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SECURITIES AND EXCHANGE COMMISSION
XXXXXXXXXX, XX 00000
----------------
FORM 10/A
AMENDMENT NO. 2
TO REGISTRATION STATEMENT ON FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
NOVAVAX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 00-0000000
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
00000 XXXXXXXXX XXXXXXX,
XXXXXXXXX, XXXXXXXX 00000
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(000) 000-0000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
Common Stock, par value $.01 per share American Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
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NOVAVAX, INC.
PART I
INFORMATION INCLUDED IN INFORMATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
FORM 10 CAPTION IN
ITEM ITEM CAPTION INFORMATION STATEMENT
---- ------------ ---------------------
1. Business............................... Summary--The Company; Risk
Factors; Selected Historical
Novavax Financial Data; Pro Forma
Combined Novavax Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business
2. Financial Information.................. Capitalization; Selected
Historical Novavax Financial
Data; Pro Forma Combined Novavax
Financial Data; Pro Forma
Combined Financial Statements of
Novavax; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Appendix A; Appendix
B
3. Properties............................. Business--Properties
4. Security Ownership of Certain
Beneficial Owners and Management...... Security Ownership of Principal
Stockholders and Management
5. Directors and Executive Officers....... The Distribution--Relationship
Between IGI and Novavax After the
Distribution; Management
6. Executive Compensation................. Management--Executive
Compensation
7. Certain Relationships and Related The Distribution--Relationship
Transactions.......................... Between IGI and Novavax After the
Distribution; Certain
Transactions
8. Legal Proceedings...................... Risk Factors; Business--Legal
Proceedings
9. Market Price of and Dividends on the
Registrant's Common Equity and Related Listing and Trading of Novavax
Stockholder Matters................... Common Stock; Description of
Capital Stock
10. Recent Sales of Unregistered
Securities............................ Description of Capital Stock
11. Description of Registrant's Securities
to be Registered...................... Description of Capital Stock
12. Indemnification of Directors and Indemnification of Directors and
Officers.............................. Officers
13. Financial Statements and Supplementary Combined Financial Statements and
Data.................................. Schedules
FORM 10 CAPTION IN
ITEM ITEM CAPTION INFORMATION STATEMENT
---- ------------ ---------------------
14. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
15. Financial Statements and Exhibits....... Appendix A--Novavax Financial
Statements; Appendix B--IGI Pro
Forma Financial Information; Pro
Forma Combined Financial
Statements of Novavax
IGI, INC.
XXXXX XXXX XXX XXXXXXX XXXXXX
XXXXX, XXX XXXXXX 00000
December 1, 1995
Dear Stockholder:
IGI, Inc. ("IGI"), a Delaware corporation and majority stockholder of
Novavax, Inc., a Delaware corporation ("Novavax"), is distributing on a pro
rata basis in the form of a dividend (the "Distribution") to its stockholders
all of the outstanding shares of common stock, $.01 par value, of Novavax (the
"Novavax Common Stock") held by IGI. The remaining 6.8% of the outstanding
shares of Novavax Common Stock are owned by certain current and former
officers, employees and consultants of Novavax and of IGI.
If you are a holder of record of common stock, $.01 par value, of IGI (the
"IGI Common Stock") on November 28, 1995, the record date for the Distribution
(the "Record Date"), you will receive one share of Novavax Common Stock for
each share of IGI Common Stock you own on that date. No consideration will be
required to be paid by you for the shares of Novavax to be received by you in
the Distribution, nor will you be required to surrender or exchange shares of
IGI Common Stock in order to receive Novavax Common Stock. The Internal
Revenue Service has ruled that the receipt of shares of Novavax Common Stock
in the Distribution will not result in the recognition of income, gain or loss
for federal income tax purposes.
It is expected that stock certificates representing Novavax Common Stock
will be mailed to you on December 12, 1995. Novavax has applied to have its
Common Stock listed on the American Stock Exchange under the symbol "NOX."
Novavax has developed proprietary organized lipid structures, lipid vesicle
("Novasome") encapsulation technologies, cellulose structures and micellar
nanoparticles (collectively, the "Novavax Technologies") that it believes have
a wide variety of applications in human vaccines and pharmaceuticals.
Novavax's business plan is to apply its Novavax Technologies principally to
the marketing and licensing of therapeutic products for human infectious
diseases, including new vaccines, new adjuvants for vaccines, anti-bacterial
and anti-viral products and formulations for topical drug delivery.
The Board of Directors of IGI believes that the Distribution is in the best
interests of Novavax, IGI and IGI stockholders because it will (i) provide
both companies with greater access to the capital markets by permitting the
investment community to evaluate each company more effectively; (ii) enable
management of each company to adopt strategies and pursue objectives directly
focused on its business and products; (iii) enhance the ability of each
company to attract and motivate existing and potential key employees by
providing them with equity compensation tied directly to the results of their
efforts; (iv) improve the near-term earnings of IGI by eliminating from its
operations the expenses and losses associated with the development of
Novavax's business; (v) enable the Board of Directors to avoid conflicts in
the use of limited capital resources by the two companies; and (vi) enhance
the ability of the two companies to enter into strategic alliances and joint
ventures.
Immediately after the Distribution, IGI will pay Novavax approximately
$5,000,000 in return for a fully paid-up, exclusive ten-year license entitling
it to use the Novavax Technologies in the fields of (i) animal
pharmaceuticals, biologicals and other animal health products; (ii) foods,
food applications, nutrients and flavorings; (iii) cosmetics, consumer
products and dermatological over-the-counter and prescription products
(excluding certain topically delivered hormones); (iv) fragrances; and (v)
chemicals, including herbicides, insecticides, pesticides, paints and
coatings, photographic chemicals and other specialty chemicals and the
processes for making the same ("IGI Field"). IGI will have the option,
exercisable within the last year of the ten-year term, to extend the exclusive
license for an additional ten-year period for $1,000,000. Novavax will retain
the right to use its Novavax Technologies for all other applications,
including human vaccines and
pharmaceuticals. IGI's majority-owned subsidiary, Blood Cells, Inc., which IGI
intends to sell, has a license to use Novavax Technologies for blood
substitutes containing hemoglobin and other oxygen carrying substances.
The Information Statement enclosed herein provides important information
regarding the Distribution and Novavax's organization, business, properties
and historical and pro forma financial information. Stockholders are
encouraged to read this material carefully.
Holders of IGI Common Stock on the Record Date are not required to take any
action to participate in the Distribution. IGI is not soliciting your proxy
because stockholder approval of the Distribution is not required.
Sincerely,
Xxxxxx X. Xxxxx, M.D.
Chairman and Chief Executive Officer
2
INFORMATION STATEMENT
NOVAVAX, INC.
DISTRIBUTION OF UP TO 9,214,325 SHARES OF COMMON STOCK
(PAR VALUE, $.01 PER SHARE)
This Information Statement is being furnished to stockholders of IGI, Inc.
("IGI"), a Delaware corporation and majority stockholder of Novavax, Inc.
("Novavax"), in connection with the distribution (the "Distribution") by IGI
to its stockholders of all of the outstanding shares of common stock, $.01 par
value (the "Novavax Common Stock"), held by IGI (9,214,325 shares). The
remaining 6.8% of the outstanding shares of Novavax Common Stock are owned by
certain current and former officers, employees and consultants of Novavax and
of IGI.
It is expected that the Distribution will be made on December 12, 1995, to
holders of record of common stock, $.01 par value, of IGI (the "IGI Common
Stock") on November 28, 1995, on the basis of one share of Novavax Common
Stock for each share of IGI Common Stock held. No consideration will be
required to be paid by IGI stockholders for the shares of Novavax Common Stock
to be received by them in the Distribution, nor will they be required to
surrender or exchange shares of IGI Common Stock in order to receive Novavax
Common Stock. The Internal Revenue Service (the "IRS") has ruled that, the
receipt of shares of Novavax Common Stock in the Distribution will not result
in the recognition of income, gain or loss for federal income tax purposes.
Application has been made to list the Novavax Common Stock on the American
Stock Exchange under the symbol "NOX."
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors." Neither IGI nor Novavax
will receive any cash or other proceeds from the distribution of Novavax
Common Stock.
---------------
STOCKHOLDER APPROVAL IS NOT REQUIRED IN CONNECTION WITH THE
DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
---------------
THE DATE OF THIS INFORMATION STATEMENT IS DECEMBER 1, 1995.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES. THIS
INFORMATION STATEMENT PRESENTS INFORMATION CONCERNING NOVAVAX, INC. BELIEVED
BY NOVAVAX, INC. TO BE ACCURATE AS OF THE DATE SET FORTH ON THE COVER HEREOF.
THIS INFORMATION STATEMENT ALSO PRESENTS INFORMATION CONCERNING IGI, INC.
BELIEVED BY IGI, INC. TO BE ACCURATE AS OF THE DATE SET FORTH ON THE COVER
HEREOF. CHANGES MAY OCCUR IN THE PRESENTED INFORMATION AFTER THAT DATE.
NEITHER NOVAVAX, INC. NOR IGI, INC. PLANS TO UPDATE SAID INFORMATION EXCEPT IN
THE COURSE OF FULFILLING THEIR RESPECTIVE NORMAL PUBLIC REPORTING AND
DISCLOSURE OBLIGATIONS.
TABLE OF CONTENTS
ITEM PAGE
---- ----
SUMMARY................................................................... 4
THE COMPANY............................................................... 8
THE DISTRIBUTION.......................................................... 9
Reasons for the Distribution............................................ 9
Restructuring Prior to Distribution..................................... 10
Merger and Restructuring Valuation...................................... 12
Manner of Effecting the Distribution.................................... 15
Certain Federal Income Tax Consequences of the Distribution and the Re-
structuring............................................................ 15
Stock Option Grants and Adjustments to Outstanding IGI Options.......... 16
Relationship Between IGI and Novavax After the Distribution............. 16
Board of Directors and Management of Novavax............................ 18
RISK FACTORS.............................................................. 18
LISTING AND TRADING OF NOVAVAX COMMON STOCK............................... 25
CAPITALIZATION............................................................ 26
SELECTED HISTORICAL NOVAVAX FINANCIAL DATA................................ 27
PRO FORMA COMBINED FINANCIAL STATEMENTS OF NOVAVAX........................ 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 33
BUSINESS.................................................................. 36
Business Strategy....................................................... 36
Novavax Technologies.................................................... 36
Novasome Lipid Vesicles................................................. 37
Micellar Nanoparticles.................................................. 37
Novavax Product Candidates.............................................. 37
License of Technology to IGI............................................ 40
Manufacturing........................................................... 41
Marketing............................................................... 41
Competition............................................................. 41
Research and Development................................................ 42
Patents and Proprietary Information..................................... 43
Government Regulation................................................... 43
Employees............................................................... 45
Properties.............................................................. 45
Legal Proceedings....................................................... 45
MANAGEMENT................................................................ 45
Executive Officers and Directors........................................ 45
Board Committees........................................................ 47
Board Compensation...................................................... 47
2
ITEM PAGE
---- ----
Compensation Committee Interlocks and Insider Participation.............. 47
Executive Compensation................................................... 48
Stock Options............................................................ 50
Federal Income Tax Aspects of Stock Options.............................. 53
CERTAIN TRANSACTIONS....................................................... 55
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT................ 56
DESCRIPTION OF CAPITAL STOCK............................................... 57
Common Stock............................................................. 57
Preferred Stock.......................................................... 57
Delaware Law and Certain Charter and By-Law Provisions................... 58
Dividends................................................................ 59
Transfer Agent and Registrar............................................. 59
INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................. 59
TRADEMARKS................................................................. 60
AVAILABLE INFORMATION...................................................... 60
Appendix A--Novavax Financial Statements
Appendix B--IGI Pro Forma Financial Information
Appendix C--Sample Form of Information Statement to be provided to Internal
Revenue Service
3
SUMMARY
The following is a brief summary of the matters covered in this Information
Statement and is qualified by the more detailed information included elsewhere
herein, which should be read in its entirety. Certain terms used in this
Summary are defined elsewhere in the Information Statement.
THE DISTRIBUTION
Distributing Company........ IGI, Inc., a Delaware corporation ("IGI").
Distributed Company......... Novavax, Inc., a Delaware corporation
("Novavax"). Novavax has developed proprietary
organized lipid structures, lipid vesicle
("Novasome") encapsulation technologies, cellu-
lose structures and micellar nanoparticles (col-
lectively, the "Novavax Technologies") that it
believes have a wide variety of applications in
human vaccines and pharmaceuticals. Novavax's
business plan is to apply its Novavax Technolo-
xxxx principally to the marketing and licensing
of therapeutic products for human infectious dis-
eases, including new vaccines, new adjuvants for
vaccines, anti-bacterial and anti-viral products
and formulations for topical drug delivery.
Record Date................. November 28, 1995.
Distribution Date........... December 12, 1995.
Distribution................ The Distribution Agent will begin distributing
Novavax share certificates on or about the Dis-
tribution Date to holders of IGI Common Stock on
the basis of one share of Novavax Common Stock
for each share of IGI Common Stock held of record
at the close of business on the Record Date. IGI
stockholders will not be required to make any
payment or to take any other action to receive
their Novavax Common Stock. The Novavax Common
Stock will be freely transferable by persons who
are not affiliates of Novavax. See "The Distribu-
tion--Manner of Effecting the Distribution." Af-
ter the Distribution, IGI will not own any
Novavax securities.
Distribution Agent.......... State Street Bank and Trust Company, Xxx Xxxxxxxx
Xxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000
Novavax Stock Options....... As described under "Management--Stock Options,"
Novavax will grant stock options to purchase
Novavax Common Stock to certain of its officers,
employees and directors and to holders of IGI
stock options as of the Record Date.
Trading Market.............. Currently no public trading market for Novavax
Common Stock exists. Application has been made to
have the Novavax Common Stock approved for list-
ing on the American Stock Exchange under the sym-
bol "NOX," upon official notice of issuance. A
"when-issued" trading market in the Novavax Com-
mon Stock may develop prior to the Distribution
Date.
Reasons for the The Board of Directors of IGI has concluded that
Distribution............... the Distribution is in the best interests of
Novavax, IGI and the IGI stockholders because it
will (i) provide both companies with greater ac-
cess to the
4
capital markets by permitting the investment com-
munity to evaluate each company more effectively;
(ii) enable management of each company to adopt
strategies and pursue objectives directly focused
on its business and products; (iii) enhance the
ability of each company to attract and motivate
existing and potential key employees by providing
them with equity compensation tied directly to
the results of their efforts; (iv) improve the
near-term earnings of IGI by eliminating from its
operations the expenses and losses associated
with the development of Novavax's business; (v)
enable the Board of Directors to avoid conflicts
in the use of limited capital resources by the
two companies; and (vi) enhance the ability of
the two companies to enter into strategic alli-
ances and joint ventures. See "The Distribution--
Reasons for the Distribution" and "Management.")
Federal Income Tax IGI has received a favorable private letter rul-
Consequences............... ing from the IRS to the effect that the Distribu-
tion qualifies as a "tax-free" spinoff under Sec-
tion 355 of the Internal Revenue Code of 1986, as
amended (a "Section 355 Spinoff"). As a Section
355 Spinoff, neither IGI nor its stockholders
will recognize gain or loss as a result of the
Distribution of Novavax Common Stock. See "The
Distribution--Certain Federal Income Tax Conse-
quences of the Distribution and the Restructur-
ing."
License Agreement with Immediately after the Distribution, IGI will pay
IGI........................ Novavax approximately $5,000,000 in return for a
fully paid-up, exclusive ten-year license enti-
tling it to use the Novavax Technologies in the
fields of (i) animal pharmaceuticals, biologicals
and other animal health products; (ii) foods,
food applications, nutrients and flavorings;
(iii) cosmetics, consumer products and dermato-
logical over-the-counter and prescription prod-
ucts (excluding certain topically delivered hor-
xxxxx); (iv) fragrances; and (v) chemicals, in-
cluding herbicides, insecticides, pesticides,
paints and coatings, photographic chemicals and
other specialty chemicals; and the processes for
making the same (collectively, the "IGI Field").
IGI will have no further obligations to fund
Novavax after the Distribution. Novavax has pre-
sented the payment under the License Agreement as
a capital contribution in its pro forma financial
statements to reflect the substance of the trans-
action and its intercompany nature as opposed to
its form as a license agreement. The form was
structured as a prepaid license agreement to ad-
dress tax and financing considerations of the
Distribution. Novavax has recorded the license at
its carryover basis because the transaction is a
transfer made among entities under common con-
trol. As all costs of development for this tech-
nology have been expensed with the exception of
the patents which are retained by Novavax, the
historical basis is zero. Accordingly, payments
to Novavax under the License Agreement have been
reflected as a capital contribution. See "Busi-
ness--License of Technology to IGI."
Relationship with IGI after
the Distribution...........
In connection with the Distribution, Novavax and
IGI have entered into certain intercompany agree-
ments, including a Plan and Agreement of Distri-
bution, a License Agreement, a Tax Matters Agree-
ment and a Transition Services Agreement. See
"The Distribution--Relationship Between IGI and
Novavax After the Distribution." In addition, the
two principal executive officers of IGI will
serve as the principal executive officers of
Novavax through June 30, 1996, and members of the
IGI Board of Directors will constitute one half
of the directors of Novavax.
5
RISK FACTORS
The shares of Novavax Common Stock to be issued in the Distribution involve a
high degree of risk. See "Risk Factors."
SUMMARY FINANCIAL INFORMATION OF NOVAVAX, INC.
The following summary historical and pro forma financial data that relates to
each of the years in the four-year period ended December 31, 1994 have been
derived from combined financial statements audited by Coopers & Xxxxxxx L.L.P.,
independent public accountants. The summary historical and pro forma financial
data for the nine-month periods ended September 30, 1994 and 1995 and for the
year 1990 have been derived from unaudited combined financial statements. In
the opinion of Management of Novavax, the unaudited combined financial
statements reflect all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial position of Novavax at
September 30, 1994 and 1995 and the results of operations and cash flows for
the nine-month periods ended September 30, 1994 and 1995. The results of
operations for the nine-month period ended September 30, 1995 are not
necessarily indicative of the results of operations to be expected for the
entire year 1995.
The pro forma financial information gives pro forma effect to (i) the
Distribution, (ii) the Restructuring and Recapitalization of IGI's
biotechnology business prior to the Distribution, (iii) the issuance of
additional shares of Novavax Common Stock to IGI in exchange for the transfer
by IGI to Novavax of all of IGI's rights to payments of indebtedness owed to an
IGI subsidiary by Novavax and (iv) the payment by IGI to Novavax of $5,000,000
in return for a fully paid-up exclusive license to use the Novavax Technologies
in the IGI Field (collectively, the "Pro Forma Events") as if the Pro Forma
Events had occurred on January 1, 1994. The historical and pro forma combined
financial statements of Novavax do not necessarily reflect the results of
operations or financial position that would have been obtained had Novavax been
an independent publicly-held company.
The summary historical and proforma financial information of Novavax, Inc.
should be read in conjunction with the Novavax financial statements contained
in Appendix A and the Novavax pro forma financial statements contained
elsewhere in this Information Statement.
SUMMARY HISTORICAL FINANCIAL INFORMATION OF NOVAVAX, INC.
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1990 1991 1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Research revenues(1)... $ 388,050 $ 453,000 $ 940,900 $ 380,700 $ 475,000 $ -- $ --
Royalty revenues from
parent(2)............. 12,166 29,816 86,555 198,546 209,877 139,000 202,648
Total revenues.......... 400,216 482,816 1,027,455 579,246 684,877 139,000 202,648
Costs and expenses:
Selling and marketing.. -- 150,000 246,679 278,836 323,640 223,732 332,517
General and administra-
tive(3)............... 1,018,384 1,191,125 1,314,741 1,976,356 2,162,431 1,649,165 1,761,482
Research and develop-
ment.................. 1,077,328 1,075,815 1,720,220 2,701,038 2,860,048 1,987,037 2,248,433
Interest expense (loan
from parent)(4)....... 365,297 80,644 193,471 413,049 1,028,794 711,518 1,313,115
Net loss................ (2,060,793) (2,014,768) (2,447,656) (4,790,033) (5,690,036) (4,432,452) (5,452,899)
BALANCE SHEET DATA:
Total current assets.... $ 151,973 $ 260,025 $ 174,932 $ 268,050 $ 501,845 $ 38,828 $ 54,855
Working capital......... 92,202 100,998 9,346 202,914 306,159 (171,417) (68,279)
Total assets............ 854,364 1,256,800 2,475,342 2,819,631 3,132,688 2,642,581 2,783,913
Stockholders' deficit... (924,133) (1,236,530) (609,369) (1,070,994) (2,202,868) (1,627,990) (4,218,071)
--------
(1) Includes payments for product development and licensing agreements.
(2) Includes royalties for product sales in IGI's Animal Health Products and
Cosmetic and Consumer Product segments.
(3) Includes administrative expenses incurred by IGI allocated to Novavax.
(4) Interest expense is solely attributable to intercompany debt incurred by
Novavax to fund its operations.
6
SUMMARY PRO FORMA FINANCIAL INFORMATION OF NOVAVAX, INC.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ ------------------
STATEMENT OF OPERATIONS DATA:
Revenues:
Research revenues....................... $ -- $ 475,000
Costs and expenses:
Selling and marketing................... 332,517 323,640
General and administrative.............. 1,761,482 2,162,431
Research and development................ 2,732,933 3,829,048
Interest expense (loan from parent)..... 975,615 628,794
Net loss.................................. (5,802,547) (6,468,913)
Loss per common share..................... $ (.59) $ (.65)
Number of common shares................... 9,887,936 9,887,936
SEPTEMBER 30, 1995
------------------
BALANCE SHEET DATA:
Total current assets...................... $ 5,054,855
Working capital........................... 4,931,721
Total assets.............................. 7,783,913
Stockholders' equity...................... 7,660,779
7
THE COMPANY
Novavax has developed proprietary organized lipid structures, lipid vesicle
("Novasome") encapsulation technologies, cellulose structures and micellar
nanoparticles (collectively, the "Novavax Technologies") that it believes have
a wide variety of applications in human vaccines and pharmaceuticals.
Novavax's business plan is to apply its Novavax Technologies principally to
the marketing and licensing of therapeutic products for human infectious
diseases, including new vaccines, new adjuvants for vaccines, anti-bacterial
and anti-viral products and formulations for topical drug delivery.
Immediately after the Distribution, IGI will pay Novavax approximately
$5,000,000 in return for a fully paid-up, exclusive ten-year license (the
"License Agreement") entitling it to use the Novavax Technologies in the
fields of (i) animal pharmaceuticals, biologicals and other animal health
products; (ii) foods, food applications, nutrients and flavorings; (iii)
cosmetics, consumer products and dermatological over-the-counter and
prescription products (excluding certain topically delivered hormones); (iv)
fragrances; and (v) chemicals, including herbicides, insecticides, pesticides,
paints and coatings, photographic chemicals and other specialty chemicals; and
the processes for making the same (collectively, the "IGI Field"). IGI will
have the option, exercisable within the last year of the ten-year term, to
extend the License Agreement for an additional ten-year period for $1,000,000.
Novavax will retain the right to use its Novavax Technologies for all other
applications, including human vaccines and pharmaceuticals.
The $5,000,000 license payment was determined unilaterally by IGI based on
the present value of the estimated aggregate royalties IGI would expect to pay
Novavax over a ten-year period if such royalties were paid annually based on
IGI's annual revenues from the sale of its products that use or incorporate
the Novavax Technologies. Prior to the Distribution, IGI paid a royalty rate
of 10% on sales of products incorporating the Novavax Technologies. This rate
was determined based on a review of similar types of licensing agreements and
reflected the absence of any up-front payment by IGI to Novavax. Novavax
recognized revenues under its earlier license agreement of $87,000, $199,000,
$210,000 and $203,000 for the years 1992, 1993 and 1994 and the nine months
ended September 30, 1995, respectively. The lump sum license payment was
determined to be preferable to annual royalty payments, because the license
payment would provide Novavax with immediate funds to finance its operations
after the Distribution. At the time the terms of the License Agreement were
fixed, including the license payment, all of the directors of Novavax were
also directors of IGI.
IGI gave careful consideration to various structures for the Distribution,
including an equity infusion independent of any license agreement, a loan
which would have been repaid from proceeds of a post-spinoff Novavax equity
financing or a combination of these. IGI, at its sole discretion, determined
payment of the funding required by Novavax under a license agreement best
balanced the interests of IGI and Novavax shareholders and addressed certain
key factors and tax considerations, including:
. Specifically allocating rights to the technology in certain fields and
thereby avoiding any future conflicts between IGI and Novavax as to
technology rights owned by Novavax. Documentation of technology rights
would have been required regardless of any equity funding by IGI.
. Providing funding in amounts sufficient to permit Novavax to operate for
a reasonable period until it has the ability to attract investors while
eliminating the future drain on IGI's resources and any future funding
requirements by IGI.
. Maximizing cash flows (by efficient structuring of tax consequences).
Payments under the License Agreement were determined based on Novavax's
funding requirements, which also approximated management's estimate of the
present value of cash flows from estimated royalty payments for the next ten
years based on existing products and sales levels and at an intercompany
royalty rate of 10% versus the 6-8% previously obtained by Novavax from third
parties.
8
The Company has presented the payment under the License Agreement as a
capital contribution in its pro forma financial statements to reflect the
substance of the transaction and its intercompany nature as opposed to its
form as a license agreement. The form was structured as a prepaid License
Agreement to address tax and financing considerations of the Distribution. The
Company has recorded the license at its carryover basis because the
transaction is a transfer made among entities under common control. As all
costs of development for this technology have been expensed with the exception
of the patents which are retained by Novavax, the historical basis is zero.
Accordingly, payments to Novavax under the License Agreement have been
reflected as a capital contribution. See "Business--License of Technology to
IGI."
In connection with the Distribution, Novavax and IGI have also entered into
certain intercompany agreements, including a Plan and Agreement of
Distribution, a License Agreement, a Tax Matters Agreement and a Transition
Services Agreement. These agreements are sometimes referred to collectively as
the "Intercompany Agreements." The Intercompany Agreements are intended to
facilitate the separation of the businesses of IGI and Novavax following the
Distribution. It is possible that Novavax and IGI will enter into additional
agreements in the future; however, any such agreements would be negotiated on
an arms' length basis and be subject to approval by the independent directors
of each of the companies. See "The Distribution--Relationship Between IGI and
Novavax After the Distribution."
Novavax has filed a Registration Statement on Form 10 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") to
register the Novavax Common Stock under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). On the date of the Distribution (the
"Distribution Date"), IGI will deliver all of the outstanding shares of
Novavax Common Stock to State Street Bank and Trust Company, as the
distribution agent (the "Distribution Agent"), for transfer and distribution
to the holders of record of IGI Common Stock on the Record Date. The
Distribution will be made on December 12, 1995.
IGI stockholders having inquiries relating to the Distribution prior to the
Distribution Date should contact Xxxxx X. Xxxxxxx, IGI, Inc., Xxxxx Xxxx &
Xxxxxxx Xxxxxx, Xxxxx, Xxx Xxxxxx 00000, telephone number (000) 000-0000.
Questions relating to the Distribution after the Distribution Date should be
directed to Xxxxx X. X'Xxxxxxx, M.D., Novavax, Inc., 00000 Xxxxxxxxx Xxxxxxx,
Xxxxxxxxx, Xxxxxxxx 00000, telephone number (000) 000-0000.
