AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
REGISTRATION NO. 333-31731
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMONWEALTH BIOTECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
VIRGINIA 8733 56-1641133
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
COMMONWEALTH BIOTECHNOLOGIES, INC. COMMONWEALTH BIOTECHNOLOGIES, INC.
911 EAST LEIGH STREET, SUITE G-19 911 EAST LEIGH STREET, SUITE G-19
RICHMOND, VIRGINIA 23219 RICHMOND, VIRGINIA 23219
(804) 648-3820 (804) 648-3820
(Address and Telephone Number (Address of Principal Place of Business
of Principal Executive Offices) or Intended Principal Place of Business)
</TABLE>
------------------------
COMMONWEALTH BIOTECHNOLOGIES, INC.
911 EAST LEIGH STREET, SUITE G-19
RICHMOND, VIRGINIA 23219
ATTENTION: RICHARD D. FREER, PH.D., CHAIRMAN
(804) 648-3820
(Name, Address and Telephone Number of Agent for Service)
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
J. BENJAMIN ENGLISH, ESQ. JAMES J. WHEATON, ESQ.
LECLAIR RYAN, A PROFESSIONAL CORPORATION WILLCOX & SAVAGE, P.C.
707 EAST MAIN STREET, SUITE 1100 800 NATIONSBANK CENTER
RICHMOND, VIRGINIA 23219 NORFOLK, VIRGINIA 23510
(804) 783-2003 (757) 628-5619
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) OFFERING PRICE REGISTRATION FEE
<S> <C>
Common Stock.......................... 1,015,000 $6.00 $6,090,000.00
Underwriter's Warrants (2)............ 101,500 $0.001 $101.50
Common Stock Issuable Upon Exercise
of the Underwriter's Warrants (3)..... 101,500 $9.90 $1,004,850
Common Stock (4)...................... 541,370 $6.00 $3,248,220.00
Management Warrants (5)............... 100,000 $0.001 $100.00
Common Stock Issuable Upon Exercise
of the Management Warrants (6)........ 100,000 $9.90 $990,000.00
Total............................. -- -- $11,333,271.50 $3,435
</TABLE>
(1) The proposed maximum price is estimated solely for the purpose of computing
the amount of the registration fee.
(2) In connection with the Registrant's sale of the shares of Common Stock
registered hereby, the Registrant shall sell to Anderson & Strudwick,
Incorporated (the "Underwriter") warrants to purchase 101,500 shares of
Common Stock (the "Underwriter's Warrants"). The price to be paid by the
Underwriter for the Underwriter Warrants is $.001 per warrant. The exercise
price of the Underwriter's Warrants is $9.90 per share. The resale of the
Underwriter's Warrants is registered hereunder.
(3) The shares of Common Stock underlying the Underwriter's Warrants are being
registered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.
(4) Represents the shares of Common Stock (including those representing interest
payments) (the "Conversion Shares") issuable by the Registrant upon
conversion of those certain subordinated convertible notes (the "Notes").
The Notes were issued by the Registrant in a private placement on June 25,
1997, and the Conversion Shares will be issued in a private placement
simultaneously with the completion of the Offering (the "Private
Placement"). The resale of the Conversion Shares is registered hereunder.
(5) In connection with the Private Placement, the Registrant sold to the
Registrant's executive officers warrants to purchase an aggregate of 100,000
shares of Common Stock (the "Management Warrants"). The price paid by the
executive officers for the Management Warrants was $.001 per warrant. The
exercise price of the Management Warrants is $9.90 per share. The resale of
the Management Warrants is registered hereunder.
(6) The shares of Common Stock underlying the Management Warrants are being
registered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1997
PROSPECTUS
[LOGO FOR COMMONWEALTH BIOTECHNOLOGIES, INC.]
1,015,000 SHARES OF COMMON STOCK
------------------------
Commonwealth Biotechnologies, Inc. ("CBI" or the "Company") hereby offers
(the "Offering") 1,015,000 shares of the Company's common stock, no par value
per share (the "Common Stock"). Prior to the Offering, no public market for the
Common Stock existed and no assurance can be given that any such market will
develop after the completion of the Offering or, that if developed, such market
will be sustained. It is currently anticipated that the initial public offering
price will be $6.00 per share of Common Stock. For the method of determining the
initial public offering price of the Common Stock, see "Risk Factors" and
"Underwriting." Resales of (a) an aggregate of up to 541,370 shares of Common
Stock (the "Conversion Shares"), issuable in a private placement upon the
automatic conversion of certain subordinated convertible notes (the "Notes")
issued by the Company in a private placement on June 25, 1997 (the "Private
Placement"), (b) warrants to purchase an aggregate of 101,500 shares of Common
Stock (the "Underwriter's Warrants"), each of which has a term of five years and
an exercise price equal to 165% of the initial public offering price of a share
of Common Stock offered hereby, to be issued to Anderson & Strudwick,
Incorporated (the "Underwriter") upon the closing of the Offering as additional
underwriting compensation, and (c) warrants to purchase an aggregate of 100,000
shares of Common Stock (the "Management Warrants"), each of which has a term of
ten years and an exercise price equal to 165% of the initial public offering
price of a share of Common Stock offered hereby and will first become
exercisable on June 25, 1998, issued to certain executive officers of the
Company (collectively, the "Resale Securities") are also being registered
hereby. The Company is also registering an aggregate of 201,500 shares of Common
Stock issuable upon the exercise of the Underwriter's Warrants and the
Management Warrants on a delayed or continuous basis (the "Warrant Shares").
Resales of the Resale Securities are not underwritten, and resales of the
Conversion Shares and the Underwriter's Warrants are contingent upon, and may
only occur subsequent to, the closing of the Offering. The Warrant Shares will
only be issued, and the sale thereof may only occur, subsequent to the closing
of the Offering. In the event the Underwriter's Warrants and the Management
Warrants are exercised, the shares of Common Stock eligible for (x) resale
hereunder by the holders thereof (the "Selling Securityholders") or (y) sale on
a delayed or continuous basis will constitute 45.6% of the outstanding shares of
Common Stock upon completion of the Offering. See "Risk Factors -- Shares
Eligible for Future Sale." The Company has applied for inclusion of the shares
of Common Stock on the Nasdaq SmallCap Market under the symbol "CBTE."
The Company provides sophisticated research and development support
services on a contract basis to the biotechnology industry. See
"Business -- Overview."
The Company and the Underwriter have entered into certain arrangements
which may involve a conflict of interest, including the issuance of the
Underwriter's Warrants and the service of two affiliates of the Underwriter on
the Board of Directors of the Company. See "Risk Factors -- Ongoing Relationship
with Underwriter."
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO SUSTAIN A COMPLETE LOSS OF
THEIR INVESTMENT. SEE "RISK FACTORS" ON PAGES 8 THROUGH 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OF DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) PROCEEDS TO COMPANY(2)
<S> <C>
Per Share..................... $6.00 $0.48 $5.52
Total..................... $6,090,000 $487,200 $5,602,800
</TABLE>
(1) Does not reflect the issuance of the Underwriter's Warrants as additional
underwriting compensation. In addition, the Company has agreed to indemnify
the Underwriters against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $200,000.
THE COMMON STOCK IS BEING OFFERED BY THE COMPANY THROUGH THE UNDERWRITER ON
A "BEST EFFORTS, ALL-OR-NONE"BASIS, WHEN, AS AND IF ISSUED AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY THE UNDERWRITER AND CERTAIN OTHER
CONDITIONS. IN ADDITION, OFFICERS, DIRECTORS AND PERSONS HOLDING MORE THAN 5% OF
THE OUTSTANDING SHARES OF COMMON STOCK PRIOR TO THE OFFERING MAY PURCHASE UP TO
15,000 OF THE SHARES OF COMMON STOCK OFFERED IN THE OFFERING. UNLESS SOONER
WITHDRAWN OR CANCELED BY EITHER THE COMPANY OR THE UNDERWRITER, THE OFFERING
WILL CONTINUE UNTIL THE EARLIER OF THE DATE ON WHICH ALL OF THE COMMON STOCK
OFFERED HEREBY IS SOLD OR NOVEMBER 21, 1997 (THE "OFFERING TERMINATION DATE").
PENDING THE SALE OF ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY, ALL
PROCEEDS WILL BE DEPOSITED INTO AN ESCROW ACCOUNT WITH CRESTAR BANK (THE "ESCROW
AGENT"). IF THE OFFERING IS WITHDRAWN OR CANCELED OR IF ALL OF THE SHARES
OFFERED HEREBY ARE NOT SOLD BY THE OFFERING TERMINATION DATE, THE OFFERING WILL
TERMINATE AND ALL PROCEEDS WILL BE RETURNED BY THE ESCROW AGENT TO THE PERSONS
FROM WHICH THEY ARE RECEIVED, WITHOUT ANY DEDUCTION THEREFROM OR INTEREST
THEREON, PROMPTLY AFTER SUCH TERMINATION OR WITHDRAWAL.
ANDERSON & STRUDWICK
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
(ALTERNATE COVER)
COMMONWEALTH BIOTECHNOLOGIES, INC.
SHARES OF COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the resale by the holders thereof (the "Selling
Securityholders") of (a) an aggregate of 541,370 shares (the "Conversion
Shares") of common stock, no par value per share ("Common Stock") of
Commonwealth Biotechnologies, Inc. (the "Company"), issuable upon the automatic
conversion of certain subordinated convertible notes (the "Notes") issued by the
Company in a private placement on June 25, 1997 (the "Private Placement"), (b)
warrants to purchase an aggregate of 101,500 shares of Common Stock (the
"Underwriter's Warrants"), each of which has a term of five years and an
exercise price equal to 165% of the initial public offering price of a share of
Common Stock offered hereby, issued to Anderson & Strudwick, Incorporated (the
"Underwriter") as additional underwriting compensation, and (c) warrants to
purchase an aggregate of 100,000 shares of Common Stock (the "Management
Warrants"), each of which has a term of ten years and an exercise price equal to
165% of the initial public offering price of a share of Common Stock offered
hereby and will first become exercisable on June 25, 1998, issued to certain
executive officers of the Company (collectively, the "Resale Securities"). The
offering of the Conversion Shares and the Underwriter's Warrants by the Selling
Securityholders is contingent upon and may only occur subsequent to the closing
of the separate offering of 1,015,000 shares of Common Stock by the Company in
an underwritten public offering (the "Offering"). In addition, the Offering
contemplates the registration, on a delayed or continuous basis, of an aggregate
of 201,500 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants and the Management Warrants. In the event the
Underwriter's Warrants and the Management's Warrants are exercised, the shares
being registered on behalf of the Selling Securityholders and the shares of
Common Stock eligible for sale on a delayed or continuous basis will constitute
45.6% of the outstanding shares of Common Stock upon completion of the Offering.
The resale of the Resale Securities is subject to Prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Securities Act").
Sales of such securities or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Securityholders" and "Risk Factors -- Shares Eligible for Future Sale."
The Company has applied for inclusion of the Common Stock and the
Underwriter's Warrants on The Nasdaq SmallCap Market although there can be no
assurance that an active trading market will develop. See "Risk Factors -- No
Prior Market for Common Stock," and " -- Volatility of Stock Price."
The Resale Securities offered by this Prospectus may be sold from time to
time by the Selling Securityholders, or by their transferees. Notwithstanding
the foregoing, however, resales of the Conversion Shares and the Underwriter's
Warrants are contingent upon, and may only occur subsequent to, the closing of
the Offering. No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the securities by the Selling
Securityholders may be effected in one or more transactions that may take place
in the market, including ordinary brokerage transactions, privately-negotiated
transactions or sales to one or more dealers for resale of such shares as
principals at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage prices or commissions may be paid by the
Selling Securityholders in connection with sales of such securities.
The Selling Securityholders and intermediaries through whom such securities
may be sold may be deemed "underwriters" within the meaning of the Securities
Act, with respect to the securities offered and any profits realized or
commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify certain of the Selling Securityholders against liabilities,
including liabilities under the Securities Act.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "Selling Securityholders."
The Company provides sophisticated research and development analytical
services on a contract basis to the biotechnology industry. See "Business."
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO SUSTAIN A COMPLETE LOSS OF
THEIR INVESTMENT. SEE "RISK FACTORS" ON PAGES 8 THROUGH 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OF DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
(PHOTO TO COME)
------------------------
PRIOR TO THE OFFERING, THE COMPANY WAS NOT A REPORTING COMPANY UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUBSEQUENT TO
THE OFFERING, THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT ACCOUNTANTS, AND SUCH
OTHER PERIODIC REPORTS AS IT MAY DETERMINE TO FURNISH OR AS MAY BE REQUIRED BY
LAW.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION, INCLUDING "RISK FACTORS"AND THE COMPANY'S FINANCIAL
STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THE
SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. INVESTORS
IN THE OFFERING SHOULD BE ABLE TO SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT.
SEE "RISK FACTORS." THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS." THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN OR PROJECTED BY
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED UNDER "RISK FACTORS." CERTAIN TERMS USED
HEREIN ARE DEFINED IN THE GLOSSARY SECTION OF THIS PROSPECTUS.
THE COMPANY
The Company was founded in 1992 by four experienced research scientists to
provide sophisticated research and development analytical services on a contract
basis to the biotechnology industry. The Company's customers consist of private
companies, academic institutions and government agencies, all of which use
biological and biochemical strategies to develop products for health care,
agricultural and other purposes.
Much of the revenue in biotechnology is derived from innovative products
based on research into the fundamental biological processes that support life.
These fundamental processes depend on the interrelationships of basic components
of cells in living organisms, including enzymes, proteins, peptides, DNA and
RNA, an understanding of which enables scientists to develop new compounds
having commercial applications. The Company's services assist customers in
understanding these relationships and developing commercial products based on
that understanding.
The Company provides services to customers on a contract basis and derives
its revenues from these services, and not from sales of commercial products
resulting from the research. This arrangement distinguishes the Company from
many other biotechnology companies in that the Company's revenues are not
directly dependent on successfully commercializing a new biotechnology product.
The Company has established a reputation for providing a wider range of
services than many of its competitors and in 1996 had revenues of $989,925 and
net income of $110,088. The Company has identified a growth strategy which
involves expansion of facilities and marketing and development of related lines
of business having significant potential for growth. The Company intends to
focus its efforts on the maintenance and expansion of long term relationships
with customers in the biotechnology industry as well as the establishment of new
customer relationships. See "Business -- Growth Strategy."
In addition to its analytical services, the Company is also developing
several of its own proprietary new technologies in the areas of anti-coagulation
and genomic sequence analysis. The Company has a patent application pending for
a heparin antagonist compound which may lead to a new drug having fewer adverse
effects than existing drugs. The development of these technologies has been
funded by grants from government agencies, and the Company anticipates that this
portion of its operations will continue to be funded in this manner. These
technologies are in the early stage of development and should be considered
highly speculative at this time. See "Business -- Proprietary Research and
Research Grants," " -- Intellectual Property," " -- Government Regulation" and
"Risk Factors -- Risks Associated with Development of Proprietary Technologies."
THE COMPANY'S OFFICES
The Company was incorporated in Virginia in September 1992. The Company's
principal executive offices are located at 911 East Leigh Street, Suite G-19,
Richmond, Virginia 23219 and its telephone number is (804) 648-3820.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company.......................... 1,015,000 shares of Common Stock. See "Description of Capital
Stock."
Shares of Common Stock Outstanding before Offering......... 612,643
Common Stock to be Outstanding after the Offering.......... 1,627,643 shares of Common Stock
Use of Proceeds............................................ The net proceeds of this Offering will be used for working
capital, capital expenditures and general and administrative
purposes. See "Use of Proceeds."
Risk Factors............................................... Investment in the Common Stock involves a high degree of risk.
See "Risk Factors."
Proposed Nasdaq SmallCap Symbol(1)......................... CBTE
</TABLE>
- ---------------
(1) No assurance can be given that an active trading market for the Common Stock
will develop or be maintained. See "Risk Factors -- No Prior Market for
Common Stock."
Except as otherwise indicated, all share and per share data in this
Prospectus (a) assume the conversion of the Notes into 541,370 Conversion Shares
of Common Stock upon completion of the Offering (including an assumed payment of
interest in the amount of 41,370 shares -- interest accrues from June 25, 1997
through the date of conversion at a rate of 20% per annum and is payable in
shares of Common Stock at a rate of $6.00 per share through the Offering
Termination Date); (b) give no effect to the aggregate of 201,500 shares of
Common Stock issuable upon the exercise of the Underwriter's Warrants and the
Management Warrants; and (c) assume no issuance of an aggregate of 410,000
shares of Common Stock which may be issued pursuant to incentive awards that may
be granted under the Company's 1997 Stock Incentive Plan (the "Incentive Plan"),
of which the Company intends to grant options to purchase an aggregate of
270,000 shares of Common Stock to the Company's founders upon the completion of
the Offering. See "Capitalization", "Management -- Incentive Plan," "Certain
Relationships and Related Transactions," "Description of Capital
Stock -- Warrants" and "Underwriting."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain historical financial information of
the Company.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- --------------------
1997 1996 1996 1995
---------- -------- -------- --------
<S> <C>
(UNAUDITED)
OPERATIONS DATA:
Revenue.................................................................... $1,059,212 $428,302 $989,925 $369,301
Net income (loss) before proforma income tax expense....................... $ 286,287 $122,521 $110,088 $(11,890)
Proforma net income (loss)(1).............................................. $ 161,634 $ 97,976 $ 60,437 $(33,982)
Proforma earnings (loss) per common and common equivalent share(2)......... $ 0.32 $ 0.19 $ 0.12 $ (0.07)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
------------------------ --------------------
(UNAUDITED) (ACTUAL)
AS
ADJUSTED
ACTUAL (3) 1996 1995
---------- ---------- -------- --------
<S><C>
BALANCE SHEET DATA AS OF:
Working capital.......................................................... $ (261,014) $8,228,666 $ 91,637 $ (34)
Current ratio............................................................ 0.92 $ 27.91 $ 1.32 $ 1.00
Total assets............................................................. $3,964,280 $9,080,229 $634,193 $186,818
Shareholders' equity..................................................... $ 388,051 $8,504,000 $162,269 $ 62,656
Book value per share(2).................................................. $ 0.77 $ 5.59 $ 0.32 $ 0.12
</TABLE>
- ---------------
(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation status for federal income tax purposes.
(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997, to the issuance of the Conversion Shares, and
to the antidilutive effect of the Management Warrants converted using the
Treasury Stock method. See Note 2 to the Company's Financial Statements.
(3) As adjusted to reflect (i) the sale of 1,015,000 shares of Common Stock
offered hereby (at the price to public of $6.00 per share) and the
application of the estimated net proceeds therefrom and (ii) the conversion
of the Notes to Common Stock at a conversion price of $6.00 per share. See
"Description of Capital Stock."
7
<PAGE>
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED PURSUANT TO THIS PROSPECTUS ARE
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK, AND AN INVESTMENT IN THE COMMON
STOCK SHOULD BE CONSIDERED ONLY BY INVESTORS WHO ARE CAPABLE OF AFFORDING AN
ENTIRE LOSS OF THE AMOUNT INVESTED. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER, ALONG WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING CONSIDERATIONS AND RISKS IN EVALUATING AN INVESTMENT IN THE COMPANY.
VARIABILITY OF OPERATING RESULTS
The Company's revenues are derived through provision of analytical services
to the pharmaceutical, biotechnology and related industries. The Company has
experienced and may continue to experience significant quarterly fluctuations in
revenues due to variations in contract status with several large customers. In
addition, the majority of other customer projects are individual orders for
specific projects. Engagement for successive work is highly dependent upon the
customer's satisfaction with the services provided to date, and upon factors
beyond the Company's control such as the timing of product development and
commercialization programs of the Company's customers. The Company is unable to
predict for more than a few months in advance the number and size of future
projects in any given period. Thus, timing of significant projects could have a
significant impact on financial results in any given period. The combined impact
of several large contracts and the unpredictable project fluctuations from other
customers can result in very large fluctuations in financial performance from
quarter to quarter or year to year. In addition, the biotechnology industry is
currently progressing through a consolidation phase of development. As a result,
many large competitors may internalize their biotechnology research services. If
this occurs, the Company's future customers will likely be smaller companies
without captive research capabilities. See "Management's Discussion and Analysis
of Financial Condition and Result of Operations."
DEPENDENCE ON GOVERNMENT GRANTS
A significant portion of the Company's revenue (approximately 31% in the
year ended December 31, 1996 and 42% for the six months ended June 30, 1997),
and substantially all of its financing for proprietary research projects, is
funded by grants from federal government agencies. As of the date of this
Prospectus, the Company has three government grants. The Company must compete
for these grants with a large number of other companies and academic
institutions, many of which have substantially greater resources than the
Company. There can be no assurance that the Company will be able to compete
successfully for these grants, or that the agencies making the grants will
continue to make grants at levels sufficient to provide funding for the
Company's proprietary research. In the absence of these grants, the Company
would be forced to seek alternative sources of funding for its proprietary
research and development projects, and there can be no assurance that such
funding would be available. See "Business -- Proprietary Research and Research
Grants."
DEPENDENCE ON AND NEED TO HIRE PERSONNEL
The Company is highly dependent on its senior management and scientific
staff, and the loss of their services would adversely affect the Company. In
addition, the Company must hire and retain a number of additional highly
qualified and experienced management and scientific personnel, consultants and
advisors. The Company's ability to attract and retain qualified personnel is
critical to the Company's continued success. Competition for qualified
individuals is intense, and the Company faces competition from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms or at all, and the failure to do
so would have a material adverse effect on the Company. Additionally, the hiring
of personnel after the Offering will increase the Company's expenses. See
"Business -- Employees."
LACK OF SALES AND MARKETING CAPABILITIES
The Company currently has no full-time marketing or sales personnel. The
Company will have to develop a sales force or rely on marketing partners or
other arrangements with third parties for the marketing and sale of its
services. There can be no assurance that the Company will be able to establish
sales and marketing capabilities or make arrangements with third parties to
perform those activities on terms satisfactory to the Company, or that any
internal capabilities or third party arrangements will be cost-effective. See
"Business -- Employees."
In addition, any third parties with which the Company establishes sales and
marketing arrangements may have significant control over important aspects of
these operations, including market identification, marketing methods, pricing,
composition of sales force and promotional activities. There can be no assurance
that the Company will be able to control the
8
<PAGE>
amount and timing of resources that any third party may devote to the Company's
services or prevent any third party from pursuing alternative services which
compete with those of the Company. See "Business -- Marketing."
COMPETITION
The Company encounters, and expects to continue to encounter, intense
competition in the development and sale of its current and future services. Many
of the Company's competitors and potential competitors have substantially larger
laboratory facilities, marketing capabilities and staff than those of the
Company. In order to remain competitive, the Company will need to make available
to its customers new analytical technologies as they become available in the
Company's rapidly changing, technology driven business. Substantial future
capital expenditures may be required to acquire these technologies. See
"Business -- Competition."
RELIANCE ON SIGNIFICANT CUSTOMER RETENTION
The Company's future success will depend, in part, upon its ability to
maintain relationships with its key customers. In 1996, approximately 20% of the
Company's revenues were attributable to one private industry customer. The loss
of this customer would adversely affect the Company. See "Business -- Customers"
and the Company's Financial Statements and the Notes thereto.
HAZARDOUS MATERIALS
The Company's operations involve the controlled use of hazardous materials,
chemicals, recombinant biological molecules, biohazards (infectious agents) and
various radioactive compounds. Although the Company 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, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
The Company currently has no insurance against any such liability. See
"Business -- Government Regulation."
LACK OF FIRM COMMITMENT TO PURCHASE
The Company has engaged the Underwriter to conduct the Offering on a "best
efforts, all-or-none" basis. The Offering is being made without a firm
commitment by the Underwriter, which has no obligation to purchase any of the
Common Stock. If the Offering is withdrawn or canceled or if the 1,015,000
shares of Common Stock offered hereby are not sold and proceeds therefrom are
not received by the Company on or prior to the Offering Termination Date, all
proceeds will be promptly returned to investors without interest.
RISKS ASSOCIATED WITH DEVELOPMENT OF PROPRIETARY TECHNOLOGIES
The Company is conducting initial research into several new potential
technologies which may result in new pharmaceutical products, the intellectual
property rights to which the Company would control. These technologies are in
very early stages of development and are highly speculative due to the
substantial risks and considerable uncertainties associated with their
development, which include but are not limited to the following:
COMMERCIAL VIABILITY. The development of the Company's technologies may
fail to yield products which are effective or offer advantages over other
products, resulting in the products having little commercial value. Other
companies having substantially greater research, development and marketing
resources than the Company may develop competing products which would preclude
the Company's products from gaining acceptance in the marketplace.
