10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended
June 30, 2003 Commission File No.
0-26770

NOVAVAX, 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, MD (Address of principal executive offices)	21046 (Zip code)

(301) 854-3900
Registrant’s telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes þ No o

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Shares Outstanding at August 8, 2003: 30,142,300

TABLE OF CONTENTS

Part I. Financial Information
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
Part II. Other Information
	Item 1 — Legal Proceedings
	Item 2 — Changes in Securities
	Item 3 — Defaults upon Senior Securities
	Item 4 — Submission of Matters to a Vote of Security Holders
	Item 5 — Other Information
	Item 6 — Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

NOVAVAX, INC.

Form 10-Q
For the Quarter Ended June 30, 2003
Table of Contents

Part I. Financial Information		Page No.
Item 1	Financial Statements
	Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		3
	Consolidated Statements of Operations for the three month and six month periods ended June 30, 2003 and 2002		4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002		5
	Notes to Consolidated Financial Statements		6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3	Quantitative and Qualitative Disclosure about Market Risk		16
Item 4	Controls and Procedures		16
Part II. Other Information
Item 1	Legal Proceedings		*
Item 2	Changes in Securities		*
Item 3	Defaults upon Senior Securities		*
Item 4	Submission of Matters to a Vote of Security Holders		17
Item 5	Other Information		*
Item 6	Exhibits and Reports on Form 8-K		18
Signature			19

* No information provided due to inapplicability of item.

2

Part I.     Financial Information

Item 1.     Financial Statements

NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

				June 30,			December 31,
				2003			2002
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	9,625		$	3,005
	Accounts receivable, net				1,872			1,882
	Inventory				801			633
	Prepaid expenses and other current assets				539			722
			Total current assets		12,837			6,242
Property and equipment, net					13,840			13,655
Goodwill, net					33,141			33,141
Other intangible assets, net					3,637			3,966
Other long-term assets					453			501
			Total assets	$	63,908		$	57,505
LIABILITIES and STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	1,694		$	2,534
	Accrued expenses				2,021			2,844
	Deferred revenue — current				250			275
	Current portion of long-term debt and capital lease obligations				226			211
			Total current liabilities		4,191			5,864
Convertible notes					40,000			40,000
Deferred revenue — non-current					2,250			2,375
Long-term debt, capital lease obligations and other					1,345			1,193
Stockholders’ equity:
	Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued and outstanding				—			—
	Common stock, $.01 par value, 50,000,000 shares authorized; 30,372,860 issued and 30,122,800 outstanding at June 30, 2003 and 25,222,110 issued and 24,664,358 outstanding at December 31, 2002				303			252
	Additional paid-in capital				120,389			102,361
	Notes receivable from directors				(1,480	)		(1,480	)
	Accumulated deficit				(98,357	)		(87,527	)
	Treasury stock, 250,060 and 557,752 shares, cost basis, at June 30, 2003 and December 31, 2002, respectively				(4,733	)		(5,533	)
		Total stockholders’ equity			16,122			8,073
		Total liabilities and stockholders’ equity		$	63,908		$	57,505

     The accompanying notes are an integral part of the consolidated financial statements.

3

NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share data)
(unaudited)

			Three months ended						Six months ended
			June 30,						June 30,
			2003			2002			2003			2002
						(restated)						(restated)
Revenues:
	Product sales		$	1,959		$	4,218		$	2,862		$	8,994
	Contract research and development			253			109			457			233
	Milestone and licensing fees			63			137			150			950
		Total revenues		2,275			4,464			3,469			10,177
Operating costs and expenses:
	Cost of sales			388			1,008			622			2,065
	Research and development			2,792			3,205			5,157			6,147
	Selling and marketing			1,917			3,549			4,073			7,925
	General and administrative			1,810			2,217			3,650			5,030
		Total operating costs and expenses		6,907			9,979			13,502			21,167
Loss from operations				(4,632	)		(5,515	)		(10,033	)		(10,990	)
Interest expense, net				(396	)		(263	)		(797	)		(510	)
Net loss			$	(5,028	)	$	(5,778	)	$	(10,830	)	$	(11,500	)
Basic and diluted loss per share			$	(.17	)	$	(.24	)	$	(.38	)	$	(.48	)
Basic and diluted weighted average number of common shares outstanding				29,988,875			24,563,612			28,489,651			24,209,198

     The accompanying notes are an integral part of the consolidated financial statements.

4

NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)

			Six months ended
			June 30,
			2003			2002
						(restated)
Operating Activities:
	Net loss		$	(10,830	)	$	(11,500	)
Reconciliation of net loss to net cash used by operating activities:
		Amortization		329			329
		Depreciation		234			247
		Provision for bad debt		143			60
		Deferred rent expense		48			48
Changes in operating assets and liabilities:
		Accounts receivable		(133	)		1,207
		Inventory		(168	)		(118	)
		Prepaid expenses and other assets		183			(1,321	)
		Accounts payable and accrued expenses		(863	)		1,144
		Deferred revenue		(150	)		(950	)
Net cash used by operating activities				(11,207	)		(10,854	)
Investing Activities:
Capital expenditures				(419	)		(6,365	)
Net cash used by investing activities				(419	)		(6,365	)
Financing Activities:
Proceeds from the issuance of convertible notes				—			10,000
Net proceeds from equipment loans				217			—
Deferred financing costs				48			—
Payments of capital lease obligations				(98	)		—
Proceeds from private placements of common stock				16,625			—
Proceeds from the exercise of stock options and warrants				1,454			3,101
Net cash provided by financing activities				18,246			13,101
Net change in cash and cash equivalents				6,620			(4,118	)
Cash and cash equivalents at beginning of period				3,005			20,045
Cash and cash equivalents at end of period			$	9,625		$	15,927

     The accompanying notes are an integral part of the consolidated financial statements.

5

NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

     Novavax, Inc., a Delaware corporation (“Novavax” or “the Company”), was incorporated in 1987, and is a specialty pharmaceutical company engaged in the research, development and commercialization of proprietary products focused on women’s health and infectious diseases. The Company sells, markets, and distributes a line of prescription pharmaceuticals The Company’s principal technology platform involves the use of patented oil and water emulsions that we believe can be used as vehicles for the topical delivery of a wide variety of drugs and other therapeutic products, including hormones. Other drug delivery technologies, such as our Novasome® and Sterisome® technologies, are being utilized to develop other products. Novasomes are used as adjuvants to enhance vaccine effectiveness. Sterisomes are being used for, among other things, subcutaneous injections that can deliver long-lasting drug effects. In addition, Novavax conducts research and development on preventative and therapeutic vaccines and proteins for a variety of infectious diseases and immunotherapies.

     The consolidated financial statements of Novavax for the six months ended June 30, 2003 and 2002 are unaudited. These financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2003.

     Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to SEC rules and regulations, although the Company believes the disclosures herein are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

2. Summary of Significant Accounting Policies

Basis of Presentation
     The accompanying consolidated financial statements include the accounts of the corporation and its wholly owned subsidiary. All significant intercompany 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 management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

6

NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Inventories
     Inventories consist of raw materials and finished goods as follows, and are priced at the lower of cost or market, using the first-in-first-out method.

	As of:
	June 30, 2003		December 31, 2002
	(amounts in thousands)
Raw materials	$	431	$	479
Finished goods		370		154
	$	801	$	633

Revenue Recognition
     The Company recognizes 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 or determinable and collectibility is reasonably assured. Revenues from product sales are recognized upon shipment, net of allowances for returns, rebates and chargebacks. The Company is obligated to accept from customers the return of pharmaceuticals that have reached their expiration date. A large part of our product sales are to distributors who resell the products to their customers. We provide rebates to members of certain buying groups who purchase from our distributors, to distributors that sell to their customers at prices determined under a contract between the customer and us, or to state agencies that administer various programs such as the federal Medicaid and Medicare programs. Rebate amounts are usually based upon the volume of purchases or by reference to a specific price for a product. We estimate the amount of the rebate that will be paid, and record the liability as a reduction of revenue when we record our sale of the products. Settlement of the rebate generally occurs from 3 to 12 months after sale. We regularly analyze historical rebate trends and make adjustments to recorded reserves for changes in trends and terms of rebate programs.

     Up-front payments and licensing fees are deferred and recognized as earned over the life of the related agreement. Milestone payments are recognized as revenue upon achievement of contract-specified events and when there are no remaining performance obligations.

     Revenues earned under research contracts are generally recognized as milestones are achieved or ratably over the term of the agreement. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is made. Revenues from contracts with acceptance terms are recognized when the customer has received and approved the services. During the fourth quarter of 2002, we reassessed the remaining costs, progress and milestones outstanding on four contracts. Based on this assessment, we determined that estimated costs to complete the contracts had been underestimated throughout the year. We reevaluated the estimated costs to complete on all contracts. The effect of this reevaluation was a reduction to revenue for the three-month period ended June 30, 2002 from $4.7 million to $4.5 million and for the six-month period ended June 30, 2002 from $10.8 million to $10.2 million. Additionally, the net loss and net loss per share increased from $5.4 million to $5.8 million and from $0.22 to $0.24 for the three-month period ended June 30, 2002, and from $10.8 million to $11.5 million and from $0.44 to $0.48 for the six-month period ended June 30, 2002.

7

NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Net Loss per Share
     Basic loss per share is computed by dividing the net loss available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. The computation of diluted loss per share is similar to the computation of basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares from the exercise of common stock options, warrants or convertible debt had been issued. Potentially dilutive common shares are not included in the computation of dilutive earnings per share if they are antidilutive. Net loss per share as reported was not adjusted for potential common shares, as they are antidilutive.

Goodwill and Intangible Assets
     Goodwill principally results from business acquisitions. Assets acquired and liabilities assumed are recorded at their fair values; the excess of the purchase price over the identifiable net assets acquired is recorded as goodwill. Other intangible assets are a result of product acquisitions, non-compete arrangements, and internally discovered patents. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairment tests annually, or more frequently, should indicators of impairment arise. The Company utilizes a discounted cash flow analysis that includes profitability information, estimated future operating results, trends and other information in assessing whether the value of indefinite-lived intangible assets can be recovered. Under SFAS No. 142, goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 15 years. Amortization expense was $163,000 and $329,000, respectively, for both the three months ending June 30, 2003 and 2002, and the six months ending June 20, 2003 and 2002.

     As of June 30, 2003 and December 31, 2002, goodwill and other intangible assets consisted of the following:

		June 30, 2003							December 31, 2002
				Accumulated							Accumulated
		Gross		Amortization			Net		Gross		Amortization			Net
Goodwill-Fielding acquisition		$	35,590	$	(2,449	)	$	33,141	$	35,590	$	(2,449	)	$	33,141
Other intangible assets, net
Non-compete-Biomedical Services acquisition		$	148	$	(116	)	$	32	$	148	$	(101	)	$	47
AVC-Product acquisition			3,332		(1,190	)		2,142		3,332		(952	)		2,380
Patents			2,525		(1,062	)		1,463		2,525		(986	)		1,539
	Total other intangible assets, net	$	6,005	$	(2,368	)	$	3,637	$	6,005	$	(2,039	)	$	3,966

8

NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation
     In accordance with SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation is as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
		(Amounts in thousands, except per share data)
Net loss, as reported		$	(5,028	)	$	(5,778	)	$	(10,830	)	$	(11,500	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards			(851	)		(848	)		(1,363	)		(1,771	)
Pro forma net loss		$	(5,879	)	$	(6,626	)	$	(12,193	)	$	(13,271	)
Net loss per share:
Basic and diluted—
	as reported	$	(0.17	)	$	(0.24	)	$	(0.38	)	$	(0.48	)
Basic and diluted—
	pro forma	$	(0.20	)	$	(0.27	)	$	(0.43	)	$	(0.55	)

     The effect of applying SFAS No. 123 on the three and six month periods ended June 30, 2003 and 2002 results in pro forma net loss and net loss per share as stated above, which is not necessarily representative of the effects on reported net loss for future years, due among other things to (1) the vesting period of the stock options and (2) the fair value of additional stock options in future years.

Recent Accounting Pronouncements
     In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue 00-21 Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that the adoption of EITF Issue No. 00-21 will have no material impact on its financial statements.

2.     Sale of Common Stock
     In February 2003, the Company completed the private placement of 4,750,000 common shares at $3.50 per share, a price that was slightly above the Nasdaq 5-day trailing average, to an accredited investor, for net proceeds of $16.6 million. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. A resale registration statement was filed with the Commission on April 23, 2003, and was declared effective on May 2, 2003.

     In May 2003, the Company received net proceeds of approximately $1.5 million from the exercise of 400,000 common stock options at $3.63 per share.

9

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     The following discussion may contain statements that are not purely historical. Certain statements contained herein or as may otherwise be incorporated by reference herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding product sales, future product development and related clinical trials and statements regarding future research and development, including Food and Drug Administration approval. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

     Such factors include, among other things, the following: general economic and business conditions; competition; unexpected changes in technologies and technological advances; ability to obtain rights to technology; ability to obtain and enforce patents; ability to commercialize and manufacture products; statements regarding establishment of commercial-scale manufacturing capabilities; statements regarding future collaboration with industry partners; results of clinical studies; research and development activities; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure to comply with, governmental regulations; ability to obtain adequate financing in the future; and other factors referenced herein.

     All forward-looking statements contained in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Accordingly, past results and trends should not be used to anticipate future results or trends.