Novavax was incorporated in Delaware in 1987. Novavax's principal executive
offices are located at 00000 Xxxxxxxxx Xxxxxxx, Xxxxxxxxx, Xxxxxxxx 00000,
telephone number (000) 000-0000. The terms "IGI" and "Novavax" as used in this
Information Statement include all of their respective subsidiaries (after
giving effect to the Distribution) except where the context otherwise
requires.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Board of Directors of IGI has concluded that the Distribution is in the
best interests of Novavax, IGI and the IGI stockholders because it will (i)
provide both companies with greater access to the capital markets by
permitting the investment community to evaluate each company more effectively;
(ii) enable management of each company to adopt strategies and pursue
objectives directly focused on its business and products; (iii) enhance the
ability of each company to attract and motivate existing and potential key
employees by providing them with equity compensation tied directly to the
results of their efforts; (iv) improve the near-term earnings of IGI by
eliminating from its operations the expenses and losses associated with the
development of Novavax's business; (v) enable the Board of Directors to avoid
conflicts in the use of limited capital resources by the two companies; and
(vi) enhance the ability of the two companies to enter into strategic
alliances and joint ventures.
9
The Company believes that the principal disadvantage of the Distribution is
that IGI will no longer fund Novavax's operations and that, absent the funds
provided by IGI, Novavax will be required to obtain outside financing, and no
assurance can be given that it will be able to do so. In addition, after the
spinoff, Novavax will need to arrange collaborations with one or more
strategic partners or raise additional funds to finance the continuing
research and the clinical trials required for the development of its product
candidates and to finance its business operations until it can develop a
stream of revenue as a separate entity. The Company must also develop its own
production, sales and marketing capabilities if it elects to produce and
market any products that it may successfully develop. For additional
information regarding the risks which the Company will confront as a separate
entity, independent of IGI, see "Risk Factors."
The Distribution is designed to separate two distinct companies with
different missions and financial, investment and operating characteristics so
that each can adopt strategies and pursue objectives appropriate to its
specific business. The Distribution is intended to enable management of each
company ultimately to concentrate its attention and resources on its core
business without regard to the objectives and policies of the other company.
The Board of Directors of IGI believes the inclusion in one company of its
animal health and cosmetics and consumer products businesses (the "Core
Businesses"), together with its biotechnology business (the "Biotechnology
Business"), has hindered the ability of IGI and Novavax to obtain financing.
The primary reason for the hindrance, according to the Board, is that the Core
Businesses are evaluated by the financial markets on the basis of their
earnings. Although net sales from the Core Businesses were $24,434,638,
$28,004,569 and $28,947,911 in 1992, 1993 and 1994, respectively,
substantially all of the earnings have been used to fund the research and
development activities relating to the Biotechnology Business. As a result,
the combined earnings of the companies have been significantly depressed,
thereby limiting the combined companies' ability to raise financing from
outside sources interested in investing in the Core Businesses.
In contrast to its Core Businesses, the Biotechnology Business is generally
judged by the financial markets based upon its potential for growth if and
when its products become marketable. However, in the case of IGI and Novavax,
the combined companies cannot be viewed by the financial markets as
biotechnology-based because the majority of their combined activities relate
to the Core Businesses. Thus, the combination of the Core Businesses of IGI
with the Biotechnology Business of Novavax has effectively precluded the
combined companies from being favorably viewed by either the portion of the
securities market investing in the Core Businesses or the portion of the
market investing in biotechnology companies. For this reason, the Board of
Directors of IGI has determined that the separation of IGI and Novavax may
enhance the companies' ability to raise financing and allow the companies to
obtain the financing on better terms than if they continued on a combined
basis.
The Distribution best addresses the following concerns of IGI's Board of
Directors: (i) that IGI stockholders be permitted to participate in the future
business potential of Novavax; (ii) that IGI's earnings reflect principally
the performance of the Core Businesses; (iii) that investments in the
development of the Novavax Technologies be continued at a level determined by
management of Novavax to be appropriate without regard to the requirements of
IGI's animal health and cosmetics and consumer products businesses; and (iv)
that IGI and Novavax exist as independent companies so as to enhance their
abilities to attract investment capital on acceptable terms. However, because
IGI will not provide additional funding or pay royalties to Novavax after the
Distribution, there can be no assurance that Novavax will have adequate
capitalization to continue its research and development activities. See "Risk
Factors." The terms of the Distribution were determined by the Independent
Committee of the Board of Directors of IGI (consisting of non-employee
directors) (the "Independent Committee") and adopted by the Boards of
Directors of IGI and Novavax.
RESTRUCTURING PRIOR TO DISTRIBUTION
Prior to the Distribution, IGI consolidated the Core Businesses within
itself and its subsidiaries and consolidated the Biotechnology Business within
Novavax and its subsidiaries (the "Restructuring"). At the time of the
Restructuring, IGI owned, through its wholly-owned subsidiary, IGEN, Inc.
("IGEN"), the following
10
percentages of the voting power of the subsidiaries conducting the
Biotechnology Business: 84.7% of the voting power of Novavax (formerly known
as Molecular Packaging Systems, Inc.), the sole stockholder of both Micro-Pak,
Inc. ("Micro-Pak") and Micro Vesicular Systems, Inc. ("MVS"), and 90.3% of the
voting power of an entity then known as Novavax, Inc. and subsequently renamed
Lipovax, Inc. ("Lipovax"). The Biotechnology Business resided, and continues
to reside, within Novavax, Micro-Pak, MVS and Lipovax. Prior to the
Restructuring, the minority stockholders of Novavax and of Lipovax held 15.3%
and 9.7% of the voting power of Novavax and Lipovax, respectively. (All
references in this Information Statement to Novavax prior to the Merger shall
mean Molecular Packaging Systems, Inc. and its subsidiaries, Micro-Pak and
MVS.)
On September 20, 1995, Novavax, Lipovax and MPS Acquisition Subsidiary,
Inc., a wholly-owned subsidiary of Novavax created for purposes of the
Restructuring ("Acquisition Corporation"), entered into a merger agreement
(the "Merger Agreement"). The Merger Agreement provides, among other things,
for a reverse triangular merger (the "Merger") in which Acquisition
Corporation merged with and into Lipovax and Lipovax became a wholly-owned
subsidiary of Novavax. The Merger was approved by the stockholders of Lipovax
on October 12, 1995. As consideration for the Merger, Novavax issued an
aggregate of 21,698 shares, of which 90.2% were issued to IGEN and the
remaining 9.8% to the minority stockholders of Lipovax. After the Merger, IGEN
owned 85.5% of the outstanding shares of Novavax, and the remaining 14.5% was
held by the minority stockholders of Novavax (8.7%) and by the former minority
stockholders of Lipovax (5.8%). The valuation of Novavax and Lipovax for
purposes of determining the Merger consideration was determined by the
Independent Committee in consultation with Xxxxxxx & Co., Inc. ("Xxxxxxx").
See "Merger and Restructuring Valuation."
As part of the Restructuring, Novavax issued to IGEN 41,569 shares of
Novavax Common Stock in exchange for the transfer by IGEN to Novavax of all of
IGEN's rights to the payment of an estimated $17,024,000 aggregate
indebtedness to be owed as of the Distribution Date to ImmunoGenetics, Inc., a
wholly-owned subsidiary of IGEN (and the primary operating entity of the Core
Businesses ("ImmunoGenetics")), by MVS ($9,888,000) and Lipovax ($7,136,000)
(collectively, "Novavax Sub Debt"). The Novavax Sub Debt resulted from loans
made by ImmunoGenetics to MVS and Lipovax during the period from 1991 to the
Distribution Date. The number of shares of Novavax Common Stock exchanged for
the Novavax Sub Debt was based on the value of $409.54 per share of Novavax
Common Stock, as determined by the Independent Committee in consultation with
Xxxxxxx. See "Merger and Restructuring Valuation."
In addition to the Restructuring, Novavax undertook a recapitalization of
its capital stock (the "Recapitalization"). Immediately prior to the
Recapitalization, Novavax's issued and outstanding capital stock consisted of
75,240 shares of Class A Common Stock and 3,000 shares of Class B Common
Stock. As a result of the Recapitalization, each share of Class A Common Stock
and each share of Class B Common Stock was converted into 126.37944 shares of
Novavax Common Stock, or a total of 9,887,936 shares of Novavax Common Stock,
of which 9,214,325 shares (93.2%) were owned by IGEN and the remaining 673,611
shares (6.8%) were owned by current and former officers, employees and
consultants of Novavax and of IGI.
After receiving notice of the special meeting of Lipovax stockholders to
approve the Merger, seven of the employees of Lipovax indicated to IGI that
the Merger would dilute their equity position in the surviving entity to a
level that would provide inadequate incentive to continue to be employed by
the surviving entity. In addition, they voted their shares (representing
approximately 4.5% of the outstanding shares) against the Merger and demanded
appraisal rights pursuant to Delaware law. Since these employee-stockholders
constituted most of the full-time employees of Lipovax and include key members
of the scientific team, the Board of Directors determined that their
termination of employment would impair the ability of the surviving entity to
continue its business operations. Accordingly, immediately after the
Distribution, the Board of Directors of Novavax is expected to authorize the
grant of additional options to 16 Lipovax employees, as an incentive for
continuation of their employment. These options will provide for the purchase
of an aggregate of 850,000 shares of Novavax Common Stock, of which 600,000
shares will be purchasable at an exercise price of $.01 per share and 250,000
shares at an exercise price of $3.24 per share. For information relating to
the terms of these options, see "Management--Stock Options--1995 Stock Option
Plan."
11
To complete the separation of the Core Businesses from the Biotechnology
Business, IGEN distributed all of the shares of Novavax Common Stock held by
IGEN to IGI in a transaction intended to qualify as a tax-free distribution
under Section 355 of the Code.
MERGER AND RESTRUCTURING VALUATION
Because (i) IGI held a majority ownership in both Novavax and Lipovax, (ii)
IGI had loaned substantial amounts to Novavax and Lipovax, (iii) senior
executives of IGI served on the Board of Directors of each of IGI, Novavax and
Lipovax and (iv) certain senior executives of IGI also held a minority stock
interest in Novavax, the Board of Directors of IGI appointed the outside
directors of IGI (Xxxxx X. Xxxxxxxxx, Xxxx X. Xxxxx, Xx., Xxxxxxxx X'Xxxxxxx,
Xx. Xxxxxxxxxxx X. Hampers and Xx. Xxxxx X. Xxxxxxx) to serve as an
Independent Committee (the "Independent Committee") to determine the relative
values of Novavax and Lipovax for purposes of the Merger and the resulting
value of Novavax for purposes of issuing additional shares of Novavax Common
Stock to IGI in payment of the Novavax Sub Debt. To assist it in its
valuation, the Independent Committee retained Xxxxxxx. At the time the
valuation was determined, the directors of Novavax and Lipovax were also
directors of IGI, except for Xx. X'Xxxxxxx and Dr. Hampers who served only on
the IGI Board of Directors.
The Independent Committee (except for Xx. Xxxxxxxxx who was absent because
of illness) had three telephone conference meetings with representatives of
Xxxxxxx on August 28, 1995, August 31, 1995 and September 1, 1995 and an in-
person meeting with a representative of Xxxxxxx on September 13, 1995. At
these meetings, Xxxxxxx discussed the work that it had performed, the analysis
employed to value, on a pre-Merger basis, each of Novavax and Lipovax,
preliminary recommendations and the final recommendation presented on
September 13, 1995. The Independent Committee also invited the two senior
executive officers of IGI, Xx. Xxxxx and Xx. Xxxxx, who are also the senior
executive officers of Novavax, to respond to questions and to provide data
that the Independent Committee deemed relevant.
On the basis of its analysis, Xxxxxxx placed an aggregate post-Merger value
of approximately $32,000,000 on Novavax allocated as follows: Lipovax--
$21,000,000 and Novavax pre-Merger--$11,000,000, or a relative value for
purposes of determining the Merger exchange ratio of approximately 66% and
34%, respectively. The Independent Committee, at its meeting on September 13,
1995, accepted Xxxxxxx'x overall valuation of $32,000,000 for the combined
entity, but made adjustments to the relative values of the separate entities
on the basis of its review and analysis of data not included in Xxxxxxx'x
valuation.
The adjustments were made primarily to add to the pre-Merger value of
Novavax (and to correspondingly subtract from the pre-merger value of Lipovax)
certain research and development expenses, patent expenses and fixed costs
incurred by Novavax prior to the Merger for the benefit of Lipovax but never
charged to Lipovax. In addition, the Independent Committee considered the
value of Lipovax's use of the Novasome technology without payment of any
license fee for such use. The Xxxxxxx valuation did not attribute any value to
Lipovax's use of the Novasome technology. IGI's management proposed that the
value to Lipovax of the use of that technology was $3 million. After
considering management's position and reviewing Lipovax's use of the
technology and its future potential value to Lipovax, the Independent
Committee assigned a value of $1.5 million to the use of the technology,
thereby adding $1.5 million to the value of Novavax and decreasing Lipovax's
value by $1.5 million.
In its deliberations, the Independent Committee also considered the $5
million license fee to be paid by IGI for use of the Novasome technology in
the cosmetics and consumer products market. It recognized that IGI is
currently marketing such products and has announced the formation of its own
dermatologics division, and as a result the valuation in this product market
is more readily quantifiable than in the human biological and pharmaceutical
market. While the Independent Committee believes that the human biological and
pharmaceutical market has significantly greater profit potential than the
cosmetics and consumer products market, it recognized that the profit
potential has to be considered in light of the extended periods of time
required for product development and regulatory approval by the Food and Drug
Administration. Moreover, it noted that Lipovax does not have any products on
the market and there is no guarantee that a pharmaceutical product can be
developed, approved for sale and brought to market successfully.
12
After considering the data and determining that Novavax's value should be
increased while Lipovax's value should be decreased to reflect the costs and
expenses incurred by Novavax and not charged to Lipovax during 1993, 1994 and
1995 (through June 30), the Committee made the following adjustments:
NOVAVAX LIPOVAX
----------- -----------
Base Value Prior to Merger.. $11,000,000 $21,000,000
----------- -----------
Charges incurred by Novavax
for benefit of Lipovax:
Research and Development.. 1,600,000 (1,600,000)
General and Administra-
tive..................... 1,692,000 (1,692,000)
Fixed Assets.............. 200,000 (200,000)
Patents................... 200,000 (200,000)
Use of Novasome Technolo-
gy....................... 1,500,000 (1,500,000)
----------- -----------
Total Adjustments....... 5,192,000 (5,192,000)
----------- -----------
Value After Adjustments..... $16,192,000 $15,808,000
=========== ===========
Therefore, after the adjustments, the relative values were approximately 50%
for each entity, and the Independent Committee, recognizing that the
adjustments were based on good faith calculations that were not precisely
confirmable, adopted a pre-Merger valuation of 50% for each entity.
The Independent Committee then subtracted each entity's indebtedness to IGI
to calculate the relative values for purposes of determining the Merger
exchange ratio, as follows:
NOVAVAX LIPOVAX
----------- -----------
Value Prior to Merger........................... $16,000,000 $16,000,000
Less Debt to IGI................................ (9,888,000) (7,136,000)
----------- -----------
$ 6,112,000 $ 8,864,000
=========== ===========
As a result of the foregoing, the Independent Committee determined that the
stockholders of Lipovax would be entitled to approximately 59.16% of the
shares of Novavax Common Stock pursuant to the Merger with the remaining
40.84% to be held by the pre-Merger stockholders of Novavax.
Using the same valuations, on November 20, 1995, IGI transferred to Novavax
all of IGI's rights to repayment of the Novavax Sub Debt of $17,024,000 owed
to it by Novavax's subsidiaries in exchange for 5,253,452 shares of Novavax
Common Stock, based on the value of Novavax of approximately $15,000,000 prior
to repayment of the Novavax Sub Debt, resulting in IGI's current ownership
interest in Novavax of approximately 93.2%.
In arriving at its valuation, without taking into account the adjustment
items considered by the Independent Committee, Xxxxxxx relied principally on
discounted cash flow analyses of the entities involved in the Merger,
including where applicable a discounted cash flow of each of the principal
product lines. In connection with its opinion, Xxxxxxx reviewed, among other
things, the proposed Merger transaction; the Annual Reports to Stockholders
and Annual Reports on Form 10-K of IGI for the two fiscal years ended December
31, 1994; certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of IGI; certain other communications from IGI to its stockholders;
and certain internal financial analyses and forecasts for IGI, Novavax and
Lipovax (on a pre-Merger basis) prepared by their respective managements.
Xxxxxxx representatives also held discussions with members of the senior
management of IGI, Novavax and Lipovax regarding the past and current business
operations, financial condition and future prospects of their product lines.
In addition, Xxxxxxx compared certain financial and stock market information
for IGI with similar information for certain other companies whose securities
are publicly traded and performed such other studies and analyses as they
considered appropriate.
13
Xxxxxxx relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by them
for purposes of their recommendation and has assumed that the financial
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of the entities involved
as to their expected future financial performance. In addition, Xxxxxxx has
not made an independent evaluation or appraisal of the assets and liabilities
of any of the entities or any of their respective subsidiaries and has not
been furnished with any such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
Xxxxxxx in connection with providing its opinion to the Independent Committee
on September 13, 1995.
Xxxxxxx reviewed certain historical and estimated future operating and
financial information including, among other things, revenue, earnings before
interest and taxes and net income, for each of Novavax and Lipovax on a pre-
Merger basis. Xxxxxxx valued separately (i) Lipovax, (ii) Novavax's five
product lines held by its subsidiary, MVS, and (iii) IGI's core animal health
products business.
MVS's five product lines include cosmetics, dermatology, Flavorsome, paints
and chemicals. In arriving at a present value of discounted cash flow from
each of these product lines during the six-year period ending December 31,
2000, Xxxxxxx determined the stage of development of each product, the
applicable discount rate and IGI's ownership of each product line. The
discount rates used for MVS's five product lines ranged from 30% to 47.5%,
depending on the stage of development. Xxxxxxx'x analysis concluded that the
aggregate fair market value of these five product lines was approximately
$11,000,000.
Xxxxxxx then calculated the present value of all human pharmaceutical
applications (Novavax's post-Merger principal business) using a discounted
cash flow analysis based on projected revenue and operating results for the
six-year period ending December 31, 2000 and using a risk-appropriate discount
rate. The discount rate used for the human pharmaceutical applications was
60%. Based on this analysis, Xxxxxxx concluded that the human pharmaceuticals
business (operated by Lipovax) had a fair market value of approximately
$21,000,000.
Xxxxxxx then concluded that IGI's derived share of the present value of
discounted cash flows in the product lines of the entities to be merged within
Novavax was approximately $32,000,000.
Xxxxxxx also reviewed the capitalized value of five publicly traded
companies that market animal products on the basis of the price-to-latest book
value and price-to-average pre-tax income (for the prior three years). Using
these data, Xxxxxxx determined the median capitalizing factors for those
companies and, applying them to IGI (animal products business only), concluded
that the animal product segment of IGI's business had a value of approximately
$87,000,000. As a confirmatory approach, the $87,000,000 market comparable
valuation for the IGI animal health products business, when subtracted from
the current market capitalization of IGI, resulted in a balance of
approximately $32 million attributable to Novavax and Lipovax.
The valuation of businesses and product lines is a complex process and is
not necessarily susceptible to partial analysis or summary description.
Selecting portions of the analysis or of the summary set forth above, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying Xxxxxxx'x opinion. No company or transaction used in
Xxxxxxx'x analysis as a comparison is exactly identical to IGI or its
subsidiaries. The analysis was prepared solely for purposes of Xxxxxxx
providing its opinion as to the relative values of Novavax and Lipovax for
purposes of the Merger and does not purport to be an appraisal or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by such analyses. As described above, Xxxxxxx'x opinion and
presentation to the Independent Committee was one of many factors taken into
consideration by the Board of Directors of IGI in making its determination to
approve the Merger.
Xxxxxxx is an investment banking firm that principally serves middle market
companies with revenues of up to $300,000,000. Its principal services include
financial analysis, business valuations, corporate financial planning, equity
and debt financing advice, merger and acquisition negotiations and other
related financial services.
14
Pursuant to a letter agreement dated July 27, 1995 (the "Engagement
Letter"), IGI engaged Xxxxxxx to provide valuation services in connection with
the Merger. The Engagement Letter provides that, upon consummation of the
Merger, IGI will pay Xxxxxxx a fee of $40,000, plus Xxxxxxx'x out-of-pocket
expenses.
On November 10, 1995, a financial advisor to Xx. Xxxxxx X. Xxxxxxx, a
stockholder and former President of Novavax, wrote to the Directors of IGI, on
behalf of Xx. Xxxxxxx, expressing his disagreement with the Xxxxxxx valuations
and proposing adjustments which would increase the value assigned to Novavax
(after the Merger), reduce the value assigned to IGI and increase that portion
of the value of Novavax which is attributable to Novavax (pre-Merger). He also
proposed, in the alternative, that IGI purchase Xx. Xxxxxxx'x shares at a
price which is approximately 600% of the value determined by the Independent
Committee. The management of IGI believes that Xx. Xxxxxxx'x advisor has
reached erroneous conclusions in his review of the Xxxxxxx Report and intends
to so advise him. No assurance can be given that Xx. Xxxxxxx will not seek to
change the valuations assigned to Novavax or to Lipovax through legal
proceedings.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Plan and Agreement of Distribution, dated as of the Distribution Date
(the "Distribution Agreement"), and the other Intercompany Agreements between
IGI and Novavax. Under the terms and conditions of the Distribution Agreement,
IGI will effect the Distribution by providing for the delivery of the Novavax
Common Stock to the Distribution Agent for distribution to the IGI
stockholders. The Distribution will be made on the basis of one share of
Novavax Common Stock for each share of IGI Common Stock held on the Record
Date. The Novavax Common Stock distributed in the Distribution will be freely
transferable by persons who are not affiliates of Novavax.
Certificates representing shares of Novavax Common Stock will be mailed or
delivered by the Distribution Agent beginning on the Distribution Date. The
shares of Novavax Common Stock will be fully paid and nonassessable and the
holders thereof will not be entitled to preemptive rights. See "Description of
Capital Stock."
Holders of IGI Common Stock will not be required to pay cash or any other
consideration for the Novavax Common Stock received in the Distribution or to
surrender or exchange certificates representing shares of IGI Common Stock in
order to receive the Novavax Common Stock. Holders of IGI Common Stock will
continue to own their shares of IGI Common Stock and, if such stockholders
were stockholders of record on the Record Date, they will also receive shares
of Novavax Common Stock. The Distribution will not otherwise change the number
of, or the rights associated with, outstanding shares of IGI Common Stock.
A "when-issued" trading market in the Novavax Common Stock is expected to
develop prior to the Distribution Date. A "when-issued" trading market occurs
when trading in shares begins prior to the time stock certificates are
actually available or issued.
IGI will have no further funding obligations to Novavax after the
Distribution.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION AND THE
RESTRUCTURING
On Xxxxx 00, 0000, XXX received a favorable private letter ruling from the
IRS (the "Tax Ruling") substantially to the effect that, among other things,
the Distribution will qualify as a tax-free spinoff (a "Section 355 Spinoff")
under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code"), and, in general, that for federal income tax purposes:
(1) No gain or loss will be recognized by or be includable in the income
of a holder of IGI Common Stock solely as a result of the receipt of
Novavax Common Stock in the Distribution.
(2) No gain or loss will be recognized by IGI, its subsidiaries or
Novavax upon the Distribution and the Restructuring.
15
(3) The tax basis of IGI Common Stock held by a stockholder immediately
prior to the Distribution will be apportioned (based upon relative market
values on the Distribution Date) between such IGI Common Stock and the
Novavax Common Stock received by such stockholder in the Distribution.
(4) Assuming that the IGI Common Stock is held as a capital asset, the
holding period for the Novavax Common Stock received in the Distribution by
a holder of IGI Common Stock will include the period during which such IGI
Common Stock was held.
The Distribution and the Restructuring, although tax-free as of the
Distribution Date, could be rendered taxable as a result of subsequent actions
or events. For a description of subsequent actions or events that could render
the Distribution taxable, see "The Distribution--Relationship Between IGI and
Novavax After the Distribution--Tax Matters Agreement" and "Risk Factors--Loss
of "Tax-Free" Treatment of Distribution and Restructuring." If the
Distribution was rendered taxable as a result of subsequent actions or events,
then (i) a corporate level taxable gain would be recognized by the
consolidated group of which IGI is the parent, generally equal to the amount
by which the fair market value of the Novavax Common Stock distributed in the
Distribution exceeds IGI's basis therein, (ii) both IGI, as parent of that
group, and Novavax, as a former member of that group, would be severally
liable for the corporate level tax on such gain, and (iii) each holder of IGI
Common Stock who receives shares of Novavax Common Stock in the Distribution
would be treated as having received a taxable dividend (assuming that IGI had
sufficient current or accumulated "earnings and profits").
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR CONSEQUENCES TO THEM OF THE DISTRIBUTION, INCLUDING THE APPLICATION
OF STATE, LOCAL AND FOREIGN TAX LAWS. STOCKHOLDERS ARE ALSO ADVISED TO FILE
WITH THE INTERNAL REVENUE SERVICE THE FORM OF STATEMENT ANNEXED HERETO AS
APPENDIX C WITH THE TAX RETURN COVERING THE PERIOD IN WHICH THE DISTRIBUTION
OCCURS.
STOCK OPTION GRANTS AND ADJUSTMENTS TO OUTSTANDING IGI OPTIONS
See "Management--Stock Options--1995 Stock Option Plan," "--Spinoff Options"
and "--SmithKline Option" for information relating to the grant of stock
options to Novavax employees and directors and for adjustments to outstanding
IGI stock options.
RELATIONSHIP BETWEEN IGI AND NOVAVAX AFTER THE DISTRIBUTION
To facilitate the separation of the Core Businesses from the Biotechnology
Business, IGI and Novavax have entered into the Intercompany Agreements. The
following is a summary of certain provisions of such agreements and is
qualified in its entirety by reference to the full text of such agreements,
all of which have been filed as exhibits to the Registration Statement of
which this Information Statement is a part.
Distribution Agreement. The Distribution Agreement provides for the
principal corporate transactions required to effect the Distribution,
including, among other things, the preparation of the Registration Statement
registering the Novavax Common Stock under the Exchange Act.
The Distribution Agreement also provides that each company will share
equally any liabilities under federal and any state securities laws incurred
as a result of the distribution of this Information Statement.
License Agreement. For a description of the License Agreement between
Novavax and IGI to be entered into in connection with the Distribution, see
"Business--License of Technology to IGI."
Tax Matters Agreement. The Tax Matters Agreement provides, among other
things, that IGI will be responsible for all federal, state, local and foreign
tax liabilities of Novavax for periods ending on or prior to the Distribution
Date and Novavax will be responsible for all tax liabilities of Novavax
subsequent to that date. The Tax Matters Agreement further provides that for
the tax year of IGI that includes the Distribution Date and the tax year of
Novavax that commences immediately following the Distribution Date, IGI will
claim on its federal
16
income tax returns certain specified tax benefits and Novavax will not claim
any of such tax benefits. The agreement also provides that Novavax will be
liable for any and all taxes, including interest and penalties, incurred by
Novavax as a result of Novavax engaging in a Post-Distribution Act that
results in the Distribution failing to qualify as a Section 355 Spinoff.
Novavax also agrees that it will use its best efforts not to engage in a Post-
Distribution Act. Post-Distribution Acts include the following if they occur
within one year following the Distribution: (i) the transfer by Novavax of a
material portion of its assets (other than a transfer of assets in the
ordinary course of business); (ii) the merger of Novavax with or into another
corporation in a transaction that does not qualify as a tax-free
reorganization under Section 368 of the Code; (iii) the discontinuance by
Novavax of a material portion of its historical business activities; (iv) the
conversion (or redemption or exchange) of the Novavax Common Stock distributed
in the Distribution into or for any other stock, security, property or cash;
and (v) the issuance of additional shares of stock by Novavax that causes the
stockholders who received their shares of Novavax Common Stock in the
distribution to no longer have control of Novavax within Section 368(c) of the
Code.
Transition Services Agreement. Through June 30, 1996, IGI will continue to
provide certain administrative services to Novavax, including services
relating to human resources, purchasing and accounting, data processing and
payroll services. Novavax will pay IGI a fee for all services provided by IGI
employees, based on the standard hourly rate of such IGI employee, as well as
all out-of-pocket expenses reasonably incurred by IGI. IGI may increase the
fees it charges Novavax for the scheduled services, but only to the extent
that IGI's cost of providing such services to Novavax increases. Novavax
employees will be eligible to participate in certain of IGI's benefit
programs. Novavax will reimburse IGI for the costs and expenses associated
with the provision of the foregoing services.