UNCERTAINTY OF INTELLECTUAL PROPERTY RIGHTS. The Company must secure and
defend patent and other intellectual property rights to the technologies, and
avoid infringing the intellectual property rights of third parties. The patent
positions of biotechnology companies are uncertain and involve complex legal and
factual questions. There can be no assurance that the Company will develop
intellectual property rights that are protectable or that the protection
afforded by patents or otherwise will be sufficient to protect the commercial
value of the Company's technologies. In addition, there can be no assurance that
any patent rights issued to the Company will not be challenged, invalidated,
infringed or circumvented.
EXTENSIVE GOVERNMENT REGULATION. Commercialization of any products
resulting from the Company's research generally will require government
approvals and be subject to extensive government regulation. In the case of
human pharmaceutical products, the approval of the United States Food and Drug
Administration requires extensive pre-clinical and clinical trials
9
<PAGE>
involving considerable costs and uncertainties. Failure to receive government
approvals would preclude commercialization of products based on the Company's
research and development programs.
DEPENDENCE ON THIRD PARTIES. Because the Company does not have and does not
anticipate having the resources necessary to develop products beyond the initial
research stage, the Company anticipates licensing any valuable technologies
resulting from its research to third parties for development into commercial
products. As a result, the Company will surrender control over the development
and marketing processes and will be dependent on the efforts and resources of
third parties.
There can be no assurance that the Company's proprietary research programs
will result in any commercial products, and prospective investors considering an
investment in the Common Stock are discouraged from attributing significant
value to the Company's proprietary research programs. See
"Business -- Intellectual Property" and " -- Government Regulation."
NO DIVIDENDS
The Company does not intend to pay any cash dividends in the foreseeable
future and intends to retain its earnings, if any, for the operation of its
business. See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation ("Articles")
and Amended and Restated Bylaws ("Bylaws") provide for a classified Board of
Directors, the removal of Directors only with cause, advance notice requirements
for director nominations and actions to be taken at annual meetings of the
Company's shareholders and a requirement that affiliated transactions be
approved by at least two-thirds of the outstanding shares of each voting group.
The Company is subject to certain provisions of the Virginia Stock Corporation
Act (the "Virginia Act") which, in general, (i) prevent an Interested
Shareholder (defined generally as a person owning more than 10% of any class of
the Company's voting securities) from engaging in an "Affiliated Transaction"
(as defined herein) with the Company unless certain conditions are met and (ii)
deny voting rights to shares acquired by a person in a Control Share Acquisition
(defined generally as an acquisition resulting in voting power which exceeds
one-fifth, one-third or a majority) unless such rights are granted by the
Company's shareholders, and permit the Company, under certain circumstances, to
redeem the shares so acquired.
Such provisions could impede any merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company. In addition, certain provisions of the Company employee benefit plans,
employment agreements and severance agreements may also render any such business
combination more costly and therefore less probable. See "Description of Capital
Stock -- Certain Provisions of the Company's Articles of Incorporation and
Bylaws," " -- Certain Corporate Governance Provisions of the Virginia Act,"
" -- Effect of Certain Provisions Upon an Attempt to Acquire Control of the
Company," "Management -- Incentive Plan," and " -- Change in Control
Protections."
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER VIRGINIA LAW
Pursuant to the Company's Articles, as authorized under applicable Virginia
law, directors of the Company are not liable for monetary damages for breach of
fiduciary duty, except in connection with a breach of the duty of loyalty, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchases illegal
under Virginia law or for any transaction in which a director has derived an
improper personal benefit. In addition, the Company's Articles provide that the
Company must indemnify its officers and directors to the fullest extent
permitted by Virginia law for all expenses incurred in the settlement of any
actions against such persons in connection with their having served as officers
or directors of the Company. See "Management -- Liability and Indemnification of
Officers and Directors."
RELATED PARTY TRANSACTIONS / CONFLICTS OF INTEREST
The Company has entered into or proposes to enter into certain transactions
with its directors and executive officers. These transactions include the
issuance of warrants to acquire shares of Common Stock to executive officers
upon the closing of the Private Placement, the proposed issuance of options to
acquire shares of Common Stock upon the closing of the Offering, and the payment
of cash underwriting compensation and issuance of the Underwriter's Warrants to
the Underwriter, with which two of the Company's directors are affiliated. The
Company has issued a promissory note pursuant to which it has agreed to pay
certain amounts to an executive officer and, as an S Corporation prior to the
closing of the Private Placement, paid certain distributions to its
shareholders, who are also directors and executive officers of the Company. A
summary
10
<PAGE>
of the terms and conditions of these transactions may be found under the heading
"Certain Relationships and Related Transactions." These transactions involve
inherent conflicts between the interest of the Company and the interests of the
other parties to the transactions.
ONGOING RELATIONSHIP WITH UNDERWRITER
In connection with the Offering, the Company will sell to the Underwriter
for a nominal amount the Underwriter's Warrants to purchase up to 101,500 shares
of Common Stock. These warrants are exercisable for a period of five years from
the respective dates of issuance at a price of $9.90 per share of Common Stock,
equal to 165% of the price of the Common Stock in the Offering. During the term
of these warrants, the holders thereof will be given the opportunity to profit
from a rise in the market price of the Common Stock, with a resulting dilution
in the interest of the Company's other shareholders. The terms on which the
Company could obtain additional capital during the life of these warrants may be
adversely affected because the holders of these warrants might be expected to
exercise them if the Company were able to obtain any needed additional capital
in a new offering of securities at a price greater than the exercise price of
such warrants. See "Description of Capital Stock -- Warrants."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR THE EXERCISE OF OPTIONS AND
WARRANTS
The Company has reserved 410,000 shares of Common Stock for issuance upon
the exercise of incentive awards granted or available for grant to employees,
officers, directors, advisors and consultants pursuant to the Incentive Plan, of
which the Company anticipates granting options to purchase an aggregate of
270,000 shares of Common Stock to the Company's founders upon the completion of
the Offering. In addition, the Company has reserved an aggregate of 201,500
shares of Common Stock for issuance upon exercise of the Underwriter's Warrants
and the Management Warrants. These options and warrants may adversely affect the
Company's ability to obtain financing in the future. The holders of such options
and warrants can be expected to exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Underwriting," "Certain Relationships and Related
Transactions" and "Management -- Management Option Grants."
SHARES ELIGIBLE FOR FUTURE SALE
Future sale of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market value for the Common
Stock. The 1,015,000 shares sold by the Company in this Offering will be freely
tradable unless acquired by an affiliate of the Company. The holders of the
Notes (which automatically convert into an aggregate of 541,370 shares of Common
Stock (including assumed interest) upon the completion of the Offering) are not
subject to any "lock-up" agreements restricting disposition of their shares, and
therefore, the holders of the Notes who are not affiliates of the Company may
sell such shares of Common Stock in accordance with the resale provisions of
this Prospectus. In addition, 201,500 shares of the Company's Common Stock (to
be issued when and if the Underwriter's Warrants and the Management Warrants are
exercised), none of which are subject to any "lock-up" agreements, are being
registered, on a delayed or continuous basis, concurrent with the Offering.
Notwithstanding the foregoing, however, transfer of the Underwriter's Warrants
and the shares underlying these warrants is restricted to bona fide officers of
the Underwriter for a one-year period following the grant thereof in accordance
with the rules of the National Association of Securities Dealers, Inc. Upon the
completion of the Offering, the Company anticipates issuing options to purchase
an aggregate of 270,000 shares of Common Stock to certain of the Company's
executive officers pursuant to the Incentive Plan. These shares are not being
registered in connection with the Offering, but may be resold in accordance with
the provisions of Rule 144 promulgated under the Securities Act ("Rule 144").
Similarly, certain of the Company's executive officers and directors own an
aggregate of 71,273 shares of Common Stock. While these shares are not
registered in the Offering, they may be resold starting 90 days after the
completion of the Offering in accordance with the provisions of Rule 144. See
"Selling Securityholders" and "Plan of Distribution For Selling
Securityholders."
ARBITRARY DETERMINATION OF OFFERING PRICE
The offering price of the shares of Common Stock has been determined
through negotiations between the Company and the Underwriter. Among the factors
considered in determining the price were prevailing market conditions, the
general economic environment, estimates of the prospects of the Company, the
background and capital contributions of management and current conditions of the
securities markets and the Company's industry. The initial public offering price
may bear no relationship to the price at which the Common Stock will trade in
the market upon completion of the Offering. See "Underwriting."
11
<PAGE>
NO PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained after the Offering or that investors will be able to sell the Common
Stock should they desire to do so. The Company has been advised by the
Underwriter that Ferris, Baker Watts Incorporated and Nash, Weiss & Co. intend
to make a market in the Company's securities. See "Underwriting."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors concerning the
Company or its competitors. The Company's operating results may also be below
the expectations of market analysts and investors, which would likely have a
material adverse effect on the prevailing market price of the Common Stock.
Further, the stock market has experienced extreme price and volume
fluctuations that have affected the market prices of equity securities of many
biotechnology companies. These price fluctuations often have been unrelated or
disproportionate to the operating performance of such companies. Market
fluctuations, as well as general economic, political and market conditions such
as recessions or international currency fluctuations, may adversely affect the
market price of the Common Stock. The realization of any of the risks described
in these "Risk Factors" could have a dramatic and adverse impact on the market
price of the Common Stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding the development of the Company's proprietary
technologies and potential changes in the Company's customer base and the impact
of those changes in the variability of the Company's results of operations
constitute forward-looking statements under the federal securities laws. Such
statements are subject to certain risks and uncertainties that could preclude
the Company from developing revenue-generating commercial products based on its
proprietary research or result in the Company's failure to realize decreased
variability of operating results. Risks and uncertainties relating to
proprietary technologies are outlined under the caption "Risk Factors -- Risks
Associated with development of Proprietary Technologies." With respect to
variability of operating results, the changes in the biotechnology industry
anticipated by the Company may fail to occur, or even if they occur, they may
fail to have the anticipated effect on the Company's revenues.
USE OF PROCEEDS
After deducting selling commissions and other expenses of the Offering, the
net proceeds to the Company from the sale of the shares of Common Stock offered
hereby are estimated to be $5,402,800. The Company currently plans to use the
net proceeds from the Offering, and any interest generated therefrom, for
working capital, capital expenditures and general and administrative purposes.
The information below constitutes the Company's best estimate as to the specific
uses of such funds:
<TABLE>
<CAPTION>
PERCENTAGE
PURPOSE EXPENSE OF TOTAL
- ---------------------------------------------------------------- ----------- ----------
<S> <C>
Equipment Purchases............................................. $ 2,600,000 48.1%
Lease of Facilities............................................. $ 500,000 9.3
Sales & Marketing............................................... $ 803,680 14.9
Personnel....................................................... $ 621,520 11.5
Working Capital................................................. $ 877,600 16.2
----------- ----------
Total........................................................... $ 5,402,800 100%
</TABLE>
The equipment to be purchased consists of laboratory equipment, including
DNA sequencers, DNA synthesizers, mass spectroscopy instruments and related
computer equipment and software. Sales and marketing expenditures are expected
to consist of compensation for sales representatives to be hired, including
payment of commissions, advertising and the cost of participating in industry
trade shows. Working capital is expected to be used to fund the Company's
accounts receivable and to maintain reasonable operating cash reserves. The
amounts actually expended for each purpose may vary. Pending the use of the net
proceeds, the Company may invest the funds in short-term money market,
government and federal agency obligations, bank certificates of deposit and
savings deposits.
12
<PAGE>
DIVIDEND POLICY
The Company currently intends to retain all future earnings, if any, to
finance growth and development of its business and, therefore, does not expect
to declare or pay any cash dividends in the foreseeable future. The declaration
of dividends, however, is within the discretion of the Company's Board. See
"Risk Factors -- No Dividends."
DILUTION
At June 30, 1997, after reflecting the conversion of the Notes, the net
tangible book value of the Company was $3,014,320, or $4.92 per share. "Net
tangible book value" per share of Common Stock represents the amount of the
Company's total tangible assets, less the amount of its total liabilities,
divided by the number of shares of Common Stock outstanding, including 541,370
Conversion Shares and the estimated interest payable on the Notes in the form of
41,370 shares of Common Stock. Dilution represents the difference between the
amount per share of Common Stock paid by the new investors in the Offering and
the pro forma net tangible book value per share of Common Stock after the
Offering. After giving effect to the sale by the Company of the 1,015,000 shares
of Common Stock offered hereby at $6.00 per share and the payment of the
estimated expenses related to the Offering of $600,320, the pro forma net
tangible book value of the Company at June 30, 1997 would have been $8,504,000,
or $5.22 per share of Common Stock. This represents an immediate increase in net
tangible book value of $.30 per share of Common Stock to existing shareholders
and an immediate dilution of $.78 per share of Common Stock to new investors
purchasing Common Stock in the Offering, as illustrated in the following table:
<TABLE>
<S> <C>
Price Per Share in the Offering........................................................................... $ 6.00
Net tangible book value per share before the Offering................................................... $ 4.92
Increase per share attributable to new investors........................................................ $ 0.30
Pro forma net tangible book value per share after the Offering............................................ $ 5.22
Dilution to new investors................................................................................. $ 0.78
</TABLE>
13
<PAGE>
The following table sets forth, at October 6, 1997, (i) the number of
shares of Common Stock purchased from the Company by its founders and by holders
of the Conversion Shares to be issued upon completion of the Offering, (ii) the
total consideration paid and the average price per share paid for such shares by
such shareholders; and (iii) the number of shares of Common Stock to be sold by
the Company in the Offering, the total consideration to be paid and the average
price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ---------- ---------- -------------
<S> <C>
New Investors.............................................. 1,015,000 62.4% $6,090,000(1) 67.0% $6.00
Holders of Conversion Shares............................... 541,370 33.3 $3,000,000(1) 33.0 $5.54
Company Founders........................................... 71,273 4.3 -- -- --
---------- ---------- ---------- ----------
Total...................................................... 1,627,643 100.0% $9,090,000(1) 100.0%
</TABLE>
- ---------------
(1) Prior to the deduction of expenses related to the issuance thereof.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
June 30, 1997, and the capitalization of the Company as adjusted to reflect the
sale by the Company of the Notes in the Private Placement, the sale by the
Company of the Common Stock offered hereby and the initial application of the
estimated proceeds of thereof. See "Use of Proceeds." This table should be read
in conjunction with the Company's Financial Statements and the Notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1997 1996
----------------------- ------------
(UNAUDITED)
AS
ADJUSTED ACTUAL ACTUAL
----------- --------- ------------
<S> <C>
Short-term debt:
Demand note payable................................................................ $ 42,000 $ 42,000 $ --
Current portion of long-term debt.................................................. 59,455 59,455 37,293
----------- --------- ------------
101,455 101,455 37,293
----------- --------- ------------
Long-term debt, net of current portion............................................... 270,456 270,456 185,687
----------- --------- ------------
Shareholders' equity:
Common stock, no par value, 10,000,000 shares authorized, 71,273 shares issued and
outstanding; 1,586,273 shares issued and outstanding as adjusted(1)(2).......... 760 760 760
Additional paid-in capital(1)(3)................................................... 8,503,240 387,291 --
Retained earnings(3)............................................................... -- -- 161,509
----------- --------- ------------
8,504,000 388,051 162,269
----------- --------- ------------
Total capitalization.......................................................... $ 8,875,911 $ 759,962 $385,249
----------- --------- ------------
----------- --------- ------------
</TABLE>
- ---------------
(1) Reflects the (i) conversion of the Notes into 500,000 shares of Common
Stock, and (ii) the sale 1,015,000 shares of Common Stock offered hereby (at
the price to public of $6.00 per share) and the application of the estimated
net proceeds therefrom.
(2) Does not include: (i) 100,000 shares of Common Stock reserved for issuance
upon exercise of Management Warrants; (ii) up to 410,000 shares of Common
Stock reserved for issuance under the Company's Incentive Plan; and (iii)
101,500 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants for the Offering.
(3) Reflects the June 25, 1997 conversion from S Corporation to C Corporation
status and the reclassification of $387,291 in retained earnings, net of
$96,851 in distributions payable to the S Corporation shareholders to cover
their respective shares of tax liability resulting from the Company's
earnings up to the date of conversion.
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of and for the
period ended December 31, 1996 are derived from the financial statements that
have been audited by Goodman & Company, L.L.P., independent auditors. The
Company's Financial Statements for the six months ended June 30, 1996 and 1997
are unaudited. However, in the opinion of the Company, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation have
been made. Interim results are not indicative of the results to be expected for
a full fiscal year. These data should be read in conjunction with the Company's
Financial Statements and the Notes thereto included elsewhere in this Prospectus
and Management's Discussion and Analysis of Financial Condition and Results of
Operations which follow.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- --------------------
1997 1996 1996 1995
---------- -------- -------- --------
<S> <C>
(UNAUDITED)
OPERATIONS DATA:
Revenue............................................................... $1,059,212 $428,302 $989,925 $369,301
Net income (loss) before proforma income tax expense.................. $ 286,287 $122,521 $110,088 $(11,890)
Proforma net income (loss)(1)......................................... $ 161,634 $ 97,976 $ 60,437 $(33,982)
Proforma earnings (loss) per common and common equivalent share(2).... $ 0.32 $ 0.19 $ 0.12 $ (0.07)
Proforma weighted average common and common equivalent shares
outstanding and used in computation(2)............................. 506,273 506,273 506,273 506,273
</TABLE>
BALANCE SHEET DATA AS OF:
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
AS DECEMBER 31,
ADJUSTED --------------------
ACTUAL (3) 1996 1995
---------- ---------- -------- --------
<S> <C>
(UNAUDITED) (ACTUAL)
Working capital..................................................... $ (261,014) $8,228,666 $ 91,637 $ (34)
Current ratio....................................................... 0.92 27.91 1.32 1.00
Property and equipment, net......................................... $ 543,386 $ 543,386 $243,611 $100,749
Total assets........................................................ $3,964,280 $9,080,229 $634,193 $186,818
Total long-term debt................................................ $ 270,456 $ 270,456 $185,687 $ --
Shareholders' equity................................................ $ 388,051 $8,504,000 $162,269 $ 62,656
Book value per share(2)............................................. $ 0.77 $ 5.59 $ 0.32 $ 0.12
</TABLE>
- ---------------
(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation status for federal income tax purposes.
(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997, to shares relating to the issuance of the
Conversion Shares, and to the antidilutive effect of the Management Warrants
converted using the Treasury Stock method. See Note 2 to the Company's
Financial Statements.
(3) As adjusted to reflect (i) the sale of 1,015,000 shares of Common Stock
offered hereby (at the price to public of $6.00 per share) and the
application of the estimated net proceeds therefrom and (ii) the conversion
of the Notes to Common Stock at a conversion price of $6.00 per share. See
"Description of Capital Stock."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Financial Data"
and the Company's Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
The Company's revenues are derived principally from providing
protein/peptide and DNA/RNA chemistries and related analytical services to
researchers in the biotechnology industry. The biotechnology industry has
experienced rapid growth in recent years based on the development of innovative
technologies. The development process requires sophisticated laboratory
analysis. Many participants in the industry do not have the facilities or
personnel necessary to perform this analysis, and contract it out to the Company
and other organizations.
Since commencing operations in 1992, the Company has experienced
significant growth in revenues as the biotechnology industry, and the Company's
reputation in the industry, has grown. The Company experiences quarterly
fluctuations in revenues which arise primarily from variations in contract
status with its large customers. In addition, the majority of other customer
projects are individual orders for specific projects ranging from $6,000 to
$200,000. Engagement for subsequent projects is highly dependent upon the
customer's satisfaction with the services previously provided, and upon factors
beyond the Company's control such as the timing of product development and
commercialization programs of the Company's customers. The Company is unable to
predict for more than a few months in advance the volume and dollar amount of
future projects in any given period. Therefore, the timing of significant
projects could have a significant impact on the financial results of any given
period. The combined impact of several large contracts from customers and the
unpredictable project fluctuations can result in very large fluctuations in
financial performance from quarter to quarter. The Company also anticipates
that significant capital and related expenditures expected to be made
out of proceeds of the Private Placement and the Offering will impact
financial performance in the third and fourth quarter of 1997.
The biotechnology industry is currently progressing through a consolidation
stage in its development. A number of large customers may desire to develop
captive biotechnology research departments, thereby reducing their dependence on
outsource research providers such as the Company. If this trend continues, the
Company expects that it may derive a large portion of its revenues from smaller
customers which do not have the expertise or facilities to perform the
analytical services provided by the Company.
The Company believes that its growth initiatives to increase its customer
base discussed herein will reduce the significance of sales fluctuations. See
"Business -- Growth Strategy." In addition, the Company has initiated several
steps to mitigate the effects of these fluctuations where possible. The Company
has formalized team-based, project management programs to increase efficiency in
laboratory operations, and has developed and implemented a customized database
for project tracking. The Company has also instituted cost containment measures
where possible without negatively impacting project completion. These measures
include more efficient labor scheduling, the use of temporary employees to
decrease overhead costs and negotiating with suppliers to decrease supply costs.
The Company also derives revenues from government grants which fund the
Company's research on its proprietary technologies. Unlike its analytical
research services business, in which the Company provides services to customers
on a contract basis and has no ownership or other interest in any intellectual
properties resulting from the research, in its proprietary research business the
Company attempts to develop products based on intellectual property rights which
the Company owns or licenses from third parties. This research has been financed
almost entirely through government grants, although the Company has also used a
small portion of its retained earnings to finance this business. All government
grants are expense reimbursement grants which provide for reimbursement of the
Company's direct costs incurred in a research project, plus indirect costs
stated as a percentage of direct costs. The Company generally receives grant
payments semi-monthly, with the amount of each payment being determined by the
amount of the costs incurred in the immediately preceding two-week period. In
the case of one grant under which the Company serves as a subcontractor, the
Company is paid quarterly on the basis of direct and indirect costs incurred
during the immediately preceding quarter. See "Business -- Proprietary Research
and Research Grants." The Company's proprietary research business uses the same
personnel, equipment and facilities as its service business.
16
<PAGE>
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996
RESULTS OF OPERATIONS
REVENUES
Gross revenue increased $620,624, or 168.0%, from $369,301 in 1995 to
$989,925 in 1996. This increase in revenue was attributable to an increase in
new customer accounts, which contributed $453,502, or 73%, of the increase, and
to larger orders with existing customers, which contributed $167,122, or 27%, of
the increase, for all types of services provided by the Company in 1996, except
for peptide synthesis which experienced a nominal decrease of $6,380, or 1.7% of
total 1995 revenue. See "Business -- Services." This decrease was more than
offset by an increase in revenues from DNA sequencing services in the amount of
$109,298, or 254.4%, from $42,958 in 1995 to $152,256 in 1996. Revenue earned
from governmental grants also increased approximately threefold from $109,820 in
1995 to $304,987 (30.8% of total revenue) in 1996. All of the aforementioned
grant revenue was used to fund research on the Company's proprietary
technologies. The beneficial increase in revenue for 1996 was achieved with
minimal advertising and marketing effort.
Management believes that increases in revenues are attributable to the
Company's enhanced reputation in the industry and to more effective advertising
activities. These activities included the introduction of a tiered pricing
structure with services billed at lower rates and initial price concessions made
as a component of the Company's aggressive entry into the government and
academic sectors. Quarterly fluctuations in gross revenues during 1995 and 1996
were primarily a result of substantial automated sequencing services performed
for the initial contract with a single customer. Revenues from this contract
were recognized during the second and third quarters of 1995 and the first
quarter of 1996. Operations for an additional contract were substantially
completed during the first quarter of 1997, significantly increasing revenues
for that quarter as compared to any prior quarters. The customer has extended
this contract for a period of one year commencing in the fourth quarter of 1997.
The Company believes that revenues to be derived from this contract during the
extended term will be commensurate with the revenues historically derived from
this contract.
EXPENSES
Cost of services consists primarily of labor and laboratory supplies. Cost
of services increased 197.3% from $79,948 to $237,726 for the years ended
December 31, 1995 and 1996, respectively. This increase was consistent with the
increased growth experienced in revenue. Cost of services as a percentage of
revenue was 21.6% and 24.0% in 1995 and 1996, respectively. Cost of services is
subject to fluctuation and can cause results of operations to fluctuate from
quarter to quarter, particularly if the Company purchases supplies but does not
record the revenue from the performance of services until a subsequent quarter.