Overview

     Novavax is a fully-integrated specialty pharmaceutical company focused on the research, development and commercialization of products utilizing our proprietary drug delivery and vaccine technologies for large and growing markets, concentrating on the areas of women’s health and infectious diseases.

     Our micellar nanoparticle technology involves the use of our patented oil and water emulsions that we believe can be used as vehicles for the topical delivery of a wide variety of drugs and other therapeutic products, including hormones. We believe that our technology represents the first time that ethanol soluble hormones, such as estrogen and testosterone, have been encapsulated and delivered topically. ESTRASORB™, our topical emulsion for estrogen replacement therapy, is our initial product candidate using this technology. In addition to ESTRASORB, our product candidates using these technologies include ANDROSORB™, a topical testosterone emulsion that has completed two Phase I clinical trials; TESTESTRASORB™, a topical estrogen and testosterone emulsion; PROGESTSORB™ NE, a topical progestin emulsion; and PROESTRASORB™, a topical estrogen and progestin emulsion. Other drug delivery technologies, such as Novasome and Sterisome technologies, are being utilized to develop other products. Novasomes are used as adjuvants to enhance vaccine effectiveness. Sterisomes are being used for, among other things, subcutaneous injections that can deliver long-acting drug effects. We also conduct research and development on preventative and therapeutic vaccines and proteins for a variety of infectious diseases and immunotherapies.

10

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     We are seeking FDA approval of ESTRASORB for the reduction of hot flushes in menopausal women and, if approved, we believe ESTRASORB will be competitively positioned to address the estimated $1.8 billion estrogen replacement therapy market in the United States. In 2002, Novavax reported on its Phase III clinical trial results at two major medical conferences. The study demonstrated that ESTRASORB treatment caused a statistically significant reduction in moderate and severe vasomotor symptoms (hot flushes) at weeks four, eight and twelve of the clinical trial. In addition, a high percentage of women achieved cessation of moderate to severe hot flushes during the twelve-week clinical trial.

     We submitted a New Drug Application for ESTRASORB to the U.S. Food and Drug Administration in June 2001, which was accepted for review in August 2001. In April 2002, the FDA informed us that the agency had completed their review of the NDA for ESTRASORB. At that time, the agency did not raise any issues regarding the efficacy or safety of ESTRASORB, but did request additional information with respect to the Chemistry, Manufacturing and Controls (“CMC”) section of the filing. We determined that the most advantageous approach to resolving the outstanding CMC questions was to voluntarily withdraw the NDA and resubmit it once all of the responses to the CMC questions had been prepared. In September 2002 we resubmitted the NDA, which was accepted for review by the FDA in November 2002. In June 2003, the FDA informed us that they needed additional time for a full review of our Estradiol Partner Transfer Study Report submitted in May of this year. Under the Prescription Drug User Fee Act the statutory minimum extension time is 90 days, which thus results in a new goal date for a decision on the approvability of ESTRASORB of no later than October 10, 2003.

Critical Accounting Policies and Changes to Accounting Policies

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     There have been no material changes in our critical accounting policies or critical accounting estimates since December 31, 2002, nor have we adopted an accounting policy that has or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see Footnote 2 “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Results of Operations

     The following is a discussion of the historical consolidated financial condition and results of operations of Novavax, Inc. and its subsidiary and should be read in conjunction with the consolidated financial statements and notes thereto set forth in this Form 10-Q. Additional information concerning factors that could cause actual results to differ materially from those in the Company’s forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

11

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Three months ended June 30, 2003 (“2003”) compared to the three months ended June 30, 2002 (“2002”)

     Revenues for 2003 were $2.3 million compared to $4.5 million for 2002. This represents a decrease of $2.2 million, or 49%, from 2002 to 2003. Product sales decreased from $4.2 million in 2002 to $2.0 million in 2003, a decrease of $2.2 million, or 54%. Product sales were negatively impacted by significant decreases in our prenatal vitamin and AVC product lines. Prenatal vitamin sales in 2003 were $1.3 million compared to $3.1 million in 2002, a decrease of $1.8 million, while net AVC product sales were $0.2 million in 2003 compared to $1.0 million in 2002, a decrease of $0.8 million. The year over year decline in prenatal vitamin sales was due to a combination of factors that included: an aggressive sales promotion in 2002, a higher than average volume of expired product returns in 2003 as a result of the 2002 promotions, and the overall decline in our market share due to the effects of generic competition. While prenatal product sales are being negatively impacted by generic competition and sales have been declining compared to 2002, the second quarter sales were in line with our expectations taking into account all of the factors noted. The AVC product lines decline in 2002 was also affected by aggressive promotions in the second quarter of 2002 and an overall reduction in sales orders. Revenue from contract research and development activities, primarily with the National Institutes of Health (“NIH”) and other governmental agencies, increased slightly from $0.1 million in 2002 to $0.3 million in 2003.

     Net loss for 2003 was $5.0 million or $(0.17) per share, compared to $5.8 million, or $(0.24) per share for 2002, a decrease of $0.8 million, and a per share decrease of $(0.07). The decrease in net loss was primarily due to decreased operating expenses of $3.1 million, offset by a reduction in revenues of $2.2 million, as discussed above. In addition to the factors noted above, the decrease in net loss per share was due to an increase in the number of weighted average shares outstanding in 2003 of 5.4 million, resulting primarily from the February 2003 private placement of 4.75 million shares and an option exercise that occurred in May 2003 for 0.4 million shares.

     Costs of sales were $0.4 million in 2003 compared to $1.0 million in 2002. The decrease of $0.6 million, or 60%, was primarily due to the decrease in product sales, as described above.

     Research and development expenses were $2.8 million in 2003 compared to $3.2 million in 2002. The decrease of $0.4 million, or 13%, was due to reductions in clinical trial costs for ESTRASORB and ANDROSORB when compared to 2002.

     Selling and marketing costs were $1.9 million in 2003 compared to $3.5 million in 2002, a decrease of $1.6 million, or 46%. In 2002 we increased our sales force and initiated marketing programs in anticipation of the approval and launch of ESTRASORB in 2002. The decrease in expenses from 2002 to 2003 is due to the reductions in selling and marketing personnel and marketing programs due to the delay in that previously expected approval.

12

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     General and administrative expenses were $1.8 million in 2003 compared to $2.2 million in 2002. The decrease of $0.4 million, or 18%, was due to major reductions in administrative and executive personnel and other expenses in the second half of 2002, due to the delay in the approval of ESTRASORB.

     Interest expense was $0.4 million in 2003 compared to $0.3 million in 2002. The increase of $0.1 million, or 33%, primarily relates to the increase in convertible notes outstanding by $10.0 million in July 2002.

