Novavax of any product safety, regulatory or marketing information of which it becomes aware that has the potential adversely to affect sales of the Licensed Product; 7.1.6 provide personnel including a named contact involved in the development of the Licensed Product for meetings with Novavax to review research and clinical testing results and developments, not less frequently than quarterly unless otherwise agreed between the named contact and the corresponding named contact from Novavax, which meetings each Party shall use commercially reasonable efforts to hold face-to-face (or if agreed impractical to hold face-to-face then by a conference call) at each Party's facility 13April 22 1999 Novavax/Cantab - page: 13 on an alternating basis. Cantab and Novavax shall include in their periodical meetings and reviews under this agreement consideration and negotiation in good faith of appropriate performance obligations by Cantab concerning the achievement of milestones 3.2.2-3.2.4; 7.1.7 provide, not less frequently than quarterly, any research reports, study records, or other material documents in its possession related to the Novavax Materials, by reliable overnight delivery service; 7.1.8 at Cantab's own expense, comply with, and ensure that each sub-licensee and/or distributor complies with, all laws, regulations, rules, ordinances or directives relating to the manufacture, marketing, sale or distribution of Licensed Products, including any laws, regulations, rules, ordinances or directives relating to the export or import of Licensed Products to or from any country and/or relating to the recall of any Licensed Product. 7.1.9 Cantab agrees to use its commercially reasonable endeavours to find and enter agreement with a suitable sublicensee, and to use its commercially reasonable endeavours to ensure that the studies necessary for the achievement of milestones 3.2.2 to 3.2.4 inclusive are carried out. 8. LIABILITY 8.1 Cantab shall indemnify and hold harmless Novavax against all liability, damages or claims arising from the use of the Licensed IP by Cantab for research or clinical studies and subsequently by the exploitation of the Licensed Product save and to the extent where any such liability arises solely from the negligence or willful default of Novavax or otherwise by reason of any breach by Novavax of warranties given in this Agreement. 8.2 Novavax shall indemnify and hold harmless Cantab against all liability, damages or claims arising from the use and exploitation of the Licensed IP authorized under the terms of this Agreement or the sale by Cantab (or any sublicense or distributor) of Licensed Product incorporating Novasomes Adjuvant manufactured by Novavax where such liability arises from the negligence or willful default of Novavax or otherwise by reason of any breach by Novavax of warranties given in this Licence Agreement. 8.3 Neither party shall be liable to the other in contract, tort, negligence, breach of statutory duty or otherwise for any loss, damage, cost or expense of any nature incurred or suffered by that party of an indirect or consequential nature including any economic loss or other loss of turnover, profits, business or goodwill. Notwithstanding anything to the contrary in this Agreement, Novavax shall not be liable to Cantab for any amount in excess of the greater of the amount actually received by Novavax pursuant to this Agreement or US$1,000,000. 14April 22 1999 Novavax/Cantab - page: 14 8.4 Each party acknowledges that it shall be solely responsible for the performance of its obligations under this Agreement on its premises including (without prejudice to the generality of the foregoing) the health and safety of its employees and all other regulatory, legal and other requirements (including without limitation all health and safety and environmental legislation and guidelines) relating to the performance of its obligations under this Agreement and that the other party shall be in no manner responsible for the same. 9. CONFIDENTIALITY AND SECURITY 9.1 Each Party (the "Recipient Party") shall keep the Confidential Information of the other Party (the "Disclosing Party") secret and confidential and shall not without the prior consent of the other Party directly or indirectly disclose or permit the same to be disclosed to any third party for any reason or use the same save as expressly provided by this Agreement or the Option Agreement or the Materials Transfer Agreement. 9.2 The obligations of confidence referred to in Clause 9.1 shall not extend to all or any part of such Confidential Information which:- 9.2.1 is or becomes generally available to the public otherwise than by reason of breach by the Recipient Party of the provisions of this Agreement; 9.2.2 the Recipient Party can show by documentary evidence was within its possession or control prior to the date upon which it was received from the disclosing party free from any obligation of confidentiality; or which the recipient party can show by documentary evidence came into its possession or control from a third party free from any obligation of confidentiality by such third party subsequent to the date of the Option Agreement; or 9.2.3 is subsequently disclosed to the Recipient Party without obligations of confidence by a third party owing no such obligations to the Disclosing Party in respect of that Confidential Information. The Recipient Party may disclose Confidential Information to the extent such is required by law to be disclosed (including as part of any regulatory submission or approval process) and then only after prompt written notice of this requirement has been given to the Disclosing Party so that it may, if so advised, seek appropriate relief to prevent such disclosure provided always that in such circumstances such disclosure shall be only to the extent so required and shall be subject to prior consultation with the Disclosing Party with a view to agreeing timing and content of such disclosure. 9.3 The obligations of the Parties under Clause 9.1 shall survive the expiration or termination of this Agreement for whatever reason for a period expiring at the earlier of 15April 22 1999 Novavax/Cantab - page: 15 five years following such termination or expiration or ten years following disclosure of the Confidential Information. 10. TERMINATION 10.1 Cantab shall have the right to terminate its rights and obligations under this Agreement in respect of any part (or the whole) of the Licensed IP on 120 days written notice. In the event of any partial termination the rights and obligations of Cantab shall cease in respect of any terminated part but shall continue thereafter in accordance with the terms of this Agreement in respect of any and all non-terminated parts of the Licensed IP. 10.2 Cantab shall have the right to terminate this Agreement upon giving written notice of termination to Novavax in the event Novavax commits a material breach of this agreement which is not cured within 30 days of Novavax's receipt of written notice of breach from Cantab identifying the breach and requiring its remedy. 10.3 Novavax shall have the right to terminate this Agreement upon giving written notice of termination to Cantab upon the occurrence of any of the following events at any time during this Agreement:- 10.3.1 Cantab commits a breach of this Agreement relating to the payment of money actually due to Novavax which shall not have been cured within 5 days of receipt by Cantab of written notice of breach from Novavax identifying the breach and requiring its remedy; 10.3.2 Cantab commits any material breach of this Agreement, other than a breach specified in clause 10.3.1, which shall not have been remedied within 30 days of the receipt by Cantab of a written notice from Novavax identifying the breach and requiring its remedy; or 10.3.3 if an Insolvency Event occurs in relation to Cantab. 10.4 In the event of any termination hereunder, Cantab shall promptly return all Novavax Confidential Information to Novavax. The license granted hereunder shall cease immediately upon such termination and Cantab shall no longer have any right or interest to use any Licensed IP or to manufacture, sell, market, distribute or sublicense the Licensed Product; provided however, that Cantab (and/or its sublicensee) shall have the right to continue to sell Licensed Product which has already been manufactured, for a period of 30 days after the effective date of such termination, subject to the continued applicability of Clause 3 of this Agreement to any such sale and time period. In case of partial termination under clause 10.1, this subclause applies only to the terminated part. Termination of this Agreement, in whole or in part, shall be without prejudice to obligations and/or rights accrued prior to the effective date of such termination. 16April 22 1999 Novavax/Cantab - page: 16 10.5 Novavax shall have the right, at its option, in the event Cantab breaches its obligations under Clause 3.4 of this Agreement to convert the license granted herein to a non-exclusive license, which shall result in the termination of Novavax' obligations under Clause 6.1.3 of this Agreement. Such right shall be in addition to any other right Novavax may have under this Agreement. Beginning in 2004, in the event that Cantab does not, directly or indirectly, commence sales and/or marketing of a Licensed Product in a country in which such sales and/or marketing are planned (a 'Planned Country'), within six months of the date such sales or marketing are planned in accordance with Cantab's (or its sublicensee's) marketing plan, as delivered to Novavax in accordance with Clause 7.1.7 of this Agreement, which failure to commence sales and/or marketing is not caused directly by the inability to obtain regulatory approval necessary to commence such sales and/or marketing after commercially reasonable efforts to obtain such approval ('regulatory approval failure'), the Parties hereto shall promptly commence and diligently pursue discussion regarding such event. Such discussions shall include whether commercialization of the Licensed Products is reasonable with respect to the Planned Country and whether the exclusivity set forth in Clauses 2.1 and 6.1.3 should continue to apply to the Planned Country. In the event that Cantab and Novavax do not agree to an alternative plan during the period of 24 months from the date of the planned sale and/or marketing in the Planned Country, Novavax shall have the right, upon 10 days written notice to Cantab at the expiration of such 24 month period, if sales and/or marketing in the Planned Country have not yet commenced and if such failure is not caused directly by regulatory approval failure, to convert the license granted herein to a non exclusive license with respect to the Planned Country, which shall result in the termination of Novavax's obligations under Clause 6.1.3 of this Agreement with respect to the Planned Country. 11. GENERAL 11.1 This Agreement shall be deemed to have effect from the date hereof and shall supersede any other agreement whether written or oral with respect to the performance of their respective obligations by the parties provided that for the avoidance of doubt the Confidentiality Agreements and the Materials Transfer Agreement (save only as expressly amended by this Agreement) and clause 4 of Schedule 2 of the Option Agreement together with clauses 3.1, 5.1 and 8.2.1 of the Option Agreement shall remain in full force and effect in accordance with their terms. 