Notwithstanding the foregoing, the parties agree that with respect to each
out-of-pocket expense and/or fee increase ("Reimbursable Matter") which
individually is greater than $10,000, IGI will use (and will cause its
subsidiaries to use) reasonable efforts to notify Novavax, prior to incurring
or assessing the Reimbursable Matter, of the scope and effect of such
Reimbursable Matter on the scheduled services; and provided further, that with
respect to each Reimbursable Matter which individually is greater than
$10,000, Novavax shall have 30 days following IGI's written notice to advise
IGI if Novavax does not want the Reimbursable Matter to be incurred or
provided on Novavax's behalf.
In the event of a material breach of the Transition Services Agreement by
either party, the non-breaching party may terminate the Agreement by written
notice delivered to the other party at least 60 days prior to the non-
breaching party's stated effective date of termination if the breach remains
uncured at the end of the 60-day notice period. Novavax alone, without cause
and for no reason or any reason, may terminate the Transition Services
Agreement, in whole or in part, prior to June 30, 1996, by written notice
delivered to IGI at least 30 days prior to the proposed effective date of
termination.
In addition to the services described in the Transition Services Agreement,
Xxxxxx X. Xxxxx will serve as Chairman of the Board and Chief Executive
Officer and Xxxx X. Xxxxx will serve as Chief Operating Officer and Treasurer
of Novavax through no later than June 30, 1996 (the "Transition Termination
Date"). Prior to the Transition Termination Date, Xx. Xxxxx will continue to
devote the majority of his time to IGI and will receive no compensation for
his services as an officer of Novavax. Xx. Xxxxx will devote approximately one
half of his business time through the Transition Termination Date to Novavax
and its business, and IGI and Novavax will each pay Xx. Xxxxx one half of his
annual compensation. The Company does not believe that its reliance on part-
time management by Xx. Xxxxx and Xx. Xxxxx will adversely affect Novavax's
business during the transition period, particularly since Novavax has been
managed by them on a part-time basis prior to the Distribution and the total
number of employees of the Company is expected to remain in the range of 15 to
20 over the near term. However, the Company recognizes that continuation of
part-time management as the Company's business expands and its employment
level increases could adversely affect the Company's business and future
prospects.
17
BOARD OF DIRECTORS AND MANAGEMENT OF NOVAVAX
Xx. Xxxxxx X. Xxxxx, who will serve as Chairman of the Board and Chief
Executive Officer of Novavax, and Xxxx X. Xxxxx, who will serve as Chief
Operating Officer and Treasurer of Novavax, are Chairman of the Board and
Chief Executive Officer and President and Chief Operating Officer,
respectively, of IGI. In addition they, together with Xxxx X. Xxxxx, Xx., a
director of IGI, will constitute three out of the six members of the Board of
Directors of Novavax. Novavax's By-Laws provide, however, that, during any
time in which the directors of Novavax who are affiliated with IGI shall
constitute at least half of the membership of the Novavax Board of Directors,
any matter requiring approval of the Novavax Board of Directors shall be
subject to the approval of not less than two-thirds of the directors. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions." Xx. Xxxxx and Xx. Xxxxx, who hold a significant number of shares
of IGI Common Stock, will also own a significant number of shares of Novavax
Common Stock following the Distribution. See "Security Ownership of Principal
Stockholders and Management." These relationships and the contractual and
other on-going relationships between IGI and Novavax following the
Distribution may give rise to potential conflicts of interest should interests
of Novavax and IGI be different. The respective Boards of Directors of IGI and
Novavax will each establish an independent committee of directors consisting
of non-employee directors, who will be authorized to review potential conflict
situations, including matters relating to contractual relationships between
the two companies.
RISK FACTORS
Prospective investors should be aware that the Distribution involves certain
risks, including those described below, which could adversely affect the value
of their holdings. Neither IGI nor Novavax makes, nor is any other person
authorized to make, any representations as to the future market value of the
Novavax Common Stock.
Early Stage of Development of Human Vaccines and Pharmaceutical
Applications. While Novasomes have been used for poultry vaccines, foods and
cosmetics, Novavax has not yet completed the development of any Novasome-based
human vaccines or pharmaceuticals and, accordingly, has not begun to market or
generate any revenue from the use of its Novavax Technologies for human
vaccines or pharmaceuticals. The development of products, if any, will require
significant additional research, development, preclinical and clinical
testing, regulatory approval and investment prior to commercialization. A
commitment of substantial resources to conduct time-consuming research and
clinical trials will be required if Novavax is to complete the development of
its human vaccines and pharmaceuticals. There can be no assurance that any of
these products will be successfully developed and, whether produced by Novavax
or by its licensees or partners, will meet applicable regulatory standards,
obtain required regulatory approvals, be capable of being produced in
commercial quantities at reasonable costs or be successfully marketed. Success
in the human vaccine and pharmaceuticals markets is dependent on Novavax's
ability to complete satisfactorily the development of vaccines and
pharmaceuticals based on Novavax Technologies that will be safe and
efficacious and will have benefits not available in competitive products; and
no assurance can be given that it will be successful in doing so. None of
Novavax's human vaccines or other products is expected to be commercially
available for several years.
In addition, Novavax's potential products are subject to the risks of
failure inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that Novavax's approach
will not be successful; that any or all of Novavax's potential products will
be found to be unsafe, ineffective or otherwise fail to meet applicable
regulatory standards or receive necessary regulatory clearances; that the
potential products, if safe and effective, will be difficult to develop into
commercially viable products or manufacture on a large scale, be uneconomical
to market, or fail to obtain acceptance by the medical community; that
proprietary rights of third parties will preclude Novavax from marketing such
products; or that third parties will market superior or equivalent products.
Absence of Revenue from Human Pharmaceuticals and Vaccines. Novavax's future
growth will depend on its ability to commercialize its Novavax Technologies
for human pharmaceutical and vaccine applications. To date, Novavax has not
generated any revenue from the sale of human vaccines, pharmaceuticals, or
other
18
similar products, although it has received insignificant development funds
from potential collaborators or partners. For the past several years, the
profits from IGI's animal health products business have been used to finance
the development of the Novavax Technologies. During the years ended December
31, 1992, 1993 and 1994 and the nine months ended September 30, 1995, Novavax
incurred net losses of $2,447,656, $4,790,033, $5,690,036 and $5,452,899,
respectively. Novavax expects research expenses from the application of its
Novavax Technologies to human pharmaceuticals and vaccines will increase in
the near-term as it conducts additional clinical trials and seeks regulatory
approval for its product candidates. Novavax expects to continue to incur
substantial operating losses unless and until such time as product sales and
royalty payments generate sufficient revenue to fund its continuing
operations.
Additional Financing Requirements and Access to Capital. Novavax will
require substantial funds to continue its research and development, future
preclinical and clinical trials, regulatory approvals, establishment of
commercial-scale manufacturing capabilities, and marketing its products.
Novavax's capital requirements depend on numerous factors, including but not
limited to the progress of its research and development programs, the progress
of preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, changes in Novavax's existing research
relationships, the ability of Novavax to establish collaborative arrangements,
the development of commercialization activities and arrangements, and the
purchase of additional facilities and capital equipment. After the
Distribution, Novavax will conduct its operations with approximately
$5,000,000 paid by IGI for the License Agreement, a sum which (after a payment
to IGI of an amount that will not exceed $250,000 to reimburse IGI for its
payment of the operating costs of Novavax from October 1, 1995 to the
Distribution Date) Novavax estimates will only be sufficient to finance its
operations at its current level for approximately 12 to 15 months. The
$5,000,000 license fee was established unilaterally by IGI at a time when IGI
owned over 90% of the voting power of Novavax. Novavax has presented the
payment under the License Agreement as a capital contribution in its pro forma
financial statements to reflect the substance of the transaction and its
intercompany nature as opposed to its form as a license agreement. The form
was structured as a prepaid license agreement to address tax and financing
considerations of the Distribution. Novavax has recorded the license at its
carryover basis because the transaction is a transfer made among entities
under common control. As all costs of development for this technology have
been expensed with the exception of the patents which are retained by Novavax,
the historical basis is zero. Accordingly, payments to Novavax under the
License Agreement have been reflected as a capital contribution. See
"Business--License of Technology to IGI." It is the view of the Board of
Directors and management of Novavax that the terms of the License Agreement
were at least as favorable to Novavax as would have been obtained from any
third party. Novavax will seek to obtain additional funds through public or
private equity or debt financings, collaborative arrangements with
pharmaceutical companies or from other sources. There can be no assurance that
additional funding or bank financing will be available at all or on acceptable
terms to permit successful commercialization of Novavax's technology and
products. In addition, because of the limitations on the number of shares of
Novavax Common Stock that can be sold within the 12-month period following the
Distribution, the amount of the additional funds that Novavax would be allowed
to raise may be limited. If adequate funds are not available, Novavax may be
required to significantly delay, reduce the scope of or eliminate one or more
of its research or development programs, or seek other alternatives to avoid
insolvency, including arrangements with collaborative partners or others that
may require Novavax to relinquish rights to certain of its technologies,
product candidates or products. IGI will have no obligation and does not
intend to provide additional funding to Novavax after the Distribution.
Uncertainty of Patents and Proprietary Rights. Novavax's success will
depend, in large part, on its ability to maintain its existing patents, obtain
new patents, maintain trade secret protection and operate without infringing
on the proprietary rights of third parties or having third parties circumvent
Novavax's rights. Novavax has U.S. and foreign patent rights covering its
Novavax Technologies, including its Novamix (TM) production equipment. The
patent positions of pharmaceutical companies can be highly uncertain and
involve complex legal and factual questions. For example, no consistent policy
has emerged regarding the breadth of biotechnology patent claims that are
granted by the United States Patent and Trademark Office or enforced by the
Federal
19
courts. Thus, there can be no assurance that any of Novavax's existing patent
rights will not be challenged or future patent applications will result in the
issuance of patents, that Novavax will develop additional proprietary products
that are patentable, that any patents issued to Novavax will provide Novavax
with any competitive advantages or will not be challenged by any third
parties, that the patents of others will not impede the ability of Novavax to
do business or that third parties will not be able to circumvent Novavax's
patents. Furthermore, there can be no assurance that others will not
independently develop or duplicate similar technology or products, or, if
patents are issued to Novavax, design around the patents issued to Novavax.
Novavax may be required to obtain licenses from third parties to avoid
infringing patents or other proprietary rights. No assurance can be given that
any licenses required under any such patents or proprietary rights would be
made available, if at all, on terms acceptable to Novavax. If Novavax does not
obtain such licenses, it could encounter delays in product introductions, or
could find that the development, manufacture or sale of products requiring
such licenses could be prohibited. In addition, Novavax could incur
substantial costs in defending itself in suits brought against Novavax on
patents it might infringe or in filing suits against others to have such
patents declared invalid.
Some of Novavax's know-how and technology may not be patentable. To protect
its rights, Novavax requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection
for Novavax's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure. Further, Novavax's business may
be adversely affected by competitors who independently develop competing
technologies, especially if Novavax obtains no, or only narrow, patent
protection. See "Business--Patents and Proprietary Information."
Technological Change and Competition. The pharmaceutical and vaccine
industries are subject to rapid and substantial technological change.
Competitors of Novavax in the United States and abroad are numerous and
include, among others, both large and small pharmaceutical companies,
biotechnology firms, universities and other research institutions. There can
be no assurance that Novavax's competitors will not succeed in developing
technologies and products that are more effective than any which are being
developed by Novavax or which would render Novavax's technologies and products
obsolete or noncompetitive. Most of these competitors have substantially
greater financial and technical resources and production and marketing
capabilities than Novavax. In addition, many of Novavax's competitors have
significantly greater experience than Novavax in conducting preclinical
testing and clinical trials of human pharmaceuticals and vaccines and
obtaining United States Food and Drug Administration ("FDA") and other
regulatory approvals of products for use in health care. Accordingly,
Novavax's competitors may succeed in obtaining FDA approval for products more
rapidly than Novavax. If Novavax commences significant commercial sales of its
human pharmaceuticals, it will also be competing with respect to manufacturing
efficiency and marketing capabilities, areas in which it has limited or no
experience. See "Business--Competition."
Need to Establish Collaborative Commercial Relationships; Dependence on
Partners. Novavax's business strategy for its human pharmaceuticals and
vaccines is to enter into strategic alliances or licensing arrangements with
corporate partners, primarily pharmaceutical companies, relating to the
development and commercialization of certain human pharmaceuticals and
vaccines incorporating Novavax Technologies. There can be no assurance that
Novavax will be able to negotiate acceptable collaborative arrangements, that
such collaborations will be available to Novavax on acceptable terms, that any
such relationships, if established, will be scientifically or commercially
successful or that any collaborative partner will have economic motivation to
continue funding provided for under any such agreements or that such
collaboration will be successful. Novavax expects that under certain of these
arrangements, the collaborative partner will have the responsibility for
conducting human clinical trials and the submission for regulatory approval of
the candidate product with the FDA and certain other regulatory agencies.
Should the collaborative partner fail to develop a marketable product,
Novavax's business may be adversely affected. There can be no assurance that
Novavax's collaborative partners will not be pursuing alternative technologies
either on their own or in collaboration with others, including Novavax's
competitors, as
20
a means for developing treatments for the diseases targeted by these
collaborative programs. Novavax's business also will be affected by the
success of its corporate partners in marketing any successfully developed
products within the geographic areas in which such partners are granted
marketing rights. Novavax intends to retain manufacturing rights for some of
the products that it develops and licenses pursuant to arrangements with
corporate partners. However, there can be no assurance that Novavax will be
able to retain such rights on acceptable terms, if at all, or that Novavax
will have the ability to produce the quantities of product required under the
terms of such arrangements.
Attraction and Retention of Key Employees and Scientific
Collaborators. Novavax is highly dependent on the principal members of its
scientific staff, the loss of whose services could have a material adverse
effect on Novavax. Furthermore, recruiting and retaining qualified scientific
personnel to perform research and development work in the future will also be
critical to Novavax's success. There can be no assurance that Novavax will be
able to attract and retain such personnel on acceptable terms given the
competition among numerous pharmaceutical companies, universities and non-
profit research institutions for experienced scientists. In addition, Xxxxxx
X. Xxxxx will serve as Novavax's Chairman of the Board and Chief Executive
Officer and Xxxx X. Xxxxx will serve as Novavax's Chief Operating Officer and
Treasurer through no later than June 30, 1996. After the Distribution, Novavax
will need to recruit a chief financial officer to manage Novavax's financial
affairs. The Company does not believe that its reliance on part-time
management by Xx. Xxxxx and Xx. Xxxxx will adversely affect Novavax's business
during the transition period, particularly since Novavax has been managed by
them on a part-time basis prior to the Distribution and the total number of
employees of the Company is expected to remain in the range of 15 to 20 over
the near term. However, the Company recognizes that continuation of part-time
management as the Company's business expands and its employment level
increases could adversely affect the Company's business and future prospects.
See "Management." Any expansion by Novavax into areas and activities requiring
additional expertise, such as clinical testing, governmental approvals,
production and marketing, are expected to place increased demands on Novavax's
resources. These demands are expected to require the addition of new
management personnel and the development of additional expertise by existing
management personnel. The failure to retain a new management team or to
develop such expertise could materially adversely affect Novavax's business.
Limited Manufacturing Capability. The development and manufacture of
Novavax's products are subject to current good laboratory practices ("GLP")
and good manufacturing practices ("GMP") requirements prescribed by the FDA or
other standards prescribed by the appropriate regulatory agency in the country
of use. Novavax currently has the ability to produce quantities of its
products sufficient to support its current research and development and early-
stage clinical trial needs. However, Novavax will need to acquire additional
manufacturing facilities and improve its manufacturing technology in order to
meet the volume and cost requirements for later clinical trials and commercial
production of its own vaccines and pharmaceuticals if it elects to do so.
There can be no assurance that Novavax will be able to obtain or manufacture
such products in a timely fashion at acceptable quality and prices, that it or
its suppliers can comply with GLP or GMP, as applicable, or that it or its
suppliers will be able to manufacture an adequate supply of product. See
"Business--Manufacturing."
Absence of Sales and Marketing Experience. Novavax expects to commercialize
its Novavax Technologies and to sell certain of its human pharmaceuticals and
vaccines through co-marketing arrangements with third parties. In addition,
Novavax may build a small targeted direct sales group for human vaccines in
markets that can be accessed with a small to medium size sales force, if and
when such products approach FDA marketing approval. To date, though, Novavax
has had no experience in sales, marketing or distribution of human
pharmaceuticals and vaccines. In order to market human pharmaceuticals and
vaccines directly, Novavax would need to develop a marketing staff and sales
force with technical expertise. There can be no assurance that Novavax will be
able to build such a marketing staff or sales force, that the cost of
establishing such a marketing staff or sales force will not exceed any product
revenue or that Novavax's direct sales and marketing efforts will be
successful. In addition, if Novavax succeeds in bringing one or more products
to market, it may compete with other companies that currently have extensive
and well-funded marketing and sales operations. There can be no
21
assurance that Novavax's marketing and sales efforts would compete
successfully against such other companies. To the extent Novavax enters into
co-marketing arrangements, any revenue received by Novavax will be dependent
on the efforts of third parties and there can be no assurance that such
efforts will be successful. See "Business--Marketing."
Reliance on IGI for Administrative Services. Prior to the Distribution,
Novavax received administrative and other services through its parent, IGI.
The annual expense to Novavax of operating as a public company after the
Distribution may thus be greater than the cost of management services provided
by IGI. This would be due to the loss of the economies of scale associated
with the provision of accounting, cash management, personnel, regulatory
compliance, employee benefits, insurance and other services by IGI, as
compared to the cost to Novavax of replacing all of these necessary functions
on a stand-alone basis. Accordingly, although IGI will provide Novavax with
certain management and administrative services for a limited period of time
after the Distribution, there can be no assurance that Novavax will develop
the necessary management and administrative depth to successfully operate its
business or that any increased costs to Novavax of replacing services and
personnel heretofore provided by IGI will not have an adverse effect on
Novavax's business or results of operations. See "The Distribution--
Relationship Between IGI and Novavax After the Distribution" and "Certain
Transactions."
Government Regulation. The production and marketing of Novavax's products
and ongoing research and development activities are subject to regulation by
numerous governmental authorities in the United States and other countries.
Prior to marketing, any human pharmaceuticals and vaccines developed by
Novavax must undergo rigorous preclinical testing and clinical trials, as well
as an extensive regulatory approval process mandated by the FDA and foreign
regulatory agencies. These processes can take many years and require the
expenditure of substantial resources. Novavax has limited experience in
conducting and managing the preclinical and clinical trials necessary to
obtain government approvals. There can be no assurance that the results of
such clinical trials will be consistent with the results obtained in
preclinical studies or that the results obtained in later phases of clinical
trials will be consistent with those obtained in earlier phases. There also
can be no assurance that any human pharmaceutical vaccine products will be
shown to be safe and efficacious or that regulatory approval for any such
product will be obtained on a timely basis, if at all. Delays in obtaining
regulatory approvals would adversely affect the marketing of products
developed by Novavax and Novavax's ability to receive product revenue or
royalties. Although Novavax intends to make use of fast-track regulatory
approval programs when possible, there can be no assurance that Novavax will
be able to obtain the clearances and approvals necessary for clinical testing
or for manufacturing and marketing its products. Existing or additional
government regulation could prevent or delay regulatory approval of Novavax's
products or affect the pricing or marketing of such products. See "Business--
Government Regulation."
Quarterly Fluctuations. Novavax's quarterly operating results are likely to
vary significantly depending on factors such as the timing of new license
agreements for Novavax Technologies, the results of preclinical or clinical
trials, the timing of collaborative agreements for the development of products
based on the Novavax Technologies, the timing of significant orders and the
introduction of products by Novavax. Novavax's expense levels are based in
part on its expectations as to future revenue. If revenue levels are below
expectations, operating results will be adversely affected.
Product Liability. The testing, manufacturing, marketing and sale of human
medical products entail potential product liability risks, and there can be no
assurance that substantial product liability claims will not be asserted
against Novavax. Novavax currently has limited product liability coverage for
the clinical research use of its product candidates. Novavax does not have
product liability insurance for the commercial sale of its potential product
candidates but intends to obtain such coverage if and when its products are
commercialized. However, there can be no assurance that Novavax will be able
to obtain additional insurance coverage at acceptable costs, if at all, or
that a product liability claim would not materially adversely affect the
business or financial condition of Novavax.
22
Hazardous Materials. Novavax's development and commercial activities may
involve the controlled use of hazardous materials, chemicals, viruses,
bacteria and other pathogenic organisms. Although Novavax believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state, federal and local regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, Novavax could be held liable for
any damages that result and any such liability could exceed the resources of
Novavax.
Uncertainty of Third-Party Reimbursement. In both domestic and foreign
markets, the ability of Novavax to commercialize its product candidates will
depend, in part, on the availability of reimbursement from third-party payors,
such as government health administration authorities, private health insurers
and other organizations. Third-party payors are increasingly challenging the
price and cost-effectiveness of medical products. There can be no assurance
that Novavax-developed products will be considered cost effective. Significant
uncertainty exists as to the reimbursement status of newly-approved healthcare
products. There can be no assurance that adequate third-party insurance
coverage will be available for Novavax to establish and maintain price levels
sufficient for realization of an appropriate return on its investment in
developing new therapies. Government and other third-party payors are
increasingly attempting to contain medical costs by limiting both coverage and
the level of reimbursement for new therapeutic products approved for marketing
by the FDA and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for uses of Novavax's
therapeutic products, the market acceptance of these products would be
adversely affected.
Uncertainty Related to Medical Reform Measures. There have been a number of
federal and state proposals during the last few years to subject the pricing
of pharmaceuticals to government control and to make other changes to the
medical care system of the United States. It is uncertain what legislative
proposals will be adopted or what actions federal, state or private payors for
medical goods and services may take in response to any medical reform
proposals or legislation. Novavax cannot predict the effect these reforms may
have on its business, and no assurance can be given that any such reforms will
not have a material adverse effect on Novavax.
Absence of Public Market; Possible Volatility of Stock Price; Possible
Delisting. Prior to the Distribution, there has been no public market for the
Novavax Common Stock. In addition, there can be no assurance regarding the
prices at which the Novavax Common Stock will trade after the Distribution,
nor is there necessarily any relationship between the price at which the
shares of Novavax Common Stock might trade and the price at which they are
initially offered. The market prices for securities of emerging companies have
historically been highly volatile. Announcements of technological innovations
or new commercial products by Novavax or its competitors, regulatory
developments, disputes concerning patent or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by Novavax or its competitors, public concern as to the safety of
Novavax's products, and economic and other external factors, as well as
period-to-period fluctuations in financial results, may have a significant
impact on the market price of the Novavax Common Stock.
Novavax has filed an application for listing the Novavax Common Stock on the
American Stock Exchange ("AMEX") but has not yet been approved for listing.
Novavax expects that the Novavax Common Stock will meet the current AMEX
listing requirements. A failure to list the Novavax Common Stock or to meet
AMEX's maintenance requirements may result in a delisting of the Novavax
Common Stock. In particular, Novavax may have difficulty maintaining the
minimum market capitalization requirements of AMEX because such capitalization
is dependent on the price at which the shares of Novavax Common Stock trade
from time to time. The liquidity of delisted securities, which would probably
trade in the over-the-counter markets, may be impaired, not only in the number
of shares that could be bought or sold, but also through delays in the timing
of transactions, reductions in security analysts' and the news media's
coverage of Novavax, and lower prices than might otherwise be attained.
23
Absence of Dividends. Novavax has never paid cash dividends on the Novavax
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future.
Potential Conflicts of Interest. Immediately following the Distribution,
Novavax and IGI will be separate publicly-traded companies. However, after the
Distribution, Xx. Xxxxx will serve as a director and Chairman of the Board and
Chief Executive Officer of both IGI and Novavax and Xx. Xxxxx will serve as a
director, President and Chief Operating Officer of IGI and as a director,
Chief Operating Officer and Treasurer of Novavax. Xx. Xxxxx, Xx. Xxxxx and one
other current IGI director will constitute three out of the six members of the
Novavax Board of Directors. The presence of individuals serving in decision-
making roles in both companies may affect the ability of each company to
receive the best arms' length result in transactions between the two companies
as well as the ability of the officers and directors to allocate their time
and act in the best interests of both companies. Prior to the Distribution,
Novavax and IGI will enter into several intercompany agreements, the terms of
which have been unilaterally established by IGI. See "The Distribution--
Relationship Between IGI and Novavax After the Distribution," "Management" and
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions."
Loss of "Tax-Free" Treatment of Distribution and Restructuring. Although
the Distribution and the Restructuring will be considered tax-free as of the
Distribution Date, certain actions ("Post-Distribution Acts") by Novavax
following the Distribution Date could render the Distribution and the
Restructuring taxable. Although Novavax has agreed in the Tax Matters
Agreement to use its best efforts not to engage in any Post-Distribution Acts,
any of the following activities within one year following the Distribution
could render the Distribution and Restructuring taxable: (i) the transfer by
Novavax of a material portion of its assets (other than a transfer of assets
in the ordinary course of business); (ii) the merger of Novavax with or into
another corporation in a transaction that does not qualify as a tax-free
reorganization under Section 368 of the Code; (iii) the discontinuance by
Novavax of a material portion of its historical business activities; (iv) the
conversion (or redemption or exchange) of the Novavax Common Stock distributed
in the Distribution into or for any other stock, security, property or cash;
and (v) the issuance of additional shares of stock by Novavax that causes the
stockholders who receive their shares of Novavax Common Stock in the
Distribution to no longer have control of Novavax within Section 368(c) of the
Code. If the Distribution is rendered taxable as a result of a Post-
Distribution Act, then (x) the corporate level taxable gain would be
recognized by the consolidated group of which IGI is the parent, (y) both IGI,
as parent of that group, and Novavax as a former member of that group, would
be severally liable for the corporate level tax on such gain and (z) each
holder of IGI Common Stock who received shares of Novavax Common Stock in the
Distribution would be treated as having received a taxable dividend.
Antitakeover Provisions. Novavax's Amended and Restated Certificate of
Incorporation, to be effective upon the Distribution Date (the "Certificate of
Incorporation"), will require that any action required or permitted to be
taken by stockholders of Novavax must be effected at a duly called annual or
special meeting of stockholders and may not be effected by any consent in
writing, and will require reasonable advance notice by a stockholder of a
proposal or director nomination which such stockholder desires to present at
any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chief Executive Officer or, if none,
the President of Novavax or by the Board of Directors. The Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of Novavax
entitled to vote. Novavax's By-Laws provide that, during any time in which the
directors of Novavax who are affiliated with IGI shall constitute at least
half of the membership of the Novavax Board of Directors, any matter requiring
approval of the Novavax Board of Directors shall be subject to the approval of
not less than two-thirds of the directors.
The Board of Directors will also have the authority, without further action
by the stockholders, to fix the rights and preferences of, and issue shares
of, Preferred Stock. These provisions, and other provisions of Novavax's
Certificate of Incorporation and By-Laws, may have the effect of deterring
hostile takeovers or
24
delaying or preventing changes in control or management of Novavax, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions may
limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. See "Description of Capital Stock--Preferred
Stock" and "--Delaware Law and Certain Charter and By-Law Provisions."
LISTING AND TRADING OF NOVAVAX COMMON STOCK
IGI presently owns 93.2% of the outstanding shares of Novavax Common Stock,
and no public trading prices are available with respect to such shares. There
can be no assurance as to the price at which the Novavax Common Stock or the
IGI Common Stock may be traded after the Distribution or whether the initial
combined price of Novavax Common Stock and IGI Common Stock will be higher or
lower than the price of the IGI Common Stock prior to the Distribution.