Six months ended June 30, 2003 (“2003”) compared to the six months ended June 30, 2002 (“2002”)

     Revenues for 2003 were $3.5 million compared to $10.2 million for 2002. This represents a decrease of $6.7 million, or 66%, from 2002 to 2003. Product sales decreased from $9.0 million in 2002 to $2.9 million in 2003, a $6.1 million decrease, or 68%. Product sales were negatively impacted by significant decreases in our prenatal vitamin and AVC product lines. Prenatal vitamin sales in 2003 were $1.6 million compared to $6.8 million in 2002, a decrease of $5.2 million, while net AVC product sales were $0.2 million in 2003 compared to $1.4 million in 2002, a decrease of $1.2 million. The year over year decline in prenatal vitamin sales was due to a combination of factors that included: aggressive sales promotions for the first six months of 2002, a high volume of expired product returns in 2003 as a result of the 2002 promotions, and the overall decline in our market share due to the effects of generic competition. While prenatal product sales are being negatively impacted by generic competition and sales have been declining compared to 2002, the second quarter sales were in line with our expectations taking into account all of the factors noted. The AVC product lines were also affected by second quarter 2002 promotions, and the returns of expired product related to the 2002 promotions. Revenue from milestone and licensing fees decreased from $1.0 million in 2002 to $0.2 million in 2003, due to the recognition of $0.8 million on a milestone payment in 2002. Revenue from contract research and development activities, primarily with the NIH and other governmental agencies, increased from $0.2 million in 2002 to $0.5 million in 2003.

     Net loss for 2003 was $10.8 million, or $(0.38) per share, compared to $11.5 million, or $(0.48) per share for 2002, a decrease of $0.7 million, and a per share decrease of $(0.10). The decrease in net loss was primarily due to decreased operating expenses of $7.7 million, offset by a reduction in revenues of $6.7 million, as discussed above. In addition to the factors above, the decrease in net loss per share was due to an increase in the number of weighted average shares outstanding in 2003 of 4.3 million, resulting primarily from the February 2003 private placement of 4.75 million shares and an option exercise that occurred in May 2003 of 0.4 million shares.

     Costs of sales were $0.6 million in 2003 compared to $2.1 million in 2002. The decrease of $1.5 million, or 71%, was primarily due to the decrease in product sales, as described above.

     Research and development expenses were $5.2 million in 2003 compared to $6.1 million in 2002. The decrease of $0.9 million, or 15%, was due to reductions in clinical trial costs for ESTRASORB and ANDROSORB when compared to 2002.

13

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     Selling and marketing costs were $4.1 million in 2003 compared to $7.9 million in 2002, a decrease of $3.8 million, or 48%. In 2002, we increased our sales force and initiated marketing programs in anticipation of the approval and launch of ESTRASORB in 2002. The decrease in expenses from 2002 to 2003 is due to the reductions in selling and marketing personnel and marketing programs due to the delay in that previously expected approval.

     General and administrative expenses were $3.7 million in 2003 compared to $5.0 million in 2002. The decrease of $1.3 million, or 26%, was due to major reductions in administrative and executive personnel and other expenses in the second half of 2002, due to the delay in the approval of ESTRASORB.

     Interest expense was $0.8 million in 2003 compared to $0.5 million in 2002. The increase of $0.3 million, or 60%, primarily relates to the increase in convertible notes outstanding by $10.0 million in July 2002.

Liquidity and Capital Resources

     Our capital requirements depend on numerous factors, including but not limited to the progress of our research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the commercialization of our product candidates, the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, and changes in our development of commercialization activities and arrangements. We plan to have multiple products in various stages of product development and we believe our research and development as well as selling, marketing and general administrative expenses and capital requirements will increase accordingly. Future activities, including clinical development, the establishment of commercial-scale manufacturing capabilities and the development of sales and marketing programs, are subject to our ability to raise funds through debt or equity financing, or collaborative arrangements with industry partners.

     As of June 30, 2003, we had $9.6 million in cash and cash equivalents as compared to $3.0 million as of December 31, 2002, an increase of $6.6 million. Net cash used in operating activities was $11.2 million for 2003, compared to $10.9 million for the same period in 2002, an increase of $0.3 million, or 3%. Cash used for investing activities was $0.5 million for 2003, compared to $6.4 million for the same period in 2002, a decrease of $5.9 million, or 92%. The decrease in investing activities relates primarily to payments for the build-out of our manufacturing facility in Philadelphia in 2002. Net cash provided by financing activities was $18.2 million for 2003, compared to $13.1 million in 2002, an increase of $5.1 million. The increase in financing activities resulted primarily from the private placement in February 2003 of 4,750,000 shares of our common stock at $3.50 per share, for net proceeds of $16.6 million.

     Working capital at June 30, 2003 was $8.6 million compared to $0.4 million at December 31, 2002. The increase in working capital of $8.2 million was primarily due to the $16.6 million private placement noted above, offset by year to date net cash used in operating activities.

14

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     Due to the April 2002 withdrawal of our NDA for ESTRASORB, which was done in order to provide additional information with respect to the CMC section of the filing, the anticipated launch date for ESTRASORB has been delayed into early 2004. We resubmitted the ESTRASORB NDA in September 2002. We now anticipate an approvability decision by the Food and Drug Administration no later than October 10, 2003. The costs related to the resubmission of the ESTRASORB NDA were in the range of $1.0 to $1.5 million. The delay in the launch date for ESTRASORB has had, and will continue to have, a negative effect on cash flow due to the related delays in anticipated revenues, certain committed pre-launch costs and capital expenditures that could not be eliminated or deferred, and fixed operating expenses at our manufacturing facility. We have been able to reduce or defer some, but not all, of the selling and marketing expenses associated with ESTRASORB product introduction. We substantially completed the build-out of our manufacturing facility in December of 2002, and we deferred the final delivery and acceptance for some of our manufacturing equipment into 2003.

     Following the withdrawal of the ESTRASORB NDA in April 2002, we prepared revised financial projections for 2002 and 2003 that assumed we would obtain additional financing sufficient to fund our planned operations until the anticipated approval of ESTRASORB. In June 2002, we issued a $10.0 million convertible note to King Pharmaceuticals, Inc., and in February 2003 we completed the private placement of 4,750,000 shares of our common stock for net proceeds of $16.6 million. In December 2002 and January 2003, we also received a total of $1.5 million of equipment financing from the Philadelphia Industrial Development Corporation. In May 2003, we received $1.5 million from the exercise of stock options. In addition to these financings, we may require additional funds in excess of our present working capital to complete the development of our product candidates and commercialization activities, including the final commercial scale-up of our manufacturing facility. We will continue to pursue raising capital through public or private equity or debt financing, collaborative arrangements with pharmaceutical companies and other sources, and government agency contracts to defray the costs of clinical trials, product development, product line expansion and other related activities. There can be no assurance that adequate additional financing will be available to us on acceptable terms, if at all. If we are unable to raise additional capital, we may be required to delay significantly, reduce the scope of, or eliminate one or more of our research or development programs, downsize our selling, marketing, general and administrative infrastructure or programs, or seek alternative measures including arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or products. Based on our assessment of our current business plans, in the absence of new financing, we believe we have adequate resources to meet our obligations for the next 5 to 7 months.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Please refer to the discussion contained under the caption “Risks and Uncertainties” in Item I and in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2002, which is incorporated herein by reference.