11.2 Each party acknowledges that in entering into this Agreement it does not do so on the basis of and does not rely on any representation, warranty or other provision save as expressly provided herein and all conditions, warranties and other terms implied by statute or common law are hereby excluded to the fullest extent permitted by law. 11.3 Any notice given under this Agreement shall be sufficiently served if in writing and sent 17April 22 1999 Novavax/Cantab - page: 17 by both facsimile transmission and air mail post or courier to the address and fax number of the recipient party set out below: NOVAVAX, INC. 8320 Guilford Road, Suite C Columbia, MD 21046 USA Fax No.: (00)(1) 301-854-3901 CANTAB PHARMACEUTICALS RESEARCH LIMITED 310 Cambridge Science Park Milton Road, Cambridge CB4 OWG Fax No.: (01l)(44) 1223 423458 Notice of any modification or amendment to the address or fax number of a party must itself be made in writing to the other party in accordance with the terms of this Clause. 11.4 Neither party is authorised to act as the agent of the other for any purpose whatsoever and neither party shall on behalf of the other enter into, or make, or purport to enter into or make or represent that it has any authority to enter into or make any contract or any representation or warranty. Nothing in the Agreement shall be deemed to constitute a partnership between the other parties and neither of the parties shall do or suffer to be done anything whereby it may be represented as a partner of the other party. 11.5 Each of the parties shall bear its own cost and expenses incidental to the preparation, negotiation and execution of this Agreement and the Supply Agreement. 11.6 This Agreement is personal to Cantab and shall not be capable of assignment, sublicensing (subject and without prejudice to Section 2.2 of this Agreement) or transfer by Cantab (whether in whole or in part) without the prior written consent of Novavax, which shall not be unreasonably withheld. Cantab shall have the right to assign or transfer this Agreement to an entity into which it is merged or which acquires all or substantially all of the assets of the business line using the Licensed IP or all or substantially all of Cantab's capital stock. Cantab shall give Novavax not less than 45 days advanced written notice of any such proposed merger or sale. Novavax agrees to notify Cantab in writing within 20 days of receipt of a notice of a proposed merger or sale from Cantab, whether the party with which Cantab proposes entering such merger or sale transaction is a competitor of Novavax, involved in the field of adjuvants, and whether Novavax objects to such assignment or transfer of this Agreement on the basis that such would result in confidential, proprietary or non-public information becoming known by a competitor. If Novavax so objects, Cantab shall notify Novavax within 10 days of receipt of Novavax's notice whether it intends to complete the sale or merger. In the event Cantab does not provide Novavax such notice or notifies Novavax that it intends to complete such merger or sale, Novavax may, upon 10 days notice to Cantab, 18April 22 1999 Novavax/Cantab - page: 18 terminate this Agreement and the license granted hereby, such termination to take effect immediately before said sale or merger. 11.7 Any agreement to amend, vary or modify the terms of this Agreement in any manner shall be valid only if the amended, variation or modification is effected in writing and signed by duly authorised representatives of each of the parties hereto. 11.8 No delay by either party in enforcing any of the provisions of this Agreement shall be deemed a waiver of that party's right subsequently to enforce such provision. 11.9 If any term or provision or any part thereof contained herein shall be declared or become unenforceable invalid or illegal in any respect under the law of any relevant jurisdiction: (i) such term or provision or part thereof shall be deemed to have been severed from the remaining terms of this Agreement and the terms and conditions hereof shall remain in full force and effect as if this Agreement had been executed without the offending provision appearing herein; and (ii) the parties shall endeavour to agree and amend which to the fullest extent possible will give lawful effect to their intentions as expressed in any term or provision severed under this Clause 11.9. 11.10 Any controversy or claim of whatsoever nature arising out of or relating in any manner whatsoever to this Agreement or any breach of any terms of this Agreement shall be governed by and construed in all respects in accordance with the laws of England, except that claims or controversies arising out of or relating to Cantab's obligations of confidentiality and non-disclosure hereunder shall be governed by and construed in all respects in accordance with the laws of the State of Maryland, USA. At the request of either party, any claim, dispute or controversy arising out of or in connection with this Agreement or a breach thereof shall be settled by arbitration conducted in London in accordance with the commercial arbitration rules then in effect of the American Arbitration Association. The costs of arbitration shall be divided equally between the parties except that the arbitrator(s) shall have the authority to allocate the costs according to equitable principles upon the request by either party. The arbitrator(s) shall have the express authority to award equitable remedies at the request of either party.[Schedule 1 follows next:] 19April 22 1999 Novavax/Cantab - page: 19SCHEDULE 1LICENSED PATENT RIGHTS---------------------------------------------------------------------------------------------------------------USA Patent Patent Title Date of USA EC Number Issuance in Expiration Expiration USA Date Date--------------------------------------------------------------------------------------------------------------- 4,853,228 Method of Manufacturing Paucimellar Lipid 8/1/89 7/28/07 Vesicles ---------------------------------------------------------------------------------------------------------------4,855,090 Method of Producing High Aqueous Volume 8/8/69 3/13/07 Multilamellar Vesicles---------------------------------------------------------------------------------------------------------------4,895,452 Method and Apparatus for Producing Lipid 1/23/90 3/3/08 Vesicles ---------------------------------------------------------------------------------------------------------------4,911,928 Paucilamellar Lipid Vesicles 3/27/90 3/7/07---------------------------------------------------------------------------------------------------------------4,917,951 Lipid Vesicles Formed of Surfactants and 4/17/90 11/24/07 Steroids---------------------------------------------------------------------------------------------------------------5,000,960 Protein Coupling Lipid Vesicles 3/19/91 1/19/09---------------------------------------------------------------------------------------------------------------5,013,497 Method and Apparatus for Producing Lipid 5/7/91 Vesicles---------------------------------------------------------------------------------------------------------------5,032,457 Paucilamellar Lipid Vesicles Using Charge- 8/16/91 7/16/06 localised, single chain, non-phospholipid Surfaciants---------------------------------------------------------------------------------------------------------------5,104,736 Reinforced paucilamellar Lipid Vesicles 4/14/92 6/26/09---------------------------------------------------------------------------------------------------------------4,147,723 Paucilamellar Lipid Vesicles 9/15/92 6/8/06---------------------------------------------------------------------------------------------------------------5,234,767 Hybrid Paucilamellar Lipid Vesicles 8/10/93 3/27/07---------------------------------------------------------------------------------------------------------------5,256,422 Lipid Vesicles Containing Water-in-Oil 10/23/93 3/28/11 Emulsions---------------------------------------------------------------------------------------------------------------5,474,848 Paucilamellar Lipid Vesicles 12/12/95 3/13/07 3/8/08---------------------------------------------------------------------------------------------------------------5,561,062 Method of Inhibiting viral Reproduction Using 10/1/96 10/1/93 non-phospholipid Paucilamellar Liposomes---------------------------------------------------------------------------------------------------------------,*NVR- Vaccines Containing Paucilamellar Lipid *CIP213CP Vesicles as Immunological Adjuvants---------------------------------------------------------------------------------------------------------------OTHER LICENSED PATENT AND APPLICATIONS INCLUDE:European Patents and Applications: PCT Applications:0 349 583 WO 88/068810 349 579 WO 88/068820 352 282 WO 88/068830 406 273 WO 89/079290 746 338 WO 95/22989 WO 91/04013Disclosure: L'Oreal opposed European Patent No 0 352 282 of Micro-Pak, Inc. Suchopposition was denied. L'Oreal has appealed such denial.DISCLOSURE: NOVAVAX HAS LEARNED OF THE FOLLOWING PATENTS AND/OR APPLICATIONS,WHICH INCLUDE CLAIMS WHICH MAY BE ARGUED TO BE EMCOMPASSED BY THE LICENSED IP:US PATENT NO. 5,579,353 (WITH WO3/19781) AND W095/109751. NOVAVAX BELIEVES THATTO THE EXTENT THAT ANY SUCH CLAIMS WOULD BE INFRINGED BY THE LICENSEDPRODUCTS, SUCH CLAIMS MAY NOT BE VALID 20April 22 1999 Novavax/Cantab - page: 20 ========================================================================== IN WITNESS WHEREOF the Parties have caused this Licence Agreement to beexecuted: for and on behalf of Novavax, Inc.: [date] 29 April 1999 [signature] /s/ Mitchell J. Kelly -------------------------------------------- [name and official position of signatory] Mitchell J. Kelly President & CEO ----------------------------------------------------------- for and on behalf of Cantab Pharmaceuticals Research Limited [date] 22 April 1999 [signature] /s/ Jurek S. Sikorski -------------------------------------------- [name and official position of signatory] Jurek S. Sikorski CHIEF EXECUTIVE OFFICER ----------------------------------------------------------- This Agreement is endorsed in accordance with its terms with an execution for and on behalf of Novavax Inc.'s subsidiaries Micro-Pak, Inc. and Micro Vesicular Systems, Inc., who agree to be bound hereby to the extent within written:- for and on behalf of Micro-Pak, Inc. [date] 29 April 1999 [signature] /s/ Mitchell J. Kelly -------------------------------------------- [name and official position of signatory] Mitchell J. Kelly President ----------------------------------------------------------- for and on behalf of Micro Vesicular Systems, Inc. [date] 29 April 1999 [signature] /s/ Mitchell J. Kelly -------------------------------------------- [name and official position of signatory] Mitchell J. Kelly President ----------------------------------------------------------- 1 STOCK AND WARRANT PURCHASE AGREEMENT This Stock and Warrant Purchase Agreement (the "Agreement") is made asof January 28, 2000 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 (the "Shares") of the Company's Common Stock, $.01 par value pershare ("Common Stock") and Warrants (as defined in Section 1.3), as such arebeing offered by the Company pursuant to an Offering Circular dated January 4,2000 (together with its Appendices, the "Offering Circular"); 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 each Purchaser the numberof Shares set forth opposite such Purchaser's name on the signature page heretoat a purchase price of $4.00 per share (the "Purchase Price") and a Warrant topurchase the number of shares of Common Stock as set forth opposite suchPurchaser's name on the signature page hereto. The obligations of each Purchaserhereunder are several and not joint and no Purchaser shall be obligated topurchase any number of Shares in excess of the number set forth opposite suchPurchaser's name on the signature page hereto. 