Novavax
Annual Report 2001

Plain-text annual report

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, 2001Commission 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, Maryland 21046(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: NONESecurities registered pursuant to Section 12(g) of the Act:Common Stock ($.01 par value) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o 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. o The aggregate market value of 20,973,202 shares of the registrant’s Common Stock, par value $.01 per share, held by non-affiliates of theregistrant at March 8, 2002, as computed by reference to the closing price of such stock, was approximately $221,057,549. The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding at March 8, 2002 was 23,915,343 shares.Documents Incorporated By Reference Portions of the Registrant’s Proxy Statement to be filed not later than 120 days after December 31, 2001, in connection with the Registrant’s2002 Annual Meeting of Stockholders, referred to herein as the “Proxy Statement,” are incorporated by reference into Part III of this Form 10-K.Certain exhibits filed with the Registrant’s prior registration statements and periodic reports under the Securities Exchange Act of 1934 areincorporated herein by reference into Part IV of this Report.TABLE OF CONTENTSPART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market For Registrant’s Common Equity and Related Stockholder MattersItem 6. Selected Consolidated 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 DisclosurePART IIIItem 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 TransactionsPART IVItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-KSIGNATURESINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSREPORT OF INDEPENDENT AUDITORSREPORT OF INDEPENDENT ACCOUNTANTSSee accompanying notes.NOVAVAX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)Employment Agreement- James R. MirtoEmployment Agreement-Dennis GengeAgreement of Lease-W.M.Rickman Construction Co.Lease Agreement- GPG EnterprisesLease AgreementFacility Reservation AgreementList of SubsidiariesConsent of Ernst & YoungConsent of PricewaterhouseCoopersTable of ContentsPART IItem 1. BusinessOverview Novavax is a fully-integrated specialty pharmaceutical company focused on the research, development and commercialization of productsutilizing our proprietary drug delivery and vaccine technologies for large and growing markets, concentrating on the areas of women’s healthcareand infectious diseases. Our lead product candidate, ESTRASORB™, is the first transdermal lotion for estrogen replacement therapy for which aNew Drug Application has been accepted for filing by the Food and Drug Administration. The New Drug Application for ESTRASORB wassubmitted in June 2001 and was accepted for filing in August 2001. We are seeking FDA approval of ESTRASORB for the reduction of hot flashesin menopausal women and, if approved, we believe ESTRASORB will be competitively positioned to address the $1.8 billion estrogen replacementtherapy market in the United States. In our Phase II and III clinical trials, women using ESTRASORB experienced a statistically significantreduction in the number of hot flashes, the primary endpoint of our study, with many women reporting a total elimination of hot flashes while usingthe product. We also believe that ESTRASORB offers additional advantages over other estrogen replacement therapies, including ease of use,more rapid onset of estrogen therapy and a lower incidence of skin irritation and nausea. Our drug delivery technologies involve the use of our patented oil and water emulsions which we believe can be used as vehicles for thetransdermal and injectable delivery of a wide variety of drugs and other therapeutic products, including hormones, anti-bacterial and anti-viralproducts and vaccine adjuvants, which are substances added to vaccines to enhance their effectiveness. We believe that our technologiesrepresent the first time that alcohol soluble hormones, such as estrogen and testosterone, have been encapsulated and delivered through the skin.In addition to ESTRASORB, our product candidates using these technologies include ANDROSORB™, a transdermal testosterone lotion that is inPhase II clinical trials, ANDRO-JECT™, a long-acting subcutaneous injectable formulation of testosterone that is in preclinical development, and atransdermal progestin lotion that is also in preclinical development. We also conduct research and development on preventative and therapeuticvaccines for a variety of infectious diseases. During 2001, we signed a co-promotion agreement with King Pharmaceuticals, Inc. (“King”) for the promotion and marketing of ESTRASORBand ANDROSORB within the United States and licensed to King the right to sell these products outside the United States. This relationship withKing has the potential to provide us with deeper women’s healthcare market penetration for ESTRASORB and ANDROSORB. We will record allrevenues from the sales of ESTRASORB and ANDROSORB in the United States and will pay to King 50% of these revenues less 50% ofmanufacturing and approved marketing costs, subject to certain modifications. We received licensing fees of $3.0 million and milestone paymentstotaling $5.0 million from King upon the submission to the FDA and acceptance for filing of the ESTRASORB New Drug Application. We alsoreceived from King $20.0 million in December 2000 and $10.0 million in September 2001 in the form of convertible note financings. We currently market, sell and distribute a line of prescription pharmaceuticals and prenatal vitamins through our 85 person sales forceincluding national accounts team, which has extensive experience selling to obstetricians, gynecologists, managed care organizations,wholesalers and retail pharmacies throughout the United States. In 2001, these products produced revenues of $17.3 million. If we receivemarketing approval from the FDA, we expect to sell ESTRASORB both through our sales force and through King’s salesforce. We intend tomanufacture ESTRASORB for commercial sale in a dedicated 20,000 square foot facility, which is currently being built to our requirements.Our Strategy The primary elements of our strategy include: • Maximize the commercial impact of ESTRASORB. We are currently developing commercialization andmanufacturing infrastructures, programs and systems in anticipation of approval of our ESTRASORB New2Table of Contents Drug Application by the FDA in 2002. We believe that our marketing plan, together with the significant expertise ofour management team in new product launches, will enable ESTRASORB to rapidly penetrate the $1.8 billionestrogen replacement therapy market in the U.S. We expect that the introduction of ESTRASORB, if approved, willincrease our presence in the women’s healthcare market, thereby enabling us to more effectively commercializefuture products which we develop or acquire. Our co-promotion agreement with King should provide us withadditional marketing and selling expertise which will assist us in achieving deeper market penetration forESTRASORB. • Leverage our unique drug delivery technology platforms to commercialize additional pharmaceuticalproducts. A key component of our growth strategy is the introduction of new products based on our proprietary drugdelivery technologies. In addition to ESTRASORB, we have three hormone replacement therapy candidates invarious stages of clinical and preclinical development. We will continue to focus on developing improvements toexisting therapies. We intend to target large markets where our products can be differentiated through increasedefficacy and improved delivery technique. • Continue to develop our capabilities as a fully-integrated specialty pharmaceutical company. We intend tocontinue to enhance our internal capabilities in the developing, testing, manufacturing and marketing of our productcandidates. We believe that this fully-integrated platform differentiates us from many specialty pharmaceuticalcompanies and enhances our ability to successfully introduce new products such as ESTRASORB and to grow ourexisting line of women’s healthcare products. We plan to continue to focus our research and development efforts onadvancing our existing product candidates towards commercialization and on identifying and commercializing newtherapies using our unique drug delivery techniques. We perform many components of the ESTRASORBmanufacturing process, and we are increasing our manufacturing capabilities in anticipation of the commerciallaunch of ESTRASORB in 2002. We have an 85 person sales force including national accounts team withexperience in the area of women’s health, and intend to continue to build that sales team as we are able tocommercialize or acquire new products. • Continue to expand our product lines through acquisition of new products and technologies. We believe wecan continue to grow through the acquisition of product lines, individual products or additional technologies. Webelieve numerous opportunities exist to acquire such products and technologies as large pharmaceuticalcompanies seek to divest many non-core product areas. We regularly evaluate opportunities to acquire products inmarkets we currently serve, as well as potential new markets where our management team has expertise, such asoncology. Our fully-integrated capabilities assist us in identifying, acquiring and successfully implementing newproduct and company acquisitions.We have demonstrated our ability to successfully acquire and integrate products and research capabilities. For example, we acquired FieldingPharmaceutical Company in December 2000, which enabled us to expand our women’s healthcare product line and gave us an establishednational sales force with experience calling on obstetricians and gynecologists throughout the United States. In January 2001, we purchased theAVC™ Cream product line from King to provide us with additional products to sell through our sales force. In August 1999, we acquired a vaccineresearch and development group from DynCorp, which has enabled us to develop advanced vaccine product candidates. • Exploit our expertise in vaccine technology to develop products for a large and underserved market. Wecurrently have several vaccine candidates in clinical and preclinical development. In particular, we are pursuing aninactivated smallpox vaccine and a human papillomavirus vaccine that we believe could address large andunderserved markets if approved. In order to pursue a number of vaccine development programs, we intend tocollaborate with private companies and governmental agencies, including the National Institutes of Health, withwhich we have several ongoing projects.3Table of ContentsOur Products and Product Candidates We are focused on the successful introduction of new product candidates and the continued sales growth of the products we currently market.The table below provides a summary of our marketed products and product candidates, which are discussed elsewhere in further detail: Product orProduct CandidateProduct DescriptionPartnerStatusNestabs® Prescription prenatal vitamins — MarketedGynodiol™ Oral estrogen replacement therapy — MarketedAVC™ cream andsuppositories Vaginal bacterial infection — MarketedNordette® Birth control pill King (co-promotion) MarketedESTRASORB™ Transdermal lotion for estrogen replacement King (co-promotion) NDA filedANDROSORB™ Transdermal lotion for testosterone replacement King (co-promotion) Phase IIHPV16 vaccine Human papillomavirus vaccine NIH/ King Phase IIANDRO-JECT™ Injectable testosterone — PreclinicalProgestin lotion Transdermal lotion for progestin replacement — PreclinicalInactivated smallpox vaccine Smallpox (vaccinia) — Preclinical Our Lead Product Candidate — ESTRASORB ESTRASORB is our lead product candidate and employs our patented micellar nanoparticle technology to deliver estrogen, in the form of 17ßestradiol, through the skin when applied topically in the form of a lotion. We submitted a New Drug Application for ESATRASORB to the FDA inJune 2001, which was accepted for filing in August 2001. We are seeking FDA approval of ESTRASORB for the reduction of hot flashes inmenopausal women. In clinical trials, participants using ESTRASORB experienced a statistically significant reduction in the number of hot flashes,the primary endpoint of the studies, with many reporting the complete elimination of hot flashes during the trial period. We believe thatESTRASORB offers advantages over competing therapies in the $1.8 billion estrogen replacement market in the United States. ESTRASORB iseasy to use and lowers the incidence of skin irritation and stomach upset associated with other estrogen replacement products. Our marketingstudies indicate that ESTRASORB’s method of topical application will differentiate ESTRASORB from other estrogen replacement therapies. Market Overview. As a woman approaches menopause, ovulation becomes less frequent and the production of estrogen decreases.Eventually, the estrogen produced is insufficient to bring about menstruation. Menopause is typically diagnosed when there has been an absenceof menstruation for at least one year accompanied by the presence of hot flashes. Women are entering menopause at the rate of approximately4,000 per day. An estimated 10.0 million women are currently on estrogen replacement therapy. This number is forecast to increase to 12.8 millionin 2004 as diagnosis and medication efficacy increase and side effects associated with therapy decrease. The demographic expansion of the“baby boomer” generation will cause an increase in the estrogen replacement therapy market as more women reach the ages associated withmenopause and seek medical attention for their symptoms. Estrogen replacement therapy is currently used worldwide by menopausal women to treat the symptoms of menopause, such as hot flashes,and by post-menopausal women to prevent osteoporosis and other adverse health conditions. Current estrogen replacement products include oraltablets and, more recently, transdermal patches. Users of oral estrogen tablets may sometimes experience the side effect of nausea. Transdermalpatches for estrogen replacement were developed in large part to eliminate this side effect of nausea and first became commercially available inthe mid 1980’s. Patches generally use alcohol to drive the estrogen through the skin to achieve therapeutic blood levels. These patches maycause skin irritation and the inconvenience to the patient associated with wearing and changing an external patch. As shown by the chart below, inthe4Table of Contents12 months ended September 30, 2001, the estrogen replacement market in the U.S. was approximately $1.8 billion, with approximately 78% of themarket using oral estrogen replacement therapy and 14% of the market using transdermals. Clinical Trials of ESTRASORB. We have completed several preclinical and human safety and efficacy studies for ESTRASORB. A Phase IIstudy completed in the first quarter of 1999 involved a 35-day dosing protocol and included 120 patients at six clinical sites in the United States.This study indicated that ESTRASORB, administered daily to menopausal women, significantly reduced the number of hot flashes per day. In thefirst quarter of 2001, we completed a pivotal Phase III study at 21 centers in the U.S. designed to determine the efficacy of ESTRASORB inreducing the frequency of hot flashes in menopausal women. The Phase III study was a randomized, double-blind, placebo-controlled, parallel-group study involving approximately 200 participants. During this study, a 3.0-gram daily dose of either ESTRASORB or placebo lotion wasadministered to the thigh and calf of each participant, with approximately 100 participants receiving ESTRASORB and the remainder receiving theplacebo lotion. The results indicated that at weeks 3 through 12, ESTRASORB was statistically significantly superior to the placebo lotion inreducing the mean daily number of hot flashes. The Phase III study further demonstrated that ESTRASORB had no clinically relevant adverseeffect on laboratory safety parameters, vital signs or dermal assessments. In June 2001, we submitted a New Drug Application to the FDA, whichwas accepted for filing in August 2001, for approval to market ESTRASORB for the treatment of hot flashes in menopausal women. Marketing of ESTRASORB. The U.S. marketplace for estrogen replacement therapy is heavily saturated by competitors. In response, we haveprepared an aggressive launch and marketing strategy for ESTRASORB. Our marketing efforts will target the high-volume prescribers and earlyadopters of women’s healthcare products. Our public relations plan will focus on the ways in which ESTRASORB’s topical method of applicationwill assist in counteracting the poor compliance rate currently associated with estrogen replacement therapy. We have also established aPhysician Advisory Board to advise us with respect to our goal of early adoption of ESTRASORB by targeted physicians. These efforts will befurther supplemented by a publications strategy aimed toward the inclusion in specialty medical publications of in-depth clinical informationregarding ESTRASORB.5Table of Contents Currently Marketed Products Our acquisition of Fielding in 2000 enabled us to expand our women’s healthcare product line and provided us with an established nationalsales force having extensive experience in selling to obstetricians and gynecologists throughout the United States. The acquisition included theNestabs® product line and Gynodiol™, described below, and a sales force of 59 people. We believe that the expertise gained through themarketing of these products positions us for a successful launch of ESTRASORB, if approved by the FDA. We currently market the following fourwomen’s healthcare prescription products: Nestabs®. Nestabs is a complete line of prenatal multivitamins for use before, during and after pregnancy. The product line includesNestabs® Rx, Nestabs® CBF and Nestabs® FA. The Nestabs products are designed to prevent and control iron deficiency through low-dose ironsupplementation. Nestabs provides a convenient once-a-day dosing regimen and a patient-friendly small, easy to swallow tablet. The Nestabsproduct line generated $11.3 million in sales in 2001. Gynodiol™. Gynodiol is a safe, effective and economical option for women who require an oral estrogen replacement therapy, and is availablein four dosage strengths. Gynodiol is indicated for the relief of moderate to severe vasomotor symptoms associated with menopause, thetreatment of vulval and vaginal atrophy, the treatment of hypoestrogenism and the prevention of osteoporosis. Gynodiol is the only estradiolproduct available in a 1.5 mg strength, allowing for more precise titration. The total sales for Gynodiol in 2001 were $2.2 million. AVC™ Cream and Suppositories. AVC cream and suppositories are an established line of women’s hygiene products effective for thetreatment of vaginal bacterial infection. AVC is designed to block certain metabolic processes essential for the growth of susceptible bacteria. Weacquired the AVC product line from King for $3.3 million in 2001 and we believe there is opportunity for sales growth because AVC is the onlysulfanilamide, in either a cream or suppository, on the market. The AVC product line generated $3.5 million in sales in 2001. Nordette®. Nordette is an oral contraceptive owned by King. In partnership with King, we co-promote this product to obstetricians andgynecologists nationwide. The revenues are booked by King and we receive a payment from King which reflects 50% of these revenues above anestablished quarterly baseline, less related manufacturing and approved marketing expenses, subject to certain baseline modifications. Other Hormone Replacement Therapy Product Candidates We are using our innovative drug delivery technologies to expand our product pipeline through the development of new product candidates,including a testosterone replacement therapy product for women. Our hormone replacement therapy program includes the following products: ANDROSORB™. ANDROSORB employs our patented micellar nanoparticle technology to deliver testosterone through the skin, when appliedtopically in lotion form. Although generally associated with men, testosterone is also a naturally occurring hormone in women. As a woman ages,she may experience a variety of symptoms of testosterone deficiency, including poor libido or sexual responsiveness, depression andcardiovascular, musculoskeletal and urological problems. ANDROSORB may be useful to treat the symptoms of testosterone deficiency, acondition that is increasingly prevalent in our aging population. To date, there have been no approved testosterone therapy products for women in the U.S. other than a product which combines estrogen andtestosterone. Current testosterone replacement therapy products for men include deep intramuscular injections, transdermal patches and gels. Theinjections require frequent visits to a physician and may be associated with pain at the injection site and abscess. The transdermal patches maycause skin irritation and patient inconvenience associated with wearing and changing external patches. We believe that ANDROSORB may offerseveral advantages over these current 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 with transdermalpatches. We completed a Phase II dose ranging study in testosterone deficient women in the fourth quarter of 2000 and expect to begin additionalPhase II trials in the first quarter of 2002.6Table of Contents ANDRO-JECT™. We also have in preclinical development ANDRO-JECT, a depot delivery system for testosterone. ANDRO-JECT representsour initial application for our Sterisome technology, a new oil-free, cholesterol-free depot drug delivery system. ANDRO-JECT is deliveredsubcutaneously with a small, 25 gauge needle and potentially has long-lasting effects. In animal studies, therapeutic levels of testosterone weremaintained for two weeks after one subcutaneous injection. We expect to file an Investigational New Drug application for ANDRO-JECT in the firsthalf of 2002. Progestin Lotion. We are also currently undertaking preclinical development of a transdermal progestin lotion. We expect to file anInvestigational New Drug application for this product in the second half of 2002. The use of progestins in combination with estrogen is becomingstandard therapy for menopausal women who take estrogen replacement therapy and have an intact uterus. The use of ESTRASORB incombination with our progestin lotion would compete with estrogen/progestin combination products. Infectious Diseases We develop and produce live virus suspensions and vaccines for governmental, commercial and academic clients. Our capabilities includeexperimental vaccine development, vaccine safety testing, production and testing of tissue culture systems and repository management, includingthe storage, tracking and shipment of thousands of biological specimens. In addition, we have one of the few locations in the world that producesexperimental live viral vaccines for Phase I and II clinical trials. We also develop recombinant virus-like particles for use as vaccines againstinfectious diseases. Our vaccine product candidates include the following: HPV 16 Vaccine. Our human papillomavirus type 16 virus-like particle vaccine product, a single protein vaccine, is being developed withsponsorship by the National Cancer Institute. Expected to begin lengthy Phase III trials in Costa Rica in 2002, the vaccine is being tested for theprevention of human papillomavirus infection, which has been implicated in a majority of cases of cervical cancer. We are also developing a multi-protein human papillomavirus vaccine which will be tested for the treatment and prevention of human papillomavirus infection. This multi-proteinvaccine, which also uses our virus-like particle technology, is currently in pre-clinical development. Inactivated Smallpox Vaccine. Based upon the potential threat of a smallpox outbreak due to terrorist activity, there is an urgent need for asafe and effective smallpox vaccine which can be administered to the entire U.S. population. The current live virus smallpox vaccine cannot safelybe given to all persons. There are a significant number of people, up to 20% of the total population by some estimates, who may experiencesevere reactions to a live vaccine due to weakened immune systems. For example, people with HIV/ AIDS, the elderly, transplant recipients andpeople on chemotherapy may have compromised immune systems. We have in pre-clinical development an inactivated smallpox vaccine whichmay have a better safety profile than that of the existing live virus vaccine. Initial animal studies indicate that our inactivated smallpox vaccineachieved an immune response comparable to that of the live smallpox vaccine. We are currently in discussions with the NIH regarding the furtherdevelopment of this vaccine and we believe that Phase I trials could be initiated in 2002. Collaborative Agreements We have significant involvement in collaborations, sponsored research agreements and preclinical and clinical testing agreements withacademic institutions and with U.S. government agencies in connection with the development of our pharmaceutical product candidates and ourvaccine adjuvants. For example, we have executed a Cooperative Research and Development Agreement with the NIH under which we areworking, in cooperation with the National Institute of Allergy and Infectious Diseases branch of the NIH, to make and evaluate a malaria vaccinecandidate. Current efforts under this agreement are focused on producing a vaccine based on an antigen present in the malaria parasiteresponsible for the greatest mortality from this disease worldwide. We have also executed a Cooperative Research and Development Agreementwith the NIH which is directed towards our work with the Stroke Branch of the National Institute of Neurological Disorders department of the NIH.The principal goal of this agreement is to evaluate the safety of therapeutics for the7Table of Contentsprevention of strokes. These and other collaborative agreements provide us with the opportunity to utilize the technical expertise and staff of theinstitutions involved and to gain access to clinical evaluation models, patients and related technologies.Our Platform Technologies TechnologyDescriptionProductsMicellar Nanoparticles Submicron-sized, water miscible, lipid structures derived fromamphiphilic molecules which allow transdermal delivery of alcohol-soluble materials ESTRASORB and ANDROSORBNovasomes® Non-phospholipid liposomes which can be used as an adjuvant toenhance vaccine effectiveness Smallpox vaccineVirus-like particles Non-infectious self assembling protein vaccines Human papillomavirus vaccineand Malaria vaccineSterisome Subcutaneous injections which deliver long-acting drug effect ANDRO-JECT Our product development efforts are focused on the research and development of proprietary transdermal, oral and injectable drug delivery andvaccine technologies and the applications of those technologies. Our technology platforms involve the use of proprietary microscopic lipidstructures as vehicles for the delivery of a wide variety of drugs and other therapeutic products, including hormones, anti-bacterial and anti-viralproducts and vaccine adjuvants. In addition, our vaccine technology can be utilized for the development of prophylactic and therapeutic vaccines.We believe our innovative technologies may allow for a more cost-effective and stable delivery of a wider variety of drugs and other therapeuticsthan commercially available phospholipid liposomes and other delivery vehicles. Our technologies may also be preferred over other availabletransdermal delivery systems because they are easy to use, provide rapid onset of therapy and may reduce side effects such as skin irritation. Inaddition, future applications of our transdermal delivery systems may show advantages over injectable delivery technologies, which are invasive,inconvenient and sometimes painful. Micellar Nanoparticle Emulsions. Micellar nanoparticle emulsions are proprietary, submicron-sized, water miscible, lipid structures derived fromamphiphilic molecules. We believe that our micellar nanoparticle emulsions are the first substances able to encapsulate alcohol soluble materialsfor delivery through the skin. The micellar nanoparticle emulsion formulations we use for the transdermal delivery of drugs have properties similarto creams and lotions. Micellar nanoparticle emulsions are the fundamental technology platform for our hormone replacement therapies, includingour ESTRASORB and ANDROSORB product candidates. We believe that our patent on this technology lasts until 2015. Novasome Non-Phospholipid Vesicles. In addition to our micellar nanoparticle emulsion technology, we have developed Novasome non-phospholipid liposomes. Novasomes are proprietary liposomes in which drugs or other materials can be encapsulated for delivery into the bodyorally or by injection. They are made using our patented manufacturing processes from a variety of readily available chemicals called amphiphiles.We believe that our Novasome technology may provide effective and safe adjuvant carrier systems for a variety of vaccines. Our initial use of thistechnology will be in the development of vaccines for smallpox and other infectious diseases. Virus-Like Particles. We also develop recombinant virus-like particles for use as vaccines against infectious diseases. Virus-like particles areself assembling protein structures which resemble viruses. These are non-infectious particles which can generate immune responses whenadministered as vaccines. We have several ongoing development programs involving virus-like particles, including human papillomavirusvaccines, melanoma vaccines, malaria vaccines, influenza vaccines and anti-stroke therapeutics. Sterisomes. Sterisomes are our proprietary drug delivery system comprised of 80% water, 15% drug and 5% lipid. Sterisomes can be used asa depot delivery system for certain steroidal hormones. We currently have8Table of Contentsin preclinical development a long-acting subcutaneous injectable formulation of testosterone utilizing this delivery system. Initial animal studiessuggest that therapeutic levels of testosterone can be maintained for several weeks.Manufacturing The development and manufacture of our products are subject to good laboratory practices and good manufacturing practices prescribed bythe FDA and to other standards prescribed by the appropriate regulatory agencies in other countries. We currently utilize third party contractmanufacturers to manufacture our existing product line, but we do have the ability to produce limited quantities of products needed to support ourcurrent research and development program and clinical trials. We currently manufacture ESTRASORB in 100 liter-size vessels at a pilot facilityowned by Packaging Coordinators, Inc., a division of Cardinal Health, Inc. We recently entered into an agreement with Packaging Coordinators tolease a 20,000 square foot facility at this same location and are in the process of building out the facility to our requirements and installingmanufacturing equipment to accommodate larger-scale clinical trials and commercial production of ESTRASORB. This manufacturing facility mayalso provide us with sufficient capacity for the commercial production of other new products. Products at this facility will be manufactured usingour machinery and employees. Packaging Coordinators will perform the final fill and packaging of these products on a dedicated line and we are inthe process of selecting a third party logistics company to distribute the products. In addition, we have entered into an agreement with ParkedalePharmaceuticals, Inc., a subsidiary of King, which allows us to use manufacturing facilities at Parkedale to manufacture HPV16 vaccines forPhase III clinical trials. Despite the addition of these new facilities, we may also need to rely on collaborators, licensees or direct access to othermanufacturing facilities for future later-stage clinical trials and commercial production efforts. There can be no assurance that we will be able toenter into such relationships or obtain needed facilities to manufacture products in a timely manner at acceptable quality and prices, or that we orour suppliers will be able to comply with good laboratory practices or good manufacturing practices, as applicable, or manufacture an adequatesupply of product.Competition The specialty pharmaceutical industry is intensely competitive and is characterized by rapid technological progress. We compete withspecialized biopharmaceutical firms and large pharmaceutical companies, in the United States, Europe and elsewhere, that are engaged in thediscovery, development and marketing of hormone replacement therapies, vaccine products and other products that do or could compete with ourcurrently marketed products and our product candidates. These companies, as well as academic institutions, governmental agencies and privateresearch organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Many large companies currently produce and sell estrogen products for clinical indications identical to those that we seek for ESTRASORB. Inthe oral product segment of the estrogen replacement therapy market, which accounts for approximately 78% of the market, the Wyeth-Ayerstdivision of American Home Products Corporation commits significant resources to the sale and marketing of its product, Premarin®, in order tomaintain its market leadership position. Warner-Chillcot also competes in the branded oral product segment with its product, Estrace®.ESTRASORB, if approved, will also compete with products produced and sold by generic manufacturers in the oral product segment of the market,such as Watson Pharmaceutical, Inc., with its generic product, Estropipate®, and Apothecon, Inc., with its generic product, Estradiol. In the transdermal patch segment of the estrogen replacement therapy market, which accounts for approximately 14% of the market, severalcompanies sell transdermal estrogen patches with which ESTRASORB will compete, if approved. For example, Novartis Pharma AG currentlymarkets and sells its Vivelle® and Estraderm® transdermal products and Berlex Laboratories, Inc. and Forest Laboratories, Inc. co-promote theClimara® transdermal patch.9Table of Contents Several companies currently market estrogen gels, which deliver estrogen transdermally, outside the U.S. We are also aware of at least oneU.S. company with a gel-based estrogen replacement product in clinical trials. Our currently marketed products also face significant competition. The prenatal vitamin market, for example, is very fragmented with manycompetitors. A number of companies that are larger than us, and have greater resources than we do, sell prenatal vitamins that compete withNestabs, including Warner-Chillcot, Solvay Pharmaceuticals, Mead Johnson and many generic manufacturers. The competition to develop newFDA-approved prenatal vitamins is also intense. In addition, Gynodiol, our oral estrogen replacement therapy product, competes with the estrogenreplacement therapy products described above. In general, competition among pharmaceutical products will be based in part on product efficacy, safety, reliability, availability, price andpatent position. An important factor will be the relative timing of market introduction of our products and our competitors’ products. Accordingly, thespeed with which we can develop products, complete the clinical trials and approval processes and supply commercial quantities of the productsto the market, is expected to be an important competitive factor. Our competitive position will also depend upon our ability to attract and retainqualified personnel, to obtain patent protection or otherwise develop proprietary products or processes and to secure sufficient capital resources forthe often substantial period between technological conception and commercial sale.Patents and Proprietary Information We currently have 54 U.S. patents and approximately 150 foreign patents and patent applications covering our technologies. We have threepending U.S. patent applications covering the composition, manufacture and use of our organized lipid structures and related technologies. Werecently filed 15 new patent applications directed towards innovative discoveries made in the field of human vaccines. A current U.S. patent issued in 1997 covers our micellar nanoparticle technology and methods of their production. Micellar nanoparticles arethe structures which allow for ESTRASORB’s unique transdermal delivery of estradiol. The Federal Technology Transfer Act of 1986 is designed to encourage the dissemination of science and technology innovation and providesharing of technology that has commercial potential. Consistent with statutory guidelines issued under the Act, the Company’s collaborativeresearch efforts with the government or with other private entities receiving federal funding may provide that developments and results will befreely published, that information or materials supplied by us will not be treated as confidential and that we will be required to negotiate a license toany such developments and results in order to commercialize products. There can be no assurance that we will be able to successfully obtain anysuch license at a reasonable cost or that such developments and results will not be made available to our competitors on an exclusive ornonexclusive basis.Government Regulation Our research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in theUnited States and other countries. In the United States, the development, manufacturing and marketing of human pharmaceuticals are subject toregulation for safety and efficacy by the FDA in accordance with the Food, Drug and Cosmetic Act. The steps required before new products for use in humans may be marketed in the United States include (i) preclinical tests, (ii) submission tothe FDA of an Investigational New Drug application, which must be approved before human clinical trials commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) submission of a New Drug Application for a new drug or aProduct License Application for a new biologic to the FDA and (v) FDA approval of the New Drug Application or Product License Application priorto any commercial sale or shipment of the product. Preclinical tests include laboratory evaluation of product formulation and animal studies (if anappropriate animal model is available) to assess the potential safety and efficacy of the product. Formulations must be10Table of Contentsmanufactured according to good manufacturing practices and preclinical safety tests must be conducted by laboratories that comply with FDAregulations regarding good laboratory practices. The results of the preclinical tests are submitted to the FDA as part of an Investigational New Drug application and are reviewed by the FDAprior to the commencement of human clinical trials. There can be no assurance that submission of an Investigational New Drug application willresult in FDA authorization to commence clinical trials. The FDA may deny a New Drug Application or Product License Application if applicableregulatory criteria are not satisfied, may require additional testing or information, or may require post-marketing testing and surveillance to monitorthe safety of the applicable products. In addition to obtaining FDA approval for each Product License Application, an Establishment License Application must be filed and approvedby the FDA for the manufacturing facilities of a biologic product before commercial marketing of the biologic product is permitted. This regulatoryprocess may take many years and requires the expenditure of substantial resources. In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, theEnvironmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potentialfuture federal, state or local regulations. Our research and development involves the controlled use of hazardous materials, chemicals and viruses.Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state andfederal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such anaccident, we could be held liable for any damages that result, and any such liability could exceed our resources. There have been a number of federal and state proposals during the last few years to subject the pricing of pharmaceuticals to governmentcontrol and to make other changes to the medical care system of the United States. It is uncertain what legislative proposals will be adopted orwhat actions federal, state or private payors for medical goods and services may take in response to any medical reform proposals or legislation.We cannot predict the effect medical reforms may have on our business, and no assurance can be given that any such reforms will not have amaterial adverse effect.Employees We currently have 173 full-time employees, of whom 38 are in research and development. Of those 38 employees in research anddevelopment, eight have earned PhD degrees and one is a medical doctor. We have no collective bargaining agreement with our employees andbelieve that our employee relations are good.Risks and Uncertainties You should carefully read the following risk factors in evaluating our business. Some of the following risks relate principally to our businessand the industry in which we operate. Other risks relate principally to the securities market and ownership of our common stock. If any of thefollowing risks occur, our business, financial condition or operating results could be adversely affected. You should also consider the otherinformation described in this report. Our success is heavily dependent on FDA approval and market acceptance of ESTRASORB Our New Drug Application for ESTRASORB was accepted for filing by the FDA in August 2001. There is no guarantee that the FDA willapprove our application and allow us to begin selling ESTRASORB in the United States. If we do not receive FDA approval of our application, ourinability to sell ESTRASORB in the United States would have a significant negative effect on our business and results of operations. Even ifESTRASORB is approved by the FDA, there is no guarantee that we and King our marketing partner for ESTRASORB, will be able to successfullycommercialize ESTRASORB. Many factors could negatively affect our ability to successfully commercialize ESTRASORB, including: • a failure or delay in ESTRASORB gaining a meaningful share of the estrogen replacement therapy market, whichcurrently is dominated by Premarin®, an oral estrogen tablet, sold by a division of11Table of Contents American Home Products Corporation, and estrogen patches sold by several companies including Novartis PharmaAG, Berlex Laboratories, Inc. and Forest Pharmaceuticals, Inc.; • our inability to effectively promote and sell ESTRASORB with King in the United States, or King’s inability to do soin the rest of the world; • delays in the manufacture of ESTRASORB in commercial quantities; and • the inability to obtain coverage and favorable reimbursement rates for ESTRASORB from insurers and other thirdparty payors. We will face substantial competition in connection with the sale of ESTRASORB and our other product candidates We compete with numerous other companies worldwide that have developed or are developing products that compete or may compete with ourproduct candidates. These competitors include both large and small pharmaceutical companies, biotechnology firms, universities and otherresearch institutions. We may not succeed in developing technologies and products that are more effective than those being developed by ourcompetitors. Many large companies currently produce and sell estrogen products for clinical indications identical to those that we seek for ESTRASORB. Inthe oral product segment of the estrogen replacement therapy market, which accounts for approximately 78% of the market, Wyeth-AyerstLaboratories, a division of American Home Products Corporation, commits significant resources to the sale and marketing of its product,Premarin®, in order to maintain its market leadership position. Warner-Chillcot also competes in the branded oral product segment with its product,Estrace®. In addition, ESTRASORB will also compete with products produced and sold by generic manufacturers in the oral product segment ofthe market, such as Watson Pharmaceutical, Inc., with its generic product, Estropipate®, and Apothecon, Inc., with its generic product, Estradiol.In the patch segment of the market, which accounts for approximately 14% of the estrogen replacement therapy market, several companiesmarket transdermal estrogen patches with which ESTRASORB will compete, if approved. For example, Novartis Pharma AG currently marketsand sells its Vivelle® and Estraderm® patches and Berlex Laboratories, Inc. and Forest Pharmaceuticals Inc. co-promote the Climara®transdermal patch. Several companies also currently market alcohol-based estrogen gels and ointments outside the United States. For example,Schering Canada sells its estrogen gel, Estrogel®, in Canada. These and other products sold by our competitors have all been approved for saleand have achieved some degree of market penetration. If ESTRASORB is approved for sale in the Untied States, it will compete for market sharewith these products and we cannot guarantee that together with King, we will be able to effectively promote ESTRASORB against thesecompetitive products. In order to effectively compete, we may make substantial investments in sales and marketing. Many of these products aresold by companies with greater resources than we have and there is no assurance that we will be successful in gaining significant market share forESTRASORB or in earning a return on that investment. Our technologies and products may be rendered obsolete or noncompetitive as a result of products introduced by competitors. Most of ourcompetitors have substantially greater financial and technical resources, production and marketing capabilities, and related experience than us.The greater resources, capabilities and experience of our competitors may enable them to develop, manufacture and market their products moresuccessfully and at a lower cost than we can. In addition, many of our competitors have significantly greater experience than us in conductingpreclinical testing and clinical trials of human pharmaceuticals and obtaining regulatory approvals to market such products. Accordingly, ourcompetitors may succeed in obtaining FDA approval for products more rapidly than us which may give them an advantage over us in achievingmarket acceptance of their products. We may need additional capital to grow and operate our business and we are uncertain about obtaining future financing12Table of Contents We estimate that our existing cash resources will be sufficient to finance our operations at current and projected levels of development andgeneral corporate activity for the next 12 to 15 months. We cannot be certain that we will be able to generate sufficient revenues from productsales in the near term or at all. We may require additional funds to continue our research and development, commence future preclinical andclinical trials, seek regulatory approvals, establish commercial-scale manufacturing capabilities and market our products. We may seek additionalfunds through public or private equity or debt financings, collaborative arrangements with pharmaceutical companies and other sources. We cannotbe certain that adequate additional funding or bank financing will be available to us on acceptable terms, if at all. If we cannot raise the additionalfunds we may need to continue our current and anticipated operations, we may be required to delay significantly, reduce the scope of or eliminateone or more of our research or development programs. If that is the case we will seek other alternatives to avoid insolvency, includingarrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates orproducts. We have a history of losses and our future profitability is uncertain Our expenses have exceeded our revenues since our formation in 1987, and our accumulated deficit at December 31, 2001 was $64.8 million.Our revenues for the last three years were, $1.2 million in 1999, $2.5 million in 2000 and $24.0 million in 2001. Sales of products that we acquiredas a result of our acquisition of Fielding Pharmaceutical Company have generated modest revenues, but based on our current business plan theserevenues will not be sufficient to offset our expenses in the future. We cannot be certain of when or if we will generate substantial revenues fromthe sale of ESTRASORB. We have received a very limited amount of product-related revenue from research contracts, licenses and agreementsto provide vaccine products, services and adjuvant technologies. We cannot be certain that we will be successful in entering into strategicalliances or collaborative arrangements with other companies that will result in other significant revenues to offset our expenses. Our net losses forthe last three years were $4.5 million in 1999, $12.2 million in 2000 and $9.7 million in 2001. Our losses have resulted from research anddevelopment expenses, protection of our patents and other intellectual property and other general operating expenses. We expect that our annuallosses will increase in the near term as we expand our manufacturing capacity, sales and marketing capabilities and conduct additional and largerclinical trials for other product candidates. Therefore, we expect our cumulative operating loss to increase until such time, if ever, as productsales, licensing fees and royalty payments generate sufficient revenue to fund our continuing operations. We cannot predict when, if ever, wemight achieve profitability and cannot be certain that we will be able to sustain profitability, if achieved. We intend to allocate a significant portion of our sales personnel’s time to the product launch of ESTRASORB, if and when it is approved bythe FDA. Accordingly, the sales of our other women’s health products could be adversely affected by the efforts we allocate to the ESTRASORBproduct launch. The costs of maintaining our own sales force to market our current products and ESTRASORB, if approved, may in the futureexceed product revenues. If we continue to market ESTRASORB or future products directly, significant additional expenditures and managementresources may be required to increase the size of our internal sales force. Our sales and marketing plan for ESTRASORB depends in large part on the success of our relationship with King We have entered into a co-promotion agreement with King for the marketing and promotion of ESTRASORB in the United States using oursales and marketing personnel and King’s sales and marketing personnel. We have also granted King exclusive rights to promote, market anddistribute ESTRASORB outside the United States. In return, we received certain milestone payments, potential future milestone payments,licensing fees and royalties on future sales. While our agreements with King give us some limited protections with respect to King’s marketing andsales efforts and, we believe, creates financial incentives for King consistent with our own, we cannot control the amount and timing of marketingefforts that King devotes to ESTRASORB or make any assurances that our and King’s co-promotion of ESTRASORB in the United States andKing’s marketing of ESTRASORB in the rest of the world will be successful.13Table of Contents Our success in marketing other potential future products will also depend in large part on our relationship with King. Our co-promotionagreement with King also provides for co-promotion in the United States with King of our product candidate ANDROSORB™ and our humanpapillomavirus vaccine, if any of these products are approved for marketing by the FDA, and gives King an exclusive worldwide license, except inthe United States, to market these future products. Under our co-promotion agreement, King has the right to co-promote future hormonereplacement therapy products in the field of women’s health. If King exercises this right with respect to a particular product candidate, King isobligated to share equally with us in the development costs of such product. In the future, we might enter into other licensing or co-promotionarrangements with King or other third parties for the marketing and sale of other future products. Any revenues we receive from sales ofANDROSORB™ and other future products will depend in large part on the terms of these agreements and the efforts of King and any other third-party marketing partners. Our agreements with King may reduce the likelihood that we could be acquired by another company Our co-promotion agreement and license agreement with King for the marketing of ESTRASORB and ANDROSORB contain several provisionswhich would take effect upon a change of control of Novavax. One provision allows King several options in the event of a change in control ofNovavax including (i) terminating our right to co-promote King products, (ii) terminating our rights to promote ESTRASORB and ANDROSORB andany other hormone therapies for women for which King is paying 50% of the development costs or (iii) requiring us to assign and transfer to Kingall related rights of ownership for ESTRASORB and ANDROSORB and any such other hormone replacement therapies for women and license toKing on an exclusive and perpetual basis all related intellectual property rights and know how. If King chooses to exercise its rights under eitherclause (ii) or (iii) above, King will pay us royalties on net sales of the products. In addition, King will pay us for the cost of manufacturing, plus amarkup consistent with the terms of the license agreement for the handling costs. King could also require that we redeem the outstandingpromissory notes, currently in the amount of $30.0 million, at 101% of the outstanding principal and accrued interest. These provisions may havethe effect of making us less attractive as an acquisition candidate. We need additional manufacturing capability to commercialize our products We do not have any experience with the large capacity manufacturing required for commercial sale of a product. Although we have had theability to produce the limited quantities of products needed to support our current research and development program and clinical trials, we willneed more production capacity for larger, later-stage clinical studies and commercial sales. Our potential products may be too difficult or costly tomanufacture on a large scale, to develop into commercially viable products or to market. We are in the process of validating our manufacturing methods for ESTRASORB, which is required under FDA guidelines, and are awaitingFDA approval of these methods. We currently manufacture ESTRASORB at a facility of Packaging Coordinators, Inc., a subsidiary of CardinalHealth, Inc. We recently entered into an agreement with Packaging Coordinators to lease 20,000 square feet of space within their facility. Underthe terms of this agreement, Packaging Coordinators will provide packaging services for the product we manufacture in their facility. We are in theprocess of building out the facility to meet our requirements and installing manufacturing equipment at this facility with the capacity required forcommercial production of ESTRASORB. Once this new equipment is installed, we will need to confirm that the ESTRASORB made using this newequipment is identical to that used in our clinical trials. If we are unable to make ESTRASORB on a commercial scale or are delayed in validatingthe product manufactured with our new equipment, the commercialization of ESTRASORB would be delayed. In the near term, we will be manufacturing ESTRASORB only in the Packaging Coordinators facility. If ESTRASORB is approved by the FDA,we plan to qualify at least one additional site for the manufacture of ESTRASORB. If we are unable to utilize the Packaging Coordinators facility tomanufacture ESTRASORB prior to our qualification of a second site, however, we would not have immediate access to ESTRASORB and wouldbe required to reestablish our validation process at a different facility which would cause us to lose sales of ESTRASORB and would adverselyaffect our business.14Table of Contents We currently utilize third party contract manufacturers to manufacture our other products. Any contract manufacturer’s facility that we mayuse, including the Packaging Coordinators facility, must adhere to the FDA’s regulations on current good manufacturing practices, which areenforced by the FDA through its facilities inspection program. These facilities are subject to periodic inspection by the FDA. The manufacture ofproducts at these facilities will be subject to strict quality control testing and recordkeeping requirements. We may not be able to enter intoalternative manufacturing arrangements at commercially acceptable rates, if at all. Moreover, the manufacturers utilized by us may not providequantities of product sufficient to meet our specifications or our delivery, cost and other requirements. If we decide to manufacture our own products, we will need to acquire additional manufacturing facilities and to improve our manufacturingtechnology. Establishing additional manufacturing facilities will require us to spend substantial funds, hire and retain a significant number ofadditional personnel and comply with extensive regulations applicable to such facilities here and abroad, including the current good laboratorypractices and good manufacturing practices required by the FDA. If we elect to or need to manufacture our own products, we risk the possibilitythat we may not be able to do so in a timely fashion at acceptable quality and prices or in compliance with good laboratory practices and goodmanufacturing practices. We have not completed the development of many of our products and we may not succeed in obtaining the FDA approval necessary to sell anyadditional products The development, manufacture and marketing of our pharmaceutical products are subject to government regulation in the United States andother countries. In the United States and most foreign countries, we must complete rigorous preclinical testing and extensive human clinical trialsthat demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product. Only a few of our productshave been approved for sale and our application to sell ESTRASORB in the United States is currently being reviewed by the FDA. Two of ourproduct candidates, ANDROSORB and our human papillomavirus virus-like particle vaccine, are now in Phase II human clinical studies. Inaddition, Phase I clinical trials for our Hepatitis E vaccine are currently being conducted. Our other product candidates are in preclinical laboratoryor animal studies. Before applying for FDA approval to market any additional product candidates, we must conduct larger-scale Phase II and IIIhuman clinical trials that demonstrate the safety and efficacy of our products to the satisfaction of the FDA or other regulatory authorities. Theseprocesses are expensive and can take many years to complete. We may not be able to demonstrate the safety and efficacy of our products to thesatisfaction of the FDA or other regulatory authorities. We may also be required to demonstrate that our proposed products represent an improvedform of treatment over existing therapies and we may be unable to do so without conducting further clinical studies. We may fail to obtain regulatory approval for our products on a timely basis. Delays in obtaining regulatory approval can be extremely costly interms of lost sales opportunities and increased clinical trial costs. The speed with which we complete our clinical trials and our applications formarketing approval will depend on several factors, including the following: • the rate of patient enrollment, which is a function of many factors, including the size of the patient population, theproximity of patients to clinical sites, the eligibility criteria for the study and the nature of the protocol; • institutional review board approval of the protocol and the informed consent form; • prior regulatory agency review and approval; • analysis of data obtained from preclinical and clinical activities which are susceptible to varying interpretations,which interpretations could delay, limit or prevent regulatory approval; • changes in the policies of regulatory authorities for drug approval during the period of product development; and • the availability of skilled and experienced staff to conduct and monitor clinical studies and to prepare theappropriate regulatory applications.15Table of Contents We have limited experience in conducting and managing the preclinical and clinical trials necessary to obtain regulatory marketing approvals.We may not be able to obtain the approvals necessary to conduct clinical studies. Also, the results of our clinical trials may not be consistent withthe results obtained in preclinical studies or the results obtained in later phases of clinical trials may not be consistent with those obtained inearlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even afterexperiencing promising results in early animal and human testing. If regulatory approval of a drug is granted, such approval is likely to limit theindicated uses for which it may be marketed. Furthermore, even if a product of ours gains regulatory approval, the product and the manufacturer ofthe product will be subject to continuing regulatory review. We may be restricted or prohibited from marketing or manufacturing a product, evenafter obtaining product approval, if previously unknown problems with the product or its manufacture are subsequently discovered. Our success depends on our ability to maintain the proprietary nature of our technology Our success will, in large part, depend on our ability to maintain the proprietary nature of our technology and other trade secrets. To do so, wemust prosecute and maintain existing patents, obtain new patents and pursue trade secret protection. We also must operate without infringing theproprietary rights of third parties or letting third parties infringe our rights. We currently have 54 U.S. patents and approximately 150 foreign patentsand patent applications covering our technologies. We have three pending U.S. patent applications covering the composition, manufacture and useof our organized lipid structures and related technologies. We recently filed 15 new patent applications directed towards innovative discoveriesmade in the field of human papillomavirus. However, patent issues relating to pharmaceuticals involve complex legal, scientific and factualquestions. To date, no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the United StatesPatent and Trademark Office or enforced by the federal courts. Therefore, we do not know whether our applications will result in the issuance ofpatents, or that any patents issued to us will provide us with any competitive advantage. We also cannot be sure that we will develop additionalproprietary products that are patentable. Furthermore, there is a risk that others will independently develop or duplicate similar technology orproducts or circumvent the patents issued to us. There is a risk that third parties may challenge our existing patents or may claim that we are infringing their patents or proprietary rights. Wecould incur substantial costs in defending patent infringement suits or in filing suits against others to have their patents declared invalid or claiminfringement. It is also possible that we may be required to obtain licenses from third parties to avoid infringing third-party patents or otherproprietary rights. We cannot be sure that such third-party licenses would be available to us on acceptable terms, if at all. If we are unable toobtain required third-party licenses, we may be delayed in or prohibited from developing, manufacturing or selling products requiring such licenses. Although our patents include claims covering various features of our product candidates, including composition, methods of manufacture anduse, our patents do not provide us with complete protection against the development of competing products. For example, our patents do notprohibit third parties from developing and selling products for estrogen replacement therapy that deliver estrogen through a topical lotion, ointmentor similar medium. Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and tradesecrets, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may notprovide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Health care insurers and other payors may not pay for our products or may impose limits on reimbursement Our ability to commercialize ESTRASORB and our future products will depend, in part, on the extent to which reimbursement for suchproducts will be available from third-party payors, such as Medicare, Medicaid, health maintenance organizations, health insurers and other publicand private payors. If we succeed in bringing ESTRASORB or other products in the future to market, we cannot assure you that third-party payors16Table of Contentswill pay for ESTRASORB or will establish and maintain price levels sufficient for realization of an appropriate return on our investment in productdevelopment. For example, ESTRASORB, if approved for commercial sale in the United States, would be sold as an outpatient prescription drug.Medicare does not cover the costs of most outpatient prescription drugs. We expect that ESTRASORB will be treated the same as other estrogenreplacement therapy products with respect to government and third-party payor reimbursement. However, we cannot assure you that ESTRASORBwill receive similar reimbursement treatment. Many health maintenance organizations and other third-party payors use formularies, or lists of drugs for which coverage is provided under ahealth care benefit plan, to control the costs of prescription drugs. Each payor that maintains a drug formulary makes its own determination as towhether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs inthe same class. This determination often involves an assessment of the clinical appropriateness of the drug and sometimes the cost of the drug incomparison to alternative products. We cannot assure you that ESTRASORB or any of our future products will be added to payor’s formularies,whether our products will have preferred status to alternative therapies, nor whether the formulary decisions will be conducted in a timely manner.We may also decide to enter into discount or formulary fee arrangements with payors, which could result in us receiving lower or discounted pricesfor ESTRASORB or future products. We may have product liability exposure The administration of drugs to humans, whether in clinical trials or after marketing clearances are obtained, can result in product liabilityclaims. We maintain product liability insurance coverage in the total amount of $9.0 million for claims arising from the use of our currentlymarketed products and products in clinical trials prior to FDA. Coverage is becoming increasingly expensive, however, and we may not be able tomaintain insurance at a reasonable cost. We cannot assure you that we will be able to maintain our existing insurance coverage or obtain coveragefor the use of our other products in the future. This insurance coverage and our resources may not be sufficient to satisfy liabilities resulting fromproduct liability claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future on commerciallydesirable terms, if at all. Even if a claim is not successful, defending such a claim may be time-consuming and expensive and may damage ourreputation in the marketplace. The price of our common stock has been, and may continue to be, volatile Historically, the market price of our common stock has fluctuated over a wide range. In fiscal 2001, our common stock ranged from a low of$6.35 to a high of $15.55. It is likely that the price of our common stock will fluctuate in the future. The market prices of securities of smallcapitalization Specialty pharmaceutical companies, including ours, from time to time experience significant price and volume fluctuations unrelatedto the operating performance of such companies. In particular, over the next year, the market price of our common stock may fluctuatesignificantly due to a variety of factors, including: • sales of our products, particularly ESTRASORB, if it is approved for sale; and • governmental agency actions, including the FDA’s determination with respect to our pending New Drug Applicationfor ESTRASORB.In addition, the occurrence of any of the risks described in this “Risks and Uncertainties” section could have a dramatic and adverse impact on themarket price of our common stock.Item 2. Properties We lease approximately 12,000 square feet of administrative offices for our corporate headquarters in Columbia, Maryland. We lease twofacilities in Rockville, Maryland. One facility is approximately 6,000 square feet and contains our certified animal facility and laboratories for ourdrug research and biologics development, which includes our vaccine adjuvant product and services group. In the other facility in Rockville, welease approximately 12,000 square feet of space. This facility is for contract vaccine research, development and manufacturing of Phase I and IIproducts. Our Fielding subsidiary leases a facility in17Table of ContentsMaryland Heights, Missouri. This facility is approximately 12,000 square feet and is used for administrative offices, manufacturing andwarehousing. In addition, in February 2002, we entered into a facilities reservation agreement through which we lease approximately 20,000 squarefeet of manufacturing space to meet our current and anticipated future production requirements for ESTRASORB. This facility is currentlyundergoing construction which is expected to be completed in the second quarter of 2002. We also lease one smaller facility. A summary of ourmaterial leased facilities is set forth below. PropertySquare FootagePurposeColumbia, Maryland 12,000 Corporate headquartersRockville, Maryland 6,000 Research and development activities and office spaceRockville, Maryland 12,000 Research and development activities and office spaceMaryland Heights, Missouri 12,000 Administrative, repackaging, warehousing and distributionPhiladelphia, Pennsylvania 20,000 Manufacturing and packaging of ESTRASORB We believe our facilities are adequate to accommodate our current business plan and anticipated short-term needs and that we will be able tolease additional comparable space, if necessary. However, if we choose to expand our manufacturing capacity, the lease or acquisition of, and thereceipt of required regulatory approvals for, additional pharmaceutical manufacturing space may be time-consuming and expensive. In addition, wemight not be able to obtain such additional manufacturing space on a timely basis or on terms acceptable to us, if at all.Item 3. Legal Proceedings We are not a party to any pending 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, 2001.Executive Officers Of The Registrant Our executive officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholders and until theirsuccessors are duly chosen and qualified, or until they resign or are removed from office in accordance with the our By-laws. The following table provides certain information with respect to our executive officers. Principal Occupation and Other BusinessNameAgeExperience During the Past Five YearsJohn A. Spears 52 President, Chief Executive Officer and Director since May 1999.President and Chief Executive Officer of Vion Pharmaceuticals,Inc. from August 1995 to May 1999.Denis M. O’Donnell, M.D. 48 Chairman of the Board of Directors of Novavax, Inc. since May2000. General Partner at Seaside Partners, LP, a private equitylimited partnership, since 1997. Vice Chairman of the Board ofDirectors of Novavax, Inc. from June 1999 to May 2000. SeniorAdvisor to Novavax from 1997 to 1998. President of Novavaxfrom 1995 to 1997. Vice President, Business Development ofNovavax from 1992 to 1995.D. Craig Wright, M.D. 51 Chief Scientific Officer of Novavax since 1993.18Table of Contents Principal Occupation and Other BusinessNameAgeExperience During the Past Five YearsJames R. Mirto 59 Senior Vice President and Chief Operating Officer since May2000. Vice President, New Product Development and Licensingof Ligand Pharmaceuticals, Inc. from August 1993 to February2000.Dennis W. Genge 49 Vice President and Treasurer, Chief Financial Officer sinceOctober 2000. Vice President and Controller of PyxisCorporation from April 1999 to September 2000. ExecutiveDirector of Accounting and Finance and Controller of LigandPharmaceuticals, Inc. from July 1991 to March 1999.Ann P. McGeehan 32 General Counsel since February 2002. Registered PatentAttorney of Covington & Burling from July 2000 to January 2002.Intellectual Property and Corporate Associate of McDermottWill & Emery from November 1998 to January 2000. IntellectualProperty and Corporate Associate of Pepper Hamilton fromJanuary 1998 to September 1998. Intellectual PropertyAssociate of Seidel Gonda Lavorgna Monaco from June 1996 toJanuary 1998.19Table of ContentsPART IIItem 5. Market For Registrant’s Common Equity and Related Stockholder Matters Our common stock was held by approximately 770 stockholders of record as of March 8, 2002. We have never paid cash dividends on ourcommon stock. We currently anticipate that we will retain all of our earnings for use in the development of our business and do not intend to payany cash dividends in the foreseeable future. Our common stock ($.01 par value) is traded on the Nasdaq National Market under the symbol NVAX. Prior to July 2001, our common stockwas traded on the American Stock Exchange under the symbol NOX. The following table sets forth, for the periods presented, the high and lowsales prices for our common stock, on the applicable exchange. Quarter Ended:HighLowDecember 31, 2001 $15.55 $10.51 September 30, 2001 14.50 9.06 June 30, 2001 11.00 6.35 March 31, 2001 11.00 7.10 December 31, 2000 9.48 6.75 September 30, 2000 9.19 6.13 June 30, 2000 8.63 4.50 March 31, 2000 12.38 4.75 Recent Sales of Unregistered Securities In January 2002, we issued 362,319 shares of common stock, valued at $5.0 million, to the former shareholders of Fielding PharmaceuticalCompany pursuant to the terms of an earn-out provision set forth in our merger agreement with Fielding, executed in December 2000. The shareswere issued in a private placement in reliance on Section 4(2) of the Securities Act and a resale registration statement was filed with theCommission and has become effective.Item 6. Selected Consolidated Financial Data The selected consolidated financial data set forth below has been derived from our audited consolidated financial statements. This informationshould be read in conjunction with the financial statements and the related notes thereto, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in Item 7 and other financial information included elsewhere in this Annual Report on Form 10-K. For the years ended December 31,19971998199920002001(amounts in thousands, except share and per share information)Statement of Operations Data: Revenues $520 $681 $1,181 $2,475 $24,066 Loss from operations (4,791) (5,152) (4,566) (12,742) (9,255)Net loss (4,547) (4,817) (4,506) (12,191) (9,745)Loss applicable to commonstockholders (4,547) (7,045) (4,506) (12,191) (9,745)Basic and diluted per shareinformation: Loss applicable to commonstockholders $(0.39) $(0.57) $(0.31) $(0.64) $(0.43)Weighted average number of sharesoutstanding 11,667,428 12,428,246 14,511,081 19,015,719 22,670,274 As of December 31,19971998199920002001Balance Sheet Data: Total current assets $4,303 $1,207 $1,143 $17,036 $25,027 Working capital 4,014 349 (480) 12,331 18,030 Total assets 6,823 3,819 4,463 56,529 67,115 Convertible debt — — — 20,000 30,000 Stockholders’ equity 6,522 2,961 2,840 31,824 27,493 20Table of ContentsSummarized Quarterly Financial Information for the Years ended December 31, 2001 and 2000: Quarter EndedMarch 31June 30September 30December 31(in thousands except per share data)“unaudited”2001 Revenues $4,966 $7,945 $5,038 $6,117 Cost of sales 1,043 1,061 822 1,126 Research and development costs 2,592 3,837 1,757 2,589 Selling, general and administrative expenses 3,484 4,729 4,831 5,450 Net loss (2,232) (1,808) (2,513) (3,192)Net loss per share $(.10) $(.08) $(.11) $(.14) 2000 Revenues $710 $588 $370 $807 Research and development costs 1,524 2,113 2,924 2,797 General and administrative expenses 641 1,302 822 3,094 Net loss (1,350) (2,641) (3,213) (4,987)Net loss per share $(0.08) $(0.14) $(0.17) $(0.25)Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements: The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements madeby or on behalf of the Company. The Company and its representatives may, from time to time, make written or verbal forward-looking statements,including statements contained in our filings with the Securities and Exchange Commission and in our reports to stockholders. Generally, theinclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” and similar expressions identify statements that constitute“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934 and that are intended to come within the safe harbor protection provided by those sections. The forward-looking statements are and will bebased upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as ofthe dates of such statements. This outlook represents our current judgment on the future direction of our business. Forward-looking statementsinclude, but are not limited to, statements regarding future product development and related clinical trials, statements regarding future research anddevelopment and statements concerning future results of operations. Such forward-looking statements involve known and unknown risks,uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to bematerially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factorsinclude, among other things, the following: general economic and business conditions; competition; technological advances; ability to obtain rightsto technology; ability to obtain and enforce patents; ability to commercialize and manufacture products; results of preclinical studies; results ofresearch and development activities; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure tocomply with, governmental regulations; ability to obtain adequate financing in the future; and other factors referenced herein. See our detaileddiscussion in “Risks and Uncertainties”. Past results and trends should not be used by investors to anticipate future results or trends.Overview Novavax is a fully-integrated specialty pharmaceutical company focused on the research, development and commercialization of productsutilizing our proprietary drug delivery and vaccine technologies for large and growing markets, concentrating on the areas of women’s healthcareand infectious diseases. Our lead product candidate, ESTRASORB™, is the first transdermal lotion for estrogen replacement therapy for which aNew Drug Application has been accepted for filing by the Food and Drug Administration. The New Drug Application for ESTRASORB wassubmitted in June 2001 and was accepted for filing in August 2001. We21Table of Contentsare seeking FDA approval of ESTRASORB for the reduction of hot flashes in menopausal women and, if approved, we believe ESTRASORB willbe competitively positioned to address the $1.8 billion estrogen replacement therapy market in the United States. In our Phase II and III clinicaltrials, women using ESTRASORB experienced a statistically significant reduction in the number of hot flashes, the primary endpoint of our study,with many women reporting a total elimination of hot flashes while using the product. We also believe that ESTRASORB offers additionaladvantages over other estrogen replacement therapies, including ease of use, more rapid onset of estrogen therapy and a lower incidence of skinirritation and nausea. Our drug delivery technologies involve the use of our patented oil and water emulsions which we believe can be used as vehicles for thetransdermal and injectable delivery of a wide variety of drugs and other therapeutic products, including hormones, anti-bacterial and anti-viralproducts and vaccine adjuvants, which are substances added to vaccines to enhance their effectiveness. We believe that our technologiesrepresent the first time that alcohol soluble hormones, such as estrogen and testosterone, have been encapsulated and delivered through the skin.In addition to ESTRASORB, our product candidates using these technologies include ANDROSORB™, a transdermal testosterone lotion that is inPhase II clinical trials, ANDRO-JECT™, a long-acting subcutaneous injectable formulation of testosterone that is in preclinical development, and atransdermal progestin lotion that is also in preclinical development. We also conduct research and development on preventative and therapeuticvaccines for a variety of infectious diseases. In December 2000, we acquired privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells,markets and distributes a proprietary line of pharmaceutical products focused on women’s health. Under the terms of the acquisition agreement,we acquired 100% of Fielding for $36.5 million. The acquisition has been accounted for in the accompanying financial statements under thepurchase method of accounting for business combinations. In December 2000 we entered into a Note Purchase Agreement with King Pharmaceuticals, Inc. (“King”) whereby we agreed to issue to King4% senior convertible promissory notes up to $25.0 million. On that same date, we issued a 4% senior convertible promissory note to King for$20.0 million in principal. In September 2001, we issued two additional 4% senior convertible promissory notes for $5.0 million each. All of thenotes, totaling $30.0 million (the “Notes”), are due December 19, 2007 with interest payable in semi-annual installments in cash, or in certaincircumstances, up to 50% in our common stock. In January 2001, we entered into a co-promotion agreement with King for the Company’s topical transdermal estrogen replacement therapy,ESTRASORB in the United States and Puerto Rico (the “Territory”). We also entered into a license agreement with King for many countries outsidethe United States. In June 2001, we expanded and amended the agreements (the “Amended Agreements”). The Amended Agreements grant Kingexclusive rights to promote, market and distribute ESTRASORB in Canada, and five additional countries in Europe, and added ANDROSORB, atopical testosterone replacement therapy for testosterone deficient women. We feel this partnership has the potential to provide us with deeperpenetration into the women’s healthcare market for ESTRASORB and ANDROSORB. Under the terms of the Amended Agreements we received$3.0 million from King in up-front licensing fees, and we will also receive additional milestone payments of $1.0 million upon ESTRASORB’sapproval in Canada and $2.0 million upon the first approval of ESTRASORB in one of the five additional countries in Europe. We will also receiveroyalties on future sales outside the Territory. Under the Amended Agreements, we also received a milestone payment from King of $2.5 million forour submission of the ESTRASORB New Drug Application, in June 2001, and an additional milestone payment of $2.5 million for the acceptancefor filing of our New Drug Application by the FDA in August 2001. In addition, the Amended Agreements also combined U.S. sales efforts with Kingto begin co-promoting one of King’s products already on the market, Nordette®, a birth control pill. In another agreement in January 2001, we also acquired AVC™Cream and Suppositories (“AVC”) from King for $3.3 million, which hadpreviously been marketed by King for the treatment of vaginal bacterial infections.22Table of ContentsSignificant Accounting Policies and Changes to Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differfrom those estimates. We have identified below some of our more significant accounting policies and changes to accounting policies. For further discussion of ouraccounting policies see Footnote 2 “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. Revenue Recognition We recognize revenue in accordance with the provisions of Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,whereby revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteria are met:persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed ordeterminable and collectibility is reasonably assured. Up-front payments and licensing fees are deferred and recognized as earned over the life ofthe related agreement. Milestone payments are recognized as revenue upon achievement of contract-specified events and when there are noremaining performance obligations. Revenues from product sales are recognized upon shipment, net of allowances for returns, rebates andchargebacks. We are obligated to accept from customers the return of pharmaceuticals, which have reached their expiration date. Revenues fromthe sale of scientific prototype vaccines and adjuvants are recorded as the products are shipped. Revenues earned under research contracts are recognized on the percentage of completion method as described in Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. The extent of progress toward completion ismeasured on the cost-to-cost method. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for theentire loss on the contract is made. Advertising and Promotion Costs All costs associated with advertising and promotion is expensed as incurred. Advertising and promotion expense, including samples, was $1.9million in 2001. Prior to 2001, we incurred no material advertising or promotional expenses. Our advertising and promotion expenses willsubstantially increase in 2002 as we prepare for the anticipated approval and subsequent launch of ESTRASORB. If the approval of ESTRASORBis delayed we will be able to defer some, but not all, of the expenses related to this product launch. Research and Development Costs Research and development costs are expensed as incurred. We will continue to incur research and development costs as we continue toexpand our product development activities in our women’s healthcare and infectious disease programs. Our research and development costs have,and will continue to include expenses for internal development personnel, supplies and facilities, clinical trials, regulatory compliance and filings,validation of processes and start up costs to establish commercial manufacturing capabilities. Goodwill and Intangibles Assets Goodwill and intangible assets principally result from business acquisitions. Assets acquired and liabilities assumed are recorded at their fairvalues; the excess of the purchase price over the identifiable net assets acquired is recorded as goodwill. Goodwill and intangible assets areamortized on a straight-line basis over their estimated useful lives, ranging from 5 to 15 years. The company periodically evaluates the periods ofamortization to determine whether later events and circumstances warrant revised estimates of useful lives.23Table of Contents In June 2001, the FASB issued SFAS No. 141 “Business Combination,” and SFAS No. 142 “Goodwill and Other Intangible Assets,” effectivefor fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will nolonger be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to beamortized over their useful lives. We will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. We will begin toperform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 and have not yetdetermined what the effect these test may have on our earnings and financial position. Amortization of goodwill for the year ended 2001 wasapproximately $2.5 million and will no longer be recorded subsequent to December 31, 2001. Future Accounting for Co-promotion Agreement In 2002 we anticipate marketing and selling ESTRASORB in the Territory. Under the terms of the co-promotion agreement with King we willrecord all of the product sales, returns and allowances and cost of sales for ESTRASORB. The resultant gross margin will be shared equally withKing and the payment to King will be recorded as a selling and marketing expense on our statement of operations. In the co-promotion agreementboth parties will also share equally in committee approved marketing expenses for the products. All direct marketing expenses will be recorded byus, for which King will reimburse us fifty percent. The following is a discussion of our historical consolidated financial condition and results of operations and should be read in conjunction withthe consolidated financial statements and notes thereto set forth in Item 8 to this Report.Results of Operations for the Years Ended 2001, 2000 and 1999Revenues Revenues for the year ended 2001 were $24.1 million compared to $2.5 million in 2000 and $1.2 million in 1999. This represents an increase of$21.6 million or 864% from 2000 to 2001, and an increase of $1.3 million or 108% from 1999 to 2000. The increase from 2000 to 2001 relatesprimarily to $17.3 million from products sales related to our acquisitions of Fielding and the AVC product line, $4.0 million for one-time milestonepayments from King for the timely submission and acceptance of our ESTRASORB New Drug Application by the FDA, and $125,000 for licensefees. In addition to our new revenue sources, we recorded $2.7 million from research and development contracts, primarily from the NationalInstitutes of Health and other governmental agencies. Revenues for 2000 included $750,000 in license fees from King and $1.7 million fromresearch and development contracts, including $1.4 million for contracts with the NIH and other government agencies. In 1999, our revenuesincluded $250,000 from a license agreement with King and $370,000 from contracts with the NIH and other governmental agencies. A summary ofour revenues is set forth below. 200120001999Product sales $17,252 $— $— Contract research and development 2,689 1,725 931 Milestone and licensing fees 4,125 750 250 Total revenue $24,066 $2,475 $1,181 Net Losses Net loss for 2001 was $9.7 million or $(0.43) per share, compared to $12.2 million or $(0.64) per share for 2000 and $4.5 million or $(0.31) pershare in 1999. The improvement from 2000 to 2001 of $2.5 million or $0.21 per share relates primarily to gross margin on product sales due to ouracquisitions of Fielding and the AVC product line and milestone revenue for payments from King, offset in 2001 by additional selling, general andadministrative costs to support those product sales, the initiation of commercialization activities for ESTRASORB24Table of Contentsand additional research and development costs. The increase in losses from 1999 to 2000 of $7.7 million or $(0.33) per share resulted fromadditional general and administrative costs associated with financing and acquisitions activities, the hiring of additional senior management andpersonnel to support our growth and increases in research and development expenses primarily due to costs associated with our clinical trials andmanufacturing process validation activities related to our ESTRASORB product candidate.Cost of Sales Cost of sales was $4.1 million in 2001. We had no product sales or cost of sales in 2000 or 1999. The increase relates to the acquisition ofproducts from Fielding and the AVC product line in December 2000 and January 2001, respectively. Our cost of sales, and related investment ininventory, will increase in 2002 as we prepare for the anticipated launch of ESTRASORB.Research and Development Expenses Research and development expenses were $10.8 million for 2001, compared to $9.4 million for 2000 and $3.4 million in 1999. The increasefrom 2000 to 2001 of $1.4 million or 15% was primarily due to costs associated with the filing of a New Drug Application for ESTRASORB and forinternal development costs associated with our infectious diseases programs offset by a decrease in clinical trial expenses. The increase from1999 to 2000 of $6.0 million or 176% was primarily due to costs associated with our clinical trials and manufacturing process validation of ourESTRASORB product candidate, which completed Phase III clinical trials in 2000, and the full year effect of expenses incurred by our vaccinedevelopment group which was acquired in late 1999. We generally do not track our historical research and development total costs by project; rather, we track external direct costs incurred byproject. Internal direct costs, such as labor in addition to overhead costs are not tracked by project. For this reason, we cannot accuratelyestimate with any degree of certainty what our historical costs have been for any particular research and development project. Reconciliation of Significant Research and Development Projects The following table reconciles the external direct costs incurred to date for our major projects to our total research and development expense. Project200120001999ESTRASORB (external cost) $4,327 $3,902 $945 Infectious Disease Vaccines 3,348 2,219 639 Direct costs 7,675 6,121 1,584 Other costs (labor & overhead) 3,100 3,237 1,770 Total $10,775 $9,358 $3,354 Estimated Cost and Time to Complete Major Projects The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, which mayadversely affect our liquidity and capital resources. As of December 31, 2001, several of our proprietary product candidates were in various stagesof development. Due to the inherent nature of our development, future market demand for products and factors outside of our control, such asclinical results and regulatory approvals, we are unable to estimate the completion dates and the estimated total costs for several of our products.However, due to the late stage status of our ESTRASORB project we25Table of Contentsbelieve that the duration and estimated cost to complete is reasonably predictable. We have included that information in the following table. 2002EstimatedEstimatedCurrentDevelopmentCompletionProjectStatusCostsDatesESTRASORB NDA filed $1-3 million 2002 In addition to the project listed above we are currently developing other product candidates, but do not believe that it is possible to estimatethe completion date or cost to complete. The duration and the cost of clinical trials may vary significantly over the life of a project as a result ofdifferences arising during clinical trial protocol, including, among others, the following: • number of patients that ultimately participate in the trial; • duration of the patient follow-up that seems appropriate in view of the results; • number of clinical sites included in the trials; and • length of time required to enroll suitable patient subjects. In addition, we test our potential products in numerous pre-clinical studies to identify among other things the daily dosage amounts. We mayconduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results for our trials we may elect todiscontinue clinical trials for certain product candidates or indications. We further believe that it is not possible to predict the length of regulatoryapproval time. Factors that are outside our control could significantly delay the approval and marketability of our product candidates. As a result of the uncertainties discussed above, among others, the duration and completion costs of our research and development projectsare difficult to estimate and are subject to numerous variations. Our inability to complete our research and development projects in a timelymanner could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seekadditional, external sources of financing from time to time in order to continue with our business strategy. For more discussion of the risk anduncertainties and our liquidity, see “Risks and Uncertainties” and “Liquidity and Capital Resources”.Selling and Marketing Expenses Selling and marketing expenses were $8.5 million for 2001. Prior to our acquisition of Fielding and the AVC product line in 2000 and 2001,respectively, and the anticipated approval of ESTRASORB we had no sales or marketing expense. In 2001, we incurred $4.1 million of sellingexpenses and $4.4 million of marketing costs to support our current product sales, as well as pre-launch marketing expense for our anticipatedlaunch of ESTRASORB. We expect selling and marketing costs to increase substantially with the commercialization of ESTRASORB in 2002. Inaddition, all payments made to King in connection with the co-promotion of ESTRASORB will be recorded as selling and marketing expenses inour statement of operations.General and Administrative General and administrative expenses were $10.0 million in 2001, compared to $5.9 million in 2000 and $2.4 million in 1999. The increase from2000 to 2001 of $4.1 million or 69% was due to a number of factors, including approximately $2.8 million of goodwill and intangible assetamortization related to our acquisitions of Fielding and the AVC product line, the increase in personnel from the Fielding acquisition, and the fulleffect of increases in administrative and executive employees hired during 2000 to support our growth. The increase from 1999 to 2000 of$3.5 million or 145% was due primarily to costs incurred for financing and acquisition activities and the hiring of additional senior management andpersonnel to support our growth.26Table of ContentsInterest Income/(Expense) Net interest expense was $490,000 in 2001 compared to interest income $551,000 in 2000 and $60,000 in 1999. The increase in the interestexpense relates to the issuance of the Notes, totaling $30.0 million to King, offset by additional interest income from higher cash balances during2001 compared to 2000. The increase in the interest income in 2000 relates to higher average cash balances from financing activities during 2000compared to 1999.Liquidity and Capital Resources Our capital requirements depend on numerous factors, including but not limited to the progress of our research and development programs, theprogress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the commercialization of our productcandidates, the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competingtechnological and market developments, and changes in our development of commercialization activities and arrangements. We plan to havemultiple products in various stages of product development and we believe our research and development as well as selling, marketing and generaladministrative expenses and capital requirements will continue to increase. Future activities including clinical development, the establishment ofcommercial-scale manufacturing capabilities and the development of sales and marketing programs are subject to our ability to raise funds throughdebt or equity financing, or collaborative arrangements with industry partners. From 1999 through December 31, 2001 we have financed ouroperations primarily from: • the private placement of 1,651,000 shares of common stock in 1999 with net proceeds of approximately $4.0 million; • the private placement of 2,813,850 shares of common stock in 2000 with net proceeds of approximately$10.5 million; • proceeds of approximately $30.0 million in 2000 and 2001 from issuance of the Notes to King (for details on thesetransactions, refer to our discussion in the Overview section above); • proceeds of $8.0 million from King in 2001 from licensing fees and milestone payments (for details on thesetransactions, refer to our discussion in the Overview section above); • and net proceeds of $12.9 million from 1999 through 2001 from the exercise of stock options and warrants. At December 31, 2001 we had cash and cash equivalents of $20.0 million, compared to $14.9 million at December 31, 2000. We invest ourcash and cash equivalents in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. The$5.1 million increase in 2001 was due to $15.4 million of financing activities from the issuance of $10.0 million of convertible notes and theexercise of $5.4 million in options and warrants, offset by our investments in capital equipment of $2.4 million and in the AVC product line of$3.3 million and cash used in operations of $4.6 million. Of the net $4.6 million used in operations, we used approximately $10.8 million to fund theactivities of our research and development programs and costs associated with obtaining regulatory approvals, clinical testing and manufacturingprocess validation. Working capital was $18.0 million at December 31, 2001 compared to $12.3 million at December 31, 2000. The increase inworking capital was primarily due to the cash flow activities above and the increase in accounts receivable of $2.9 million, offset by an increase incurrent liabilities of $2.3 million. We estimate that based on historical and projected levels of spending and revenues, and without giving effect to any future equity financing,existing cash resources will be sufficient to finance our operating activities for approximately 12 to 15 months. Past spending levels will not beindicative of future spending as we are currently incurring increased expenses for selling, marketing and start-up manufacturing costs inanticipation of the approval and subsequent launch of ESTRASORB. In addition, we have recently entered into a long term lease agreement for a20,000 square foot manufacturing facility for ESTRASORB. The leased area is currently being built out to meet our requirements and is expectedto be available in the second quarter of 2002. We have also placed orders for the equipment required to manufacture ESTRASORB at projected27Table of Contentscommercial levels. The capital expenditures required for these activities will be between $9.0 and $12.0 million in 2002, and we are currentlyseeking debt financing from public and private sources, to fund these capital requirements. If the approval of ESTRASORB is delayed or deniedwe will be able to reduce some, but not all, of the expenses and capital expenditures related to this product introduction. Additional futureexpenditures for other product development, including those related to outside testing and human clinical trials, are discretionary and, accordingly,can be adjusted to available cash. We currently plan to continue to progress in our clinical development activities and commercial scale-up ofproduct manufacturing of additional product candidates and we anticipate future increases in spending associated with these activities. We may seek to establish additional collaborations with industry partners to defray the costs of clinical trials and other related activities. Wewill also consider sources of additional funds through public or private equity or debt financing, collaborative arrangements with pharmaceuticalcompanies, government agency contracts or from other sources. There can be no assurance that additional funding or bank financing will beavailable at all or on acceptable terms to permit successful commercialization of all our technologies and products. If adequate funds are notavailable, we may be required to significantly delay, reduce the scope of or eliminate one or more of our research or development programs, orseek alternative measures including arrangements with collaborative partners or others that may require us to relinquish rights to certain of ourtechnologies, product candidates or products. Contractual Obligations and Commitments The following table summarizes our current obligations and commitments: Less than 11–34–5After 5TotalYearYearsYearsYearsCommitments & Obligations Convertible notes $30,000 $— $— $— $30,000 Operating leases 2,766 1,052 1,380 334 — Manufacturing facility lease 8,433 1,560 3,262 3,461 150 Purchase commitments 7,199 7,199 — — — Total commitments & obligations $48,398 $9,811 $4,642 $3,795 $30,150 Item 7A. Quantitative and Qualitative Disclosures about Market Risks Information required under this section is contained in Part I, Item I of this report under the caption “Risk and Uncertainties” and in Item 8 ofthis report, and is incorporated herein by reference.Item 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 this AnnualReport on Form 10-K and are incorporated herein by reference.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable.28Table of ContentsPART 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 our Proxy Statement for our Annual Meeting of Stockholders to be held on May 8, 2002 (the “2002 Proxy Statement”)under the captions “Proposal 1 — Election of Directors” and “Beneficial Ownership of Common Stock” and is incorporated herein by this reference.We expect to file the 2002 Proxy Statement within 120 days after the close of the fiscal year ended December 31, 2001.Item 11. Executive Compensation The information required by this item is contained in the 2002 Proxy Statement under the captions “Executive Compensation” and “DirectorCompensation” 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 2002 Proxy Statement under the caption “Beneficial Ownership of Common Stock”and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions The information required by this item is contained in the 2002 Proxy Statement under the caption “Certain Relationships and RelatedTransactions” and is incorporated herein by reference.29Table of ContentsPART IVItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) Financial Statements: Reports of Independent Accountants; Consolidated Balance Sheets as of December 31, 2001 and 2000; ConsolidatedStatements of Operations for the years ended December 31, 2001, 2000 and 1999; Consolidated Statements of Cash Flowsfor the years ended December 31, 2001, 2000 and 1999; Consolidated Statements of Stockholders’ Equity for the yearsended December 31, 2001, 2000 and 1999; Notes to Consolidated Financial Statements.(a)(2) Financial Statement Schedules: Schedules are either not applicable or not required because the information required is contained in the financial statementsor notes thereto. Condensed financial information of Novavax is omitted since there are no substantial amounts of restrictednet assets applicable to Novavax’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 refer to managementcontracts, compensatory plans or arrangements, filed in response to Item 14 (a)(3) of the instructions to Form 10-K. Theother exhibits listed have previously been filed with the Commission and are incorporated herein by reference.3.1 Amended and Restated Certificate of Incorporation of the Company (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, filed March 21,1997 (the “1996 Form 10-K”)), as amended by the Certificate of Amendment dated December 18, 2000 (Incorporated byreference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, FileNo. 0-26770, filed March 29, 2001 (the “2000 Form 10-K”))3.2 Amended and Restated By-Laws of the Registrant (Incorporated by reference to Exhibit 3.5 to the Registrant’s QuarterlyReport on Form 10-Q for the fiscal quarter ended June 30, 2001, File No. 0-26770, filed August 13, 2001 (the “2001 Q2Form 10-Q”))4. Specimen stock certificate for shares of common stock, par value $.01 per share (Incorporated by reference to Exhibit 4.1 tothe Company’s Registration Statement on Form 10, File No. 0-26770, filed September 14, 1995 (the “Form 10”))††10.1 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.4 to the Form 10)††10.2 First Amendment to the Company’s 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’s AnnualReport 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”))††10.3 Second Amendment to the Company’s 1995 Stock Option Plan, approved by the stockholders of the Company on May 9,2000, and by the Board of Directors on March 7, 2000 (Incorporated by reference to Exhibit 10.4 to the 2000 Form 10-K)††10.4 Director Stock Option Plan (Incorporated by reference to Exhibit 10.5 to the Form 10)††10.5 Employment 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)††10.6 Employment Agreement dated May 13, 1999, by and between the Company and John A. Spears (Incorporated by referenceto Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 0-26770, filed March 9, 2000 (the “1999 Form 10-K”))*††10.7 Employment Agreement dated January 1, 2002 by and between the Company and James R. Mirto30Table of Contents *††10.8 Employment Agreement dated January 1, 2002 by and between the Company and Dennis W. Genge10.9 Agreement of Lease by and between the Company and Rivers Center Associates Limited Partnership, dated September 25, 1996(Incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K)*10.10 Agreement of Lease by and between W.M. Rickman Construction Co. and Dyncorp Advanced Technology Services, Inc. datedMarch 30, 1995, as assigned to Company by letter from W.M. Rickman Construction Co. dated September 1, 1999, and asamended letter from Company dated September 29, 1999*10.11 Agreement of Lease by and between GPG Enterprises, L.L.C. and The Fielding Pharmaceutical Company dated September 1, 2000*10.12 Agreement of Lease by and between Association of Enterepreneurial Sciences, Inc. and Novavax, Inc. dated March 8, 2002*10.13 Facilities Reservation Agreement dated as of February 11, 2002, between the Company and Packaging Coordinators, Inc.10.14 License Agreement between IGEN, Inc. and Micro-Pak, Inc. (Incorporated by reference to Exhibit 10.3 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-26770, filed April 1, 1996)10.15 License Agreement by and between the Company and Parkedale Pharmaceuticals, Inc. dated October 21, 1999 (Incorporated byreference to Exhibit 10.13 to the 1999 Form 10-K)10.16 Agreement and Plan of Merger dated October 4, 2000 between the Company and the parties identified therein (Incorporated byreference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed October 19, 2000)10.17 Agreement for Purchase and Sale of Assets Relating to AVC™ Product Line dated as of January 8, 2001, between the Companyand King Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filedJanuary 19, 2001)10.18 Copromotion Agreement dated as of January 8, 2001, between the Company and King Pharmaceuticals, Inc. (Incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed January 19, 2001)10.19 First Amendment to the Copromotion Agreement dated as of June 29, 2001, between the Company and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 10.1 to the 2001 Q2 Form 10-Q)10.20 Second Amendment to the Copromotion Agreement dated as of June 29, 2001, between the Company and King Pharmaceuticals,Inc. (Incorporated by reference to Exhibit 10.2 to the 2001 Q2 Form 10-Q)10.21 Exclusive License and Distribution Agreement dated as of January 8, 2001, between the Company and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed January 19, 2001)10.22 First Amendment to the Exclusive License and Distribution Agreement dated as of June 29, 2001, between the Company and KingPharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.3 to the 2001 Q2 Form 10-Q)10.23 Second Amendment to the Exclusive License and Distribution Agreement dated as of June 29, 20001, between the Company andKing Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.4 to the 2001 Q2 Form 10-Q)10.24 Form of Stock and Warrant Purchase Agreement dated April 14, 1999, by and between the Company and the purchasers namedtherein (Incorporated by reference to Exhibit 10.16 to the 1998 Form 10-K)31Table of Contents 10.25Form of Stock and Warrant Purchase Agreement dated January 28, 2000, by and between theCompany and the purchasers named therein (Incorporated by reference to Exhibit 10.15 to the 1999Form 10-K)10.26 Note Purchase Agreement dated as of December 19, 2000, between the Company and King Pharmaceuticals, Inc. (Incorporated byreference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed January 2, 2001)10.27 September 2001 Note Purchase Agreement dated as of September 7, 2001, between the Company and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed September 5, 2001)10.28 Investor Rights Agreement dated December 19, 2000, between the Company and King Pharmaceuticals, Inc. (Incorporated byreference to Exhibit 99.4 to the Company’s Current Report on Form 8-K, filed January 2, 2001)10.29 First Amendment to Investor Rights Agreement dated September 7, 2001, between the Company and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 99.6 to the Registrant’s Current Report on Form 8-K, filed September 5, 2001)*21 List of Subsidiaries.*23.1 Consent of Ernst & Young LLP, Independent Auditors.*23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.(b) Reports on Form 8-K: None.32Table 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 to besigned on its behalf by the undersigned, thereunto duly authorized.Date: March 15, 2002 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 on behalf ofthe Registrant in the capacity and on the date indicated. NameTitleDate/s/ JOHN A. SPEARSJohn A. Spears President and Chief Executive Officer andDirector March 15, 2002 /s/ DENNIS W. GENGEDennis W. Genge Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) March 15, 2002 /s/ GARY C. EVANSGary C. Evans Director March 15, 2002 /s/ WILLIAM E. GEORGESWilliam E. Georges Director March 15, 2002 /s/ MITCHELL J. KELLYMitchell J. Kelly Director March 15, 2002 /s/ J. MICHAEL LAZARUS, M.D.J. Michael Lazarus, M.D. Director March 15, 2002 /s/ JOHN O. MARSH, JR.John O. Marsh, Jr. Director March 15, 2002 /s/ MICHAEL A. MCMANUSMichael A. McManus Director March 15, 2002 /s/ DENIS M. O’DONNELL, M.D.Denis M. O’Donnell, M.D. Director March 15, 2002 /s/ RONALD H. WALKERRonald H. Walker Director March 15, 200233Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2001, 2000 and 1999Contents Reports of Independent Auditors F-2Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2001 and 2000 F-4Consolidated Statements of Operations for each of the three years in the periodended December 31, 2001 F-5Consolidated Statements of Stockholders’ Equity for each of the three years inthe period ended December 31, 2001 F-6Consolidated Statements of Cash Flows for each of the three years in the periodended December 31, 2001 F-7Notes to the Consolidated Financial Statements F-8F-1Table of ContentsREPORT OF INDEPENDENT AUDITORSBoard of DirectorsNovavax, Inc. We have audited the accompanying consolidated balance sheet of Novavax, Inc. as of December 31, 2001 and 2000 and the relatedconsolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based onour audit, the consolidated financial statements of Novavax, Inc. for the year ended December 31, 1999 were audited by other auditors, whosereport dated February 26, 2000, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Novavax,Inc. at December 31, 2001 and 2000 and the results of its operations and it cash flows for the years then ended, in conformity with accountingprinciples generally accepted in the United States./s/ Ernst and Young LLPMcLean, VirginiaFebruary 12, 2002F-2Table of ContentsREPORT OF INDEPENDENT ACCOUNTANTSTo the Board of Directors and Stockholders of Novavax, Inc. In our opinion, the accompanying consolidated statement of operations, of cash flows and of stockholders’ equity, present fairly, in all materialrespects, the consolidated results of operations of Novavax, Inc. and subsidiaries and their cash flows for the year ended December 31, 1999, inconformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of theCompany’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit ofthese statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion. We have not audited the consolidated financial statements of Novavax, Inc. for any period subsequentto December 31, 1999./s/ PRICEWATERHOUSECOOPERS LLPMcLean, VirginiaFebruary 26, 2000F-3Table of ContentsNOVAVAX, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share information) December 31,20012000ASSETS Current assets: Cash and cash equivalents $20,045 $14,864 Trade Accounts receivable, net 3,878 954 Inventory, net 537 461 Prepaid expenses and other current assets 567 757 Total current assets 25,027 17,036 Property and equipment, net 4,326 1,927 Goodwill and other intangible assets, net 37,762 37,566 Total assets $67,115 $56,529 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $1,410 $1,401 Accrued expenses 4,337 3,200 Deferred revenue – current 1,250 104 Total current liabilities 6,997 4,705 Convertible notes 30,000 20,000 Deferred revenue – non-current 2,625 — Stockholders’ equity: Preferred stock, $.01 par value, 2,000,000 shares authorized; noshares issued and outstanding — — Common stock, $.01 par value, 50,000,000 shares authorized;23,871,794 issued and 23,294,633 outstanding atDecember 31, 2001, and 22,586,304 issued and 22,104,087outstanding at December 31, 2000. 239 226 Additional paid-in capital 97,861 91,611 Accumulated deficit (64,830) (55,085) Treasury stock, 577,161 shares and 482,217 shares, cost basis,at December 31, 2001 and 2000, respectively (5,777) (4,928) Total stockholders’ equity 27,493 31,824 Total liabilities and stockholders’ equity $67,115 $56,529 See accompanying notes.F-4Table of ContentsNOVAVAX, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share information) For the years ended December 31,200120001999Revenues Product sales $17,252 $— $— Contract research and development 2,689 1,725 931 Milestone and licensing fees 4,125 750 250 Total revenues 24,066 2,475 1,181 Operating cost and expenses: Cost of sales 4,052 — — Research and development 10,775 9,358 3,354 Selling and marketing 8,539 — — General and administrative 9,955 5,859 2,393 Total operating costs and expenses 33,321 15,217 5,747 Loss from operations (9,255) (12,742) (4,566)Interest (expense)/income, net (490) 551 60 Net loss $(9,745) $(12,191) $(4,506) Basic and diluted loss per share $(0.43) $(0.64) $(0.31) Basic and diluted weighted average number of commonshares outstanding 22,670,274 19,015,719 14,511,081 See accompanying notes.F-5Table of ContentsNOVAVAX, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2001, 2000 and 1999(in thousands, except share information) Common StockAdditionalDeferredTotalPaid-inAccumulatedStockTreasuryStockholders’SharesDollarsCapitalDeficitCompensationStockEquityBalance,December 31, 1998 13,253,118 $133 $41,231 $(38,388) $(15) $— $2,961 Amortization ofdeferredcompensation — — — — 10 — 10 Private sale of commonstock 1,651,100 17 4,111 — — — 4,128 Offering costs 42,933 — (173) — — — (173)Stock issued ascompensation — — (43) — — 158 115 Exercise of stockoptions 226,537 2 496 — — (193) 305 Net loss — — — (4,506) — — (4,506) Balance,December 31, 1999 15,173,688 152 45,622 (42,894) (5) (35) 2,840 Amortization ofdeferredcompensation — — — — 5 — 5 Private sale of commonstock, net 2,813,850 28 10,470 — — — 10,498 Stock issued foracquisition 2,312,501 23 18,477 — — — 18,500 Acquisition obligation — — 5,000 — — — 5,000 Exercise of stockoptions and warrants 2,286,265 23 12,042 — — (4,893) 7,172 Net loss — — — (12,191) — — (12,191) Balance,December 31, 2000 22,586,304 226 91,611 (55,085) — (4,928) 31,824 Exercise of stockoptions and warrants 1,285,490 13 6,250 — — (849) 5,414 Net loss — — — (9,745) — — (9,745) Balance,December 31, 2001 23,871,794 $239 $97,861 $(64,830) $— $(5,777) $27,493 See accompanying notes.F-6Table of ContentsNOVAVAX, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the years ended December 31,200120001999Operating Activities Net loss $(9,745) $(12,191) $(4,506)Reconciliation of net loss to net cash used by operating activities: Loss(gain) on disposal/sale of asset 137 — (23) Non-cash compensation expense — 5 10 Amortization 3,136 362 199 Depreciation 353 232 183 Provision for bad debt 70 — — Issuance of stock to 401(k) plan and as compensation — — 115 Changes in operating assets and liabilities: Accounts receivable (2,994) 220 (203) Inventory (76) (211) — Prepaid expenses and other current assets 190 (555) (45) Accounts payable and accrued expenses 592 2,740 (180) Deferred revenue 3,771 (646) 750 Net cash used by operating activities (4,566) (10,044) (3,700) Investing activities Acquisition of businesses, net of cash acquired — (12,466) (592)Acquisition of product lines (3,332) — — Capital expenditures (2,335) (831) (48)Deferred patent costs — (86) (171)Proceeds from sale of asset — — 25 Net cash used in investing activities (5,667) (13,383) (786) Financing activities Proceeds from issuance of convertible notes 10,000 20,000 — Payment of capital lease obligations — (111) (73)Proceeds from private placements of common stock — 10,498 3,955 Proceeds from the exercise of stock options and warrants 5,414 7,172 305 Net cash provided by financing activities 15,414 37,559 4,187 Net change in cash and cash equivalents 5,181 14,132 (299)Cash and cash equivalents at beginning of year 14,864 732 1,031 Cash and cash equivalents at end of year $20,045 $14,864 $732 See accompanying notes.F-7Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2001, 2000 and 19991. Description of Business Novavax, Inc., a Delaware corporation, (“Novavax” or “the Company”) was incorporated in 1987, and is a specialty pharmaceutical companyengaged in the research, development and commercialization of proprietary products focused on women’s health and infectious diseases. TheCompany sells, markets, and distributes a line of prescription pharmaceuticals and prenatal vitamins. The Company’s principal technologyplatform involves the use of patented oil and water emulsions which are used as vehicles for the delivery of a wide variety of drugs and othertherapeutic products. These include certain hormones, anti-bacterial, and anti-viral products and vaccine adjuvants, which are substances addedto vaccines to enhance their effectiveness. In June 2001, Novavax filed a New Drug Application with the Food and Drug Administration forESTRASORB™, a transdermal lotion for estrogen replacement therapy. Novavax has several product candidates in pre-clinical and human clinicaltrials, including ANDROSORB™, a transdermal lotion for testosterone replacement therapy which we expect to begin Phase II testing in the firstquarter of 2002. In addition, Novavax conducts research and development on preventative and therapeutic vaccines for a variety of infectiousdiseases, including human papillomavirus. The products currently under development or in clinical trials by the Company will require significant additional research and developmentefforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercial use. There can be no assurance that theCompany’s research and development efforts will be successful and that any of the Company’s potential products will prove to be safe andeffective in clinical trials. Even if developed, these products may not receive regulatory approval or be successfully introduced and marketed atprices that would permit the Company to operate profitably. The Company also recognizes that the commercial launch of any product is subject tocertain risks including but not limited to manufacturing scale-up and market acceptance. No assurance can be given that the Company cangenerate sufficient product revenue to become profitable or generate positive cash flow from operations at all or on a sustained basis.2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. All significantintercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differfrom those estimates. Cash and Cash Equivalents The Company considers all highly-liquid investments with insignificant interest rate risk and original maturities of three months or less from thedate of purchase to be cash equivalents. Substantially all cash equivalents are held in short-term money market accounts with banks andbrokerage accounts with large high quality financial institutions.F-8Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 2. Summary of Significant Accounting Policies — (Continued) Financial Instruments and Concentration of Credit Risk Financial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cash equivalents,accounts receivable and convertible notes payable. The Company maintains its cash and cash equivalents in bank and brokerage accounts withhigh credit quality financial institutions. The balances, at times, may exceed federally insured limits. The Company has not experienced anylosses on such accounts and management believes the risk of loss to be minimal. Accounts receivable consist principally of amounts due fromcredit worthy wholesale drug distributors, the federal government and other large institutions. The Company extends credit to its customersgenerally without requiring collateral. The Company monitors the balances of individual customer accounts to assess collectibility and hasprovided a reserve for potential bad debts of $120,000 and $50,000 as of December 31, 2001 and 2000, respectively. Credit losses havehistorically been within management’s expectations. The carrying amount of cash and cash equivalents and accounts receivable approximatestheir fair value based on their short-term maturities at December 31, 2001 and 2000. The fair values of convertible notes approximate their fairvalue as of December 31, 2001. As of December 31, 2001, three customers accounted for 40.5% of the Company’s revenues and 50.7% of the Company’s accountsreceivable. Inventories Inventories consist of raw materials of $263,000 and finished goods of $299,000 and are priced at the lower of cost or market, using the first-in-first-out method. The December 31, 2001 inventory balance includes a $25,000 reserve for obsolete and slow moving items. Property and Equipment Property and equipment are recorded at cost. Depreciation of furniture, fixtures and equipment is provided under the straight-line method overthe estimated useful lives, generally 3 to 7 years. Amortization of leasehold improvements is provided over the estimated useful lives of theimprovements or the term of the lease, which ever is shorter. Repairs and maintenance costs are expensed as incurred. Patent Costs Costs associated with obtaining patents, principally legal costs and filing fees, are being amortized on a straight-line basis over the remainingestimated economic lives of the respective patents. Goodwill and Intangible Assets Goodwill and intangible assets principally result from business acquisitions. Assets acquired and liabilities assumed are recorded at their fairvalues; the excess of the purchase price over the identifiable net assets acquired is recorded as goodwill. Goodwill and intangible assets areamortized on a straight-line basis over their estimated useful lives, ranging from 5 to 15 years. Accumulated amortization expense was $3.3 millionand $273,000 as of December 31, 2001 and 2000, respectively. The Company periodically evaluates the periods of amortization to determinewhether later events and circumstances warrant revised estimates of useful lives. Impairment of Long-Lived Assets and Recoverability of Intangibles The Company periodically evaluates the recoverability of the carrying value of its long-lived assets and identifiable intangibles wheneverevents or changes in circumstances indicate that the carrying value of theF-9Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 2. Summary of Significant Accounting Policies — (Continued) Impairment of Long-Lived Assets and Recoverability of Intangibles (Continued)asset may not be recoverable. Examples of events or changes in circumstances that indicate that the recoverability of the carrying value of anasset should be assessed include but are not limited to the following: a significant decrease in the market value of an asset, a significant changein the extent or manner in which an asset is used or a significant physical change in an asset, a significant adverse change in legal factors or inthe business climate that could affect the value of an asset or an adverse action or assessment by a regulator, an accumulation of costssignificantly in excess of the amount originally expected to acquire or construct an asset, and/ or a current period operating or cash flow losscombined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an assetused for the purpose of producing revenue. The Company considers historical performance and anticipated future results in its evaluation ofpotential impairment. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relationto the operating performance of the business and future discounted and undiscounted cash flows expected to result from the use of these assets.Impairment losses are recognized when the sum of expected future cash flows are less than the assets’ carrying value. No such impairmentlosses have been recognized to date. Revenue Recognition The Company recognizes revenue in accordance with the provisions of Staff Accounting Bulletin No. 101, Revenue Recognition in FinancialStatements,whereby revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteriaare met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer isfixed or determinable and collectibility is reasonably assured. Up-front payments and licensing fees are deferred and recognized as earned over thelife of the related agreement. Milestone payments are recognized as revenue upon achievement of contract-specified events and when there areno remaining performance obligations. Revenues from product sales are recognized upon shipment, net of allowances for returns, rebates andchargebacks. The Company is obligated to accept from customers the return of pharmaceuticals, which have reached their expiration date.Revenues from the sale of scientific prototype vaccines and adjuvants are recorded as the products are shipped. Revenues earned under research contracts are recognized on the percentage of completion method as described in Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. The extent of progress toward completion ismeasured on the cost-to-cost method. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for theentire loss on the contract is made. Net Loss per Share Basic loss per share is computed by dividing the net loss available to common shareholders (the numerator) by the weighted average numberof common shares outstanding (the denominator), during the period. Shares issued during the period and shares reacquired during the period areweighted for the portion of the period that they were outstanding. The computation of diluted loss per share is similar to the computation of basicloss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding ifthe dilutive potential common shares had been issued. Potentially dilutive common shares are not included in the computation of dilutive earningsper share if they are antidilutive. Net loss per share as reported was not adjusted for potential common shares, as they are antidilutive.F-10Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 2. Summary of Significant Accounting Policies — (Continued) Stock-Based Compensation The Company recognizes expense for stock-based compensation arrangements in accordance with the provisions of Accounting PrinciplesBoard Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Disclosures regarding alternative fair values ofmeasurement and recognition methods prescribed by Statement of Financial Accounting Standards No. 123, Accounting for Stock-BasedCompensation (SFAS No. 123) are presented in Note 7. Accordingly, compensation cost is recognized for the excess of the estimated fair value ofthe stock at the grant date over the exercise price, if any. The Company accounts for equity instruments issued to non-employees in accordancewith EITF 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods,or Services. Advertising and Promotion Costs All costs associated with advertising and promotion are expensed as incurred. Advertising and promotion expense, including samples, was$1.9 million in 2001. Prior to 2001 the Company incurred no material advertising or promotional expenses. Research and Development Costs Research and development costs are expensed as incurred. Income Taxes The Company’s income taxes are accounted for using the liability method. Under the liability method, deferred income taxes are recognized forthe future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and theirrespective tax basis and operating loss carryforward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date.A valuation allowance is established when necessary to reduce net deferred tax assets to the amount expected to be realized. The Company hasprovided a full valuation allowance against its net deferred tax assets as of December 31, 2001 and 2000. Comprehensive Loss Under Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” the Company is required to display comprehensive lossand its components as part of the consolidated financial statements. Comprehensive loss is comprised of the net loss and other comprehensiveincome (loss), which includes certain changes in equity that are excluded from the net loss. Comprehensive loss for the Company was the sameas net loss for the years ended December 31, 2001, 2000 and 1999. Segment Information The Company currently operates in one business segment, which is the development and commercialization of products focused on women’shealth and infectious diseases. The Company is managed and operated as one business. A single management team that reports to the ChiefExecutive Officer comprehensively manages the entire business. The Company does not operate separate lines of business with respect to itsF-11Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 19992. Summary of Significant Accounting Policies — (Continued) Segment Information (Continued)products or product candidates. Accordingly, the Company does not have separately reportable segments as defined by FASB Statement No. 131,Disclosure about Segments of an Enterprise and Related Information. Recent Accounting Pronouncements In June 2001, the FASB issued SFAS No. 141 “Business Combinations,” and SFAS No. 142 “Goodwill and Other Intangible Assets,” effectivefor fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will nolonger be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to beamortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. TheCompany will begin to perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 andhas not yet determined what the effect these tests may have on the earnings and financial position of the Company. Amortization of goodwill forthe year ended 2001 was approximately $2.5 million and will no longer be recorded subsequent to December 31, 2001. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation.3. Product Agreements and Acquisitions King Pharmaceuticals Agreements In January 2001, we entered into a co-promotion agreement with King Pharmaceuticals, Inc., (“King”) for the Company’s topical transdermalestrogen replacement therapy, ESTRASORB™ in the U.S. and Puerto Rico (the “Territory”). We also entered into a license agreement with Kingfor many countries outside the United States. The co-promotion and license agreements (the “Agreements”) grant King the right to share equally inthe revenues and expenses for manufacturing and marketing ESTRASORB in the Territory and exclusive rights to many countries outside the U.S.The Agreements also entitled us to receive up to $5.0 million in milestone payments from King for achievement of milestones outlined in theAgreements. In addition, we agreed to combine U.S. sales efforts with King to begin co-promoting one of King’s products already on the market,Nordette®, a birth control pill. In June 2001, we amended the Agreements (the “Amended Agreements”). The Amended Agreements modified the terms of the milestonepayments and in June 2001, we recognized $2.5 million as the first milestone was achieved upon the filing of the ESTRASORB New DrugApplication with the Food and Drug Administration. The second milestone was achieved upon the acceptance for filing of the New Drug Applicationby the FDA in August 2001. This entitled us to receive an additional $2.5 million milestone payment, which was received in September 2001. The Amended Agreements also grant King exclusive rights to promote, market and distribute ESTRASORB in Canada, Switzerland, Greece,Italy, Spain and the Netherlands, the only countries excluded from the original license agreement. In addition the Amended Agreements includedthe co-promotion and license of ANDROSORB, a topical transdermal testosterone replacement therapy for testosterone deficient women. Underthe terms of the Amended Agreements we received $3.0 million from King in up-front licensing fees, which was recorded as deferred revenue andis recognized over the term of the Amended Agreements. We will also receive additional milestone payments of $1.0 million upon ESTRASORB’sF-12Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 3. Product Agreements and Acquisitions — (Continued) King Pharmaceuticals Agreements (Continued)regulatory approval in Canada and $2.0 million upon regulatory approval of ESTRASORB in one of the five European countries listed above. Weare also entitled to receive royalties on future sales of ESTRASORB and ANDROSORB outside the United States. The Amended Agreements also have a change of control provision. The provision allows King several options in the event of a change incontrol at Novavax including, (i) terminating our right to co-promote King products, (ii) terminating our rights to promote ESTRASORB andANDROSORB and any other hormone therapies for women for which King is paying 50% of the development costs or (iii) requiring Novavax toassign and transfer to King all related rights of ownership for ESTRASORB and ANDROSORB and any such other hormone replacement therapiesfor women and license to King on an exclusive and perpetual basis all related intellectual property rights and know how. If King chooses toexercise its rights under clause (ii) or (iii) above, King will have to pay royalties on net sales of the products. In addition, King will have to pay forthe cost of manufacturing plus a markup consistent with the terms of the license agreement for the handling cost. In January 2001, we also acquired the rights to AVCTM Cream and Suppositories (“AVC”) from King for approximately $3.3 million in cash. TheAVC product line generated $3.5 million in revenue in 2001. Fielding Pharmaceutical Company In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri. Fieldingsells, markets and distributes a proprietary line of pharmaceutical products focused on women’s health. The purchase method of accounting wasused to account for the transaction. The total purchase price and related expenses of $38.7 million consisted of $18.5 million in Novavax common stock, $13.0 million in cash,$5.0 million paid in common stock to the former owners of Fielding in January 2002, $1.1 million in assumed liabilities and $1.1 million intransaction costs. The aggregate consideration of $38.7 million was allocated to cash ($1.7 million), accounts receivable and inventory ($1.2 million), propertyand equipment ($275,000) and goodwill ($35.5 million). Biomedical Services Laboratory In August 1999, the Company acquired substantially all of the assets (excluding cash and accounts receivable) of the Biomedical ServicesLaboratory (“BSL”), a division of DynCorp of Reston, Virginia. In addition, DynCorp entered into a five-year non-competition agreement. Theresearch and development activities of BSL are conducted in a 12,000 square foot leased facility located in Rockville, Maryland. BSL is engagedin contract research, development and pilot manufacturing of human vaccines for government laboratories and other vaccine companies. The purchase method of accounting was used to account for the transaction. The total purchase price and related expenses of $860,000consisted of $740,000 in cash, $60,000 in assumed liabilities and $60,000 in transaction costs. The aggregate consideration of $860,000 was allocated to property and equipment ($170,000) and goodwill and other intangible assets($690,000). Property and equipment consists primarily of laboratory equipment that has continued to be used in the operations of BSL. Other intangibleassets included patents, workforce and favorable lease terms in an approved Food and Drug Administration facility.F-13Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 3. Product Agreements and Acquisitions — (Continued) Biomedical Services Laboratory (Continued) The operating results of the AVC Product Line, Fielding and BSL have been included in the consolidated statements of operations from theacquisition date. The following summary represents pro forma results of operations as if the acquisitions had occurred at the beginning of 1999.These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations thatwould have actually resulted had the combinations been in effect and are not intended to be indicative of future results. Pro forma results of operations for the years ended December 31: 20001999(in thousands,except per shareinformation)Revenue $14,098 $17,100 Net loss (13,689) (3,475)Loss per share applicable to common stockholders (.64) (.21)4. Supplemental Financial Data Property and Equipment Property and equipment is comprised of the following at December 31: 20012000(in thousands)Construction in progress and deposits on machinery $1,422 $— Machinery and equipment 2,772 2,029 Leasehold improvements 1,086 835 Computer software and hardware 269 166 5,549 3,030 Less accumulated depreciation (1,223) (1,103) $4,326 $1,927 Depreciation expense was $353,000, $232,000 and $183,000 for the years ended December 31, 2001, 2000 and 1999, respectively.F-14Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 4. Supplemental Financial Data — (Continued) Goodwill and Intangible Assets Goodwill and intangible assets consist of the following at December 31: 20012000(in thousands)Goodwill — Fielding Acquisition $35,590 $35,590 Goodwill — Biomedical Services Acquisition 542 542 AVC — Product Acquisition 3,332 — Non-Compete — Biomedical Services Acquisition 148 148 Patents 2,525 2,525 42,137 38,805 Accumulated Amortization (4,375) (1,239) $37,762 $37,566 Amortization expense was $3,136,000, $362,000 and $199,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Accrued Expenses Accrued expenses consist of the following at December 31: 20012000(in thousands)Operating expenses $2,469 $618 Employee benefit and compensation 1,082 759 Property and equipment 554 — Interest 232 26 Clinical trial expenses — 900 Acquisition costs — 897 $4,337 $3,200 As of December 31, 2001, the Company has accrued for $554,000 of construction in progress additions which was accounted for as a non-cash transaction in its Statement of Cash Flows.5. Convertible notes On December 19, 2000, Novavax entered into a Note Purchase Agreement with King whereby it agreed to issue to King 4% senior convertiblepromissory notes in the aggregate amount up to $25.0 million. On that same date, the Company issued a 4% senior convertible promissory note toKing for $20.0 million in principal. On September 7, 2001, the Company issued a second 4% senior convertible promissory note to King for$5.0 million in principal. These notes are convertible into Novavax common stock at $10.00 per share or 2,500,000 shares. On September 7, 2001 the Company entered into a second Note Purchase Agreement with King and issued a third 4% senior convertiblepromissory note to King for $5.0 million principal. The third note is convertible into common stock at $13.87 per share or 360,490 shares. All of the notes, which total $30.0 million, mature on December 19, 2007 with interest payable in semi-annual installments on June 30 andDecember 31. Up to 50% of the interest may be paid in common stock ofF-15Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 5. Convertible notes — (Continued)the Company, subject to certain conditions. The conversion prices on all the notes represent an 18% premium to the trailing 20-day average stockprice prior to the agreed upon lock in dates. Each note has a conversion feature, which allows us to convert the notes to common stock of theCompany from January 2002 through December 31, 2004 if the closing price of our common stock exceeds 180% of the conversion price of thenote for at least 30 trading days in any period of 45 consecutive trading days. After December 31, 2004, the notes can be redeemed by theCompany at 102%, 101% and 100% of face value during the years ended December 31, 2005, 2006 and 2007, respectively. For the year ended December 31, 2001 we made cash interest payments of $720,000 and accrued an additional $232,000 for interest expensewhich will be paid in our common stock. The notes and related agreements also have covenants which require the Company to obtain writtenapproval from King prior to entering into transactions, above defined limits, to secure additional indebtedness, or acquire additional product lines orbusinesses. In addition to the covenants, the notes have a change in control provision as well. In the event of a change of control, the Companywill be required to repurchase the notes at 101% of the principal amount, plus accrued interest within sixty days of the change in control.6. Stockholders’ Equity In January 2000, the Company closed a private placement of 2,813,850 shares of its common stock to accredited investors (the “2000 PrivatePlacement”). The issuance price of the common stock was $4.00 per share. Each share was sold together with a non-transferable warrant for thepurchase of 0.25 additional shares at an exercise price of $6.75. The related warrants have a three-year term. Gross proceeds from the 2000Private Placement were $11,255,400. The Company issued non-transferable warrants to the Placement agent, for the purchase of 281,385 sharesof the Company’s common stock, with an exercise price of $6.75 per share and a three-year term. In addition, the Placement agent received feesof approximately $675,000. The Company incurred other costs in conjunction with the 2000 Private Placement of approximately $80,000. Netproceeds to the Company from the 2000 Private Placement were approximately $10.5 million. In April 1999, the Company entered into stock and warrant purchase agreements for the private placement of 1,651,100 shares of its commonstock to certain accredited investors (the “1999 Private Placement”). A principal of one of the accredited investors is also a director of theCompany. The issuance price of the common stock was $2.50 per share. Each share was sold with a non-transferable warrant for the purchase of0.25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Placement agents’ fees were approximately $215,000,which were paid with cash of $107,000 and 42,933 shares of the Company’s common stock, which were issued with non-transferable warrants forthe purchase of 10,733 shares of the Company’s common stock at an exercise price of $3.75. These warrants have a three-year term.Additionally, non-transferable warrants for the purchase of 143,000 shares of the Company’s common stock, with an exercise price of $3.00 pershare and a three-year term, were issued to the placement agents. Other costs connected with the 1999 Private Placement approximated $67,000.Net proceeds to the Company from the 1999 Private Placement were approximately $4.0 million.7. Stock Options and Warrants 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 8,000,000 shares of Novavax common stock. The recent amendments tothe Plan increases the number of shares that can be granted from 6,000,000 to 8,000,000, subject to stockholder approval in May 2002. Incentiveoptions, 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 ofgrant and are generally exercisable in cumulative increments overF-16Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 7. Stock Options and Warrants — (Continued)several years from the date of grant. Both incentive and non-statutory stock options may be granted under the Plan. There is no minimum exerciseprice for non-statutory stock options. The 1995 Director Stock Option Plan (the “Director Plan”) provided for the issuance of up to 500,000 shares of Novavax common stock. Theexercise price is the fair market value per share of the Company’s common stock on the date of grant. Options granted to eligible directors areexercisable in full, beginning six months after the date of grant and expire ten years from the grant date. All options available under the DirectorPlan have been granted. 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 or not onthe date of death) may be exercised within three years after such date (subject to the condition that no such option may be exercised after theexpiration of ten years from its date of grant). Activity under the 1995 Stock Option Plan and 1995 Director Stock Option Plan was as follows: 1995 Director Stock Option1995 Stock Option PlanPlanWeightedWeightedAverageAverageStock OptionsExercise PriceStock OptionsExercise PriceBalance, December 31, 1998 3,114,247 $3.53 440,000 $3.66 Granted 1,078,500 3.80 — — Exercised (226,537) 2.20 — — Expired or canceled (577,757) 4.28 — — Balance, December 31, 1999. 3,388,453 3.58 440,000 3.66 Granted 1,019,500 7.62 60,000 5.63 Exercised (485,728) 3.87 (80,000) 3.25 Expired or canceled (28,040) 3.75 — — Balance, December 31, 2000 3,894,185 4.60 420,000 4.02 Granted 1,227,601 9.47 — — Exercised (668,980) 3.18 (70,000) 3.95 Expired (52,400) 4.95 — — Balance, December 31, 2001 4,400,406 6.17 350,000 4.03 Shares exercisable at December 31, 1999 2,386,499 3.43 440,000 3.66 Shares exercisable at December 31, 2000 2,278,428 3.48 420,000 4.02 Shares exercisable at December 31, 2001 2,282,578 $4.41 350,000 $4.03 Available for grant at December 31, 2001 1,184,663 F-17Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 7. Stock Options and Warrants — (Continued) The following table provides certain information with respect to stock options outstanding at December 31, 2001: Number ofWeighted AverageWeightedOptionsRemainingAverageOutstandingContractual LifeExercise PriceOptions issued at below market value: $0.01 281,937 4.0 $0.01 Options issued at market value: $1.17 to 3.49 443,952 4.8 3.06 $3.50 to 6.99 2,165,595 6.3 4.72 $7.00 to 9.32 1,441,400 8.8 8.77 $9.33 to 11.65 417,522 9.6 10.36 4,750,406 7.1 $6.01 The following table provides certain information with respect to stock options exercisable at December 31, 2001: Number ofWeighted AverageOptions ExercisableExercise PriceOptions issued at below market value: $0.01 281,937 $0.01 Options issued at market value: $1.17 to 3.49 443,326 3.06 $3.50 to 6.99 1,542,897 4.58 $7.00 to 9.32 351,918 8.30 $9.33 to 11.65 12,500 10.63 2,632,578 $4.36 For the years ended December 2001, 2000 and 1999, the Company recorded stock compensation expense of $0, $5,000, and $10,000,respectively. Pro forma information regarding net loss and loss per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, and hasbeen determined as if Novavax had accounted for its employee and director stock options under the fair value method of that Statement. The fairvalue for these options was estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vestingrestrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expectedstock price volatility. Because Novavax’s employee and director stock options have characteristics significantly different from those of tradedoptions, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of the fair value of its employee stock options.F-18Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 7. Stock Options and Warrants — (Continued) For purposes of pro forma disclosures below, the estimated fair value of the options is amortized to expense over the option’s vesting period.Novavax’s pro forma information follows: Year ended December 31,200120001999(in thousands)Net loss applicable to common stockholders: As reported (in thousands) $(9,745) $(12,191) $(4,506) Pro forma (in thousands) $(15,525) $(14,609) $(6,430)Basic and diluted loss per share: As reported $(.43) $(.64) $(.31) Pro forma $(.68) $(.77) $(.44)Risk-free interest rates 5.0% 6.0% 5.8%Expected life in years: Employees 6.0 6.0 6.0 Directors 3.0 3.0 3.0 Dividend yield 0.0% 0.0% 0.0%Volatility 58% 80% 69%Weighted average remaining contractual life in years 7.1 6.8 6.8 Weighted average fair value at date of grant $5.58 $5.87 $3.56 The Company has entered into agreements to receive advisory and consulting services from several individuals, four of whom serve on theNovavax Scientific Advisory Board. Non-qualified stock options were granted in prior years, for which the Company recognized compensationexpense for these individuals under the 1995 Stock Option Plan. Common Stock Warrants In March 1997, the Company privately placed 1,200,000 shares of common stock. As part of the transaction, we also granted warrants topurchase 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. After giving effect to theanti-dilution provision, the warrants were revised to allow for the purchase of 659,090 shares at $5.46 per share and 659,090 shares at $7.28 pershare. The warrants had a three-year term and were exercised in March 2000 for cash of $3.6 million and a “cashless” exercise of 465,410 sharesof common stock, which were placed into treasury shares. In April 1999, the Company entered into the 1999 Private Placements, and as part of the transaction, we granted warrants to purchase 412,775additional shares at an exercise price of $3.75. In addition, the placement agent for this transaction was given warrants to purchase 10,733additional shares at $3.75 and 143,000 additional shares at $3.00. After giving effect to the anti-dilution provision, the warrants were revised toallow for the purchase of 448,087 shares at $3.54 per share and 151,299 shares at $2.84 per share. These warrants have a three-year term andexpire in April 2002. As of December 31, 2001, 260,021 of the $3.54 warrants and all of the $2.84 warrants were exercised. In connection with the 2000 Private Placement the Company granted warrants to purchase an additional 703,460 shares at an exercise price of$6.75. In addition, warrants of 281,385 shares were issued to the placement agent at an exercise price of $6.75 per share. The warrants have athree year term. As of December 31, 2001, 464,284 of these warrants have been exercised.F-19Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 19997. Stock Options and Warrants — (Continued) Common Stock Warrants (Continued) Information with respect to warrants to purchase the Company’s common stock at December 31, 2001 is as follows: Number ofWarrantsExerciseExpirationOutstandingPriceDate 188,066 $3.54 April 2002 520,561 $6.75 January 2003 708,627 8. Employee Benefits The Company maintains a defined contribution 401(k) retirement plan, pursuant to which employees who have completed ninety days ofservice may elect to contribute up to 15% of their compensation on a tax deferred basis up to the maximum amount permitted by the InternalRevenue Code, as amended. The Company matches 25% of the first 5% of the participants deferral and $4.00 per week of employment during the year. At the option of theCompany matching contributions to the 401(K) retirement plan can be made in the form of the Company’s common stock. All contributions to the401(k) Plan are immediately vested. The Company has expensed approximately $35,000, $28,000 and $16,000 in 2001, 2000 and 1999,respectively.9. Income Taxes Deferred tax assets (liabilities) consist of the following at December 31: 20012000(in thousands)Net operating losses $13,540 $12,513 Research tax credits 1,464 1,229 Disqualifying stock options 673 673 Alternative-minimum tax credit 94 94 Equipment and furniture 34 44 Intangibles from acquisition 184 12 Allowance for doubtful accounts 47 19 Accrued vacation pay 52 28 Deferred revenues 1,496 40 Total deferred tax assets 17,584 14,652 Deferred patent costs (544) (602) Total deferred tax liabilities (544) (602) Net deferred tax assets 17,040 14,050 Less valuation allowance $(17,040) $(14,050) Deferred tax assets, net — — F-20Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 9. Income Taxes — (Continued) The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows: 20012000Statutory federal tax rate (34)% (34)%State income taxes, net of federal benefit (3) (5)Research and development credit (3) (2)Alternative-minimum credit — 0 Other 9 1 Change in valuation allowance 31 40 —% —% Realization of net deferred tax assets 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, 2001 and 2000. Novavax has recorded no net benefit for income taxes in 2001, 2000 and 1999 in the accompanying consolidated financial statements due tothe uncertainty regarding ultimate realization of certain net operating losses and other tax credit carryforwards. Federal net operating losses and tax credits available to the Company are as follows: 2001(in thousands)Federal net operating losses expiring through the year 2021 $35,060 State net operating losses expiring through the year 2021 35,060 Research tax credits expiring through the year 2021 1,464 Alternative-minimum tax credit (no expiration) 94 10. Commitments and Contingencies Novavax leases manufacturing, laboratory and office space, machinery and equipment and automobiles under non-cancelable operating leaseagreements expiring at various dates through January 2007. Future minimum rental commitments under non-cancelable leases as ofDecember 31, 2001 are as follows: OperatingYearLeases(in thousands)2002 $2,611 2003 2,431 2004 2,212 2005 1,909 2006 1,886 Thereafter 150 $11,199 Aggregate rental expenses approximated $1,050,000, $411,000, and $299,000 in 2001, 2000 and 1999, respectively.F-21Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2001, 2000 and 1999 10. Commitments and Contingencies — (Continued) In connection with one of the leases for office and laboratory facilities, the Company is required to maintain a “Net Asset Value” of $2.0 million.The term “Net Asset Value” is defined as the difference between the total assets and the total liabilities. If the Net Asset Value falls below$2.0 million, the Company is required to provide other reasonable financial assurances to the landlord within five days of the landlord’s request. The Company has entered into several purchase commitments related to scaling-up of manufacturing capacity. The Company entered into aconstruction agreement to build-out approximately 20,000 square feet of leased space to manufacture and package ESTRASORB. The fee for theconstruction is a cost plus fee with a guaranteed maximum price of no more than $6.6 million. In addition to the construction agreement, theCompany has entered into agreements to purchase machinery and equipment to manufacture and package ESTRASORB totaling approximately$2.0 million. To date, progress payments of approximately $1.4 million have been made.F-22 EMPLOYMENT AGREEMENT This Employment Agreement (this “Agreement”) dated as of January 1, 2002, between Novavax, Inc., a Delaware corporation having itsprincipal office at 8320 Guilford Road, Columbia, Maryland 21046 (the “Company”), and James R. Mirto, an individual residing at 203 FritillaryCourt, Edgewater, Maryland 21037 (“Employee”). The Company and Employee hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee hereby accepts employment upon the terms and conditionshereinafter set forth. (As used throughout this Agreement, “Company” shall mean and include any and all of its present and future subsidiaries andany and all subsidiaries of a subsidiary.) Employee warrants and represents that he is free to enter into and perform this Agreement and is notsubject to any employment, confidentiality, non-competition or other agreement 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 the performance of services as Senior Vice President and Chief Operating Officeror such other senior management services as may from time to time be designated by the Company’s Chief Executive Officer or the Board ofDirectors. During the Term (as defined below) of this Agreement, Employee’s services shall be completely exclusive to the Company and he shalldevote his entire business time, attention and energies to the business of the Company and the duties which the Company shall assign to himfrom time to time. Employee agrees to perform his services faithfully and to the best of his ability and to carry out the policies and directives of theCompany. Employee agrees to take no action which is in bad faith and prejudicial to the interests of the Company during his employmenthereunder. Employee shall be based in Columbia, Maryland but he also may be required from time to time to perform duties hereunder forreasonably short periods of time outside of said area. 3. Term. The term of this Agreement shall be a period beginning on the date hereof and shall continue until terminated in accordance withSection 7 hereof (the “Term”). 4. Compensation. (a) Base Compensation. For all Employee’s services and covenants under this Agreement, the Company shall pay Employee an initialannual salary of $215,000, subject to annual review by the Board of Directors of the Company and payable in accordance with the Company’spayroll policy as constituted from time to time. (b) Bonus Program. During the Term, the Employee shall be entitled to participate in a bonus program, if any, maintained from time totime by the Company for the benefit of senior executives and other employees of the Company under which award payments, if any, are based onperformance criteria and milestones to be mutually determined by the Employee and the Company.  5. Reimbursable Expenses. Employee shall be entitled to reimbursement for reasonable expenses incurred by Employee in connection withthe performance of his duties hereunder upon receipt of vouchers therefor in accordance with such procedures as the Company has heretofore ormay hereafter establish. 6. Employee Benefits. (a) Employee shall be entitled to four weeks of paid vacation time per year starting from date of hire, calculated on a monthly basisin accordance with Company policies in effect from time to time. (b) Employee shall be entitled to participate in all group insurance programs, stock option plans or other fringe benefit plans whichthe Company may now or hereafter in its sole and absolute discretion make available generally to its employees, but the Company shall not berequired to establish any such program or plan. 7. Termination of Employment. Notwithstanding any other provision of this Agreement, Employee’s employment may be terminated: (a) By the Company, in the event of Employee’s willful failure or refusal to perform in all material respects the services required ofhim hereby, after a specific written warning with regard thereto, which shall include a statement of corrective actions and a 30 day period for theEmployee to respond and implement such actions, has been given to Employee by the Chief Executive Officer of the Company or its Board ofDirectors, his willful failure or refusal to carry out any proper direction by the Chief Executive Officer or the Board of Directors with respect to theservices to be rendered by him hereunder or the manner of rendering such services, his willful misconduct in the performance of his dutieshereunder or his commission of a felony involving moral turpitude; (b) By the Company, upon 30 days’ notice to Employee, if he should be prevented by illness, accident or other disability (mental orphysical) from discharging his duties hereunder for one or more periods totaling three months during any twelve-month period; (c) By the Company, without cause, or by Employee with “Good Reason” (as hereinafter defined), provided that if Employee’semployment is terminated pursuant to this Section 7(c), then in addition to any unpaid bonus with respect to the prior year, Employee shall beentitled to receive his then current salary for one year from the date of termination, together with a performance bonus equal to a fraction thenumerator of which is the number of weeks of employment of Employee at the Company during the then current calendar year and the denominatorof which is 52, times the amount of performance bonus, if any, paid to the Employee with respect to the prior year, all of which shall be 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.The Employee shall be entitled to terminate his employment for “Good Reason” if his responsibilities and authority are reduced or diluted in anymaterial way (other than for cause) without his consent or if he is relocated to another Company office or facility more than 50 miles fromColumbia, Maryland without his consent.2 (d) By the event of Employee’s death during the term of his employment; whereupon the Company’s obligation to pay furthercompensation hereunder shall cease forthwith, except that Employee’s legal representative shall be entitled to receive his fixed compensation forthe period up to the last day of the month in which such death shall have occurred. 8. All Business to be Property of the Company; Assignment of Intellectual Property. (a) Employee agrees that any and all presently existing business of the Company and all business developed by him or any otheremployee of the Company including without limitation all contracts, fees, commissions, compensation, records, customer or client lists,agreements and any other incident of any business developed, earned or carried on by Employee for the Company is and shall be the exclusiveproperty of the Company, and (where applicable) shall be payable directly to the Company. (b) Employee hereby grants to the Company (without any separate remuneration or compensation other than that received by him fromtime to time in the course of his employment) his entire right, title and interest throughout the world in and to, all research, information, procedures,developments, all inventions and improvements whether patentable or nonpatentable, patents and applications therefor, trademarks andapplications therefor, copyrights and applications therefor, programs, trade secrets, plans, methods, and all other data and know-how (hereinsometimes collectively referred to as “Intellectual Property”) made, conceived, developed and/or acquired by him solely or jointly with others duringthe period of his employment with the Company, which are either (i) made, conceived, developed or acquired during regular business hours or onthe premises of, or using properties of, the Company or in the regular scope of Employee’s employment by the Company or (ii) if related to theCompany’s business, whether or not made, conceived, developed or acquired during regular business hours or on the premises of, or usingproperties of, the Company or in the regular scope of Employee’s employment by the Company. 9. Confidentiality. Except as necessary in performance of services for the Company or if required by law and except for such informationthat becomes generally available to the public through no fault of Employee, Employee shall not, either during the period of his employment withthe Company or thereafter, use for his own benefit or disclose to or use for the benefit of any person outside the Company, any informationconcerning any Intellectual Property, or other confidential or proprietary information of the Company, including without limitation any of thematerials listed in Section 8(a), whether Employee has such information in his memory or embodied in writing or other tangible form. All originalsand copies of any of the foregoing, however and whenever produced, shall be the sole property of the Company, not to be removed from thepremises or custody of the Company without in each instance first obtaining authorization of the Company, which authorization may be revoked bythe Company at any time. Upon the termination of Employee’s employment in any manner or for any reason, Employee shall promptly surrender tothe Company all copies of any of the foregoing, together with any documents, materials, data, information and equipment belonging to or relating tothe Company’s business and in his possession, custody or control, and Employee shall not thereafter3 retain or deliver to any other person any of the foregoing or any summary or memorandum thereof. 10. Non-Competition Covenant. As the Employee has been granted options to purchase stock in the Company and as such has a financialinterest in the success of the Company’s business and as Employee recognizes that the Company would be substantially injured by Employeecompeting with the Company, Employee agrees and warrants that within the United States, he will not, unless acting with the Company’s expressprior written consent, directly or indirectly, while an employee of the Company and during the Non-Competition Period, as defined below, own,operate, join, control, participate in, or be connected as an officer, director, employee, partner, stockholder, consultant, or otherwise with, anybusiness or entity which competes with the business of the Company (or its successors or assigns) as such business is now constituted or as itmay be constituted at any time during the term of this Agreement; provided, however, that Employee may own less than one percent of the equityof a publicly traded company. The “Non-Competition Period” shall be a period of one year following termination of employment. Employee and the Company are of the belief that the period of time and the area herein specified are reasonable in view of the nature of thebusiness in which the Company is engaged and proposes to engage, the state of its business development and Employee’s knowledge of thisbusiness. However, if such period or such area should be adjudged unreasonable in any judicial proceeding, then the period of time shall bereduced by such number of months or such area shall be reduced by elimination of such portion of such area, or both, as are deemedunreasonable, so that this covenant may be enforced in such area and during such period of time as is adjudged to be reasonable. 11. Non-Solicitation Agreement. Employee agrees and covenants that he will not, unless acting with the Company’s express writtenconsent, directly or indirectly, during the term of this Agreement or for a period of one year thereafter solicit, entice away or interfere with theCompany’s contractual relationships with any customer, officer or employee of the Company. 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given upon the earlier ofactual receipt or three days after having been mailed by first class mail, postage prepaid, or 24 hours after having been sent by Federal Express orsimilar overnight delivery services, as follows: (a) if to Employee, at the address shown at the head of this Agreement, or to such other person(s)or address(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 thisAgreement, Attention: John A. Spears, with a copy to David A. White, Esq., White & McDermott, P.C., 65 William Street, Wellesley,Massachusetts 02481, or to such other person(s) or address(es) as the Company shall have furnished to Employee in writing. 13. Assignability. In the event that the Company shall be merged with, or consolidated into, any other corporation, or in the event that it shallsell and transfer substantially all of its assets to another corporation, the terms of this Agreement shall inure to the benefit of, and be assumed by,the corporation resulting from such merger or consolidation, or to which the Company’s assets shall be sold and transferred. This Agreement shallnot be assignable by4 Employee, but it shall be binding upon, and to the extent provided in Section 7 shall inure to the benefit of, his heirs, executors, administrators andlegal representatives. 14. Entire Agreement. This Agreement contains the entire agreement between the Company and Employee with respect to the subjectmatter hereof and there have been no oral or other prior agreements of any kind whatsoever as a condition precedent or inducement to the signingof this Agreement or otherwise concerning this Agreement or the subject matter hereof. 15. Equitable Relief. Employee recognizes and agrees that the Company’s remedy at law for any breach of the provisions of Sections 8, 9,10 or 11 hereof would be inadequate, and he agrees that for breach of such provisions, the Company shall, in addition to such other remedies asmay be available to it at law or in equity or as provided in this Agreement, be entitled to injunctive relief and to enforce its rights by an action forspecific performance. Should Employee engage in any activities prohibited by this Agreement, he agrees to pay over to the Company allcompensation, remuneration or monies or property of any sort received in connection with such activities; such payment shall not impair any rightsor remedies of the Company or obligations or liabilities of Employee which 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 effectedexcept by written instrument executed by the Company and Employee. 17. Severability. If any part of any term or provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable toany extent by a court of competent jurisdiction, such circumstances shall in no way affect any other term or provision of this Agreement, theapplication of such term or provision in any other circumstances, or the validity or enforceability of this Agreement. 18. Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect, or beused in connection with, the interpretation hereof. 19. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of Delaware,without regard to the principles of conflict of laws thereof. 20. Resolution of Disputes. With the exception of proceedings for equitable relief brought pursuant to Section 15 of this Agreement, anydisputes arising under or in connection with this Agreement including, without limitation, any assertion by any party hereto that the other party hasbreached any provision of this Agreement, shall be resolved by arbitration, to be conducted in Baltimore, Maryland, in accordance with the rulesand procedures of the American Arbitration Association. The parties shall bear equally the cost of such arbitration, excluding attorneys’ fees anddisbursements which shall be borne solely by the party incurring the same; provided, however, that if the arbitrator rules in favor of Employee,Company shall be solely responsible for the payment of all costs, fees and expenses (including without limitation5 reasonable attorneys’ fees and disbursements) of such arbitration. The provisions of this Section 20 shall survive the termination for any reason ofthe Term (whether such termination is by the Company, by Employee or upon the expiration of the Term). 21. Indemnification. The Employee shall be entitled to liability and expense indemnification to the fullest extent permitted by the Company’scurrent By-laws and Certificate of Incorporation, whether or not the same are subsequently amended. 22. Survivorship. The respective rights and obligations of the parties to this Agreement shall survive any termination of this Agreement orEmployee’s employment hereunder for any reason to the extent necessary to the intended preservation of such rights and obligations. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. NOVAVAX, INC.