Item 4. Controls and Procedures

     The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on that review and evaluation, which included inquires made to certain other employees of the Company, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are reasonably adequate to ensure that the chief executive officer and chief financial officer are provided with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act. During the quarter, there was no significant change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1 — Legal Proceedings

     The Company is not a party to any material pending legal proceedings.

Item 2 — Changes in Securities

     None.

Item 3 — Defaults upon Senior Securities

     None.

Item 4 — Submission of Matters to a Vote of Security Holders

     At the Company’s Annual Meeting of Stockholders held on May 7, 2003, the following proposals were adopted by the vote specified below:

1. To elect the following nominees as Class II Directors to serve on the Board of Directors for a three year term expiring at the Annual Meeting of Stockholders in 2006.

	FOR		WITHHELD
Gary C. Evans		23,979,372		2,507,243
J. Michael Lazurus, M.D.		24,051,955		2,434,660
John O. Marsh, Jr.		25,447,078		1,039,537

In addition to the three Class II Directors elected at this year’s Annual Meeting of Stockholders, the Board is composed of two Class III Directors and two Class I Directors. The continuing Class III Directors, whose terms will expire at the Company’s 2004 Annual Meeting, are Mitchell J. Kelly and Michael A. McManus, Jr. The continuing Class I Directors, whose terms will expire at the Company’s 2005 Annual Meeting, are Denis M. O’Donnell, MD and Ronald H. Walker.

2.

To approve the amendment of the 1995 Novavax, Inc. Stock Option Plan increasing the number of shares of Common Stock authorized for issuance under the plan by 1,000,000 shares, from 8,000,000 to 9,000,000 shares.

FOR	AGAINST		ABSTAIN		NON-VOTES
23,232,436		3,216,291		37,888		6,086,218

3. To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the current fiscal year ending December 31, 2003.

FOR	AGAINST		ABSTAIN
24,598,764		1,858,279		29,752

Item 5 — Other Information

     None.

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Item 6 — Exhibits and Reports on Form 8-K

(a)		Exhibits:
	10.1	Employment Agreement by and between the Company and Nelson M. Sims.
	31.1	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Nelson M. Sims, President and Chief Executive Officer of the Company.
	32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Dennis W. Genge, Vice President and Chief Financial Officer of the Company.
(b)		Reports on Form 8-K
		On May 13, 2003, the Company filed a current report on form 8-K to report its first quarter earnings for 2003.
		On August 8, 2003, the Company announced the appointment of Nelson M. Sims as President and Chief Executive Officer and a Director of Novavax, Inc.
		On August 12, 2003, the Company filed a current report on form 8-K to report its second quarter earnings for 2003.

18

NOVAVAX, INC. AND SUBSIDIARIES
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NOVAVAX, INC. (Registrant)
Date: August 13, 2003	By: /s/ Dennis W. Genge
	Dennis W. Genge Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

19 EX-10.1 3 w89235exv10w1.htm EXHIBIT 10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is dated as of August 7, 2003, between Novavax, Inc., a Delaware corporation having its principal office at 8320 Guilford Road, Columbia, Maryland 21046 (the “Company”), and Nelson M. Sims, an individual with a mailing address of 24 Dockside Lane, PMB 41 and residing at 34 South Harbor Drive, Key Largo FL 33037 (“Executive”).

     The Company and Executive hereby agree as follows:

     1.     Employment. The Company hereby employs Executive and Executive hereby accepts employment upon the terms and conditions hereinafter set forth. As used throughout this Agreement, “Company” shall mean and include any and all of its present and future subsidiaries and any and all subsidiaries of a subsidiary. Executive warrants and represents that he is free to enter into and perform this Agreement and is not subject to any employment, confidentiality, non-competition or other agreement which prohibits, restricts, or would be breached by either his acceptance or his performance of this Agreement.

     2.     Duties. During the Term (as hereinafter defined), Executive shall devote his full business time to the performance of services as President and Chief Executive Officer of Novavax, Inc., performing such services, assuming such responsibilities and exercising such authority as are set forth in the Bylaws of the Company for such offices and assuming such other duties and responsibilities as prescribed by the Board of Directors. During the Term, Executive’s services shall be completely exclusive to the Company and he shall devote his entire business time, attention and energies to the business of the Company and the duties which the Company shall assign to him from time to time. Executive agrees to perform his services faithfully and to the best of his ability and to carry out the policies and directives of the Company. Notwithstanding the foregoing, it shall not be a violation of this Agreement for the Executive to serve as a director of any company whose products do not compete with those of the Company and to serve as a director, trustee, officer, or consultant to a charitable or non-profit entity; provided that such service does not adversely affect Executive’s ability to perform his obligations hereunder. The Company acknowledges that Executive is at the time of execution of this Agreement, a director of three organizations disclosed to the Company and that he is permitted hereunder to continue such service. The parties agree to cooperate in good faith regarding the scheduling of Company business in order to facilitate Executive’s fulfillment of his non-Company commitments, provided that such scheduling does not materially affect the Company. Executive agrees to take no action which is in bad faith and prejudicial to the interests of the Company during his employment hereunder. Notwithstanding the location where Executive shall be based, as set forth in this Agreement, he also may be required from time to time to perform duties hereunder for reasonably short periods of time outside of said area. Immediately upon the execution of this Agreement, the Company shall request and attempt to persuade the Board of Directors to appoint Executive to the Company’s Board of Directors, to serve until the next annual meeting of shareholders. During the Term, the Company shall include Executive in the management slate of Board nominees presented in the proxy statement in connection with each annual meeting of the Company’s shareholders.

     3.     Term. The term of this Agreement shall be a period beginning on August 11, 2003 and continuing until terminated pursuant to Section 7 hereof (the “Term”). The parties acknowledge that the employment hereunder is employment at will.

     4.     Compensation.

          (a)  Base Compensation. For all Executive’s services and covenants under this Agreement, the Company shall pay Executive an initial annual salary of $400,000, subject to merit-based increase as of January 1, 2005, and the beginning of each fiscal year thereafter based on annual review by the Board of Directors of the Company and payable in accordance with the Company’s payroll policy as constituted from time to time. The Company may withhold from any amounts payable under this Agreement all required federal, state, city or other taxes and all other deductions as may be required pursuant to any law or government regulation or ruling.