1.2 Aggregate Sale. Pursuant to this Agreement, the Companyshall sell an aggregate number of Shares not less than 1,500,000 Shares for anaggregate Purchase Price of $6,000,000 (the "Minimum Investment Amount") normore than 2,500,000 Shares for an aggregate Purchase Price of $10,0000,000 (the"Maximum Investment Amount"). 1.3 Warrant Coverage. In consideration of the purchase by eachPurchaser of the Shares to be purchased by it, and of fifty dollars, the Companyagrees to issue such Purchaser at Closing a warrant (the "Warrant") to purchasethe number of shares of Common Stock, rounded down to the nearest whole number(the "Warrant Shares"), equal to the product of (x) .25 and (y) the number ofShares purchased by such Purchaser. The Warrant shall be exercisable for a termof three years from the date of issuance at an exercise price equal to $6.75 pershare. 1.4 Payment of Purchase Price. On or prior to the ClosingDate, each Purchaser will deliver to Continental Stock Transfer & Trust Co., asEscrow Agent (the "Escrow Agent") the full amount of the aggregate PurchasePrice for the Shares purchased by such Purchaser hereunder, by wire transfer offunds or by check to Jesup & Lamont Securities Corporation (the "PlacementAgent"). The Purchase Price shall be maintained in a segregated account untilthe Closing Date and shall be released either (a) upon the consummation of thetransaction contemplated hereunder; or (b) upon the termination of thisAgreement in accordance with Section 7. 2. Closing Date and Delivery. 2.1 Closing Date. The closing of the purchase and sale of theShares and Warrants hereunder (the "Closing") will be held at such time (the"Closing Date") as shall be agreed upon by the Company, Jesup & Lamont 2Securities Corporation (the "Placement Agent") and the Purchasers at the officesof the Placement Agent, 650 Fifth Avenue, New York, NY 11019. The Closing Dateshall occur upon the Closing of the sale of Shares resulting in the MaximumInvestment Amount (or such lesser amount as determined by the Company, but notless than the Minimum Investment Amount), but in no event shall the Closing Datebe later than March 10, 2000. 2.2 Deliveries at Closing. At the Closing the Company shalldeliver the following to each Purchaser: (a) a stock certificate registered insuch Purchaser's name, or in such nominee name(s) as designated by the Purchaserin writing, representing the Shares purchased by such Purchaser; (b) a Warrantin such Purchaser's name, or in such nominee name(s) as designated by thePurchaser in writing; (c) an opinion of White & McDermott, P.C. dated theClosing Date and substantially in the form attached hereto as Exhibit A("Opinion of Counsel"); and (d) a certificate, signed by the President of theCompany, to the effect that (i) the representations and warranties of theCompany contained in this Agreement are true and correct in all materialrespects on and as of the Closing Date as though newly made on and as of thatdate (except for representations and warranties which speak as of the date ofthe Agreement or as of another specific date or period, which shall continue tobe true and correct in all material respects as of the respective dates and forthe respective periods covered thereby) and (ii) the Company has performed andcomplied with, in all material respects, all of its covenants contained in thisAgreement and required to be performed or complied with on or before theClosing. Each Purchaser's obligation to purchase the Shares shall be subject tothe following conditions: (a) the accuracy of the representations and warrantiesmade by the Company herein and the fulfillment of those undertakings of theCompany to be fulfilled prior to Closing; and (b) delivery of the Opinion ofCounsel. Upon satisfaction of all the conditions to Closing set forth in this Agreement and the delivery of the certificates representing theShares and of the Warrants to the Purchaser, the Escrow Agent shall be directedto deliver to the Company the Purchase Price for the Shares, less the PlacementAgent fee due to the Placement Agent and any expense that the Company has agreedto reimburse to the Placement Agent and its counsel, which the Escrow Agentshall pay directly to them in accordance with the Company's engagement letterwith the Placement Agent. 3. Representations and Warranties by the Company. The Companyrepresents and warrants to each Purchaser as of the date hereof and as of theClosing Date 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 as aforeign 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 Offering Circular,since September 30, 1999, the Company has not, to the extent material to theCompany, (i) incurred any debts, obligations or liabilities, absolute, accruedor contingent, whether due or to become due, other than in the ordinary courseof business, (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 3.3 Litigation. Except as set forth in the DisclosureSchedule, there are no legal actions, suits, arbitrations or other legal,administrative or governmental proceedings pending or, to the best of theCompany's knowledge, threatened against the Company or its properties, assets orbusiness, and the Company is not aware of any facts which might result in orform the basis for any such action, suit or other proceeding, in each casewhich, if adversely determined, would individually or in the aggregate have amaterial adverse effect on the financial condition or business of the Company. 3.4 Compliance with Other Instruments. Except for such matterswhich, either individually or in the aggregate, would not have a materialadverse effect on the financial condition or business of the Company, theexecution 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 of anylien or encumbrance upon any asset or property of the Company pursuant to anyagreement or other instrument to which the Company is a party or by which it orany of its properties, assets or rights is bound or affected, (ii) violate theCertificate of Incorporation or Bylaws of the Company, or any law, rule,regulation, judgment, order or decree, or (iii) except for the registration ofthe Shares and the Warrant Shares under the Securities Act of 1933, as amended(the "Securities Act"), the listing of the Shares and the Warrant Shares on theAmerican Stock Exchange, Inc. and such consents, approvals, authorizations,registrations or qualifications as may be required under the Securities ExchangeAct of 1934, as amended (the "Exchange Act") and applicable state securitieslaws in connection with the purchase of the Shares and the Warrants by thePurchasers, require any consent, approval, authorization or order of or filingwith any court or governmental agency or body. The Company is not in violationof its Certificate or Bylaws nor in violation of, or in default under, any lien,mortgage, lease, agreement or instrument, except for such defaults which wouldnot, individually or in the aggregate, have a material adverse effect on thefinancial condition or business of the Company. The Company is not subject toany restriction which would prohibit the Company from entering into orperforming its obligations under this Agreement or the Warrants, except for suchrestrictions which would not, individually or in the aggregate, have a materialadverse effect on the ability of the Company to perform their obligations underthis Agreement and the Warrants. 3.5 Reports and Financial Statements. The Company hasdelivered to the Purchasers true and complete copies of the Company's Form 10-Kfor the year ended December 31, 1998, the Company's Proxy Statement inconnection with the 1999 Annual Meeting of Stockholders and all Forms 10-Q and8-K filed by the Company with the Securities and Exchange Commission (the "SEC")after January 1, 1999, in each case without exhibits thereto (the "SECReports"). As of their respective filing dates, the Company SEC Reports wereprepared in all material respects in accordance with the requirements of theSecurities Act or the Exchange Act, as the case may be, and the rules andregulations of the SEC thereunder applicable to such Company SEC Reports. TheCompany SEC Reports, when read as a whole, as updated by the Offering Circular,do not contain any untrue statements of a material fact and do not omit to statea material fact necessary to make the statements therein, in light of thecircumstances under which they were made, not misleading. The auditedconsolidated financial statements and unaudited interim financial statements ofthe Company included in the Company SEC Reports have been prepared in accordancewith United States generally accepted accounting principles applied on aconsistent basis (except as may be indicated therein or in the notes thereto)and fairly present, in all material respects, the financial position of theCompany as at the dates thereof and the results of its operations and cash flowsfor the periods then ended subject, in the case of the unaudited interimfinancial statements, to normal year-end adjustments and any other adjustmentsdescribed in such financial statements. 4 3.6 Shares. The Shares and the Warrant Shares, when issued andpaid for pursuant to the terms of this Agreement or the Warrants, as the casemay be, will be duly and validly authorized, issued and outstanding, fully paid,nonassessable and free and clear of all pledges, liens, encumbrances andrestrictions (other than arising under federal or state securities laws). Theauthorized capital stock of the Company, including the Shares, conforms, andwhen issued, the Warrant Shares will conform, to all statements relating theretoincluded in the Offering Circular. The issuance of the Shares, the Warrants andthe Warrant Shares is not subject to any preemptive or other similar rights. TheCompany has duly reserved 875,000 shares of its authorized but unissued CommonStock for issuance upon exercise of the Warrants by the Purchasers and thePlacement Agent, and such shares shall remain so reserved (subject to reductionfrom time to time for Common Stock issued upon the exercise of the Warrants), aslong as the Warrants are exercisable. 3.7 Securities Laws. Subject to the accuracy of therepresentations and warranties of the Purchasers contained in Article 4 of thisAgreement, the offer, sale and issuance of the Shares, the Warrants and theWarrant Shares as contemplated by this Agreement are exempt from theregistration requirements of the Securities Act, and from the registration orqualifications requirements of the laws of any applicable state or other U.S.jurisdiction. 