Sales, general and administrative expenses consist primarily of
compensation and related costs, depreciation and amortization, professional fees
and advertising. Sales, general and administrative expenses increased from
$220,891 to $323,820, or 46.6%, in 1995 and 1996, respectively. Sales, general
and administrative expenses as a percentage of revenue were 59.8% and 32.7% in
1995 and 1996, respectively. The decrease in the percentage relationship of
sales, general and administrative expenses to revenue is primarily attributable
to cost containment measures and economies of scale realized with the growth in
revenues.
Research and development costs in 1995 were primarily related to developing
and improving protocols for the automated sequencing group. Research and
development costs in 1996 were related to the development of new and expanded
services. Research and development costs were $69,861 and $308,484, or 18.9% and
31.2% of revenue, in 1995 and 1996, respectively. The increase of $238,623 in
1996 research and development costs represented an increase of 341.6% over the
amount reported for 1995. Most of these costs, however, were funded by grant
awards from government sources. Research and development expenses are likely to
continue to increase as the Company's expansion efforts continue. The Company
may need increased capital in order to expand its research and development
efforts. The Company intends to apply for more grants, and is eligible to
compete for additional categories of grants.
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SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
RESULTS OF OPERATIONS
REVENUES
Gross revenues increased 147.3% from $428,302 to $1,059,212 for the six
month periods ended June 30, 1996 and 1997, respectively. This increase in
revenue was attributable to an increase in new customer accounts for both the
automated sequencing services and cell culture and protein purification services
provided by the Company. Management believes that the increase in automated
sequencing revenue is attributable to increased reputation in the
industry and advertising activities while the increase in the cell culture and
protein purification services is due to increased advertising as well as
increased management involvement in promotional activities.
EXPENSES
Cost of services increased 252.7% from $84,003 to $296,272 for the six
months ended June 30, 1996 and 1997, respectively. Increases in personnel,
supply usage and equipment costs as a result of the increase in services
rendered comprised the increase in operating costs. Cost of services as a
percentage of revenue was 19.6% and 28.0% for the six month periods ending June
30, 1996 and 1997, respectively.
Sales, general and administrative expenses increased from $129,415 to
$255,798, or 97.7%, for the six months ended June 30, 1996 and 1997,
respectively. Sales, general and administrative expenses as a percentage of
revenue were 30.2% and 24.1% for the six months ended June 30, 1996 and 1997,
respectively. The decrease in the percentage relationship of sales general and
administrative expenses to revenue is primarily attributable to cost containment
measures and economies of scale realized with the growth in revenues.
Research and development costs for the six months ended June 30, 1997 were
primarily related to developing and improving protocols for the automated
sequencing efforts. Research and development costs for this period were related
to the receipts of new grants and contracts. Research and development costs were
$88,642 and $213,535, or 20.7% and 20.2% of revenue, for the six months ended
June 30, 1996 and 1997, respectively. The increase of $124,893 in research and
development costs for the six months ended June 30, 1997 represented an increase
of 140.9% over the amount reported for the same period a year earlier. Research
and development expenses are likely to continue to increase as the Company's
expansion efforts continue. The Company may need additional capital in order to
expand its research and development efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant fluctuating demands on its working
capital due to actual and anticipated growth in all current services. Operating
cash flow provided was $57,850 and $409,136 for 1995 and 1996,
respectively, and $116,160 and $218,296 for the six months ended June 30,
1996 and 1997, respectively. Net working capital (deficit) at December 31, 1995
and 1996 was ($34) and $91,637, respectively, and ($261,014) at June 30, 1997.
Capital expenditures were $961 and $194,798 in 1995 and 1996, respectively. The
Company's liquidity was increased substantially during the fourth quarter of
1996 by the receipt of a research contract and the related cash receipt in the
amount of $200,000 from a significant customer. Additionally, the Company's
liquidity was increased during the second quarter of 1996 by the expansion of
its revolving credit line to purchase a DNA sequencer for $131,116. In August
1996, the revolving credit line converted to a term note that had an outstanding
balance of $200,800 upon conversion. This term note provides for equal monthly
payments of principal and interest through October 2001. The Company received
$30,000 in July 1996 pursuant to an Enterprise Zone incentive loan with the City
of Richmond. During 1996, the Company made principal payments on its existing
debt of $33,378. The Company also retired its capital lease obligation in the
amount of $63,860. The Company's liquidity was increased substantially during
the first quarter of 1997 from the proceeds of a term loan from a financial
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institution in the amount of $102,800. The Company also financed the purchase of
vehicle under a term loan in the amount of $23,682.
In June 1997, the Company completed the Private Placement of the Notes. The
net proceeds of the Private Placement were $2,629,269.
Prior to the completion of the Private Placement, the Company, as an S
Corporation, made distributions to its shareholders which totaled an aggregate
of $79,533 in 1996 and $96,851 for the first six months of 1997. In June 1997,
the Company altered its taxable status to that of a corporation governed by
Subchapter C of the Internal Revenue Code of 1986, as amended (the "Code").
During the twelve-month period following completion of the Offering, the
Company expects to incur approximately $3,100,000 of capital expenditures,
consisting of approximately $2,600,000 of expenditures on laboratory equipment
and related computer equipment and software, and approximately $500,000 of
expenditures on fitting up new laboratory and office space. These expenditures
will enable the Company to expand its facilities in order to pursue its growth
strategy. See "Business -- Growth Strategy." These capital expenditures will be
funded out of the proceeds of the Offering.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123, Accounting for Stock-Based Compensation Arrangements.
FASB No. 123 permits a company to choose either a new fair value-based method of
accounting for stock-based compensation, or retain the current intrinsic
value-based method of accounting for stock-based compensation provided for in
Accounting Principles Board Opinion No. 25, Accounting for Stock-Based
Compensation. FASB Statement No. 123 requires pro forma disclosures of net
income and earnings per share computed as if the fair value-based method had
been applied in financial statements of companies that continue to follow the
intrinsic value-based method of accounting. APB No. 25 would generally only
require the recognition of compensation expense for the difference, if any,
between the fair value of the underlying Common Stock and the grant price of the
option of the date of the grant. As the Company intends to utilize stock options
in the future, these accounting pronouncements could have a material effect on
its financial condition and on results of operation in the future. The Company
is currently considering the potential effect of these pronouncements, but is
unable, at the current time, to determine the effect on its financial condition
and results of operation with any degree of certainty.
For a discussion of the Company's plan of operation, see "Use of Proceeds."
BUSINESS
OVERVIEW
The Company was founded in 1992 by four experienced research scientists to
provide sophisticated research and development support services on a contract
basis to the biotechnology industry. The Company's customers consist of private
companies, academic institutions and government agencies all of which use
biological processes to develop products for health care, agricultural and other
purposes. Much of this revenue is derived from innovative products based on
research into the fundamental biological processes that support life. These
fundamental processes depend on the interrelationships of basic components of
cells in living organisms, including enzymes, proteins, peptides, DNA and RNA,
an understanding of which enables scientists to develop new compounds having
commercial applications.
The Company provides these services to customers on a contract basis and
derives its revenues from these services, and not from sales of commercial
products resulting from the research. This arrangement distinguishes the Company
from many other biotechnology companies in that the Company's revenues are not
directly dependent on successfully commercializing a new biotechnology product.
The Company has developed a strong reputation as a leading provider of
biotechnology research and development analytical services which positions the
Company for growth with the availability of additional capital. The Company
intends to focus its expansion efforts on the maintenance and expansion of long
term relationships with customers in the biotechnology industry as well as
establishing new customer relationships. The Company will seek to identify
trends that impact its customers and develop new products and services to meet
the changing needs of its clients.
In addition to its analytical services, the Company is developing several
of its own proprietary new technologies in the areas of anti-coagulation and
genomic sequence analysis, and has a patent application pending in the
anti-coagulation area. The development of these technologies has been funded by
grants from government agencies, and the Company anticipates
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that this portion of its operations will continue to be funded in this manner.
These technologies are in the early stage of development and should be
considered highly speculative at this time.
GROWTH STRATEGY
The Company's strategy for growth consists of the following elements:
o Expansion of Capacity in its Existing Service Business. The
Company believes there is significant demand for additional
services of the type the Company currently offers. The Company's
capacity to service this demand has been constrained by the
limitations of its facilities and need to make significant capital
expenditures on equipment. By securing a significantly larger
laboratory facility and additional research equipment, the Company
will have the capacity to generate substantially greater revenues
from its core services and to improve profit margins through more
efficient operations.
o Expansion of Marketing Capabilities. The Company believes that it
can increase revenues and profits through greater presence in the
biotechnology industry. The Company's marketing to date has
consisted largely of customer referrals, limited advertisements in
trade publications and participation at trade shows. The Company
intends to significantly expand its marketing operations to
attract new customers and to receive more business from existing
customers.
o Expansion into New Service Businesses. By enhancing its facilities
and expertise, the Company believes it will be positioned to
expand its service offerings to existing customers and to attract
new customers. For example, the Company does not currently provide
services to companies seeking FDA approval for pharmaceutical
products because the Company's laboratory does not meet FDA
requirements, and it does not offer services in various genetic
and forensic testing areas because it does not have personnel who
possess the necessary expertise. The Company intends to address
these needs, which will open up new markets. The Company believes
there is a substantial opportunity to offer analytical services
related to the human genome project, and its genetic and forensic
applications. See " -- The Biotechnology Industry."
THE BIOTECHNOLOGY INDUSTRY
The biotechnology industry consists of a broad range of companies that use
biological processes to develop products for the human health care, agricultural
productivity, food safety and nutrition, environmental improvement and animal
health markets. The industry began to develop in the early 1970s, with much of
its activity focusing on fundamental research and initial development of new
products based on that research. The development cycle for products derived from
biotechnology research and development has typically been quite long, with many
new technologies taking ten or more years to yield products with significant
commercial potential.
The promise of the research and development efforts of the previous decades
is now being realized, and the result is a stream of new products ready for
commercialization and renewed interest in further basic research into new
technologies and extensions of existing technologies. Much of the success of the
biotechnology industry can be traced to advancements in "foundation"
technologies which define the basic structures and relationships of biologically
relevant compounds. Elucidation of these structures and relationships has led to
the development of commercial scale quantities of pure, custom designed
macromolecules.
There are two stages in the development of foundation technologies. In the
first stage, the building block components of a macromolecule (amino acids,
nucleotides, etc.) are determined and defined. In the second stage, these
components are altered in a precise fashion to meet the user's needs. Once
analyzed, sequences of peptides and proteins and of RNA and DNA are used to
create or enhance a wide range of products and applications, including
pharmaceuticals, genetically altered freeze-and pest-resistant crops, DNA
"fingerprints" of criminals, paternity testing, infectious disease diagnosis and
prognosis, genetic disease detection, identification of cancer-prone individuals
and other applications.
Due to the relatively short history of the biotechnology industry and the
complexity of most macromolecules, researchers have only recently begun to
unravel the sequences of DNA, RNA, peptides, and proteins, and research and
development expenditures in this area are expected to grow rapidly in the
future. For example, in the early 1990's the federal government budgeted $15
billion on the human genome project, a multi-government agency sponsored project
to sequence the entire human gene sequence (comprised of approximately three
billion individual nucleotides), and the completion of this project is estimated
to take another 10 years and $15 billion. The recent success in cloning a sheep
from maternal cells has generated significant new interest in cloning. The
ability to use DNA sequence analysis to precisely categorize the lineage of
domestic
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animals, or to diagnose genetic pathologies, or to create new
biopharmaceuticals, has the potential to become a major industry of the 21st
century. The Company believes that the expansion of existing biotechnology
industries and the development of new ones will lead to an increased demand for
sophisticated analytical research services. The Company believes that it will
become well positioned to participate in these new service areas.
ANALYTICAL SUPPORT SERVICES
In order to analyze and experiment with cell components and macromolecules,
researchers need to analyze, sequence, purify, synthesize, and characterize
those components. The cost of creating an in-house laboratory with the equipment
and personnel to perform all these functions is well in excess of $3 million.
The Company's business is dependent upon the use of sophisticated, analytical
equipment. The Company intends to use a portion of the proceeds of the Offering
to purchase additional equipment necessary to provide a wider range of services.
The biotechnology industry is rapidly developing and the need for more
sophisticated equipment will increase significantly as the technology develops.
In light of increasing cost pressures, many companies, universities, and
research institutions seek to avoid incurring the costs to equip and staff such
a laboratory. Instead, they contract with biotechnology support companies for
many of these analytical services. They are increasingly outsourcing routine
procedures to maximize the innovative aspects of their internal efforts. Many
players in the biotechnology sector have developed according to the "virtual
company" model, which supports outsourcing of routine research and development
efforts. In response to this demand, a number of foundation biotechnology
support companies have emerged to supply the emerging companies in this growing
field.
The Company was founded in September 1992 by four internationally
recognized investigators with expertise in the general areas of protein/peptide
and nucleic acid chemistries to provide a high degree of expertise and a wide
range of analytical services to the biotechnology industry. The Company is a
fee-for-service contractor and typically takes no ownership position in the
intellectual property rights of the services it performs under contract. A key
to the growth of the Company has been to integrate a number of foundation
technologies and provide a broad range of capabilities to customers who
otherwise must go to several different sources for their needs. Since commencing
operations, the Company has become noted for providing a wide range of services
relating to design, synthesis, purification, and analysis of peptides, proteins,
and oligonucleotides.
Providing a wide range of services is an important element of the Company's
competitive strategy. Virtually all of its closest competitors provide either
DNA level technologies or protein/peptide level technologies. There are few
major competitors which offer integrated DNA/RNA and protein/peptide
technologies and none that offer these technologies combined with sophisticated
biophysical analytical techniques, such as RNA synthesis, DNA synthesis,
calorimetry, spectroscopy, and mass spectral analysis. Thus, the Company can
provide complete research programs to its customers. "One stop biotechnology
shopping" has proved attractive in securing long-term contracts with customers
ranging from major players in the pharmaceutical industry to major government
sponsors of research, such as the National Institutes of Health. The Company
believes it has earned a reputation as a leading provider of high quality DNA
sequencing -- a reputation which has enabled it to obtain key contracts with
major pharmaceutical and biotechnology companies throughout the world.
SERVICES
The following are the major categories of services the Company provides.
OLIGONUCLEOTIDE SYNTHESIS. Nucleotides are the building blocks of DNA and
RNA. Investigators synthesize oligonucleotides in order to build new, or clone
existing, DNA strands. Some applications of synthesis include gene therapies,
recombinant DNA technologies, pharmaceuticals, infectious disease detection and
prognosis, hereditary disease detection and prognosis and cancer detection and
predilection, insecticides, test vaccines and anti-viral agents. The Company
provides both routine syntheses, for which the average sale is $150, and custom
synthesis chemistries for design of special nucleotide derivatives. Very few
commercial companies offer custom RNA synthesis or synthesis of RNA/DNA hybrid
molecules, and the Company has been successful in supplying these specialized
products to academic and commercial customers. An average order for an RNA
oligonucleotide is $1,000. In addition, the Company has recently negotiated a
broad license for the synthesis and distribution of a new type of highly
specific, high performance oligonucleotide referred to as "PNA's" or Protein
Nucleic Acids.
PROTEIN/PEPTIDE SYNTHESIS. Assembly of amino acids into chains creates
synthetic peptides which can act as effective substitutes for their
physiological counterparts. For example, synthetic peptide hormones are
molecules carried through the blood that can affect cell functions. There are
many types of peptides including therapeutics, anti-diuretics, anti-coagulants,
and anti-hypertensives. Still other peptides are used as specific substrates or
inhibitors of enzyme function. Peptides are used
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primarily for research, clinical therapeutics, and for counteracting the
biological activities of other peptides. The Company now has the ability to
produce 36 peptides simultaneously, or to produce libraries of peptides
containing literally millions of different peptide sequences. New equipment
expected to be purchased with the proceeds of the Offering will enable the
Company to produce an additional 96 peptides simultaneously. An average order is
about $1,500 per peptide.
DNA SEQUENCING. Sequencing is essentially the reverse process of synthesis.
An investigator who wants to know the precise order of constituent nucleotides
of a DNA or RNA strand would use sequencing to perform that analysis. Examples
of uses of DNA sequencing include gene therapy, cloning, identity testing,
mutation analysis, and disease and cancer detection. A customer often will
require development of novel sequencing protocols and analysis of the data
resulting from sequencing, services which the Company has the expertise to
provide. In a typical experiment, a customer will require 10-20 sequencing
reactions which are priced at $60 to $100 per reaction. However, a number of
customers require thousands of sequencing reactions, for which the Company
offers aggressive discounts in pricing.
PEPTIDE/PROTEIN SEQUENCING. DNA arranges amino acids into the proteins and
enzymes of the body, such as hemoglobin or gamma globulin. Analysis of the order
of amino acids in proteins and enzymes is an important analytical tool. For
example, to clone a protein, a researcher must know the precise sequence of
amino acids that make up a protein, and in creating DNA, a researcher must
verify the sequence of amino acids in the new protein resulting from the DNA.
The Company provides these analytical services, with a typical sequence
experiment costing $800, although the Company has attracted customers who send
the Company hundreds of peptides and proteins for sequence analysis.
PEPTIDE/PROTEIN COMPOSITIONAL ANALYSIS. Analysis of the amino acids that
compose a protein or peptide is used to verify purity of synthesized peptides
and to determine the make-up of newly discovered proteins or enzymes. Each
sample submitted for analysis is $50 and usually two or three analyses are
required for a complete compositional determination.
OTHER TECHNOLOGIES. The Company offers a number of even more complex and
sophisticated services that are based on the foundation technologies and
interdigitate the current and ongoing biotechnology revolution stimulated by the
development of recombinant DNA gene cloning technology. Thus, the marriage in
the Company of the gene cloning and recombinant DNA technologies with the
protein, DNA, and macromolecular analysis foundation technologies provides a
strong strategic capability for services for prospective customers. The breadth
and depth of the Company's expertise, therefore, provides a wide range of
potential approaches to research and developmental contracts.
OPERATIONS
Requests for quotes from potential customers are received via phone,
e-mail, from the Company's World Wide Web page, or by hard copy and directed to
the Company's business coordinator or laboratory manager. All inquiries are
answered by direct mail of the Company brochure and price lists, with follow up
phone calls, where appropriate. Price quotes for small projects or routine
analytical procedures are generated by scientists who possess the expertise
necessary to respond appropriately. Quotes for more complex projects are
developed collaboratively by the Company personnel having the requisite
expertise. Most quotations are sent back to the inquiring scientist within one
working day.
Incoming orders are logged onto the Company's project management system,
assigned a work order number, and delivered to the appropriate scientist
designated to oversee and coordinate all aspects of the particular project. The
work to be done is scheduled on the appropriate instruments, and all necessary
reagents or other supplies needed to complete the project are ordered as needed.
Every customer is required to sign a service agreement prior to the Company
initiating any requested work.
As a prolonged project is completed, progress reports are usually sent to
the customer detailing the results found to date, and the conclusions to be
drawn. If the project is relatively straight-forward, such as an amino acid
analysis, spectroscopy, or DNA sequence analysis, the results are faxed or
e-mailed to the customer prior to sending the customer the hard copy of his
results. If the project entails a synthesis of a peptide or oligonucleotide, for
example, the product is sent to the customer by express mail service. Every
product is accompanied by a data sheet, which details the physiochemical
properties of the compound, including the results of all analytical tests
performed which support the claimed purity and composition. The customer is
invoiced upon completion of the work, or at particular points in the work
program. The customer pays for the analytical services provided in accordance
with the Company's standard fee structure and retains all rights to any
developments resulting from the analysis.
All data generated at the Company are archived for the customer. Where
appropriate, the data are archived on selected storage media, such as back up
tapes or computer disks. A file is maintained for every customer, and these
files are also archived. The Company employs appropriate security measures to
ensure the confidentiality of customer information.
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The Company operates under strict Standard Operating Protocols ("SOPs")
which detail the particular technologies used to complete the work in progress.
SOPs are made available to the customer upon request. In addition, the Company's
technical team follows standard operating procedures which help to produce
consistent, high quality results.
CUSTOMERS
The Company currently provides similar products and support to more than
300 individual customers in university and/or government laboratories, and to
customers in private companies. The composition of the Company's customer base
in terms of numbers of customers is approximately 60% private industry, 20%
government agencies and 20% academic institutions. In 1996, one private industry
customer accounted for approximately 20% of the Company's revenues. The Company
has entered into a research agreement with this customer which will expire in
December 1997, and has entered into two additional research agreements with this
customer which are expected to run from January through December 1998. The
Company regularly bills the customer against a standing purchase order. No other
customer accounted for more than 5% of the Company's revenues in 1996.
COMPETITION
The Company faces several types of competition. The Company believes there
are between 12 and 15 companies concentrating on peptide synthesis and about 20
other companies offering DNA related services in the United States. Very few
companies offer both DNA/RNA and protein/peptide analysis. Other competition
comes from divisions of larger research oriented companies or university core
facilities. The principal competitive factors are pricing, expertise, and range
of services offered, and that it competes effectively on all of these factors.
The Company believes that it is very competitive in protein sequence analysis
and DNA sequence analysis and competitive in all other services, with the
exception of DNA synthesis, in which it is currently less competitive. See "Risk
Factors -- Competition."
MARKETING
The Company has expanded its customer base primarily through word-of-mouth
referrals and attendance at a limited number of trade shows, seminars and
meetings. Because of its ability to offer a wide range of biotechnology research
services, the Company enjoys a favorable reputation among its customers, and
many new customers come to the Company by word-of-mouth recommendation. The
Company has constructed its own World Wide Web Home Page (www.cbi-biotech.com)
and is listed with several biotechnical and biomedical oriented sites on the
World Wide Web. See "Risk Factors -- Lack of Sales and Marketing Capabilities."
FACILITIES
The Company currently occupies 10,000 square feet of laboratory and office
space in two adjacent locations, each having 5,000 square feet of space. The
lease for one location continues through the year 2000 and is subject to
cancellation by the Company upon nine months' notice. The lease for the other
location continues through May 31, 1998 and is subject to cancellation by the
Company upon three months' notice. The Company sponsors a research program at
the Medical College of Virginia ("MCV") campus of Virginia Commonwealth
University ("VCU") which allows its employees access to certain laboratories and
facilities of MCV. As part of its growth strategy, the Company anticipates the
need for substantial additional space and is investigating a 18,000 square foot
facility which, together with options to lease at least 10,000 square feet of
adjoining space, would accommodate the Company's needs for the foreseeable
future.
RELATIONSHIP WITH VIRGINIA COMMONWEALTH UNIVERSITY
Three of the Company's founders were faculty members at VCU, and the
Company benefited from certain agreements with VCU in the early stage of its
development. See "Management -- Relationship with VCU."
PROPRIETARY RESEARCH AND RESEARCH GRANTS
In addition to customer billings, the Company has attracted federal
contracts and grants which are used to fund the Company's development of its own
proprietary technologies. See " -- Intellectual Property." The Company has
completed three $25,000 contracts from the National Institutes of Health
("NIH"), has completed three different Phase I Small Business Technology
Transfer Research ("SBTTR") grants from NIH ($100,000 each), and has completed
the first year of a Phase II SBTTR grant from NIH ($235,000). The Company
currently is in the second year of the Phase II SBTTR grant from NIH ($265,000),
which will expire on August 31, 1998, and has a Small Business Innovative
Research Award ("SBIR") from the United States Department of Agriculture
($55,000), which will expire on May 31, 1998. Revenues from federally funded
contracts are recognized on a cost reimbursement basis. See "Risk Factors --
Dependence on Government Grants" and "Management's Discussion and Analysis of
Financial Condition -- Overview."
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INTELLECTUAL PROPERTY
The Company's principal intellectual property rights consist of a patent
application relating to an anti-coagulation technology it is developing. The
Company's anti-coagulation technology is an experimental new compound that
counteracts the effects of heparin, which is used to prevent blood clotting
during open heart surgery and other surgical procedures involving significant
intervention into the circulatory system. The only drug currently available to
counteract heparin exhibits toxicity and other adverse side effects, so its use
is primarily restricted to open heart surgery and emergencies. However, the
inability to counteract the effects of heparin can result in bleeding
complications. Initial tests indicate that compounds the Company has developed
can neutralize heparin's anticoagulant activity without displaying the toxicity
associated with the existing drug. This anti-coagulation technology, and all
other proprietary technologies under development at the Company, are at a very
early stage of development. To yield commercial products, these technologies
will require extensive additional research and development, testing and
government approval. The Company does not anticipate undertaking this work
itself, but instead will license the technologies to third parties which would
pursue commercialization and pay the Company license fees and royalties based on
sales of products, if any. As a result, there can be no assurance that
commercial products will result from these technologies, all of which should be
considered highly speculative.