[SEAL] By: Name:Title:John A. SpearsPresident and Chief Executive Officer James R. Mirto6 EMPLOYMENT AGREEMENT This Employment Agreement (this “Agreement”) dated as of January 1, 2002, between Novavax, Inc., a Delaware corporation having itsprincipal office at 8320 Guilford Road, Columbia, Maryland 21046 (the “Company”), and Dennis Genge, an individual residing at 132 SeabiscuitPlace, Edgewater, Maryland, 21037 (“Employee”). The Company and Employee hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee hereby accepts employment upon the terms and conditionshereinafter set forth. (As used throughout this Agreement, “Company” shall mean and include any and all of its present and future subsidiaries andany and all subsidiaries of a subsidiary.) Employee warrants and represents that he is free to enter into and perform this Agreement and is notsubject to any employment, confidentiality, non-competition or other agreement 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 the performance of services as Chief Financial Officer, Vice President andTreasurer or such other senior management services as may from time to time be designated by the Company’s Chief Executive Officer or theBoard of Directors. During the Term (as defined below) of this Agreement, Employee’s services shall be completely exclusive to the Company andhe shall devote his entire business time, attention and energies to the business of the Company and the duties which the Company shall assign tohim from time to time. Employee agrees to perform his services faithfully and to the best of his ability and to carry out the policies and directivesof the Company. Employee agrees to take no action which is in bad faith and prejudicial to the interests of the Company during his employmenthereunder. Employee shall be based in Columbia, Maryland but he also may be required from time to time to perform duties hereunder forreasonably short periods of time outside of said area. 3. Term. The term of this Agreement shall be a period beginning on the date hereof and shall continue until terminated in accordance withSection 7 hereof (the “Term”). 4. Compensation. (a) Base Compensation. For all Employee’s services and covenants under this Agreement, the Company shall pay Employee an initialannual salary of $165,000, subject to annual review by the Board of Directors of the Company and payable in accordance with the Company’spayroll policy as constituted from time to time. (b) Bonus Program. During the Term, the Employee shall be entitled to participate in a bonus program, if any, maintained from time totime by the Company for the benefit of senior executives and other employees of the Company under which award payments, if any, are based onperformance criteria and milestones to be mutually determined by the Employee and the Company. 5. Reimbursable Expenses. Employee shall be entitled to reimbursement for reasonable expenses incurred by Employee in connection withthe performance of his duties hereunder upon receipt of vouchers therefor in accordance with such procedures as the Company has heretofore ormay hereafter establish. 6. Employee Benefits. (a) Employee shall be entitled to four weeks of paid vacation time per year starting from date of hire, calculated on a monthly basisin accordance with Company policies in effect from time to time. (b) Employee shall be entitled to participate in all group insurance programs, stock option plans or other fringe benefit plans whichthe Company may now or hereafter in its sole and absolute discretion make available generally to its employees, but the Company shall not berequired to establish any such program or plan. 7. Termination of Employment. Notwithstanding any other provision of this Agreement, Employee’s employment may be terminated: (a) By the Company, in the event of Employee’s willful failure or refusal to perform in all material respects the services required ofhim hereby, after a specific written warning with regard thereto, which shall include a statement of corrective actions and a 30 day period for theEmployee to respond and implement such actions, has been given to Employee by the Chief Executive Officer of the Company or its Board ofDirectors, his willful failure or refusal to carry out any proper direction by the Chief Executive Officer or the Board of Directors with respect to theservices to be rendered by him hereunder or the manner of rendering such services, his willful misconduct in the performance of his dutieshereunder or his commission of a felony involving moral turpitude; (b) By the Company, upon 30 days’ notice to Employee, if he should be prevented by illness, accident or other disability (mental orphysical) from discharging his duties hereunder for one or more periods totaling three months during any twelve-month period; (c) By the Company, without cause, or by Employee with “Good Reason” (as hereinafter defined), provided that if Employee’semployment is terminated pursuant to this Section 7(c), then in addition to any unpaid bonus with respect to the prior year, Employee shall beentitled to receive his then current salary for one year from the date of termination, together with a performance bonus equal to a fraction thenumerator of which is the number of weeks of employment of Employee at the Company during the then current calendar year and the denominatorof which is 52, times the amount of performance bonus, if any, paid to the Employee with respect to the prior year, all of which shall be 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.The Employee shall be entitled to terminate his employment for “Good Reason” if his responsibilities and authority are reduced or diluted in anymaterial way (other than for cause) without his consent or if he is relocated to another Company office or facility more than 50 miles fromColumbia, Maryland without his consent.2 (d) By the event of Employee’s death during the term of his employment; whereupon the Company’s obligation to pay furthercompensation hereunder shall cease forthwith, except that Employee’s legal representative shall be entitled to receive his fixed compensation forthe period up to the last day of the month in which such death shall have occurred. 8. All Business to be Property of the Company; Assignment of Intellectual Property. (a) Employee agrees that any and all presently existing business of the Company and all business developed by him or any otheremployee of the Company including without limitation all contracts, fees, commissions, compensation, records, customer or client lists,agreements and any other incident of any business developed, earned or carried on by Employee for the Company is and shall be the exclusiveproperty of the Company, and (where applicable) shall be payable directly to the Company. (b) Employee hereby grants to the Company (without any separate remuneration or compensation other than that received by him fromtime to time in the course of his employment) his entire right, title and interest throughout the world in and to, all research, information, procedures,developments, all inventions and improvements whether patentable or nonpatentable, patents and applications therefor, trademarks andapplications therefor, copyrights and applications therefor, programs, trade secrets, plans, methods, and all other data and know-how (hereinsometimes collectively referred to as “Intellectual Property”) made, conceived, developed and/or acquired by him solely or jointly with others duringthe period of his employment with the Company, which are either (i) made, conceived, developed or acquired during regular business hours or onthe premises of, or using properties of, the Company or in the regular scope of Employee’s employment by the Company or (ii) if related to theCompany’s business, whether or not made, conceived, developed or acquired during regular business hours or on the premises of, or usingproperties of, the Company or in the regular scope of Employee’s employment by the Company. 9. Confidentiality. Except as necessary in performance of services for the Company or if required by law and except for such informationthat becomes generally available to the public through no fault of Employee, Employee shall not, either during the period of his employment withthe Company or thereafter, use for his own benefit or disclose to or use for the benefit of any person outside the Company, any informationconcerning any Intellectual Property, or other confidential or proprietary information of the Company, including without limitation any of thematerials listed in Section 8(a), whether Employee has such information in his memory or embodied in writing or other tangible form. All originalsand copies of any of the foregoing, however and whenever produced, shall be the sole property of the Company, not to be removed from thepremises or custody of the Company without in each instance first obtaining authorization of the Company, which authorization may be revoked bythe Company at any time. Upon the termination of Employee’s employment in any manner or for any reason, Employee shall promptly surrender tothe Company all copies of any of the foregoing, together with any documents, materials, data, information and equipment belonging to or relating tothe Company’s business and in his possession, custody or control, and Employee shall not thereafter3 retain or deliver to any other person any of the foregoing or any summary or memorandum thereof. 10. Non-Competition Covenant. As the Employee has been granted options to purchase stock in the Company and as such has a financialinterest in the success of the Company’s business and as Employee recognizes that the Company would be substantially injured by Employeecompeting with the Company, Employee agrees and warrants that within the United States, he will not, unless acting with the Company’s expressprior written consent, directly or indirectly, while an employee of the Company and during the Non-Competition Period, as defined below, own,operate, join, control, participate in, or be connected as an officer, director, employee, partner, stockholder, consultant, or otherwise with, anybusiness or entity which competes with the business of the Company (or its successors or assigns) as such business is now constituted or as itmay be constituted at any time during the term of this Agreement; provided, however, that Employee may own less than one percent of the equityof a publicly traded company. The “Non-Competition Period” shall be a period of one year following termination of employment. Employee and the Company are of the belief that the period of time and the area herein specified are reasonable in view of the nature of thebusiness in which the Company is engaged and proposes to engage, the state of its business development and Employee’s knowledge of thisbusiness. However, if such period or such area should be adjudged unreasonable in any judicial proceeding, then the period of time shall bereduced by such number of months or such area shall be reduced by elimination of such portion of such area, or both, as are deemedunreasonable, so that this covenant may be enforced in such area and during such period of time as is adjudged to be reasonable. 11. Non-Solicitation Agreement. Employee agrees and covenants that he will not, unless acting with the Company’s express writtenconsent, directly or indirectly, during the term of this Agreement or for a period of one year thereafter solicit, entice away or interfere with theCompany’s contractual relationships with any customer, officer or employee of the Company. 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given upon the earlier ofactual receipt or three days after having been mailed by first class mail, postage prepaid, or 24 hours after having been sent by Federal Express orsimilar overnight delivery services, as follows: (a) if to Employee, at the address shown at the head of this Agreement, or to such other person(s)or address(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 thisAgreement, Attention: John A. Spears, with a copy to David A. White, Esq., White & McDermott, P.C., 65 William Street, Wellesley,Massachusetts 02481, or to such other person(s) or address(es) as the Company shall have furnished to Employee in writing. 13. Assignability. In the event that the Company shall be merged with, or consolidated into, any other corporation, or in the event that it shallsell and transfer substantially all of its assets to another corporation, the terms of this Agreement shall inure to the benefit of, and be assumed by,the corporation resulting from such merger or consolidation, or to which the Company’s assets shall be sold and transferred. This Agreement shallnot be assignable by4 Employee, but it shall be binding upon, and to the extent provided in Section 7 shall inure to the benefit of, his heirs, executors, administrators andlegal representatives. 14. Entire Agreement. This Agreement contains the entire agreement between the Company and Employee with respect to the subjectmatter hereof and there have been no oral or other prior agreements of any kind whatsoever as a condition precedent or inducement to the signingof this Agreement or otherwise concerning this Agreement or the subject matter hereof. 15. Equitable Relief. Employee recognizes and agrees that the Company’s remedy at law for any breach of the provisions of Sections 8, 9,10 or 11 hereof would be inadequate, and he agrees that for breach of such provisions, the Company shall, in addition to such other remedies asmay be available to it at law or in equity or as provided in this Agreement, be entitled to injunctive relief and to enforce its rights by an action forspecific performance. Should Employee engage in any activities prohibited by this Agreement, he agrees to pay over to the Company allcompensation, remuneration or monies or property of any sort received in connection with such activities; such payment shall not impair any rightsor remedies of the Company or obligations or liabilities of Employee which 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 effectedexcept by written instrument executed by the Company and Employee. 17. Severability. If any part of any term or provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable toany extent by a court of competent jurisdiction, such circumstances shall in no way affect any other term or provision of this Agreement, theapplication of such term or provision in any other circumstances, or the validity or enforceability of this Agreement. 18. Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect, or beused in connection with, the interpretation hereof. 19. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of Delaware,without regard to the principles of conflict of laws thereof. 20. Resolution of Disputes. With the exception of proceedings for equitable relief brought pursuant to Section 15 of this Agreement, anydisputes arising under or in connection with this Agreement including, without limitation, any assertion by any party hereto that the other party hasbreached any provision of this Agreement, shall be resolved by arbitration, to be conducted in Baltimore, Maryland, in accordance with the rulesand procedures of the American Arbitration Association. The parties shall bear equally the cost of such arbitration, excluding attorneys’ fees anddisbursements which shall be borne solely by the party incurring the same; provided, however, that if the arbitrator rules in favor of Employee,Company shall be solely responsible for the payment of all costs, fees and expenses (including without limitation5 reasonable attorneys’ fees and disbursements) of such arbitration. The provisions of this Section 20 shall survive the termination for any reason ofthe Term (whether such termination is by the Company, by Employee or upon the expiration of the Term). 21. Indemnification. The Employee shall be entitled to liability and expense indemnification to the fullest extent permitted by the Company’scurrent By-laws and Certificate of Incorporation, whether or not the same are subsequently amended. 22. Survivorship. The respective rights and obligations of the parties to this Agreement shall survive any termination of this Agreement orEmployee’s employment hereunder for any reason to the extent necessary to the intended preservation of such rights and obligations. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. NOVAVAX, INC.[SEAL] By: Name:Title:John A. SpearsPresident and Chief Executive Officer Dennis Genge6 [NOVAVAX INC LETTERHEAD]September 29, 1999W.M. Rickman Construction Company15215 Shady Grove RoadRockville, MD 20850Fax: 301 840 5992Attention: Ross L. EnglehartSubject: One Taft CourtDear Mr. Englehart:This letter serves as notice that Novavax is exercising its option to extend the term of the lease for the property at One Taft Court, Rockville, MD20850, pursuant to the conditions stated in Section 2 (TERMS) of the Lease Agreement dated March 30, 1995 between W.M. RickmanConstruction Co. and Dyncorp Advanced Technology Services, Inc., which was assigned to Novavax, Inc. on August 10, 1999. If you have anyquestions, please do not hesitate to call.Sincerely,/s/ DONALD J. MACPHEEDonald J. MacPheeVice President and Treasurercc: H. Montgomery Hougen, DynCorp  [W.M. RICKMAN CONSTRUCTION CO. LETTERHEAD]September 1, 1999DynCorp Advanced Technology Services, Inc.Attention: H. Montgomery Hougen2000 Edmund Halley DriveReston, Virginia 20191-3436Dear Mr. Hougen:W.M. Rickman Construction Company grants permission for DynCorp to assign the Lease dated March 30, 1995, between W. M. RickmanConstruction Co. and DynCorp Advanced Technology Services, Inc., to Novavax, Inc., effective August 10, 1999. The Premises is located on thesecond floor (11,743 square feet) at 1 Taft Court, Rockville, Maryland.Novavax, Inc., is obligated to abide by all terms, covenants and conditions of the Lease.DynCorp shall remain liable for the performance of all terms, covenants, and conditions as stated in paragraph 19 “Assignment or Subletting” of theLease.Sincerely,/s/ ROSS L. ENGLEHARTRoss L. EnglehartDirector of Facilitiescc: Donald J. MacPhee, CFO Novavax  LEASE AGREEMENT THIS LEASE AGREEMENT, made this 30 day of March 1995, by and between W.M. RICKMAN CONSTRUCTION CO., hereinafter called“LANDLORD” and DYNCORP ADVANCED TECHNOLOGY SERVICES, INC., a Virginia corporation, hereinafter called “TENANT”.WITNESSETH1. LEASED PREMISES LANDLORD hereby demises unto tenant, and TENANT hereby leases from LANDLORD for the terms and upon the conditions set forth inthis Lease 11,743 square feet of space in the building located at 1 Taft Court, Rockville, MD 20850, (hereinafter referred to as “BUILDING”),as laboratory facilities, all as set forth on Exhibit A, hereto attached, said space being referred to as “PREMISES”. 2. TERM The term of this lease shall be for a period of five years, commencing on the 1st day of April, 1995, and terminating on the 31st day ofMarch, 2000 with an option for an additional five years at the same terms and conditions in this lease, provided that TENANT shall havegiven the LANDLORD written notice of TENANT’s intention to do so six (6) months prior to the expiration of this lease and that the Tenant isnot in default of the Lease. 3. RENT The TENANT shall pay to the LANDLORD an annual rental (herein called “minimum rent”) in the amount of One Hundred fifty eight thousandfive hundred thirty & 50/100 DOLLARS ($158,530.50), subject to adjustment as hereinafter set forth, payable without deduction or set off inequal monthly installments of Thirteen thousand two hundred ten & 88/100 DOLLARS ($13,210.88) per month in advance, the firstinstallment of which is due and payable April 1,1995 and all subsequent installments due and payable on the 1st day of each calendar monthhereafter until the total rent provided for herein is paid. No payment by TENANT or receipt of LANDLORD of a lesser amount than a monthlyinstallment of rent herein stipulated shall be deemed to be other than on account of such stipulated rent, nor shall any endorsement orstatement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and LANDLORDmay accept such check for payment without prejudice to LANDLORD’s right to recover the balance of such rent or pursue any other remedyprovided for in this lease. 4. ADJUSTMENT OF MINIMUM RENT The minimum rent shall be adjusted at the end of each year during the term hereof by a 3% increase over the rent then being paid. Therealso shall be no additional pass-throughs of increases in operating expenses except as specifically referenced herein. 5. REAL ESTATE TAXES In the event the real estate taxes levied or assessed against the land and building of which the premises are a part in future tax years aregreater than the real estate taxes for the base tax year, the TENANT, shall pay within thirtyPAGE 1 (30) days after submission of the bill to TENANT for the increase in real estate taxes, as additional rent a proportionate share of suchincreases, which proportionate share shall be computed at 22.08% of the increase in taxes, but shall exclude any fine, penalty, or interestcharge for late or non-payment of taxes by LANDLORD. The base tax year shall be July 1, 1994 to June 30, 1995. In the event that LANDLORD’s contest or appeal of the Real Estate Taxes and/or assessment regarding the building of which the Premisesform a part shall result in a reduction or refund of Real Estate Taxes, TENANT shall receive a proportionate share, as defined in this sectionof said refund for taxes TENANT has paid, or in the case of a tax reduction before payment by TENANT, TENANT shall be obligated only topay its share of the reduced amount. LANDLORD shall provide TENANT with copies of all Real Estate tax bills and copies, in reasonabledetail, of LANDLORD’s computations showing TENANT’s proportionate share. LANDLORD shall be under no obligation to appeal anyproposed re-assessment of the land or building. 6. UTILITIES TENANT shall be responsible for the payment of all utilities used or consumed by the TENANT in and upon the Premises. Electric is to beseparately metered. Water is to be either separately metered or an equitable allocation be made between the tenants based on the quantityof water consumed. In the event any utility service to the premises shall be interrupted for a period of more than two (2) days due to thenegligence or willful misconduct of LANDLORD, its agents or servants, then the minimum rent shall abate from the interruption of suchservices until such services are fully restored. 7. EXCLUSIVE USE TENANT shall have the right to use the demised premises for the operation of offices and laboratories consistent with TENANT’s businessand for no other purpose, except as approved by the LANDLORD in advance in writing, such approval not to be unreasonably withheld. 8. LATE CHARGE If any installment of rent accruing hereunder or any other sums payable hereunder shall not be paid within Fifteen (15) days after writtennotice to TENANT, such installment and other sums shall be increased without affecting the LANDLORD’s other rights under this Lease, bya late charge of five (5%) percent of the delinquent installment. Anything contained herein to the contrary notwithstanding, LANDLORD shallwaive the late charge set forth herein of for the first two (2) late payments during each lease year of the term of this Lease, provided thatsuch payments shall be made with 10 days of written notice to TENANT to such lateness. 9. REPAIRS AND MAINTENANCE LANDLORD shall be responsible for all structural repairs, including repairs to the roof and load-bearing walls of the building, and formaintaining the parking area. The LANDLORD shall be responsible for walkways, and all common areas within the building. The TENANTshall be responsible for the maintenance and repair of the Premises and all fixtures, appliances and equipment therein, including, but notlimited to, the Heating and Air Conditioning system. LANDLORD will pay for major Heating and Air Conditioning component replacement andall repairs to the heating and airPAGE 2 conditioning system in excess of Two Hundred Fifty Dollars ($250.00) per occurrence. TENANT shall also provide its own char service. LANDLORD will repair and replace any glass breakage, provided it is not the result of theTENANT’s willful or negligent act. 10. LANDLORD’S WORK PRIOR TO COMMENCEMENT OF TERM LANDLORD shall make the following improvements to the Premises prior to the commencement of the term of the Lease. None 11. TENANT ALTERATIONS The Landlord will supply the Tenant with an allowance of up to $30,000 for renovations and buildout of the Premises. The Tenant may hirethe licensed contractor of his choice, and a draw schedule will be determined between the Tenant and the Landlord. Any unused portion ofthis allowance will be returned to the Landlord. All building materials must meet the specifications of the Landlord. The Tenant (and / orcontractor) will be responsible for obtaining building & occupancy permits. All alterations, improvements, or additions to the demised premises to be made by TENANT shall be subject to the written consent of theLANDLORD, which consent shall not be unreasonably withheld, provided such alterations and improvements do not weaken the structuralintegrity of the building or detract from its dignity and/or uniformity. All alterations and improvements and/or additions made by TENANTshall remain upon the premises at the expiration or earlier termination of this Lease and shall become the property of the LANDLORD,unless LANDLORD shall, at the time of approval of the alteration, provide written notice to TENANT to remove the same, in which eventTENANT shall remove such alterations, improvements and/or additions, and restore the premises to the same good order and condition inwhich it was at the commencement of this Lease, reasonable wear and tear and unavoidable casualty excepted. Should TENANT fail to doso, LANDLORD may do so, collecting at LANDLORD’s option, the reasonable cost and expense thereof from TENANT as additional rent. 12. TRADE FIXTURES All trade fixtures, telephone equipment, and apparatus installed by TENANT in the leased premises shall remain the property of TENANTand shall be removed at the expiration or earlier termination of this lease, and provided further that in the event of such removal, TENANTshall promptly restore the premises to their good order and condition. Any such trade fixture not removed prior to such termination shallbecome the property of the LANDLORD. 13. HAZARDOUS STORAGE TENANT shall be permitted to store hazardous materials on the premises, however, any such storage and use of such materials shallcomply with all Federal, State, County and City regulations relative to such use and storage of said materials. Any hazardous materialsstored or used on the premises must not, in any way, prejudice the insurance of the premises, or increase the fire hazards to a greaterextent than necessarily incident to the business for whichPAGE 3  the premises are leased, and all such materials must be completely removed upon expiration of this lease. 14. SIGNS TENANT may display appropriate signs inside the building but such signs shall be subject to the written approval of the LANDLORD, whichwill not unreasonably be withheld, and said signs shall be in full conformance with any applicable regulations or ordinances of localgovernmental authorities having jurisdiction. 15. QUIET ENJOYMENT LANDLORD covenants that, upon payment of the rent herein provided and performance by the TENANT of all other covenants hereincontained, TENANT shall and may peaceably and quietly have, hold and enjoy the premises for the term hereof and options. 16. SURRENDER OF PREMISES Upon the expiration or termination of this Lease, TENANT shall quit and surrender the premises to the LANDLORD broom clean and shallremove all of its property therefrom. The obligation of this paragraph shall survive the termination of the Lease. 17. FIRE AND LIABILITY INSURANCE TENANT covenants and agrees to maintain and carry, at all times during the term of this Lease, in companies qualified and authorized totransact business in the State of Maryland, extended coverage in the amount of $500,000.00 per person, $1,000,000.00 per occurrence and$100,000.00 for damage to property on the Premises. TENANT shall indemnify and save harmless the LANDLORD from any and all liability, damage, expense, cause of action, or claims arisingout of injury to persons or to property on the Premises, except for the negligence or willful misconduct of LANDLORD, its agents,employees, or servants. TENANT shall maintain at all times during the term of this lease, in companies qualified and authorized to transactbusiness in the State of Maryland, public liability insurance with limits in same coverage as above. TENANT shall furnish LANDLORD with satisfactory proof that the insurance herein provided for is at all times in full force and effect. 18. DAMAGE BY FIRE If the premises shall be partially damaged by fire, casualty, or the elements, but are not rendered unrentable, in TENANT’s reasonablebusiness judgement, in whole or in part, the LANDLORD shall promptly, at his expense, cause such damage to be repaired and the rentshall not be abated. If by reason of such occurrence the premises shall be rendered wholly or partially unfit for occupancy for the usescontemplated hereunder, LANDLORD shall promptly, at his own expense, cause the damage to be repaired, and the rent meanwhile shallbe abated proportionately as to the proportion of the premises rendered unfit. If the building, or common areas appurtenant thereto, shall berendered wholly unfit for the occupancy or for the use contemplated hereunder, in TENANT’s reasonable business judgement, by reason ofsuch occurrence, whether the premises have been damaged or not, and if such damage in the opinion of the LANDLORD cannot berestored to tenantable occupancy withinPAGE 4  sixty days of the date of occurrence, either the LANDLORD or TENANT may terminate this Lease on thirty (30) days written notice to theother. In the event LANDLORD determines that the damage can be repaired to tenantable occupancy within sixty (60) days, but fails forany reason including reasons beyond the control of LANDLORD to commence such repairs within 30 days and complete them within 60days, the TENANT may terminate this lease upon 30 days notice to the LANDLORD. In the event the Premises are rendered whollyuntenable during the last two years of the term hereof, TENANT may terminate this lease upon thirty (30) days notice to the LANDLORD. 19. ASSIGNMENT OR SUBLETTING TENANT agrees not to assign, mortgage, pledge or encumber this Lease, in whole or in part, but may sublet the whole or any part of thedemised premises, and permit the use of the whole or any part of the demised premises by a license or concessionaire, by first obtainingthe written consent of the LANDLORD, which shall not be unreasonably withheld or delayed. TENANT agrees that, in the event of any suchassignment, subletting, licensing or granting of a concession the TENANT shall nevertheless remain liable for the performance of all terms,covenants, and conditions of this lease. 20. SUBORDINATION This Lease shall be subject to and subordinate at all times to the lien of any mortgage and/or deeds of trust and all land leases now orhereafter made on any portion of the demised Premises, and to all advances thereunder, provided the mortgagee or trustee named in saidmortgage or deed of trust shall agree to recognize this Lease Agreement and agrees, in the event of foreclosure, not to disturb theTENANT’s possession hereunder, provided TENANT has not committed any event of default as to which the applicable cure period has notexpired under the Lease Agreement. This subordination shall be self-operative and no further intrusions of subordination shall be required. 21. ATTORNMENT If any proceedings are commenced to foreclose any mortgage or deed of trust encumbering the Premises, TENANT agrees to attorn thepurchaser at the foreclosure sale, if required to do so by any such purchasers, and to recognize such purchaser as the LANDLORD underthis lease, provided purchaser shall agree that TENANT’s rights hereunder shall not be disturbed so long as TENANT has not committedany event of default as to which the applicable cure period has not expired. 22. CONDEMNATION (a) If the whole of the demised Premises shall be taken by any governmental or quasi-governmental authority under the power ofcondemnation, eminent domain or expropriation, or in the event of conveyance in lieu thereof, the Lease shall terminate as of theday possession shall be taken by the governmental authority and the entire award shall be the property of the LANDLORD, exceptfor the value of any improvements, alterations or addition made to the premises at TENANT’s sole cost and expense, including butnot limited to, fixtures or equipment installed by TENANT. TENANT shall have the right to claim and recover from the condemningauthority such compensation as may be separately awarded or recoverable by TENANT’s business by reason of the condemnationand for or on account of any cost or loss to which TENANT might bePAGE 5 incur for moving expenses, including but not limited to TENANT’s fixtures, equipment and furnishings. (b) In the event there is any taking by governmental or quasi-governmental authority of a portion of the demised Premises, or thebuilding of which the premises form a part of the common area appurtenant thereto, which does not seriously and adversely affectthe ability of the TENANT to conduct to its business on the premises, the lease shall remain in full force and effect and TENANT’srent shall be abated in proportion to the diminution in value of the premises. (c) In the event of any such taking or conveyance of the Premises or the Building of which the Premises form a part or the commonareas appurtenant thereto, or any portion thereof which shall render the Premises wholly unfit for the occupancy of TENANT or theuses contemplated hereunder in TENANT’s reasonable business judgement, TENANT may terminate this lease upon thirty (30) dayswritten notice to LANDLORD. (d) In the event of any such taking or conveyance of the demised Premises, or the building of which the Premises form a part of thecommon area appurtenant thereto, or any portion thereof, TENANT shall pay rent to the day when possession thereof shall be takenby the governmental authority with an appropriate refund by LANDLORD of such rent as may have been paid in advance for a periodsubsequent to such date. If this Lease shall continue in effect as to any portion of the demised Premises not so taken or conveyed,the rent shall be reduced to an amount computed according to the floor space remaining. If this Lease shall continue, LANDLORD, atits expense, but only to the extent of any equitable proportion of the award or to other compensation for the portion taken orconveyed of the improved portion of the Premises and consequential damages to the remainder hereof not taken (excluding anyaward or other compensation for the land), shall make all necessary repair or alterations so as to constitute the remaining demisedpremises a complete architectural and tenantable unit. In the the event that LANDLORD’s repairs and alterations to the premises, orto the building of which the Premises form a part, or to the common area appurtenant thereto, do not restore the Premises to acondition fit for the occupancy of or for the uses contemplated hereunder in TENANT’s reasonable business judgement, TENANTmay terminate this lease upon thirty (30) days written notice to LANDLORD. (e) TENANT shall be entitled to such award as may be given to it by the condemning authority for the value of its fixtures andequipment (if separate awards are given) or if only one award is given by the condemning authority for all interests, said award shallbe apportioned between the parties as their respective interest shall appear. In the event LANDLORD and TENANT are unable toagree as to the amount of rental reduction which may be required under sub-paragraphs b and c, above, or the apportionment of anyaward made by the condemning authority, such matter shall be submitted to arbitration under the rules of the American ArbitrationAssociation then in effect.25. EVENTS OF DEFAULT The occurrence of any of the following shall constitute an event of default hereunder:PAGE 6 (a) Failure of TENANT to pay installment of rent hereunder within ten (10) days after receipt of written notice, or within twenty (20) daysafter receipt of written notice any other sum herein required to be paid by TENANT. (b) TENANT’s failure to perform any other covenant or condition of this Lease within thirty (30) days after receipt of written notice anddemand, unless the failure is of such a character as to require more than thirty (30) days to cure in which event TENANT’s failure toproceed diligently to cure such failure shall constitute an event of default.24. LANDLORD’S REMEDIES Upon the occurrence of any event of default, LANDLORD may, at LANDLORD’s sole option, exercise any or all of the following remedies,together with any such other remedies as may be available to LANDLORD at law or in equity; (a) LANDLORD may terminate this Lease by giving TENANT written notice of the election to do so, as of a specified date not less thanthirty (30) days after the date of the giving of such notice and this Lease shall then expire on the date so specified and LANDLORDshall then be entitled to immediately regain possession of the demised premises as if the date had been originally fixed as theexpiration date of the term of this Lease. LANDLORD may then re-enter upon the leased premises either with or without due processof law and remove all persons therefrom, the statutory notice to quit or any other notice to quit being hereby expressly waived byTENANT. TENANT expressly agrees that the exercise by LANDLORD of the right of re-entry shall not be a bar to or prejudice in anythe other legal remedies available to LANDLORD. In that event, LANDLORD shall be entitled to recover from TENANT as and forliquidated damages an amount equal to the rent and additional rent reserved in this Lease less any and all amounts received byLANDLORD from the rental of the premises to another tenant. Any recovery by the LANDLORD shall be limited to the rent hereunder(plus any costs incurred in re-letting) less any rent actually paid by the new tenant. (b) No termination of this lease nor any taking or recovery of possession of the demised premises shall deprive LANDLORD of any of hisremedies or actions against TENANT for past or future rent, nor shall the bringing of any action for rent or breach of covenant, or theresort to any other remedy herein provided for the recovery of rent, be construed as a waiver of the right to obtain possession of thepremises. (c) In addition to any damages becoming due under subparagraph (a) hereof, LANDLORD shall be entitled to recovery from TENANT andTENANT shall pay to LANDLORD an amount equal to all expenses, if any, incurred by the LANDLORD in recovering possession ofthe demised premises, and all reasonable costs and charges for the care of said premises while vacant, which damages shall be dueand payable by TENANT to LANDLORD at such time or times as such expenses are incurred by the LANDLORD. (d) In the event of a default or threatened default by TENANT or any of the terms or conditions of this Lease, LANDLORD shall have theright of injunction and the right to invoke any remedy allowed by law or in equity as if no specific remedies of LANDLORD were setforth in this Lease.PAGE 7 (e) It is further provided that if, under the provisions of this lease, default be made and a compromise and settlement shall be hadthereupon, it shall not constitute a waiver of any covenant herein contained, nor of the Lease itself, and it is hereby specifically agreedthat this Lease shall not merge in any judgement had upon the same if compromise or settlement be made upon said judgement priorto termination of TENANT’s possession, the lease in such event to continue by the payment of rent herein reserved, and the furtherperformance of the covenants herein contained on the part of TENANT.25. RIGHTS OF LANDLORD LANDLORD reserves the following rights with respect to the demised premises: (a) During normal business hours, upon 24 hours notice, by them or their duly authorized agents, to go upon and inspect the demisedpremises and every part thereof, and at LANDLORD’s option, to make repairs, alterations and additions to the demised premises orthe building of which the demised premises are a part, provided there is no interference with TENANT’s occupancy. An Agent of theTENANT may be present for inspection, if required by TENANT. (b) To display after notice from either party of intention to terminate this Lease, a “For Rent” sign, and all of said signs which shall beplaced upon such part of the demised premises as LANDLORD shall require, except on display windows or doors leading into thedemised premises. Prospective purchasers or tenants authorized by LANDLORD may inspect the premises during normal businesshours following adequate notice to TENANT. (c) To install or place upon, or fix to, the roof and exterior walls of the demised premise, equipment, signs, displays, antennae, and anyother object or structure of any kind, providing the same shall not materially impair the structural integrity of the building or interferewith TENANT’s occupancy.26. HOLDING OVER If TENANT holds possession of the premises after the termination of this Lease or any renewal or extension thereof, TENANT shall becomea TENANT from month to month at 125% of the current escalated rental rate.27. WAIVER OF CLAIMS Except as may result from their negligence, LANDLORD and LANDLORD’s agents, employees and contractors shall not be liable for, andTENANT hereby releases all claims for damages to persons or property sustained by TENANT or any person claiming through TENANTresulting from any fire, accident, occurrence to condition in or upon the demised premises or building of which they shall be part, includingbut not limited to such claims for damage resulting from (1) any defect in or failure of plumbing, heating or air-conditioning equipment, electricwiring or installation thereof, water pipes, stairs, railings or walks; (2) any equipment of apparatus becoming out of repair; (3) the bursting,leaking or running of any tank, washstand, water closet, water pipe, drain or any other pipe or tank in, upon or about such building orpremises; (4) the backing up of any sewer pipe or downspout; (5) the escape of steam or hot water; (6) water, snow or ice being upon orcoming through the roof of any other place upon or near such building or premises or otherwise;PAGE 8 (7) the falling of any fixtures, plaster or stucco; (8) broken glass; and (9) any act or omission of occupants of adjoining or contiguousproperty of buildings. 28. NOTICE All notices required under this Lease shall be given in writing and shall be deemed to be properly serviced if sent by certified or registeredUnited States Mail, postage prepaid, as follows: If to the LANDLORD: W.M. RICKMAN CONSTRUCTION CO. 15215 SHADY GROVE ROAD ROCKVILLE, MD 20850 If to the TENANT: DynCorp Advanced Technology Services, Inc. 1 Taft Court Rockville, Maryland 20850 or to such other address as either may have designated from time to time by written notice to the other. The date of service of such noticesshall be the date such notices are deposited in any United States Post Office. 