3.8 Capital Stock. As of November 30, 1999, 15,011,389 sharesof the Company's Common Stock were issued and outstanding, no shares of theCompany's Preferred Stock were issued and outstanding, options to purchase3,936,741 shares of the Company's Common Stock were issued and outstanding andwarrants to purchase 1,712,775 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 Offering Circular, as of November 30, 1999, 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 executed anddelivered by an authorized officer of the Company, and is a valid and bindingobligation of the Company, enforceable in accordance with its terms, except assuch enforceability 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. The requisite corporateaction necessary to the authorization, reservation, issuance and delivery of theShares, the Warrants and the Warrant Shares has been taken by the Company. Uponexecution and delivery thereof by a duly authorized officer of the Company, theWarrants will be valid and binding obligations of the Company, enforceable inaccordance with their terms except as such enforceability may be limited bybankruptcy, insolvency, moratorium, reorganization or other similar lawsaffecting the enforcement of creditors' rights generally and as to limitationson the enforcement of the remedy of specific performance and other equitableremedies. 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. 5 3.11 Filing of Reports. Since the Company's Annual Report onForm 10-K for the fiscal year ended December 31, 1996, the Company has filedwith the SEC all reports and other material required to be filed by it therewithpursuant to Section 13, 14 or 15(d) of the Exchange Act and the Company iseligible to register the offer and resale of the Shares and the Warrant Shareson a Registration Statement on Form S-3, or a successor form. 3.12 Compliance with Laws. The business and operations of theCompany have been conducted in accordance with all applicable laws, rules andregulations of all governmental authorities, except for such violations whichwould not, individually or in the aggregate, have a material adverse effect onthe financial condition or business of the Company. 1.13 Offering Circular. The information contained in theOffering Circular is true and correct in all material respects; and the OfferingCircular does not contain any untrue statement of a material fact or omit tostate a material fact required to be stated therein or necessary to make thestatement therein, in light of the circumstances under which they were made, notmisleading. 1.14 Closing Date. All the representations and warranties madeby the Company in this Section 3 shall be true and complete from the date ofthis 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. 3.15 Proprietary Rights. The Company owns or is licensed touse all patents, patent applications, inventions, trademarks, trade names,applications for registration of trademarks, service marks, service markapplications, copyrights, know-how, manufacturing processes, formulae, tradesecrets, licenses and rights in any thereof and any other intangible propertyand assets (herein called the "Proprietary Rights") which are material to thebusiness of the Company, as now conducted or as proposed to be conducted. TheCompany does not have any knowledge of, and the Company has not given orreceived any notice of, any pending conflicts with or infringement of the rightsof others with respect to any Proprietary Rights or with respect to any licenseof Proprietary Rights. No action, suit, arbitration, or legal, administrative orother proceeding, or investigation is pending or, to the knowledge of theCompany, threatened, which involves any Proprietary Rights. The Company is notsubject to any judgment, order, writ, injunction or decree of any court or anyFederal, state, local, foreign or other governmental department, commission,board, bureau, agency or instrumentality, domestic or foreign, or anyarbitrator, has not entered into or is a party to any contract which restrictsor impairs the use of any such Proprietary Rights in a manner which would have amaterial adverse effect on the use of any of the Proprietary Rights. To theknowledge of the Company, no Proprietary Rights used by the Company, and noservices or products sold by the Company, conflict with or infringe upon anyproprietary rights owned or licensed by any third party. The Company has notreceived written notice of any pending conflict with or infringement upon suchthird-party proprietary rights. No claims have been asserted by any person withrespect to the validity of the Company's ownership or right to use theProprietary Rights and, to the knowledge of the Company, there is no reasonablebasis for any such claim to be successful. To the knowledge of the Company, theProprietary Rights are valid and enforceable. 3.16 Compliance with Environmental Laws. Except as would not, singly orin the aggregate, have a material adverse effect on the Company, the Company isnot in violation of any applicable statute, law or regulation relating to theenvironment or occupational health and safety, and to the Company's knowledge,no expenditures material to the Company are or will be required to comply withany such existing statute, law or regulation. To the Company's knowledge, theCompany does not have any liability to any governmental authority or other thirdparty 6arising under or as a result of any such past or existing statute, law orregulation, which liability would be material to the Company. 3.17 Permits, Licenses, Etc. The Company owns, possesses orhas obtained, and is operating in compliance with, all governmental,administrative and third party licenses, permits, certificates, registrations,approvals, consents and other authorizations (collectively, "Permits") necessaryto own or lease (as the case may be) and operate its properties, whethertangible or intangible, and to conduct its businesses or operations as currentlyconducted, except such licenses, permits, certificates, registrations,approvals, consents and authorizations the failure of which to obtain would nothave a material adverse effect on the business, properties, operations,financial condition or results of operations of the Company, and the Company hasnot received any notice of proceedings relating to the revocation, modificationor suspension of any Permits or any circumstance which would lead it to believethat such proceedings are reasonably likely. 3.18 Insurance. The Company maintains insurance of the typeand in the amount reasonably adequate for its business, including, but notlimited to, insurance covering all real and personal property owned or leased bythe Company against theft, damage, destruction, acts of vandalism and all otherrisks customarily insured against by similarly situated companies, all of whichinsurance is in full force and effect. 3.19 Registration Rights. Except as set forth in theDisclosure Schedule, there are no persons with registration or other similarrights to have any securities registered pursuant to the Registration Statementor otherwise registered by the Company under the Securities Act. 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, valid andbinding 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.Purchaser acknowledges receiving and reviewing the Offering Circular (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 decision toacquire the Shares and the Warrants. Purchaser has such business and financialexperience as is required to give it the capacity to protect its own interestsin connection with the purchase of the Shares and the Warrants and is able tobear the risks of an investment in the Shares and the Warrants. Purchaser is notitself a "broker" or a "dealer" as defined in the Exchange Act of 1934 and isnot an "affiliate" of the Company as defined in Rule 405 of the Securities Act. 7 4.3 Investment Intent. Purchaser is purchasing the Shares andthe Warrants for its own account as principal, for investment purposes only, andnot with a present view to or for resale, distribution or fractionalizationthereof, in whole or in part, within the meaning of the Securities Act.Purchaser understands that its acquisition of the Shares and the Warrants hasnot been registered under the Securities Act or registered or qualified underany state securities law in reliance on specific exemptions therefrom, whichexemptions may depend upon, among other things, the bona fide nature ofPurchaser's investment intent as expressed herein. Purchaser has, in connectionwith its decision to purchase the number of Shares and the Warrants set forth inthis Agreement, relied solely upon the Offering Circular and the representationsand warranties of the Company contained herein. Purchaser will not, directly orindirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicitany offers to buy, purchase or otherwise acquire or take a pledge of) any of theShares or Warrants, except in compliance with the Securities Act and the rulesand regulations promulgated thereunder. 4.4 Registration or Exemption Requirements. Purchaser furtheracknowledges and understands that neither the Shares nor the Warrants may beresold or otherwise transferred except in a transaction registered under theSecurities 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 applicable securitieslaws, the certificates evidencing the Shares, the Warrants and Warrant Shareswill be imprinted with a legend that prohibits the transfer of the Shares,Warrants and Warrant Shares unless (a) such transaction is registered or suchregistration is not required, and (b) if the transfer is pursuant to anexemption from registration an opinion of counsel reasonably satisfactory to theCompany is obtained to the effect that the transaction is not required to beregistered or is so exempt. 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 risk ofloss associated with the ownership of the Shares and Warrants by the Purchaser. 4.6 No Legal, Tax Or Investment Advice. Purchaser understandsthat nothing in the Offering Circular, this Agreement or any other materialspresented to Purchaser in connection with the purchase and sale of the Sharesand the Warrants constitutes legal, tax or investment advice. Purchaser hasconsulted such legal, tax and investment advisors as it, in its sole discretion,has deemed necessary or appropriate in connection with its purchase of theShares and the Warrants. 