The Company anticipates that its ability to secure and protect patents and
other intellectual property rights will be increasingly important to the
business of the Company in the event its proprietary research programs yield
technologies which can be commercialized. There can be no assurance that the
Company will be successful in securing and protecting intellectual property
rights, or that its activities will not infringe on the intellectual property
rights of others.
The Company takes appropriate steps to protect its intellectual property
rights and those of its customers. The Company's practice is to require its
employees and consultants to execute non-disclosure and proprietary rights
agreements upon commencement of employment or consulting arrangements with the
Company. These agreements acknowledge the Company's exclusive ownership of all
intellectual property developed by the individual during the course of his work
with the Company and require that all proprietary information disclosed to the
individual by the Company or its customers remain confidential.
GOVERNMENT REGULATION
The Company does not require government regulatory approvals to provide its
current services. Numerous federal, state and local agencies, such as
environmental, working condition and other similar regulators, have jurisdiction
to take actions that could have a material adverse effect upon the Company's
ability to do business. The Company believes that it is in general compliance
with existing federal, state and local laws and regulations and does not
anticipate that continuing compliance will have any material effect upon the
capital expenditures, earnings or competitive position of the Company.
The Company anticipates that its pursuit of its growth strategy will
subject the Company to a heightened level of government regulation of its
operations. For example, in pursuing opportunities to provide analytical
services to customers seeking the approval of the United States Food and Drug
Administration (the "FDA") of products, the Company's operations will become
subject to compliance with standards established by the FDA, including
inspections by the FDA and other federal, state and local agencies regarding
work performed by the Company on specific FDA submission projects. If
significant violations are discovered during an inspection, the Company may be
restricted from undertaking additional work on FDA submission projects until the
violations are remedied. The Company will also require a new license from the
Nuclear Regulatory Commission ("NRC") for the operation of a new laboratory
facility. The Company estimates that the time period for obtaining the NRC
license should not exceed three months. See "Risk Factors -- Government
Regulation."
The commercialization of the Company's proprietary technologies would also
be subject to extensive government regulation and approval requirements,
including the need for pre-clinical laboratory and animal tests and human
clinical trials for FDA approval of human pharmaceutical products. The Company
does not have, and does not anticipate developing, the facilities and expertise
necessary to obtain FDA approval for or to manufacture any pharmaceutical
products that may result from its technologies. Instead, the Company would
license these technologies to third parties having the necessary facilities and
expertise, which would assume responsibility for and control of regulatory
matters.
EMPLOYEES
The Company currently employs 30 full-time and 3 part-time employees. The
Company believes its relations with its employees to be very good. See "Risk
Factors -- Dependence on and Need to Hire Personnel" and " -- Lack of Sales and
Marketing Capabilities."
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
24
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages, as of
October 6, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------------------------------- --- ----------------------------------------
<S> <C>
Richard J. Freer, Ph.D..................................................... 55 Chairman of the Board, Director and
Founder
Robert B. Harris, Ph.D..................................................... 45 President, Director and Founder
Gregory A. Buck, Ph.D...................................................... 46 Senior Vice-President, Chief Scientific
Officer, Secretary, Director and
Founder
Thomas R. Reynolds......................................................... 35 Senior Vice President, Director and
Founder
Chester M. Trzaski......................................................... 51 Chief Operating Officer
Charles A. Mills, III...................................................... 50 Director
Peter C. Einselen.......................................................... 58 Director
</TABLE>
The following is a brief summary of the background of each executive
officer and director of the Company:
RICHARD J. FREER, PH.D., Chairman of the Board, Director and Founder. Since
founding the Company in 1992, Dr. Freer has served as the Chairman of the Board
and a Director of the Company. From 1977 until 1997, Dr. Freer was employed by
VCU, first as an Associate Professor and then a Professor, in the Department of
Pharmacology and Toxicology. In addition, from 1988-1995, Dr. Freer was first
Director and then Chair of the Biomedical Engineering Program. Dr. Freer
received a bachelor's degree in Biology from Marist College and a doctorate in
Pharmacology from Columbia University.
ROBERT B. HARRIS, PH.D., President, Director and Founder. Since founding
the Company in 1992, Dr. Harris has served as the President and a Director of
the Company. Until 1997, Dr. Harris was employed in the Department of
Biochemistry and Molecular Biophysics at VCU, first as an Assistant, then
Associate and finally a full Professor. Dr. Harris received a joint bachelor's
degree in Chemistry and Biology from the University of Rochester, and a master's
degree and a doctorate degree in Biochemistry/Biophysical Chemistry from New
York University.
GREGORY A. BUCK, PH.D., Senior Vice President, Chief Scientific Officer,
Secretary, Director and Founder. Since founding the Company in 1992, Dr. Buck
has served as Senior Vice President, Chief Scientific Officer, Secretary and a
Director of the Company. In addition, from 1996 until 1997, Dr. Buck was
employed as a Professor in the Department of Microbiology and Immunology at VCU.
From 1991 through 1996, Dr. Buck served as an Associate Professor in the
Department of Microbiology and Immunology at VCU. Dr. Buck received a bachelor's
degree in Genetics from the University of Wisconsin-Madison and a doctorate
degree in Microbiology and Immunology from the University of Washington.
THOMAS R. REYNOLDS, Senior Vice President, Director and Founder. Since
founding the Company in 1992, Mr. Reynolds has served as a Senior Vice President
and a Director of the Company. From 1987 until 1997, Mr. Reynolds served as the
Manager of the Nucleic Acids Core Laboratory at The Massey Cancer Center in the
Department of Microbiology and Immunology at VCU. From 1984 through 1986, Mr.
Reynolds served as a research assistant in Genetics at Carnegie Mellon
University. Mr. Reynolds received a bachelor's degree in Biology from the
Pennsylvania State University.
CHESTER M. TRZASKI, Chief Operating Officer. Mr. Trzaski has been employed
by the Company as its Chief Operating Officer since May 1996. From 1993 to 1995,
Mr. Trzaski was the Chief Operating Officer and Executive Vice President of
Corning National Packaging, a clinical packaging company. From 1990 to 1993, Mr.
Trzaski served as the Director of Materials Management for Whitby
Pharmaceuticals, a pharmaceutical marketing company. Mr. Trzaski received a
bachelor's degree in Microbiology from Alliance College.
CHARLES A. MILLS, III, Director. Mr. Mills became a director of the Company
in June 1997. Mr. Mills has been employed by the Underwriter as a Senior Vice
President since 1986. He served as Chairman of the Board of the Underwriter from
1990 to 1992 and from 1994 to the present. He has served as a director of
Humphrey Hospitality Trust, Inc. since 1994 and as a Director of Virginia Gas
Company since 1996.
PETER C. EINSELEN, Director. Mr. Einselen became a director of the Company
in June, 1997. Mr. Einselen has served as Senior Vice President of the
Underwriter since 1990. From 1983 to 1990, Mr. Einselen was employed by Scott &
Stringfellow, Incorporated, Richmond, Virginia. He has been a member of the
Board of Directors of American Industrial Loan Association since 1992 and has
also been a director of Virginia Gas Company since 1996.
25
<PAGE>
The Company anticipates appointing one additional non-employee Director to
the Board.
RELATIONSHIP WITH VCU
Drs. Freer, Harris, and Mr. Reynolds have terminated their employment with
VCU and are now full-time employees of the Company. Dr. Buck has been granted a
one-year leave of absence from VCU and will devote 100% of his efforts to the
Company's business.
BOARD OF DIRECTORS
The Articles and the Bylaws provide that the Company's Board of Directors
shall have between five and nine members and shall be divided into three
classes. The members of each class of directors will serve for staggered
three-year terms. Following the completion of the Offering, Messrs. Reynolds and
Mills will be classified as Class I directors to serve until the annual meeting
of the Company's shareholders (the "Annual Meeting") to be held in 1998; Dr.
Harris and Mr. Einselen will be classified as Class II directors to serve until
the 1999 Annual Meeting; and Drs. Freer and Buck will be classified as Class III
directors to serve until the 2000 Annual Meeting. Each successor to a director
whose term expires at an Annual Meeting will be elected to serve until the third
Annual Meeting after his or her election and until his or her successor has been
duly elected and qualified. Any director chosen to fill a vacancy on the Board
shall hold office until the next election of the class for which he or she shall
have been chosen, and until his or her successor has been duly elected and
qualified. Directors may be removed only for cause.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Audit Committee and Compensation Committee are each composed
of Mr. Mills and Mr. Einselen, both of whom are independent directors. The Audit
Committee recommends the annual appointment of auditors, with whom the Audit
Committee reviews the scope of audit and non-audit assignments and related fees,
accounting principles used by the Company in financial reporting, internal
auditing procedures and the adequacy of the internal control procedures of the
Company. The Compensation Committee will administer the Company's Incentive Plan
and make recommendations to the Board of Directors regarding compensation and
benefits for the executive officers. The Compensation Committee also has
oversight responsibilities for all broad-based compensation and benefit
programs, including the Incentive Plan.
DIRECTOR COMPENSATION
All directors receive a fee of $2,500 for each regularly scheduled
quarterly Board meeting attended (the "Director's Fee"). The Director's Fee
shall be adjusted upwards or downwards on an annual basis in an amount equal to
the percentage change in the market price of the Company's Common Stock as
compared to the market price of the Common Stock for the previous fiscal year.
For the first year of this calculation, the prior fiscal year's market price
will be $6.00 per share. In addition to the Director's Fee, all directors
receive reimbursement for travel and other related expenses incurred in
attending Board meetings and committee meetings.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table set forth certain information regarding compensation
earned by Dr. Freer during the fiscal years ended December 31, 1996, December
31, 1995 and December 31, 1994. No executive officer of the Company, including
Dr. Freer, received compensation in excess of $100,000 during such fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
TABLE
------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------------------------- ---- ---------- --------- ------------
<S> <C>
Richard J. Freer, Ph.D....................... 1996 $8,729 -- $ 23,024(1)
Chairman of the Board 1995 -- -- --
1994 -- -- --
</TABLE>
- ---------------
(1) Represents distribution to pay income taxes incurred by Dr. Freer as a
result of the Company's status, as of December 31, 1996, as a corporation
taxed in accordance with Subchapter S of the Code.
INCENTIVE PLAN
The Company adopted the Incentive Plan on June 24, 1997. The Incentive Plan
provides for the granting to employees, officers, directors, consultants and
certain non-employees of the Company of options to purchase shares of Common
Stock.
26
<PAGE>
The maximum number of shares of Common Stock that may be issued pursuant to
options under the Incentive Plan is 410,000, subject to adjustment in the event
of a stock split, stock dividend or other change in the Common Stock or the
capital structure of the Company. Of these shares, 270,000 have been reserved
for incentive awards to be granted to Drs. Freer, Harris and Buck and Mr.
Reynolds. 140,000 shares are reserved for incentive awards to be granted to
other persons. Incentive awards may be in the form of stock options, restricted
stock, incentive stock or tax offset rights. The Incentive Plan is administered
by the Compensation Committee of the Board of Directors. Subject to the
provisions of the Incentive Plan, the Compensation Committee is authorized to
determine who may participate in the Incentive Plan, the number and type of
awards to each participant, the schedules on which each award will become
exercisable, and the terms, conditions, and limitations applicable to each
award. The Compensation Committee has the exclusive power to interpret the
Incentive Plan and to adopt such rules and regulations as it may deem necessary
or appropriate for the purposes of administering the plan. Subject to certain
limitations, the Board of Directors is authorized to amend, modify or terminate
the Incentive Plan to meet any changes in legal requirements or for any other
purpose permitted by law.
OPTIONS. Options granted under the Incentive Plan may be either "incentive
stock options" within the meaning of Section 422(a) of the Code, or
non-qualified options. Incentive stock options may be granted only to employees
of the Company (including directors who are employees), while non-qualified
options may be issued to non-employee directors, employees, consultants,
advisors and other independent contractors providing services to the Company.
The per share exercise price of the Common Stock subject to all options granted
pursuant to the Incentive Plan shall be determined by the Compensation Committee
at the time any option is granted. In the case of incentive stock options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the incentive stock option is granted. "Fair
market value" shall be determined by the Board, or by its designated committee,
in good faith and using any reasonable method. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to him, 10%
or more of the total combined voting power of all classes of Common Stock (a
"10% Shareholder"), shall be eligible to receive any incentive stock options
under the Incentive Plan unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option, determined on the date
of grant. Non-qualified options are not subject to this limitation.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent, total disability,
the optionee will have three months after such termination to exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent disability, an option remains exercisable for one year thereafter to
the extent it was exercisable on the date of such termination. No similar
limitation applies to non-qualified options.
Incentive stock options granted under the Incentive Plan cannot be
exercised more than 10 years from the date of grant, except that incentive stock
options issued to a 10% Shareholder are limited to five year terms. All options
granted under the Incentive Plan may provide for the payment of the exercise
price in cash, by cash equivalent acceptable to the Company, or by delivery to
the Company of shares of Common Stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of such methods of payment. Therefore, a participant may be
able to tender shares of Common Stock to purchase additional shares of Common
Stock and may, theoretically, exercise all of his or her stock options with no
additional investment other than his or her original shares. Any unexercised
options that expire or terminate become available once again for issuance.
RESTRICTED STOCK. Restricted stock issued pursuant to the Incentive Plan is
subject to the following general restrictions: (i) none of such shares may be
sold, transferred, pledged or otherwise encumbered or disposed of until the
restrictions on such shares have lapsed or been removed under the provisions of
the Incentive Plan, and (ii) if a holder of restricted stock ceases to be
employed by the Company, he will forfeit any shares of restricted stock on which
the restrictions have not lapsed or been otherwise removed.
The Compensation Committee will establish as to each share of restricted
stock issued under the Incentive Plan the terms and conditions upon which the
restriction on such shares shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions at the end of a specified
period of time, as a result of the disability, death or retirement of the
participant. In addition, the Compensation Committee may at any time, in its
sole discretion, accelerate the time at which any or all restrictions will lapse
or remove any and all such restrictions.
INCENTIVE STOCK. The Compensation Committee may establish performance
programs with fixed goals and designate key employees as eligible to receive
incentive stock if the goals are achieved. Incentive stock will only be issued
in accordance with the program established by the Compensation Committee. More
than one performance program may be established by
27
<PAGE>
the Compensation Committee and they may operate concurrently or for varied
periods of time and a participant may participate in more than one program at
the same time. A participant who is eligible to receive incentive stock under a
performance program has no rights as a shareholder until such incentive stock is
received.
TAX OFFSET RIGHTS. The Compensation Committee may, in its discretion, award
tax offset rights in conjunction with any incentive award. Tax offset rights
entitle the participant to receive an amount of cash from the Company sufficient
to satisfy the income and payroll taxes legally required to be withheld upon
exercise of an option or tax offset right, upon grant of incentive stock, or
upon the lapse of restriction on restricted stock.
FEDERAL INCOME TAX CONSEQUENCES. A participant will not incur federal
income tax when he is granted an option, tax offset right, or, in most cases and
depending on the restrictions imposed, restricted stock. Upon receipt of
incentive stock, a participant will recognize compensation income, which is
subject to income tax withholding by the Company, equal to the fair market value
of the shares of incentive stock on the date of transfer to the participant.
Upon exercise of a nonstatutory stock option, a participant generally will
recognize compensation income, which is subject to income tax withholding by the
Company, equal to the difference between the fair market value of the Common
Stock on the date of the exercise and the option price. The Compensation
Committee has authority under the Incentive Plant to include provisions allowing
the participant to deliver Common Stock, or to elect to have withheld a portion
of the shares he would otherwise acquire upon exercise, to cover his tax
liabilities. The election will be effective only if approved by the Compensation
Committee and made in compliance with other requirements set forth in the
Incentive Plan. When an employee exercises an incentive stock option, he
generally will not recognize income, unless he is subject to the alternative
minimum tax.
If the terms of an option permit, a participant may deliver shares of
Common Stock instead of cash to acquire shares under an option, without having
to recognize taxable gain (except in some cases with respect to "statutory
option stock") on any appreciation in value of the shares delivered. However, if
an employee delivers shares of "statutory option stock" in satisfaction of all,
or any part, of the exercise price under an incentive stock option, and if the
applicable holding periods of the "statutory option stock" have not been met
(two years from grant and one year from exercise), he will be considered to have
made a taxable disposition of the "statutory option stock." "Statutory option
stock" is stock required upon the exercise of incentive stock options.
In general, a participant who receives shares of restricted stock will
include in his gross income as compensation an amount equal to the fair market
value of the shares of restricted stock at the time the restriction lapse or are
removed. Such amounts will be included in income in the tax year in which such
event occurs. The income recognized will be subject to income tax withholding by
the Company.
Upon exercise of a tax offset right, a participant generally will recognize
ordinary income, which is subject to income tax withholding by the Company,
equal to the cash received.
The Company generally will be entitled to a business expense deduction,
except as explained below, at the time and in the amount that the recipient of
an incentive award recognizes ordinary compensation income in connection
herewith. As stated above, this usually occurs upon exercise of nonstatutory
options or tax offset rights, upon the lapse or removal of restrictions on
restricted stock, and upon issuance of incentive stock. Generally, the Company's
deduction is contingent upon the Company's meeting withholding tax requirements.
No deduction is allowed in connection with an incentive stock option, unless the
employee disposes of Common Stock received upon exercise in violation of the
holding period requirements. The Company's right to a tax deduction for income
recognized in connection with incentive awards or the exercise of options by
executives whose total compensation is subject to the proxy disclosure rules
will depend upon whether the compensation of such executive in the aggregate
exceeds $1,000,000; if so, the excess over $1,000,000 will not be deductible.
This summary of the federal income tax consequence of nonstatutory stock
options, incentive stock options, tax offset rights, restricted stock and
incentive stock does not purport to be complete. There may also be state and
local income taxes applicable to theses transactions. Holders of incentive
awards should consult their own advisors with respect to the application of the
laws to them and to understand other tax consequences of the awards including
possible income deferral, alternative minimum tax rules, taxes on parachute
payments and the tax consequences of the sale of shares.
CHANGE IN CONTROL PROVISIONS. In the event of a "change in control"
transaction, the Company's Compensation Committee may take any one or more of
the following actions either at the time an incentive award is granted or any
time thereafter: (i) provide for an assumption of incentive awards granted under
the Incentive Plan (which a Common Stock assumption may be effected by means of
a payment to each participant in exchange for the cancellation of the incentive
awards held by such
28
<PAGE>
participant, of the difference between the fair market value of the aggregate
number of shares of Common Stock subject to the participant's incentive awards
and the aggregate exercise price that would have to be paid to acquire such
shares); (ii) provide for substitution of appropriate new incentive awards
covering stock to a successor corporation or the Company or an affiliate
thereof; or (iii) give notice to participants that no such assumption or
substitution will be made, in which event each incentive award outstanding shall
automatically accelerate to become fully exercisable immediately before the
effective date for the change in control, except that such acceleration will not
occur if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a change in control that would
otherwise qualify for such accounting treatment. All incentive awards will
terminate immediately following consummation of a change in control, except to
the extent assumed by the successor corporation or an affiliate thereof. In
relation to the Incentive Plan, a "change in control" transaction is defined to
constitute any of the following: (i) approval by the shareholders of a merger or
consolidation in which holders of outstanding voting stock of the Company would
receive less than 50% of the voting stock of the surviving or resulting
corporation; (ii) approval by the shareholders of a plan of liquidation or
approval of the dissolution of the Company; (iii) approval by the shareholders
of the sale or transfer of substantially all of the assets of the Company; or
(iv) the acquisition by a person or group of related persons of beneficial
ownership of 50% or more of the outstanding voting securities of the Company.
MANAGEMENT OPTION GRANTS
The Company has agreed that simultaneously with the closing of the
Offering, the Company will issue to Drs. Freer, Harris and Buck and Mr. Reynolds
incentive stock options to acquire a total of 270,000 shares of Common Stock
pursuant to the Incentive Plan. Incentive stock options to acquire 70,000 shares
will have an exercise price of $6.00 per share and incentive stock options to
acquire 200,000 shares will have an exercise price of $9.90 per share. All such
incentive stock options will have terms of ten years. See "Certain Relationships
and Related Transactions."
EMPLOYMENT AGREEMENTS
On June 24, 1997, the Company entered into employment agreements with each
of Drs. Freer, Harris and Buck and Mr. Reynolds. Each of these agreements has a
term of five years and will be extended for successive one-year terms beginning
on the first anniversary of its commencement, unless either the executive
officer or the Company shall have given notice to the other of an election not
to extend the term of the employment agreement; provided that the Company may
not give such notice prior to December 31, 1997. The employment agreements
provide for base salaries of $165,000 for Drs. Freer, Harris and Buck and
$120,000 for Mr. Reynolds, which are adjustable annually at the discretion of
the Compensation Committee. In addition, the employment agreements provide the
Company's executive officers with annual bonuses equal to, in the aggregate, 15%
of the Company's pre-tax net income for the preceding fiscal year. Such bonuses
will be paid within 30 days following the release of the Company's annual
audited financial statements. Notwithstanding the foregoing, however, the
bonuses for the executive officers for the fiscal year ending December 31, 1997
shall collectively equal the greater of (i) 15% of the Company's pre-tax net
income or (ii) $150,000. Under each of the employment agreements, the Company
may terminate the executive officers employment at any time for "Cause" as such
term is defined in the employment agreement, without incurring any continuing
obligations to the executive officer. If the Company terminates an executive
officer's employment for any reason other than for "Cause" or if an executive
officer terminates his or her employment for "Good Reason," as such term is
defined in the employment agreement, the Company will remain obligated to
continue to provide the compensation and benefits specified in the executive
officers employment agreement for the duration of what otherwise would have been
the term of the employment agreement. In addition, each employment agreement
contains non-competition provisions which prohibit each executive officer from
competing with the Company or soliciting its employees under certain
circumstances. A court may, however, determine that these non-competition
provisions are unenforceable or only partially enforceable.
CHANGE IN CONTROL PROTECTIONS
The Company has entered into severance agreements with each of its
executive officers. Each severance agreement (all of which are substantially
similar) has an initial term of five years and will be extended for successive
one-year periods beginning on the first anniversary of its commencement, unless
either the executive officer or the Company shall have given notice to the other
of an election not to extend the term of the severance agreement. If the
employment of any of these executive officers is terminated (with certain
exceptions) within 60 months following a "Change in Control," as such term is
defined in the severance agreement, the executive officer will be entitled to
receive a cash payment equal to two times the annual salary for the most recent
twelve-month period and three times the bonus paid with respect to such period.
To the
29
<PAGE>
extent the aggregate benefits available to an executive officer, whether under
his respective severance agreement or otherwise, exceed the limit of three times
the executive's average base compensation provided in Section 280G of the Code,
resulting in the executive officer incurring an excise tax under Section 4999 of
the Code or any other taxes or penalties (other than ordinary income or capital
gains taxes), the severance agreements require the Company to pay the executive
officer an additional amount to cover any such excise taxes or penalties
incurred. The Company will not be entitled to a deduction for the amount in
excess of this limit. Neither the Offering nor an initial public offering of the
Common Stock will constitute a Change in Control for purposes of these
agreements.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles eliminate all liability of the Company's directors and
officers for monetary damages to the Company or its shareholders except in the
event of willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. Pursuant to such provisions, the Company's
directors or officers will not be liable for monetary damages to the Company or
its shareholders even if they should fail, through negligence or gross
negligence, to satisfy their duty of care to the Company or its shareholders.
The Articles require indemnification of any person against liability
incurred in connection with any proceeding to which that person is made a party
by reason of (i) his service to the Company as a director or officer or (ii) his
service as director, officer, trustee, or partner to some other enterprise at
the request of the Company, except in the event of willful misconduct or a
knowing violation of the criminal law. The Articles also authorize the Company's
Board of Directors to contract in advance to indemnify any director or officer
by a majority vote of a quorum of disinterested directors. In addition, the
Articles authorize the Company's Board of Directors, by a majority vote of a
quorum of disinterested directors, to cause the Company to indemnify, or agree
to indemnify in advance, to the same extent any person who serves as an
employee, agent or consultant of the Company or who serves at the request of the
Company in some other capacity. See "Risk Factors -- Limitations on Officers'
and Directors' Liabilities Under Virginia Law."