          (b)  Bonus Program. The Company agrees to pay the Executive a performance and incentive bonus in respect of Executive’s employment with the Company through December 31, 2004, payable on or before March 31, 2005, in an amount determined by the Board of Directors (or any committee of the Board of Directors authorized to make that determination) to be appropriate based upon Executive’s achievement of certain specified goals, which bonus shall be at least $139,000 and not greater than $347,000. Thereafter, during the Term, in addition to the base compensation payable to Executive, the Executive shall be eligible to receive an annual performance bonus in such amount as the Board of Directors (or any committee of the Board of Directors constituted by the Board of Directors to handle compensation issues) shall, in its reasonable discretion, deem appropriate. Such determination will be based, in part, upon the achievement of certain specified goals, which shall be determined in consultation with the Executive. The annual target performance bonus shall be $250,000 beginning January 1, 2005. Payment of the performance bonus will be made in cash; provided, however, that the parties may agree to payment of some or all of the bonus in restricted stock of the Company.

          (c)  Equity Based Compensation. In connection with his employment, the Board has voted to grant Executive stock options, with a term of 10 years, to purchase 900,000 shares of the Company’s Common Stock, $.01 par value, at an exercise price equal to the closing price of the Company’s Common Stock on the date of grant. These options and any further options granted to Executive shall be subject to the Company’s Incentive Stock Option Agreement (and, to the extent required by the Internal Revenue Code, Non-Statutory Stock Option Agreement) which includes (i) an option vesting schedule as follows: one-third of the shares shall vest on the first anniversary of the grant date, one third of the shares shall vest on the second anniversary of the grant date and one-third of the shares shall vest on the third anniversary of the grant date and (ii) a provision permitting the exercise of options for a period of one year following termination of Executive’s employment and (iii) a minimum term equal to the maximum term permitted under the Company’s then current stock option plan. Executive will also be eligible to receive additional stock options annually, based on job performance, in an amount to be determined by the Board of Directors. The Company shall, during the Term, grant to Executive, on an annual basis, options to purchase such number of shares of Common Stock of the Company as equals not less than 3% of the total number of shares of Common Stock of the Company issued during the most recent fiscal year (but not prior to the commencement of the Term) in (x) private or

2

public offerings of Common Stock or (y) pursuant to conversions of convertible securities (other than employee, consultant or director stock options) to Common Stock but only if such convertible securities were issued after the commencement of the Term. In the event of Executive’s retirement at or after age 60, Executive’s options will (A) remain exercisable for a period of the shorter of five years or the remaining term of the option and (B) vest in full.

     5.     Reimbursable Expenses.

          (a)  Executive shall be entitled to reimbursement for reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with such procedures and policies for executive officers as the Company has heretofore or may hereafter establish. The Company acknowledges that it is necessary in order for the Executive to fulfill his obligations to the Company to be permitted to travel first or business class for long distance travel (defined as flight time of two hours or more) and that reimbursement for such travel expenses is within the Company’s policies. From and after the time Executive relocates his residence pursuant to Section 5(b) below, he will be reimbursed for travel to and from his Florida home office, not to exceed 15 round trips per calendar year.

          (b)  Executive shall relocate his residence to within 30 miles of the Company’s corporate headquarters specified by the Company within four months after the Company has so specified. The Company will reimburse Executive or pay for the expenses of such relocation, for actual, documented moving expenses, not to exceed $20,000. The Company acknowledges that there will be an indeterminate period from the commencement of the Term to the date of such relocation during which the Company agrees to pay Executive’s reasonable, actual living expenses applicable to his performance of services for the Company at a location mutually agreed between the Company and the Executive. Notwithstanding the Executive’s agreement to relocate to a location of the Company’s choosing, the Company acknowledges that Executive may provide the services specified in this Agreement to the Company from his home office in Florida for up to 20 days per year during the Term, provided that such activity does not adversely affect his ability to perform his obligations to the Company.

     6.     Benefits.

          (a)  Executive shall be entitled to six weeks of paid vacation time per year starting from date of hire, calculated and administered in accordance with Company policies for executive officers in effect from time to time; provided that Executive shall not be paid in lieu of vacation time during the period of this employment with the Company. Executive’s paid vacation for 2003 shall include August 21-29, November 19-21 and December 1-5, plus other time as may be necessary at Executive’s discretion, not to exceed five business days.

          (b)  The Company shall, as promptly as practicable after the date of this Agreement, purchase a so called “own profession” long term disability insurance policy, from a company reasonably acceptable to the Company and Executive, for the benefit of Executive providing for at least a two year benefit of at least two thirds of Executive’s base salary (up to a cap if required by the insurer of not less than $250,000), and shall maintain such policy (or a replacement policy complying with these terms) at all times during the Term.

3

          (c)  The Company shall contribute up to $33,334 per year for each of the first three years of the Term to be used only for the purchase of a whole life insurance policy on Executive’s life, payable to a beneficiary of Executive’s choosing, with a maximum policy benefit of $1,000,000. Executive shall arrange for such policy, that he will own, upon the effectiveness of this Agreement. The Company shall reimburse Executive for one third of the total premium for such policy, to a maximum of $33,334, within one week of receipt by the Company of a copy of a quotation or binder for such insurance and shall reimburse Executive an additional one third of the total premium for such policy, to a maximum of $33,334, on each of the first two anniversary dates of this Agreement. In the event of the termination of Executive’s employment with the Company, prior to the date the reimbursement set forth in this Section 6(c) is made, other than a termination by the Company for Cause or a termination by the Executive without Good Reason, the Company will, upon the effectiveness of such termination, pay to Executive the amount equal to $100,000 less that amount paid to such date pursuant to this Section 6(c).

     7.     Termination of Employment. (a) Notwithstanding any other provision of this Agreement, Executive’s employment may be terminated, without such action constituting a breach of this Agreement:

               (i)  By the Company, for “Cause,” as defined in Section 7(b) below;

               (ii)  By the Company, upon 30 days’ notice to Executive, if he should be prevented by illness, accident or other disability (mental or physical) from discharging his duties hereunder for one or more periods totaling three consecutive months during any twelve-month period;

               (iii)  By the Company in the event of a Change of Control, as defined in Section 8(d) below, upon notice by the Company to the Executive given during the 60 day period referenced in Section 8(c)(iii) below;

               (iv)  By the Executive with “Good Reason”, as defined in Section 7(c) below, within 30 days of the occurrence or commencement of such Good Reason;

               (v)  By the Executive in the event of a Change of Control, as defined in Section 8(d) below, upon notice by the Executive to the Company given during the period between Executive’s receipt of notice or actual knowledge of such Change of Control and the effectiveness of such Change of Control; provided that such termination shall be effective simultaneously with the effectiveness of such Change of Control and the notice of termination shall be deemed withdrawn in the event such Change of Control is not consummated;

               (vi)  By the event of Executive’s death during the Term; and

               (vii)  By the Company or by the Executive in the event that the US Food and Drug Administration (“FDA”) rejects the Company’s application for marketing approval of its Estrasorb® product during the period from the commencement of the Term to the one year

4

anniversary of such commencement, upon notice of such terminating party to the other given within 30 days of the Company’s receipt of formal notification of such rejection from the FDA.