Novavax cannot predict any future prices at which the Novavax Common Stock
will trade. Such prices will be determined by the marketplace and may be
influenced by the depth and liquidity of the public trading market for
Novavax, by investor perception of Novavax and the industry in which it
operates and of equity securities in general, by the results of operations of
Novavax, by economic and market conditions and by many other factors beyond
the control of Novavax.
Application has been made to list the Novavax Common Stock on the American
Stock Exchange under the symbol "NOX." Based on the expected number of holders
of Novavax Common Stock of record as of the Record Date, Novavax is expected
to initially have approximately 1200 stockholders of record on the
Distribution Date. The Transfer Agent and Registrar for the Novavax Common
Stock will be State Street Bank and Trust Company.
A "when-issued" trading market in the Novavax Common Stock may develop prior
to the Distribution Date. A "when-issued" trading market occurs when trading
in shares begins prior to the time stock certificates are actually available
or issued.
Shares of Novavax Common Stock distributed to IGI's stockholders will be
freely transferable except for shares received by persons who may be deemed to
be "affiliates" of Novavax under the Securities Act. Persons who may be deemed
to be affiliates of Novavax after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with Novavax, and will include the directors and executive officers of
Novavax. All of the shares of Novavax Common Stock held by affiliates of
Novavax may generally only be resold (i) in compliance with the applicable
provisions of Rule 144 under the Securities Act, (ii) under an effective
registration statement under the Securities Act, or (iii) pursuant to an
exemption from the registration requirements of the Securities Act. Under Rule
144, an affiliate is entitled to sell, within any three-month period, a number
of shares of Novavax Common Stock that does not exceed the greater of 1% of
the then outstanding shares of Novavax Common Stock or the average weekly
trading volume of the Novavax Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied.
After the Distribution, the approximate number of shares of Novavax Common
Stock issued and outstanding will be 9,887,936, of which approximately
1,955,758 shares will be held by affiliates and subject to the resale
requirements of Rule 144 of the Securities Act. It is anticipated that prior
to the Distribution Date, Novavax will file with the Commission Registration
Statements on Form S-8 to register 4,500,000 shares of Novavax Common Stock
under the Securities Act which are issuable upon exercise of options granted
under Novavax's 1995 Stock Option Plan and Novavax's 1995 Director Stock
Option Plan. See "Management--Stock Options."
25
CAPITALIZATION
The following table sets forth, as of September 30, 1995, the pro forma
capitalization of Novavax after giving effect to the pro forma adjustments
described below. These data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Information Statement.
AS OF SEPTEMBER 30, 1995
-------------------------------------
ACTUAL PRO FORMA(1)
---------------- -------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Payable to parent......................... $ 6,878,850 $ --
Notes payable to parent................... 16,289,295 --
Preferred stock, $.01 par value, 2,000,000
shares authorized, none outstanding......
Common stock, $.01 par value, 30,000,000
shares authorized, 9,887,936 shares is-
sued and outstanding, pro forma(2)....... 98,879
Combined entity capital(3)................ 4,974,000 --
Paid-in capital........................... -- 23,484,912
Deficit................................... (25,481,366) (15,923,012)
---------------- ----------------
Total capitalization.................... $ 2,660,779 $ 7,660,779
================ ================
--------
(1) These pro forma adjustments assume that (i) the Distribution, (ii) the
Restructuring and Recapitalization, (iii) the issuance of additional
shares of Novavax Common Stock to IGI in exchange for the transfer by IGI
to Novavax of all of IGI's rights to payments of indebtedness owed to an
IGI subsidiary by Novavax and (iv) the payment by IGI to Novavax of
$5,000,000 in return for a fully paid-up exclusive license to use the
Novavax Technologies in the IGI Field (collectively, the "Pro-Forma
Events") occurred as of September 30, 1995. Payments under the License
Agreement have been recorded as a capital contribution to reflect the
intercompany nature of the transaction and the transfer of assets under
common control at historical cost basis.
(2) Excludes (i) 4,500,000 shares of Novavax Common Stock issuable pursuant to
stock options under Novavax's stock option plans and (ii) shares issuable
upon exercise of stock options granted to SmithKline Beechman Biologicals,
S.A. See "Management--Stock Options."
(3) Combined entity capital as of September 30, 1995, consists of the
following:
Novavax common stock Class A................................... $ 11,973
Novavax common stock Class B................................... 3,000
Lipovax common stock........................................... 132,945
Novavax paid-in-capital........................................ 4,826,082
----------
Combined entity capital...................................... $4,974,000
==========
26
SELECTED HISTORICAL NOVAVAX FINANCIAL DATA
The following selected historical financial data of Novavax should be read
in conjunction with the historical combined financial statements and notes
thereto included in Appendix A to this Information Statement. The following
historical combined financial data that relate to each of the years in the
four-year period ended December 31, 1994 have been derived from combined
financial statements audited by Coopers & Xxxxxxx L.L.P., independent public
accountants. The historical combined financial data for the nine-month periods
ended September 30, 1994 and 1995, and for the year 1990 have been derived
from unaudited combined financial statements. In the opinion of Management of
Novavax, the unaudited combined financial statements reflect all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
financial position of Novavax at September 30, 1994 and 1995, and the results
of operations for the nine-month periods ended September 30, 1994 and 1995.
The results of operations for the nine-month period ended September 30, 1995
should not necessarily be taken as indicative of the results of operations
that may be expected for the entire year. The historical combined financial
statements do not necessarily reflect the results of operations or financial
position that would have been obtained had Novavax been an independent
publicly-held company.
NOVAVAX, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1990 1991 1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Research revenues(1)... $ 388,050 $ 453,000 $ 940,900 $ 380,700 $ 475,000 $ -- $ --
Royalty revenues from
parent(2)............. 12,166 29,816 86,555 198,546 209,877 139,000 202,648
Total revenues.......... 400,216 482,816 1,027,455 579,246 684,877 139,000 202,648
Costs and expenses:
Selling and marketing.. -- 150,000 246,679 278,836 323,640 223,732 332,517
General and administra-
tive(3)............... 1,018,384 1,191,125 1,314,741 1,976,356 2,162,431 1,649,165 1,761,482
Research and develop-
ment.................. 1,077,328 1,075,815 1,720,220 2,701,038 2,860,048 1,987,037 2,248,433
Interest expense (loan
from parent)(4) ...... 365,297 80,644 193,471 413,049 1,028,794 711,518 1,313,115
Net loss................ (2,060,793) (2,014,768) (2,447,656) (4,790,033) (5,690,036) (4,432,452) (5,452,899)
BALANCE SHEET DATA:
Total current assets.... $ 151,973 $ 260,025 $ 174,932 $ 268,050 $ 501,845 $ 38,828 $ 54,855
Working capital......... 92,202 100,998 9,346 202,914 306,159 (171,417) (68,279)
Total assets............ 854,364 1,256,800 2,475,342 2,819,631 3,132,688 2,642,581 2,783,913
Stockholders' deficit... (924,133) (1,236,530) (609,369) (1,070,994) (2,202,868) (1,627,990) (4,218,071)
--------
(1) Includes payments for licensing agreements and technology application
review.
(2) Includes royalties for product sales in IGI's animal health products and
cosmetic and consumer products businesses.
(3) Includes administrative expenses incurred by IGI allocated to Novavax.
(4) Interest expense is solely attributable to intercompany debt incurred by
Novavax to fund its operations.
27
PRO FORMA COMBINED FINANCIAL STATEMENTS OF NOVAVAX
The historical combined financial statements of Novavax included in Appendix
A to this Information Statement reflect periods during which Novavax did not
operate as an independent publicly-owned company. Therefore, such historical
financial statements may not necessarily reflect the combined results of
operations or financial position that would have existed had Novavax been an
independent publicly-owned company during those periods. The following
combined financial statements of Novavax make adjustments to the historical
combined balance sheet at September 30, 1995 as if the Pro Forma Events had
occurred on September 30, 1995 and adjustments to the historical combined
statements of operations as if the Pro Forma Events had occurred on January 1,
1994. The pro forma financial statements of Novavax should be read in
conjunction with the historical combined financial statements and the notes
thereto contained in Appendix A to this Information Statement. The pro forma
financial information is presented for informational purposes only and does
not necessarily reflect the future results of operations or financial position
of Novavax or what the results of operations or financial position would have
been had Novavax been an independent publicly-owned company during the periods
reflected.
28
COMBINED PRO FORMA BALANCE SHEET OF NOVAVAX
(UNAUDITED)
SEPTEMBER 30, 1995
----------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------ ------------ ------------
ASSETS
Current assets:
Cash(b)........................... $ 17,513 $ 5,000,000 $ 5,017,513
Prepaid expenses.................. 37,342 -- 37,342
------------ ------------ ------------
Total current assets............ 54,855 5,000,000 5,054,855
------------ ------------ ------------
Furniture and equipment--at cost.... 2,122,638 -- 2,122,638
Accumulated depreciation............ (663,806) -- (663,806)
------------ ------------ ------------
1,458,832 -- 1,458,832
------------ ------------ ------------
Patent costs, net of amortization of
$268,668........................... 1,257,569 -- 1,257,569
Other assets........................ 12,657 -- 12,657
------------ ------------ ------------
$ 2,783,913 $ 5,000,000 $ 7,783,913
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................. $ 111,388 $ -- $ 111,388
Accrued expenses.................. 11,746 -- 11,746
------------ ------------ ------------
Total current liabilities....... 123,134 -- 123,134
------------ ------------ ------------
Payable to parent(e)................ 6,878,850 (6,878,850) --
------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Common Stock(a,c,h)............... -- 98,879 98,879
Paid-in capital(a,g,h)............ 4,974,000 23,510,912 28,484,912
Notes payable to parent(a)........ 16,289,295 (16,289,295) --
Deficit(e,g,h,i).................. (25,481,366) 4,558,354 (20,923,012)
------------ ------------ ------------
(4,218,071) 11,878,850 7,660,779
------------ ------------ ------------
$ 2,783,913 $ 5,000,000 $ 7,783,913
============ ============ ============
29
PRO FORMA STATEMENTS OF OPERATIONS OF NOVAVAX
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
----------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------- --------------------------
Revenues:
Research revenues................... $ 475,000 $ -- $ 475,000
Royalty revenues from parent(b)..... 209,877 (209,877) --
------------ ----------- ------------
684,877 (209,877) 475,000
------------ ----------- ------------
Costs and expenses:
Selling and marketing............... 323,640 -- 323,640
General and administrative.......... 2,162,431 -- 2,162,431
Research and development(g,h) ...... 2,860,048 969,000 3,829,048
Interest expense (loan from
parent)(d)......................... 1,028,794 (400,000) 628,794
------------ ----------- ------------
6,374,913 569,000 6,943,913
------------ ----------- ------------
Net loss.............................. $ (5,690,036) $ (778,877) $ (6,468,913)
============ =========== ============
Loss per common share(f).............. $ (.58) $ (.07) $ (.65)
============ =========== ============
Number of common shares(j)............ 9,887,936 9,887,936 9,887,936
============ =========== ============
NINE MONTHS ENDED SEPTEMBER 30, 1995
----------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------- --------------------------
Revenues:
Research revenues................... $ -- $ -- $ --
Royalty revenues from parent(b)..... 202,648 (202,648) --
------------ ----------- ------------
202,648 (202,648) --
------------ ----------- ------------
Costs and expenses:
Selling and marketing............... 332,517 -- 332,517
General and administrative.......... 1,761,482 -- 1,761,482
Research and development(g)......... 2,248,433 484,500 2,732,933
Interest expense (loan from
parent)(d)......................... 1,313,115 (337,500) 975,615
------------ ----------- ------------
5,655,547 147,000 5,802,547
------------ ----------- ------------
Net loss.............................. $ (5,452,899) $ (349,648) $ (5,802,547)
============ =========== ============
Loss per common share(f).............. $ (.55) $ (.04) $ (.59)
============ =========== ============
Number of common shares(j)............ 9,887,936 9,887,936 9,887,936
============ =========== ============
See accompanying notes to pro forma financial statements.
30
NOTES TO NOVAVAX PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(a) Prior to the Distribution Date, Novavax will have issued 41,569 shares
(before Recapitalization) of its Common Stock to IGI in exchange for IGI's
rights to the payment of intercompany notes payable to IGI that were used
to fund Novavax operations. The balance of such intercompany notes was
$16,289,295 at September 30, 1995.
(b) Immediately following the Distribution Date, Novavax will receive
$5,000,000 from IGI in payment for a license for applications of Novavax
Technologies; as a result of this license the royalty revenue from parent
has been deducted. Novavax has presented the payment under the License
Agreement as a capital contribution in its pro forma financial statements
to reflect the substance of the transaction and its intercompany nature as
opposed to its form as a license agreement. The form was structured as a
prepaid license agreement to address tax and financing considerations of
the Distribution. Novavax has recorded the license at its carryover basis
because the transaction is a transfer made among entities under common
control. As all costs of development for this technology have been
expensed with the exception of the patents which are retained by Novavax,
the historical basis is zero. Accordingly, payments to Novavax under the
License Agreement have been reflected as a capital contribution. See
"Business--License of Technology to IGI."
(c) In connection with the Distribution, each Holder of record of IGI Common
Stock as of the close of business on the Record Date will receive one
share of Novavax Common Stock for each share of IGI Common Stock held.
Accordingly, 9,214,325 shares of Novavax Common Stock will be distributed.
See Note 3 of Notes to Combined Financial Statements for additional
information on Restructuring and Recapitalization.
(d) Interest expense has been reduced by $400,000 and $337,500 for the year
ended December 31, 1994 and the nine months ended September 30, 1995,
respectively, to reflect the $5,000,000 license payment as if the payment
had been paid to Novavax as of January 1, 1994. This payment would have
reduced the intercompany borrowings and related interest expense since
January 1, 1994. See also Note (e) below.
(e) The payable to parent, which was the result of estimated charges to
present Novavax as an independent company of $5,666,850 and intercompany
interest expense of $1,212,000, has been reversed because this payable
will not be paid.
(f) Earnings per share information has been calculated by dividing the net
loss by 9,887,936 shares, which is the number of shares of Novavax Common
Stock outstanding after the Restructuring and Recapitalization. The number
of shares of Novavax Common Stock does not include (i) the 600,000 shares
issuable upon the exercise of the Novavax stock options to be granted as
of the distribution date with an exercise price of $.01 per share as
inclusion of such shares would be anti-dilutive; (ii) approximately
2,285,000 shares issuable upon exercise of options to purchase Novavax
Common Stock (See Note 7 of Notes to Combined Financial Statements); and
(iii) shares which can be purchased by SmithKline Xxxxxxx pursuant to
their option as the number of shares which can be purchased by SmithKline
will not be determined until after the distribution date.
(g) The issuance of options to purchase 600,000 shares of Novavax Common Stock
at the distribution date with an exercise price below fair market value
will result in the recognition of compensation expense of $1,938,000.
Compensation expense of $969,000 and $484,500 for the year ended December
31, 1994 and the nine months ended September 30, 1995, respectively, has
been recorded in connection with options granted. Paid-in capital as of
September 30, 1995 reflects $1,453,500 in connection with such options.
(h) Issuance of 2,117 shares (before Recapitalization) of Novavax Common Stock
to acquire the 9.7% minority interest in Lipovax with a value of $866,996
to reflect the purchase of in process research and development. Will be
charged to Novavax's operations upon consummation of the Recapitalization.
Such amount has not been reflected in Novavax's pro forma Statements of
Operations due to its non-recurring nature.
31
(i) The pro forma adjustments to Paid-in capital consist of the following:
Issuance of 5,253,452 shares of common stock................... $16,190,416
Vesting of below-market stock options.......................... 1,453,500
Capital contribution in connection with license agreement...... 5,000,000
Issuance of common stock to acquire minority interest of
Lipovax....................................................... 866,996
-----------
Total pro forma adjustments to Paid-in capital................. $23,510,912
===========
The pro forma adjustments to Deficit consist of the following:
Reversal of payable to parent................................... $ 6,878,850
Compensation expense related to vesting of stock options........ (1,453,500)
Purchase of minority interest of Lipovax........................ (866,996)
-----------
Total pro forma adjustments to Deficit.......................... $ 4,558,354
===========
(j) The pro forma number of shares of common stock outstanding at September 30,
1995 reflects the following:
Total Shares Outstanding..........................................
Class A......................................................... 11,973
Class B......................................................... 3,000
Issuance of shares to acquire outstanding stock of Lipovax........ 21,698
Issuance of shares in exchange for right of repayment of Novavax
Sub-Debt........................................................ 41,569
---------
Shares outstanding prior to Recapitalization...................... 78,240
Recapitalization factor........................................... 126.37944
---------
Shares outstanding after Recapitalization......................... 9,887,936
=========
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of the historical combined financial condition
and results of operations of Novavax and its subsidiaries. The discussion
should be read in conjunction with the pro forma financial statements and
notes thereto included elsewhere in this Information Statement and the
historical combined financial statements and notes thereto included in
Appendix A to this Information Statement.
RESULTS OF OPERATIONS
To date, Novavax has had revenues from two sources: (i) research revenues
from industry partners in consideration of either exclusive licenses or
technology application reviews and (ii) royalty revenues that were
attributable to product sales by IGI.
Costs and expenses for Novavax consist of the following items:
1. Selling, general and administrative expenses which include all costs
associated with the marketing of the technology to potential industry
partners, management and administrative expenses, and costs associated with
the Distribution;
2. Research and development expenses, which include scientific staff,
facility costs, supplies and other costs related to the ongoing development
of the Novavax Technologies; and
3. Interest expense which has been charged to Novavax by IGI for
intercompany borrowings and notes due to IGI.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO 1994
Novavax's quarterly operating results are likely to vary significantly
depending on factors such as the timing of new license agreements for Novavax
Technologies, the results of preclinical or clinical trials, the timing of
collaborative agreements for the development of products based on the Novavax
Technologies, the timing of significant orders and the introduction of
products by Novavax. Novavax's expense levels are based in part on its
expectations as to future revenue. If revenue levels are below expectations,
operating results will be adversely affected.
Royalty revenues from IGI were $203,000 and $139,000 for the nine months
ended September 30, 1995 and 1994, respectively. There were no research
revenues in either period.
As a result of the $5,000,000 License Agreement, which will be entered into
as method of transferring the Novavax technologies, Novavax is not expected to
receive any additional royalty payments in the short term because the License
includes the areas of Novasome technology that have reached or may reach
commercialization within the near future. Novavax will continue to conduct
research using the Novavax technologies for human pharmaceutical applications
and may, if such research is successful, seek to obtain royalties from
potential licensees. However, due to the long regulatory process for human
pharmaceuticals, royalty revenues are not expected before 1999. Novavax has
presented the payment under the License Agreement as a capital contribution in
its pro forma financial statements to reflect the substance of the transaction
and its intercompany nature as opposed to its form as a license agreement. The
form was structured as a prepaid license agreement to address tax and
financing considerations of the Distribution. Novavax has recorded the license
at its carryover basis because the transaction is a transfer made among
entities under common control. As all costs of development for this technology
have been expensed with the exception of the patents which are retained by
Novavax, the historical basis is zero. Accordingly, payments to Novavax under
the License Agreement have been reflected as a capital contribution. See
"Business--License of Technology to IGI."
Selling, general and administrative expenses were $2,094,000, and $1,873,000
for the nine months ended September 30, 1995 and 1994, respectively. Certain
costs included in these expenses were estimated based on Novavax being a
separate public company and may not reflect the actual costs that Novavax will
incur after the Distribution. These estimated costs were $622,000 and $586,000
for the nine months ended September 30, 1995 and 1994, respectively.
33
Research and development expenses were $2,248,000 and $1,987,000 for the
nine months ended September 30, 1995 and 1994, respectively. The increase in
these expenses related principally to increased efforts in the development of
human vaccine and pharmaceutical applications of the Novavax technologies.
Interest expense was $1,313,000 and $712,000 for the nine months ended
September 30, 1995 and 1994, respectively. The increase related to increase
funding from IGI for operating losses, capital equipment and patent costs.
1994 COMPARED TO 1993 AND 1992
Revenues were $810,000, $579,000 and $1,027,000 for the years ended December
31, 1994, 1993 and 1992, respectively. Research revenues for 1994 increased by
$219,000, or 57%, over 1993 research revenues which were $560,000, or 60%
lower than 1992. The fluctuations in research revenues were attributable to
new license agreements and the timing of payments thereunder.
Royalty revenues from IGI were $210,000, $199,000 and $87,000 for the years
ended December 31, 1994, 1993 and 1992, respectively. The increases in these
revenues resulted from increased commercialization of the Novasome
Technologies, principally in the cosmetic marketplace.
Selling, general and administrative expenses were $2,486,000, $2,255,000 and
$1,661,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
The increases over 1992 relate principally to transaction costs associated
with the Distribution. Certain costs included in these expenses were estimated
based on Novavax being a separate public company and may not reflect the
actual costs that Novavax will incur after the Distribution. These estimated
amounts were $779,000, $691,000 and $647,000 for the years ended December 31,
1994, 1993, and 1992, respectively.
Research and development expenses were $2,860,000, $2,701,000 and $1,720,000
for the years ended December 31, 1994, 1993 and 1992, respectively. The
increases in these expenses related principally to increased efforts in the
development of human vaccine application of the Novasome Technologies,
principally in the Lipovax operation.
Interest expense was $1,029,000, $413,000 and $193,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. The increase related to
increases in funding from IGI for operating losses, capital equipment and
patent costs.
LIQUIDITY AND CAPITAL RESOURCES
Novavax's future growth will depend on its ability to commercialize its
Novavax Technologies for human pharmaceutical and vaccine applications. To
date, Novavax has not generated any revenue from the sale of human vaccines or
pharmaceutical products, although it has received insignificant development
funds from potential collaborators or partners. For the past several years,
funding from IGI has been used to finance the development of the Novavax
Technologies. Novavax expects the losses from the application of its Novavax
Technologies to human pharmaceuticals and vaccines will increase in the near-
term as it conducts additional clinical trials and seeks regulatory approval
for its product candidates. Novavax expects to continue to incur substantial
operating losses unless and until such time as product sales and royalty
payments generate sufficient revenue to fund its continuing operations.
Novavax will require substantial funds for research and development, future
preclinical and clinical trials, regulatory approvals, establishment of
commercial-scale manufacturing capabilities, and marketing its products.
Novavax's capital requirements depend on numerous factors, including but not
limited to the progress of its research and development programs, the progress
of preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, changes in Novavax's development of
commercialization activities and arrangements, and the purchase of additional
facilities and capital equipment. After the Distribution, Novavax will conduct
its operations with approximately $5,000,000 paid by IGI for the License
Agreement, and $125,000 of research funding from SmithKline for each of the
next
34
two years, Novavax estimates such amounts will only be sufficient to finance
its operations at its current level of development activity for approximately
12 to 15 months. Novavax has presented the payment under the License Agreement
as a capital contribution in its pro forma financial statements to reflect the
substance of the transaction and its intercompany nature as opposed to its
form as a license agreement. The form was structured as a prepaid license
agreement to address tax and financing considerations of the Distribution.
Novavax has recorded the license at its carryover basis because the
transaction is a transfer made among entities under common control. As all
costs of development for this technology have been expensed with the exception
of the patents which are retained by Novavax, the historical basis is zero.
Accordingly, payments to Novavax under the License Agreement have been
reflected as a capital contribution. See "Business--License of Technology to
IGI."
Past spending levels are not necessarily indicative of future spending
levels. Spending by Novavax for the nine months ended September 30, 1995
included the following nonrecurring items: $1,313,000 of intercompany interest
expense and $542,000 of transaction costs. Immediately after the Distribution,
Novavax will have no debt and thus have no interest expense. In addition,
research and development expenditures for the past five years have been
directed to the development of the Novavax technologies. The Company expects
that its future spending will be directed toward product development. Future
expenditures for product development, especially relating to outside testing
and human clinical trials, are discretionary and, accordingly, can be adjusted
to available cash. Moreover, the Company will seek one or more collaborations
with industry partners to defray the costs of clinical trials and other
related activities.
Through September 30, 1995, IGI had loaned Novavax $16,289,000 to fund
Novavax operations. In connection with the restructuring, Novavax will convert
$17,024,000 of these loans (estimated through November 30, 1995) for 41,569
shares of Novavax stock. Any advances in excess of $17,024,000 will be
deducted from IGI's $5,000,000 payment due under the License Agreement. Such
deductions will not exceed $250,000. Novavax will seek to obtain additional
funds through public or private equity or debt financings, collaborative
arrangements with pharmaceutical companies or from other sources. There can be
no assurance that additional funding or bank financing will be available at
all or on acceptable terms to permit successful commercialization of Novavax's
technology and products. If adequate funds are not available, Novavax may be
required to significantly delay, reduce the scope of or eliminate one or more
of its research or development programs, or seek alternative measures
insolvency, including arrangements with collaborative partners or others that
may require Novavax to relinquish rights to certain of its technologies,
product candidates or products. IGI will have no obligation and does not
intend to provide additional funding to Novavax after the Distribution.
35
BUSINESS
Novavax has developed proprietary organized lipid structures, lipid vesicle
("Novasome") encapsulation technologies, cellulose structures and micellar
nanoparticles (collectively, the "Novavax Technologies") that it believes have
a wide variety of applications in human vaccines and pharmaceuticals.
Novavax's business plan is to apply its Novavax Technologies principally to
the marketing and licensing of therapeutic products for human infectious
diseases, including new vaccines, new adjuvants for vaccines, anti-bacterial
and anti-viral products and formulations for topical drug delivery.
BUSINESS STRATEGY
Novavax makes development decisions based on (i) potential return on
investment, (ii) product need, (iii) regulatory considerations, (iv)
development costs and (v) third-party interest, sponsorship and funding
availability.
The following table summarizes Novavax's principal product development
initiatives:
PRODUCT CANDIDATE INDICATION STATUS
----------------- ---------- ------
Estradiol topical cream Postmenopausal estrogen Preclinical*
replacement
Helicobacter pylori oral Phase I**
anti-bacterial preparation Treatment of Helicobacter
pylori infection
Vaccine adjuvants Improvement of vaccine Preclinical
efficacy
Escherichia coli 0157:H7 Phase I
oral vaccine Prevention of E. coli
0157:H7 hemorrhagic colitis
and hemolytic uremic
syndrome
Shigella flexneri 2a oral Prevention of Shigella Phase I
vaccine flexneri 2a food poisoning
Salmonella enteritidis oral Prevention of Preclinical
vaccine gastrointestinal disease
--------
* Preclinical tests include laboratory evaluation of product formulation, as
well as animal studies (if appropriate), to assess the potential safety and
efficacy of the product.
** In Phase I clinical trials the product is administered to healthy human
subjects and is tested for safety, dosage, tolerance, absorption,
distribution, metabolism, excretion and pharmacokinetics.
NOVAVAX TECHNOLOGIES
Liposome encapsulation is a process designed to entrap and deliver various
useful materials. Prior to the development of the Novavax Technologies, the
most commonly used technology, phospholipid liposome encapsulation, had a
limited capacity to encapsulate anything other than materials that can be
dissolved or suspended in water. Phospholipid liposomes are man-made,
microscopic spheres which are usually formed through a multi-step process,
which generally includes the mixing of water, organic solvents and
phospholipids. Most phospholipid-based liposomes are produced from materials
which are expensive and may require the use of potentially hazardous organic
solvents. The standard, multi-step phospholipid manufacturing process yields
small quantities of expensive, less stable vesicles with limited cargo
capacity.