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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. Currently there is no pending litigation or
proceeding involving a director or office of the Company as to which
indemnification is being sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any officer or
director.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 6, 1997 (i) each person who is
known by the Company to own of record or beneficially more than five percent
(5%) of the Common Stock, (ii) each director and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each of the persons or entities listed below
has sole voting and investment power with respect to all shares shown
beneficially owned by them, except to the extent such power is shared by a
spouse under applicable law.
<TABLE>
<CAPTION>
PERCENT OF
SHARES
OUTSTANDING
---------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) BEFORE OFFERING
- ------------------------------------------------------------------------------- --------------------- ---------------
<S> <C>
Richard J. Freer, Ph.D.(2)..................................................... 49,579 7.7%
Robert B. Harris, Ph.D.(2)..................................................... 49,578 7.7%
Gregory A. Buck, Ph.D.(2)...................................................... 57,912(3) 9.0%
Thomas R. Reynolds(2).......................................................... 22,537 3.6%
Chester M. Trzaski(2).......................................................... 8,333(4) 1.4%
Charles A. Mills, III(5)....................................................... 0 0
Peter C. Einselen(5)........................................................... 0 0
James T. Martin(6)(7).......................................................... 133,333 21.8%
James H. Wallace(8)(9)......................................................... 33,333 5.4%
All Directors and Executive Officers
as a Group (7 persons)......................................................... 187,939 26.4%
<CAPTION>
AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING
- ------------------------------------------------------------------------------- --------
<S> <C>
Richard J. Freer, Ph.D.(2)..................................................... 3.0%
Robert B. Harris, Ph.D.(2)..................................................... 3.0%
Gregory A. Buck, Ph.D.(2)...................................................... 3.6%
Thomas R. Reynolds(2).......................................................... 1.4%
Chester M. Trzaski(2).......................................................... *
Charles A. Mills, III(5)....................................................... 0
Peter C. Einselen(5)........................................................... 0
James T. Martin(6)(7).......................................................... 8.2%
James H. Wallace(8)(9)......................................................... 2.0%
All Directors and Executive Officers
as a Group (7 persons)......................................................... 11.5%
</TABLE>
30
<PAGE>
- ---------------
* Less than one percent (1%)
(1) The table above includes shares of the Company's Common Stock which an
individual has the right to acquire upon the exercise of the Management
Warrants within 60 days of October 6, 1997. Such shares are deemed to be
outstanding for the purpose of calculating the percentage ownership of the
individual holding such shares, but are not deemed to be outstanding for
calculating the percentage of any other person shown on the table.
(2) 911 East Leigh Street, Suite G-19, Richmond, Virginia 23219.
(3) Includes 8,333 shares of Common Stock issuable to Dr. Buck and Leon I.
Salzberg, as tenants in common, upon the conversion of the Note held by
them.
(4) Represents shares of Common Stock issuable to Mr. Trzaski and his spouse,
upon the conversion of the Note held by them.
(5) 1108 East Main Street, Richmond, Virginia 23218.
(6) Tupenny House, Tuckerstown, Bermuda
(7) Represents shares of Common Stock issuable upon the conversion of the Note
held by Dr. Martin.
(8) 1776 K Street, N.W., Washington, D.C. 20006-2304
(9) Represents shares of Common Stock issuable upon the conversion of the Notes
held by Mr. Wallace.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Simultaneously with the closing of the Offering, the Company anticipates
issuing to Drs. Freer, Harris and Buck and Mr. Reynolds options to acquire an
aggregate of 270,000 shares of Common Stock pursuant to the Incentive Plan.
Options to acquire 70,000 shares will have an exercise price of $6.00 per share,
and options to acquire 200,000 will have an exercise price of $9.90 per share.
Each of such options will have a term of 10 years. See "Management -- Management
Option Grants."
On June 25, 1997, the Company issued the Management Warrants to members of
the Company's management team. The Management Warrants are exercisable
commencing June 25, 1998 and for a period of nine years thereafter at an
exercise price of $9.90 per share. The Management Warrants were issued as noted
below:
<TABLE>
<S> <C>
Richard J. Freer, Ph.D....................................................... 28,947 Warrants
Robert B. Harris, Ph.D....................................................... 28,947 Warrants
Gregory A. Buck, Ph.D........................................................ 28,948 Warrants
Thomas R. Reynolds........................................................... 13,158 Warrants
</TABLE>
On June 25, 1997, the Company entered into an agreement with Mr. Trzaski
pursuant to which the Company agreed to pay certain amounts due to Mr. Trzaski,
and Mr. Trzaski agreed to relinquish certain rights to acquire shares of the
capital stock of the Company in exchange for $110,000, which will be paid in
accordance with the terms of a promissory note. The note provides that the
Company will pay Mr. Trzaski $60,000 on demand at any time after the Company has
increased its working capital to not less than $2,000,000, and will pay him an
additional $50,000 at any time after the Company has increased its working
capital by not less than an additional $3,000,000, provided that the second
payment shall not be made prior to January 1, 1998. The note will bear interest
at an annual rate of 8% on any principal amounts due thereunder. On July 2,
1997, the Company paid the first $60,000 installment of the note to Mr. Trzaski.
The Company, as an S Corporation, made distributions to its shareholders in
1996 and 1997. These distributions totaled an aggregate of $79,533 in 1996 and
$96,851 for the first six months of 1997.
Two directors of the Company, Charles A. Mills, III and Peter C. Einselen,
also serve as executive officers of the Underwriter. The Company paid
commissions to the Underwriter in connection with the closing of the Private
Placement. In connection with the Offering, the Company will pay an underwriting
discount and issue the Underwriter's Warrants to the Underwriter. See "Risk
Factors -- Ongoing Relationship with Underwriter" and "Underwriting."
The Company believes that all of the transactions noted above were made or
will be made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal shareholders will be approved
in accordance with the Virginia law by a majority of the Board, including a
majority of the independent and disinterested directors of the Board, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
31
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Company's Articles.
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common Stock.
As of the date of this Prospectus, 71,273 shares of Common Stock are issued and
outstanding. Such shares are held by four holders of record. Upon the completion
of the Offering, the Notes will automatically convert into an aggregate of
500,000 additional shares of Common Stock. Accrued interest on the Notes payable
in the form of additional shares of Common Stock will also be issued at that
time. For purposes of this Prospectus, the interest on the Notes has been
assumed to be 41,370 shares of Common Stock, the amount that would accrue
through November 21, 1997. See "Principal Shareholders."
The holders of Common Stock are entitled to one vote for each share on all
matters voted on by shareholders, including elections of directors, and possess
exclusively all voting power except as otherwise required by law. The Articles
do not provide for cumulative voting for the election of directors. The holders
of Common Stock are entitled to such dividends as may be declared from time to
time by the Company's Board of Directors from funds available therefor, and upon
liquidation will be entitled to receive pro rata all assets of the Company
available for distribution to such holders. The holders of Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock.
WARRANTS
As of the date of this Prospectus, the Company has reserved (a) 101,500
shares of Common Stock issuable upon the exercise of the Underwriter's Warrants,
and (b) 100,000 shares of Common Stock issuable upon the exercise of the
Management Warrants.
The Underwriter's Warrants, the Management Warrants and the Warrant Shares
are being registered with the Offering but are not underwritten. The
Underwriter's Warrants and the Management Warrants will not necessarily be sold
concurrently with the Common Stock being offered through the Underwriter, and
the Warrant Shares will not be issued until after the completion of the
Offering. The shares of Common Stock underlying the Underwriter's Warrants and
the Management Warrants, however, are being registered on a delayed or a
continuous basis. It is anticipated that the Underwriter's Warrants will be
listed for trading on the Nasdaq SmallCap Market under the symbol " ." The
Underwriter's Warrants will be issued and the Management Warrants were issued
subject to the terms and conditions of certain warrant agreements between the
Company and the holders of such warrants. The following description of the
Underwriter's Warrants and the Management Warrants is not complete and is
qualified in all respects by the warrant agreements which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.
Each Underwriter's Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $9.90 per share. The number, character, and
exercise price of the shares of Common Stock underlying these warrants are
subject to adjustment in certain events, such as mergers, reorganizations, stock
dividends, subdivisions or reclassifications, to prevent dilution. The
Underwriter's Warrants are exercisable at any time after one year from the date
of this Prospectus until five years from the date of this Prospectus. Holders of
the Underwriter's Warrants will not, as such, have any of the rights of
stockholders of the Company.
Each Management Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $9.90 per share. The number, character, and
exercise price of the shares of Common Stock underlying these warrants are
subject to adjustment in certain events, such as mergers, reorganizations, stock
dividends, subdivisions or reclassifications, to prevent dilution. The
Management Warrants are exercisable from June 25, 1998 through June 25, 2007.
Holders of the Management Warrants will not, as such, have any of the rights of
stockholders of the Company.
In certain cases, the sale of securities by the Company upon exercise of
the Underwriter's Warrants or the Management Warrants could violate the
securities laws of the United States, certain states thereof or other
jurisdictions. The Company will use its best efforts to cause a registration
statement with respect to such securities under the Securities Act to continue
to be effective during the respective terms of the warrants and to take such
other actions under the laws of various states as may be required to cause the
sale of securities upon the exercise of the Underwriter's Warrants or the
Management Warrants to be lawful. The Company, however, will not be required to
cause the sale of securities upon exercise of such warrants if, in the opinion
of counsel, the sale of securities upon such exercise would be unlawful.
32
<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The Company's Articles and Bylaws contain provisions that make more
difficult the acquisition of control of the Company by means of a tender offer,
a proxy contest, open market purchases or otherwise. The Articles provide for
the Company's Board of Directors to be divided into three classes serving
staggered terms so that directors initial terms will expire at the 1998, 1999 or
2000 Annual Meeting. Starting with the 1998 Annual Meeting, one class of
directors will be elected each year for a three-year term subject to the rights
of the holders of any series or class of Preferred Stock then outstanding. A
director may be removed only for cause.
The Articles follow the Virginia Act by requiring the affirmative vote of
more than two-thirds of the outstanding shares of Common Stock for the approval
of mergers, share exchanges, certain dispositions of assets and other
extraordinary transactions. In addition, the affirmative vote of at least
two-thirds of the outstanding shares of each voting group of capital stock is
required for approval of an Affiliated Transaction (as defined below) with an
Interested Shareholder (as defined below), subject to certain exceptions
comparable to those contained in the Virginia Act. See " -- Certain Corporate
Governance Provisions of the Virginia Act." The Articles further require the
affirmative vote of the majority of the outstanding shares of Common Stock for
the approval of amendments to the Articles, except that the affirmative vote of
at least two-thirds of the outstanding shares of Common Stock is required to
approve an amendment to the provisions of the Articles establishing the
classified board and the super majority voting requirement for Affiliated
Transactions.
The Bylaws establish an advance notice procedure for the nomination of
candidates for election as directors, other than by the Board of Directors of
the Company, and for certain matters to be brought before an Annual Meeting of
the Company. A shareholder must give the Company notice not less than 90 days
prior to an Annual Meeting of shareholders to (i) nominate persons to be elected
directors of the Company at such meeting or (ii) propose business matters to be
considered at such meeting.
The purpose of the relevant provisions of the Articles and Bylaws is to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company and to encourage persons seeking to
acquire control of the Company to consult first with the Company Board of
Directors to negotiate the terms of any proposed business combination or offer.
The provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not have the effect
of maximizing long-term shareholder value or is otherwise unfair to shareholders
of the Company, or an unsolicited proposal for the restructuring or sale of all
or part of the Company that could have such effects. See "Risk
Factors -- Anti-Takeover Provisions."
CERTAIN CORPORATE GOVERNANCE PROVISIONS OF THE VIRGINIA ACT
The Company is subject to the "affiliated transactions" provisions of the
Virginia Act which restrict certain transactions between the Company and any
person (an "Interested Shareholder") who beneficially owns more than 10% of any
class of the Company's voting securities ("Affiliated Transactions"). These
restrictions, which are described below, do not apply to an Affiliated
Transaction with an Interested Shareholder who has been such continuously since
the date the Company first had 300 shareholders of record or whose acquisition
of shares making such person an Interested Shareholder was previously approved
by a majority of the Company's Disinterested Directors. "Disinterested Director"
means, with respect to a particular Interested Shareholder, a member of the
Company's Board of Directors who was (i) a member on the date on which an
Interested Shareholder became an Interested Shareholder or (ii) recommended for
election by, or was elected to fill a vacancy and received the affirmative vote
of, a majority of the Disinterested Directors then on the Board of Directors.
Affiliated Transactions include mergers, share exchanges, material dispositions
of corporate assets not in the ordinary course of business, any dissolution of
the Company proposed by or on behalf of an Interested Shareholder, or any
reclassification, including reverse stock splits, recapitalization or merger of
the Company with its subsidiaries, which increases the percentage of voting
shares owned beneficially by an Interested Shareholder by more than five
percent.
The "affiliated transactions" statute prohibits the Company from engaging
in an Affiliated Transaction with an Interested Shareholder for a period of
three years after the Interested Shareholder became such unless the transaction
is approved by the affirmative vote of a majority of the Disinterested Directors
and by the affirmative vote of the holders of two-thirds of the voting shares
other than those shares beneficially owned by the Interested Shareholder.
Following the three-year period, in addition to any other vote required by law
or by the Articles, an Affiliated Transaction must be approved either by a
majority of the Disinterested Directors or by the shareholder vote described in
the preceding sentence unless the transaction satisfies the fair-price
provisions of the statute. These fair-price provisions require, in general, that
the consideration to be received by shareholders in the Affiliated Transaction
(i) be in cash or in the form of consideration used by the Interested
Shareholder to acquire the largest number of its shares and (ii) not be less, on
a per share basis, than an amount determined in the manner
33
<PAGE>
specified in the statute by reference to the highest price paid by the
Interested Shareholder for shares it acquired and the fair market value of the
shares on specified dates. The Company is also subject to the "control share
acquisitions" provisions of the Virginia Act, which provide that shares of the
Company's voting securities which are acquired in a "Control Share Acquisition"
have no voting rights unless such rights are granted by a shareholders'
resolution approved by the holders of a majority of the votes entitled to be
cast on the election of directors by persons other than the acquiring person or
any officer or employee-director of the Company. A "Control Share Acquisition"
is an acquisition of voting shares which, when added to all other voting shares
beneficially owned by the acquiring person, would cause such person's voting
strength with respect to the election of directors to meet or exceed any of the
following thresholds: (i) one-fifth, (ii) one-third or (iii) a majority.
"Beneficial ownership" means the sole or shared power to dispose or direct the
disposition of shares, or the sole or shared power to vote or direct the voting
of shares, or the sole or shared power to acquire shares, including any such
power which is not immediately exercisable, whether such power is direct or
indirect or through any contract, arrangement, understanding, relationship or
otherwise. A person shall be deemed to be a beneficial owner of shares as to
which such person may exercise voting power by virtue of an irrevocable proxy
conferring the right to vote. An acquiring person is entitled, before or after a
Control Share Acquisition, to file a disclosure statement with the Company and
demand a special meeting of shareholders to be called for the purpose of
considering whether to grant voting rights for the shares acquired or proposed
to be acquired. The Company may, during specified periods, redeem the shares so
acquired if no disclosure statement is filed or if the shareholders have failed
to grant voting rights to such shares. In the event full voting rights are
granted to an acquiring person who then has majority voting power, those
shareholders who did not vote in favor of such grant are entitled to dissent and
demand payment of the fair value of their shares from the Company. The control
share acquisitions statute does not apply to an actual or proposed Control Share
Acquisition if the Articles or the Company's Bylaws are amended, within the time
limits specified in the statute, to so provide.
A corporation may, at its option, elect not to be governed by the foregoing
provisions of the Virginia Act by amending its articles of incorporation or
bylaws to exempt itself from coverage; provided, however, any such election not
to be governed by the "affiliated transactions" statute must be approved by the
corporation's shareholders and will not become effective until 18 months after
the date it is adopted. The Company has not elected to exempt itself from
coverage under these statutes. See "Risk Factors -- Limitation on Officers and
Directors Liabilities Under Virginia Law."
EFFECT OF CERTAIN PROVISIONS UPON AN ATTEMPT TO ACQUIRE CONTROL OF THE COMPANY
The foregoing provisions of the Company's Articles and Bylaws, as well as
the provisions of Virginia law described above, make more difficult, and may
discourage certain types of potential acquirers from proposing, a merger, tender
offer or proxy contest, even if such transaction or occurrence may be favorable
to the interests of the shareholders. Similarly, such provisions may delay or
frustrate the assumption of control by a holder of a large block of Common Stock
and the removal of incumbent management, even if such removal might be
beneficial to shareholders. By discouraging takeover attempts, these provisions
might have the incidental effect of inhibiting (i) certain changes in management
and (ii) the temporary fluctuations in the market price of the shares that often
result from actual or considered takeover attempts. See "Risk
Factors -- Limitations on Officers' and Directors' Liabilities Under Virginia
Law."
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. will serve as the Company's
transfer agent and registrar.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. The
availability for sale or sales of substantial amounts of Common Stock of the
Company in the public market could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
Upon completion of the Offering, the Company will have 1,627,643 shares of
Common Stock outstanding. Of these shares, the 1,015,000 shares of Common Stock
sold in this Offering will be freely transferable without restriction or further
registration under the Act, except shares purchased by an affiliate (in general,
a person who is in a control relationship with the Company) which will be
subject to the limitations of Rule 144. The Management Warrants and the
Underwriter's Warrants will be freely transferable without restriction or
further registration under the Act pursuant to the resale provisions of this
Prospectus; provided, however, the transfer of the Underwriter's Warrants
and the Warrant Shares underlying these warrants is restricted to bona fide
officers of the Underwriter for a one-year period in accordance with the rules
of the
34
<PAGE>
National Association of Securities Dealers, Inc. In addition, the 541,370
shares of Common Stock assumed for purposes of this Prospectus to be issuable
upon the conversion of the Notes will be freely transferable without restriction
or further registration in accordance with the resale provisions contained in
this Prospectus.
The remaining 71,273 shares of Common Stock are held by the Company's
executive officers and are "restricted securities" as that term is defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144 or 144(k), which rules are summarized below. As a result of the
provisions of Rules 144 and 144(k), all 71,273 Restricted Shares will be
available for sale in the public market commencing 90 days after the
effectiveness of the registration statement of which this Prospectus is a part.
In the event the Underwriter's Warrants and the Management Warrants are
exercised, the holders of 201,500 shares of Common Stock, or their permitted
transferees, who are not affiliates will hold shares that are freely tradable
without restriction under the Securities Act.
See "Risk Factors -- No Prior Market for Common Stock," " -- Volatility of
Stock Price" and " -- Shares Eligible for Future Sale."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of: (i) one percent of the number of shares of Common
Stock then outstanding or (ii) the average weekly trading volume of the Common
Stock on The Nasdaq SmallCap Market during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may therefore be sold immediately
upon the completion of the Offering.
SELLING SECURITYHOLDERS
In addition to the registration of the shares of Common Stock included in
the Offering and the Warrant Shares, the registration statement of which this
Prospectus forms a part covers the resale by the Selling Securityholders (as
defined below) of the Resale Securities, consisting of (a) up to 541,370 shares
of Common Stock issuable upon conversion of the Notes, (b) the Underwriter's
Warrants and (c) the Management Warrants. In the event the Underwriter's
Warrants and the Management Warrants are exercised, the shares of Common Stock
eligible for (x) sale on a delayed or continuous basis or resale hereunder and
(y) resale pursuant to the resale provisions of this Prospectus will constitute
45.6% of the outstanding shares of Common Stock upon completion of the Offering.
The Resale Securities are not being underwritten as a part of the Offering and
may be sold from time to time as described under the caption "Plan of
Distribution For Selling Securityholders." The Company will not receive any of
the proceeds on the sale of the securities by the Selling Securityholders (other
than the proceeds from the exercise of the warrants). The resale of the
securities of the Selling Securityholders are subject to prospectus delivery and
other requirements of the Securities Act. Sales of such securities or the
potential of such sale at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors -- Shares Eligible
for Future Sale."
The following table sets forth the number of shares of Common Stock and
warrants owned by each Selling Securityholder upon completion of the Offering,
the number of warrants and shares of Common Stock being offered and the number
of shares and the percentage of the class to be owned after the Offering is
complete. The information contained in the following table assumes the
conversion of the Notes in accordance with their terms.
35
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON WARRANTS COMMON SHARES OF
STOCK OWNED WARRANTS STOCK STOCK OWNED
BEFORE UPON CLOSING OF OFFERED FOR RESALE OFFERED FOR RESALE AFTER
RESALE OFFERING RESALE OFFERING HEREBY HEREBY RESALE OFFERING
--------------- --------------- ------------------ ------------------ ---------------
<S> <C>
Dr. John F.
Bourgeois.......... 8,333 -- -- 8,333 0
Haley Chisholm &
Morris............. 8,333 -- -- 8,333 0
Joseph J. Cockriel... 8,333 -- -- 8,333 0
Michael Riggs
Crane.............. 8,333 -- -- 8,333 0
Dennis R. Deans...... 8,333 -- -- 8,333 0
Robert G. Doumar..... 8,333 -- -- 8,333 0
Gerald Einhorn, DDS
LTD
Defined S Benefit
Trust DTD
4-1-84............. 8,333 -- -- 8,333 0
Stephen F. Evans..... 8,333 -- -- 8,333 0
Gerald T. George..... 8,333 -- -- 8,333 0
Thomas T. Goodale.... 8,333 -- -- 8,333 0
Jonathan M. Gorog.... 8,333 -- -- 8,333 0
Harold P. Heafner,
Jr................. 8,333 -- -- 8,333 0
George C. Hutter..... 8,333 -- -- 8,333 0
Ali R. Jamali........ 8,333 -- -- 8,333 0
Paul L. Johnson and
Margaret
W. Johnson, JT TEN
WROS............... 8,333 -- -- 8,333 0
Edwin A. Joseph...... 8,333 -- -- 8,333 0
Edward C. Kvetko..... 8,333 -- -- 8,333 0
Willard H. Lane and
Hellen M. Lane..... 8,333 -- -- 8,333 0
James T. Martin...... 133,333 -- -- 133,333 0
Martha D. Massie..... 8,333 -- -- 8,333 0
Dr. Andrew A.
Mayer.............. 8,333 -- -- 8,333 0
Milton Miller and
Louis
Miller, JT CON..... 8,333 -- -- 8,333 0
Joan Miller.......... 8,333 -- -- 8,333 0
Eugene Moos and Susan
Bell Moos, JT TEN
WROS............... 8,333 -- -- 8,333 0
Padua Ventures
Limited BVI........ 8,333 -- -- 8,333 0
Leah T. Robinson TTEE
of
the Revocable TR
DTD 3-21-89
FBO Leah T.
Robinson........... 8,333 -- -- 8,333 0
Karen Lee Sobel
Sachs.............. 8,333 -- -- 8,333 0
Joyce M. Salzberg.... 8,333 -- -- 8,333 0
<CAPTION>
PERCENT OF
COMMON
STOCK
AFTER
RESALE OFFERING
---------------
<S> <C>
Dr. John F.
Bourgeois.......... 0
Haley Chisholm &
Morris............. 0
Joseph J. Cockriel... 0
Michael Riggs
Crane.............. 0
Dennis R. Deans...... 0
Robert G. Doumar..... 0
Gerald Einhorn, DDS
LTD
Defined S Benefit
Trust DTD
4-1-84............. 0
Stephen F. Evans..... 0
Gerald T. George..... 0
Thomas T. Goodale.... 0
Jonathan M. Gorog.... 0
Harold P. Heafner,
Jr................. 0
George C. Hutter..... 0
Ali R. Jamali........ 0
Paul L. Johnson and
Margaret
W. Johnson, JT TEN
WROS............... 0
Edwin A. Joseph...... 0
Edward C. Kvetko..... 0
Willard H. Lane and
Hellen M. Lane..... 0
James T. Martin...... 0
Martha D. Massie..... 0
Dr. Andrew A.
Mayer.............. 0
Milton Miller and
Louis
Miller, JT CON..... 0
Joan Miller.......... 0
Eugene Moos and Susan
Bell Moos, JT TEN
WROS............... 0
Padua Ventures
Limited BVI........ 0
Leah T. Robinson TTEE
of
the Revocable TR
DTD 3-21-89
FBO Leah T.
Robinson........... 0
Karen Lee Sobel
Sachs.............. 0
Joyce M. Salzberg.... 0
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON WARRANTS COMMON SHARES OF
STOCK OWNED WARRANTS STOCK STOCK OWNED
BEFORE UPON CLOSING OF OFFERED FOR RESALE OFFERED FOR RESALE AFTER
RESALE OFFERING RESALE OFFERING HEREBY HEREBY RESALE OFFERING
--------------- --------------- ------------------ ------------------ ---------------
<S> <C>
Leon I. Salzberg and
Gregory A. Buck,
JTTEN COM.......... 8,333 -- -- 8,333(1) 0
Steven E. Shinholser
and
Keller R.