29. COVENANTS OF TENANT TENANT covenants and agrees: (a) To give to LANDLORD prompt written notice of any accident, fire or damage occurring on or to the demised premises. (b) To keep thermostat in the premises set at a temperature sufficient to prevent freezing of water pipes, fixtures and HVAC units. (c) To keep the demised premises clean, orderly, sanitary, and free from all objectionable odors and from insects, vermin and otherpests. (d) To comply with the requirements of the State, Federal and County statutes, ordinances, and regulations applicable to TENANT andits use of the demised premises, and to save LANDLORD harmless from penalties, fines, costs, and expenses resulting from failureto do so, provided TENANT shall not be obligated to make structural repairs or alterations to so comply. (e) TENANT shall promptly pay all contractors, material and men it engages to perform work and provide materials for construction workon the premises so as to minimize the possibility of a lien attaching to the premises, and should any such lien be made or filed,TENANT shall cause the same to be discharged and released of record by bond or otherwise within 10 days of receipt of writtenrequest from LANDLORD.30. LANDLORD’S RIGHT TO ALTER SITE PLAN LANDLORD shall, from time to time, have the right to alter or modify the site plan of the building and to rearrange the driveways andparking areas, as well as the entrance and exits to the premises, such alteration to be subject to TENANT approval.PAGE 9 31. PARKING SPACES Landlord agrees to furnish 3 1/3 unreserved parking spaces per thousand square feet of space occupied by the TENANT. 32. ENTIRE AGREEMENT This Lease contains the entire agreement of the parties. There are no oral agreements existing between them. 33. SUCCESSORS AND ASSIGNS This Lease, and the covenants and conditions herein contained shall insure to the benefit of and be binding upon the LANDLORD, his heirsand assigns, and shall insure in the benefit of and be binding upon the TENANT, its successors and assigns, if permitted. 34. BANKRUPTCY If TENANT shall make an assignment of its assets for the benefit of creditors, or if TENANT shall file a voluntary petition in bankruptcy, orif any involuntary petition in bankruptcy or for receivership be instituted against the TENANT and the same be not dismissed within thirty(30) days of the filing thereof, or if TENANT shall be adjudged bankrupt, then and in any of said events, this Lease shall immediately ceaseand terminate at the option of the LANDLORD with the same force and effect as though the date of said event was the date herein fixed forexpiration of the term of this Lease. 35. NON-DELIVERY N/A 36. PARTIAL INVALIDITY If any term, covenant, or condition of this Lease or the application thereof to any person or circumstance shall be held to be invalid andunenforceable, the remainder of this Lease, and the application of such terms, covenants, or conditions shall be valid and enforceable tothe fullest extent permitted by law. 37. FORCE MAJEURE With the exception of those provisions contained herein regarding the payment of rent, the inability of either party to perform any of theterms, covenants or conditions of this Lease shall not be deemed a default if the same shall be due to any cause beyond the control of thatparty. 38. WAIVER OF SUBROGATION If either party hereto is paid any proceeds under any policy of insurance naming such party as an insured on account of any loss, damageor liability, then such party hereby releases the other party to (and only to) the extent of the amount of such proceeds, from any and allliability for such loss or damage, notwithstanding negligent or intentionally tortious act or omission of the other party, its agents oremployees; provided, such release shall be effective only as to a loss or damage occurring while the appropriate policy of insurance of thereleasing party provides that such release shall not impair the effectiveness of such policy or the insured’s ability to recover thereunder.Each party hereto shall use reasonable efforts to have a clause to such effect includedPAGE 10 in its said policies, and shall promptly notify the other in writing if such a clause cannot be included in any such policy. 39. ESTOPPEL CERTIFICATE The TENANT shall from time to time, within five (5) days after being requested to do so by the LANDLORD or any Mortgages, execute,acknowledge and deliver to the LANDLORD (or, at the LANDLORD’s request, to any existing or prospective purchaser, transferee, assigneeor Mortgagee of any or all of the Premises) an instrument in recordable form, certifying if true and correct (a) that this Lease is unmodifiedand in full force and effect (or, if there has been any modification thereof, that it is in full force and effect as so modified stating therein thenature of such modification); (b) as to the dates to which the minimum Rent and other charges arising hereunder have been paid; (c) as tothe amount of any prepaid Rent or any credit due to the Tenant hereunder; (d) that the TENANT has accepted possession of the Premises,and the date on which the Term commenced; (e) as to whether, to the best knowledge, information and belief of the signer of suchcertificate, the LANDLORD or the TENANT is then in default in performing any of its obligations hereunder (and, if so, specifying the natureof each such defaults); and (f) as to any other fact or condition reasonably requested by the LANDLORD or such other addresses. In theevent the TENANT fails or refuses to provide such a certificate, TENANT shall be liable to LANDLORD for any loss or damage (includingreasonable counsel fees) arising out of or in connection with such failure or refusal. IN WITNESS WHEREOF, the parties have caused this Lease Agreement to be executed on the year and date first written. WITNESS: W.M. Rickman Construction Company /s/ SIGNATURE /s/ WILLIAM M. RICKMAN 3/30/95 William M. Rickman Date ATTEST: PRI Dyncorp /s/ MATTHEW T. COHEN /s/ RICHARD A. ZAKOUR 3/30/95 Richard A. Zakour DateMATTHEW T. COHENCONTRACTS MANAGER PAGE 11 LEASE AGREEMENT THIS LEASE is executed this first day of September, 2000, by and between GPG ENTERPRISES, L.L.C., a Missouri limited liabilitycompany (“Landlord”), and THE FIELDING PHARMACEUTICAL COMPANY, a Missouri corporation (“Tenant”).WITNESSETH:ARTICLE 1 — LEASE OF PREMISES Section 1.01. Basic Lease Provisions and Definitions. A. Leased Premises: The office and warehouse building (the “Building”) located at 11551 Adie Road, MarylandHeights, Missouri, and the land on which the Building is located, which land is described onExhibit A attached hereto. B. Monthly Rental Installments: Lease Year 1 $10,687.50 per month, Lease Year 2 $10,954.69, Lease Year 3 $11,228.55 Lease Years 4 – 6 (Extension Term); See Section 15.09(b) C. Lease Term: Three years plus one (1) renewal option for an additional Three years. D. Commencement Date: September 1, 2000 E. Security Deposit: $10,687.50 F. Permitted Use: Office, warehouse and light industrial purposes. G. Address for notices: Landlord:GPG Enterprises, L.L.C. 133 Bryn Wyck St. Louis, MO 63141 Tenant:The Fielding Pharmaceutical Company, Inc. 11551 Adie Road Maryland Heights, Missouri 63043 Address for rental and other payments: GPG Enterprises, L.L.C. 133 Bryn Wyck St. Louis, MO 63141 Section 1.02. Leased Premises. Landlord hereby leases to Tenant and Tenant leases from Landlord, under the terms and conditionsherein, the Leased Premises. Tenant hereby accepts the Leased Premises in their “as is” condition and subject to all restrictions, covenants,easements, rights-of-way of record, if any, and applicable zoning regulations regulating the use of the Leased Premises, and accepts this Leasesubject thereto and to all matters disclosed thereby. Landlord makes and has made no representations or warranties with respect to the conditionof the Leased Premises or as to its suitability for the use or uses contemplated by Tenant.  ARTICLE 2 — TERM AND POSSESSION Section 2.01. Term. The term of this Lease (“Lease Term”) shall be for the period of time as set forth in Section 1.01(C) hereof, and shallcommence on the Commencement Date. Section 2.02. Surrender of the Premises. Upon the expiration or earlier termination of this Lease, Tenant shall immediately surrender theLeased Premises to Landlord in good condition and repair. Tenant shall also remove its personal property, trade fixtures and any of Tenant’salterations designated by Landlord, promptly repair any damage caused by such removal, and restore the Leased Premises to the conditionexisting upon the Commencement Date, reasonable wear and tear excepted. If Tenant fails to do so, Landlord may restore the Leased Premises tosuch condition at Tenant’s expense, Landlord may cause all of said property to be removed at Tenant’s expense, and Tenant hereby agrees to payall the costs and expenses thereby reasonably incurred. All Tenant property which is not removed within ten (10) days following Landlord’s writtendemand therefor shall be conclusively deemed to have been abandoned by Tenant, and Landlord shall be entitled to dispose of such property atTenant’s cost without thereby incurring any liability to Tenant. The provisions of this section shall survive the expiration or other termination of thisLease. Section 2.03. Holding Over. If Tenant retains possession of the Leased Premises after the expiration or earlier termination of this Lease,Tenant shall become a tenant from month to month at twice the Monthly Rental Installment in effect at the end of the Lease Term, and otherwiseupon the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent in such event shall not result in arenewal of this Lease, and Tenant shall vacate and surrender the Leased Premises to Landlord upon Tenant being given thirty (30) days’ priorwritten notice from Landlord to vacate whether or not said notice is given on the rent paying date. This Section 2.03 shall in no way constitute aconsent by Landlord to any holding over by Tenant upon the expiration or earlier termination of this Lease, nor limit Landlord’s remedies in suchevent.ARTICLE 3 — RENT Section 3.01. Base Rent. Tenant shall pay to Landlord the Monthly Rental Installments, in advance, without deduction or offset,beginning on the Commencement Date and on or before the first day of each and every calendar month thereafter during the Lease Term. TheMonthly Rental Installment for partial calendar months shall be prorated. Section 3.02. Additional Rent. In addition to the Monthly Rental Installments, Tenant shall pay to Landlord for each calendar year duringthe Lease Term, as “Additional Rent” all costs and expenses incurred by Landlord during the Lease Term for (i) Real Estate Taxes, (ii) insurancepremiums, and (iii) Common Area Charges. “Real Estate Taxes” shall include any form of real estate tax or assessment or service payments in lieu thereof, and any license fee,commercial rental tax, improvement bond or other similar charge or tax (other than inheritance, personal income or estate taxes) imposed upon theLeased Premises (or against Landlord’s business of leasing the Leased Premises) by any authority having the power to so charge or tax, togetherwith costs and expenses of contesting the validity or amount of Real Estate Taxes which at Landlord’s option may be calculated as if suchcontesting work had been performed on a contingent fee basis (whether charged by Landlord’s counsel or representative; provided, however, thatsaid fees are reasonably comparable to the fees charged for similar services by others not affiliated with Landlord, but in no event shall feesexceed thirty-three percent (33%) of the good faith estimated tax savings). Additionally, Tenant shall pay, prior to delinquency, all taxes assessedagainst and levied upon trade fixtures, furnishings, equipment and all personal property of Tenant contained in the Leased Premises.-2- “Common Area Charges” shall mean all of Landlord’s expenses for management, operation, repair, replacement and maintenance tokeep the Leased Premises in good order, condition and repair, including, but not limited to: management fees; common area utilities; stormwaterdischarge fees; license, permit, inspection and other fees; fees and assessments imposed by any covenants or owners’ association; professionalfees; security services; costs in complying with any governmental laws or ordinances; and maintenance, repair and replacement of the driveways,parking and loading areas (including snow removal), exterior lighting, landscaped areas, walkways, curbs, drainage strips, sewer lines, exteriorwalls, foundation, structural frame, roof and gutters. The cost of any capital improvement shall be amortized over the useful life of suchimprovement (as reasonably determined by Landlord), and only the amortized portion shall be included in Common Area Charges. Notwithstandingthe foregoing, Tenant shall not be responsible for the cost of replacing the roof, exterior walls, foundation and/or structural frame of the Building. Section 3.03. Payment of Additional Rent. Landlord shall estimate the total amount of Additional Rent to be paid by Tenant during eachcalendar year of the Lease Term, pro-rated for any partial years. Commencing on the Commencement Date, Tenant shall pay to Landlord eachmonth, at the same time the Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the estimated Additional Rent for suchyear. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant a statement of the actual amount of suchAdditional Rent, and within thirty (30) days after receipt of such statement, Tenant shall pay any deficiency between the actual amount owed andthe estimates paid during such calendar year. In the event of overpayment, Landlord shall credit the amount of such overpayment toward the nextMonthly Rental Installment. Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur certain additional unanticipated administrative and legalcosts and expenses if Tenant fails to timely pay any payment required hereunder. Therefore, in addition to the other remedies available to Landlordhereunder, if any payment required to be paid by Tenant to Landlord hereunder shall become overdue, such unpaid amount shall bear interest fromthe due date thereof to the date of payment at the prime rate (as reported in the Wall Street Journal) of interest (“Prime Rate”) plus six percent(6%) per annum.ARTICLE 4 — SECURITY DEPOSIT Tenant, upon execution of this Lease, shall deposit with Landlord the Security Deposit as security for the performance by Tenant of allof Tenant’s obligations contained in this Lease. In the event of a default by Tenant Landlord may apply all or any part of the Security Deposit tocure all or any part of such default; and Tenant agrees to promptly, upon demand, deposit such additional sum with Landlord as may be required tomaintain the full amount of the Security Deposit. All sums held by Landlord pursuant to this section shall be without interest. At the end of theLease Term, provided that there is then no uncured default, Landlord shall return the Security Deposit to Tenant.ARTICLE 5 — USE Section 5.01. Use of Leased Premises. The Leased Premises are to be used by Tenant solely for the Permitted Use and for no otherpurposes without the prior written consent of Landlord. Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and maintain the Leased Premises and conduct its businessthereon in a safe, careful, reputable and lawful manner, (ii) comply with all laws, rules, regulations, orders, ordinances, directions and requirementsof any governmental authority or agency, now in force or which may hereafter be in force, including without limitation those which shall imposeupon Landlord or Tenant any duty with respect to or triggered by a change in the use or occupation of, or any improvement or alteration to, theLeased Premises, and (iii) comply with and obey all reasonable directions of the Landlord, including any rules and regulations that may be adoptedby Landlord from time to time. Tenant shall not use the Leased Premises, or allow the-3- Leased Premises to be used, for any purpose or in any manner which would invalidate any policy of insurance now or hereafter carried on theBuilding or increase the rate of premiums payable on any such insurance policy unless Tenant reimburses Landlord as Additional Rent for anyincrease in premiums charged. Section 5.03. Landlord’s Rights Regarding Use. In addition to the rights specified elsewhere in this Lease, Landlord or Landlord’s agentshall be permitted to inspect or examine the Leased Premises at any reasonable time upon reasonable notice (except in an emergency when nonotice shall be required), and Landlord shall have the right to make any repairs to the Leased Premises which are necessary for its preservation;provided, however, that any repairs made by Landlord shall be at Tenant’s expense, except as provided in Section 7.02 hereof. Landlord shall incurno liability to Tenant for such entry, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to anyabatement of rent therefor.ARTICLE 6 — UTILITIES AND SERVICES Tenant shall obtain in its own name and pay directly to the appropriate supplier the cost of all utilities and services serving the LeasedPremises. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility or other building service and no suchfailure or interruption shall entitle Tenant to terminate this Lease or withhold sums due hereunder.ARTICLE 7 — MAINTENANCE AND REPAIRS Section 7.01. Tenant’s Responsibility. During the Lease Term, Tenant shall, at its own cost and expense, maintain the Building in goodcondition, regularly servicing and promptly making all repairs and replacements thereto, including but not limited to the electrical systems, heatingand air conditioning systems, plate glass, floors, windows and doors, sprinkler and plumbing systems, and shall obtain a preventive maintenancecontract on the heating, ventilating and air-conditioning systems, and provide Landlord with a copy thereof. The preventive maintenance contractshall meet or exceed Landlord’s standard maintenance criteria, and shall provide for the inspection and maintenance of the heating, ventilating andair conditioning system on not less than a semi-annual basis. Section 7.02. Landlord’s Responsibility. During the Lease Term, Landlord shall maintain in good condition and repair, and replace asnecessary, the roof, exterior walls, foundation and structural frame of the Building and the parking and landscaped areas, the costs of which shallbe included in Common Area Charges (except as limited by Section 3.02); provided, however, that to the extent any of the foregoing items requirerepair because of the negligence, misuse, or default of Tenant, its employees, agents, customers or invitees, Landlord shall make such repairssolely at Tenant’s expense. Section 7.03. Alterations. Tenant shall not permit alterations in or to the Leased Premises unless and until the plans have beenapproved by Landlord in writing. As a condition of such approval, Landlord may require Tenant to remove the alterations and restore the LeasedPremises upon termination of this Lease; otherwise, all such alterations shall at Landlord’s option become a part of the realty and the property ofLandlord, and shall not be removed by Tenant. Tenant shall ensure that all alterations shall be made in accordance with all applicable laws,regulations and building codes, in a good and workmanlike manner and of quality equal to or better than the original construction of the Building. Noperson shall be entitled to any lien derived through or under Tenant for any labor or material furnished to the Leased Premises, and nothing in thisLease shall be construed to constitute a consent by Landlord to the creation of any lien. If any lien is filed against the Leased Premises for workclaimed to have been done for or material claimed to have been furnished to Tenant, Tenant shall cause such lien to be discharged of record withinthirty (30) days after filing. Tenant shall indemnify Landlord from all costs, losses, expenses and attorneys’ fees in connection with anyconstruction or alteration and any related lien.-4- ARTICLE 8 — CASUALTY Section 8.01. Casualty. In the event of total or partial destruction of the Building or the Leased Premises by fire or other casualty,Landlord agrees to promptly restore and repair same; provided, however, Landlord’s obligation hereunder shall be limited to the reconstruction ofsuch of the tenant finish improvements as were originally required to be made by Landlord, if any. Rent shall proportionately abate during the timethat the Leased Premises or part thereof are unusable because of any such damage. Notwithstanding the foregoing, if the Leased Premises are(i) so destroyed that they cannot be repaired or rebuilt within one hundred eighty (180) days from the casualty date; or (ii) destroyed by a casualtywhich is not covered by the insurance required hereunder or, if covered, such insurance proceeds are not released by any mortgagee entitledthereto or are insufficient to rebuild the Building and the Leased Premises; then, in case of a clause (i) casualty, either Landlord or Tenant may, or,in the case of a clause (ii) casualty, then Landlord may, upon thirty (30) days’ written notice to the other party, terminate this Lease with respect tomatters thereafter accruing. Section 8.02. All Risk Coverage Insurance. During the Lease Term, Landlord shall maintain all risk coverage insurance on the Building,but shall not protect Tenant’s property on the Leased Premises; and, notwithstanding the provisions of Section 9.01, Landlord shall not be liable forany damage to Tenant’s property, regardless of cause, including the negligence of Landlord and its employees, agents and invitees. Tenant herebyexpressly waives any right of recovery against Landlord for damage to any property of Tenant located in or about the Leased Premises, howevercaused, including the negligence of Landlord and its employees, agents and invitees. Notwithstanding the provisions of Section 9.01 below,Landlord hereby expressly waives any rights of recovery against Tenant for damage to the Leased Premises or the Building, which is insuredagainst under Landlord’s all risk coverage insurance. All insurance policies maintained by Landlord or Tenant as provided in this Lease shallcontain an agreement by the insurer waiving the insurer’s right of subrogation against the other party to this Lease.ARTICLE 9 — LIABILITY INSURANCE Section 9.01. Tenant’s Responsibility. Landlord shall not be liable to Tenant or to any other person for (i) damage to property or injury ordeath to persons due to the condition of the Leased Premises or the Building, or (ii) the occurrence of any accident in or about the LeasedPremises, or (iii) any act or neglect of Tenant or of any other person, unless such damage, injury or death is directly and solely the result ofLandlord’s negligence; and Tenant hereby releases Landlord from any and all liability for the same. Tenant shall be liable for, and shall indemnifyand defend Landlord from, any and all liability for (i) any act or neglect of Tenant and any person coming on the Leased Premises by the license ofTenant, express or implied, (ii) any damage to the Leased Premises, and (iii) any loss of or damage or injury to any person (including deathresulting therefrom) or property occurring in, on or about the Leased Premises, regardless of cause, except for any loss or damage covered byLandlord’s all risk coverage insurance as provided in Section 8.02 and except for that caused solely and directly by Landlord’s negligence. Thisprovision shall survive the expiration or earlier termination of this Lease. Section 9.02. Tenant’s Insurance. Tenant shall carry general public liability and property damage insurance, issued by one or moreinsurance companies acceptable to Landlord, with the following minimum coverages: A. Worker’s Compensation: minimum statutory amount. B. Commercial General Liability Insurance, including blanket, contractual liability, broad form property damage, personal injury, completedoperations, products liability, and fire damage: Not less than $3,000,000 Combined Single Limit for both bodily injury and propertydamage.-5- C. All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage insurance, if applicable, for the full cost of replacement ofTenant’s property. D. Business interruption insurance.The insurance policies shall protect Tenant and Landlord as their interests may appear, naming Landlord and Landlord’s managing agent andmortgagee as additional insureds, and shall provide that they may not be canceled on less than thirty (30) days’ prior written notice to Landlord.Tenant shall furnish Landlord with Certificates of Insurance evidencing all required coverages on or before the Commencement Date. If Tenant failsto carry such insurance and furnish Landlord with such Certificates of Insurance after a request to do so, Landlord may obtain such insurance andcollect the cost thereof from Tenant.ARTICLE 10 — EMINENT DOMAIN If all or any substantial part of the Leased Premises shall be acquired by the exercise of eminent domain, Landlord may terminate thisLease by giving written notice to Tenant on or before the date that actual possession thereof is so taken. If all or any part of the Leased Premisesshall be acquired by the exercise of eminent domain so that the Leased Premises shall become unusable by Tenant for the Permitted Use, Tenantmay terminate this Lease as of the date that actual possession thereof is so taken by giving written notice to Landlord, and all damages awardedshall belong to Landlord; provided, however, that Tenant may claim dislocation damages if such amount is not subtracted from Landlord’s award.ARTICLE 11 — ASSIGNMENT AND SUBLEASE Tenant shall not assign this Lease or sublet the Leased Premises in whole or in part without Landlord’s prior written consent, whichconsent shall not be unreasonably withheld, delayed or denied. In the event of any assignment or subletting, Tenant shall remain primarily liablehereunder, and any extension, expansion, rights of first offer, rights of first refusal or other options granted to Tenant under this Lease shall berendered void and of no further force or effect. The acceptance of rent from any other person shall not be deemed to be a waiver of any of theprovisions of this Lease or to be a consent to the assignment of this Lease or the subletting of the Leased Premises. Without in any way limitingLandlord’s right to refuse to consent to any assignment or subletting of this Lease, Landlord reserves the right to refuse to give such consent if inLandlord’s opinion (i) the Leased Premises are or may be in any way adversely affected; (ii) the business reputation of the proposed assignee orsubtenant is unacceptable; or (iii) the financial worth of the proposed assignee or subtenant is insufficient to meet the obligations hereunder.Landlord further expressly reserves the right to refuse to give its consent to any subletting if the proposed rent is to be less than the then currentrent for similar premises in the Park. Tenant agrees to reimburse Landlord for reasonable accounting and attorneys’ fees incurred in conjunctionwith the processing and documentation of any such requested assignment, subletting or any other hypothecation of this Lease or Tenant’s interestin and to the Leased Premises.ARTICLE 12 — TRANSFERS BY LANDLORD Section 12.01. Sale of the Building. Landlord shall have the right to sell the Building at any time during the Lease Term, subject only tothe rights of Tenant hereunder; and such sale shall operate to release Landlord from liability hereunder after the date of such conveyance. Section 12.02. Subordination and Estoppel Certificate. Landlord shall have the right to subordinate this Lease to any mortgage presentlyexisting or hereafter placed upon the Building by so declaring in such mortgage. Within ten (10) days following receipt of a written request fromLandlord,-6- Tenant shall execute and deliver to Landlord, without cost, any instrument which Landlord deems necessary or desirable to confirm thesubordination of this Lease and an estoppel certificate in such form as Landlord may reasonably request certifying (i) that this Lease is in full forceand effect and unmodified or stating the nature of any modification, (ii) the date to which rent has been paid, (iii) that there are not, to Tenant’sknowledge, any uncured defaults or specifying such defaults if any are claimed, and (iv) any other matters or state of facts reasonably requiredrespecting the Lease. Such estoppel may be relied upon by Landlord and by any purchaser or mortgagee of the Building. Notwithstanding theforegoing, if the mortgagee shall take title to the Leased Premises through foreclosure or deed in lieu of foreclosure, Tenant shall be allowed tocontinue in possession of the Leased Premises as provided for in this Lease so long as Tenant shall not be in default.ARTICLE 13 — DEFAULT AND REMEDY Section 13.01. Default. The occurrence of any of the following shall be a “Default”: (a) Tenant fails to pay any Monthly Rental Installment or Additional Rent within five (5) days after the same is due, or Tenant fails topay any other amounts due Landlord from Tenant within ten (10) days after the same is due. (b) Tenant fails to perform or observe any other term, condition, covenant or obligation required under this Lease for a period of thirty(30) days after notice thereof from Landlord; provided, however, that if the nature of Tenant’s default is such that more than thirty days arereasonably required to cure, then such default shall be deemed to have been cured if Tenant commences such performance within said thirty-dayperiod and thereafter diligently completes the required action within a reasonable time. (c) Tenant shall assign or sublet all or a portion of the Leased Premises in contravention of the provisions of Article 11 of this Lease. (d) All or substantially all of Tenant’s assets in the Leased Premises or Tenant’s interest in this Lease are attached or levied underexecution (and Tenant does not discharge the same within sixty (60) days thereafter); a petition in bankruptcy, insolvency or for reorganization orarrangement is filed by or against Tenant (and Tenant fails to secure a stay or discharge thereof within sixty (60) days thereafter); Tenant isinsolvent and unable to pay its debts as they become due; Tenant makes a general assignment for the benefit of creditors; Tenant takes thebenefit of any insolvency action or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its assets if such receivership has notbeen vacated or set aside within thirty (30) days thereafter; or, dissolution or other termination of Tenant’s corporate charter if Tenant is acorporation. Section 13.02. Remedies. Upon the occurrence of any Default, Landlord shall have the following rights and remedies, in addition tothose allowed by law or in equity, any one or more of which may be exercised without further notice to Tenant: (a) Landlord may apply the Security Deposit or re-enter the Leased Premises and cure any default of Tenant, and Tenant shallreimburse Landlord as Additional Rent for any costs and expenses which Landlord thereby incurs; and Landlord shall not be liable to Tenant forany loss or damage which Tenant may sustain by reason of Landlord’s action. (b) Landlord may terminate this Lease or, without terminating this Lease, terminate Tenant’s right to possession of the LeasedPremises as of the date of such Default, and thereafter (i) neither Tenant nor any person claiming under or through Tenant shall be entitled topossession of the Leased Premises, and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii) Landlord may re-enter theLeased Premises and dispossess Tenant and any other occupants of the Leased-7- Premises by any lawful means and may remove their effects, without prejudice to any other remedy which Landlord may have. Upon thetermination of this Lease, Landlord may declare the present value (discounted at the Prime Rate) of all rent which would have been due under thisLease for the balance of the Lease Term to be immediately due and payable, whereupon Tenant shall be obligated to pay the same to Landlord,together with all loss or damage which Landlord may sustain by reason of Tenant’s default (“Default Damages”), which shall include withoutlimitation expenses of preparing the Leased Premises for re-letting, demolition, repairs, tenant finish improvements, brokers’ commissions andattorneys’ fees, it being expressly understood and agreed that the liabilities and remedies specified in this subsection (b) shall survive thetermination of this Lease. (c) Landlord may, without terminating this Lease, re-enter the Leased Premises and re-let all or any part thereof for a term different fromthat which would otherwise have constituted the balance of the Lease Term and for rent and on terms and conditions different from thosecontained herein, whereupon Tenant shall be immediately obligated to pay to Landlord as liquidated damages the present value (discounted at thePrime Rate) of the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the LeasedPremises, for the period which would otherwise have constituted the balance of the Lease Term, together with all of Landlord’s Default Damages. (d) Landlord may sue for injunctive relief or to recover damages for any loss resulting from the Default. Section 13.03. Landlord’s Default and Tenant’s Remedies. Landlord shall be in default if it fails to perform any term, condition, covenantor obligation required under this Lease for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided, however, that ifthe term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within thirty (30) days, suchdefault shall be deemed to have been cured if Landlord commences such performance within said thirty-day period and thereafter diligentlyundertakes to complete the same. Upon the occurrence of any such default, Tenant may sue for injunctive relief or to recover damages for anyloss directly resulting from the breach, but Tenant shall not be entitled to terminate this Lease or withhold, offset or abate any sums duehereunder. Section 13.04. Limitation of Landlord’s Liability. If Landlord shall fail to perform any term, condition, covenant or obligation required to beperformed by it under this Lease and if Tenant shall, as a consequence thereof, recover a money judgment against Landlord, Tenant agrees that itshall look solely to Landlord’s right, title and interest in and to the Leased Premises for the collection of such judgment; and Tenant further agreesthat no other assets of Landlord shall be subject to levy, execution or other process for the satisfaction of Tenant’s judgment. Section 13.05. Nonwaiver of Defaults. Neither party’s failure or delay in exercising any of its rights or remedies or other provisions of thisLease shall constitute a waiver thereof or affect its right thereafter to exercise or enforce such right or remedy or other provision. No waiver of anydefault shall be deemed to be a waiver of any other default. Landlord’s receipt of less than the full rent due shall not be construed to be other thana payment on account of rent then due, nor shall any statement on Tenant’s check or any letter accompanying Tenant’s check be deemed anaccord and satisfaction. No act or omission by Landlord or its employees or agents during the Lease Term shall be deemed an acceptance of asurrender of the Leased Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord. Section 13.06. Attorneys’ Fees. If either party defaults in the performance or observance of any of the terms, conditions, covenants orobligations contained in this Lease and the non-defaulting party obtains a judgment against the defaulting party, then the defaulting party agrees toreimburse the non-defaulting party for reasonable attorneys’ fees incurred in connection therewith.-8- ARTICLE 14 — TENANT’S RESPONSIBILITY REGARDINGENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES. Section 14.01. Definitions. a. “Environmental Laws” — All present or future federal, state and municipal laws, ordinances, rules and regulations applicable to theenvironmental and ecological condition of the Leased Premises, the rules and regulations of the Federal Environmental Protection Agency or anyother federal, state or municipal agency or governmental board or entity having jurisdiction over the Leased Premises. b. “Hazardous Substances” — Those substances included within the definitions of “hazardous substances,” “hazardous materials,”“toxic substances” “solid waste” or “infectious waste” under Environmental Laws. Section 14.02. Compliance. Tenant, at its sole cost and expense, shall promptly comply with the Environmental Laws including anynotice from any source issued pursuant to the Environmental Laws or issued by any insurance company which shall impose any duty upon Tenantwith respect to the use, occupancy, maintenance or alteration of the Leased Premises whether such notice shall be served upon Landlord orTenant. Section 14.03. Restrictions on Tenant. Tenant shall operate its business and maintain the Leased Premises in compliance with allEnvironmental Laws. Tenant shall not cause or permit the use, generation, release, manufacture, refining, production, processing, storage ordisposal of any Hazardous Substances on, under or about the Leased Premises, or the transportation to or from the Leased Premises of anyHazardous Substances, except as necessary and appropriate for its Permitted Use in which case the use, storage or disposal of such HazardousSubstances shall be performed in compliance with the Environmental Laws and the highest standards prevailing in the industry. Section 14.04. Notices, Affidavits, Etc. Tenant shall immediately notify Landlord of (i) any violation by Tenant, its employees, agents,representatives, customers, invitees or contractors of the Environmental Laws on, under or about the Leased Premises, or (ii) the presence orsuspected presence of any Hazardous Substances on, under or about the Leased Premises and shall immediately deliver to Landlord any noticereceived by Tenant relating to (i) and (ii) above from any source. Tenant shall execute affidavits, representations and the like within five (5) days ofLandlord’s request therefor concerning Tenant’s best knowledge and belief regarding the presence of any Hazardous Substances on, under orabout the Leased Premises. Section 14.05. Landlord’s Rights. Landlord and its agents shall have the right, but not the duty, upon advance notice (except in the caseof emergency when no notice shall be required) to inspect the Leased Premises and conduct tests thereon to determine whether or the extent towhich there has been a violation of Environmental Laws by Tenant or whether there are Hazardous Substances on, under or about the LeasedPremises. In exercising its rights herein, Landlord shall use reasonable efforts to minimize interference with Tenant’s business but such entry shallnot constitute an eviction of Tenant, in whole or in part, and Landlord shall not be liable for any interference, loss, or damage to Tenant’s propertyor business caused thereby. Section 14.06. Tenant’s Indemnification. Tenant shall indemnify Landlord and Landlord’s managing agent from any and all claims,losses, liabilities, costs, expenses and damages, including attorneys’ fees, costs of testing and remediation costs, incurred by Landlord inconnection with any breach by Tenant of its obligations under this Article 14. The covenants and obligations under this Article 14 shall survive theexpiration or earlier termination of this Lease.-9- Section 14.07. Landlord’s Representation. Notwithstanding anything contained in this Article 14 to the contrary, Tenant shall not haveany liability to Landlord under this Article 14 resulting from any conditions existing, or events occurring, or any Hazardous Substances existing orgenerated, at, in, on, under or in connection with the Leased Premises prior to the Commencement Date of this Lease except to the extent Tenantexacerbates the same.ARTICLE 15 — MISCELLANEOUS Section 15.01. Benefit of Landlord and Tenant. This Lease shall inure to the benefit of and be binding upon Landlord and Tenant andtheir respective successors and assigns. Section 15.02. Governing Law. This Lease shall be governed in accordance with the laws of the state where the Leased Premises islocated. Section 15.03. Force Majeure. Landlord and Tenant (except with respect to the payment of any monetary obligation) shall be excusedfor the period of any delay in the performance of any obligation hereunder when such delay is occasioned by causes beyond its control, includingbut not limited to work stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment, labor or energy; unusual weather conditions;or acts or omissions of governmental or political bodies. Section 15.04. Examination of Lease. Submission of this instrument for examination or signature to Tenant does not constitute areservation of or option for Lease, and it is not effective as a Lease or otherwise until execution by and delivery to both Landlord and Tenant. Section 15.05. Indemnification for Leasing Commissions. The parties hereby represent and warrant that there are no real estate brokersinvolved in the negotiation and execution of this Lease. Each party shall indemnify the other from any and all liability for the breach of thisrepresentation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto. Section 15.06. Notices. Any notice required or permitted to be given under this Lease or by law shall be deemed to have been given if itis written and delivered in person or by overnight courier or mailed by certified mail, postage prepaid, to the party who is to receive such notice atthe address specified in Article 1. If delivered in person, notice shall be deemed given as of the delivery date. If sent by overnight courier, noticeshall be deemed given as of the first business day after sending. If mailed, the notice shall be deemed to have been given on the date which isthree business days after mailing. Either party may change its address by giving written notice thereof to the other party. Section 15.07. Partial Invalidity; Complete Agreement. If any provision of this Lease shall be held to be invalid, void or unenforceable,the remaining provisions shall remain in full force and effect.. This Lease represents the entire agreement between Landlord and Tenant coveringeverything agreed upon or understood in this transaction. There are no oral promises, conditions, representations, understandings, interpretationsor terms of any kind as conditions or inducements to the execution hereof or in effect between the parties. No change or addition shall be made tothis Lease except by a written agreement executed by Landlord and Tenant. Section 15.08. Representations and Warranties. The undersigned represent and warrant that (i) such party is duly organized, validlyexisting and in good standing (if applicable) in accordance with the laws of the state under which it was organized; and (ii) the individual executingand delivering this Lease has been properly authorized to do so, and such execution and delivery shall bind such party. Section 15.09. Option to Extend.-10- a. Provided (i) Tenant has not been in default hereunder at any time during the Lease Term (the “Original Term”), (ii) thecreditworthiness of Tenant is then acceptable to Landlord, (iii) Tenant originally named herein remains in possession of and has been continuouslyoperating in the entire Leased Premises for the term immediately preceding the Extension Term (defined below), and (iv) the current use of theLeased Premises is acceptable to Landlord, Tenant shall have the option to extend the Original Term for one (1) successive period of two (2) years(the “Extension Term”). The Extension Term shall be upon the same terms and conditions contained in the Lease for the Original Term except theMonthly Rental Installments shall be adjusted as set forth below (the “Rent Adjustment”). Tenant shall exercise such option by delivering toLandlord, no later than six (6) months prior to the expiration of the Original Term, written notice of Tenant’s desire to extend the Original Term.Unless Landlord otherwise agrees in writing, Tenant’s failure to timely exercise such option shall waive it. Landlord shall notify Tenant of theamount of the Rent Adjustment no later than ninety (90) days prior to the commencement of the Extension Term. If Tenant properly exercises itsoption to extend, Landlord and Tenant shall execute an amendment to the Lease reflecting the amount of the Rent due under the Extension Term. b. The Monthly Rental Installments for the Extension Term shall be (I) $11,509.27 for the first year of the Extension Term, and (ii)$11,797.00 for the second year of the Extension Term, and (iii) $12,091.93 for the third year of the Extension Term. (c) Notwithstanding the foregoing, in no event shall the Monthly Rental Installments payable during the Extension Term asadjusted hereby be less than the Monthly Rental Installments paid during the Original Term. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. LANDLORD: GPG ENTERPRISES, L.L.C., aMissouri limited liability company By:_____________________________________________ Printed Name:_____________________________________ Title:____________________________________________ TENANT: THE FIELDING PHARMACEUTICAL COMPANY, INC., aMissouri corporation By:_____________________________________________ Printed Name:_____________________________________ Title:____________________________________________-11- EXHIBIT A[INSERT: Legal Description of Leased Premises.]-12- Exhibit 10.12LEASE AGREEMENT THIS LEASE made as of this 8th day of March, 2002 and between Association for Entrepreneurial Sciences Inc., (AES), located at TheBiomedical Research Institute, (BRI) , (actual lessor) located at the address of which is 12111 Parklawn Drive, Rockville, MD 20852 (“Landlord”),and the lessor name Novavax, Inc. a Corporation in the State of Delaware, (“Tenant”)ARTICLE IGRANT AND TERMSECTION 1.01 LEASED PREMISES.(a) Landlord, in consideration of the rent to be paid and the covenants to be performed by Tenant, does hereby demise and lease unto Tenant,and Tenant hereby rents and hires from Landlord, those certain premises consisting of 6,161 square feet of laboratory, and animal facilities(the “Leased Premises”) located at 12111 Parklawn Drive, and/or 12115 Parklawn Drive, Rockville, Maryland 20852, (the “Building”), asmore particularly shown and described on Exhibit A attached hereto. Tenant agrees to accept the premises in “as is” condition. (b) Said lease shall include all of the equipment, fixtures, furnishings, decor, decorations, installations, appurtenances and personal propertypresently existing on said premises or to be placed installed or erected on the premises, and together with the right to use all adjoiningparking areas, driveways, sidewalks, roads, alleys and means of ingress and egress pertaining to the Leased Premises.SECTION 1.02. COMENCEMENT AND ENDING DAY OF TERM. The term of this Lease shall commence upon March 8th, 2002, and shall endon March 8, 2003, (One (1) year lease).SECTION 1.03. RENEWAL BY TENANT. Provided there is no continuing Event of Default, Tenant may RENEW this Lease for an additionalONE (1) year period by delivery of four (4) months prior written notice to Landlord.1 ARTICLE IIRENTSECTION 2.01. RENT. Tenant shall pay to Landlord, without deduction or set-off except as otherwise provided in this Lease, at the addressspecified herein or furnished pursuant to this Lease, a monthly rental (“net rent”) of $10,561.40 ($ 20.57 per square foot on an annual basis) duringthe term of this lease. Monthly rental for the annual adjustment (on the anniversary date) renewal period will be adjusted based on WashingtonD.C. area CPI (Urban Wage Earners) and the determination of the adjusted rental for the renewal period shall be made and communicated toTenant (along with the calculation therefore) at least thirty (30) days prior to the last date on which Tenant may exercise its renewal optionpursuant to Section 1.03. The annual amount of increase payable by Tenant under this lease as rental, shall not be less than two and one-half (21/2%) percent.The monthly rents are due and payable to the Landlord’s office on the first of each month. Payments not received by the Landlord within seven(7) days of the due date shall incur a five (5%) late charge. Any account not settled within thirty (30) days shall, in addition, incur a one and onehalf (1 1/2) per month service charge on that outstanding balance.SECTION 2.02 SERVICES AND BENEFITS INCLUDED IN ANNUAL RENTAL. Landlord shall provide Tenant as part of Tenant’s Annual Rentthe following services and benefits: 1. Occupancy of turnkey laboratory, and animal facilities in “as is” condition; 2. Adequate premise security consistent with other laboratories in business on Landlord’s leasehold; 3. Fire, casualty and public liability coverage on the building and the common spaces; 4. All utilities (excluding Telephone) related to the Leased Premises; EXCEPT FOR SPACE LOCATED AT 12115 PARKLAWN DRIVE(Keats Plaza) 5. Janitorial services on a regular basis; 6. All real estate taxes payable on the2 Property; and, 7. All regular maintenance and cleaning services on Leased Premises and the Property, unless due to the negligence or willful misconductof Tenant or any special requests by tenant.3 ARTICLE IIIUSESECTION 3.01. USE. Tenant shall use the Leased Premises only for the operation of a medical research laboratory, and animal rooms and for noother purpose without the prior written consent of Landlord; provided, however, that at Landlord’s option, Tenant may use the Leased Premises forany legally permissible use which proves to be economically feasible, to be determined by Landlord within its good faith discretion.SECTION 3.02. WASTE/PROHIBITED USE. Tenant shall not use or permit the Leased Premises or any part thereof to be used for any purpose orpurposes other than the purpose or purposes for which the Leased Premises are leased. Tenant shall not commit or suffer to be committed anywaste upon the Leased Premises. Tenant shall not use the Leased Premises or permit the same to be used in whole or in part for any purpose oruse that violates the laws, ordinances, regulations or rules of any public authority or organization.ARTICLE IVMAINTENANCESECTION 4.01. MAINTENANCE OF BUILDING: Landlord agrees to maintain in good repair the outside walls, foundation and roof of the buildingsand surface of the parking areas, sidewalks and driveways, as well as the structural soundness of the building, including all common areas and allcomponent parts thereof the plumbing, electrical wiring, air conditioning and heating equipment.SECTION 4.02. Tenant will at all times during the term of the lease, occupy the Leased Premises and will maintain the Leased Premises and theimmediate area around the Leased Premises, at its own expense, in a clean, orderly, and sanitary condition.ARTICLE VALTERATIONS AND ADDITIONSSECTION 5.01. Tenant shall make no improvements or additions in or to the Leased Premises without Landlord’s prior written permission whichshall not be unreasonably withheld. If Tenant wishes to hire a contractor to repair any aspects of the building, the TENANT MUST NOTIFY BRI inwriting and receive written approval and include in it’s memo the name of the contractor, phone number, address and inform BRI of the hours anddays the vendor contractor will be working. The contractor will4 provide an Certificate of Insurance in the amount of $1,000,000 for general liability. In lieu of such insurance, a bond of $500,000 will beacceptable. Minor alterations, additions or decorating may be made by Tenant in a good workmanlike manner. All alterations, improvements oradditions to the Leased Premises shall be at Tenant’s sole expense unless otherwise agreed to in writing by both parties. Leasehold improvementwill remain the property of the Landlord unless otherwise agreed in writing.SECTION 5.02. In the event that any mechanics’ or material men’s liens shall at any time be filed against the Leased Premises purporting to befor work, labor, services or materials performed or furnished to Tenant or anyone holding the Leased Premises through or under Tenant, Tenantshall forthwith cause the same to be discharged of record or by bond, indemnification agreement or otherwise as agreed in writing between theparties within thirty (30) days following the date of such filing. If Tenant shall fail to cause lien to be discharged (or Landlord’s interest protected asallowed in the preceding sentence) after being notified of the filing thereof as aforesaid, then, in addition to any other right or remedy of Landlordand Tenant shall pay as additional rent, on the first day of the next succeeding month all costs and expenses, including reasonable attorneys’ feesincurred by Landlord in attempting to discharge such lien.SECTION 5.03. REPLACEMENTS. Tenant may install or place or re-install or replace upon and, if there is no continuing Event of Default, removefrom the Leased Premises any trade fixtures, signs, machinery, and equipment. Such trade fixtures, signs, machinery, and equipment shall notbecome the property of the Landlord (other than replacements of trade fixtures, machinery, and equipment which are the property of the Landlord,which replacements shall also be the property of Landlord). All personal property of the Tenant located on the Leased Premises is at Tenant’s solerisk.ARTICLE VILIMITATION ON LANDLORD’S LIABILITYSECTION 6.01. Except with respect to any damages resulting from the willful or negligent act or omission of Landlord, its agents and employees.Landlord shall not be liable to Tenant its employees, agents, business invitee, licensees, customers, guests, or trespassers for any damage orloss to the property of Tenant or others located on the Leased Premises or for any accident or injury to person in the Leased Premises or theBuilding resulting from: the necessity of repairing any portion of the Building; the use or operation (by Tenant or any other person or personswhatsoever) of any elevators, or heating, cooling, electrical or plumbing equipment or apparatus; the termination of this Lease by reason of thedestruction of the5 Building or the Leased Premises; any fire, robbery, theft and/or any other casualty; any leaking in any part or portion of the Leased Premises orthe Building; any water, wind, rain or snow that may leak into, or flow from, any part of the Leased Premises or the Building; any acts or omissionsof any occupant of any space adjacent to or adjoining all or any part of the Leased Premises; any water, gas, steam, fire, explosion, electricity orfalling plaster; the bursting, stoppage or leakage of any pipes, sewer pipes, drains, conduits, ducts, appliances or plumbing works; the functioningor malfunctioning of the fire sprinkler system; the functioning or malfunctioning of any security system installed in the building of any part thereof,or any other cause whatsoever.SECTION 6.02. Landlord shall not be required to perform any of its obligations or any other provision of this Lease, nor be liable for loss or damagefor failure to do so, nor shall Tenant be released from any of its obligations under this Lease because of the Landlord’s failure to perform, wheresuch failure arises from or through acts of God, strikes, lockouts, labor difficulties, explosions, sabotage, accidents, riots, civil commotions, actsof war, results of any warfare or warlike conditions in this or any foreign country, fire and casualty, requirements or other causes beyond thereasonable control of Landlord. If Landlord is so delayed or prevented from performing any of its obligations during the Term, the period of suchdelay or such prevention shall be deemed added to the time herein provided for the performance of any such obligation.ARTICLE VIIRULES AND REGULATIONSSECTION 7.01. RULES AND REGULATIONS. Tenant agrees to comply with and observe all rules and regulations established and amended byLandlord from time to time, provided the same shall apply uniformly to all tenants of the laboratories. Tenant’s failure to keep and observe saidrules and regulations shall constitute a breach of the terms of this Lease in the same manner as if the rules and regulations were contained hereinas covenants. In the case of any conflict between said rules and regulations and this Lease, this Lease shall be controlling.ARTICLE VIIIACCESS BY LANDLORDSECTION 8.01. RIGHT OF ENTRY. Landlord or Landlord’s agents shall have the right to enter the Leased Premises at all reasonable times toexamine the same. Landlord or Landlord’s agents shall have the further right to enter the Leased Premises to make such repairs, alterations,improvements or additions as6 Landlord may deem necessary or desirable, and Landlord shall be allowed to take all material into and upon the Leased Premises that may berequired therefore without the same constituting an eviction of Tenant in whole or part, and the rent and other charges reserved shall in no wiseabate while said repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of business of Tenant, orotherwise. During the three (3) months prior to the expiration of the term of this lease, Landlord may exhibit the Leased Premises to prospectivetenants.ARTICLE IXINDEMNIFICATIONSECTION 9.01. Tenant hereby indemnifies, and shall protect and hold Landlord harmless from and against all liabilities, losses, claims, demands,costs, expenses, and judgments of any nature arising, or alleged to arise, from or in connection with (a) any injury to, or the death of, any personor loss or damage to property on or about the Leased Premises or any adjoining property arising from or connected with the use of the LeasedPremises by Tenant during the term, or (b) performance of any labor or services or the furnishing of any material or other property in respect of theLeased Premises or any part thereof by or at the request Tenant will resist and defend any action, suit, or proceeding brought against Landlord byreason of any such occurrence by counsel designated by Tenant and approved by Landlord.ARTICLE XINSURANCE AND INDEMNITYSECTION 10.01. TENANT’S INSURANCE.(a) Tenant, at its sole cost and expense, shall, during the entire term hereof, procure, pay for and keep in full force and effect: (i) public liability and property damage insurance with respect to the leased premises and the operations of Tenant in, on or about the leasepremises, in which the limits with respect to public liability shall be not less than One Million Dollars ($1,000,000.00) per occurrence forpersonal injury and death and in which the limits with respect to property damage liability shall not be less than five Hundred ThousandDollars ($500,000.00); (ii) insurance against vandalism, malicious mischief and7 such other additional perils as now are or hereafter may be included in a standard extended coverage endorsement from time to time ingeneral use in the county in which the Leased Premises are located, insuring tenant’s merchandise, trade fixtures, equipment and all otheritems of personal property of Tenant located on or in the leased premises, in an amount equal to not less than eighty percent (80%) of theactual replacement cost thereof; and (iii) workmen’s compensation coverage as required by law. (b) All policies of insurance required to be carried by Tenant pursuant to this Section 10.01 shall be written by responsible insurance companiesauthorized to do business in the State of Maryland, in which the Leased Premises are located, and shall name Landlord as an additionalinsured, and Tenant shall deliver a copy of said policy or the certificate showing the same to be in force and effect. In the event Tenantshall fail to maintain any policy of insurance required hereunder, then Landlord may, after three (3) days written notice to Tenant, obtainsuch policy and pay the premium thereon and the amount so paid shall be added to the next installment of rent. The Tenant will bereasonable for all fees associated with the effort to insurance the Tenant. (c) Provided the insurance required to be maintained by Tenant pursuant to Section 10.01(a) is in full force and effect and remains so, Landlordwaives, releases and discharges Tenant to the extent of insurance coverage maintained by Tenant from all claims or demand whatsoeverwhich Landlord may have or acquire in the future arising out of damage to or destruction of the Leased Premises occasioned by fire orextended coverage risks whether such claim or demand may arise because of the negligence of Tenant, its agents or employees orotherwise, and Landlord agrees to look only to the insurance coverage to the extent of such coverage in the event of such loss. (d) Landlord and Tenant hereby each release the other from any and all liability or responsibility to the other or any one claiming through orunder them by was of sub-rogation or otherwise for any insured loss or damage to property caused by fire or other casualty, whether suchloss, damage, fire or other insured event shall have been caused by the negligence but not willful misconduct of the other party, provided,however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such time as thereleasor’s policies of insurance shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impairsaid policies or prejudice the right of the releasor8 to recover thereunder and shall apply only to the extent of the respective insurance coverage Landlord and Tenant agree that each willrequest its insurance carriers to include in its policies such a clause or endorsement provided that if an additional premium shall be chargedtherefore, each party shall advise the other thereof and of the amount of such additional premium, and the other party, at its election, maypay but shall not be obligated to do so. If both parties cannot obtain such a waiver subrogation at reasonable commercial rates, then bothparties shall be released from their obligation to obtain such a waiver. (e) Tenant agrees that it will indemnify and save the Landlord harmless from any and all liability, damage, expense, cause of action, suits,claims or judgements arising from injury to person or property on the demised premises, or upon the adjoining sidewalks, or parking lots dueto the negligence of Tenant, its agents or employees. To assure such indemnity, Tenant shall carry and keep in full force and effect at alltimes during the term of this lease for the protection of the Landlord and Tenant herein, and deliver to the Landlord a copy of said policy orcertificate showing the same to be in force and effect. in the event Tenant shall fail to maintain such policy of insurance then Landlord may,after three (3) days written notice to Tenant, obtain such policy and pay the premium thereon and the amount so paid shall be added to thenext installment of rent. Each party will be deemed to have provided within their respective insurance policies a waiver of subrogation until notice is provided thatwaiver of subrogation has not been obtained and the policy for which it has not been obtained.ARTICLE XIOFF-SET STATEMENT, ATTORNMENT AND SUBORDINATIONSECTION 11.01. OFF-SET STATEMENT. Tenant agrees within ten (10) days after request therefore by Landlord, to execute in recordable formand deliver to Landlord a statement, in writing, certifying:(a) that this Lease is in full force and effect,(b) the date of commencement of the term of this Lease,(c) that rent is paid currently without any off-set or defense thereto,(d) the amount of rent, if any, paid in advance,(e) whether this Lease has been modified and, if so, identifying the modifications, and9 (f) that there are no uncured defaults by Landlord or stating those claimed by Tenant, provided that, in fact, such facts are accurate andascertainable.SECTION 11.02. ATTORNMENT. In the event any proceedings are brought for the foreclosure of, or in the event of the conveyance by deed inlieu of foreclosure of, or in the event of exercise of the power of sale under, any mortgage and/or deed of trust made by Landlord covering theleased premises, or in the event Landlord sells, conveys or otherwise transfers its interest in the Leased Premises or any portion thereofcontaining the leased premises, this Lease shall remain in full force and effect and Tenant hereby attorn to and covenants and agrees to executean instrument in writing reasonably satisfactory to the new owner whereby Tenant attorn to, such successor in interest and recognizes suchsuccessor as the landlord under this Lease. Payment by or performance of this Lease by any person, firm or corporation claiming an interest inthis Lease or the leased premises by, through or under the Tenant without Landlord’s consent in writing shall not constitute an ATTORNMENT orcreate any interest in this Lease or the Leased Premises.SECTION 11.03 SUBORDINATION. Tenant agrees that this Lease shall, at the request of Landlord, be subordinate to any first mortgages ordeeds of trust or primary leases that may hereafter be placed upon the leased premises and to any and all advances to be made thereunder, andto the interest thereon, and all renewals, replacements and extensions thereof, provided the mortgagees or beneficiaries named in said mortgagesor trust deeds shall agree to recognize the interest of Tenant under this Lease in the event of foreclosure, if Tenant is not then in default. Tenantalso agrees that any mortgagee or beneficiary may elect to have this Lease constitute a prior lien to its mortgage or deed of trust, and in the eventof such election and upon notification by such mortgagee or beneficiary to Tenant to that effect, this Lease shall be deemed prior in lien to suchmortgage or deed of trust. Tenant agrees that upon the request of Landlord, or any mortgagee or beneficiary, Tenant shall execute whateverinstruments may be required to carry out the intent of this Section.SECTION 11.04. REMEDIES. Failure of Tenant to execute any statements or instruments necessary or desirable to effectuate the foregoingprovisions of this Article, within ten (10) days upon written request so to do by Landlord, shall constitute a breach of this Lease. In the event ofsuch failure, Landlord, in addition to any other rights or remedies it might have, shall have the right by not less than ten (10) days notice to Tenantto declare this Lease terminated and the term ended, in which event this Lease shall cease and terminate on the date specified in10 such notice with the same force and effect as though the date set forth in such notice were the date originally set forth herein and fixed for theexpiration of the term; upon such termination Tenant shall vacate and surrender the leased premises, but shall remain liable as provided in thisLease by reason of said breach. Further, Tenant hereby irrevocably appoints Landlord as attorney-in-fact for the tenant with full power and authorityto execute and deliver in the name of the Tenant any such statements or instruments.ARTICLE XIIASSIGNMENT AND SUBLETTINGSECTION 12.01. ASSIGNMENT AND SUBLETTING. Notwithstanding any provision herein to the contrary, Tenant agrees not to assign or in anymanner transfer this Lease or any estate or interest therein, and not to lease or sublet the Leased Premises or any part or parts thereof or any rightor privilege appurtenant thereto without the written consent of the Landlord, which consent shall not be unreasonably withheld.SECTION XIIIDEFAULTSECTION 13.01. If Tenant shall violate any covenant, including the covenant to pay rent, made by it in this Lease and shall fail to pay said rentwithin the five (5) day period after notice to Tenant, or in the event of a violation of any other covenant, failed to comply with said covenant withintwenty (20) days after receipt of notice of such violation by Landlord, or Tenant shall abandon said Leased Premises, or shall be adjudicatedinsolvent or bankrupt pursuant to the provisions of any state Act or the Federal Bankruptcy Code (“Events of Default”), Landlord may, at its option,re-enter the leased premises without further notice or demand to re-enter and remove, and remove all persons and property from leased premiseswithout being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of rent or breach of covenant and declarethis Lease and the tenancy created terminated. Landlord may, at its election, provide Tenant with additional time to correct any Event of Defaultprovided Tenant is utilizing its best efforts to correct such Event of Default. Landlord’s agent or attorney may resume possession of the propertyand relet the same for the remainder of the term for the account of Tenant, who shall pay any deficiency. Landlord shall be entitled to the benefit ofall11 provisions of applicable laws respecting the speedy recovery of lands and tenements held over by Tenant or proceedings in forcible entry anddetainer. If Landlord ends this Lease or ends Tenants’ right to possess the Premises because of an Event of Default, Landlord may hold Tenantliable for rent and other indebtedness accrued to the date the Lease ends. Tenant shall also be liable for the rent, additional rent and otherindebtedness that otherwise would have been payable by Tenant during the remainder of the term had there been no Event of Default, reduced byany sums Landlord receives by reletting the Leased Premises during the Term.ARTICLE XIVATTORNEY’S FEESSECTION 14.01. In case suit shall be brought for recovery of possession of the Leased Premises, for the recovery of rent of any other amountdue under the provisions of this Lease, or because of the breach of any other covenant herein contained on the part of Tenant to be kept orperformed, Tenant shall pay to Landlord all expenses incurred therefore, including reasonable attorneys’ fees. In the event of such suit, bothparties waive their respective rights to a trial by jury.ARTICLE XVQUIET ENJOYMENTSECTION 15.01. Tenant upon paying the rent as provided in ARTICLE II, and performing the covenants and agreements of this Lease shall quietlyhave, hold and enjoy the Leased Premises and all rights granted Tenant in this Lease during the term thereof and extensions thereto, if any.ARTICLE XVIBANKRUPTCY OR INSOLVENCYSECTION 16.01. TENANT’S INTEREST NOT TRANSFERABLE. Neither Tenant’s interest in this Lease, nor any estate hereby created in Tenantnor any interest herein or therein, shall pass to any trustee or receiver or assignee for the benefit of creditors or otherwise by operation of lawexcept as may specifically be12 provided pursuant to the Bankruptcy Code.SECTION 16.02. TERMINATION BY INSOLVENCY. In the event the interest or estate created in Tenant hereby shall be taken in execution orby other process of law or if Tenant is adjudicated insolvent or bankrupt pursuant to the provisions of any State Act or the Bankruptcy Code or ifTenant is adjudicated insolvent by a Court of competent jurisdiction other than the United States Bankruptcy Court, or if a receiver or trustee of theproperty of Tenant, if any, to pay its debts, or if any assignment shall be made of the property of Tenant or, if any, for the benefit of creditors, thenand in any such events, this Lease and all rights of Tenant hereunder shall automatically cease and terminate with the same force and effect asthough the date of such event were the date originally set forth herein and fixed for the expiration of the term, and Tenant shall vacate andsurrender the Leased Premises but shall remain liable as herein provided.ARTICLE XVIIMISCELLANEOUSSECTION 17.01. WAIVER; ELECTION OF REMEDIES. One or more waivers of any covenant or condition by Landlord shall not be construedas a waiver of a subsequent breach of the same covenant or condition, and the consent or approval by Landlord to or of any act by Tenantrequiring Landlord’s consent or approval shall not be deemed to render unnecessary Landlord’s consent or approval to or of any subsequent similaract by Tenant. No breach by Tenant of a covenant or condition of this Lease shall be deemed to have been waived by Landlord unless such waiveris in writing signed by Landlord. The rights and remedies of Landlord under this Lease or under any specific Section, subsection or clause hereofshall be cumulative and in addition to any and all other rights and remedies which Landlord has or may have elsewhere under this Lease or at lawor equity, whether or not such Section, subsection or clause expressly so states.SECTION 17.02. NOTICES. Any notices required or permitted hereunder shall be in writing and delivered either in person to the other party orthe other party’s authorized agent, or by United States certified Mail, Return Receipt Requested, postage fully prepaid or by telegraphiccommunication, to the addresses set forth hereinafter, or to such other address as either party may designate in writing and deliver as hereinprovided. Landlord: Association for Entrepreneurial Science (Biomedical Research Institute — actual landlord) James L. Leef, Ph.D., President 12111 Parklawn Drive13 Rockville, Maryland 20852 with a copy to: Warren S. Oliveri, Jr. King & Nordlinger, Attorneys at Law 4350 N. Fairfax Drive Suite 950 Arlington, VA 22203 Tenant Novavax, Inc. 8320 Guilford Road, Suite C Columbia, MD 21046 fax: (301) 854-3902 *Attention: Ann McGeehan, General Counsel + John Spears, CEOSECTION 17.03 EXIT POLICY. When the Tenant vacates the premises, the area will be broom swept, trash removed, drawers, cabinets,refrigerators, freezers, walk-ins etc. cleaned. In addition, no reagents or chemicals may be left behind. If this is not done tenant agrees to paylandlord for such services. See Attachment 1, # 44 for other policy on exit.SECTION 17.04. CAPTIONS. The captions and headings throughout this Lease are for convenience and reference only and the wordscontained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction ormeaning of any provision or the scope or intent of this Lease nor in any way affect this Lease.SECTION 17.05. LAW OF MARYLAND. This Lease Agreement shall be construed under the laws of the State of Maryland.SECTION 17.06. HOLD OVER. During the period of any holding over after the termination or expiration of this Lease Agreement by Tenant,Tenant shall be deemed to be a Tenant from month to month.SECTION 17.07. SUCCESSORS AND ASSIGNS. This Lease Agreement and the covenants and conditions herein contained shall inure to thebenefit of and be binding upon Landlord, its successors and assigns, and shall inure to the benefit of Tenant and only such assigns of Tenant towhom the assignment by Tenant has been consented to by Landlord.SECTION 17.08. ENTIRE AGREEMENT. This Lease Agreement constitutes the entire agreement of the parties and the same may not beamended or modified orally. All understandings, prior negotiations and agreements heretofore, oral and written, had between the parties are mergedin this Lease Agreement, which alone fully and completely expresses their understanding and is14 binding upon tenant, its successors and assigns.SECTION 17.09. This Lease is subject to and subordinate to the Prime Lease Agreement between American Foundation for Biological Researchas Tenant and William Klinedinst as Landlord, dated November, 1989, a copy of which is attached.15 EXHIBITS/ATTACHMENTS Exhibit A: Floor plan consisting of laboratory and/or animal facilities in reference to this lease agreement. ATTACHMENT 1: Tenant Rules and Regulations ATTACHMENT 2: Considerations to AES from Tenant Companies. ATTACHMENT 3: Fire Safety Drill & Procedures ATTACHMENT 4: Parking Permit Rules ATTACHMENT 5: Maintenance of BRI Equipment ATTACHMENT 6: Autoclave Policies16 IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Leased on the day and year first above written. Association for Entrepreneurial Sciences (Actual Landlord - Biomedical Research Institute) By: /S/ JAMES L. LEEF Title: James L. Leef, Ph.D., Director TENANT NAME: Novavax, Inc. By: /s/ ANN P. MCGEEHAN, ESQ. 3-08-02 Ann P. McGeehan, Esq. Title: /s/ General Counsel Novavax, Inc.17 ATTACHMENT 1TENANT RULES AND REGULATIONSBelow you will find information regarding general rules which must be followed here at the Parklawn Buildings.1) ACCIDENTS: All accidents occurring in the common areas including hallways and parking lots must be reported to the Administrative officeimmediately. Any accidents occurring in the laboratory should be reported to the Safety Officer, Teresa Ponio. 2) AIR LINE FILTER: A hydrophobic filter must be placed on ALL vacuum lines. See the BRI Safety Officer, Teresa Ponio. This is for thesafety of the personnel and the protection of the vacuum system. 3) ANIMAL FACILITIES: See Dr. Lewis or Dr. Leef for access. Charges for this service will be based on the number of cages per day housedin the facilities. Protective clothing must be worn at all times. Rabbits will be charged at a different rate than mice/rats/guinea pigs/rabbits.The BRI Institutional Animal Care and Use Committee (IACUC) is in charge of making sure the care of research animals in the facilityconforms to the guidelines as set for the by the Animal Welfare Act, NIH, and other governing bodies for biomedical research. Any Tenant oremployee with questions or concerns about the animal care or research protocols in our program is encouraged to submit comments,concerns or suggestions, in writing, to any member of the IACUC. Every tenant, or department must have a member present at all animalscommittee meetings. 4) AUTOCLAVE: You must sign up for its use for no more than two consecutive hours of time. See the office staff for the sign up sheet.Again, all the tenants must have access to this facility so DON’T use the autoclave for more than 2 hours at a time. Authorization can begranted for use of the autoclave after hours or on weekends. Each company is responsible for it’s materials. To autoclave material: Place your items in an autoclave bag with the autoclave tape and label stating the material is sterile. After sterilizing place the autoclave bagin the large trash receptacle available in the room. NEVER discard the red bags in the trash receptacle or dumpster. The red bags are only tobe used for material which is to be picked up for18 incineration. If you need additional supplies please see Teresa Ponio, our Safety Officer. See the autoclave policies and procedures(Attachment # 6) 5) CANVASSING, SOLICITING AND PEDDLING: Canvassing, soliciting and peddling in the Building are prohibited, and Tenants shallcooperate to prevent such activities. 6) COMMITTEES: All tenants must assign a person(s) having authority to speak for the tenant to the following committees, attendance ismandatory: The general laboratory Safety Committee and The Animal Care and Use Committee: You will be notified of the time and date ofthe meetings which are held at least once a quarter. 7) COMMON AREAS are for the use of all personnel and are not to be unduly used by any one individual; Tenant shall use the Common Areaonly as a means of ingress and egress, Tenants shall permit no loitering by any persons upon Common Areas or elsewhere within theBuilding. The common Areas and roof of the Building are not for the use of the general public, and Landlord shall in all cases retain the rightto control or prevent assess thereto by all persons whose presences, in the judgement of Landlord, shall be prejudicial to the safety,character, reputation or interest of the Building and it’s tenants. Tenants shall not enter or install equipments in the mechanical rooms, airconditioning rooms, electrical closets, janitorial closets, or similar areas or go upon the roof of the Building without the prior written consentof the Landlord. After initial construction of space, no tenant shall install any radio or television antenna, loudspeakers, or other devise onthe roof or exterior walls of the Building. 8) CONFERENCE ROOM: You must schedule its use; See the office staff for the availability of the room. 9) CONTRACTING: Anytime your company requires outside contracting in the building you must notify BRI of the work you plan on doing, orthe work that has been completed. ALL work conducted must meet the specification of the fire, state or building codes. If you elect tomake repairs at your expense, BRI must be notified so it may inspect the work to make sure it conforms to code standards. Also, advisethe BRI office if the contractor expects to be here after normal business hours. It is the responsibility of the Tenant to assure that anyoutside contractor has proof of liability insurance and workman’s compensation coverage. 10) COPIER You have access to the copier; a 15 cent charge per19 page will be billed to your company monthly. See the office staff for your access number. 11) DISPUTES: Should a dispute arise between tenants it is hoped that the tenants can resolve the dispute amicably. Should third partyintervention be desired the BRI Administration will serve as such third party. However, every effort should be exhausted to solve thedispute before third party intervention is requested because such third party opinion will be binding. 12) EQUIPMENT, FURNISHING, ETC. will not be stored in hallway, landings, stairs, load dock or any common area. This is in violation of firesafety code. 13) EQUIPMENT: All equipment and any other devise of any unusual electrical or mechanical nature shall be placed by Tenant in the Demisedpremises in settings that are structurally safe. 14) FACSIMILE MACHINE: Facsimile number: (301) 881-7640, the use fee is $1.00 per page (incoming or outgoing). 15) FIRE SAFETY PROCEDURES: See the (Attachment 3). 16) 1st FLOOR MENS ROOM: A shower is available. 17) FREEZER SPACE: Freezer space is available through the Maintenance Staff at the Freezer repository for a monthly charge. The phonenumber is (301) 881-4513. The freezer space located at the Parklawn building, 1st floor is temporary storage only. ALL items must haveyour company name on it and what the contents are. 18) GLASSWARE STERILIZING: Companies must have prior authorization from Dr. Leef to use this facility. There is a charge to use theglassware facilities. 19) GUEST PROCEDURES: All guests must sign in at the guest desk in the lobby. All guests must be accompanied throughout the building. 20) HEATER OTHER THAN THE BUILDING HEAT: The only devices that are not exceptable to the fire safety code is electric resistantheaters (any glowing red strip) . The Tenants may have window air/heat conditioner only if they properly secure the apparatus to thebuilding and have made provisions in the installation that the building security is20 not breached. In addition such installation must be inspected and approved by BRI personnel. 21) HOLD HARMLESS: Tenant(s) will supply Landlord with a “Hold Harmless” agreement for the use of any of the “common equipment” orareas. Landlord also requires a Certificate of Insurance (general liability coverage) for their company with a minimum of $1,000,000 ofcoverage. The Certificate of Insurance must accompany your lease. It will be the responsibility of the tenant to provide the AdministrativeOffice with the renewal agreement each year. 22) INSECTICIDES: Tenant agrees NOT to use or cause to have used any insecticides to control insect populations since tenant recognizedthe Landlord’s research involves raising insects for life cycles. Insecticides could interrupt these cycles disastrously. 23) JANITORIAL CLEANING: Special cleaning will be done upon request for an additional fee. The janitor is responsible for the routinecleaning of the laboratories such as the trash removal, care of the floors and vacuuming in the offices. Please notify us, in writing, of anytimes we should not access your area. We will attempt to accommodate your request. 24) KEYS: All the OUTSIDE doors are keyed the same and under no circumstances are keys to be transferred. Obtain keys from theAdministrative staff. If you lose your key report it immediately, there is a $10 per key replacement fee. If you change any locks, you mustgive us a copy of the key immediately. This is necessary in case of fire or other emergency. The exterior doors must remained lockedafter normal business hours including holidays and weekends. Do not prop any doors open unless you remain at the door. Do not letguests or vendors access the building. Refer all guest or vendors to the lobby. Under no circumstance are children (under the age of 18)permitted in the laboratory areas unless they have a work permit. The Administrative office is open from 8 to 5 PM Monday through Friday,except holiday(s) and weekends. 25) LEASEHOLD IMPROVEMENTS will remain the property of the Landlord unless otherwise agreed in writing. All improvement must beapproved in writing by the Director, Dr. Leef, prior to the start of work. 26) LIGHT FIXTURE REPLACEMENT: Any new or replacement of light fixtures must be energy efficient with special ballast and21 backdrops. BRI is in an energy saving program with PEPCO. Please see Administration for approval.27) LUNCH ROOM: People use ice from the ice machine for their drinks, always use the ice scoop so the ice remains clean. Do not wearlaboratory coats, gloves or bring lab materials into this room. Our staff will clean the refrigerator each Friday. All food and containers will bediscarded. We recycle aluminum cans and card-board boxes only. The microwave is for food only and you must cover your dish. Thecoffee is available to guest and staff at cost. All companies should have their own recycling program. 28) MAINTENANCE OF THE BUILDING: All work orders should be directed to the Repository staff at (301) 881-4513. Regular maintenanceinvolves repair and maintenance of ceilings, walls and floors inclusive of utilities. All other special maintenance work will be charged on thebasis of parts, labor and overhead. No work on the ceilings, walls and floors is not to be done without the written consent of theAdministrative office. 29) MAINTENANCE OF BRI’S FURNISHING OR EQUIPMENT: ALL equipment, freezers, walk-ins, furniture will be the tenants responsibilityto repair and to return in good working condition when the tenant is through using said material. Exceptions to this rule may be made on acase by case basis. If repairs are required on our equipment, the tenant(s) must notify Administrative Office in writing that such repair arenecessary. The tenant is responsible for incurred cost. BRI reserves the right to request equipment return upon 30 day written notice. SeeAttachment 5. 30) MATERIAL DATA SAFETY SHEETS (MSDS): All tenants must notify the Administrative Office in writing of the location of their MSDS. 31) MEDICAL WASTE: All tenants are responsible for the removal of their medical waste. See the office staff for a vendor. 32) OBSTRUCT OR INTERFERE: Tenants shall not obstruct or interfere with the rights of other tenants of the Building, or of persons havebusiness in the building, or in any way conduct any activity within the Demised Premises which will create excessive traffic or noiseanywhere in the Building. 33) OFFICE SUPPORT: You will be charged for Secretarial/receptionist, accounts payable, mail distribution, the use of the guest telephone inthe lobby22 and bookkeeping services according to your use. 34) PARKING: The building area is 30,000 square feet and has 53 legal parking spaces. Thus, there is one (1) parking space for each 566square feet of leased space. Because more permits will be issued than there are spaces available, parking is on a first come, first servebasis. Please see Attachment 4 for specific parking rules. 35) PLUMBING: Tenants shall not use the washrooms, restrooms and plumbing fixtures of the Building, and appurtenance thereto, for anyother purposes than the purpose for which they were constructed, and Tenants shall not deposit any sweepings, rubbish, jells, rags or otherimproper substances therein. If Tenants or Tenant’s servants, employees, agents, contractors, jobber, licenses, invitee, guests or visitorscause any damage to such washrooms, restrooms, plumbing fixtures or appurtenances, such damage shall be repaired at Tenant’sexpense, and Landlord shall not be responsible therefore. 