Based on the belief that certain forms of liposomes can stimulate the immune
system, various academic and commercial institutions have tried to develop
liposome-based vaccines with advantageous properties over conventional
vaccines. Novavax believes that efforts to commercially develop phospholipid-
based liposomes have been unsuccessful primarily because phospholipid-based
liposomes have:
36
. high cost
. low stability
. low versatility
. commercial scale-up difficulties
NOVASOME LIPID VESICLES
While artificial lipid vesicle encapsulation technology has existed for
almost four decades, Novavax believes that it is one of the first companies to
produce highly stable, versatile artificial lipid vesicles and structures of
various types from low-cost, readily available materials in commercial
quantities. The major advantages of Novasomes over other liposomes are as
follows:
Versatility, Stability and Low Cost
. Novasomes may be made from a number of inexpensive, readily available
chemicals, called amphiphiles, including fatty alcohols and acids,
ethoxylated fatty alcohols and acids, glycol esters of fatty acids,
glycerol fatty acid mono and diesters, ethoxylated glycerol fatty acid
esters, glyceryl ethers, fatty acid diethanolamides and dimethyl amides,
fatty acyl sarcosinates, "alkyds" as well as phospholipids.
. Novasomes have a large, stable central core that allows them to entrap
and deliver a wide variety of substances which may be too large or
disruptive for phospholipid vesicles, including lipids, solvents,
particulates and perfluorocarbons as well as aqueous materials.
. Novasomes can be varied according to the intended cargo and can be
engineered to release cargo in response to a variety of factors.
. Novasomes can be made to provide acceptable stability under a variety of
conditions, such as wide variations of alkalinity, acidity, temperature,
shear, detergents, solvents, enzymes and others.
Ease of Commercial Scale-up
. Novasomes can be made in large quantities in a continuous flow process
which does not employ organic solvents.
Novavax's patented Novamix production machinery permits the blending of
reagents under controlled conditions, and enables the composition of the
Novasomes to be adjusted to customize their structure and release properties.
Novavax believes that its technology (combination of readily available
materials and its patented Novamix production machinery) allows it to produce
Novasomes with stability, versatility, large cargo carrying capacity, high
production volumes and low production costs. These advantages provide an
opportunity to extend the commercial potential of Novasomes from the near-term
cosmetic and personal care products produced and marketed by IGI to longer-
term human pharmaceuticals and vaccines.
MICELLAR NANOPARTICLES
Micellar nanoparticles ("MNP") are submicron-sized lipid structures
developed by D. Xxxxx Xxxxxx M.D., the Vice President, Research and
Development and Operations of Novavax. MNP have different structural
characteristics and are generally smaller than Novasome lipid vesicles. MNP,
like Novasomes, are in the family of materials derived from amphiphilic
surfactants, and can be tailored for particular uses. They exhibit
encapsulating and many other properties similar to Novasomes, but differ in
other properties. MNP are very stable and can be prepared in commercial
quantities at reasonable cost.
NOVAVAX PRODUCT CANDIDATES
Topical Estradiol
Novavax has developed several MNP and Novasome formulations containing the
hormone estradiol for eventual topical administration to postmenopausal women.
Estrogen replacement is used widely by millions of postmenopausal women
around the world to prevent osteoporosis and other estrogen deficiency effects
and symptoms (e.g., "hot flashes"). Most estrogen
37
replacement products have been delivered either through oral tablets or, more
recently, through dermal patch applications. These treatment programs have had
associated side effects such as symptoms resulting from fluctuating
replacement hormone levels, or, in the case of dermal patch delivery, skin
irritation and reluctance to wear an external device.
Novavax believes that its formulations may be useful in allowing the
delivery of drugs such as estradiol that presently are only able to be
dissolved in alcohol and tend to be irritating. Two Novavax candidate
formulations of estradiol were tested by the National Institutes of Health
(the "NIH") for efficacy and clinical effect in a rhesus monkey model. Of
these, an MNP formulation appears to have the most suitable characteristics.
Application has not yet been made to the United States Food and Drug
Administration (the "FDA") to test these products in humans, and there can be
no assurance that Novavax will be able to develop these product candidates
into commercially useful human therapeutic products.
Antimicrobial Preparations
Novavax also is developing organized lipid structure formulations
incorporating properties of both Novasomes and emulsions. These formulations
exhibit significant in vitro antimicrobial activity against a variety of
pathogenic organisms. Novavax believes these preparations are (i) non-toxic
and non-irritating to the skin and mucous membranes, (ii) have the ability to
kill various viruses including enveloped viruses such as HIV, and many types
of bacteria in significant numbers and (iii) may have commercial applications
in various areas of pharmaceuticals, personal hygiene and cosmetics. Based on
preliminary development efforts, these lipid vesicle emulsion preparations,
which are largely made from surfactants, detergents, mouth wash components and
food grade materials, appear to be non-toxic and non-irritating when
administered orally to animals.
Novavax has recently commenced Phase I clinical trials for antimicrobial
preparations for treatment of Helicobacter pylori ("H. pylori") infection in
humans. H. pylori was recognized in 1994 by the NIH as a causative agent of
peptic ulcer disease, and is thought to have a possible causative role in
other conditions such as antral gastritis and certain types of gastric cancer.
Novavax believes its H. pylori antimicrobial product candidates may have a
different mechanism of action and may not have the adverse effects associated
with the current investigational products. Most investigational treatment
programs use antibiotics to eliminate these bacteria, or antibiotics in
combination with drugs which inhibit acid production by the stomach. Problems
associated with such combination therapies include, but are not limited to,
cost, toxicity and failure to eradicate the bacteria, which may cause
antibiotic resistant strains to develop, reinfection to take place and peptic
ulcers to recur. Because its preparations appear to kill the organisms rather
than inhibit bacterial growth, Novavax believes that its preparations may be
more effective in preventing development of resistant strains. There can be no
assurance, however, that Novavax will be able to develop these product
candidates into commercially viable products.
Vaccine Adjuvants and Vaccines
Vaccines generally consist of several components, including antigens,
adjuvants and carriers. The antigen is derived from the virus, bacteria or
parasite causing the disease, and elicits the production of a specific immune
response by the body. The adjuvant is a substance which augments the body's
immune response to the vaccine antigen. The vaccine carrier, if any, protects
and delivers the antigen to the body's immune system. In early 1993, Novavax
commenced a development program to develop Novasome-based vaccines both for
its own account and, through supply or licensing arrangements, for
pharmaceutical and vaccine companies.
Novavax believes that various of its Novasome lipid structures and MNP may
provide an effective and safe adjuvant-carrier system for a variety of
vaccines. Both Novasomes and MNP may be used in vaccines as adjuvants and
protective carriers for the following purposes: encapsulation and protection
of delicate antigenic materials from destruction by the body's normal
enzymatic processes; encapsulation of toxic materials, such as endotoxins and
other potent toxins, for gradual release thereby providing protection while
allowing generation of
38
an immune response to the toxic antigen; presentation of small peptide
antigens to elicit a heightened cellular immune response; use of specialized
Novasomes to fuse with, and deliver materials, including genes and other
macromolecules, into target cells; and the delivery of other adjuvant
materials.
Novavax believes that, at the present time, alum (aluminum hydroxide) is the
only adjuvant licensed by the FDA for use in human vaccines. Alum has been
licensed since the 1920's and various other adjuvants have been tried in human
vaccines over the years. Others, such as Xxxxxx'x adjuvant, have proven too
irritating or toxic for routine human use.
Novavax believes that certain Novasome preparations and MNP can be effective
adjuvants in their own right, while other preparations work well as carriers
for adjuvant substances developed by other companies. In 1989, the United
States Department of Agriculture ("USDA") approved and licensed the first
Novasome adjuvanted poultry vaccine developed by IGI. IGI has continued to
sell its Novasome adjuvanted poultry vaccines since 1989.
While Novavax expects to develop certain of its own Novasome-based vaccines,
it believes that over the near term it will either license its Novavax
Technologies to vaccine companies for use as adjuvants and/or carriers in
vaccines manufactured by those companies or produce Novasomes for
incorporation by those companies in their vaccines.
On November 9, 1995, IGI and SmithKline Xxxxxxx Biologicals, S.A.
("SmithKline") entered into a Research and License Agreement for development
of vaccines against selected human pathogens and cancer-associated molecules
using Novasomes (the "SmithKline License Agreement"). On November 9, 1995, IGI
assigned all of its rights and obligations under the SmithKline License
Agreement to Novavax and Novavax accepted such assignment. Pursuant to the
SmithKline License Agreement, SmithKline has an exclusive worldwide license to
use Novasome technology with respect to such selected pathogens. Novavax has
agreed to collaborate with SmithKline during 1996 in the development of the
designated vaccines, and SmithKline has agreed to pay Novavax $125,000 for
such collaboration. In addition, SmithKline has agreed to pay Novavax a
royalty for successfully developed vaccines. Novavax retains the right to make
and market vaccines for pathogens and other molecules not licensed to
SmithKline. SmithKline is not obligated to make any minimum annual royalty
payments to maintain the license over the life of the patents, and if
SmithKline does not develop the licensed products, Novavax has no right to
terminate the license and recover the right to license the technology to
others. Novavax is unable to predict whether SmithKline will successfully
develop any products using Novasomes or whether, if successful, any future
royalties will be material to Novavax's future operations.
In connection with the SmithKline License Agreement, SmithKline also
obtained an option to purchase, after the Distribution, both common stock of
IGI and Novavax on the basis of the relative values of the Novavax and IGI
Common Stock for the 20 trading days following the Distribution. For
information relating to this option, see "Management--Stock Options--
SmithKline Option." If SmithKline exercises the option to purchase Novavax and
IGI Common Stock, SmithKline's license rights shall be expanded to cover
additional vaccines, and SmithKline shall also be entitled, under certain
circumstances, to a right of first offer with respect to the commercialization
of certain vaccines not covered by the license.
Novavax's Oral Gastrointestinal Pathogen Vaccines
ECOVAX 0157 is a Novasome-formulated, orally-administered vaccine being
developed by Novavax against the O157:H7 strain of Escherichia coli ("E.
coli") bacteria. This organism has been implicated in serious and occasionally
fatal human diseases, including hemorrhagic colitis and the hemolytic uremic
syndrome. Novavax's research has indicated that two doses of ECOVAX given
orally to rats and mice at appropriate intervals elicit an antibody response
against O157:H7 lipopolysaccharide (endotoxin). The FDA approved an IND for
ECOVAX in January 1995, and Phase I human safety trials began in February
1995. Because E. coli 0157:H7 bacteria produce a potentially lethal toxin for
which there is no accepted treatment, testing of human beings with live,
virulent E. coli 0157:H7 is not an option. Novavax cannot predict whether this
vaccine will prove effective in preventing disease in humans or when, or if,
it will be approved and licensed for sale.
Shigella Flexneri 2a bacterium is a common, worldwide gastrointestinal
pathogen causing diarrhea and occasionally severe dehydration. It has been
estimated that this organism is responsible for as much as 25% of
39
all United States Shigella outbreaks. In July 1995, Novavax commenced Phase I
human clinical testing for its Novasome-based, orally-administered Shigella
flexneri 2a vaccine product candidate.
Novavax is also developing a Novasome-formulated oral vaccine designed to
prevent Salmonella enteritidis, another bacterium causing human
gastrointestinal disease. The Salmonella enteritidis vaccine product candidate
has been subjected to preclinical testing, but application has not yet been
made to the FDA to test this vaccine on humans.
Novavax believes that these vaccines represent the first orally administered
vaccines prepared from killed bacteria. Accordingly, there is no clear
precedent for regulatory approval or clinical testing protocols. Furthermore,
the dangerous nature of these organisms controls the structure of clinical
testing for effectiveness of the vaccines. Moreover, human challenge of
immunized subjects with live, virulent Shigella flexneri 2a and Salmonella
enteritidis organisms is hazardous. The Company cannot predict what regulatory
path will be taken by the FDA, nor when or if approval and licensure of these
vaccines for sale will take place.
LICENSE OF TECHNOLOGY TO IGI
Immediately after the Distribution, IGI will pay Novavax approximately
$5,000,000 in return for a fully paid-up, exclusive ten-year license entitling
it to use the Novavax Technologies in the fields of (i) animal
pharmaceuticals, biologicals and other animal health products; (ii) foods,
food applications, nutrients and flavorings; (iii) cosmetics, consumer
products and dermatological over-the-counter and prescription products
(excluding certain topically delivered hormones); (iv) fragrances; and (v)
chemicals, including herbicides, insecticides, pesticides, paints and
coatings, photographic chemicals and other specialty chemicals and the
processes for making the same ("License Agreement"). IGI will have the option,
exercisable within the last year of the ten-year term, to extend the exclusive
license for an additional ten-year period for $1,000,000. Novavax will retain
the right to use its Novavax Technologies for all other applications,
including human vaccines and pharmaceuticals. IGI's majority-owned subsidiary,
Blood Cells, Inc., which IGI intends to sell, has a license to use Novavax
Technologies for blood substitutes containing hemoglobin and other oxygen
carrying substances.
If at any time during the term of the License Agreement either party shall
make or discover any product improvements useful in the IGI Field (such
improvements being limited to those improvements which would be dominated by
the claims of a licensed patent), the other party shall communicate all
details in respect thereof to the other party. If Novavax makes such
improvements, IGI shall be entitled to use the same in the IGI Field during
the term of the License Agreement without paying any increased or decreased
royalty in respect thereof. If IGI makes such improvements, Novavax shall have
the right to use them outside the IGI Field during the term of the License
Agreement. In the event employees of Novavax and IGI are joint inventors as a
result of inventions arising out of the development of licensed products, any
patent applications filed thereon shall be owned by Novavax, and IGI shall
have an exclusive license in the IGI Field.
Three of the members of the Board of Directors of Novavax are also directors
of IGI, and the terms of the License Agreement were unilaterally established
by IGI. It is the view of the Board of Directors and management of Novavax,
however, that the terms of the License Agreement were at least as favorable to
Novavax as would have been obtained from any unaffiliated third party. The
$5,000,000 license payment was determined unilaterally by IGI, based on the
present value of the estimated aggregate royalties IGI would expect to pay
Novavax over a ten-year period if such royalties were paid annually based on
IGI's annual revenues from the sale of its products that use or incorporate
the Novavax Technologies. The royalty rates used in calculating the license
payment were the same as those used by IGI in determining the annual royalties
paid by IGI for the Novavax Technologies during the period prior to the
Distribution. Prior to the Distribution, IGI paid a royalty rate of 10% on
sales of products incorporating the Novavax Technologies. This rate was
determined based on a review of similar types of licensing agreements and
reflected the lack of any up-front payment by IGI to Novavax. Novavax
recognized revenues under its earlier license agreement of $87,000, $199,000,
$210,000 and $203,000 for the years 1992, 1993 and 1994 and the nine months
ended September 30, 1995, respectively. The lump sum license payment was
determined to be preferable to annual royalty payments, because the license
payment would provide Novavax with immediate funds to finance its operations
after the Distribution. At the time the terms of the License Agreement were
fixed, including the license payment, all of the directors of IGI were also
directors of Xxxxxxx.
00
XXX gave careful consideration to various structures for the Distribution,
including an equity infusion independent of any license agreement, a loan
which would have been repaid from proceeds of a post-spinoff Novavax equity
financing or a combination of these. IGI, at its sole discretion, determined
that payment of the funding required by Novavax under a license agreement best
balanced the interests of IGI and Novavax shareholders and addressed certain
key factors and tax considerations, including:
. Specifically allocating rights to the technology in certain fields and
thereby avoiding any future conflicts between IGI and Novavax as to
technology rights owned by Novavax. Documentation of technology rights
would have been required regardless of any equity funding by IGI.
. Providing funding in amounts sufficient to permit Novavax to operate for
a reasonable period until it has the ability to attract investors while
eliminating the future drain on IGI's resources and any future funding
requirements by IGI.
. Maximizing cash flows (by efficient structuring of tax consequences).
Payments under the License Agreement were determined based on Novavax's
funding requirements, which also approximated management's estimate of the
present value of cash flows from estimated royalty payments for the next ten
years based on existing products and sales levels and at an intercompany
royalty rate of 10% versus the 6-8% previously obtained by Novavax from third
parties.
Novavax has presented the payment under the License Agreement as a capital
contribution in its pro forma financial statements to reflect the substance of
the transaction and its intercompany nature as opposed to its form as a
license agreement. The form was structured as a prepaid license agreement to
address tax and financing considerations of the Distribution. Novavax has
recorded the license at its carryover basis because the transaction is a
transfer made among entities under common control. As all costs of development
for this technology have been expensed with the exception of the patents which
are retained by Novavax, the historical basis is zero. Accordingly, payments
to Novavax under the License Agreement have been reflected as a capital
contribution.
MANUFACTURING
The development and manufacture of Novavax's products are subject to GLP and
GMP requirements prescribed by the FDA and other standards prescribed by the
appropriate regulatory agency in the country of use. With its patented Novamix
and other production machinery, Novavax currently has the ability to produce
quantities of Novasomes sufficient to support its current needs. Novavax also
has the ability to produce quantities of Novasomes and MNP sufficient to
support its needs for early-stage clinical trials. It does not presently have
FDA certified facilities capable of producing the larger quantities of bottled
vaccines and other pharmaceutical products for larger scale clinical trials or
commercial production. Novavax will need to acquire such manufacturing
facilities for later stage clinical trials and commercial production of its
own vaccines and pharmaceuticals. There can be no assurance that Novavax will
be able to obtain or manufacture such products in a timely fashion at
acceptable quality and prices, that it or its suppliers can comply with GLP or
GMP, as applicable, or that it or its suppliers will be able to manufacture an
adequate supply of product. See "Risk Factors--Limited Manufacturing
Capability."
MARKETING
Novavax plans to market its vaccines and pharmaceuticals for which it
obtains regulatory approvals either through joint ventures or corporate
partnering arrangements or through licensing or distribution arrangements with
large pharmaceutical companies. However, it may build a small targeted direct
sales group for human vaccines in markets that can be accessed with a small to
medium size sales force, if and when such products approach FDA marketing
approval. Implementation of this strategy will depend on many factors,
including the market potential for Novavax's products and financial resources.
See "Risk Factors--Absence of Sales and Marketing Experience."
COMPETITION
Novavax's competitors in the vaccine market include a number of large
multinational firms, including Merck & Company, Rhone Merieux, SmithKline,
American Home Products Corporation, Swiss Serum and Vaccine Institute and
others. The competition in the vaccine market is intense and no assurance can
be given
41
that Novavax's vaccine product candidates will be developed into commercially
successful products or, if so developed, successfully marketed.
A number of other companies have been working on alternate vaccine adjuvants
for use in human vaccines. These include, but are not limited to Chiron Corp.,
Ribi Immunochem Research Inc., Cambridge Biotech, Iscotec, Proteus
International plc and Biomira. The competition to develop FDA-approved human
vaccine adjuvants is intense and no assurance can be given that Novavax's
adjuvant product candidates will be developed into commercially successful
products.
Many companies such as Merck, Merck-Astra, Glaxo Wellcome, SmithKline,
OraVax, Inc. and others are currently evaluating various treatment programs
for peptic ulcer disease and the treatment of H. pylori. Most of the therapies
under investigation today involve a combination of a currently used ulcer
treatment medication (e.g., Prilosec, Zantac or Tagamet) in association with
an antibiotic (e.g., Amoxicillin, Flagyl and/or Biaxin). The market for the
development of treatment programs for peptic ulcer disease and H. pylori is
competitive and no assurance can be given that Novavax's H. pylori product
candidates will be developed into commercially successful products.
A number of large companies, such as Ciba Pharmaceutical, Kabi
Pharmaceutical, American Home Products Corporation, Xxxxx-Xxxxx, Solvay
Pharmaceuticals, SmithKline, Xxxxxx Laboratories, Ortho Pharmaceuticals and
Xxxx Xxxxxxx Laboratories, produce and sell estrogen preparations for clinical
indications identical to those Novavax proposes to use. The competition to
develop FDA approved estrogen replacement therapies is intense and no
assurance can be given that Novavax's product candidates will be developed
into commercially successful products.
Primary competitors in the development of lipid structure and vesicle
encapsulation technologies are The Liposome Company, Inc., Sequus
Pharmaceuticals, Inc. ("Sequus"), Nexstar Pharmaceuticals, Inc. ("Nexstar")
and L'Oreal, Inc., as well as pharmaceutical, vaccine and chemical companies.
Novavax believes that, except for L'Oreal, these companies have focused their
development efforts on pharmaceutical carrier systems for the treatment of
infections and certain cancers. To Novavax's knowledge, The Liposome Company,
Sequus and Nexstar all base their lipid vesicle technologies on phospholipids.
Most of Novavax's competitors are larger and have substantially greater
financial, marketing and technical resources. In addition, many of these
competitors have substantially greater experience than Novavax in developing,
testing and obtaining FDA and other approvals of human vaccines and
pharmaceuticals. Furthermore, if Novavax commences commercial sales of human
vaccines and pharmaceuticals, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. If any of the competitors develop new encapsulation
technologies which are superior to its Novasome encapsulation technology, the
ability of Novavax to expand into the vaccine and pharmaceuticals markets will
be materially and adversely affected.
Competition among products will be based, among other things, on product
efficacy, safety, reliability, availability, price and patent position. An
important factor will be the timing of market introduction of Novavax's or
competitive products. Accordingly, the relative speed with which Novavax can
develop products, complete the clinical trials and approval processes and
supply commercial quantities of the products to the market is expected to be
an important competitive factor. Novavax's competitive position will also
depend upon its ability to attract and retain qualified personnel, to obtain
patent protection or otherwise develop proprietary products or processes, and
to secure sufficient capital resources for the often substantial period
between technological conception and commercial sales.
RESEARCH AND DEVELOPMENT
To date, Novavax's research and development policy has been to validate its
Novavax Technologies on IGI's regulated and non-regulated products and then to
apply it to highly regulated human pharmaceuticals and biologics. Novavax
intends to use third-party funding when available, either through government
or research grants or through collaborations, joint ventures or strategic
alliances with other companies, particularly potential users or distributors
of Novavax's products. Because of the substantial funds required for clinical
trials, Novavax will have to obtain third-party financing for its future Phase
II and III clinical trials. No assurance can be given, however, that such
financing will be available on terms attractive to Novavax, if at all.
42
In addition to its internal research and development efforts, which involve
12 employees, Novavax encourages the development of products in areas related
to its present lines by working with universities and government agencies.
Gross expenditures of Novavax, before amounts received from other companies,
for research and development were $2,053,000, $2,994,000 and $3,084,000 in
1992, 1993 and 1994, respectively.
PATENTS AND PROPRIETARY INFORMATION
Novavax, through a wholly-owned subsidiary, holds 30 U.S. patents and 43
foreign patents covering its Novavax Technologies (including a wide variety of
component materials, its continuous flow vesicle production process and its
Novamix production equipment). Novavax believes that these patents are
important for the protection of its technology as well as certain of the
development processes which underlie that technology. In addition, 17 U.S.
patent applications and 65 foreign patent applications are pending covering
various components and applications of the Novavax Technologies.
Novavax expects to engage in collaborations, sponsored research agreements
and preclinical testing agreements in connection with its future vaccine and
pharmaceutical products as well as clinical testing agreements with academic
and research institutions and U.S. government agencies, such as the NIH, to
take advantage of their technical expertise and staff and to gain access to
clinical evaluation models, patients and related technologies. Consistent with
pharmaceutical industry and academic standards, and the rules and regulations
under the Federal Technology Transfer Act of 1986, these agreements may
provide that developments and results will be freely published, that
information or materials supplied by Novavax will not be treated as
confidential and that Novavax may be required to negotiate a license to any
such developments and results in order to commercialize products incorporating
them. There can be no assurance that Novavax will be able successfully to
obtain any such license at a reasonable cost or that such developments and
results will not be made available to competitors of Novavax on an exclusive
or nonexclusive basis.
GOVERNMENT REGULATION
Novavax's research and development activities are subject to regulation for
safety, efficacy and quality by numerous governmental authorities in the
United States and other countries. The development, manufacturing and
marketing of human vaccines and pharmaceuticals are subject to regulation in
the United States for safety and efficacy by the FDA in accordance with the
Food, Drug and Cosmetic Act.
In the United States, human pharmaceuticals and vaccines are subject to
rigorous FDA regulation including preclinical and clinical testing. The
process of completing clinical trials and obtaining FDA approvals for a new
drug or new biologic is likely to take a number of years, requires the
expenditure of substantial resources and is often subject to unanticipated
delays. There can be no assurance that any product will receive such approval
on a timely basis, if at all.
The steps required before new Novasome pharmaceutical and vaccine products
for use in humans may be marketed in the United States include (i) preclinical
tests, (ii) submission to the FDA of an application for an IND, 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 ("NDA") for a new drug or a
Product License Application ("PLA") for a new biologic to the FDA and (v) FDA
approval of the NDA or PLA prior to any commercial sale or shipment of the
product.
Preclinical tests include laboratory evaluation of product formulation, as
well as animal studies (if an appropriate animal model is available) to assess
the potential safety and efficacy of the product. Formulations must be
manufactured according to GMP and preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding GLP. The results of
the preclinical tests are submitted to the FDA as part of an IND and are
reviewed by the FDA prior to the commencement of human clinical trials. There
can be no assurance that submission of an IND will result in FDA authorization
to commence clinical trials. Clinical trials involve the administration of the
investigational new drug to healthy volunteers and to patients, under the
supervision of a qualified principal investigator.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, the investigational new drug usually is
administered to healthy human subjects and is tested for safety, dosage,
tolerance, absorption, distribution, metabolism, excretion and
pharmacokinetics. Phase II involves studies in a limited patient population to
(i) determine the efficacy of the investigational new drug for specific
indications,
43
(ii) determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. When an investigational new drug is found to
be effective and to have an acceptable safety profile in Phase II evaluation,
Phase III trials are undertaken to further evaluate clinical efficacy and to
further test for safety within an expanded patient population at
geographically dispersed clinical study sites. There can be no assurance that
Phase I, Phase II or Phase III testing will be completed successfully within
any specified time period, if at all, with respect to any of Novavax's
products subject to such testing. Furthermore, Novavax or the FDA may suspend
clinical trials at any time if the participants are being exposed to an
unacceptable health risk. The FDA may deny an NDA or PLA if applicable
regulatory criteria are not satisfied, require additional testing or
information, or require post marketing testing and surveillance to monitor the
safety of Novavax's products.
In addition to obtaining FDA approval for each PLA, an Establishment License
Application ("ELA") must be filed and approved by the FDA for the
manufacturing facilities for a biologic product before commercial marketing of
the biologic product is permitted. The regulatory process may take many years
and requires the expenditure of substantial resources.
All data obtained from development programs are submitted as an NDA or a PLA
to the FDA and the corresponding agencies in other countries for review and
approval. FDA approval of the NDA or PLA and the associated ELA is required
before marketing may begin in the United States. Although the FDA's policy is
to review priority applications within 180 days of their filing, in practice
longer times may be required. The FDA frequently requests that additional
information be submitted requiring significant additional review time.
Essentially, all proposed products of Novavax will be subject to demanding and
time-consuming NDA or PLA or similar approval procedures in the countries
where Novavax intends to market its products. These regulations define not
only the form and content of the development of safety and efficacy data
regarding the proposed product, but also impose specific requirements
regarding manufacture of the product, quality assurance, packaging, storage,
documentation and record keeping, labeling and advertising, and marketing
procedures. Effective commercialization also requires inclusion of Novavax's
products in national, state, provincial, or institutional formularies or cost
reimbursement systems.
In addition to regulations enforced by the FDA, Novavax also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other present and potential future federal, state or
local regulations. Novavax's research and development involves the controlled
use of hazardous materials, chemicals, viruses and various radioactive
compounds. Although Novavax believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, Novavax could be held liable for any damages that result and any
such liability could exceed the resources of Novavax.
In both domestic and foreign markets, the ability of Novavax to
commercialize its product candidates will depend, in part, on the availability
of reimbursement from third-party payors, such as government health
administration authorities, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost-
effectiveness of medical products. There can be no assurance that Novavax-
developed products will be considered cost effective. Significant uncertainty
exists as to the reimbursement status of newly-approved medical products.