Shinholser, JT
WROS............... 8,333 -- -- 8,333 0
Louise Williams
Sloan.............. 8,333 -- -- 8,333 0
Jacquelyn C. Smith... 8,333 -- -- 8,333 0
Robert M. Smith,
III................ 8,333 -- -- 8,333 0
Robert G. Sullivan... 8,333 -- -- 8,333 0
Chester M. Trzaski
and
Stella M.
Trzaski(2)......... 8,333 -- -- 8,333 0
Noell P. Vawter...... 8,333 -- -- 8,333 0
James H. Wallace..... 33,333 -- -- 33,333 0
Maurice Edward
Waller............. 8,333 -- -- 8,333 0
Eric M. Warner....... 8,333 -- -- 8,333 0
Kent J. Weber........ 8,333 -- -- 8,333 0
Transerve Marine,
Inc................ 8,333 -- -- 8,333 0
Jeffrey M.
Zwerdling.......... 8,333 -- -- 8,333 0
Richard J. Freer,
Ph.D.(2)........... 20,632 28,947 28,947 -- 20,632
Robert B. Harris,
Ph.D.(2)........... 20,631 28,947 28,947 -- 20,631
Gregory A. Buck,
Ph.D.(2)........... 20,632 28,948 28,948 -- 20,632
Thomas R.
Reynolds(2)........ 9,379 13,158 13,158 -- 9,379
Anderson & Strudwick,
Inc................ -- 101,500 101,500 0 0
<CAPTION>
PERCENT OF
COMMON
STOCK
AFTER
RESALE OFFERING
---------------
<S> <C>
Leon I. Salzberg and
Gregory A. Buck,
JTTEN COM.......... 0
Steven E. Shinholser
and
Keller R.
Shinholser, JT
WROS............... 0
Louise Williams
Sloan.............. 0
Jacquelyn C. Smith... 0
Robert M. Smith,
III................ 0
Robert G. Sullivan... 0
Chester M. Trzaski
and
Stella M.
Trzaski(2)......... 0
Noell P. Vawter...... 0
James H. Wallace..... 0
Maurice Edward
Waller............. 0
Eric M. Warner....... 0
Kent J. Weber........ 0
Transerve Marine,
Inc................ 0
Jeffrey M.
Zwerdling.......... 0
Richard J. Freer,
Ph.D.(2)........... 1.3
Robert B. Harris,
Ph.D.(2)........... 1.3
Gregory A. Buck,
Ph.D.(2)........... 1.8(3)
Thomas R.
Reynolds(2)........ 0
Anderson & Strudwick,
Inc................ 0
</TABLE>
- ---------------
(1) Excludes shares of Common Stock held by Dr. Buck in an individual capacity.
(2) Officers and directors of the Company.
(3) Includes shares of Common Stock held by Dr. Buck and Leon I. Salzberg, as
tenants in common.
PLAN OF DISTRIBUTION
FOR SELLING SECURITYHOLDERS
The Resale Securities offered by the Selling Securityholders consist of (a)
the Conversion Shares, (b) the Underwriter's Warrants and (c) the Management's
Warrants. Resales of the Conversion Shares and the Underwriter's Warrants are
contingent upon, and may only occur subsequent to, the closing of the Offering.
The Selling Securityholders may offer and sell the Resale Securities from time
to time directly or through underwriters, dealers or agents. The distribution of
securities by the Selling Securityholders may be effected in one or more
transactions that may take place in the market, including ordinary brokerage
transactions, privately-negotiated transactions or sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or
37
<PAGE>
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a
broker-dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers, and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, broker-dealers engaged by the
Selling Securityholders may arrange for other broker-dealers to participate. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed "underwriters" within the meaning of the Securities Act with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public. Sales
of securities by the Selling Securityholders or even the potential of such sales
would likely have an adverse effect on the market prices of the securities
offered hereby. See "Risk Factors -- Shares Eligible for Future Sale."
UNDERWRITING
The Company has engaged the Underwriter to conduct the Offering on a "best
efforts, all-or-none" basis. The Offering is being made without a firm
commitment by the Underwriter, which has no obligation or commitment to purchase
any of the Common Stock. The Underwriter has advised the Company that it
proposes to offer the Common Stock to the public at the price shown on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $.24 per share.
The Conversion Shares, the Underwriter's Warrants, the Management Warrants
and the Warrant Shares are being registered contemporaneously with the shares
of Common Stock being sold by the Company in the Offering, but are not part of
the underwritten offering. See "Selling Securityholders."
Unless sooner withdrawn or canceled by either the Company or the
Underwriter, the Offering will continue until the earlier of the date on which
all of the Common Stock offered hereby is sold or November 21, 1997 (the
"Offering Termination Date"). Until the closing of the Offering, all proceeds
from the sale of the Common Stock will be deposited in escrow with Crestar Bank
(the "Escrow Agent"). Proceeds deposited in escrow with the Escrow Agent may not
be withdrawn by investors prior to the earlier of the closing of the Offering or
the Offering Termination Date. If the Offering is withdrawn or canceled or if
the 1,015,000 shares of Common Stock offered hereby are not sold and proceeds
therefrom are not received by the Company on or prior to the Offering
Termination Date, all proceeds will be returned by the Escrow Agent without
interest to the persons from which they are received promptly after such
withdrawal or cancellation. Officers, directors and persons holding more than 5%
of the outstanding shares of Common Stock prior to the Offering may purchase up
to 15,000 shares in the aggregate of the shares of Common Stock offered in the
Offering. Such persons may purchase such shares only on the prevailing terms and
conditions of the Offering and with investment intent.
Pursuant to that certain Underwriting Agreement by and between the Company
and the Underwriter, the obligations of the Underwriter to solicit offers to
purchase the Common Stock and of investors solicited by the Underwriter to
purchase the Common Stock are subject to approval of certain legal matters by
counsel to the Underwriter and to various other conditions which are customary
in transactions of this type, including, that, as of the closing of the
Offering, there shall not have occurred (a) a suspension or material limitation
in trading in securities generally on the New York Stock Exchange or the
publication of quotations on the Nasdaq Stock Market (National Market System or
SmallCap Market); (ii) a general moratorium on commercial banking activities in
the Commonwealth of Virginia or the State of New York; (iii) the engagement by
the United States in hostilities which have resulted in the declaration of a
national emergency or war if any such event would have a material adverse
effect, in the Underwriter's reasonable judgment, as to make it impracticable or
inadvisable to proceed with the solicitation of offers to consummate the
Offering with respect to investors solicited by the Underwriter on the terms and
conditions contemplated herein. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the Underwriter pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the
38
<PAGE>
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Mr. Einselen, Senior Vice President of the Underwriter, and Mr. Mills,
Chairman of the Board of the Underwriter, serve as directors of the Company. Mr.
Einselen and Mr. Mills will each receive a Director's Fee for services rendered
to the Company. In addition, the Company will reimburse them for any expenses
incurred in attending such Board meetings. See "Management -- Director
Compensation."
The Underwriter does not intend to sell the Common Stock to any accounts
over which it exercises discretionary authority.
The initial public offering price of the Common Stock along with the
exercise price of the Underwriter's Warrants, which are being registered with
the Common Stock, but are not underwritten, have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth or other established criteria of value. Factors
considered in determining the public offering price of the Common Stock and the
exercise price of the Underwriter's Warrants include the business in which the
Company is engaged, the stage of development of the Company's activities, the
Company's financial condition, and assessment of management, the general
condition of the securities markets and the demand for similar securities of
comparable companies.
As additional underwriting compensation, the Company has agreed to sell the
Underwriter's Warrants to the Underwriter at a purchase price of $.001 per
warrant upon completion of the Offering. The exercise price of the Underwriter's
Warrants shall be $9.90 per share. The purchase price of the Underwriter's
Warrants and the exercise price thereof (165% of the initial public offering
price of the Common Stock) was determined by negotiation between the Company and
the Underwriter. The factors considered in determining these values are noted
above.
LEGAL MATTERS
The validity of shares of Common Stock offered hereby will be passed upon
for the Company by LeClair Ryan, A Professional Corporation, Richmond, Virginia.
Willcox & Savage, P.C., Norfolk, Virginia, has acted as counsel for the
Underwriter with respect to certain legal matters relating to the Common Stock
offered hereby.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995,
and for the years then ended appearing in this Prospectus and Registration
Statement have been audited by Goodman & Company, L.L.P., independent public
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and have been included herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (as amended from time to time and together with all exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock to be sold in the Offering. This Prospectus constitutes a part
of the Registration Statement and does not contain all the information set forth
therein, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the content of any contract or other document are not necessarily complete, and
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
For further information regarding the Company and the Common Stock to be
sold in the Offering, reference is hereby made to the Registration Statement. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the Registration Statement and the exhibits
and schedules thereto can be obtained from the Public Reference Section of the
Commission upon payment of prescribed fees. In addition the Commission maintains
a Web site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission. Such
information can be accessed free of charge (other than costs associated with
acquiring access to the Internet) at the Commission's Web site
(http://www.sec.gov).
39
<PAGE>
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act. Upon effectiveness of the Registration
Statement, the Company will become subject to the informational and periodic
reporting requirements of the Exchange Act, and in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
other regional officers referred to above. The Company intends to register the
securities offered by the Registration Statement under the Exchange Act
simultaneously with the effectiveness of the Registration Statement and to
furnish its shareholders with annual reports containing audited financial
statements and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.
The Common Stock registered in connection with the Offering will be listed
on The Nasdaq SmallCap Market. Reports and other information required to be
filed with such market may be inspected at the offices of The Nasdaq SmallCap
Market at 1735 K Street, N.W., Washington, D.C. 20006.
GLOSSARY
AMINO ACIDS -- The basic building blocks of proteins and peptides. There
are twenty naturally occurring amino acids that differ from each other in
chemical structures and physicochemical properties.
AMINO ACID ANALYSIS -- The process by which the number or quantity of amino
acids in a particular protein, peptide or physiological fluid are measured.
BIOPHYSICAL -- Having to do with the intrinsic properties of the
macromolecule.
CALORIMETRY STUDIES -- A biophysical technique for determining the relative
structural stability of a macromolecule. In some calorimetry experiments
(differential scanning calorimetry), the amount of heat necessary to unfold
(denature) a macromolecule is determined, while in other types of calorimetry
experiments (isothermal titration calorimetry), the amount of heat that
accompanies the binding between two molecules is determined.
COAGULATION -- The process by which blood clots.
DNA (DEOXYRIBONUCLEIC ACID) -- Genes are composed of long strands of DNA,
which are, in turn, assembled from individual nucleotides. The particular
arrangement (sequence) of nucleotides in a strand of DNA encodes the sequence of
individual proteins. Each cell of the human body is estimated to contain
approximately 100,000 genes, although not every gene is expressed in each cell.
DNA SEQUENCE ANALYSIS -- The process by which the sequence of nucleotides
in a strand of DNA is determined.
ELECTROLYTES -- Charged species in the blood, such as sodium or chloride,
that help maintain cell integrity and vascular tone.
ENZYMES -- Often called "nature's catalysts," enzymes carry out virtually
every critical biological function necessary for life, such as the conversion of
food stuffs into energy, the conversion of inactive proteins into active
peptides, and the synthesis of DNA or RNA. Enzymes are, in effect, specialized
proteins.
FIBRINOLYSIS -- The process by which blood clots are dissolved.
GENE -- The unit of the genome used to describe the structural and genetic
features of DNA which encode for a functional protein.
GENOME SEQUENCING -- Performing DNA sequence analysis of an organism with
the goal of determining all of the sequence contained in its genetic material.
GENE THERAPY -- The process by which diseases of hereditary, genetic,
cancer or infectious etiology are treated with products of recombinant DNA.
HEMOSTASIS -- The balance between coagulation and fibrinolysis that
maintains normal cardiovascular function and tone.
HEPARIN -- A complex carbohydrate composed of long chains of highly
negatively charged, individual saccharide (sugar) residues of known chemical
structure. Heparin possesses many biological activities, including the ability
to cause anti-coagulation and the ability to inhibit the proliferation of smooth
muscle cells.
40
<PAGE>
MACROMOLECULES -- Any of the organic molecules essential for life. DNA,
RNA, and proteins are all considered macromolecules.
MASS SPECTRAL ANALYSIS- A PROCESS BY WHICH THE ATOMIC MASS OF AN ORGANIC
MOLECULE CAN BE DETERMINED WITH GREAT PRECISION.
MUTATION ANALYSIS- THE PROCESS BY WHICH MUTATIONS IN GENES RESPONSIBLE FOR
CANCER AND METABOLIC AND HEREDITARY DISEASES ARE IDENTIFIED AND CHARACTERIZED.
NUCLEOTIDES -- The basic building blocks of DNA and RNA strands. There are
four chemically distinct nucleotides that make up DNA; three of these
nucleotides are also found in RNA along with a fifth structurally distinct
nucleotide.
OLIGONUCLEOTIDE -- An assemblage of more than one nucleotide.
Oligonucleotides can be in the deoxy or ribonucleotide families.
PEPTIDE -- Peptides are small proteins, usually encompassing fewer than 80
amino acid residues. Different peptides are intimately involved in regulating
most aspects of human physiology, including neurotransmission, regulation of
electrolytes in blood, reproduction and vascular tone.
PHYSIOCHEMICAL -- Relating to the physical and chemical properties a of a
particular compound.
PHYSIOLOGICAL FLUID -- Fluids such as blood, urine or lymph.
PROTEINS -- Proteins are composed of long strands of amino acids assembled
in particular order, the sequences of all proteins are coded by genes. There are
many specialized classes of proteins, such as enzymes, peptides, antibodies and
structural proteins (e.g., keratin, collagen, and elastin).
PROTEIN SEQUENCE ANALYSIS -- The process by which the sequence of amino
acids that make up a protein chain is determined.
RNA (RIBONUCLEIC ACID) -- Long strands of RNA are composed of individual
nucleotides, in much the same was as DNA is composed of individual nucleotides.
The order in which the nucleotides of RNA are assembled is dictated by the
sequence of the genomic DNA from which it is transcribed. RNA performs many
physiological functions, and specialized RNA molecules carry out the assembly of
amino acids into proteins.
SOLID-PHASE PEPTIDE SYNTHESIS -- A strategy for chemical synthesis of amino
acids into peptides.
SPECTROSCOPY -- Any study which uses electromagnetic radiation (light
waves, X-rays, radio waves, etc.)
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INDEX
PAGE
---------
Financial Statements:
Report of Independent Auditors........................... F-2
Balance Sheets........................................... F-3
Statements of Operations................................. F-4
Statements of Changes in Shareholders' Equity............ F-5
Statements of Cash Flows................................. F-6
Notes to Financial Statements............................ F-7-F-14
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Commonwealth Biotechnologies, Inc.
We have audited the accompanying balance sheets of Commonwealth Biotechnologies,
Inc. (the Company) as of December 31, 1996 and 1995, and the related statements
of income, changes in shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company'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. Those 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 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 financial position of Commonwealth Biotechnologies,
Inc. at December 31, 1996 and 1995, and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ GOODMAN & COMPANY, L.L.P.
7301 Forest Avenue
Richmond, Virginia
June 10, 1997
(except for Notes 2, 11, 12 and 13,
as to which the date is June 25, 1997)
F-2
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PROFORMA
JUNE 30, JUNE 30, DECEMBER 31,
1997 1997 1996 1995
----------- ----------- --------- ---------
<S> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 8,350,885 $ 2,861,205 $ 260,357 $ 1,115
Accounts receivable.................................................... 181,625 181,625 116,437 79,015
Prepaid expenses....................................................... 1,929 1,929 1,080 --
----------- ----------- --------- ---------
Total current assets........................................... 8,534,439 3,044,759 377,874 80,130
----------- ----------- --------- ---------
Property and equipment, net.............................................. 543,386 543,386 243,611 100,749
----------- ----------- --------- ---------
Other assets
Organization costs, net................................................ 2,004 2,004 3,183 5,539
Deposits............................................................... 400 400 9,525 400
Deferred loan costs.................................................... -- 373,731 -- --
----------- ----------- --------- ---------
Total other assets............................................. 2,404 376,135 12,708 5,939
----------- ----------- --------- ---------
$ 9,080,229 $ 3,964,280 $ 634,193 $ 186,818
----------- ----------- --------- ---------
----------- ----------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand note payable.................................................... $ 42,000 $ 42,000 $ -- $ --
Current portion of long-term debt...................................... 59,455 59,455 37,293 25,468
Current portion of capital lease obligation............................ -- -- -- 19,862
Accounts payable....................................................... 144,706 144,706 48,944 33,004
Distributions payable to shareholders.................................. 59,612 59,612 -- --
Deferred revenue....................................................... -- -- 200,000 1,830
Convertible subordinated notes payable................................. -- 3,000,000 -- --
----------- ----------- --------- ---------
Total current liabilities...................................... 305,773 3,305,773 286,237 80,164
Long-term debt......................................................... 270,456 270,456 185,687 --
Long-term portion of capital lease obligation.......................... -- -- -- 43,998
----------- ----------- --------- ---------
Total liabilities.............................................. 576,229 3,576,229 471,924 124,162
----------- ----------- --------- ---------
Shareholders' equity
Common stock, no par value, 10,000,000 shares authorized, 71,273 shares
issued and outstanding at June 30, 1997 (unaudited) and December 31,
1996 and 1995 and on a proforma basis, 1,586,273 shares issued and
outstanding at June 30, 1997 (unaudited)............................ 760 760 760 760
Additional paid-in capital............................................. 8,503,240 387,291 134,662 65,604
Retained earnings (deficit)............................................ -- -- 26,847 (3,708)
----------- ----------- --------- ---------
Total stockholders' equity..................................... 8,504,000 388,501 162,269 62,656
----------- ----------- --------- ---------
$ 9,080,229 $ 3,964,280 $ 634,193 $ 186,818
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996 1996 1995
---------- -------- -------- --------
(UNAUDITED)
<S> <C>
Revenue
Laboratory services...................................................... $1,059,212 $428,302 $989,925 $369,301
---------- -------- -------- --------
Costs and expenses
Cost of services......................................................... 296,272 84,003 237,726 79,948
Sales, general and administrative........................................ 255,798 129,415 323,820 220,891
Research and development................................................. 213,535 88,642 308,484 69,861
---------- -------- -------- --------
Total cost and expenses.......................................... 765,605 302,060 870,030 370,700
---------- -------- -------- --------
Operating income (loss).................................................... 293,607 126,242 119,895 (1,399)
Other income (expense)
Interest expense......................................................... (10,675) (3,771) (10,102) (10,545)
Interest income.......................................................... 3,355 50 295 54
---------- -------- -------- --------
Total other income (expense)..................................... (7,320) (3,721) (9,807) (10,491)
---------- -------- -------- --------
Net income (loss).......................................................... 286,287 122,521 110,088 (11,890)
---------- -------- -------- --------
---------- -------- -------- --------
Proforma presentation applicable to conversion from S Corporation to
C Corporation
Net income (loss) before proforma income tax expense....................... $ 286,287 $122,521 $110,088 $(11,890)
Proforma Income tax expense................................................ 124,653 24,545 49,651 22,092
---------- -------- -------- --------
Proforma net income (loss)................................................. $ 161,634 $ 97,976 $ 60,437 $(33,982)
---------- -------- -------- --------
---------- -------- -------- --------
Proforma earnings (loss) per common and common equivalent share............ $ 0.32 $ 0.19 $ 0.12 $ (0.07)
Proforma weighted average common and common equivalent
shares outstanding....................................................... 506,273 506,273 506,273 506,273
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER ADDITIONAL RETAINED
OF SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- --------- -----------
<S> <C>
Balance at January 1, 1995.................................. 71,273 $760 $ -- $ 8,182 $ 8,942
Net income (loss)........................................... -- -- -- (11,890) (11,890)
Contributed services........................................ -- -- 65,604 -- 65,604
----------- ------ ---------- --------- -----------
Balance at December 31, 1995................................ 71,273 760 65,604 (3,708) 62,656
Net income.................................................. -- -- -- 110,088 110,088
Contributed services........................................ -- -- 69,058 -- 69,058
Distributions............................................... -- -- -- (79,533) (79,533)
----------- ------ ---------- --------- -----------
Balance at December 31, 1996................................ 71,273 760 134,662 26,847 162,269
Net income (unaudited)...................................... -- -- -- 286,287 286,287
Contributed services (unaudited)............................ -- -- 36,346 -- 36,346
Distributions (unaudited)................................... -- -- -- (37,239) (37,239)
Distribution payable to shareholders for payment of income
taxes through June 25, 1997 (unaudited)................... -- -- -- (59,612) (59,612)
Effects of conversion to C Corporation (unaudited).......... -- -- 216,283 (216,283) --
----------- ------ ---------- --------- -----------
Balance at June 30, 1997 (unaudited)........................ 71,273 760 387,291 -- 388,051
Proforma effects of the conversion of convertible
subordinated notes to common stock at a conversion price
of $6.00 per share (unaudited)............................ 500,000 -- 2,626,269 -- 2,626,269
Proforma effects of the intial public offering of 1,015,000
shares of common stock at $6.00 per share
(unaudited)............................................... 1,015,000 -- 5,489,680 -- 5,489,680
----------- ------ ---------- --------- -----------
Proforma Balance at June 30, 1997 (unaudited)............... 1,586,273 $760 $8,503,240 $ -- $ 8,504,000
----------- ------ ---------- --------- -----------
----------- ------ ---------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996 1996 1995
---------- --------- --------- --------
(UNAUDITED)
<S> <C>
Cash flows from operating activities
Net income (loss)....................................................... $ 286,287 $ 122,521 $ 110,088 $(11,890)
---------- --------- --------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 56,813 21,409 54,382 38,938
Contributed services................................................. 36,346 34,529 69,058 65,605
Changes in:
Accounts receivable................................................ (65,188) (55,147) (37,422) (40,225)
Prepaid expenses................................................... (849) (2,338) (1,080) 5,457
Deposits........................................................... 9,125 -- -- --
Accounts payable................................................... 95,762 (2,984) 15,940 (1,865)
Deferred revenue................................................... (200,000) (1,830) 198,170 1,830
---------- --------- --------- --------
Total adjustments............................................... (67,991) (6,361) 299,048 69,740
---------- --------- --------- --------
Net cash provided by (used in) operating activities............. 218,296 116,160 409,136 57,850
---------- --------- --------- --------
Cash flows from investing activities
Purchases of property and equipment..................................... (355,409) (159,783) (194,798) (961)
Deposits................................................................ -- -- (9,125) 5,752
---------- --------- --------- --------
Net cash provided by (used in) investing activities............. (355,409) (159,783) (203,923) 4,791
---------- --------- --------- --------
Cash flows from financing activities
Proceeds from issuance of long-term debt................................ 126,540 149,948 231,000 --
Proceeds from notes payable............................................. 42,000 -- -- --
Principal payments on long-term debt.................................... (19,609) (25,468) (33,578) (41,007)
Principal payments on capital lease obligations......................... -- (6,080) (63,860) (18,545)
Principal payments on related party notes payable....................... -- -- -- (7,500)
Proceeds from issuance of convertible subordinated notes, net of
deferred loan costs.................................................. 2,626,269 -- -- --
Shareholder distributions............................................... (37,239) (38,981) (79,533) --
---------- --------- --------- --------
Net cash provided by (used in) financing activities....................... 2,737,961 79,419 54,029 (67,052)
---------- --------- --------- --------
Net (decrease) increase in cash and cash equivalents...................... 2,600,848 35,796 259,242 (4,411)
Cash and cash equivalents, beginning of period............................ 260,357 1,115 1,115 5,526
---------- --------- --------- --------
Cash and cash equivalents, end of period.................................. $2,861,205 $ 36,911 $ 260,357 $ 1,115
---------- --------- --------- --------
---------- --------- --------- --------
Supplemental disclosure of cash flow information
Cash paid during the period for interest................................ $ 10,675 $ 3,771 $ 10,102 $ 10,545
---------- --------- --------- --------
---------- --------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995
NOTE 1 -- ORGANIZATION
Commonwealth Biotechnologies, Inc., a Virginia S Corporation (the
"Company"), was formed on September 30, 1992, for the purpose of providing
specialized analytical laboratory services for the life scientist. The Company
provides basic research services in the general areas of protein/peptide and
DNA/RNA chemistries. Such services include synthesis, sequence analysis,
composition analysis, protein purification and biophysical characterization of
biologically relevant materials. The Company also pursues its own research and
development leading to intellectual properties.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The unaudited financial statements as of June 30, 1997, and for the six
months ended June 30, 1997 and 1996, include, in the opinion of management, all
adjustments necessary to present fairly the Company's financial position,
results of operations, changes in shareholders' equity and cash flows. All such
adjustments are of a normal and recurring nature. The results of operations for
the unaudited six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
REVENUE RECOGNITION
The Company recognizes revenue and related profit upon the completion of
laboratory service projects, or upon the delivery and acceptance of biologically
relevant materials that have been synthesized in accordance with project terms.