4.7 Closing Date. All the representations and warranties madeby each Purchaser in this Section 4 shall be true and complete from the date ofthis Agreement through the Closing Date and each Purchaser shall provide theCompany, before the Closing, with any documents or information necessary forsuch representations and warranties to remain true and complete as of theClosing Date. 5. Covenants 8 5.1 Registration Requirements. (a) Promptly after, but not later than 45 days after,the Closing Date, the Company shall prepare and file a registration statement(the "Registration Statement") with the SEC under the Securities Act to registerthe offer and resale of the Shares and the Warrant Shares by the Purchasers(together, the "Registrable Securities"), and shall use its best efforts tocause such Registration Statement to become effective within 105 days from theClosing Date or not more than five days from the date upon which the Securitiesand Exchange Commission shall allow the Company to accelerate effectiveness,whichever is shorter. In the event that the Company shall fail to file theRegistration Statement within the 45-day period following the Closing Date orshall fail to obtain effectiveness of the Registration Statement within the105--day period following the Closing Date, the Company hereby agrees that itshall issue to each Purchaser Warrants to purchase such number of shares ofCommon Stock equal to 5% of the total number of shares purchased by suchpurchaser for each and every thirty (30) day period with respect to which suchRegistration Statement shall not be filed or effective, as the case may be (the"Penalty Warrant"); provided, however, that if the Placement Agent received anopinion of counsel to the Company to the effect that the delay in obtainingeffectiveness of the Registration Statement was in no way attributable to anyactions taken or failed to be taken by the Company, then, such 105-day periodshall be extended to 135 days without any Penalty Warrants required to beissued. The Penalty Warrants shall have an exercise price per share equal to themarket price of the Common Stock as quoted by AMEX on the Closing Date and shallbe exercisable for a period of three years from the date of issuance and shallcontain anti-dilution provisions and other provisions similar to those containedin the Warrants. Until such time as the Registration Statement is effective, theCompany shall not grant any registration rights or other rights to registersecurities under the Securities Act unless such rights are subordinate to therights of the Purchasers under this Section 5.1 or will not have the effect ofdelaying a sale or limiting the number of securities which may be sold by thePurchasers pursuant to the Registration Statement or otherwise adversely affectthe rights of the Purchasers under this Section 5.1. (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 relating tothe Registrable Securities resold by such Purchaser. "Registration Expenses"shall mean all expenses, except for Selling Expenses, incurred by the Company incomplying with the registration provisions herein described, including, withoutlimitation, all registration, qualification and filing fees, printing expenses,escrow fees, fees and disbursements of counsel for the Company, blue sky feesand expenses and the expense of any special audits incident to or required byany such registration. "Selling Expenses" shall mean all selling commissions,underwriting fees and stock transfer taxes applicable to the RegistrableSecurities and all fees and disbursements of counsel 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 is declaredeffective (or, in the case of Warrant Shares, the first anniversary of the dateof issuance of such Warrant Shares, but in any event not later than the fourthanniversary of the date such Registration Statement is declared effective);provided, however, if Rule 144 is amended so that the longest period that Rule144 restricts the manner in which privately placed securities may be sold is aperiod shorter than two years, then the period required by this clause shall bereduced to (A) such shorter period, (B) such date as all of the RegistrableSecurities have been resold, or (C) such date as all Registrable Securities maybe sold pursuant to Rule 144 (or any successor rule); (ii) except as provided inSection 5.1(f), prepare and file with the SEC such amendments and supplements tothe Registration Statement and the prospectus used in connection with theRegistration Statement as may be necessary to comply 9with the provisions of the Securities Act with respect to the disposition of allsecurities covered by the Registration Statement; (iii) furnish such number ofprospectuses and other documents incident thereto, including any amendment of orsupplement to the prospectus, as Purchaser from time to time may reasonablyrequest; (iv) cause the Shares and the Warrant Shares to be listed on theAmerican Stock Exchange or any securities exchange or quoted on each quotationservice on which the Common Stock of the Company is then listed or quoted; (v)provide a transfer agent and registrar for all securities registered pursuant tothe Registration Statement and a CUSIP number for all such securities; and (vi)file the documents required of the Company and otherwise use its best efforts tomaintain requisite blue sky clearance in all U.S. jurisdictions in which any ofthe Shares are originally sold and all other states specified in writing byPurchaser, provided, however, that the Company shall not be required to qualifyto do business in any state in which it is not now so qualified or has not soconsented. (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) With a view to making available to Purchasers the benefits of Rule 144 and any other rule or regulation of the Commission thatmay at any time permit Purchaser to sell Registrable Securities to the publicwithout registration or pursuant to a registration statement on Form S-3, theCompany covenants and agrees to use its best efforts to: (i) make and keeppublic information available as those terms are understood and defined in Rule144 until the earlier of (A) the date on which the Shares may be sold pursuantto Rule 144(k) (or any successor rule) or (B) such date as all of theRegistrable Securities shall have been resold; (ii) file with the Commission ina timely manner all reports and other documents required of the Company underthe Securities Act and Exchange Act; and (iii) furnish to any Purchaser uponrequest, as long as the Purchaser owns any Registrable Securities, (A) a writtenstatement by the Company that it has complied with the reporting requirements ofthe Securities Act and the Exchange Act, (B) a copy of the most recent annual orquarterly report of the Company, and (C) such other information as may bereasonably requested in order to avail any Purchaser of any rule or regulationof the Commission that permits the selling of any such Registrable Securitieswithout registration or pursuant to such registration statement on Form S-3. (f) Purchaser hereby acknowledges that theremay occasionally be times when the Company must suspend the use of theprospectus forming a part of the Registration Statement until such time as anamendment to such Registration Statement has been filed by the Company anddeclared effective by the SEC or until the Company has amended or supplementedsuch prospectus. The Purchaser hereby covenants that it will not sell anysecurities pursuant to said prospectus during the period commencing at the timeat which the Company gives the Purchaser notice of the suspension of the use ofsaid prospectus and ending at the time the Company gives the Purchaser noticethat Purchaser may thereafter effect sales pursuant to said prospectus.Notwithstanding anything herein to the contrary, the Company shall not suspenduse of the Registration Statement by Purchaser unless such suspension isrequired by the federal securities laws and the rules and regulationspromulgated thereunder. Notwithstanding the foregoing, the Company shall not beentitled to exercise its right to block such sales or suspend use of suchprospectus more than three times during the effectiveness of the RegistrationStatement nor more than one time in any four month period. 5.2. Indemnification and Contribution 10 (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) (including in settlement oflitigation) insofar as such losses, claims, damages or liabilities (or actionsor proceedings in respect thereof) arise out of, or are based upon, any untruestatement or alleged untrue statement of a material fact or omission or allegedomission to state a material fact in the Registration Statement , including alldocuments filed as a part thereof and information deemed to be a part thereof,on the effective date thereof, or any amendment or supplements thereto, or ariseout of any failure by the Company to fulfill any undertaking or covenantincluded in the Registration Statement or to perform its obligations hereunderor under law, and the Company will, as incurred, reimburse such Purchaser forany legal or other expenses reasonably incurred in investigating, defending orpreparing to defend, settling, compromising or paying any such action,proceeding or claim; provided, however, that the Company shall not be liable inany such case to the extent that such loss, claim, damage or liability arisesout of, or is based upon (i) an untrue statement or omission in suchRegistration 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 and notcorrected by the Purchaser in writing or (ii) an untrue statement or omission inany prospectus that is corrected in any subsequent prospectus, or supplement oramendment thereto, that was delivered to a Purchaser prior to the pertinent saleor sales by such Purchaser and not delivered by such Purchaser to the entity towhich it made such sale(s) prior to 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 material factin the 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 (provided,however, that no Purchaser shall be liable in any such case for any untruestatement or omission in any prospectus or Registration Statement whichstatement has been corrected, in writing, by such Purchaser and delivered to theCompany at least 14 days before the sale from which such loss occurred), or (ii)an untrue statement or omission in any prospectus that is corrected in anysubsequent prospectus or supplement or amendment thereto, that was delivered toa Purchaser at least 1 day prior to the pertinent sale or sales by suchPurchaser and not delivered by such Purchaser to the entity to which it madesuch sale(s) prior to such sale(s), and each Purchaser, severally and notjointly, will, as incurred, reimburse the Company for any legal or otherexpenses reasonably incurred in investigating, defending or preparing to defendany such action, proceeding or claim. Notwithstanding the foregoing, noPurchaser shall be liable, or required to indemnify the Company, in theaggregate, for any amount in excess of the net proceeds received by thePurchaser from the sale of the Shares or the Warrant Shares, as the 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 notice 11from 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 any affiliate or associate thereof, the indemnifiedperson shall be entitled to retain its own counsel at the expense of suchindemnifying person; provided, further, that the indemnifying person shall notbe obligated to assume the expenses of more than one counsel to represent allindemnified 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, damages orliabilities (or actions in respect thereof) in such proportion as is appropriateto reflect the relative fault of the Company on the one hand and each Purchaseron the other in connection with the statements or omissions which resulted insuch losses, claims, damages or liabilities (or actions in respect thereof), aswell as any other relevant equitable considerations. The relative fault shall bedetermined by reference to, among other things, whether the untrue or allegeduntrue statement of a material fact or the omission or alleged omission to statea material fact relates to information supplied by the Company on the one handor a Purchaser on the other and the parties' relative intent, knowledge, accessto information and opportunity to correct or prevent such statement or omission.The Company and the Purchasers agree that it would not be just and equitable ifcontribution pursuant to this subsection (d) were determined by pro rataallocation (even if the Purchasers were treated as one entity for such purpose)or by any other method of allocation which does not take into account theequitable considerations referred to above in this subsection (d). The amountpaid or payable by an indemnified party as a result of the losses, claims,damages or liabilities (or actions in respect thereof) referred to above in thissubsection (d) shall be deemed to include any legal or other expenses reasonablyincurred by such indemnified party in connection with investigating or defendingany such action or claim. Notwithstanding the provisions of this subsection (d),no Purchaser shall be required to contribute in the aggregate any amount inexcess of the net proceeds received by the Purchaser from the sale of the Sharesor Warrant Shares, as the case may be, to which such loss, claim, damage orliability relates. No person guilty of fraudulent misrepresentation (within themeaning of Section 11(f) of the Securities Act) shall be entitled tocontribution from any person who was not guilty of such fraudulentmisrepresentation. The Purchaser's obligations in this subsection (d) tocontribute are several in proportion to their sales of Shares or Warrant Shares,as the case may be, to which such loss relates and not 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 the sameterms 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. 