There can be no assurance that adequate third-party insurance coverage will be
available for Novavax to establish and maintain price levels sufficient for
realization of an appropriate return on its investment in developing new
therapies. Government and other third-party payors are increasingly attempting
to contain medical costs by limiting both coverage and the level of
reimbursement for new therapeutic products approved for marketing by the FDA
and by refusing, in some cases, to provide coverage for uses of approved
products for disease indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and third-party payors for uses of Novavax's therapeutic products,
the market acceptance of these products would be adversely affected.
44
There have been a number of federal and state proposals during the last few
years to subject the pricing of pharmaceuticals to government control and to
make other changes to the medical care system of the United States. It is
uncertain what legislative proposals will be adopted or what actions federal,
state or private payors for medical goods and services may take in response to
any medical reform proposals or legislation. Novavax cannot predict the effect
medical reforms may have on its business, and no assurance can be given that
any such reforms will not have a material adverse effect on Novavax.
EMPLOYEES
As of November 1, 1995, Novavax had 16 full-time employees, of whom 13 were
in research and development and three in finance and administration. Certain
services will be provided by IGI to Novavax on a transitional basis after the
Distribution while Novavax builds its support staff. See "The Distribution--
Relationship Between IGI and Novavax After the Distribution." Novavax has no
collective bargaining agreement with its employees, and believes that its
employee relations are good.
PROPERTIES
Novavax's executive offices are located in 1,600 square feet of leased space
in Rockville, Maryland. Novavax's certified animal facility and development
laboratories for its vaccine and antimicrobial technologies are located in
6,500 square feet of leased space also located in Rockville, Maryland. Novavax
believes that its current research facilities are adequate for its early stage
clinical trials, but additional manufacturing facilities and funding will be
required to meet the volume and cost requirements for later clinical trials
and commercial production of Novasomes and its own vaccines and
pharmaceuticals, if any.
LEGAL PROCEEDINGS
Novavax is not a party to any legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information about the current executive
officers and directors of Novavax:
NAME AGE POSITION WITH NOVAVAX
---- --- ---------------------
Xxxxxx X. Xxxxx, M.D................ 64 Chairman of the Board of Directors and
Chief Executive Officer
Xxxxx X. X'Xxxxxxx, M.D............. 42 President
Xxxx X. Xxxxx....................... 52 Chief Operating Officer, Treasurer and
Director
D. Xxxxx Xxxxxx, M.D................ 45 Vice President, Research and
Development and Operations
J. Xxxxxxx Xxxxxxx, M.D.(1)(2)(3)... 58 Director
Xxxx X. Xxxxx, Xx.(1)(2)............ 69 Director
Xxxxxx X. Xxxxxxxxx(1)(2)(3)........ 70 Director
Xxxxxx X. Xxxxxx(1)(2)(3)........... 58 Director
--------
(1) Member of the Audit Committee
(2) Member of the Compensation and Stock Option Committee
(3) Member of the Independent Committee
45
Xx. Xxxxx has served as Chairman of the Board of Directors and Chief
Executive Officer of Novavax since its founding in 1987. He has also served as
Chairman of the Board and Chief Executive Officer of IGI since its founding in
1977. Xx. Xxxxx was the co-founder and former Chairman of National Medical
Care, Inc., a leading provider of artificial kidney treatment and a large
distributor of artificial kidney supplies. From 1960 to 1975, Xx. Xxxxx served
on the faculty of the Harvard Medical School where he was a member of the
kidney transplant team that performed the first successful human kidney
transplant. Xx. Xxxxx is the author of numerous scientific and medical
publications in the fields of immunology and tissue transplantation.
Xx. X'Xxxxxxx has served as President of Novavax since September 1995. From
1992 to September 1995, Xx. X'Xxxxxxx was Vice President, Business Development
of Novavax. Xx. X'Xxxxxxx has also served as Vice President of MVS since 1991
and served as Vice President of IGI from 1991 to 1995. From 1986 to 1991, Xx.
X'Xxxxxxx was the Director of the Clinical Research Center of MTRA, Inc., a
provider of contract pharmaceutical research.
Xx. Xxxxx has served on the Board of Directors of Novavax since its founding
in 1987 and has been Chief Operating Officer and Treasurer since September
1995. From January 1995 through September 1995, Xx. Xxxxx served as Novavax's
President. Since 1985, Xx. Xxxxx has also been President and Chief Operating
Officer of IGI. Xx. Xxxxx became a director of IGI in 1985.
Xx. Xxxxxx has been the Vice President, Research and Development and
Operations of Novavax since 1993. Xx. Xxxxxx was a Founder of Univax Biologics
in 1988 and served as its Senior Director of Medical Research from 1988-1992.
Xx. Xxxxxx received his B.A. from the University of Virginia in 1972 and his
M.D. from the University of Virginia in 1976.
Xx. Xxxxxxx has served on the Board of Directors of Novavax since November
20, 1995. Xx. Xxxxxxx has been a nephrologist at Xxxxxxx and Women's Hospital
in Boston, Massachusetts, since 1982. Xx. Xxxxxxx has been an Associate
Professor of Medicine at Harvard Medical School since 1979 and served as an
Assistant Professor of Medicine from 1974 to 1979. Since 1990, Xx. Xxxxxxx has
served on the Board of Reviewing Editors of the Journal of the American
Society of Nephrology.
Xx. Xxxxx has served on the Board of Directors of Novavax since 1991. Since
January 1995, Xx. Xxxxx has served as Of Counsel to the law firm of Xxxxx &
Xxxxxx, P.C., Falls Church, Virginia. From 1990 through 1994, Xx. Xxxxx was a
Member of Xxxxx & Xxxxxx, P.C. Xx. Xxxxx served as Chairman of the Reserve
Forces Policy Board from 1989 to 1994. During 1989, Xx. Xxxxx served as
Legislative Counsel to the Secretary of Defense. From 1981 to 1989, Xx. Xxxxx
was Secretary of the Army. During 1988, Xx. Xxxxx served as Acting Assistant
Secretary of Defense for Special Operations and Low Intensity Conflict. From
1974 to 1977, Xx. Xxxxx served as Counsellor with Cabinet rank to President
Ford. From 1963 to 1971, Xx. Xxxxx was the U.S. Representative in Congress
from the Seventh District of Virginia. Xx. Xxxxx has served on the Board of
Directors of IGI since 1991.
Xx. Xxxxxxxxx has served on the Board of Directors of Novavax since November
20, 1995. Xx. Xxxxxxxxx has served as Chief Executive Officer of Xxxxxxxxx
Construction Co., a general contractor for various public transportation
projects, since its founding in 1956. Xx. Xxxxxxxxx is a Trustee of the
Associated General Contractors of America and the Associated General
Contractors of New Jersey.
Xx. Xxxxxx has served on the Board of Directors of Novavax since November
20, 1995. Since 1979, Xx. Xxxxxx has served as a Senior Partner/Managing
Director of Korn/Ferry International, an executive search firm. From 1977 to
1979, Xx. Xxxxxx was President and Founder of Xxx Xxxxxx & Associates, Inc., a
full service consulting company. From 1975 to 1977, Xx. Xxxxxx was Associate
Director and Tournament Director of World Championship Tennis. Xx. Xxxxxx was
Superintendent of the National Park Service from 1972 to 1975 and served as
Special Assistant to the President of the United States from 1969 to 1972.
46
The Board of Directors of Novavax consists of two Class I Directors (Messrs.
Xxxxxxxxx and Xxxxxx), two Class II Directors (Xx. Xxxxxxx and Xx. Xxxxx) and
two Class III Directors (Xx. Xxxxx and Xx. Xxxxx). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors or director of the same class whose terms are then
expiring. The terms of the Class I Directors, Class II Directors, and Class
III Directors will expire upon the election and qualification of successor
directors at the annual meeting of stockholders held during the calendar years
1996, 1997 and 1998, respectively.
Each officer serves at the discretion of the Board of Directors of Novavax.
There are no family relationships among any of the directors and executive
officers of Novavax.
BOARD COMMITTEES
The Board of Directors of Novavax has a Compensation and Stock Option
Committee (the "Compensation Committee"), an Audit Committee and an
Independent Committee. The Compensation Committee reviews and recommends
salaries and other compensatory benefits for the principal officers of Novavax
and grants stock options to key employees of Novavax and its subsidiaries. The
Audit Committee selects Novavax's independent auditors, reviews the audit of
Novavax's accounts, monitors the effectiveness of the audit and evaluates the
scope of the audit. The Independent Committee reviews and approves any
contracts or other transactions between Novavax and IGI.
BOARD COMPENSATION
Each director not employed by Novavax will receive $1,000 for each meeting
of the Board of Directors he or she attends. See "--Stock Options" for a
description of options granted to non-employee directors of Novavax.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In August, 1995, the Board of Directors appointed Xx. Xxxxxxx and Messrs.
Xxxxx, Xxxxxxxxx and Xxxxxx to serve on the Compensation Committee. Xx. Xxxxx
is also a member of the IGI Compensation and Stock Option Committee. During
1994, Xx. Xxxxx and Xx. Xxxxx also participated in deliberations relating to
compensation of Novavax's other executive officers.
47
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation paid by IGI
during each of the last three fiscal years to Novavax's Chief Executive
Officer and the four most highly compensated executive officers of Novavax who
received compensation in excess of $100,000 during fiscal 1994 for services
provided to IGI (the "Named Executive Officers"). Novavax will pay the
compensation of its executive officers after the Distribution Date.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(2)
-------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION (3)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- -------- ------- --------------- ------------ ---------------- ---
Xxxxxx X. Xxxxx......... 1994 $285,500 $55,000 $ 1,475 50,000 $9,643
Chief Executive Officer 1993 259,545 35,000 -- 50,000 9,534
1992 235,950 30,000 1,538 50,000 9,795
Xxxxx X. X'Xxxxxxx...... 1994 169,500 25,000 7,200 8,000 9,487
President(4) 1993 169,808 10,000 7,200 10,000 9,647
1992 156,828 -- 7,701 8,000 2,389
Xxxx X. Xxxxx........... 1994 285,500 50,000 38,668 50,000 9,643
Chief Operating Officer 1993 259,545 30,000 35,387 50,000 9,534
and Treasurer 1992 235,950 25,000 38,340 50,000 9,795
Xxxxxx X. X. Xxxxxxx.... 1994 219,615 50,000 3,575 -- 9,198
President(5) 1993 199,650 10,000 4,831 -- 9,110
1992 181,500 17,000 12,219 -- 9,533
D. Xxxxx Xxxxxx, M.D. .. 1994 127,402 15,000 -- 10,000 8,723
Vice President(6) 1993 117,511 -- -- -- 8,451
1992 -- -- -- 10,000 --
--------
(1) The amounts shown in this column represent automobile allowances,
relocation expenses, medical expense reimbursements, housing allowances
and compensation for unused vacation time paid by IGI. Xx. Xxxxx received
$32,943 from IGI in 1994 as compensation for unused vacation time.
(2) IGI did not have a long-term compensation program that included long-term
incentive payouts, restricted stock awards, stock appreciation rights or
other forms of long-term compensation. This column reflects options to
purchase IGI Common Stock. See "--Stock Options--Spinoff Options" for a
description of options to purchase Novavax Common Stock that will be
granted to holders of options to purchase IGI Common Stock in connection
with the Distribution.
(3) The amounts shown in this column represent premiums for group life
insurance and medical insurance paid by IGI and IGI's contributions under
its 401(k) plan during fiscal 1994. The group life insurance premiums paid
by IGI for each of Drs. Hager, Wallach, X'Xxxxxxx and Xxxxxx and Xx. Xxxxx
for the last fiscal year were $1,270, $825, $1,270, $1,270 and $1,270,
respectively. The medical insurance premiums paid by Novavax for each of
Drs. Hager, Wallach, X'Xxxxxxx and Xxxxxx and Xx. Xxxxx were $7,101. IGI's
matching contributions under its 401(k) savings plan to each of Drs.
Hager, Wallach, X'Xxxxxxx and Xxxxxx and Xx. Xxxxx for the last fiscal
year were $1,272, $1,272, $1,116, $352 and $1,272, respectively.
(4) Xx. X'Xxxxxxx became President of Novavax in September 1995.
(5) Xx. Xxxxxxx resigned as President of Novavax and MVS as of December 31,
1994.
(6) Xx. Xxxxxx became Vice President of Novavax in January 1993.
48
OPTION GRANTS
The following table summarizes fiscal 1994 grants of options to the Named
Executive Officers to purchase IGI Common Stock. See "--Stock Options."
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
---------------------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SHARE) DATE ($) ($)
---- ---------- ------------ ----------- ---------- ---------------------
Xxxxxx X. Xxxxx(1)...... 50,000 20.5% $13.25 12/7/04 $ 417,375 $ 1,053,375
Xxxx X. Xxxxx(1)........ 50,000 20.5 13.25 12/7/04 417,375 1,053,375
Xxxxxx X.X. Xxxxxxx..... -- -- -- -- -- --
Xxxxx X. X'Xxxxxxx(2)... 8,000 3.3 13.25 12/7/04 66,780 168,540
D. Xxxxx Xxxxxx(2)...... 10,000 4.1 13.25 12/7/04 83,475 210,675
--------
(1) Options are exercisable in full six months after the date of grant.
(2) Options are exercisable one year after the date of grant, with 25% of the
shares covered thereby becoming exercisable at that time and with an
additional 25% of the shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the dates the respective options were granted to
their expiration dates.
OPTION EXERCISES
The following table provides information on exercises of options to purchase
IGI Common Stock during fiscal 1994 by the Named Executive Officers and the
value of such executive's unexercised options to acquire IGI Common Stock at
the end of fiscal 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END
ON VALUE (#) ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- -------- -------- --------------- -----------------
Xxxxxx X. Xxxxx............. -- -- 295,000/50,000 $ 947,750/$0
Xxxx X. Xxxxx............... 47,218 $530,967 345,000/50,000 2,013,250/0
Xxxxxx X.X. Xxxxxxx......... 20,000 5,000 25,000/0 0/0
Xxxxx X. X'Xxxxxxx.......... -- -- 25,250/25,750 28,813/24,437
D. Xxxxx Xxxxxx............. -- -- 5,000/15,000 5,625/ 5,625
--------
(1) Represents the difference between the exercise price and the last sales
price of the IGI Common Stock on the date of exercise.
(2) Value based on market value of the IGI Common Stock at the end of fiscal
1994 ($12.125 per share) minus the exercise price.
49
STOCK OPTIONS
1995 Stock Option Plan
Novavax's 1995 Stock Option Plan (the "Novavax Option Plan") was adopted by
the Board of Directors and approved by the stockholders on September 13, 1995.
The Novavax Option Plan provides for the grant of options for the purchase of
an aggregate of 4,000,000 shares of Novavax Common Stock to officers and
employees of, and consultants or advisors to, Novavax and its subsidiaries and
to holders of options for the purchase of IGI Common Stock as of the
Distribution Date. A total of 2,034,015 shares under the Novavax Option Plan
are reserved for issuance upon exercise of the Spinoff Options (as described
below) granted to IGI option holders and the balance is reserved for issuance
upon exercise of stock options to be granted to officers, employees and
consultants of Novavax.
The Novavax Option Plan is administered by the Compensation Committee, which
has the authority to select the individuals to whom options are granted and
determine the terms of each option, including the number of shares covered by
each option, the option exercise price and when the options become vested or
exercisable. Options granted under the Novavax Option Plan may be either
"incentive stock options" within the meaning of Section 422 of the Code or
"non-statutory stock options" (options that do not meet the requirements for
incentive stock option treatment). In the case of incentive stock options, the
purchase price cannot be less than 100% of the fair market value of the shares
on the date of grant. There is no minimum exercise price for non-statutory
stock options. Incentive stock options can have a term of up to ten years.
Options are not transferable and can be exercised only by the optionee, except
in the event of the optionee's death. Except for the special option grants
described below, generally options under the Novavax Option Plan become
exercisable in installments on a cumulative basis, at a rate of 25% each year
during the first, second, third and fourth years after the date of grant.
Options can be exercised by paying the exercise price in cash, in shares of
Novavax Common Stock then held by the optionee, which have been held for at
least six months, or by a combination of cash and Novavax shares. All
employees, officers and directors of or consultants or advisors to Novavax are
eligible to receive options under the Novavax Option Plan. However, only
employees of Novavax are entitled to receive incentive stock options.
After the Distribution, Novavax will have approximately 16 employees, all of
whom will be eligible to participate in the Novavax Option Plan. The number of
individuals receiving stock options will vary from year to year depending upon
various factors, such as the number of promotions and Novavax's hiring needs
during the year. Thus, Novavax cannot now determine award recipients.
Immediately after the Distribution, the Board of Directors of Novavax is
expected to authorize the grant of options to purchase an aggregate of 850,000
shares of Novavax Common Stock, of which 600,000 will be purchasable at an
exercise price of $.01 per share and 250,000 will be purchasable at an
exercise price of $3.24 per share. These options will be granted to 16
employees of Novavax as an incentive to retain their continued employment
after the Distribution, including the following Named Executive Officers of
Novavax:
NUMBER OF SHARES NUMBER OF SHARES
NAME ($.01 EXERCISE PRICE) ($3.24 EXERCISE PRICE)
---- --------------------- ----------------------
D. Xxxxx Xxxxxx, M.D......... 274,870 73,654
Xxxxx X. X'Xxxxxxx, M.D...... 0 40,000
These options first become exercisable six months after the Distribution Date
as to 50% of the shares covered thereby and as to an additional 25% of the
shares on each of the first and second anniversaries of the Distribution Date.
In the event of a consolidation, merger or sale of all or substantially all
of the assets of Novavax, or in the event of a liquidation of Novavax, the
Board of Directors of Novavax may, in its discretion, take one or more of the
following actions: (i) provide that outstanding options shall be assumed, or
equivalent options shall be substituted, by the acquiring corporation, (ii)
upon written notice to optionees, provide that all unexercised
50
options will terminate unless exercised within a specified time, (iii) in the
event of a merger in which cash payments are paid to stockholders, make or
provide for a cash payment to optionees equal to the difference between the
cash payment payable in the merger per share of Novavax Common Stock and the
exercise price per share, multiplied by the number of shares subject to each
outstanding option, and (iv) provide that all or any outstanding options shall
become exercisable in full.
Notwithstanding any other provision of the Novavax Option Plan, the Board of
Directors of Novavax, in its sole discretion, may accelerate the date or dates
on which any or all options may be exercised or extend the dates during which
any or all options may be exercised; provided that no such extension shall be
permitted if the Novavax Option Plan would fail to comply with Section 422 of
the Code or Rule 16b-3 under the Exchange Act. The options granted in November
1995 to purchase an aggregate of 850,000 shares of Novavax Common Stock become
immediately exercisable in the event of the acquisition of Novavax, including
a merger in which Novavax is not the surviving entity, the sale of all or
substantially all of the assets of Novavax or the acquisition of a majority of
the equity securities of Novavax. Options held by an employee optionee also
become immediately exercisable in the event such optionee's employment is
terminated without cause.
The Board of Directors of Novavax may at any time, and from time to time,
modify or amend the Novavax Option Plan in any respect, except that if at any
time the approval of the stockholders of Novavax is required under Section 422
of the Code or any successor provision with respect to incentive options, or
under Rule 16b-3 under the Exchange Act, the Board of Directors may not effect
such modification or amendment without such approval. The Novavax Option Plan
will terminate, with respect to incentive stock options, on the earlier of
(i) September 13, 2005 or (ii) the date on which all shares available for
issuance under the Novavax Option Plan shall have been issued. The Novavax
Option Plan will terminate with respect to non-statutory options as provided
in clause (ii) of the preceding sentence.
Spinoff Options
On September 13, 1995, the Board of Directors of Novavax authorized the
grant of options to purchase Novavax Common Stock ("Spinoff Options") to all
holders of options to purchase IGI Common Stock as of the Distribution Date.
These holders include both employees of IGI who transferred to Novavax and
employees of IGI who remain with IGI. The Spinoff Options were granted to such
holders on substantially similar terms to the corresponding options to
purchase IGI Common Stock held by such holders, including the rate at which
the options vest and the expiration date of such options, with two exceptions.
First, the number of shares of Novavax Common Stock under the Spinoff Options
as compared to their IGI counterparts will reflect the distribution of one
share of Novavax Common Stock for each share of IGI Common Stock. Second, the
exercise prices of the Spinoff Options are to be determined by multiplying the
exercise price of the related IGI option by a fraction, the numerator of which
shall equal the product of Novavax's outstanding shares multiplied by the fair
market value of Novavax Common Stock (which shall equal the weighted average
of the last reported price per share of Novavax Common Stock on the American
Stock Exchange for the 20 trading days immediately following the Distribution
Date) ("Novavax Market Capitalization"), and the denominator of which shall
equal the sum of (a) the product of IGI's shares outstanding multiplied by the
fair market value of IGI Common Stock (which shall equal the weighted average
of the last reported price per share of IGI Common Stock on the American Stock
Exchange for the 20 trading days immediately following the Distribution Date)
("IGI Market Capitalization") and (b) the Novavax Market Capitalization. For
example, if an individual holds an option to purchase 100 shares of IGI Common
Stock at an exercise price of $10.00 per share, the Novavax Market
Capitalization equals $30,000,000 and the IGI Market Capitalization equals
$70,000,000, then such holder will receive a Spinoff Option to purchase 100
shares of Novavax Common Stock at an exercise price of $3.00 per share (i.e.,
$10 X 30,000,000/100,000,000 = $3.00).
As of the Distribution Date, Spinoff Options to purchase 2,034,015 shares of
Novavax Common Stock will be granted to holders of options to purchase IGI
Common Stock. Among these options, options to purchase an aggregate of 761,000
shares of Novavax Common Stock will be granted to the following officers of
Novavax:
51
NAME NUMBER OF SHARES
---- ----------------
Xxxxxx X. Xxxxx, M.D...................................... 345,000
Xxxx X. Xxxxx............................................. 345,000
Xxxxx X. X'Xxxxxxx, M.D................................... 51,000
D. Xxxxx Xxxxxx, M.D...................................... 20,000
In connection with the Distribution and the grant of Spinoff Options by
Novavax, the Board of Directors of IGI approved certain adjustments to the
exercise price of all outstanding IGI options as of the Distribution Date.
These adjustments are applied to each option to purchase IGI Common Stock by
multiplying the exercise price of the option by a fraction, the numerator of
which shall equal the IGI Market Capitalization and the denominator of which
shall equal the sum of the IGI Market Capitalization and the Novavax Market
Capitalization. Thus, a holder of an option to purchase one share of IGI
Common Stock at an exercise price of $10.00 per share will, assuming the
numbers in the example above, have the exercise price of his option reduced
from $10.00 per share to $7.00 per share (i.e.,
$10.00 X 70,000,000/100,000,000 = $7.00).
1995 Director Stock Option Plan
The 1995 Director Stock Option Plan of Novavax (the "Director Plan") was
adopted by the Board of Directors and approved by the stockholders of Novavax
on September 13, 1995. The Director Plan provides for the issuance of up to
500,000 shares of Novavax Common Stock upon the exercise of stock options
granted under the Director Plan. Under the terms of the Director Plan, each
non-employee director of Novavax serving as a director on the Distribution
Date will be granted an option for the purchase of 20,000 shares of Novavax
Common Stock and each non-employee director who becomes a director after the
Distribution Date will be granted an option for the purchase of 20,000 shares
of Novavax Common Stock on the date of his or her initial election as a
director. In addition, each non-employee director who is then serving as a
director will be granted a non-statutory option to purchase 10,000 shares of
Novavax Common Stock on the last business day of each of 1995, 1996, 1997 and
1998. Such options are exercisable in full beginning on the date which is six
months after the date of grant and terminate ten years after the date of
grant. The option exercise price per share is equal to the fair market value
of a share of Novavax Common Stock on the date the option is granted.
The term of each option granted under the Director Plan is ten years,
provided that an option may be exercised only while the director continues to
serve as a director of Novavax and for a period of three years after he or she
ceases to be a director for any reason. Options are not transferable except by
will or by the laws of descent and distribution.
The Board of Directors shall supervise and administer the Director Plan.
Directors of Novavax who are not employees of Novavax or any subsidiary of
Novavax are eligible to participate in the Director Plan.
The Board of Directors of Novavax may suspend or discontinue the Director
Plan or amend it in any respect; provided, however, that without approval of
the stockholders of Novavax, the Board of Directors of Novavax may not (i)
change the number of shares subject to the Director Plan, (ii) change the
designation of the class of directors eligible to receive options, or (iii)
materially increase the benefits accruing to participants under the Director
Plan. Notwithstanding the foregoing, the Director Plan may not be amended more
than once every six months.
In the event of a Change in Control (as defined below), all options
outstanding as of the date such Change in Control occurs shall become
exercisable in full, whether or not exercisable in accordance with their
terms. A "Change in Control" shall occur or be deemed to have occurred only if
any of the following events occur: (i) any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than Novavax, any trustee
or other fiduciary holding securities under an employee benefit plan of
Novavax, or any corporation owned directly or indirectly by the stockholders
of Novavax in substantially the same proportion as their ownership of stock of
Novavax) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of Novavax
representing 50% or more of the combined voting
52
power of Novavax's then outstanding securities; (ii) individuals who, as of
the Distribution Date, constitute the Board of Directors of Novavax (as of the
date thereof, the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date thereof whose election, or nomination for election by
Novavax's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of Novavax as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; (iii) the stockholders of Novavax approve a merger or consolidation of
Novavax with any other corporation, other than (A) a merger or consolidation
which would result in the voting securities of Novavax outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50%
of the combined voting power of the voting securities of Novavax or such
surviving entity outstanding immediately after such merger or consolidation or
(B) a merger or consolidation effected to implement a recapitalization of
Novavax (or similar transaction) in which no person acquires more than 30% of
the combined voting power of Novavax's then outstanding securities; or (iv)
the stockholders of Novavax approve a plan of complete liquidation of Novavax
or an agreement for the sale or distribution by Novavax of all or
substantially all of Novavax's assets.
SmithKline Option
On August 2, 1993, SmithKline and IGI entered into an Option Agreement
pursuant to which IGI granted SmithKline an option to purchase IGI Common
Stock subject to certain conditions. On November 9, 1995, that agreement was
amended (hereinafter, as amended, the "SmithKline Option") to provide
SmithKline the right to exercise its option, after the Distribution, for the
purchase of both Novavax and IGI Common Stock. The SmithKline Option, which
expires June 2, 1996, grants SmithKline the right to purchase (i) that number
of shares of Common Stock of Novavax as is determined by multiplying
$5,000,000 by a fraction (the "Novavax Fraction") of which the numerator is
the Novavax Market Capitalization and the denominator is the sum of the
Novavax Market Capitalization and the IGI Market Capitalization (as defined
above) and (ii) that number of shares of Common Stock of IGI as is determined
by multiplying $5,000,000 by a fraction of which the numerator is the IGI
Market Capitalization and the denominator is the sum of the IGI Market
Capitalization and the Novavax Market Capitalization. The exercise price per
share for the Novavax Common Stock shall be the lesser of $13 or the sum of
the last reported sales prices of the Novavax Common Stock and the IGI Common
Stock on the date of exercise of the option multiplied by the Novavax
Fraction. The exercise of the option is conditioned upon SmithKline's purchase
of both Novavax Common Stock and IGI Common Stock. The SmithKline Option also
provides that if SmithKline exercises its option to purchase $5,000,000 of
Novavax and IGI Common Stock, it will have the right to purchase an additional
$5,500,000 of combined Novavax and IGI Common Stock on the same terms and
conditions as apply to the $5,000,000 option exercise.
FEDERAL INCOME TAX ASPECTS OF STOCK OPTIONS
The following is a general summary of the federal income tax treatment of
the options issuable under the Novavax Option Plan and the Director Plan.
Incentive Stock Options. No taxable income will be recognized by an optionee
upon the grant or exercise of an incentive stock option granted under the
Novavax Option Plan (provided that the difference between the option exercise
price and the fair market value of the stock on the date of exercise must be
included in the optionee's "alternative minimum taxable income" as described
below), and no corresponding expense deduction will be available to Novavax.