          (b)  “Cause” shall mean (i) Executive’s willful failure or refusal to perform in all material respects the services required of him hereby, (ii) Executive’s willful failure or refusal to carry out any proper and material direction by the Board of Directors with respect to the services to be rendered by him hereunder or the manner of rendering such services, (iii) Executive’s willful misconduct in the performance of his duties hereunder, (iv) Executive’s commission of an act of fraud, embezzlement or theft or a felony involving moral turpitude, (v) Executive’s use or disclosure of Confidential Information (as defined in Section 10 of this Agreement), other than for the benefit of the Company in the course of rendering services to the Company or (vi) Executive’s engagement in any activity prohibited by Section 11 of this Agreement. For purposes of this Section 7, the Company shall be required to provide Executive a specific written warning with regard to any occurrence of subsections (b)(i), (ii) and (iii) above, which warning shall include a statement of corrective actions and a 30 day period for the Executive to respond to and implement such actions, prior to any termination of employment by the Company pursuant to Section 7(a)(i) above.

          (c)  “Good Reason” shall mean the Company’s material reduction or diminution of Executive’s responsibilities and authority, other than for Cause, without his consent.

     8.     Separation Pay. (a) Subject to Executive’s execution and delivery to the Company of the Company’s standard form of Separation and Release Agreement, the Company shall pay Executive an amount equal to the Separation Pay, Change of Control Separation Pay or Regulatory Event Separation Pay, as applicable and as defined in Section 8(b) below, upon the occurrence of the applicable Separation Event, as defined in Section 8(c) below. Separation Pay, Change of Control Separation Pay and Regulatory Event Separation Pay shall each be payable in accordance with the Company’s payroll policy as constituted from time to time, and shall be subject to withholding of all applicable federal, state and local taxes and any other deductions required by applicable law. In the event of Executive’s death, the Company’s obligation to pay further compensation hereunder shall cease forthwith, except that Executive’s legal representative shall be entitled to receive his fixed compensation for the period up to the last day of the month in which such death shall have occurred.

          (b)(i) “Separation Pay” shall mean a lump sum amount equal to six months of Executive’s then effective salary plus the payment to Executive of an amount equal to his salary in effect at the time of termination of employment, for a period of 12 months thereafter, payable in accordance with the Company’s payroll policy as constituted from time to time.

               (ii)  “Change of Control Separation Pay” shall mean a lump sum amount equal to 24 months of the then effective salary plus two times the then applicable target bonus, which applicable target bonus shall not be less than $250,000.

               (iii)  “Regulatory Event Separation Pay” shall mean:

5

                    (A)  a lump sum amount equal to three months of the then effective salary, plus

                    (B)  the vesting of options to purchase 150,000 shares of the Company’s Common Stock granted pursuant to Section 4(c) of this Agreement and the extension of Executive’s ability to exercise such options, to expire on the third anniversary of the effectiveness of Executive’s termination of employment pursuant to Section 7(a)(vii) of this Agreement. Executive acknowledges that any options exercised after the date which is 90 days after Executive’s termination of employment with the Company will not be Incentive Stock Options under the Internal Revenue Code.

          (c)  “Separation Event” shall mean:

               (i)  the Company’s termination of Executive’s employment by the Company without Cause, during the Term (a “Separation Event”).

               (ii)  the termination of Executive’s employment by the Executive for Good Reason (a “Separation Event”);

               (iii)  the termination of Executive’s employment by the Company within 60 days of a Change of Control, as defined in Section 8(d), in the absence of an occurrence of an event constituting Cause (a “Change of Control Separation Event”); and

               (iv)  the termination of Executive’s employment by the Executive strictly in accordance with the requirements of Section 7(a)(v) above, in the absence of an occurrence of an event constituting Cause (a “Change of Control Separation Event”).

               (v)  the termination of Executive’s employment by the Company or by the Executive in accordance with Section 7(a)(vii) above, in the absence of an occurrence of an event constituting Cause (a “Regulatory Event Separation Event”).

          (d)  “Change of Control” shall mean that

               (i)  the Company, is merged, consolidated or reorganized into or with another corporation or other legal person (an “Acquiring Person”) or securities of the Company are exchanged for securities of an Acquiring Person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then outstanding securities of the Acquiring Person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of voting stock of the Company immediately prior to such transaction;

               (ii)  the Company, in any transaction or series of related transactions, sells or otherwise transfers all or substantially all of its assets to an Acquiring Person; or

6

               (iii)  the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing that a change in control of the Company has occurred.

     Notwithstanding the provisions of Section 8(d), unless otherwise determined in a specific case by majority vote of the Board, a Change in Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50 percent or more of the voting securities, or (iii) any Company-sponsored employee stock ownership plan, or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Company, or because the Company reports that a Change in Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership.

     9.     All Business to be Property of the Company; Assignment of Intellectual Property.

          (a)  Executive agrees that any and all presently existing business of the Company and all business developed by him or any other employee 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 Executive for the Company is and shall be the exclusive property of the Company, and (where applicable) shall be payable directly to the Company.

          (b)  Executive hereby acknowledges that any plan, method, data, know-how, research, information, procedure, development, invention, improvement, modification, discovery, design, process, work of authorship, documentation, formula, technique, trade secret or intellectual property right whatsoever or any interest therein whether patentable or nonpatentable, patents and applications therefor, trademarks and applications therefor or copyrights and applications therefor (herein sometimes collectively referred to as “Intellectual Property”) made, conceived, created, invested, developed, reduced to practice and/or acquired by Executive solely or jointly with others during the Term is the sole and exclusive property of the Company, as work for hire, and that he has no personal right in any such Intellectual Property. Executive hereby grants to the Company (without any separate remuneration or compensation other than that received by him from time to time in the course of his employment) his entire right, title and interest throughout the world in and to, all Intellectual Property, which is made, conceived, created, invested, developed, reduced to practice and/or acquired by him solely or jointly with others during the Term.

     10.     Confidentiality. Executive acknowledges his obligation of confidentiality with respect to all proprietary, confidential and non-public information of the Company, including all Intellectual Property. Executive shall not, either during the Term or thereafter, use for any purpose other than the furtherance of the Company’s business, or disclose to any person other than a person with a need to know such confidential, proprietary or non-public information for the furtherance of the Company’s business who is obligated to maintain the confidentiality of

7

such information, any information concerning any Intellectual Property, or other confidential, proprietary or non-public information of the Company, whether Executive has such information in his memory or such information is embodied in writing or other tangible form. All originals and copies of any of the foregoing, however and whenever produced, shall be the sole property of the Company. Upon the termination of Executive’s employment in any manner or for any reason, Executive shall promptly surrender to the Company all copies of any of the foregoing, together with any documents, materials, data, information and equipment belonging to or relating to the Company’s business and in his possession, custody or control, and Executive shall not thereafter retain or deliver to any other person any of the foregoing or any summary or memorandum thereof.