12 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 NOT BEEN REGISTERED UNDERTHE SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES LAWS OF ANY STATE. THESECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION ORAN EXEMPTION THEREFROM. 6.3 Transfer of Shares and Warrants. Each Purchaser herebycovenants with the Company not to make any sale of the Shares or Warrants excepteither (a) a sale of Shares or Warrant Shares in accordance with theRegistration Statement, in which case the Purchaser covenants to comply with therequirement of delivering a current prospectus, (b) a sale of Shares or WarrantShares in accordance with Rule 144, in which case the Purchaser covenants tocomply with Rule 144 and to deliver such additional certificates and documentsas the Company may reasonably request, or (c) in accordance with anotherexemption from the registration requirements of the Securities Act. The legendset forth in Section 6.2 will be removed from a certificate representing Sharesor the Warrant Shares, as the case may be, following and in connection with anysale of Shares or Warrant Shares pursuant to subsection (a) or (b) hereof butnot in connection with any sale of Shares or Warrant Shares pursuant tosubsection (c) hereof. The Company will substitute one or more replacementcertificates without the legend at the request of the Purchaser promptly aftersuch time as the Registration Statement becomes effective. 7. Termination. (a) By the Purchaser. The Purchaser may terminate thisAgreement immediately, if at any time prior to the Closing, the Company shallcease conducting business in the normal course; become insolvent or becomeunable to meet its obligations as they become due; make a general assignment forthe benefit of creditors; petition, apply for, suffer or permit with or withoutits consent the appointment of custodian, receiver, trustee in bankruptcy orsimilar officer for all or any substantial part of its business or assets; availitself or become subject to any proceeding under the Federal Bankruptcy Code orany similar state, federal or foreign statute relating to bankruptcy,insolvency, reorganization, receivership, arrangement, adjustment of debts,dissolutions or liquidation. (b) By the Company. The Company may terminate this Agreementat any time prior to the Closing if the Purchasers have not agreed to purchasean aggregate of at least 1,500,000 Shares pursuant to this Agreement prior toMarch 11, 2000 or such later date as the Company and the Placement Agent shallhave agreed to extend the offering of the Shares with notice to the purchasersin accordance with the terms of Section 4(a) hereof. 8. Miscellaneous. 8.1 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. 13 8.2 Headings. The headings of the sections of this Agreementhave been inserted for convenience of reference only and do not constitute apart of this Agreement. 8.3 Choice of Law. It is the intention of the parties that theinternal 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 of theparties set forth herein. 8.4 Counterparts. This Agreement may be executed concurrentlyin two or more counterparts, each of which shall be deemed an original, but allof which together shall constitute one and the same instrument. 8.5 Assignment; Parties in Interest. This Agreement may not bepledged, assigned or otherwise transferred by the Purchasers except by operationof law but all the terms and provision of this Agreement shall be binding uponand inure to the benefit of and be enforced by the successors in interest of theparties hereto. Each successive transferee of the Purchasers shall be deemed tobe a Purchaser for the purpose of Section 5 of this Agreement. 8.6 Amendments. No amendment, modification, waiver, dischargeor termination of any provision of this Agreement nor consent to any departureby the Purchasers or the Company therefrom shall in any event be effectiveunless the same shall be in writing and signed by the party to be charged withenforcement, and then shall be effective only in the specific instance and forthe purpose for which given. No course of dealing between the parties heretoshall operate as an amendment of, or a waiver of any right under, thisAgreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be dulyexecuted and delivered by their proper and duly authorized representatives as ofthe day and year first above written. NOVAVAX, INC. By:________________________ Title:_______________________[PURCHASER SIGNATURE PAGE CONTINUES ON THE FOLLOWING PAGE] 14 PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE The undersigned Purchaser hereby executes the Stock and WarrantPurchase Agreement with Novavax, Inc. (the "Company") and hereby authorizes thissignature page to be attached to a counterpart of such document executed by aduly authorized officer of the Company. No. of Shares to be __________________________________________________Purchased: ____________ Name of Purchaser (PLEASE PRINT OR TYPE)No. of Shares UnderlyingWarrants: _____________Aggregate Purchase [SIGN HERE]Price: $____________ By:________________________________________ Title: ______________________________________Purchaser is a _______ qualified institutional buyer OR_____ an accredited investor as defined in the Offering CircularName in which Shares and Warrants are to be registered: __________________________________________Address of registered holder: __________________________________________Social Security or Tax ID No. of registered holder: __________________________________________Contact name and telephone number regardingSettlement and registration: __________________________________________ Name __________________________________________ Telephone NumberNumber of shares of common stock of the Company beneficially owned (meaningshares owned or controlled or which the Purchaser has the right to acquire orvote) by the Purchaser, other than the Shares and Warrants being purchasedpursuant hereto: _________________________________________ 15Have you or your organization had any position, office or other materialrelationship with the Company within the past three years? __________ Yes __________ NoDo you or your organization have any direct or indirect affiliation orassociation with any NASD member? _________ Yes __________ NoIf yes to either of the last two questions, please indicate the nature of anysuch 16 DISCLOSURE SCHEDULE TO STOCK AND WARRANT PURCHASE AGREEMENT 3.3 In January 2000, certain officers and directors of the Companywere sued by a former employee o the Company, alleging that he should havereceived 12 months of severance pay. The Company, which is not a party to thelawsuit, has offered to pay the former employee 6 months severance pay. 3.19 Two holders of warrants to purchase an aggregate of 100,000shares of Common Stock of the Company currently have registration rights. 17 EXHIBIT A FORM OF OPINION OF COUNSEL TO BE DELIVERED TO THE PURCHASERS ON CLOSING 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 and operateits properties and to conduct its business as now being conducted and to enterinto and perform its obligations under this Agreement. The Shares, the Warrants and the Warrant Shares have been duly authorizedfor issuance and sale to the Purchasers pursuant to this Agreement and theWarrants and, when issued and delivered by the Company pursuant to thisAgreement or the Warrants against payment of the consideration set forth herein,will be validly issued and fully paid and non-assessable; and the issuance ofthe Shares, the Warrants and the Warrant Shares is not subject to pre-emptive orother rights to subscribe for or purchase securitites. This Agreement and each Warrant have been duly authorized, executed anddelivered 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 the aggregate,would not have a material adverse effect on the financial condition or businessof the Company, the execution, delivery and performance of this Agreement andthe consummation of the transactions in the manner contemplated herein and thecompliance by the Company with its obligations hereunder and thereunder will not(i) conflict with or constitute a breach of, or default under, or result in thecreation or imposition of any lien, charge or encumbrance upon any property orassets of the Company pursuant to, any contract or other instrument or agreementto which the Company is a party or by which it OR ANY OF THEM may be bound, orto which any of the property or assets of the Company is subject, (ii) result inany violation of the provisions of the charter or bylaws of the Company or anyapplicable statute, law, rule, regulation, ordinance, code, or any applicabledecision or order of any court or regulatory agency exercising appropriatejurisdiction, and (iii) except for the registration of the Shares and theWarrant Shares under the Securities Act and the listing of the Shares and theWarrant Shares on the American Stock Exchange, Inc. and such consents,approvals, authorizations, registrations or qualifications as may be requiredunder the Exchange Act and applicable state securities laws in connection withthe purchase of the Shares or the Warrants by the Purchasers, no consents,approval, authorization or order of or filing with any court or governmentalagency or body is required for the execution, delivery and performance of theAgreement by the Company and the consummation of the transactions contemplatedby the Agreement. To our knowledge, as of November 30, 1999, 15,011,389 shares of theCompany's Common Stock were issued and outstanding, no shares of the Company'sPreferred Stock were issued and outstanding, options to purchase 3,936,741shares of the Company's Common Stock were issued and outstanding and warrants topurchase 1,712,775 shares of the Company's Common Stock were issued andoutstanding. All of the outstanding shares of the Company's capital stock arevalidly issued, fully paid and non-assessable. Except as set forth in Section3.8 of the Agreement or the Offering Circular and except for options to purchasenot more then 100,000 shares, to our knowledge, there are no outstandingsubscriptions, options, warrants, calls, contracts, demands, commitments,conversion rights or other agreements or arrangements of any character or naturewhatever under which the Company is or may be obligated to issue its CommonStock, Preferred Stock or warrants or options to purchase Common Stock orPreferred Stock. No holder 18of any security of the Company is entitled to any preemptive or similar rightsto purchase any securities of the Company. The form of certificate used to evidence the Shares and the form ofWarrant are in due and proper form and comply with all applicable statutoryrequirements. 