Generally, if an optionee holds shares acquired upon the exercise of incentive
stock options until the later of (i) two years from the grant of the option
and (ii) one year from the date of transfer of the purchased shares to him or
her (the "Statutory Holding Period"), any gain to the optionee upon a sale of
such shares will be treated as capital gain. The gain recognized upon the sale
of the stock is the difference between the option price and the sale price of
the stock. The net federal income tax effect on the holder of
53
incentive stock options is to defer, until the stock is sold, taxation of any
increase in the stock's value from the time of grant to the time of exercise,
and to cause all such increase to be treated as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period (a "disqualifying disposition"), he or she will realize taxable
income at ordinary tax rates in an amount equal to the lesser of (i) the fair
market value of the shares on the date of exercise less the option price, or
(ii) the amount realized on the sale less the option price, and Novavax will
receive a corresponding business expense deduction. Any additional gain will
be treated as long-term capital gain if the shares are held for more than one
year prior to the sale and as short-term capital gain if the shares are held
for a shorter period. If the optionee sells the stock for less than the option
price, he or she will recognize a capital loss equal to the difference between
the sale price and the option price. The loss will be a long-term capital loss
if the shares are held for more than one year prior to the sale and as a
short-term capital loss if the shares are held for a shorter period.
Special rules may apply to options held by directors and officers. If the
optionee making a disqualifying disposition is a person subject to the
reporting requirements of Section 16(a) of the Exchange Act (a "Reporting
Person"), and the option was exercised within six months of the date of grant
and no election pursuant to Section 83(b) of the Code is made, the amount of
taxable income realized at ordinary income tax rates (and the amount of
Novavax's business expense deduction) will be equal to the lesser of (i) the
fair market value of the shares on the date that is six months after the date
of grant less the option price, or (ii) the amount realized on sale less the
option price.
For purposes of the "alternative minimum tax" applicable to individuals, the
exercise of an incentive stock option is treated in the same manner as the
exercise of a non-statutory option. Thus, an optionee must, in the year of
option exercise, include the difference between the exercise price and the
fair market value of the stock on the date of exercise in alternative minimum
taxable income. The alternative minimum tax is imposed upon an individual's
alternative minimum taxable income at rates of 26% to 28%, but only to the
extent that such tax exceeds the taxpayer's regular income tax liability for
the taxable year.
Non-Statutory Stock Options. No taxable income is recognized by the optionee
upon the grant of a non-statutory stock option under the Novavax Option Plan
and the Director Plan. The optionee must recognize as ordinary income in the
year in which the option is exercised the amount by which the fair market
value of the purchased shares on the date of exercise exceeds the option price
(and Novavax is required to withhold an appropriate amount for tax purposes).
However, the following special rules apply to Reporting Persons (all optionees
under the Director Plan). If such a person (executive officers and directors
of Novavax) exercises the option within six months of the date of grant, upon
exercise of such option, no income will be recognized by the optionee until
six months have expired from the date the option was granted, and the income
then recognized will include any appreciation in the value of the shares
during the period between the date of exercise and the date six months after
the date of grant, unless the optionee makes an election under Section 83(b)
of the Code to have the difference between the exercise price and fair market
value at the time of exercise recognized as ordinary income as of the time of
exercise.
Novavax generally will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee, subject to any other
applicable limitations on the deduction of compensation such as Section 162(m)
(compensation in excess of $1,000,000) and Section 280G ("parachute
payments"). Any additional gain or any loss recognized upon the subsequent
disposition of the purchased shares will be a capital gain or loss, and will
be a long- term gain or loss if the shares are held for more than one year.
54
CERTAIN TRANSACTIONS
IGI and Novavax have entered into several intercompany agreements in
connection with the Distribution. See "The Distribution--Relationship Between
IGI and Novavax After The Distribution." In addition, prior to the
Distribution, Novavax was restructured, IGI paid certain amounts to Novavax,
the Board of Directors was reconstituted and certain other actions were taken
involving Novavax. See "The Distribution--Restructuring Prior to
Distribution," "--Board of Directors and Management of Novavax" and
"Business--License of Technology to IGI."
On November 20, 1995, in connection with the acquisition of Lipovax by
Novavax, the stockholders of Lipovax were issued an aggregate of 2,742,188
shares of Novavax Common Stock (as adjusted for the Restructuring and the
Recapitalization), based on valuations of Lipovax and Novavax by the
Independent Committee of the Board of Directors of IGI. See "The
Distribution--Restructuring Prior to Distribution." Officers and directors of
Novavax who received Novavax Common Stock as a result of their equity
ownership in Lipovax are as follows:
SHARES OF
NAME NOVAVAX COMMON STOCK
---- --------------------
D. Xxxxx Xxxxxx, M.D.................................. 82,526
Xxxxx X. X'Xxxxxxx, M.D............................... 20,727
On November 20, 1995, Novavax issued to IGEN an aggregate of 5,253,452
shares of Novavax Common Stock (as adjusted for the Restructuring and the
Recapitalization) in exchange for the assignment by IGEN of its right to
receive the payment of indebtedness of Novavax in the aggregate amount of
$17,024,000.
On December 31, 1994, Xx. Xxxxxx X.X. Xxxxxxx ("Xxxxxxx"), the former
President of Novavax and MVS, resigned as an officer of those two companies
and as an officer of IGI and affiliated companies. Xx. Xxxxxxx was, at the
time of his resignation, indebted to IGI for advances made in 1988 and 1989.
On June 7, 1995, Xx. Xxxxxxx'x aggregate indebtedness, including accrued and
unpaid interest, was $217,942, and this amount was paid in full by Xx.
Xxxxxxx'x delivery and transfer to IGI of 11,753 shares of Novavax Common
Stock (as adjusted for the Restructuring and the Recapitalization) then owned
by him, having a value as determined (as of December 7, 1994) by IGI's
Independent Committee approximately equal to the then outstanding
indebtedness.
Of the 6.8% (673,611 shares) of the outstanding Novavax Common Stock not
owned by IGI prior to the Distribution, 5.0% (490,607 shares) was owned by the
following current and former officers and directors of Novavax and IGI,
acquired by them through purchase of such shares in 1987, 1988 and 1993.
NAME NO. OF SHARES
---- -------------
Xx. Xxxxxx X. Xxxxx(1)....................................... 139,018
Xxxx X. Xxxxx................................................ 63,190
Xxxxxx X.X. Xxxxxxx, M.D..................................... 172,508
Xxxxxxxx Xxxxx, D.V.M., Ph.D................................. 12,638
D. Xxxxx Xxxxxx, M.D......................................... 82,526
Xxxxx X. X'Xxxxxxx, M.D...................................... 20,727
--------
(1) Includes shares held by Xxxx X. Xxxxx, Xx. Xxxxx'x wife, and shares held
by trusts for the benefit of Xx. Xxxxx'x minor children. Xx. Xxxxx
disclaims beneficial ownership of the shares held by his wife.
The remaining minority shares were owned by current and former employees and
consultants of Novavax and IGI.
55
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the number of shares and percentage of
Novavax Common Stock held (i) on an actual basis as of November 1, 1995, (ii)
after giving effect to the Restructuring as if it had occurred on November 1,
1995, and (iii) after giving effect to the Distribution, in each case by (x)
each person who is expected by Novavax to beneficially own more than five
percent of Novavax Common Stock after the Distribution, (y) each of Novavax's
directors and the executive officers named in the Summary Compensation Table
above, and (z) all of Novavax's directors and executive officers as a group.
The information provided below relating to ownership after the Distribution is
based on certain information known to Novavax with respect to such persons'
beneficial ownership of shares of IGI Common Stock as of November 1, 1995. The
table assumes that ownership of Novavax Common Stock by such persons will not
change before the Record Date.
AFTER AFTER
ACTUAL RESTRUCTURING DISTRIBUTION
------------ -------------- ---------------------
NAME SHARES % SHARES % SHARES %
---- ------ ----- -------------- --------- -----
IGEN, Inc. ............. 11,760 78.5% 72,910 93.2% 0
103 Springer Building
0000 Xxxxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Xxxxxx X. Xxxxx, M.D. .. 1,100 7.3% 1,100 1.4% 1,108,519(2) 10.8%
Xxxxxxxx Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxx Xxxxx.............. 534,500 5.3%
Pinnacle Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxxx Xxxx............ 735,400(3) 7.4%
0000 X.X. 000xx Xxxxxx
Xxxxxxxxx X
Xxxxx Xxxxx Xxxxx, XX
00000
Xxxx X. Xxxxx........... 500 3.3% 500 0.6% 664,587(4) 6.5%
0000 Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Xxxxxxx X. Xxxxxx....... 559,435 5.7%
00 Xxxxxxxx Xxxxxx
Xxxxxx, XX
J. Xxxxxxx Xxxxxxx,
M.D.(5)................
Xxxx X. Xxxxx, Xx. ..... 60,000(5)(6) *
Xxxxxx X. Xxxxxxxxx(5).. 34,000 *
Xxxxxx X. Xxxxxx(5).....
Xxxxxx X.X. Xxxxxxx, 1,365 9.1% 1,365 1.7% 172,508 1.7%
M.D. ..................
Xxxxx X. X'Xxxxxxx, 164 0.2% 58,727(7) *
M.D....................
D. Xxxxx Xxxxxx, M.D.... 653 0.8% 92,526(8) *
Total Executive
Officers And
Directors (8 persons).. 1,600 10.7% 2,417 3.1% 2,018,358(9) 18.9%
--------
*Less than 1%
(1) Each stockholder possesses sole voting and investment power with respect
to the shares listed, except as otherwise noted.
(2) Includes 345,000 shares which Xx. Xxxxx may acquire pursuant to stock
options exercisable within 60 days after November 1, 1995.
56
(3) As reported on Schedule 13G filed with the Securities and Exchange
Commission on September 9, 1995 represents shares beneficially owned by
various partnerships and entities for which Xx. Xxxx serves as investment
advisor.
(4) Includes 345,000 shares which Xx. Xxxxx may acquire pursuant to stock
options exercisable within 60 days after November 1, 1995.
(5) Does not include stock options to purchase 20,000 shares of Novavax Common
Stock to be granted on or about the Distribution Date.
(6) Includes 60,000 shares which Xx. Xxxxx may acquire pursuant to stock
options exercisable within 60 days after November 1, 1995.
(7) Includes 38,000 shares which Xx. X'Xxxxxxx may acquire pursuant to stock
options exercisable within 60 days after November 1, 1995.
(8) Includes 10,000 shares which Xx. Xxxxxx may acquire pursuant to stock
options exercisable within 60 days after November 1, 1995.
(9) Includes 798,000 shares which executive officers and directors as a group
may acquire pursuant to stock options exercisable within 60 days after
November 1, 1995.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Novavax consists of 30,000,000 shares of
Novavax Common Stock and 2,000,000 shares of Preferred Stock, $.01 par value
per share (the "Preferred Stock").
COMMON STOCK
Holders of Novavax Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Novavax
Common Sock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Novavax Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding up of Novavax, the holders of Novavax Common Stock are
entitled to receive ratably the net assets of Novavax available after the
payment of all debts and liabilities and subject to the prior rights of any
outstanding Preferred Stock. Holders of Novavax Common Stock are, and the
shares being distributed in the Distribution will be, when issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of
Novavax Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which Novavax
may designate and issue in the future.
PREFERRED STOCK
The Board of Directors may, without further action of the stockholders of
Novavax, issue Preferred Stock in one or more series and fix the rights and
preferences thereof, including the dividend rights, dividend rates, conversion
rights, voting rights, pre-emptive rights, terms of redemption (including
sinking fund provisions), redemption prices and liquidation preferences.
The Amended and Restated Certificate of Incorporation of Novavax (the
"Certificate of Incorporation") grants the Board of Directors authority to
issue Preferred Stock and to determine its rights and preferences without the
need for further stockholder approval to eliminate delays associated with a
stockholder vote on specific issuances. The issue of Preferred Stock, while
providing desirable flexibility in connection with possible financings, could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from acquiring, a majority of the outstanding
voting stock of Novavax. Novavax has no present plans to issue any shares of
Preferred Stock.
57
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Novavax is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock
of the corporation entitled to vote. Under the Certificate of Incorporation,
any vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of
Novavax.
The Certification of Incorporation also provides that after the Distribution
Date, any action required or permitted to be taken by the stockholders of
Novavax at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Certificate of Incorporation further
provides that special meetings of the stockholders may only be called by the
Chief Executive Officer or, if none, the President of Novavax or by the Board
of Directors. Under Novavax's Amended and Restated By-Laws (the "By-Laws"), in
order for any matter to be considered "properly brought" before a meeting, a
stockholder must comply with certain requirements regarding advance notice to
Novavax. The foregoing provisions could have the effect of delaying until the
next stockholders meeting stockholder actions which are favored by the holders
of a majority of the outstanding voting securities of Novavax. These
provisions may also discourage another person or entity from making a tender
offer for Novavax Common Stock, because such person or entity, even if it
acquired a majority of the outstanding voting securities of Novavax, would be
able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case
may be, requires a greater percentage. The Certificate of Incorporation and
the By-Laws of Novavax require the affirmative vote of the holders of at least
75% of the shares of capital stock of Novavax issued and outstanding and
entitled to vote to amend or repeal any of the provisions described in the
prior two paragraphs. Such 75% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any Preferred Stock that might be outstanding at the time any such changes
are submitted to stockholders.
In addition, the By-Laws provide that, during any time in which the
directors of Novavax who are affiliated with IGI shall constitute at least
half of the membership of the Novavax Board of Directors, any matter requiring
approval of the Novavax Board of Directors shall be subject to the approval of
not less than two-thirds of the directors. As of the date of this Information
Statement, Xx. Xxxxx and Messrs. Xxxxx and Xxxxx, who represent half of the
membership of the Novavax Board of Directors, are affiliates of IGI.
The Certificate of Incorporation contains certain provisions permitted under
the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary
damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing
58
violation of law. Further, the Certificate of Incorporation contains
provisions to indemnify Novavax's directors and officers to the fullest extent
permitted by the General Corporation Law of Delaware. See "Indemnification of
Directors and Officers." Novavax believes that these provisions will assist it
in attracting and retaining qualified individuals to serve as directors.
DIVIDENDS
Novavax currently anticipates that it will retain all of its earnings for
use in the development of its business and does not anticipate paying any cash
dividends in the foreseeable future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Novavax Common Stock is State Street
Bank and Trust Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of Novavax's Certificate of Incorporation provides that a
director or officer of Novavax (a) shall be indemnified by Novavax against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal
proceeding (other than an action by or in the right of Novavax) brought
against him by virtue of his position as a director or officer of Novavax if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of Novavax, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by Novavax against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of Novavax brought against him
by virtue of his position as a director or officer of if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of Novavax, except that no indemnification shall be made with
respect to any matter as to which such person shall have been adjudged to be
liable to Novavax, unless a court determines that, despite such adjudication
but in view of all of the circumstances, he is entitled to indemnification of
such expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by Novavax against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless Novavax determines that the
applicable standard of conduct required for indemnification has not been met.
In the event of a determination by Novavax that the director or officer did
not meet the applicable standard of conduct required for indemnification, or
if Novavax fails to make an indemnification payment within 60 days after such
payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is
entitled to indemnification. As a condition precedent to the right of
indemnification, the director or officer must give Novavax notice of the
action for which indemnity is sought and Novavax has the right to participate
in such action or assume the defense thereof.
Article NINTH of Novavax's Certificate of Incorporation further provides
that the indemnification provided therein is not exclusive, and provides that
in the event that the Delaware General Corporation Law is amended to expand
the indemnification permitted to directors or officers Novavax must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such
59
person shall have acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, in any
criminal proceeding, if such person had no reasonable cause to believe his
conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification shall be made with respect to
any matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the adjudicating court
determines that such indemnification is proper under the circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Novavax
pursuant to the provisions of the Delaware General Corporation Law and the
provisions of Novavax's Certificate of Incorporation described above, Novavax
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Novavax of
expenses incurred or paid by a director, officer or controlling person of
Novavax in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, Novavax will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
TRADEMARKS
Novasome(R) is a registered trademark of Novavax and Novamix(TM) is a
trademark of Novavax(R). All other trademarks or trade names referred to in
this Information Statement are the property of their respective owners.
AVAILABLE INFORMATION
IGI is (and, following the Distribution, Novavax will be) subject to the
informational requirements of the Exchange Act, and in accordance therewith
files (and Novavax will file) reports and other information with the
Commission. The reports, proxy statements and other information filed by IGI
(and to be filed by Novavax) may be inspected and copied at the public
reference facilities maintained by the Commission at 000 Xxxxx Xxxxxx, X.X.,
Xxxxxxxxxx, X.X. 00000 and at the Commission's regional offices located at
Seven World Trade Center, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, and at
Citicorp Center, 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 000 Xxxxx Xx., X.X., Xxxxxxxxxx, X.X. 00000 at prescribed
rates.
Novavax intends to furnish to holders of Novavax Common Stock annual reports
containing consolidated financial statements prepared in accordance with
generally accepted accounting principles and audited and reported on, with an
opinion expressed, by an independent public accounting firm, as well as
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
This Information Statement does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, as certain
items are omitted in accordance with the rules and regulations of the
Commission. Reference is made to such Registration Statement and the exhibits
and schedules thereto, which may be inspected, without charge, at the office
of the Commission at 000 Xxxxx Xx., X.X., Xxxxxxxxxx, X.X. 00000, and copies
of which may be obtained from the Commission at prescribed rates. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED.
60
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a)Combined Financial Statements and Schedules--Novavax, Inc.
1. Report of Independent Accountants.
2. Combined Balance Sheets as of December 31, 1994 and 1993 (and
September 30, 1995, unaudited).
3. Combined Statements of Operations for the years ended December 31,
1994, 1993 and 1992 (and for the nine months ended September 30,
1995 and 1994, unaudited).
4. Combined Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992 (and for the nine months ended September 30,
1995 and 1994, unaudited)
5. Combined Statements of Changes in Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992 (and for the nine months
ended September 30, 1995 and 1994, unaudited).
6. Notes to Financial Statements.
(b)Exhibits
EXHIBIT
NO. DESCRIPTION
------- -----------
*2 Form of Plan and Agreement of Distribution between IGI, Inc.
("IGI") and Novavax, Inc. ("Novavax") to be entered into as of the
Distribution Date.
*3.1 Form of Amended and Restated Certificate of Incorporation of
Novavax.
*3.2 Form of Amended and Restated Bylaws of Novavax.
*4.1 Form of Common Stock Certificate of Novavax.
*10.1 Form of Tax Matters Agreement between Novavax and IGI to be
entered into as of the Distribution Date.
*10.2 Form of Transition Services Agreement between Novavax and IGI to
be entered into as of the Distribution Date.
*10.3 Form of License Agreement between IGEN, Inc. and Micro-Pak, Inc.,
to be entered into as of the Distribution Date.
*10.4 1995 Stock Option Plan.
*10.5 1995 Director Stock Option Plan.
*21 Subsidiaries of Novavax.
*99 Form of Distribution Agency Agreement between IGI and State Street
Bank and Trust Company.
--------
* Previously filed.
61
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, Novavax has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Novavax, Inc.
Date: November 29, 1995 /s/ Xxxxxx X. Xxxxx
By: _________________________________
Name:Xxxxxx X. Xxxxx
Title:Chairman and Chief Executive
Officer
62
APPENDIX A
NOVAVAX, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants......................................... A-2
Combined Balance Sheets as of December 31, 1994 and 1993, (and September
30, 1995, unaudited)..................................................... A-3
Combined Statements of Operations for the years ended December 31, 1994,
1993 and 1992 (and for the nine months ended September 30, 1995 and 1994,
unaudited)............................................................... A-4
Combined Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992 (and for the nine months ended September 30, 1995 and 1994,
unaudited)............................................................... A-5
Combined Statements of Stockholders' Deficit for the years ended December
31, 1994, 1993 and 1992 (and for the nine months ended September 30, 1995
and 1994, unaudited)..................................................... A-6
Notes to Combined Financial Statements.................................... A-7
A-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Novavax, Inc.:
We have audited the combined financial statements of Novavax, Inc. and
subsidiaries as listed in the Index to Appendix A to the Information Statement
of Novavax, Inc. These financial statements are the responsibility of
Novavax's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and the disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Novavax, Inc. and
its subsidiaries at December 31, 1994 and 1993 and the combined results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
Coopers & Xxxxxxx L.L.P.
0000 Xxxxxx Xxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx
March 31, 1995,
except for Note 7;
as to which the date
is November 9, 1995
A-2
NOVAVAX, INC. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------- ------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................... $ 17,513 $ 16,221 $ 17,966
Accounts receivable................ -- 475,000 134,000
Prepaid expenses................... 37,342 10,624 116,084
------------ ------------ ------------
Total current assets............... 54,855 501,845 268,050
------------ ------------ ------------
Furniture and equipment--at cost... 2,122,638 2,061,212 1,932,942
Accumulated depreciation......... (663,806) (516,691) (323,290)
------------ ------------ ------------
1,458,832 1,544,521 1,609,652
------------ ------------ ------------
Patent costs, net of accumulated
amortization of $283,368, $239,268
and $176,768 in 1995, 1994, and
1993, respectively.................. 1,257,569 1,073,930 885,026
Other assets......................... 12,657 12,392 56,903
------------ ------------ ------------
$ 2,783,913 $ 3,132,688 $ 2,819,631
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................... $ 111,388 $ 141,556 $ 54,930
Accrued expenses................... 11,746 54,130 10,206
------------ ------------ ------------
Total current liabilities........ 123,134 195,686 65,136
------------ ------------ ------------
Payable to parent.................... 6,878,850 5,139,870 3,825,489
------------ ------------ ------------
Commitments and contingencies
Stockholders' deficit:
Notes payable to parent............ 16,289,295 12,851,599 8,293,437
Combined entity capital............ 4,974,000 4,974,000 4,974,000
Deficit............................ (25,481,366) (20,028,467) (14,338,431)
------------ ------------ ------------
(4,218,071) (2,202,868) (1,070,994)
------------ ------------ ------------
$ 2,783,913 $ 3,132,688 $ 2,819,631
============ ============ ============
The accompanying notes are an integral part of the combined financial
statements.
A-3
NOVAVAX, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
Revenues:
Research revenues..... $ -- $ -- $ 475,000 $ 380,700 $ 940,900
Royalty revenues from
parent............... 202,648 139,000 209,877 198,546 86,555
----------- ----------- ----------- ----------- -----------
202,648 139,000 684,877 579,246 1,027,455
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Selling and market-
ing.................. 332,517 223,732 323,640 278,836 246,679
General and adminis-
trative.............. 1,761,482 1,649,165 2,162,431 1,976,356 1,314,741
Research and develop-
ment................. 2,248,433 1,987,037 2,860,048 2,701,038 1,720,220
Interest expense...... 1,313,115 711,518 1,028,794 413,049 193,471
----------- ----------- ----------- ----------- -----------
5,655,547 4,571,452 6,374,913 5,369,279 3,475,111
----------- ----------- ----------- ----------- -----------
Net loss................ $(5,452,899) $(4,432,452) $(5,690,036) $(4,790,033) $(2,447,656)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the combined financial
statements.
A-4
NOVAVAX, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- -------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
Cash used in operating
activities:
Net loss............... $ (5,452,899) $ (4,432,452) $(5,690,036) $(4,790,033) $(2,447,656)
Reconciliation of net
loss to net cash
used by operating
activities:
Depreciation and
amortization...... 147,116 146,874 255,901 203,352 132,570
Changes in assets
and liabilities:
Accounts receiv-
able............. 475,000 134,000 (341,000) (94,745) (39,255)
Prepaid and other
assets........... (26,983) 138,495 149,971 (41,779) 128,738
Accounts payable
and accrued ex-
penses........... (72,552) 145,903 130,549 (100,488) 5,803
------------ ------------ ----------- ----------- -----------
Net cash used by oper-
ating activities...... (4,930,318) (3,867,180) (5,494,615) (4,823,693) (2,219,800)
------------ ------------ ----------- ----------- -----------
Cash used in investing
activities:
Capital expenditures... (61,427) (127,972) (128,269) (345,510) (1,175,506)
Deferred patent
costs............... (183,639) (115,586) (251,404) (62,313) (264,148)
------------ ------------ ----------- ----------- -----------
Net cash used by in-
vesting activities.... (245,066) (243,558) (379,673) (407,823) (1,439,654)
------------ ------------ ----------- ----------- -----------
Cash flows from financ-
ing activities:
Capitalization of
Lipovax............. -- -- -- 134,000 --
Proceeds from payable
to parent........... 1,738,980 596,651 1,314,381 906,364 584,822
Proceeds from note to
parent.............. 3,437,696 3,512,849 4,558,162 4,194,408 3,074,817
------------ ------------ ----------- ----------- -----------
Net cash provided from
financing activities.. 5,176,676 4,109,500 5,872,543 5,234,772 3,659,639
------------ ------------ ----------- ----------- -----------
Net change in cash and
equivalents........... 1,292 (1,238) (1,745) 3,256 185
Cash at beginning of
the period............ 16,221 17,966 17,966 14,710 14,525
------------ ------------ ----------- ----------- -----------
Cash at end of the pe-
riod.................. $ 17,513 $ 16,728 $ 16,221 $ 17,966 $ 14,710
============ ============ =========== =========== ===========
The accompanying notes are an integral part of the combined financial
statements.
A-5
NOVAVAX, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993 AND 1992
TOTAL
COMBINED ENTITY NOTE PAYABLE STOCKHOLDERS'
CAPITAL DEFICIT TO PARENT DEFICIT
--------------- ------------ ------------ -------------
Balance, January 1,
1992................... $4,840,000 $ (7,100,742) $ 1,024,212 $(1,236,530)
Advances................ 3,074,817 3,074,817
Net loss................ (2,447,656) (2,447,656)
---------- ------------ ----------- -----------
Balance, December 31,
1992................... $4,840,000 $ (9,548,398) $ 4,099,029 $ (609,369)
Capitalization of
Lipovax................ 134,000 134,000
Advances................ 4,194,408 4,194,408
Net loss................ (4,790,033) (4,790,033)
---------- ------------ ----------- -----------
Balance, December 31,
1993................... $4,974,000 $(14,338,431) $ 8,293,437 $(1,070,994)
Advances................ 4,558,162 4,558,162
Net loss................ (5,690,036) (5,690,036)
---------- ------------ ----------- -----------
Balance, December 31,
1994................... $4,974,000 $(20,028,467) $12,851,599 $(2,202,868)
Advances................ 3,437,696 3,437,696
Net loss................ (5,452,899) (5,452,899)
---------- ------------ ----------- -----------
Balance, September 30,
1995................... $4,974,000 $(25,481,366) $16,289,295 $(4,218,071)
========== ============ =========== ===========
The accompanying notes are an integral part of the combined financial
statements.
A-6
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Novavax, Inc., a Delaware corporation ("Novavax"), has developed proprietary
organized lipid structures, lipid vesicle ("Novasome") encapsulation
technologies, cellulose structures and micellar nanoparticles (collectively,
the "Novavax Technologies") that it believes have a wide variety of
applications in human vaccines and pharmaceuticals. Novavax's business plan is
to apply its Novavax Technologies principally to the marketing or licensing of
therapeutic products for human infectious diseases, including new vaccines,
new adjuvants for vaccines, anti-bacterial and anti-viral products and
formulations for topical drug delivery. Novavax will seek to obtain additional
funds through public or private equity or debt financings, collaborative
arrangements with pharmaceutical companies or from other sources. There can be
no assurances that additional funding or bank financing will be available at
all or on acceptable terms, however management believes it will have the
ability to continue to operate at its current levels for the next 12 to 15
months and will have the ability to raise necessary funds.