     11.     Non-Competition Covenant. As the Executive has been granted options to purchase stock in the Company and as such has a financial interest in the success of the Company’s business and as Executive recognizes that the Company would be substantially injured by Executive competing with the Company, Executive agrees and warrants that within the United States, he will not, unless acting with the Company’s express prior 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 any business or entity which competes with the business of the Company (or its successors or assigns) as such business is now constituted or as it may be constituted at any time during the Term of this Agreement; provided, however, that Executive may own, and exercise rights with respect to, less than one percent of the equity of a publicly traded company. The “Non-Competition Period” shall be a period of one year following termination of employment.

     Executive 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 the business in which the Company is engaged and proposes to engage, the state of its business development and Executive’s knowledge of this business; however, if such period or such area should be adjudged unreasonable in any judicial proceeding, then the period of time shall be reduced by such number of months or such area shall be reduced by elimination of such portion of such area, or both, as are deemed unreasonable, so that this covenant may be enforced in such area and during such period of time as is adjudged to be reasonable.

     12.     Non-Solicitation Agreement. Executive agrees and covenants that he will not, unless acting with the Company’s express written consent, directly or indirectly, during the Term of this Agreement or during the Non-Competition Period (as defined in Section 11 above) solicit, entice or attempt to entice away or interfere in any manner with the Company’s relationships or proposed relationships with any customer, officer, employee, consultant, proposed customer, vendor, supplier, proposed vendor or supplier or person or entity or person providing or proposed to provide research and/or development services to, on behalf of or with the Company.

     13.     Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given on actual receipt after having been delivered by hand, mailed by first class mail, postage prepaid, or sent by Federal Express or similar overnight delivery services, as follows: (a) if to Executive, at the address shown at the head of this Agreement, or

8

to such other person(s) or address(es) as Executive shall have furnished to the Company in writing, with a copy to Robert B. Macaulay, Esq., Mitrani, Rynor, Adamsky & Macaulay, P.A., One Southeast Third Avenue, Suite 2200, Miami, Florida 33131; and (b) if to the Company, at the address shown at the head of this Agreement, Attention: Chairman of the Board, with a copy to David A. White, Esq., White White & Van Etten, LLP, 55 Cambridge Parkway, Cambridge, Massachusetts 02142, or to such other person(s) or address(es) as the Company shall have furnished to Executive in writing.

     14.     Assignability. In the event of a Change of Control, the terms of this Agreement shall inure to the benefit of, and be assumed by, the Acquiring Person. This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 8 shall inure to the benefit of, his heirs, executors, administrators and legal representatives.

     15.     Entire Agreement. This Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof and there have been no oral or other prior agreements of any kind whatsoever as a condition precedent or inducement to the signing of this Agreement or otherwise concerning this Agreement or the subject matter hereof.

     16.     Equitable Relief. Executive recognizes and agrees that the Company’s remedy at law for any breach of the provisions of Sections 9, 10, 11 or 12 hereof would be inadequate, and he agrees that for breach of such provisions, the Company shall, in addition to such other remedies as may 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 for specific performance. Should Executive engage in any activities prohibited by this Agreement, he agrees to pay over to the Company all compensation, remuneration or monies or property of any sort received in connection with such activities; such payment shall not impair any rights or remedies of the Company or obligations or liabilities of Executive which such parties may have under this Agreement or applicable law.

     17.     Amendments. This Agreement may not be amended, nor shall any change, waiver, modification, consent or discharge be effected except by written instrument executed by the Company and Executive.

     18.     Severability. If any part of any term or provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable to any extent by a court of competent jurisdiction, such circumstances shall in no way affect any other term or provision of this Agreement, the application of such term or provision in any other circumstances, or the validity or enforceability of this Agreement.

     19.     Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation hereof.

     20.     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.

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     21.     Resolution of Disputes. With the exception of proceedings for equitable relief brought pursuant to Section 16 of this Agreement, any disputes arising under or in connection with this Agreement including, without limitation, any assertion by any party hereto that the other party has breached any provision of this Agreement, shall be resolved by arbitration, to be conducted in Baltimore, Maryland, in accordance with the rules and procedures of the American Arbitration Association. The parties shall bear equally the cost of such arbitration, excluding attorneys’ fees and disbursements which shall be borne solely by the party incurring the same; provided, however, that if the arbitrator rules in favor of Executive, Company shall be solely responsible for the payment of all costs, fees and expenses (including without limitation Executive’s reasonable attorneys’ fees and disbursements) of such arbitration. The provisions of this Section 21 shall survive the termination for any reason of the Term (whether such termination is by the Company, by Executive or upon the expiration of the Term).

     22.     Indemnification; Insurance. The Executive shall be entitled to liability and expense indemnification and reimbursement to the fullest extent permitted by the Company’s current By-laws and Certificate of Incorporation, whether or not the same are subsequently amended. During the Term, the Company will use commercially reasonable efforts to maintain in effect directors’ and officers’ liability insurance no less favorable to Executive than that in effect as of the date of this Agreement.

     23.     Survival. Sections 8, 9, 10, 11 and 12 shall survive the expiration or earlier termination of this Agreement, for the period and to the extent specified therein.

     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:	/s/ Mitchell J. Kelly
	Name: Title:	Mitchell J. Kelly President and Chief Executive Officer
		/s/ Nelson M. Sims
	Nelson M. Sims

10 EX-31.1 4 w89235exv31w1.htm EXHIBIT 31.1

Exhibit 31.1

CERTIFICATIONS

I, Nelson M. Sims, certify that:

1.	I have reviewed this June 30, 2003 quarterly report on Form 10-Q of Novavax, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2003	By: /s/ Nelson M. Sims
	President and Chief Executive Officer

20 EX-31.2 5 w89235exv31w2.htm EXHIBIT 31.2

Exhibit 31.2

CERTIFICATIONS

I, Dennis Genge, certify that:

1.	I have reviewed this June 30, 2003 quarterly report on Form 10-Q of Novavax, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2003	By: /s/ Dennis W. Genge
	Vice President and Chief Financial Officer

21 EX-32.1 6 w89235exv32w1.htm EXHIBIT 32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Novavax, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Nelson M. Sims, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ Nelson M. Sims

Name: Nelson M. Sims
Title: President and CEO

August 13, 2003

22 EX-32.2 7 w89235exv32w2.htm EXHIBIT 32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Novavax, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Dennis W. Genge, Vice-President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ Dennis W. Genge

Name: Dennis W. Genge
Title: Vice President and
Chief Financial Officer

August 13, 2003

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