19 EXHIBIT B FORM OF WARRANT 20 THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED EXCEPT AS PERMITTED HEREIN AND PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE REQUIRED UNDER THE SECURITIES LAWS OF ANY STATE OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH SECURITIES LAWS. NONTRANSFERABLE WARRANT FOR THE PURCHASE OF COMMON STOCKNo. 2000- _______ Shares THIS CERTIFIES that, for receipt in hand of $50.00 and other valuereceived, __________________________ (the "Holder") is entitled to subscribe forand purchase from Novavax, Inc., a Delaware corporation (the "Company"), uponthe terms and conditions set forth herein, at any time or from time to timeafter the date hereof, and before 5:00 p.m. on January 28, 2003, eastern time(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 $6.75 per share (the "Exercise Price"). ThisWarrant is issued in connection with a Stock and Warrant Purchase Agreementdated as of January 28, 2000 by and between the Company and the Purchaserssignatory thereto (the "Purchase Agreement"). This Warrant may not be sold,transferred, assigned or hypothecated, in whole or in part, at any time exceptin accordance with Section 5 hereof (a "Permitted Transfer"). As used herein theterm "this Warrant" shall mean and include this Warrant and any Warrant orWarrants hereafter issued as a consequence of the exercise of this Warrant inwhole or in part. The number of shares of Common Stock issuable at the Exercise Price maybe adjusted from time to time as hereinafter set forth. 1. Exercise of Warrant. (a) Manner of Exercise. This Warrant may be exercised in whole orin part at any time or from time to time during the Exercise Period by thesurrender of this Warrant (with the form of election to exercise attached heretoduly executed) to the Company at its office at 8320 Guilford Road, Columbia, MD21046 or such other place as is designated in writing by the Company, togetherwith a certified or bank cashier's check payable to the order of the Company inan amount equal to the Exercise Price multiplied by the number of Warrant Sharesfor which this Warrant is being exercised. (b) Delivery of Stock Certificates, etc. Upon each exercise ofthe 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 of thisWarrant, the Company shall issue and deliver to the Holder a certificate orcertificates for the Warrant Shares issuable upon such exercise, registered inthe name of the Holder or its designee. If this Warrant should be exercised inpart only, the Company shall, upon surrender of this Warrant for cancellation,execute, and deliver a new Warrant evidencing the right of the Holder topurchase the balance of the Warrant Shares (or portions thereof) subject topurchase hereunder. 21 (c) Warrant Register. Any Warrants issued hereunder upon aPermitted Transfer or exercise in part of this Warrant (together with thisWarrant, the "Warrants") shall be numbered and shall be registered in a warrantregister as they are issued. The Company shall be entitled to treat theregistered holder or his permitted transferees of any Warrant on the WarrantRegister as the owner in fact thereof for all purposes and shall not be bound torecognize 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, the Companyshall deliver a new Warrant or Warrants to the person entitled thereto. TheWarrants 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, inthe 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 or the provisions of Section 5hereunder. 2. Authorized Stock; Listing. The Company shall at all times reserve andkeep available out of its authorized and unissued Common Stock, solely for thepurpose 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 covenants thatall shares of Common Stock issuable upon exercise of this Warrant, upon receiptby the Company of the purchase price therefor, shall be validly issued, fullypaid, nonassessable, and free of preemptive or similar contractual rights tosubscribe for shares of Common Stock. The Company shall list and maintain thelisting of the Warrant Shares on the American Stock Exchange (or other nationalsecurities 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 a dividend,or make a distribution, on the outstanding Common Stock in shares of its capitalstock, (ii) subdivide the outstanding Common Stock, (iii) combine theoutstanding 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 distribution or of the effective date of such subdivision,combination, or reclassification, shall be proportionately adjusted so that theHolder after such time shall be entitled to receive the aggregate number andkind of shares which if such Warrant had been exercised immediately prior tosuch time, it would have owned upon such exercise and been entitled to receiveby virtue of such dividend, distribution, subdivision, combination orreclassification. Such adjustment shall be made successively whenever any eventlisted 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 Stock orrights, options, or warrants entitling the holders thereof to subscribe for orpurchase Common Stock (or securities convertible into or exchangeable for CommonStock) at a price per share (or 22having a conversion price per share, if a security convertible into orexchangeable for Common Stock) less than the Current Market Price, (as definedin Section 3(d)) the Exercise Price shall be reduced to a price determined bymultiplying the then current Exercise Price by a fraction (i) numerator of whichshall be (a) the number of shares of Common Stock outstanding immediately priorto such issue or sale plus (b) the number of shares of Common Stock which theaggregate consideration received by the Company in connection with such issuanceor sale would purchase at the Current Market Price, and (ii) the denominator ofwhich shall be the number of shares of Common Stock outstanding immediatelyafter such issuance or sale. Such adjustment shall become effective at the closeof business on such date of issuance or record date; provided, however, that, tothe extent the shares of Common Stock (or securities convertible into orexchangeable for shares of Common Stock) are not delivered, the Exercise Priceshall be readjusted after the expiration of such rights, options, or warrants(but only with respect to Warrants exercised after such expiration), to theExercise Price which would then be in effect had the adjustments made upon theissuance of such rights, options, or warrants been made upon the basis ofdelivery of only the number of shares of Common Stock (or securities convertibleinto or exchangeable for shares of Common Stock) actually issued. Noreadjustment shall have the effect of increasing the Exercise Price by an amountgreater than the original adjustment. In case part or all of any considerationmay be paid in a form other than cash, the value of such consideration shall beas determined in good faith by the Board of Directors of the Company, whosedetermination shall be conclusive absent manifest error. Shares of Common Stockowned by or held for the account of the Company or any majority-owned subsidiaryshall not be deemed outstanding for the purpose of any such computation. In the case of the issuance of options to purchase or rights tosubscribe 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 upon exerciseof such options to purchase or rights to subscribe for Common Stock shall bedeemed to have been issued at the time such options or rights were issued andfor a consideration equal to the consideration, if any, received by the Companyupon the issuance of such options or rights plus the purchase price provided insuch options or rights for the Common Stock covered thereby; (ii) the shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securitiesor upon the exercise of options to purchase or rights to subscribe for suchconvertible or exchangeable securities and subsequent conversion or exchangethereof shall be deemed to have been issued at the time such securities wereissued or such options or rights were issued and for a consideration equal tothe consideration, if any, received by the Company for any such securities andrelated options or rights (excluding any cash received on account of accruedinterest or accrued dividends), plus the additional consideration, if any, to bereceived by the Company upon the conversion or exchange of such securities orthe exercise of any related options or rights; (iii) in the event of any increase in the considerationpayable to the Company upon exercise of such options or rights or uponconversion of or in exchange for such convertible or exchangeable securities,including, but not limited to, a change resulting from any antidilutionprovisions thereof, the Exercise Price with respect to the adjustment which wasmade upon the issuance of such options, rights or securities, and any subsequentadjustments based thereon, shall be recomputed to reflect such change, but nofurther adjustment shall be made for the actual issuance of Common Stock or anypayment of such consideration upon the exercise of any such options or rights orthe conversion or exchange of such securities. (c) Extraordinary Dividends. In case the Company shall distributeto all holders of Common Stock (including any such distribution made to thestockholders of the Company in connection with a consolidation 23or merger in which the Company is the continuing corporation) evidences of itsindebtedness or assets (other than dividends payable in shares of Common Stock),or subscription rights, options, or warrants or convertible or exchangeablesecurities containing the right to subscribe for or purchase shares of CommonStock (excluding those referred to in paragraph 3(b) hereof), then, in eachcase, the Exercise Price shall be adjusted by multiplying the Exercise Price ineffect immediately prior to the record date for the determination ofstockholders entitled to receive such distribution by a fraction, the numeratorof which shall be the current Exercise Price per share of Common Stock on suchrecord date, less the fair market value (as determined in good faith by theBoard of Directors of the Company, whose determination shall be conclusiveabsent manifest error) of the portion of the evidences of indebtedness or assetsso to be distributed, or of such subscription rights, options, or warrants orconvertible or exchangeable securities containing the right to subscribe for orpurchase shares of Common Stock, applicable to one share, and the denominator ofwhich shall be such current Exercise Price per share of Common Stock. Suchadjustment shall be made whenever any such distribution is made, and shallbecome effective on the date of such distribution retroactive to the record datefor the determination of 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 be thelast reported sales price regular way or, in case no such reported sale takesplace on such day, the closing bid price regular way, in either case on theprincipal national securities exchange (including the NASDAQ National MarketSystem) on which the Common Stock is listed or admitted to trading or, if theCommon Stock is not listed or admitted to trading on any national securitiesexchange, the highest reported bid price as furnished by the NationalAssociation of Securities Dealers, Inc. through NASDAQ or a similar organizationif NASDAQ is no longer reporting such information. If on any such date theCommon Stock is not quoted by any such organization, the fair value of a shareof Common Stock on such date, as determined in good faith by the Board ofDirectors 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 3 shallrequire that an adjustment in the Exercise Price be made effective as of arecord date for a specified event, the Company may elect to defer, until theoccurrence of such event, issuing to any Holder who exercised any Warrants aftersuch 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 of theExercise Price as a result of the calculations made in paragraphs 3(a), 3(b), or3(c) hereof, each Warrant outstanding prior to the making of the adjustment inthe Exercise Price shall thereafter evidence the right to purchase, at theadjusted Exercise Price, that number of shares (calculated to the nearestthousandth) obtained by dividing (i) the product obtained by multiplying thenumber of shares purchasable upon exercise of a Warrant prior to adjustment ofthe number of shares by the Exercise Price in effect prior to adjustment of theExercise Price by (ii) the Exercise Price in effect after such adjustment of theExercise Price. 