Basis of Presentation
The combined financial statements include the accounts of Novavax (formerly
Molecular Packaging Systems, Inc.), its wholly-owned subsidiaries (Micro-Pak,
Inc. ("Micro-Pak") and Micro Vesicular Systems, Inc. ("MVS")), and Lipovax,
Inc. ("Lipovax", formerly known as Novavax, Inc.). Accounts and transactions
between the combined companies have been eliminated in combination. The
combined financial statements of Novavax, Inc. include 100% of the majority-
owned company, Lipovax, Inc.
The combined financial statements have been prepared from books and records
maintained by IGI, Inc. ("IGI"), reflect the financial position and results of
operations of Novavax at its historical bases and include allocations of
certain costs by IGI. The combined financial statements may not be indicative
of the results that would have been attained had the combined entities
operated together independently of IGI.
2. DISTRIBUTION
In November 1995, the Board of Directors of IGI is expected to declare a
distribution payable to the holders of record of IGI's Common Stock at the
close of business on a date to be determined by the Board of Directors of one
share of Novavax Common Stock, par value $.01 per share, for every one share
of IGI Common Stock (the "Distribution"). No fractional shares will be
distributed. The Distribution will result in approximately 93.2% of the
outstanding shares of Novavax Common Stock being distributed to holders of IGI
Common Stock on a proportionate basis after taking into account the
Restructuring and Recapitalization described in Note 3 below.
The remaining shares of Novavax Common Stock will be held by current or
former officers, employees and consultants of Novavax and of IGI (Xx. Xxxxxxx,
1.7%; Xx. Xxxxx, 1.4%; Xx. Xxxxx, .6%; others collectively, 3.1%).
3. RESTRUCTURING AND RECAPITALIZATION
Combined entity capital as of September 30, 1995 and December 31, 1994,
consists of the following:
Novavax common stock Class A....... 11,973
Novavax common stock Class B....... 3,000
Lipovax common stock............... 132,945
Novavax additional paid-in-
capital........................... 4,826,082
---------
Combined entity capital............ 4,974,000
=========
A-7
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Distribution, IGI will consolidate its animal health products
and cosmetics and consumer products businesses (the "Core Businesses") within
itself and its subsidiaries and consolidate the biotechnology business (the
"Biotechnology Business") within Novavax and its subsidiaries (the
"Restructuring"). At the time of the Restructuring, IGI will own, through its
wholly-owned subsidiary, IGEN, Inc. ("IGEN"), the following percentages of the
voting power of the subsidiaries conducting the Core Businesses and the
subsidiaries conducting the Biotechnology Business: 84.7% of the voting power
of Novavax, the sole stockholder of both Micro-Pak and MVS, and 90.3% of the
voting power of Lipovax. The Biotechnology Business resided, and continues to
reside, within Novavax, Micro-Pak, MVS and Lipovax. Prior to the
Restructuring, the current and former employees of Novavax and Lipovax held
approximately 15.3% and 9.7% of the voting power of Novavax and Lipovax,
respectively.
On September 20, 1995, Novavax, Lipovax and Novavax Acquisition Subsidiary,
Inc., a wholly-owned subsidiary of Novavax created for purposes of the
Restructuring ("Acquisition Corporation"), entered into a merger agreement
(the "Merger Agreement"). The Merger Agreement, which was approved by Lipovax
stockholders on October 12, 1995, provides, among other things, for a reverse
triangular merger (the "Merger") in which Acquisition Corporation merged with
and into Lipovax and Lipovax became a wholly-owned subsidiary of Novavax. As
consideration for the Merger, Novavax issued an aggregate of 21,698 shares, of
which 90.2% were issued to IGEN and the remaining 9.8% to the minority
stockholders of Lipovax. After the Merger, IGEN owned 85.5% of the outstanding
shares of Novavax, and the remaining 14.5% were held by the minority
stockholders of Novavax (8.7%) and by the former minority stockholders of
Lipovax (5.8%).
As part of the Restructuring, Novavax intends to issue to IGEN 41,569 shares
of Novavax Common Stock in exchange for the transfer by IGEN to Novavax of all
of IGEN's rights to the payment of $17,024,000 aggregate indebtedness
(estimated through the Distribution Date) owed to ImmunoGenetics, Inc., a
wholly-owned subsidiary of IGEN (and the primary operating entity of the Core
Businesses ("Immunogenetics")), by MVS ($9,888,000) and Lipovax ($7,136,000)
(collectively, "Novavax Sub Debt"). The amounts of indebtedness as of
September 30, 1995 are included in the accompanying balance sheets as Notes
payable to parent. The Novavax Sub Debt resulted from loans made by
ImmunoGenetics to MVS and Lipovax during the period from 1991 to 1995. The
number of shares of Novavax Common Stock to be issued in exchange for the
Novavax Sub Debt is based on the value of $409.54 per share of Novavax Common
Stock. Through September 30, 1995, IGI had loaned to Novavax $16,289,000 to
fund Novavax operations. In connection with the restructuring, Novavax will
convert $17,024,000 of these loans (estimated through November 30, 1995) for
41,569 shares of Novavax stock. Any advances in excess of $17,024,000 will be
deducted from IGI's $5,000,000 payment due under the License Agreement. Such
deductions will not exceed $250,000.
In addition to the Restructuring, Novavax will undertake a recapitalization
of its capital stock (the "Recapitalization"). Immediately prior to the
Recapitalization, Novavax's issued and outstanding capital stock will consist
of approximately 75,240 shares of Class A Common Stock and 3,000 shares of
Class B Common Stock. As a result of the Recapitalization, each share of Class
A and Class B Common Stock will be converted into approximately 126.37944
shares of Novavax Common Stock. After the Restructuring and Recapitalization,
there will be 9,887,936 shares of Novavax Common Stock outstanding.
To complete the separation of the Core Businesses from the Biotechnology
Business, IGEN will distribute all of the shares of Novavax Common Stock held
by IGEN (approximately 93.2% of the voting securities of Novavax) to IGI in a
transaction intended to qualify as a tax-free distribution under Section 355
of the Code. IGI has received a private letter ruling from the Internal
Revenue Service ("IRS") that the Distribution will not be taxable to IGI or
its shareholders.
A-8
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of amounts held with banks and other
short-term investments with initial maturities of 90 days or less.
Furniture and Equipment
Furniture and equipment is stated at cost. Depreciation is provided under
the straight-line method over the estimated useful lives, generally five
years.
Repair and maintenance costs are charged to operations as incurred while
major improvements are capitalized. When assets are retired or disposed of,
the cost and accumulated depreciation thereon are removed from the accounts
and any gains or losses are included in operations.
Amortization
Costs associated with obtaining patents, principally legal costs and filing
fees, are being amortized on a straight line basis over the remaining economic
lives of the respective patents.
Revenue Recognition
Revenues earned under research contracts are recognized when the related
contract provisions are met.
Income Taxes
Novavax is included in IGI's consolidated federal income tax return through
the effective date of the Distribution. Provisions for income taxes are
calculated on a separate return basis and are determined in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 109
which requires the asset and liability method of accounting for income taxes.
Under the asset and liability method deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of changes in tax rates is
recognized in income in the period that includes the enactment date. A
valuation allowance is record based on management's determination of the
ultimate realizability of future deferred tax assets.
Interim Financial Information
The unaudited interim financial statements for the nine months ended
September 30, 1995 and 1994 include all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair presentation of the financial position of Novavax as of September 30,
1995 and 1994 and the results of operations for the nine months ended
September 30, 1995 and 1994.
5. RELATED PARTY TRANSACTIONS
Intercompany Charges
IGI charges Novavax for expenses incurred on its behalf, including
executive, legal, accounting, data processing, consulting, cash management,
human resources and employee benefits. These costs are allocated on a variety
of methods, including:
.Specific identification based on estimates of time and services provided
.Relative identification allocated based on Novavax's relationship to the
entire pool of beneficiaries
A-9
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The allocation methods, while reasonable under the current circumstances,
may not represent the cost of similar activities on a separate basis. Such
costs have been included in general and administrative expenses, along with
interest expense on these accumulated amounts for the periods presented. These
amounts have been accumulated on Novavax's accompanying Balance Sheet as
payable to parent. After the Spinoff, this amount, $6,878,850, will be
reversed to the Deficit since these charges will not be repaid.
The net change in the payable to parent consists of:
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ------------------------------
1995 1994 1994 1993 1992
------------- ------------ ---------- -------- --------
(UNAUDITED)
Allocated general and
administrative
expenses............... $ 624,113 $ 584,417 $ 779,223 $691,086 $647,000
Interest expense........ 307,333 154,234 201,099 413,049 25,259
Royalty revenues........ -- (139,000) (209,877) (198,546) (86,555)
Payment of royalty
revenues............... -- -- 546,324 -- --
Credit for income
taxes.................. 797,000 -- -- -- --
Miscellaneous items..... 10,534 -- (2,388) 775 (882)
------------- ----------- ---------- -------- --------
Net change in payable to
parent................. $ 1,738,980 $ 596,651 $1,314,381 $906,364 $584,822
============= =========== ========== ======== ========
Intercompany Borrowing Arrangements
Novavax has a note payable to IGI under which borrowings bear interest at
IGI's borrowing rate. The note will be converted into shares of Novavax Common
Stock based on an appraisal of Novavax common stock. The outstanding loan
balance of $17,024,000 (estimated through November 30, 1995) will be converted
into 5,253,452 shares of Novavax common stock after the Restructuring and
Recapitalization. Such amounts will be included in the Distribution and
accordingly, have been classified in stockholders' deficit in the accompanying
balance sheets as note payable to parent. Any loans made by ImmunoGenetics to
Novavax in excess of $17,024,000 will be deducted from the $5,000,000 payment
due under the License Agreement. Such deductions will not exceed $250,000.
Substantially all of Novavax's assets are pledged as collateral under IGI's
debt agreements. In connection with the distribution, the bank has made a
commitment to release such assets from the pledge as of the Distribution Date.
Novavax has no outside borrowing arrangements.
Transitional Services
Novavax will enter into agreements with IGI under which IGI will continue to
provide certain executive and administrative services for a period not to
extend beyond June 30, 1996. Fees for such services will be based on IGI's
cost.
Royalty Revenues
Novavax earned royalties from IGI at 10% of the sales of the licensed
products. The agreements were terminated in connection with the Distribution
and execution of the Licensing Agreement (see Note 2). Such rate is slightly
above market rates; the difference between the actual rate and the market rate
should be reflected as a capital contribution. However, such difference was
not material and has been reflected as royalty revenue.
A-10
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Immediately after the Distribution, IGI will pay Novavax $5,000,000 in
return for a fully paid-up, exclusive ten-year license (the "License
Agreement") entitling it to use the Novavax Technologies in the fields of (i)
animal pharmaceuticals, biologicals and other animal health products; (ii)
foods, food applications, nutrients and flavorings; (iii) cosmetics, consumer
products and dermatological over-the-counter and prescription products
(excluding topically delivered hormones); (iv) fragrances; and (v) chemicals,
including herbicides, insecticides, pesticides, paints and coatings,
photographic chemicals and other specialty chemicals; and the processes for
making the same (collectively, the "IGI Field"). IGI will have the option,
exercisable within the last year of the ten-year term, to extend the License
Agreement for an additional ten-year period for $1,000,000. Novavax will
retain the right to use its Novavax Technologies for all other applications,
including human vaccines and pharmaceuticals. Novavax has presented the
payment under the License Agreement as a capital contribution in its pro forma
financial statements to reflect the substance of the transaction and its
intercompany nature as opposed to its form as a license agreement. The form
was structured as a prepaid license agreement to address tax and financing
considerations of the Distribution. Novavax has recorded the license at its
carryover basis because the transaction is a transfer made among entities
under common control. As all costs of development for this technology have
been expensed with the exception of the patents which are retained by Novavax,
the historical basis is zero. Accordingly, payments to Novavax under the
License Agreement have been reflected as a capital contribution.
6. CORPORATE ACTIVITIES
In May 1992, IGI entered into a human vaccine development joint venture
arrangement with Univax Biologics, Inc. (Univax). In December 1992, the
Companies concluded the initial research phase of the joint venture and agreed
to replace the joint venture with a technology license agreement whereby IGI
granted Univax exclusive rights to the use of the Novasome technology with
specific antigens. At the time, IGI purchased assets with an appraised value
of $926,000 from Univax in exchange for a cash payment of $426,000 and the
technology license agreement. The $500,000 technology licensing agreement has
been included in research revenues in the accompanying 1992 Statement of
Operations.
In August 1993, IGI entered into an agreement with SmithKline Xxxxxxx p.l.c.
("SmithKline") for testing Novavax's Novasome technology for various human
vaccines. IGI received $1,000,000 in exchange for 99,700 shares of IGI's
Common Stock and $100,000 to offset research expenses, which has been included
as research revenues in the accompanying 1993 Statement of Operations. At the
conclusion of the study, SmithKline exercised its option and has entered into
a Collaborative Research and License Agreement for development of vaccines
against selected human pathogens and cancer-related molecules using Novasomes.
Under this Agreement, SmithKline purchased 226,655 shares of IGI's Common
Stock for the sum of $2,500,000 and paid IGI $475,000 for license and research
fees which has been included as research revenues in the 1995 Statement of
Operations. In connection with the SmithKline License Agreement, SmithKline
also obtained an option to purchase stock of IGI, after the Distribution,
which will entitle SmithKline to purchase both common stock of IGI and Novavax
on the basis of the relative values of the Novavax and IGI Common Stock for
the 20 trading days following the Distribution. If SmithKline exercises the
option to purchase Novavax and IGI Common Stock, SmithKline's license rights
shall be extended to the use of the Novasome technology for vaccines against
disease caused by several additional designated pathogens, and SmithKline
shall also be entitled, under certain circumstances, to a right of first offer
with respect to the commercialization of certain vaccines not covered by the
license.
7. STOCK OPTIONS
1995 Stock Option Plan
Various directors, officers and employees of IGI including those who will be
employed by Novavax subsequent to the Distribution Date have been awarded
stock options under various IGI stock option plans at
A-11
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
100% of the fair market value of IGI's stock at the date of grant. In
connection with the Distribution, the Board of Directors of Novavax authorized
the grant of options to all holders of options to purchase IGI Common Stock as
of the Distribution Date. These options were granted to such holders on
substantially similar terms to the corresponding options to purchase IGI
Common Stock. However, such options will be converted into non-qualified
options and will become immediately exercisable over the remaining term of the
options. The number of shares of Novavax Common Stock under the options as
compared to their IGI counterparts will reflect the distribution ratio of one
share of Novavax common stock for one share of IGI Common Stock. Exercise
prices of the options were based on the relative market capitalization of IGI
and Novavax on the record date and the 20 trading days immediately following
the record date to restore holders of each option to the economic position
prior to the Distribution Date. As of the Distribution Date options ("Spinoff
Options") to purchase 2,034,015 shares of Novavax common stock will be granted
to holders of options to purchase IGI common stock .
Under the Novavax 1995 Stock Option Plan, options may be granted to
officers, employees and consultants or advisors to, Novavax and any future
subsidiary to purchase a maximum of 4,000,000 shares of Novavax common stock
(including the Spinoff Options). Incentive options, having a maximum term of
10 years can be granted at no less than 100% of the fair market value of
Novavax's stock at the time of grant and are generally exercisable in
cumulative increments over four years commencing one year from the date of
grant. Both incentive and non-qualified stock options may be granted under the
1995 plan. There is no minimum exercise price for non-statutory stock options.
The Board of Directors of Novavax is expected to grant as of the
Distribution Date options to purchase 600,000 shares of Novavax common stock
to various employees at an exercise price of $.01 per share. Concurrently, the
board will grant options to purchase 250,000 shares of Novavax common stock at
$3.24 per share to Novavax employees, the estimated fair market value. These
options first become exercisable on the six month anniversary of the
Distribution Date as to 50% of the shares covered thereby and as to an
additional 25% of the shares on each of the first and second anniversaries of
the Distribution Date. The options become immediately exercisable in the event
of the acquisition of Novavax, including a merger in which Novavax is not the
surviving entity, the sale of all or substantially all of the assets of
Novavax or the acquisition of a majority of the equity securities of Novavax.
The options also become immediately exercisable in the event the optionee is
terminated without cause.
1995 Director Stock Option Plan
The 1995 Director Stock Option Plan provides for the issuance of up to
500,000 shares of Novavax Common Stock. Sixty days after initial election as a
non-employee director ("Eligible Director") by either the Board of Directors
or Novavax's stockholders, each Eligible Director is automatically granted
NQOs for 20,000 shares of Common Stock. In addition, each Eligible Director
then serving as a director on the last business day of each of 1995, 1996,
1997 and 1998 will be granted a non-qualified option to purchase 10,000 shares
of Common Stock. The exercise price per share is the fair market value on the
date of grant. Options granted to Eligible Directors are exercisable in full
beginning six months after the date of grant and terminate ten years after the
date of grant. Such options cease to be exercisable at the earlier of their
expiration or three years after an Eligible Director ceases to be a director
for any reason. In the event that an Eligible Director ceases to be a director
on account of his death, his outstanding options (whether exercisable or not
on the date of death) may be exercised within three years after such date
(subject to the condition that no such option may be exercised after the
expiration of ten years from its date of grant).
In connection with its stock option plans, Novavax makes no charges to
operations in connection with its stock option granted at the fair market
value at the date of grant. With respect to the 600,000 options which will be
granted at the Distribution Date with an exercise price of $.01 per share, the
Company will record compensation expense for the difference between the fair
market value at the date of grant and the exercise price as the options become
exercisable.
A-12
NOVAVAX, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
8. INCOME TAXES
Novavax has recorded no net provision for income taxes in the accompanying
financial statements due to the existence of net operating losses, certain of
which have been included in IGI's consolidated income tax return.
Gross deferred tax assets (liabilities) included in the combined balance
sheets consist of the following:
1994 1993
----------- -----------
Equipment and
furniture........ $ (32,632) $ (71,873)
Deferred patent
costs............ (373,636) (300,909)
Net operating
losses........... 1,708,843 915,343
Research tax
credits.......... 602,652 465,427
Other............. 16,830 13,316
----------- -----------
1,922,057 1,021,304
Less valuation
allowance........ (1,922,057) (1,021,304)
----------- -----------
Deferred taxes,
net.............. $ -- $ --
=========== ===========
Certain net operating losses and tax credits not utilized in IGI's
consolidated federal income tax return prior to the Distribution Date will be
available to Novavax subsequent to the Distribution Date. Estimated amounts
are as follows:
Net operating losses expiring through the year 2009........... $5,026,008
Research tax credits expiring through the year 2009........... 602,652
9. COMMITMENTS AND CONTINGENCIES
Novavax leases laboratory and office space, machinery and equipment under
noncancelable operating lease agreements expiring at various dates through
1999. Aggregate rental expense approximated $150,543, $169,343 and $80,628 in
1994, 1993 and 1992, respectively. Future minimum rental commitments under
noncancelable operating leases as of December 31, 1994 are as follows:
1995............................. 103,819
1996............................. 103,819
1997............................. 103,819
1998............................. 102,119
1999............................. 102,119
10. SIGNIFICANT CUSTOMERS
Novavax's revenue includes amounts earned from various arrangements with
various industry partners. In each of the years ended December 31, 1994, 1993
and 1992, four different customers represented in excess of 10% of research
revenues.
A-13
APPENDIX B
IGI, INC.
PRO FORMA FINANCIAL INFORMATION
The pro forma financial information gives pro forma effect to (i) the
Distribution, (ii) the Restructuring and Recapitalization of IGI's
biotechnology business prior to the Distribution, (iii) the issuance of
additional shares of Novavax Common Stock to IGI in exchange for the transfer
by IGI to Novavax of all of IGI's rights to payments of indebtedness owed to
IGI subsidiary by Novavax and (iv) the payment by IGI to Novavax of $5,000,000
in return for a fully paid-up exclusive license to use the Novavax
Technologies in the IGI Field (collectively, the "Pro Forma Events") as if the
Pro Forma Events had occurred on January 1, 1994.
B-1
PRO FORMA CONSOLIDATED BALANCE SHEET OF IGI, INC.
(UNAUDITED)
SEPTEMBER 30, 1995
-------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
----------- ----------- -----------
ASSETS
Current assets:
Cash and equivalents(b)................... $ 891,885 $ 5,000,000
(5,000,000) $ 891,885
Accounts receivable, less allowance for
doubtful accounts of $206,000............ 7,500,273 -- 7,500,273
Inventories............................... 9,046,190 -- 9,046,190
Income taxes refundable................... -- -- --
Current deferred taxes.................... 36,641 -- 36,641
Prepaid expenses and other current
assets................................... 960,448 -- 960,448
----------- ----------- -----------
Total current assets.................... 18,435,437 -- 18,435,437
----------- ----------- -----------
Notes receivable, less current maturities... 423,352 -- 423,352
----------- ----------- -----------
Property, plant and equipment--at cost:
Land...................................... 488,703 -- 488,703
Buildings................................. 6,440,041 -- 6,440,041
Machinery and equipment................... 8,505,604 -- 8,505,604
Construction in progress.................. 2,464,033 -- 2,464,033
----------- ----------- -----------
17,898,381 -- 17,898,381
Less accumulated depreciation............... (8,060,622) -- (8,060,622)
----------- ----------- -----------
9,837,759 -- 9,837,759
----------- ----------- -----------
Deferred income taxes....................... 1,370,005 1,370,005
Net assets of biotechnology business
segment(c)................................. 1,775,779 (1,775,779) --
Other assets(c)............................. 961,656 (252,570) 709,086
----------- ----------- -----------
$32,803,988 $(2,028,349) $30,775,639
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank(b)................... $ 4,850,000 $ 5,000,000 $ 9,850,000
Current maturities of long-term debt...... 2,215,460 -- 2,215,460
Accounts payable.......................... 1,868,603 -- 1,868,603
Accrued payroll........................... 188,447 -- 188,447
Other accrued expenses.................... 520,291 -- 520,291
Income taxes payable...................... 12,824 -- 12,824
Deferred income taxes..................... 9,390 -- 9,390
----------- ----------- -----------
Total current liabilities............... 9,665,015 5,000,000 14,665,015
----------- ----------- -----------
Deferred income taxes....................... 105,075 -- 105,075
----------- ----------- -----------
Long-term debt, less current maturities..... 7,827,851 -- 7,827,851
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 30,000,000
shares authorized; 9,380,184............. 93,802 -- 93,802
Additional paid-in capital(a,b,c)......... 23,895,905 (7,028,349) 16,867,556
Deficit................................... (5,996,204) -- (5,996,204)
----------- ----------- -----------
17,993,503 (2,028,349) 10,965,154
Less treasury stock; 179,789.............. (2,624,098) -- (2,624,098)
Stockholders' notes receivable............ (163,358) -- (163,358)
----------- ----------- -----------
Total stockholders' equity.............. 15,206,047 (2,028,349) 8,177,698
----------- ----------- -----------
$32,803,988 $(2,028,349) $30,775,639
=========== =========== ===========
See accompanying notes to pro forma financial statements.
B-2
PRO FORMA STATEMENTS OF OPERATIONS OF IGI, INC.
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
---------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------- -------------------------
Net sales............................ $ 28,947,911 $ -- $ 28,947,911
Cost of sales........................ 13,935,242 -- 13,935,242
------------ ---------- ------------
Gross profit......................... 15,012,669 -- 15,012,669
Selling, general and administrative
expenses ........................... 10,674,611 -- 10,674,611
Research and development expenses,
net................................. 829,983 -- 829,983
------------ ---------- ------------
Operating profit..................... 3,508,075 -- 3,508,075
Interest expense(d).................. (1,035,691) (400,000) (1,435,691)
Interest income...................... 66,561 -- 66,561
Other income (expense), net.......... 10,206 -- 10,206
------------ ---------- ------------
Income from continuing operations
before provision for income taxes... 2,549,151 (400,000) 2,149,151
Provision for income taxes(e)........ 580,000 (135,000) 445,000
------------ ---------- ------------
Net income (loss).................... $ 1,969,151 $ (265,000) $ 1,704,151
============ ========== ============
Net income (loss) per common and
common equivalent share:............ $ .22 $ (.03) $ .19
============ ========== ============
Average number of common and common
equivalent shares................... 9,155,231 9,155,231 9,155,231
============ ========== ============
NINE MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
------------- -------------------------
Net sales............................ $ 22,939,950 $ -- $ 22,939,950
Cost of sales........................ 11,189,381 -- 11,189,381
------------ ---------- ------------
Gross profit......................... 11,750,569 -- 11,750,569
Selling, general and administrative
expenses ........................... 8,506,334 -- 8,506,334
Research and development expenses.... 1,010,614 -- 1,010,614
Research revenues.................... (730,750) -- (730,750)
------------ ---------- ------------
Operating profit..................... 2,964,371 -- 2,964,371
Interest expense(d).................. (890,930) (337,500) (1,228,430)
Interest income...................... 137,416 -- 137,416
Other income (expense), net.......... -- -- --
------------ ---------- ------------
Income from continuing operations
before provision for income taxes... 2,210,857 (337,500) 1,873,357
Provision for income taxes(e)........ 669,000 (115,000) 554,000
------------ ---------- ------------
Net income (loss).................... $ 1,541,857 $ (222,500) $ 1,319,357
============ ========== ============
Net income (loss) per common and
common equivalent share:............ $ .16 $ (.02) $ .14
============ ========== ============
Average number of common and common
equivalent shares................... 9,798,510 9,798,510 9,798,510
============ ========== ============
See accompanying notes to pro forma financial statements.
B-3
NOTES TO IGI PRO FORMA FINANCIAL STATEMENTS
(a) Prior to the Distribution Date, IGI will have received 5,253,452 shares of
Novavax Common Stock after the Restructuring and Recapitalization as
payment for intercompany notes receivables that were used to fund
Novavax's operations.
(b) Prior to the Distribution Date, IGI will borrow $5,000,000 under its
existing bank loan agreement to fund a payment to Novavax for a capital
contribution in connection with a license for applications of Novavax
Technologies. Novavax has presented the payment under the License
Agreement as a capital contribution in its pro forma financial statements
to reflect the substance of the transaction and its intercompany nature as
opposed to its form as a license agreement. The form was structured as a
prepaid license agreement to address tax and financing considerations of
the Distribution. Novavax has recorded the license at its carryover basis
because the transaction is a transfer made among entities under common
control. As all costs of development for this technology have been
expensed with the exception of the patents which are retained by Novavax,
the historical basis is zero. Accordingly, payments to Novavax under the
License Agreement have been reflected as a capital contribution. See
"Business--License of Technology to IGI."
(c) In connection with the Distribution, each stockholder of IGI Common Stock
as of the close of business on the Record Date will receive one share of
Novavax Common Stock for each share of IGI Common Stock held.
(d) Represents the net interest expense that IGI would have incurred on the
$5,000,000 borrowing for the capital contribution, if the capital
contribution had occurred on January 1, 1994.
(e) Represents the tax benefit computed at the statutory rate that would have
been realized in connection with the additional interest expense.
B-4
APPENDIX C
SAMPLE FORM OF
INFORMATION STATEMENT TO BE PROVIDED TO IRS BY STOCKHOLDERS
Note: Attachment to 1995 federal income tax return of stockholders
Statement of stockholders receiving a distribution of stock in Novavax, Inc.
(a controlled corporation), pursuant to Regs. (S) 1.355-5(b).
1. The undersigned, a stockholder owning shares of IGI, Inc. as of
1995, received a distribution of stock in a controlled corporation pursuant to
(S) 355.
2. The names and addresses of the corporations involved are:
IGI, Inc.
X.X. Xxx 000
Xxxxx Xxxx & Xxxxxxx Xxxxxx
Xxxxx, Xxx Xxxxxx 00000 (Parent)
Novavax, Inc.
00000 Xxxxxxxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000 (Controlled Corporation)
3. No stock or securities in IGI, Inc. were surrendered by the undersigned.
4. shares of Novavax, Inc. were received constituting only common shares
in such corporation.
5. No cash or other property was received by the undersigned in connection
with the distribution except for $ representing a cash payment in lieu of
fractional shares.
Stockholder
_____________________________________
STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE DISTRIBUTION UPON THEM.
C-1