36) READING ROOM: When the conference room is being used this room is available; it seats 6 people. You must acquire authorization to usethis room. 37) SAFETY MEETINGS: Every Tenant shall have a person designated to attend all Safety Meetings. 38) TELEPHONE CHARGES: See the office staff for the long distance access code. 39) TELEPHONE CABLING: All data and telephone lines installed must be plentium (Category 5) fire retardant grade equipment. 40) THERMOSTAT CONTROL: All thermostats will be set at 68 degrees. Do not change the settings without notifying maintenance. 41) TRASH REMOVAL: No broken glass bottles, glass pipettes, red hazard bags or any sharp materials are to be placed in the regular trash.The only material which will be removed from the lab or office is what is in the trash receptacle. Break down all card-board boxes and placethe boxes in the hallway for disposal. Tenants shall not deposit any trash, refuse, cigarettes, or other substances of any kind within or outof the Building, except in the refuse containers provided therefore. No material shall be placed in the trash receptacles if such material is ofsuch nature that it may not be disposed of in the ordinary and customary manner23 of removing and disposing of office building trash and garbage without being in violation of any law or ordinance governing such disposal.No tenant shall cause any unnecessary labor by reason of such tenant’s carelessness or indifference in the preservation of good order andcleanliness. If the tenant is accumulating more trash than normal, the tenant is responsible for removing the trash or obtaining anotherdumpster. All the trash dumpster must be locked at all times.42) EXCEPTIONAL USE OF UTILITIES: Incremental increases for utilities (inclusive of electric, gas, water) will be accessed if a given tenantrequires an unusual demand. This will be agreed to by both Landlord and Tenant. 43) INTERRUPTION OF UTILITIES: A memo will be issued 24 hours in advance except in case of emergency. We will not be held responsiblefor any interruption of utilities. 44) WALK-IN +4 DEGREE AND -20 WALK-IN SPACE: This is a common area but all materials MUST be labeled with the name of contactperson, phone number and a brief description of items. Item(s) with no manufacturer label must have an identification label with thefollowing: name, description, and any harmful elements. This is a temporary storage facility for the tenants. If long term needs are requiredcontact the repository staff. All the building tenants use this walk-in so if you need additional space, contact the Repository (301) 881-4513. 45) WINDOWS: Tenant may not install or permit the installation of any awnings, shades, mylar films or sun filters on windows. Prior writtenauthorization is required. Tenants shall cooperate with Landlord in obtaining maximum effectiveness of the cooling system of the Buildingby closing drapes and other window coverings when the sun’s rays fall upon windows of the Demised Premises. Tenant shall not obstruct,alter or impel the operation of Landlord’s heating, ventilating, air conditioning, electrical, fans, safety or lighting systems. 46) MOVING: When the Tenant moves from premises, they must repair all damage to the walls (including nail holes) fixtures, equipment, allspackling must be smooth and ready to paint, clean all carpet, replace carpet damaged and repair all damage and remove all trash. Therewill be a scheduled walk-through before the Tenant officially the premises.24 Revised May 200025 ATTACHMENT 2Considerations to AES from tenant companies.3) Publicity and Press Releases: While an AES facility tenant/client, COMPANY may include the following language in press release whenappropriate, in tenant’s sole judgment: “COMPANY is currently a tenant and client of the Association for Entrepreneurial Science, abiotechnology business incubator located in Rockville, Maryland.” Upon graduation from the AES facility, COMPANY may include thefollowing language in all press releases when appropriate, in tenant’s sole judgment issued for a period of 3 years: “COMPANY is a graduateof the Association for Entrepreneurial Science, a biotechnology business incubator located in Rockville, Maryland.” 4) 26 ATTACHMENT 3FIRE SAFETY DRILL & PROCEDURESIN CASE OF FIREThere are seven fire alarm pull stations in the building. The most prominent are in the main hallways, (1st and 2nd floors) near the exits, at both thenorth and south ends of the building. Please familiarize yourself with these four locations.Whether you are the person to activate the alarm or you hear it sounding, please do the following:1) Immediately secure any procedure you may currently be performing. Do not leave something running which could create a further hazard.Turn out the lights if possible and close the door as you vacate the room, but DO NOT LOCK the door. 2) Contain the fire using common sense: If you can put out the fire — do so. Do not endanger yourself and others by trying to fight a fire youcannot control. Call 911 to report the fire. 3) Leave the building via the nearest exit. Never go up the stairs to do this. 4) Always proceed to the parking lot and form department or company groups. Each group must have a person able to confirm that everyonewho should be in the group, is present. When the personnel survey is complete, please report the results to the BRI administrative staff(Leef, Smith or Dover). That will allow us to inform the firefighters of any missing person(s) and their probable location. 5) Please stay with your group until clearance is given to re-enter the building. If the time outside the building is a lengthy one and you, or anyof your group decide to leave the premises, please notify one of the BRI administrative staff named above.27 6) NOTE: We are told by the Fire Department that: Fire equipment will be at our building within 3-5 minutes after they receive our call. We should be able to vacate our building within 1 – 1.5 minutes after the alarm has been sounded. 7) A brief report of the fire drills should be recorded and a copy given to the Dr. Leef or Teri Smith. This report will be made available to the firedepartment when they make periodic inspections of the building. 8) If you use a fire extinguisher, please report its use to the BRI administrative staff. We must have the unit recharged after each use even ifonly a small portion of its contents are used. Annually, BRI’s fire extinguishers will be inspected. 9) We are legally required to report all fires to the Fire Department even if we extinguish the fire.28 ATTACHMENT 4PARKING PERMIT RULES1) The parking permits will be issued to an individual. This permit is a car pool permit and can be transferred from one car to another. 2) Each company will be responsible for their records. These records should contain the permit number and to whom the permit was issued.Visitors must have a permit to park in the lot. 3) It must be displayed at all times on the rear view mirror. 4) It is suggested you have the permits returned to you upon termination of an employee. 5) The building area is 30,000 square feet and has 53 legal parking spaces. Thus, there is one (1) parking space for each 566 square feet ofleased space. Because more permits will be issued than there are spaces available, parking is on a first come, first serve basis. 6) Biomedical Research Institute will not be responsible for any damages incurred if a vehicle is towed away. We also will not be responsiblefor any damage to or stolen items from cars parked in the lot. 7) If a vehicle is towed for no permit, BRI will not be responsible for the towing bill. 8) Visitors must be issued a permit. 9) Vehicles must be parked in a legal parking space. 10) No vehicle is allowed to park in the loading dock or zones. 11) The towing company telephone number is on the signs at the entrances to the parking lot. 12) No vehicles will be left in the parking lot that needs repair. The vehicle will be towed at owners expense.29 ATTACHMENT 5MAINTENANCE OF BRI EQUIPMENTBelow are the procedures for the repair of BRI’s equipment in tenant use.1) The tenant is responsible for the repair of ALL BRI EQUIPMENT in tenant’s possession. 2) The equipment is to be returned to BRI in good working order and will be examined and accepted by BRI Administrative personnel in writing.Exceptions to the status of equipment will be made on a case by case basis. 3) If the equipment needs repair BRI must be notified that the repair is/was necessary. BRI may require that certain equipment must have priorwritten approval. If BRI bids to do the repairs and if the bid is accepted BRI will be reimbursed for servicing the equipment. 4) No BRI equipment shall leave this building without the prior written consent of BRI. 5) Once a year, the BRI Office Manager or designee will coordinate a walk-through (physical inventory) of all equipment in possession oftenant.30 ATTACHMENT 6AUTOCLAVE POLICIES1) YOU MUST SIGN UP TO USE THE AUTOCLAVE. 2) ALL BAGS MUST BE LABELED WITH A COMAR STICKER. 3) DO NOT USE MORE THAN TWO HOUR AT A TIME — DOES NOT EXTEND YOUR ALLOTTED TIME. 4) YOU MAY ONLY SIGN UP FOR ONE (1) DAY IN ADVANCE. 5) THE AUTOCLAVE ROOM MUST REMAIN LOCKED AT ALL TIMES. 6) NO UN-AUTOCLAVED TRASH MAY BE LEFT IN THIS ROOM. THIS MEANS YOU MUST LEAVE THE MATERIALS IN YOUR LABUNTIL YOU ARE READY TO AUTOCLAVE. 7) AFTER AUTOCLAVING PLACE YOUR RED/ORANGE AUTOCLAVED BAG IN A REGULAR TRASH BAG IN THE TRASH CAN WITHTHE COMAR STICKER ON THE OUTSIDE OF THE REGULAR TRASH BAG. DO NOT LEAVE THE TRASH ON THE FLOOR. 8) MAKE SURE THAT THE PAN IS IN THE AUTOCLAVE BEFORE AUTOCLAVING MATERIAL. 9) CLEAN UP THE YOUR MATERIAL IF IT OVERFLOWS IN THE AUTOCLAVE. 10) IF YOU HAVE NOT AUTOCLAVED YOUR MATERIAL DO NOT PUT A LABEL ON THE BAG. 11) ALLOW THE BIO-HAZARD BAGS TO COOL AND THEN PLACE THE MATERIALS IN THE REGULAR TRASH BAGS.ANY PROBLEMS WITH THE AUTOCLAVE SHOULD BE REPORTED TO THE MAINTENANCE STAFF IMMEDIATELY AT (301) 881-4513.Revised date: May 200031 FACILITY RESERVATION AGREEMENTBY AND BETWEENPACKAGING COORDINATORS, INC.andNOVAVAX INC.  TABLE OF CONTENTS Page Article 1 Reference 1 1.1 Definitions 1 Article 2 Area, Term and Possession 2 2.1 Demise of Area 2 2.2 Term 2 2.3 Construction of the Area; Acceptance of Possession; Allowance 2 2.4 Surrender of Possession 2 2.5 PCI Access to the Area 2 Article 3 Base Monthly Fee and Deferred Fee 3 3.1 Base Monthly Fee 3 3.2 Deferred Fee 3 Article 4 Use of Area 3 4.1 Permitted Use 3 4.2 Compliance with Laws and Private Restrictions 3 4.3 Compliance with Insurance Requirements 3 4.4 Environmental Compliance and Hazardous Materials 3 4.5 Furniture and Computers 4 Article 5 Repairs, Maintenance, Services and Utilities 4 5.1 Utilities 4 Article 6 Alterations and Improvements 5 6.1 Ownership of Improvements 5 Article 7 Limitation on PCI's Liability and Indemnity 5 7.1 Limitation on PCI's Liability and Release 5 7.2 Novavax's Indemnification of PCI 5 2 Article 8 Insurance 5 8.1 Novavax Insurance 5 8.2 PCI's Insurance 6 8.3 Certificate of Insurance 6 8.4 Mutual Waiver of Subrogation 6 Article 9 Damage to Area 7 9.1 Novavax's Duty to Restore 7 Article 10 Default, Remedies and Termination 8 10.1 Events of Default 8 10.2 PCI's Remedies 9 10.3 PCI's Default 9 10.4 Novavax's Remedies 9 10.5 Termination of Supply Agreement 10 Article 11 Assignment 10 11.1 Assignment and Subletting 10 Article 12 General Provisions 11 12.1 Taxes 11 12.2 Force Majeure 11 12.3 Notices 11 12.4 General Waivers 12 12.5 Holding Over 12 12.6 Miscellaneous 12 12.7 Entire Agreement 12 3 FACILITY RESERVATION AGREEMENT This Facility Reservation Agreement (the “Agreement”) is made by and between Packaging Coordinators, Inc., a Pennsylvania corporation withoffices at 3001 Red Lion Road, Philadelphia, Pennsylvania (“PCI”), and Novavax Inc., a Delaware corporation with offices at 8320 Guilford Road,Suite C, Columbia, Md. 21046 (“Novavax”), this ______ day of January, 2002 (the “Effective Date”).ARTICLE 1REFERENCE 1.1. Definitions. Any term that is given a special meaning by any provision in this Agreement shall, unless otherwise specifically stated,have such meaning wherever used in this Agreement or in any Exhibit attached hereto. In addition, the following terms shall have the followingmeanings: "Area” shall mean the interior space leased by PCI to Novavax within the Property consisting of approximately 19,300 square feet, includingreasonable rights of ingress and egress, as mutually agreed from time to time. “Area Design Plan” shall mean the design plans pursuant to which the Novavax Improvements shall be constructed in the Area and which areattached hereto as Exhibit A. “Base Monthly Fee” shall mean the Base Monthly Fee set forth in Section 3.1 below.. “Hazardous Materials” shall mean any toxic substance, hazardous substance, hazardous material, hazardous constituent, hazardous waste,pollutant or contaminant which is or becomes regulated by any local governmental authority, the Commonwealth of Pennsylvania, or the UnitedStates government, including any material or substance defined as a “hazardous waste” pursuant to Section 1004 of the Resource Conservationand Recovery Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C. Section 6903) or as a “hazardous substance” pursuant to Section 101 of theComprehensive Environmental Response Compensation, and Liability Act, 42 U.S.C. Section 9601, et seq. (42 U.S.C. Section 9601), excludingordinary cleaning and other solvents typically used in office spaces, provided that the same are used in accordance with applicable laws. “Improvements” shall mean all modifications, alterations and improvements made or added to the Area by Novavax pursuant to the AreaDesign Plan, excluding Novavax equipment, moveable improvements and trade fixtures. “Permitted Use” shall mean Novavax’s manufacturing and PCI’s packaging of the pharmaceutical products as set forth in the SupplyAgreement (as defined below), as well as related office and warehouse uses. “Property” shall mean the real property owned by PCI known as 3001 Red Lion Road, Philadelphia, Pennsylvania.1 “Supply Agreement” shall mean that certain Supply Agreement between the parties dated March 22, 2001 whereby PCI shall provide certainservices to Novavax in connection with the packaging of the products described in such agreement.ARTICLE 2AREA, TERM AND POSSESSION 2.1 Demise of Area. PCI hereby leases to Novavax and Novavax hereby leases from PCI for the Term of this Agreement, and upon theterms and subject to the conditions of this Agreement, the Area (as hereinafter defined). 2.2 Term. Subject to Paragraph 2.4 below, the term of this Agreement shall begin on the Effective Date and unless extended by mutualagreement of the Parties, shall continue for a period of five (5) years (the “Term”). Thereafter, this Agreement shall automatically renew for two(2) additional periods of one (1) year each, unless written notice of non-renewal is provided one hundred eighty (180) days prior to the end of theTerm or any renewal term by one party to the other party. 2.3 Construction of the Area; Acceptance of Possession; Allowance. Novavax shall construct the Area in accordance with all applicablelaws and the Area Design Plan, including, without limitation, the hiring of all contract personnel and the purchase of any and all materialsnecessary for the build-out of the Area. Novavax shall indemnify and hold PCI harmless from any and all claims, suits, demands, costs, expensesand liabilities (collectively, “Claims”) resulting from or relating to such construction of the Area and all construction personnel or sub-contractors,provided, however, that the foregoing indemnification shall not apply to the extent that any such Claims are caused by the negligence ormisconduct of PCI or its employees, agents or representatives. 2.4 Surrender of Possession. Within sixty (60) days following expiration or termination of this Agreement, Novavax shall remove allproduction equipment (including without limitation, the tank farm) and shall vacate and surrender the Area to PCI broom clean, in the samecondition as existed prior to the construction in Section 2.3, reasonable wear and tear excepted. Novavax shall, at Novavax’s sole expense, repairany damage to the Area or the Property, caused by Novavax’s removal of such items. Any Improvements that Novavax does not remove from theArea shall be deemed to have been either (i) assigned, without cost or further action by Novavax to PCI; or (ii) abandoned by Novavax. In eithercase, at PCI’s sole election and discretion, PCI may request that Novavax execute such additional documents as PCI may reasonably request toacknowledge and confirm such assignment, or if PCI elects to discard the abandoned property, then Novavax shall pay all fees and costsassociated with such disposal and repair of the Area. 2.5 PCI Access to the Area. PCI shall have access to the Area upon no less than 24 hours prior notice to Novavax (except in the case ofemergency): (i) to comply with its obligations under this Agreement and the Supply Agreement, (ii) for any necessary purpose in the event of anemergency, (iii) to perform any required or necessary maintenance or repairs to the Area or the Property, and (iv) if required to comply withapplicable law. PCI shall retain the2 master keys to the Area. Except in the case of emergency, PCI shall be accompanied while entering the Area by a Novavax representative.ARTICLE 3BASE MONTHLY FEE AND DEFERRED FEE 3.1 Base Monthly Fee. Commencing on January 1, 2002 and continuing with any fee increase throughout the Term of this Agreement,Novavax shall pay to PCI, without prior demand therefor, in advance on the first day of each calendar month, the amount of One hundred ThirtyThousand 00/100 Dollars ($130,000.00) as the Base Monthly Fee. The Base Monthly Fee shall increase annually by 3.5% beginning on July 1,2003 and continuing thereafter on each July 1 of each contract year during the Term. The Base Monthly Fee shall be negotiated in good faith bythe parties for any renewal term. 3.2 Deferred Fee. Commencing upon the Effective Date and continuing each month thereafter until June 1, 2002, PCI shall defer receipt offorty percent (40%) of the Base Monthly Fee (the “Deferred Fee”). The entire amount of the Deferred Fee shall become due and payable on orbefore June 30, 2002. Notwithstanding the foregoing, in Novavax’s sole discretion, Novavax may elect to prepay all or any part of the Deferred Feeprior to its becoming due and payable.ARTICLE 4USE OF AREA 4.1 Permitted Use. Novavax shall be entitled to use the Area for the Permitted Use. Office space within the Area shall be allocated for theuse of the Novavax technical representatives during the Term of the Agreement. 4.2 Compliance with Laws and Private Restrictions. Subject to the obligations of PCI pursuant to Sections 4.3 and 4.4 below, Novavaxagrees that its use of the Area will be in compliance with all federal, state and local laws, rules and regulations respecting its use and occupancyof the Area. 4.3 Compliance with Insurance Requirements. PCI and Novavax shall comply with all requirements of any insurance company, insuranceunderwriter, or Board of Fire Underwriters which are necessary to maintain reasonable insurance coverages covering the Area within the Property. 4.4 Environmental Compliance and Hazardous Materials. Novavax shall be solely responsible for the transportation and disposal of any andall Hazardous Materials generated by Novavax in the use and occupancy of the Area, including all costs and expenses associated therewith.Novavax shall comply with all local, Commonwealth of Pennsylvania and federal laws regarding environmental compliance and HazardousMaterials (“Laws”) in connection with Novavax’s operations in, and use of the Area. Notwithstanding anything to the contrary contained in thisAgreement, PCI agrees to indemnify, defend and hold harmless Novavax from and against any and all liabilities, losses, damages, suits, actions,causes of action, costs, expenses (including without limitation reasonable attorneys’ fees and disbursements and court3 costs), penalties, fines, demands, judgments, claims or liens (including without limitation claims or liens imposed under any so-called “Superfund”or other environmental legislation) arising from or in connection with the presence of any Hazardous Materials (as defined below), (i) in the Area orthe Property, or the subsequent removal thereof from, the Property (including without limitation the Area) prior to Novavax’s taking possession ofthe Area; and (ii) from or in connection with the Property (excluding the Area) after Novavax’s possession of the Area. PCI shall have the right toassume exclusive control of the defense of any such suit, action or claim, and Novavax agrees to cooperate reasonably with PCI in theperformance by PCI of its obligations under this Section 4.4. Notwithstanding anything to the contrary contained in this Agreement, Novavax agrees to indemnify, defend and hold harmless PCI from andagainst any and all liabilities, losses, damages, suits, actions, causes of action, costs, expenses (including without limitation reasonableattorneys’ fees and disbursements and court costs), penalties, fines, demands, judgments, claims or liens (including without limitation claims orliens imposed under any so-called “Superfund” or other environmental legislation) arising from or in connection with any Hazardous Materialsincluding, without limitation presence, use release, discharge or disposal of the same, which are stored, generated or otherwise brought onto theArea by or at the direction of Novavax. Novavax shall have the right to assume exclusive control of the defense of any such suit, action or claim,and PCI agrees to cooperate reasonably with Novavax in the performance by Novavax of its obligations under Section 4.4. Novavax shall have theright, at Novavax’s sole election and at Novavax’s sole cost and expense, to perform or cause to be performed, from time to time during the Term,environmental testing to determine the presence of Hazardous Materials on or about the Area. It is expressly understood and agreed that, subjectto Novavax’s indemnification obligations under the foregoing provisions, that Novavax shall store and use at the Area, in the ordinary course of itsbusiness operations therein, chemicals and solvents used in support of the manufacturing and packaging of the Products, as well as ordinarycleaning and other solvents typically used in office spaces. Novavax shall provide to PCI a list of chemicals and solvents, by Product, prior toNovavax’s use of the same in the Area. “Hazardous Materials” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local, state or federalgovernmental authority or by common law decisions, including without limitation (i) all chlorinated solvents, (ii) petroleum products or by-products,(iii) asbestos and (iv) polychlorinated biphenyls. The provisions of this Section 4.4 shall survive the expiration or earlier termination of this Agreement. 4.5 Furniture and Computers. Novavax shall supply any computer equipment, office furniture and fixtures that it devises or deemsnecessary for the Area (the “Novavax FF&E”). During the term of this Agreement, Novavax shall be responsible for any and all maintenance andupkeep of the Novavax FF&E and shall insure and assume all risk of loss therefor except to the extent caused by the negligence or willfulmisconduct of PCI, or its employees, agents or representatives. Novavax shall be responsible, at its own expense, for removal of such NovavaxFF&E in accordance with Section 2.4 above.4 ARTICLE 5REPAIRS, MAINTENANCE, SERVICES AND UTILITIES 5.1 Utilities. (a) PCI shall, at all times during the Term of this Agreement and at its sole cost and expense, maintain in good order, condition andrepair all plumbing, electrical, wiring conduits, connectors and fixtures, the chillers and related piping up to the point where the main supply linesenter the Area and the return lines to the chillers. PCI shall also provide Novavax access to phone and computer lines for the Area. (b) PCI shall pay all charges for water, and storm and sanitary sewer services supplied to the Area. Novavax shall pay for allprocess related utilities.ARTICLE 6ALTERATIONS AND IMPROVEMENTS 6.1 Ownership of Improvements. All Improvements (as well as Novavax equipment, moveable improvements and trade fixtures) shallremain the property of Novavax during the term of this Agreement. Upon expiration or termination of this Agreement, any Improvements notremoved from the Area in accordance with the provisions of Section 2.4 shall be deemed to have been assigned, without cost or further action byNovavax to PCI.ARTICLE 7LIMITATION ON PCI’S LIABILITY AND INDEMNITY 7.1 Limitation on PCI’s Liability and Release. PCI shall not be liable to Novavax for, and Novavax hereby releases PCI and its officers,agents, employees, attorneys, and consultants from, any and all liability, whether in contract, tort or on any other basis, for any injury to or anydamage sustained by Novavax, its agents, employees or contractors in connection with Novavax’s construction or use of the Area, except to theextent such damage was caused primarily by the negligence or willful misconduct of PCI or its employees, agents or representatives, or by PCI’sbreach of this Agreement. PCI shall indemnify, defend and hold harmless from any third party claims, loss, liability, penalties, or expense, made orlegal actions filed or threatened against Novavax that are caused primarily by the negligence or willful misconduct of PCI or its employees, agentsor representatives or by PCI’s breach of this Agreement. Notwithstanding the foregoing, in no event shall PCI’s indemnity obligations or any otherfinancial obligation under this Agreement exceed the sum of One Million Dollars ($1,000,000.00), unless the same arises from PCI’s intentionalmisconduct. 7.2 Novavax’s Indemnification of PCI. Novavax shall indemnify, defend and hold harmless from any third party claims, loss, liability,penalties, or expense, made or legal actions filed or threatened against PCI with respect to the violation of any law, or the death, bodily injury,personal injury or property damage suffered by Novavax, it’s agents, employees, subcontractors, representatives or any other third party occurringwithin the Area, or from Novavax’s use or occupancy of the Area, except to the extent the same claim, loss, liability,5 penalties, or expense is caused primarily by the negligence or misconduct of PCI or its employees, agents or representatives. 7.3 The indemnify obligations set forth above in Sections 7.1 and 7.2 shall survive termination or expiration of this Agreement.ARTICLE 8INSURANCE 8.1 Novavax Insurance. Novavax shall maintain insurance complying with all of the following: (a) Novavax shall procure, pay for and keep in full force and effect, at all times during the term of this Agreement the following: (i) Commercial general liability insurance insuring Novavax against liability for personal injury, bodily injury, death anddamage to property occurring within the Area, or resulting from Novavax’s use or occupancy of the Area, or resulting from Novavax activities in orabout the Area or the Property, with coverage in the amount of at least five million dollars ($5,000,000), which insurance shall contain theequivalent of a “broad form liability” endorsement insuring Novavax’s performance of Novavax’s obligations to indemnify PCI as contained in thisAgreement; (ii) Fire and property damage insurance in so-called “fire and extended coverage” form insuring Novavax against loss fromphysical damage to Novavax’s FF&E, products, finished products, raw materials, components, personal property, inventory, trade fixtures andimprovements within the Area, including the Improvements, with coverage for the full actual replacement cost thereof; and (iii) With respect to the construction of the Area, making of alterations or the construction of improvements or the likeundertaken by Novavax, contingent liability and builder’s risk insurance, in an amount and with coverage reasonably satisfactory to PCI; and (iv) Workers’ compensation insurance and any other employee benefit insurance sufficient to comply with all laws. (b) Each policy of liability insurance required to be carried by Novavax pursuant to this paragraph or actually carried by Novavaxwith respect to the Area, the Building or the Property: (i) shall name PCI, and such others as are reasonably designated by PCI, as additionalinsureds; (ii) shall be primary insurance providing that the insurer shall be liable for the full amount of the loss, up to and including the total amountof liability set forth in the declaration of coverage, without the right of contribution from or prior payment by any other insurance coverage of PCI;(iii) shall be in a form reasonably satisfactory to PCI; (iv) shall be carried with companies reasonably acceptable to PCI with Best’s ratings of atleast A + VI; (v) shall provide that such policy shall not be subject to cancellation, lapse or change except after at least thirty days prior writtennotice to PCI; and (vi) shall contain a so-called “severability” or “cross liability” endorsement. Each policy of property insurance maintained byNovavax with respect to the Area or the Property shall contain a waiver and/or a permission to waive by the6 insurer of any right or subrogation against PCI, its partners, principals, members, officers, employees, agents and contractors, which might ariseby reason of any payment under such policy or by reason of any act or omission of PCI, its partners, principals, members, officers, employees,agents and contractors. 8.2 PCI’s Insurance. With respect to insurance maintained by PCI: (a) PCI shall maintain, as the minimum coverage required of it by this Agreement, fire and property damage insurance in so-called“fire and extended coverage” form insuring Novavax (and such others as Novavax may designate) against loss from physical damage to theProperty, and shall provide coverage for physical damage to the Building so insured for up to the entire full actual replacement cost thereof. PCIshall not be required to cause such insurance to cover any of Novavax’s personal property, Novavax’s FF&E, inventory, products, finishedproducts, raw materials, components and trade fixtures, or any modifications, alternations or improvements made or constructed by Novavax to orwithin the Area, including the Improvements. 8.3 Certificate of Insurance. Prior to the time Novavax or any of its contractors enters the Area, each Party shall deliver to the other Party,with respect to each policy of insurance required to be carried by it pursuant to this Article, a copy of such policy (appropriately authenticated bythe insurer as having been issued, premium paid) or a certificate of the insurer certifying in form satisfactory to the other Party that a policy hasbeen issued, premium paid, providing the coverage required by this Paragraph and containing the provisions specified herein. With respect to eachrenewal or replacement of any such insurance, the requirements of this Paragraph mush be complied with not less than thirty (30) days prior to theexpiration or cancellation of the policies being renewed or replaced. 8.4 Mutual Waiver of Subrogation. PCI hereby releases Novavax, and Novavax hereby releases PCI and their respective partners,principals, members, officers, agents, employees and servants, from any and all liability for loss, damage or injury to the property of the other in orabout the Area or the Property which is caused by or results from a peril or event or happening which is covered by insurance actually carried andin force at the time of the loss by the party sustaining such loss; provided, however, that such waiver shall be effective only to the extentpermitted by the insurance covering such loss and to the extent such insurance is not prejudiced thereby.ARTICLE 9DAMAGE TO AREA 9.1 Novavax’s Duty to Restore. If the Area is damaged by any peril after the Effective Date of this Agreement, Novavax shall restore thesame within a commercially reasonable timeframe. Novavax shall commence and diligently prosecute to completion the restoration of the Area toeither (i) substantially the same condition as the Area existed prior to the construction set forth in Section 2.3 above, or (ii) to substantially thesame condition in which it existed as of the date production in the Area began at Novavax’s election. Notwithstanding the foregoing, nothing setforth in this Section 9.1 shall in any way affect Novavax’s obligations, and/or liability under Article 3 above.7 ARTICLE 10DEFAULT, REMEDIES AND TERMINATION 10.1 Events of Default. Novavax shall be in default of its obligations under this Agreement upon the occurrence of any of the following: (a) If Novavax shall fail to pay when due any sum required to be paid hereunder by Novavax and such failure shall continue forfifteen (15) days after written notice thereof by PCI; or (b) If Novavax shall fail to perform any term, covenant or condition of this Agreement other than an obligation to pay money, andsuch failure shall continue for thirty (30) days after written notice from PCI to Novavax specifying the nature of such failure and requestingNovavax to perform same (provided that, if longer than thirty (30) days is reasonably required in order to perform such term, covenant or condition,Novavax shall have such longer period); or (c) If Novavax shall make a general assignment or general arrangement for the benefit of creditors, if a petition for adjudication ofbankruptcy or for reorganization is filed by or against Novavax and is not dismissed within ninety (90) days, if a trustee or receiver is appointed totake possession of substantially all of Novavax’s assets located at the Property or of Novavax’s interest in this Agreement and possession is notrestored to Novavax within ninety (90) days, or if substantially all of Novavax’s assets located at the Property or of Novavax’s interest in thisAgreement is subjected to attachment, execution or other judicial seizure which is not discharged within ninety (90) days. 10.2 PCI’s Remedies. In the event of any default by Novavax, PCI may, at PCI’s election, terminate this Agreement by giving Novavaxwritten notice of termination, in which event this Agreement shall terminate on the date set forth for termination in such notice. Any terminationunder this subsection shall not relieve Novavax from its obligation to pay to PCI all Base Monthly Fees then due, or to become due under thisAgreement, or any other sums due to PCI, or from any claim against Novavax for damages previously accrued or then or thereafter accruing. Upondelivery of such notice of termination, Novavax’s obligations under Article 3 shall be accelerated and shall become due and payable in full withinthirty (30) days of the date of such notice. 10.3 PCI’s Default. PCI shall be in default of its obligations under this Agreement if PCI fails to perform any term, covenant or condition ofthis Agreement within thirty (30) days after written notice from Novavax to PCI specifying the nature of such failure and requesting PCI to performsame (provided that, if longer than thirty (30) days is reasonably required in order to perform such term, covenant or condition, PCI shall have suchlonger period). 10.4 Novavax’s Remedies. In the event of PCI’s default, Novavax may proceed in equity or at law to compel PCI to perform its obligations,to terminate this Agreement and/or to recover damages proximately caused by such failure to perform (except as and to the extent Novavax haswaived its right to damages as provided in this Agreement and except that in no event shall PCI be liable to Novavax for any special, indirect orconsequential loss, damage,8 costs or expenses of any nature whatsoever, including, without limitation, lost revenues or profits). 10.5 Termination of Supply Agreement. Notwithstanding Section 2.2 hereof, this Agreement shall terminate effective upon the termination ofthe Supply Agreement.ARTICLE 11ASSIGNMENT 11.1 Assignment and Subletting. Novavax shall not assign this Agreement or sublet the Area without the express written consent of PCI,provided, however, that Novavax may without consent, assign its interest in this Agreement to a direct or indirect parent or subsidiary of Novavax;to a party controlling, controlled by or under common control with Novavax; to any party with whom Novavax may merge or consolidate; or to anyparty acquiring all or substantially all of the assets of Novavax.ARTICLE 12GENERAL PROVISIONS 12.1 Taxes. PCI shall pay before delinquency any and all real property taxes, assessments, license fees, use fees, permit fees and publiccharges of whatever nature or description levied, assessed or imposed by a governmental agency arising out of, caused by reason of or basedupon Novavax’s estate in this Agreement or improvements made by Novavax to the Area. If any such taxes, assessments, fees or public chargesare levied against Novavax, Novavax shall have the right to require PCI to pay such taxes. 12.2 Force Majeure. The obligations of each of the parties under this Agreement (other than the obligations to pay money) shall betemporarily excused if such party is prevented or delayed in performing such obligations by reason of any strikes, lockouts or labor disputes;government restrictions, regulations, controls, action or inaction; civil commotion; or extraordinary weather, fire or other acts of God. 12.3 Notices. Any notice required or desired to be given by a party regarding this Agreement shall be in writing and shall be personallyserved, or in lieu of personal service may be given by reputable overnight courier service, postage prepaid, addressed to the other party as follows: If to PCI: Packaging Coordinators, Inc. 3001 Red Lion Road Philadelphia, Pennsylvania Attention: President with a copy to: Cardinal Health, Inc. 7000 Cardinal Place Dublin, Ohio 43017 Attention: General Counsel9 If to Novavax: Novavax Inc. 8320 Guilford Road Suite C Columbia, MD 21046 Attention: Dennis W. Genge with a copy to: White & McDermott, P.C. 65 William Street Wellesley, MA 02481 Attention: David A. WhiteAny notice given in accordance with the foregoing shall be deemed received upon actual receipt or refusal to accept delivery. 12.4 General Waivers. One party’s consent to or approval of any act by the other party requiring the first party’s consent or approval shall notbe deemed to waive or render unnecessary the first party’s consent to or approval of any subsequent similar act by the other party. No waiver ofany provision hereof, or any waiver of any breach of any provision hereof, shall be effective unless in writing and signed by the waiving party. Thereceipt by PCI of any Base Monthly Fee or payment with or without knowledge of the breach of any other provision hereof shall not be deemed awaiver of any such breach. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other partyunder this Agreement shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. Thewaiver by either party of any breach of any provision of this Agreement shall not be deemed to be a waiver of any subsequent breach of the sameor any other provisions herein contained. 12.5 Holding Over. This Agreement shall terminate without further notice on the date set forth in Section 2.2. Any holding over by Novavaxafter such date shall neither constitute a renewal nor extension of this Agreement nor give Novavax any rights in or to the Area except asexpressly provided in this Paragraph. Any such holding over to which PCI has consented shall be construed to be a tenancy from month to month,on the same terms and conditions herein specified insofar as applicable except that the Base Monthly Fee charged to Novavax shall be onehundred twenty-five percent (125%) of the Base Monthly Fee under this Agreement; provided, however, that the Base Monthly Fee shall notincrease in the event Novavax is engaged in good faith negotiations to extend the terms of this Agreement. 12.6 Miscellaneous. Should any provisions of this Agreement prove to be invalid or illegal, such invalidity or illegality shall in no way affect,impair or invalidate any other provisions hereof, and such remaining provisions shall remain in full force and effect. Any copy of this Agreementwhich is executed by the parties shall be deemed an original for all purposes. This Agreement shall, subject to the provisions regardingassignment, apply to and bind the respective successors, and assigns of PCI and Novavax. The term “party” shall mean PCI or Novavax as thecontext implies. This Agreement shall be construed and enforced in accordance with the Laws of the Commonwealth of Pennsylvania. Thecaptions in this Agreement are for convenience only and shall not be construed in the construction or interpretation of any provision hereof. Whenthe context of this Agreement requires, the neuter gender includes the masculine, the feminine, a partnership, corporation, limited liabilitycompany, joint venture or other form of10 business entity, and the singular includes the plural. The terms “must,” “shall,” “will,” and “agree” are mandatory. The term “may” is permissive.When a party is required to do something by this Agreement, it shall do so at its sole cost and expense without right of reimbursement from theother party unless specific provision is made therefor. The rule of construction that a document is to be construed against the drafting party shallnot be employed in the construction or interpretation of this Agreement. 12.7 Entire Agreement. This Agreement and the Exhibits (as described in Article 1), which Exhibits are by this reference incorporated herein,constitute the entire agreement between the parties, and there are no other agreements, understandings or representations between the partiesrelating to the reservation of the Area, except as expressed herein. In Witness Whereof, PCI and Novavax have executed this Agreement as of the respective dates below set forth with the intent to be legallybound thereby as of the Effective Date of this Agreement first above set forth. PACKAGING COORDINATORS, INC. By: Title: Dated: NOVAVAX INC. By: Title: Dated: 11 EXHIBIT 21LIST OF SUBSIDIARIES OF NOVAVAX, INC. Fielding Pharmaceutical Company, a Missouri Corporation. EXHIBIT 23.1CONSENT OF INDEPENDENT AUDITORSWe consent to the incorporation by reference of our report dated February 12, 2002, with respect to the consolidated financial statements ofNovavax, Inc. included in the Annual Report on Form 10-K for the year December 31, 2001, in the following registration statements:(1)Registration Statement Number 33-80277 on Form S-8 (2)Registration Statement Number 33-80279 on Form S-8 (3)Registration Statement Number 333-3384 on Form S-8 (4)Registration Statement Number 333-46000 on Form S-8 (5)Registration Statement Number 333-77611 on Form S-8 (6)Registration Statement Number 333-22685 on Form S-3 (7)Registration Statement Number 333-77609 on Form S-3 (8)Registration Statement Number 333-32142 on Form S-3 (9)Registration Statement Number 333-53194 on Form S-3 (10)Registration Statement Number 333-69874 on Form S-3 (11)Registration Statement Number 333-76696 on Form S-3 /s/ Ernst & Young LLPMcLean, VirginiaMarch 15, 2002 EXHIBIT 23.2CONSENT OF INDEPENDENT ACCOUNTANTSWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-69874, 333-76696, 333-22685, 333-77609, 333-32142 and 333-53194) and Form S-8 (Nos. 333-80277, 33-80279, 333-3384, 333-46000 and 33-77611) of Novavax, Inc. of our reportdated February 26, 2000 relating to the financial statements, which appears in this Form 10-K./s/ Pricewaterhouse Coopers LLPMcLean, VirginiaMarch 13, 2002

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