24 (h) Notice of Adjustments. Whenever there shall be an adjustmentas provided in this paragraph 3, the Company shall promptly cause written noticethereof to be sent by overnight courier, to the Holder, at its principal office,which notice shall be accompanied by an officer's certificate setting forth thenumber of Warrant Shares purchasable upon the exercise of this Warrant and theExercise Price after such adjustment and setting forth a brief statement of thefacts requiring such adjustment and the computation thereof, which officer'scertificate shall be conclusive evidence of the correctness of any suchadjustment absent any error. (i) No Fractional Shares. The Company shall not be required toissue fractions of shares of Common Stock or other capital stock of the Companyupon the exercise of the Warrants. If any fraction of a share would be issuableon the exercise of any Warrant (or specified portions thereof), the Companyshall purchase such fraction for an amount in cash equal to the same fraction ofthe 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) shalleffect a capital reorganization or reclassification of the Common Stock or OtherSecurities (other than a capital reorganization or reclassification resulting inthe issue of additional shares of Common Stock for which adjustment in theExercise Price is provided in paragraph 3(a) or 3(b)), then, and in the case ofeach such transaction, proper provision shall be made so that, upon the basisand the terms and in the manner provided in this Warrant, the Holder of thisWarrant, upon the exercise hereof at any time after the consummation of suchtransaction, shall be entitled to receive (at the aggregate Exercise Price ineffect at the time of such consummation for all Common Stock or Other Securitiesissuable upon such exercise immediately prior to such consummation), in lieu ofthe Common Stock or Other Securities issuable upon such exercise prior to suchconsummation, the highest amount of securities, cash or other property to whichsuch Holder would actually have been entitled as a shareholder upon suchconsummation if such Holder had exercised the rights represented by this Warrantimmediately prior thereto, subject to adjustments (subsequent to suchconsummation) as nearly equivalent as possible to the adjustments provided inparagraph 3; provided that if a purchase, tender or exchange offer shall havebeen made to and accepted by the holders of more than 50% of the outstandingshares of Common Stock, and if the Holder of this Warrant so designates in anotice given to the Company on or before the date immediately preceding the dateof the consummation of such transaction, the Holder of this Warrant shall beentitled to receive the highest amount of securities, cash or other property towhich such Holder would actually have been entitled as a shareholder if theHolder of this Warrant had exercised such Warrant prior to the expiration ofsuch purchase, tender or exchange offer and accepted such offer, less theExercise Price 25that would have been payable upon such exercise, subject to adjustments (fromand after the consummation of such purchase, tender or exchange offer) as nearlyequivalent as 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 the exerciseof this Warrant as provided herein shall assume in writing (i) the obligationsof the Company under this Warrant (and if the Company shall survive theconsummation 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. Transfer. 5.1 Securities Laws. Neither the Warrant nor the Warrant Shares has been registered under the Securities Act. The Company will not transfer thisWarrant or the Warrant Shares unless (i) there is an effective registrationstatement covering such Warrant or Warrant Shares, as the case may be, under theSecurities Act and applicable states securities laws; (ii) in the case ofWarrant Shares, it first receives a letter from an attorney, acceptable to theCompany's Board of Directors or its agents, stating that in the opinion of theattorney the proposed transfer is exempt from registration under the SecuritiesAct and under all applicable state securities laws; or (iii) in the case ofWarrant Shares the transfer is made pursuant to Rule 144 under the SecuritiesAct. 5.2 Conditions to Transfer. Prior to any such proposed transfer, and asa condition thereto, if such transfer is not made pursuant to an effectiveregistration statement under the Securities Act, the Holder will, if therestrictive legend has not been removed pursuant to the Purchase Agreement andif requested by the Company, deliver to the Company (i) an Investment covenantsigned by the proposed transferee; (ii) an agreement by such transferee that therestrictive investment legend set forth above be placed on the certificate orcertificates representing the securities acquired by such transferee; and (iii)an agreement by such transferee that the Company may place a "stop transferorder" with its transfer agent or registrar, and (iv) an agreement by thetransferee to indemnify the Company to the same extent as set forth in the nextsucceeding paragraph. 5.3 Indemnity. The Holder acknowledges that the Holder understands themeaning and legal consequences of this Section 5, and the Holder hereby agreesto indemnify and hold harmless the Company, its representatives and each officerand director thereof from and against any and all loss, damage or liability(including all attorney's fees and costs incurred in enforcing this indemnityprovision) due to or arising out of (a) any transfer by the Holder of any ofthis Warrant or the Warrant Shares in violation of the Securities Act, theSecurities Exchange Act of 1934, as amended or the rules and regulationspromulgated under either of such acts, (b) any transfer by the Holder of thisWarrant or any of the Warrant Shares not in accordance with this Warrant or (c)any untrue statement by the Holder or omission by the Holder to state anymaterial fact in connection with the investment representations or with respectto the facts and representations supplied by the Holder to counsel to theCompany upon which its opinion as to proposed transfer shall have been based. 5.4 Assignment and Transfer. Except as set forth in Section 5.1 (i), this Warrant may only be transferred to an affiliate of the Holder. Uponsurrender of this Warrant certificate to the Company with the Assignment Formannexed hereto duly executed and funds sufficient to pay any transfer tax, andupon compliance with the foregoing provisions, the Company shall without charge,execute and deliver a new Warrant certificate in the name of the assignee namedon such instrument of assignment, and this Warrant certificate shall promptly becancelled. An 26assignment, transfer, pledge, hypothecation or other disposition of this Warrantattempted contrary to the provision of this Warrant, or any levy of execution,attachment or other process attempted upon this Warrant, shall be null and voidand without effect. 6. 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, reorganization orreclassification described in paragraph 4; or (d) to effect any liquidation, dissolution, or winding-up of the Company; or (e) to take any other action which would cause an adjustment to 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. 7. 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 of suchissuance. The Company shall not, however, be required to pay any tax which maybe payable in respect of any transfer involved in the issue and delivery of anycertificate in a name other than that of the Holder and the Company shall not berequired to issue or deliver any such certificate unless and until the person orpersons requesting the issue thereof shall have paid to the Company the amountof such tax or shall have established to the satisfaction of the Company thatsuch tax has been paid. 8. Certain Rights. (a) In case any event shall occur as to which the provisions ofparagraph 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 27exercise of this Warrant shall be adjusted on a basis consistent with theessential intent and principles established in paragraph 3 or 4, as necessary topreserve the purchase rights represented by this Warrant. (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 of thisWarrant. 9. Legend. The securities issued upon exercise of the Warrants shall be 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, AS AMENDED, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE REQUIRED UNDER THE SECURITIES LAWS OF ANY STATE OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH SECURITIES LAWS. 10. Miscellaneous. (a) Upon receipt of evidence satisfactory to the Company of theloss, theft, destruction, or mutilation of any Warrant (and upon surrender ofany Warrant if mutilated), and upon reimbursement of the Company's reasonableincidental expenses, the Company shall execute and deliver to the Holder thereofa new Warrant of like date, tenor, and denomination. (b) The Holder of any Warrant shall not have, solely on accountof such status, any rights of a stockholder of the Company, either at law or inequity, or to any notice of meetings of stockholders or of any other proceedingsof 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 the lawsof the State of Delaware, without giving effect to conflict of laws. IN WITNESS WHEREOF, the undersigned have set their hand to this WarrantAgreement as of January 28, 2000. NOVAVAX, INC. By: ----------------------------- John A. Spears, President and Chief Executive Officer 28To: Novavax, Inc. 8320 Guilford Road Columbia, MD 21046 Attention: President ELECTION TO EXERCISE The undersigned hereby exercises its or his rights topurchase Warrant Shares covered by the within Warrant and tenders paymentherewith in the amount of $______ in accordance with the terms thereof, and requests that certificates 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 the WarrantShares covered by the within Warrant be registered in the name of, and deliveredto, the undersigned at the address stated below.Dated: Name: ------------------------- -------------- (Print)Address: ---------------------------------------------------------------------- -------------------------- (Signature) 1EXHIBIT 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 February 26, 2000, appearing on page F-2 of this Annual Report on Form10-K.PricewaterhouseCoopers LLPMcLean, VirginiaMarch 8, 2000

5 YEAR DEC-31-1999 DEC-31-1999 732 0 341 0 0 1,143 1,924 (871) 4,463 873 0 0 0 152 0 4,463 1,181 1,181 0 5,747 0 0 0 (4,506) 0 (4,506) 0 0 0 (4,506) $(0.31) $(0.31)

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Novavax Annual Report 1999

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Novavax
Annual Report 1999