Laboratory service projects are generally administered under fee-for-service
contracts or purchase orders. Any revenues from research and development
arrangements, including corporate contracts and research grants, are recognized
pursuant to the terms of the related agreements as work is performed, or as
scientific milestones, if any, are achieved. Amounts received in advance of
services to be performed, or acceptance of milestones, are recorded as deferred
revenue.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
expense is recorded over the estimated useful lives of the assets. The
straight-line method is used by the Company in providing depreciation and
amortization for financial reporting purposes. The cost of repairs and
maintenance is expensed as incurred. The estimated useful lives of assets are as
follows:
Laboratory equipment..................................... 5 years
Furniture and fixtures................................... 7 years
Computer equipment and improvements...................... 30 months to 5 years
OTHER ASSETS
Other assets consist of the organizational costs associated with the
formation of the Company and are amortized over five years.
INCOME TAXES AND SUBSEQUENT EVENT
The Company has been an S Corporation since January 1, 1993 for federal
income tax purposes. Accordingly, the taxable income or loss of the Company has
been "passed-through" to its shareholders, and they have been subject to the tax
on any income earned by the Company.
F-7
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
As more fully described in Note 11, the Company organized a private
placement offering of convertible subordinated notes, which caused the income
tax status of the Company to change. Management believes that the Company is no
longer eligible for S Corporation status effective June 25, 1997. Therefore, at
June 25, 1997, the undistributed earnings were treated as a constructive
distribution to the original shareholders and as a contribution to additional
paid-in capital. As a C Corporation, the Company will be responsible for income
taxes payable resulting from earnings subsequent to June 25, 1997. Additionally,
under the provisions of Financial Accounting Standards Board ("FASB") Statement
No. 109, ACCOUNTING FOR INCOME TAXES, deferred tax assets and liabilities are
computed based on the difference between the financial statement and tax bases
of assets and liabilities using currently enacted tax rates.
At June 30, 1997 (unaudited) and December 31, 1996, the Company's deferred
taxes would have consisted of differences attributable to the cash basis of
accounting and accelerated methods of depreciation used for income tax purposes.
If the Company had been a C Corporation for all periods presented, at June 30,
1997, its current tax liability for federal and state taxes would have been
$124,653; its deferred tax liabilities would have been $66,075 and its retained
earnings would be decreased by $199,652. At December 31, 1996, its current tax
liability for federal and state taxes would have been $39,931; its deferred tax
liabilities would have been $35,068 and its retained earnings would be decreased
by $74,999.
RESEARCH & DEVELOPMENT
Costs incurred in connection with research and development activities are
expensed as incurred. These consist of direct and indirect costs associated with
specific research and development projects.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Total advertising
expense for the six months ended June 30, 1997 (unaudited), June 30, 1996
(unaudited), and for the years ended December 31, 1996 and 1995 was $23,263,
$8,751, $25,008 and $26,286, respectively.
PROFORMA EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The proforma earnings per common and common equivalent share were computed
by dividing the proforma net income, including applying the effects of proforma
income taxes, by the weighted average number of shares of common stock and
common stock equivalents outstanding during each period. Common stock
equivalents include the effect of the Company's convertible subordinated notes
and warrants that are assumed to be exercised or converted into common stock for
the earliest period presented. The Company's warrants are antidilutive. However,
pursuant to Securities and Exchange Commission ("SEC") rules (Staff Accounting
Bulletin No. 83), shares of stock sold, stock options and warrants granted and
convertible subordinated notes issued within one year of the date of the
comtemplated initial public offering (but exclusive of the initial public
offering itself) have been included in the calculation of common stock
equivalents, using the treasury stock method, as if they were outstanding for
all periods presented, even if the effect is antidilutive.
The number of shares outstanding for the purpose of presenting proforma
earnings per common and common equivalent share gives effect retroactively for
the 93.78-for-one stock split that occurred on June 17, 1997. After giving
retroactive effect to the stock split, the weighted average number of shares
outstanding during the year ended December 31, 1996 and the six months ended
June 30, 1997 (unaudited) was 71,273. For December 31, 1996 and 1995, and June
30, 1997 (unaudited) and June 30, 1996 (unaudited), the average common
equivalent shares used to calculate proforma earnings per common and common
equivalent share were 473,773. This includes the Company's presently outstanding
common shares of 71,273, 500,000 shares relating to the Company's convertible
subordinated notes on an "as if converted" basis, and the antidilutive effect of
the Company's 100,000 warrants converted using the Treasury Stock method to
reduce the shares outstanding by 65,000. The antidilutive component results from
the exercise price of $9.90 for each of the Company's warrants being greater
than the $6.00 anticipated market price of the Company's common stock.
F-8
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CREDIT RISK
The Company provides laboratory services primarily to researchers in North
America (United States, Canada). Other major clients are located in South
America (Brazil, Colombia), in the far east (Japan, Korea), and in Europe
(Norway, Sweden, Germany, Italy, France, Greece). For projects exceeding $5,000,
the Company mitigates its credit risk by requiring a deposit of 50% of total
anticipated billings. The Company performs ongoing credit evaluations of its
customers and generally does not require additional collateral on its laboratory
services. However, the Company provides a charge to bad debts when, in the
opinion of management, such balances are not deemed to be collectible.
The Company primarily invests its excess cash in a money market fund
administered by an institutional investment firm and also in overnight deposits
managed by a financial institution and, at times, these deposits may exceed
federally insured limits.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- --------- --------
(UNAUDITED)
<S> <C>
Laboratory equipment.......................................................... $ 685,637 $ 359,476 $180,574
Vehicles...................................................................... 25,029 -- --
Furniture and fixtures........................................................ 1,925 1,925 --
Office equipment and improvements............................................. 21,201 16,983 3,012
----------- --------- --------
733,792 378,384 183,586
Less accumulated depreciation and
amortization................................................................ (190,406) (134,773) (82,837)
----------- --------- --------
Property and equipment, net................................................... $ 543,386 $ 243,611 $100,749
----------- --------- --------
----------- --------- --------
</TABLE>
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- --------- --------
(UNAUDITED)
<S> <C>
Term note payable at an interest rate of 10% to NationsBank collateralized by
a first priority security interest in the Company's accounts receivable,
chattel paper, equipment and intangibles, and due in equal monthly payments
of principal and interest of $2,235 through December 1996................... $ -- $ -- $ 25,468
Term note payable at an interest rate of 9.195% to Crestar Bank collateralized
by a first priority security interest in the Company's accounts receivable,
chattel paper, equipment and intangibles, and due in equal monthly payments
of principal and interest of $2,144 through March 2002...................... 98,701 -- --
Term note payable at an interest rate of 9% to Crestar Bank, collateralized by
a security interest in a Company vehicle, and due in equal monthly payments
of principal and interest of $455 through August 2002....................... 23,177 -- --
</TABLE>
F-9
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- --------- --------
(UNAUDITED)
<S> <C>
Term note payable at an interest rate of 8.75% to Crestar Bank, collateralized
by a security interest in the Company's accounts receivable, chattel paper,
equipment and intangibles, and due in equal monthly payments of principal
and interest of $4,150 through October 2001................................. 178,033 192,980 --
Enterprise Zone incentive loan payable to the City of Richmond, collateralized
by equipment and due in ten annual installments of $3,000 plus interest at
3% beginning in September 1997. Enterprise Zone incentive loans provide for
an alternative means of repayment in lieu of cash. Each year, any increase
over 1996 in real estate, machinery and tools, and business licenses taxes
will directly curtail, on a dollar for dollar basis, the interest and then
principal payments on the loan.............................................. 30,000 30,000 --
----------- --------- --------
329,911 222,980 25,468
Less -- current portion of long-term debt..................................... (59,455) (37,293) (25,468)
----------- --------- --------
$ 270,456 $ 185,687 $ --
----------- --------- --------
----------- --------- --------
</TABLE>
NOTE 4 -- LONG-TERM DEBT
Five-year maturities of long-term debt are as follows at December 31, 1996:
<TABLE>
<S> <C>
1997................................................................................ $ 37,293
1998................................................................................ 40,417
1999................................................................................ 43,826
2000................................................................................ 47,545
2001................................................................................ 38,899
Thereafter.......................................................................... 15,000
--------
$222,980
--------
--------
</TABLE>
NOTE 5 -- DEMAND NOTE PAYABLE
The Company has a demand note payable to Crestar Bank in the amount of
$42,000 at June 30, 1997. The note bears interest at the rate of prime plus 1%.
Interest is payable monthly. The note is unsecured.
NOTE 6 -- CAPITAL LEASE OBLIGATIONS
The Company acquired, in January 1994, certain computer equipment for its
laboratory from Hewlett Packard Company under a capital lease in the amount of
$104,500. The lease terms called for monthly lease payments of $2,049 to be made
through December 1998 at an implicit lease rate of 8.44%. The lease was paid off
during 1996. Accumulated depreciation and depreciation expense on the assets
previously subject to capital lease amounted to $41,800 at December 31, 1996 and
$20,900 for 1996, respectively.
F-10
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
LEASES
During 1996 and 1995, the Company was engaged in a noncancellable operating
lease for its laboratory and office space from the Virginia Biotechnology
Research Park in Richmond, Virginia as a sub-landlord for the City of Richmond.
The monthly rental payment through the culmination of the lease at June 30, 1997
is $691.
Beginning July 1, 1997, the Company will lease its current laboratory and
office space, directly from the City of Richmond. The monthly rental payment
will increase to $3,222. The initial term of the lease will extend through June
30, 2000, however, either party may cancel the lease with nine months notice.
The Company also leases certain of its office equipment under a
noncancelable lease agreement which expires in October 1999.
Future minimum payments under these noncancelable operating leases at
December 31 are as follows:
1997............................................................. $27,354
1998............................................................. 13,542
1999............................................................. 11,199
-------
$52,095
-------
-------
Total rent expense for all operating leases for each of the years ended
December 31, 1996 and 1995 was $8,291.
SALES COMMITMENTS
In December 31, 1996, the Company entered into a contract with one customer
to perform structural studies on a proprietary protein product totaling
approximately $200,000. As of December 31, 1996, no services have been rendered
pursuant to this contract.
At December 31, 1996, the Company is performing under contract with several
companies. These companies include Insmed Pharmaceuticals (Richmond, Virginia),
Bayer Corporation (Clayton, North Carolina, Raleigh, North Carolina, West Haven,
Connecticut and Berkley, California), Breastek, Inc. (Charleston, South
Carolina) and Somatix Therapeutics Corporation (Alameda, California). The
Company is the major biochemistry subcontractor to a grant issued by the
University of New Mexico, Department of Chemical and Nuclear Engineering at
Albuquerque, New Mexico.
SPONSORED RESEARCH CONTRACT AND CONSULTING AGREEMENT
The Company entered into a sponsored research agreement (the "Agreement")
with Virginia Commonwealth University (the "University") on November 15, 1992.
Unless canceled by written notification by either party, the Agreement
automatically renews annually. The Agreement allows CBI personnel access to
equipment located within the academic laboratories of certain professors, who
are also officers of the Company. The laboratories are located on the campus of
the Medical College of Virginia (an affiliate of the University). The Agreement
carries a fee for service schedule, which allows for payment to the University
for use of the equipment. The Company has since purchased its own equipment and
reduced its dependence on the University's equipment to a level that total
payments made to the University are approximately $1,200 per calendar quarter.
NOTE 8 -- RETIREMENT PLAN
Effective October 1, 1996, the Company adopted an employee 401(k)
retirement plan. Qualified employees may contribute up to 15% of their gross pay
to the plan. Employee contributions are limited to amounts established by law.
The Company may make matching contributions to the plan as determined by the
Board of Directors subject to the limitations under the Internal Revenue Code.
The Company made no contributions to the Plan during the six-month period ended
June 30, 1997 (unaudited), or in 1996 or 1995.
F-11
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- MAJOR CUSTOMERS
The Company had the following revenue concentrations that exceeded 10% for
any of the periods presented:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C>
Bayer Pharmaceuticals, AG..................................................... $ 200,000 $ -- $ --
Small Business Technology Transfer Research Grant Phase I..................... -- -- 39,000
Small Business Technology Transfer Research Grant Phase II.................... 98,450 63,773 --
Small Business Technology Transfer Research 2 Grant Phase I................... -- 90,766 6,460
Small Business Technology Transfer Research 3 Grant Phase I................... 53,096 26,025 --
University of New Mexico Grant................................................ 96,873 124,423 64,359
----------- -------- --------
$ 448,419 $304,987 $109,819
----------- -------- --------
----------- -------- --------
</TABLE>
These research revenues represent 42.34%, 30.81% and 29.74% of total
revenue for the six months ended June 30, 1997 (unaudited) and for the years
ended December 31, 1996 and 1995, respectively.
NOTE 10 -- COMPENSATION AND BENEFIT COSTS
Compensation and benefit costs are included in the statements of operations
as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C>
Cost of services.............................................................. $ 119,982 $104,703 $ 21,346
Selling, general and administrative expenses.................................. 91,834 106,954 95,724
Research and development costs................................................ 142,848 176,444 50,672
----------- -------- --------
$ 354,664 $388,101 $167,742
----------- -------- --------
----------- -------- --------
</TABLE>
NOTE 11 -- PRIVATE PLACEMENT AND PROPOSED INITIAL PUBLIC OFFERING ("IPO")
On June 24, 1997, the Company declared a 93.78-for-1 stock split which has
been retroactively reflected in the accompanying financial statements.
On June 25, 1997, the Company sold 60 convertible subordinated notes
("notes"), with a principal amount of $50,000, in a private placement offering
at an offering price of $50,000 per note. Each note bears interest at the rate
of 20% and is payable upon the conversion of the note into shares of the
Company's common stock. Interest will be paid through the date of the conversion
in the form of additional shares of common stock that will be issued based on a
conversion price of $6.00 for each share of common stock. Each note will be
automatically converted into a minimum of 8,333.33 shares of the Company's
common stock, upon the earlier of the closing of the Company's proposed IPO, or
on June 25, 1998, the maturity date. Upon conversion, the actual number of
shares issued will equal the principal amount of the notes plus accrued interest
divided by the stated conversion price of $6.00. The Company received net
proceeds of $2,626,269, after underwriting and other offering costs of $373,731.
Upon the closing of the private placement offering, the Company issued
warrants to members of Management for the purchase of 100,000 shares of common
stock. The warrants were issued to the management team at $.001 per share, and
will be exercisable for a period of ten years at an exercise price of $9.90 per
share.
The Company intends to file a Form SB-2 Registration Statement with the
Securities and Exchange Commission for the sale of 1,015,000 shares of common
stock. The proceeds are expected to be used to acquire laboratory equipment,
additional personnel, expand existing facilities, expand marketing and
advertising and fund working capital.
F-12
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- STOCK COMPENSATION
The Company adopted its Incentive Plan (the "Plan") on June 24, 1997. The
Incentive Plan provides for the granting to employees, officers, directors,
consultants and certain non-employees of the Company of options to purchase
shares of common stock. The maximum number of shares of common stock that may be
issued pursuant to options under the Plan is 410,000. This amount is subject to
adjustment in the event of a stock split, stock dividend or other change in the
common stock or capital structure of the Company. Of the maximum number of
shares to be issued under the Plan, 270,000 will be reserved for incentive
awards to be granted to the four founders of the Company, and 140,000 shares
will be reserved for incentive awards to be granted to other persons.
Incentive awards may be in the form of stock options, restricted stock,
incentive stock or tax offset rights. In the case of incentive stock options or
non-qualified stock options, the exercise price will not be less than 100% of
the fair market value of shares covered at the time of the grant. Options
granted under the Plan vest immediately at the date of grant and are exercisable
for ten years, except that the term may not exceed five years for incentive
stock options granted to persons who own more than 10% of the Company's
outstanding common stock.
The Company applies APB Opinion No. 25 and related accounting
interpretations in accounting for its Plan and, accordingly, no compensation
cost has been recognized. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method prescribed by FASB No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the Company's net income and earnings per share would
have been reduced to the proforma amounts indicated below as if the Plan had
been in effect for the periods presented:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C>
(UNAUDITED)
Net income As previously reported $ 286,287 $110,088
As previously reported to include proforma
tax effect from conversion to C
Corporation.............................. $ 161,634 $ 60,437
Proforma application of FASB 123, as if
included with C Corporation conversion... $ 113,813 $ 12,616
Earnings per common and common equivalent As previously reported to include proforma
share tax effects from conversion to C
Corporation.............................. $ 0.32 $ 0.12
Proforma application of FASB 123 to include
C Corporation conversion................. $ 0.22 $ 0.02
</TABLE>
Under FASB No. 123, the fair value of each Management Warrant is estimated
on the date of grant using the Black-Scholes option pricing model. The following
assumptions were used for the grant made on June 24, 1997. The expected dividend
yield is 0%, since the Company does not presently plan to pay dividends in the
foreseeable future. The risk-free interest rate used was 6.4%, and the expected
life of the warrrants is ten years. As provided for by FASB No. 123, volatility
does not have to be considered for calculating the fair value of the Management
Warrants, since the Company is not yet publicly traded.
NOTE 13 -- EMPLOYMENT AGREEMENTS
On June 24, 1997, the Company entered into employment agreements with its
four founders. Each of the agreements has a term of five years with specified
base salaries and provide for successive one-year terms. In addition, the
employment agreements provide the Company's executive officers with annual
bonuses equal to, in the aggregate, 15% of the Company's pre-tax net income for
the preceding fiscal year. The bonuses for the Company's executive officers for
the fiscal year ending December 31, 1997 will equal the greater of 15% of the
Company's pre-tax net income or $150,000.
In connection with the aforementioned employment agreements, the Company
has recognized the fair value for services rendered by its founders in its
financial statements. The financial statement recognition is achieved by
reflecting a charge
F-13
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- EMPLOYMENT AGREEMENTS -- (CONTINUED)
against income for contributed services and a contribution to additional paid-in
capital for all of the periods presented. The fair value of the charges have
been established based on the approximate number of hours worked by the
Company's founders annually, and application of a base hourly rate that
increases approximately 5% annually to the approximate hourly rate reflected in
the agreement applied at July 24, 1997.
The contributed services charged against income for the six-months ended
June 30, 1997 (unaudited), June 30, 1996 (unaudited), and for the years ended
December 31, 1996 and 1995 was $36,346, $34,529, $69,058 and $65,604,
respectively. Of the these amounts, the charges allocated to sales, general and
administrative expenses for the six-months ended June 30, 1997 (unaudited), June
30, 1996 (unaudited), and the years ended December 31, 1996 and 1995 were
$33,173, $31,514, $63,029 and $59,877, respectively. The contributed services
allocated to research and development costs for the six-months ended June 30,
1997 (unaudited), June 30, 1996 (unaudited), and the years ended December 31,
1996 and 1995 were $3,173, $3,015, $6,029 and $5,727, respectively.
F-14
<PAGE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MAKE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATED ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................. 5
Risk Factors................................... 8
Special Note Regarding Forward-Looking
Statements................................... 12
Use of Proceeds................................ 12
Dividend Policy................................ 13
Dilution....................................... 13
Capitalization................................. 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 19
Management..................................... 25
Principal Shareholders......................... 30
Certain Relationships and Related
Transactions................................. 31
Description of Capital Stock................... 32
Shares Eligible for Future Sale................ 34
Selling Securityholders........................ 35
Plan of Distribution for
Selling Securityholders...................... 37
Underwriting................................... 38
Legal Matters.................................. 39
Experts........................................ 39
Available Information.......................... 39
Glossary....................................... 40
Index to Financial Statements.................. F-1
Until , 1997, all dealers effecting transactions in the
registered securities, whether or not participating in the distribution, may be
required to deliver a prospectus. This is in addition to the obligations of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
1,015,000 SHARES
[INSERT LOGO]
COMMON STOCK
------------------------------------
PROSPECTUS
------------------------------------
ANDERSON & STRUDWICK
INCORPORATED
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Company's Articles of Incorporation provides as follows:
The Corporation shall indemnify(a) any person who was, is or may become a
party to any proceeding, including a proceeding brought by a shareholder in the
right of the Corporation or brought by or on behalf of shareholders of the
Corporation, by reason of the fact that he is or was a director or officer of
the Corporation, or (b) any director or officer who is or was serving at the
request of the Corporation as a director, trustee, partner or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability incurred by him in connection with such
proceeding unless he engaged in willful misconduct or a knowing violation of
criminal law. A person is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose duties
on, or otherwise involve securities by, him to the plan or to participants in or
beneficiaries of the plan. The Board of Directors is hereby empowered, by a
majority vote of a quorum of disinterested Directors, to enter into a contract
to indemnify any Director or officer in respect of any proceedings arising from
any act or omission, whether occurring before or after the execution of such
contract.
Section 8 of the Underwriting Agreement, filed as Exhibit 1.1 hereto
provides for reciprocal indemnification between the Registrant and the
Underwriter against certain liabilities in connection with the Offering,
including liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered, other than the Underwriter's selling commissions.
All of the following expenses will be paid by the Company.
Commission Filing Fee...................................... $ 3,435.00
Nasdaq SmallCap Fee........................................ $ 7,843.00
NASD Filing Fee............................................ $ 1,633.00
Blue Sky Fees and Expenses................................. $ 10,000.00
Printing and Engraving Expenses............................ $ 20,000.00
Accounting Fees and Expenses............................... $ 45,000.00
Legal Fees and Expenses.................................... $ 100,000.00
Transfer Agent and Registrar Fees.......................... $ 5,000.00
Miscellaneous Fees and Expenses............................ $ 7,089.00
------------
Total (Estimated)................................ $ 200,000.00
------------
------------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since October 6, 1994, the Company has sold and issued the following
unregistered securities:
On June 25, 1997, the Company sold subordinated convertible notes in an
aggregate principal amount of $3,000,000 to 42 accredited investors in an
offering exempt from registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act. Such notes accrue interest from June 25,
1997 through the date of conversion at a rate of 20% per annum and are payable
in shares of Common Stock at a rate of $6.00 per share. The Underwriter served
as placement agent in connection with such private placement and received a
$240,000 placement fee.
On June 25, 1997, the Company issued the Management Warrants to four
executive officers of the Company for $.001 per warrant. Each Management Warrant
entitles the holder to purchase one share of Common Stock at an exercise price
of $9.90 per share. The Management Warrants are exercisable for a period of ten
years following the issuance thereof.
The Company believes that all of the transactions noted above that were
entered into with officers, directors and principal shareholders were made or
will be made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal shareholders will be approved
in accordance with the Virginia law by a majority of the Board, including a
majority of the independent and
II-1
<PAGE>
disinterested directors of the Board, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
The sales and issuance of the securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof
as transactions not involving any public offering. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends were affixed to
the certificates issued in such transactions.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealers Agreement*
1.3 Form of Escrow Agreement, as amended**
3.1 Amended and Restated Articles of Incorporation of Registrant*
3.2 Amended and Restated Bylaws of Registrant*
4.1 Form of Common Stock Certificate*
4.2 Form of Subordinated Convertible Note*
4.3 Form of Underwriter's Warrant, as amended**
4.4 Form of Management Warrant, as amended**
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Placement Agreement between the Company and the Underwriter relating to the Private Placement*
10.2 Warrant Agreement between the Company and the Underwriter relating to the Offering, as amended**
10.3 Warrant Agreement between the Company and Richard J. Freer, as amended**
10.4 Warrant Agreement between the Company and Thomas R. Reynolds, as amended**
10.5 Warrant Agreement between the Company and Gregory A. Buck, as amended**
10.6 Warrant Agreement between the Company and Robert B. Harris, as amended**
10.7 Employment Agreement for Richard J. Freer**
10.8 Employment Agreement for Thomas R. Reynolds**
10.9 Employment Agreement for Gregory A. Buck**
10.10 Employment Agreement for Robert B. Harris**
10.11 Executive Severance Agreement for Richard J. Freer**
10.12 Executive Severance Agreement for Thomas R. Reynolds**
10.13 Executive Severance Agreement for Gregory A. Buck**
10.14 Executive Severance Agreement for Robert B. Harris**
10.15 1997 Stock Incentive Plan, as amended**
10.16 Form of Incentive Stock Option Agreement**
11.1 Statement re: computation of per share earnings*
23.1 Consent of Goodman & Company, L.L.P.*
23.2 Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)**
24.1 Power of Attorney*
27.1 Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed
** Filed herewith
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of
II-2
<PAGE>
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee"table in the effective registration
statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
Provided, however, that paragraphs 1 (i) and 1 (ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment of
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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, the small business
issuer 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.
The registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or(4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned small business issuer undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the Registrant
certifies that has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the in the City of Richmond,
Commonwealth of Virginia, on October 7, 1997.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: /s/ RICHARD J. FREER, PH.D.
----------------------------
RICHARD J. FREER, PH.D.,
CHAIRMAN OF THE BOARD
Pursuant to the requirement of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ---------------------------------------- -------------------
<S> <C>
* Chairman of the Board (Principal October 7, 1997
- ------------------------------------------------------ Executive Officer) and Director
RICHARD J. FREER, PH.D.
/S/ ROBERT B. HARRIS, PH.D. President and Director October 7, 1997
- ------------------------------------------------------
ROBERT B. HARRIS, PH.D.
* Secretary, Vice President and Director October 7, 1997
- ------------------------------------------------------
GREGORY A. BUCK, PH.D.
* Vice President and Director October 7, 1997
- ------------------------------------------------------
THOMAS R. REYNOLDS
* Director October 7, 1997
- ------------------------------------------------------
CHARLES A. MILLS, III
* Director October 7, 1997
- ------------------------------------------------------
PETER C. EINSELEN
* Chief Operating Officer (Principal October 7, 1997
- ------------------------------------------------------ Financial Officer)
CHESTER M. TRZASKI
/S/ ROBERT B. HARRIS, PH.D.
- ------------------------------------------------------
ROBERT B. HARRIS, PH.D.
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealers Agreement*
1.3 Form of Escrow Agreement, as amended**
3.1 Amended and Restated Articles of Incorporation of Registrant*
3.2 Amended and Restated Bylaws of Registrant*
4.1 Form of Common Stock Certificate*
4.2 Form of Subordinated Convertible Note*
4.3 Form of Underwriter's Warrant, as amended**
4.4 Form of Management Warrant, as amended**
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Placement Agreement between the Company and the Underwriter relating to the Private Placement*
10.2 Warrant Agreement between the Company and the Underwriter relating to the Offering, as amended**
10.3 Warrant Agreement between the Company and Richard J. Freer, as amended**
10.4 Warrant Agreement between the Company and Thomas R. Reynolds, as amended**
10.5 Warrant Agreement between the Company and Gregory A. Buck, as amended**
10.6 Warrant Agreement between the Company and Robert B. Harris, as amended**
10.7 Employment Agreement for Richard J. Freer**
10.8 Employment Agreement for Thomas R. Reynolds**
10.9 Employment Agreement for Gregory A. Buck**
10.10 Employment Agreement for Robert B. Harris**
10.11 Executive Severance Agreement for Richard J. Freer**
10.12 Executive Severance Agreement for Thomas R. Reynolds**
10.13 Executive Severance Agreement for Gregory A. Buck**
10.14 Executive Severance Agreement for Robert B. Harris**
10.15 1997 Stock Incentive Plan, as amended**
10.16 Form of Incentive Stock Option Agreement**
11.1 Statement re: computation of per share earnings*
23.1 Consent of Goodman & Company, L.L.P.*
23.2 Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)**
24.1 Power of Attorney*
27.1 Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed
** Filed herewith
EXHIBIT 1.3
ESCROW AGREEMENT
This Escrow Agreement is made and entered into as of the ____ day of
September, 1997, by and among ANDERSON & STRUDWICK, INCORPORATED, a Virginia
corporation (the "Underwriter"), COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia
corporation (the "Company"), and CRESTAR BANK, a Virginia bank (the "Escrow
Agent").
R E C I T A L S:
A. The Company proposes to sell up to 1,015,000 shares (the
"Shares") of common stock of the Company at a price of $6.00 per Share (the
"Offering").
B. The Company has retained the Underwriter, as agent for the
Company on a best efforts all-or-none basis, to sell the Shares in the Offering,
and the Underwriter has agreed to sell the Shares in the Offering as the
Company's agent on a best efforts all-or-none basis.
C. The Escrow Agent is willing to hold the proceeds of the
Offering in escrow pursuant to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. Establishment of the Escrow Account. Contemporaneously herewith,
the parties have established a non-interest-bearing account with the Escrow
Agent, which escrow account is entitled "Commonwealth Biotechnologies, Inc.
Escrow Account" (the "Escrow Account"). The Underwriter will transfer funds (and
will instruct selected dealers ("Selected Dealers") to transfer funds) directly
to the Escrow Agent as directed by its customers and will instruct other
purchasers of the Shares to make checks payable to "Crestar Bank -
Commonwealth Biotechnologies, Inc. Escrow Account."
2. Escrow Period. The escrow period (the "Escrow Period") shall
begin with the commencement of the Offering and shall terminate upon the earlier
to occur of the following dates:
(a) the date on which the Escrow Agent confirms that it has
received in the Escrow Account gross proceeds of $6,090,000 (the "Minimum");
(b) November 21, 1997;
1
<PAGE>
(c) the date on which the Underwriter and the Company notify
the Escrow Agent that the Offering has been terminated.
During the Escrow Period, the Company is aware and understands that it is not
entitled to any funds received into escrow and no amounts deposited in the
Escrow Account shall become the property of the Company or any other entity, or
be subject to the debts of the Company or any other entity.
3. Deposits into the Escrow Account. The Underwriter agrees that it
shall deliver to the Escrow Agent (and will instruct Selected Dealers to deliver
to the Escrow Agent) for deposit in the Escrow Account all monies received from
purchasers of the Shares by noon of the next business day after receipt together
with a written account of each sale, which account shall set forth, among other
things, (i) the purchaser's name and address, (ii) the number of Shares
purchased by the purchaser, (iii) the amount paid therefor by the purchaser,
(iv) whether the consideration received from the purchaser was in the form of a
check, draft or money order, and (v) the purchaser's social security or tax
identification number. The Escrow Agent agrees to hold all monies so deposited
in the Escrow Account (the "Escrow Amount") for the benefit of the parties
hereto until authorized to disburse such monies under the terms of this
Agreement.
4. Disbursements from the Escrow Account. In the event the Escrow
Agent does not receive the Minimum deposits totaling $6,090,000 prior to the
termination of the Escrow Period, or if the Underwriter and the Company notify
the Escrow Agent that the Offering has been terminated, the Escrow Agent shall
promptly refund to each purchaser the amount received from the purchaser,
without deduction, penalty, or expense to the purchaser, and the Escrow Agent
shall notify the Company and the Underwriter of its distribution of the funds.
The purchase money returned to each purchaser shall be free and clear of any and
all claims of the Company or any of its creditors.
In the event the Escrow Agent does receive the Minimum prior to
termination of the Escrow Period, on the date of Closing, the Escrow Agent shall
disburse the Escrow Amount pursuant to the provisions of Section 6, provided,
however, in no event will the Escrow Amount be released to the Company until
such amount is received by the Escrow Agent in collected funds. For purposes of
this Agreement, the term "collected funds" shall mean all funds, including fed
funds, received by the Escrow Agent which have cleared normal banking channels.
5. Collection Procedure.
(a) The Escrow Agent is hereby authorized to deposit each check
in the Escrow Account.
2
<PAGE>
(b) In the event any check paid by a purchaser and deposited in
the Escrow Account shall be returned, the Escrow Agent shall notify the
Underwriter by telephone of such occurrence and advise it of the name of the
purchaser, the amount of the check returned, and any other pertinent
information. The Escrow Agent shall then transmit the returned check directly to
the purchaser and shall transmit the statement previously delivered by the
Underwriter relating to such purchase to the Underwriter.
(c) If the Company rejects any purchase of Shares for which the
Escrow Agent has already collected funds, the Escrow Agent shall promptly issue
a refund check to the rejected purchaser. If the Underwriter rejects any
purchase for which the Escrow Agent has not yet collected funds but has
submitted the purchaser's check for collection, the Escrow Agent shall promptly
issue a check in the amount of the purchaser's check to the rejected purchaser
after the Escrow Agent has cleared such funds. If the Escrow Agent has not yet
submitted a rejected purchaser's check for collection, the Escrow Agent shall
promptly remit the purchaser's check directly to the purchaser.
6. Delivery of Escrow Account and the Shares.
(a) Prior to the Closing (as defined in Section 8 of this
Agreement), the Underwriter and the Company shall provide the Escrow Agent with
a statement, executed by each party, containing the following information:
(i) The total number of Shares sold by the Underwriter
directly to purchasers and a list of each purchaser, and the number of Shares
purchased by such purchaser, and specification of the manner in which the Shares
should be issued; and
(ii) A calculation by the Underwriter and the Company
as to the manner in which the Escrow Account should be distributed to the
Company, the Underwriter and Selected Dealers and in the event of
oversubscription or rejection of certain purchases, the aggregate amount to be
returned to individual purchasers and a listing of the exact amount to be
returned to each such purchaser.
The Escrow Agent shall hold the Escrow Account and distribute it in accordance
with the above-described statement on the date of Closing or such later date
that it receives the above-described statement.
(b) The Company shall deliver the certificates representing the
Shares to the Escrow Agent prior to the Closing. On the day of the Closing and
in the event the Minimum is met, the Escrow Agent shall deliver the certificates
representing the Shares to the Underwriter and Selected Dealers, or in the
manner specified in writing to the Escrow Agent by the Underwriter.
3
<PAGE>
(c) Upon termination of the Offering by the Company or the
Underwriter for any reason, the Escrow Agent shall return to the purchasers who
contributed to the Escrow Account the exact amount contributed by them.
7. Investment of Escrow Account. The Escrow Agent shall deposit
funds received from purchasers in the Escrow Account, which shall be a
non-interest-bearing bank account at Crestar Bank.
8. Closing Date. The "Closing" shall be the date of closing of the
Offering, and the "Closing Date" shall be the date on or subsequent to the date
on which the Escrow Agent has received the Minimum deposits in collected funds
that is designated to the Escrow Agent by the Underwriter and the Company as the
Closing Date.
9. Compensation of Escrow Agent. The Company shall pay the Escrow
Agent a fee for its services hereunder in an amount equal to Five Hundred
Dollars ($500.00), which amount shall be paid on the Closing Date. In the
event the Offering is canceled for any reason, the Company shall pay the Escrow
Agent its fee within ten (10) days after the Escrow Amount is refunded to
purchasers. No such fee or any other monies whatsoever shall be paid out of or
chargeable to the funds on deposit in the Escrow Account.
10. Disbursement Into Court. If, at any time, there shall exist any
dispute between the Company, the Underwriter and/or the purchasers with respect
to the holding or disposition of any portion of the Escrow Amount or any other
obligations of the Escrow Agent hereunder, or if at any time the Escrow Agent is
unable to determine, to the Escrow Agent's sole satisfaction, the proper
disposition of any portion of the Escrow Amount or the Escrow Agent's proper
actions with respect to its obligations hereunder, or if the Company and the
Underwriter have not within 30 days of the furnishing by the Escrow Agent of a
notice of resignation appointed a successor Escrow Agent to act hereunder, then
the Escrow Agent may, in its sole discretion, take either or both of the
following actions:
(a) suspend the performance of any of its obligations under
this Escrow Agreement until such dispute or uncertainty shall be resolved to the
sole satisfaction of the Escrow Agent or until a successor Escrow Agent shall
have been appointed (as the case may be); provided however, that the Escrow
Agent shall continue to hold the Escrow Amount in accordance with Section 7
hereof; and/or
(b) petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in Richmond, Virginia,
for instructions with respect to such dispute or uncertainty, and pay into such
court all funds held by it in the Escrow Account for holding and disposition in
accordance with the instructions of such court.
4
<PAGE>
The Escrow Agent shall have no liability to the Company, the Underwriter or any
other person with respect to any such suspension of performance or disbursement
into court, specifically including any liability or claimed liability that may
arise, or be alleged to have arisen, out of or as a result of any delay in the
disbursement of funds held in the Escrow Account or any delay in or with respect
to any other action required or requested of the Escrow Agent.
11. Duties and Rights of the Escrow Agent. The foregoing agreements
and obligations of the Escrow Agent are subject to the following provisions:
(a) The Escrow Agent's duties hereunder are limited solely to
the safekeeping of the Escrow Account and the delivery of the certificates
representing the Shares in accordance with the terms of this Agreement. It is
agreed that the duties of the Escrow Agent are only such as herein specifically
provided, being purely of a ministerial nature, and the Escrow Agent shall incur
no liability whatsoever except for negligence, willful misconduct or bad faith.
The Escrow Agent shall have no duty with respect to the certificates
representing the Shares other than to exercise reasonable care in acquiring and
delivering the same in accordance with this Agreement.
(b) The Escrow Agent is authorized to rely on any document
believed by the Escrow Agent to be authentic in making any delivery of the
Escrow Account or the certificates representing the Shares. It shall have no
responsibility for the genuineness or the validity of any document or any other
item deposited with it and it shall be fully protected in acting in accordance
with this Agreement or instructions received.
(c) The Company and the Underwriter hereby waive any suit,
claim, demand or cause of action of any kind which they may have or may assert
against the Escrow Agent arising out of or relating to the execution or
performance by the Escrow Agent of this Agreement, unless such suit, claim,
demand or cause of action is based upon the gross negligence, willful
misconduct, or bad faith of the Escrow Agent.
12. Notices. It is further agreed as follows:
(a) All notices given hereunder will be in writing, served by
registered or certified mail, return receipt requested, postage prepaid, or by
hand-delivery, to the parties at the following addresses:
5
<PAGE>
To the Company:
Commonwealth Biotechnologies, Inc.
911 East Leigh Street
Richmond, Virginia 23219
Attention: Richard J. Freer, Ph.D.
Telecopier No.: (804) 648-2641
with a copy to:
LeClair Ryan
707 East Main Street, 11th Floor
Richmond, Virginia 23219
Attention: J. Benjamin English, Esquire
Telecopier No.: (804) 783-2294
To the Underwriter:
until October 18, 1997:
Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, Virginia 23219
Attention: Mr. L. McCarthy Downs, III
Telecopier No.: (804) 648-3404
From and after October 18, 1997:
Anderson & Strudwick, Incorporated
707 E. Main Street, 20th Floor
Richmond, Virginia 23219
Attention: Mr. L. McCarthy Downs, III
Telecopier No.: (804) 648-3404
with a copy to:
Willcox & Savage, P.C.
1800 NationsBank Center
Norfolk, Virginia 23510
Attention: James J. Wheaton, Esquire
Telecopier No.: (757) 628-5566
To the Escrow Agent:
Crestar Bank
Corporate Trust Department
919 East Main Street, 10th Floor
Richmond, Virginia 23219
Attention: Mr. Bill Michie
Telecopier No.: (804) 782-5581
6
<PAGE>
13. Miscellaneous.
(a) This Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns.
(b) If any provision of this Agreement shall be held invalid by
any court of competent jurisdiction, such holding shall not invalidate any other
provision hereof.
(c) This Agreement shall be governed by the applicable laws of
the Commonwealth of Virginia.
(d) This Agreement may not be modified except in writing signed
by the parties hereto.
(e) All demands, notices, approvals, consents, requests and
other communications hereunder shall be given in the manner provided in this
Agreement.
(f) This Agreement may be executed in one or more counterparts,
and if executed in more than one counterpart, the executed counterparts shall
together constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names, all as of the date first above written.
ANDERSON & STRUDWICK,
INCORPORATED
By:
---------------------------------
L. McCarthy Downs, III
Senior Vice President
COMMONWEALTH BIOTECHNOLOGIES,
INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
7
<PAGE>
CRESTAR BANK, as Escrow Agent
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
8
EXHIBIT 4.3
No. _________
101,500 Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that ANDERSON & STRUDWICK, INCORPORATED or its
assigns as permitted in that certain Warrant Agreement (the "Warrant Agreement")
dated ___________, 1997 between the Company (as hereafter defined) and Anderson
& Strudwick, Incorporated is entitled to purchase at any time or from time to
time on or after ____________, 1998 until 5:00 p.m., Richmond, Virginia time on
___________, 2002, 101,500 shares of Common Stock of Commonwealth
Biotechnologies, Inc., a Virginia corporation (the "Company"), for an exercise
price per share as set forth in the Warrant Agreement referred to herein. This
Warrant is issued pursuant to the Warrant Agreement, and all rights of the
holder of this Warrant are further governed by, and subject to the terms and
provisions of such Warrant Agreement, copies of which are available upon request
to the Company. The holder of this Warrant and the shares issuable upon the
exercise hereof shall be entitled to the benefits, rights and privileges and
subject to the obligations, duties and liabilities provided in the Warrant
Agreement.
UNTIL _____________, 1998, NEITHER ANDERSON & STRUDWICK, INCORPORATED
NOR ANY ASSIGNEE OF ALL OR A PORTION OF THE RIGHTS PURSUANT TO THIS WARRANT MAY
SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE ANY OF ITS RIGHTS PURSUANT TO THIS
WARRANT OTHER THAN TO BONA FIDE OFFICERS OF ANDERSON & STRUDWICK, INCORPORATED.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: (SEAL)
-------------------------
President
ATTEST:
- ----------------------------
Secretary
EXHIBIT 4.4
No. ___
_________ Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
NEITHER THIS SECURITY NOR ANY SECURITY FOR WHICH IT MAY BE EXERCISED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY SECURITY FOR
WHICH IT MAY BE EXERCISED NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THIS IS TO CERTIFY that ____________________ or his assigns as
permitted in that certain Warrant Agreement (the "Warrant Agreement") dated June
25, 1997 between the Company (as hereafter defined) and __________________ is
entitled to purchase at any time or from time to time on or after June 25, 1998
until 5:00 p.m., Richmond, Virginia time on June 25, 2007, ______ shares of
Common Stock of Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), for an exercise price per share as set forth in the Warrant
Agreement referred to herein. This Warrant is issued pursuant to the Warrant
Agreement, and all rights of the holder of this Warrant are further governed by,
and subject to the terms and provisions of such Warrant Agreement, copies of
which are available upon request to the Company. The holder of this Warrant and
the shares issuable upon the exercise hereof shall be entitled to the benefits,
rights and privileges and subject to the obligations, duties and liabilities
provided in the Warrant Agreement.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:____________________________(SEAL)
President
ATTEST:
_______________________
Secretary
Exhibit 5.1
October 1, 1997
Commonwealth Biotechnologies, Inc.
911 East Leigh Street, Suite G-19
Richmond, Virginia 23219
Ladies and Gentlemen:
We have acted as counsel to Commonwealth Biotechnologies, Inc., a
Virginia corporation (the "Company"), in connection with the preparation and
filing of the Company's registration statement on Form SB-2 (Registration No.
333-31731) and all amendments thereto (the "Registration Statement"), as
originally filed with the Securities and Exchange Commission on July 21, 1997.
The Registration Statement relates to the offering of 1,015,000 shares (the
"Offering Shares") of the Company's common stock, no par value per share
("Common Stock"). In addition, the Registration Statement, registers the resale
of (a) an aggregate of up to 541,370 shares of Common Stock (the "Conversion
Shares"), issuable in a private placement upon the automatic conversion of
certain subordinated convertible notes issued by the Company in a private
placement on June 25, 1997, (b) warrants to purchase an aggregate of 101,500
shares of Common Stock (the "Underwriter's Warrants"), issued to Anderson &
Strudwick, Incorporated as additional underwriting compensation and (c) warrants
to purchase an aggregate of 100,000 shares of Common Stock (the "Management
Warrants"), issued to certain executive officers of the Company. The
Registration Statement also relates to the offering, on a delayed or continuous
basis, of an aggregate of 201,500 shares of Common Stock issuable upon the
exercise of the Management Warrants and the Underwriter's Warrants.
In connection with this opinion, we have examined the Registration
Statement and the prospectus contained therein, the Company's Articles of
Incorporation, as amended to date, the Company's Bylaws, as amended to date, and
the originals, or copies certified to our satisfaction, of such records,
documents, certificates, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below
(the "Documents"). We are relying (without any independent investigation
thereof) upon the truth and accuracy of the statements, covenants,
representations and warranties set forth in the Documents. In addition, for all
purposes of this opinion, we have assumed that the underwriting agreement
pursuant to which the Offering Shares will be sold (the "Underwriting
Agreement") will be duly executed and delivered and will be a valid and binding
agreement of the parties thereto in accordance with its terms.
Commonwealth Biotechnologies, Inc.
October 1, 1997
Page 2
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that:
1. The Offering Shares have been duly authorized and upon the sale
thereof in accordance with the terms of the Underwriting Agreement, such
securities will be duly and validly issued, fully paid and non-assessable shares
of the Common Stock of the Company.
2. The Conversion Shares have been duly authorized and, when issued
upon the automatic conversion of the Notes in accordance with their terms, will
be duly and validly issued, fully paid and non-assessable shares of the Common
Stock of the Company.
3. The Management Warrants have been duly and validly authorized and,
when resold as contemplated by the Registration Statement, will be duly and
validly issued.
4. The Underwriter's Warrants have been duly and validly authorized
and, when resold as contemplated by the Registration Statement,
will be duly and validly issued.
5. The shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants and the Management Warrants have been duly and validly
authorized and, when issued as contemplated by the Registration Statement and
the respective terms and conditions of such warrants, will be fully paid and
non-assessable shares of the Common Stock of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus contained therein and any further amendments thereto.
Subject to the foregoing sentence, however, this opinion is given as of the date
hereof solely for your benefit and may not be relied upon, circulated, quoted or
otherwise referred to for any purpose without our prior written consent.
Very truly yours,
LECLAIR RYAN,
A Professional Corporation
By: J. Benjamin English
----------------------------------
Title: Vice President
----------------------------------
EXHIBIT 10.2
COMMONWEALTH BIOTECHNOLOGIES, INC.
WARRANT AGREEMENT
______________, 1997
Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, Virginia 23219
Ladies and Gentlemen:
Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), agrees to issue and sell to you warrants (the "Warrants") to
purchase the number of shares of common stock (the "Common Stock"), of the
Company set forth herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall
be in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrants shall
provide that you and such other holder or holders of the Warrants shall have the
right to purchase an aggregate of 101,500 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $1,004,850 in the
aggregate. The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as hereinafter provided, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock and other
securities and property receivable upon exercise of the Warrants. The term
"Exercise Price" shall mean, unless the context otherwise requires, the price
per share of the Common Stock purchasable under the Warrants as set forth in
this Section 1, as adjusted from time to time pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by
the Company of a record date with respect to the holders of any class of
securities of the Company for purposes of determining which of such holders are
entitled to dividends or other distributions (other than regular quarterly
dividends), or any right to subscribe for, purchase or otherwise acquire shares
of stock of any class or any other securities or property, or to receive any
other right, (ii) any capital reorganization of the Company, or reclassification
or recapitalization of capital stock of the Company or any transfer in one or
more related transactions of all or a majority of the assets or revenue or
income generating capacity of the Company to, or
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consolidation or merger of the Company with or into, any other entity or person,
or (iii) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 5, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event. Any
such notice shall be deposited in the United States mail, postage prepaid, at
least ten (10) days prior to the date therein specified, and the holder(s) of
the Warrant(s) may exercise the Warrant(s) and participate in such event as a
registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
3. No Impairment. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
4. Exercise of Warrants. At any time and from time to time on and
after ____________, 1998 and expiring on __________, 2002 at 5:00 p.m.,
Richmond, Virginia time, Warrants may be exercised as to all or any portion of
the whole number of shares of Common Stock covered by the Warrants by the holder
thereof by surrender of the Warrants, accompanied by a subscription for shares
to be purchased in the form attached hereto as Exhibit B and by a check payable
to the order of the Company in the amount required for purchase of the shares as
to which the Warrant is being exercised, delivered to the Company at its
principal office at Commonwealth Biotechnologies, Inc., 911 East Leigh Street,
Richmond, Virginia 23219, Attention: Chairman. Upon the exercise of a Warrant in
whole or in part, the Company will within five (5) days thereafter, at its
expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and
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delivered to the Warrant holder a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which such holder is
entitled upon exercise of the Warrant. In the event such holder is entitled to a
fractional share, in lieu thereof such holder shall be paid a cash amount equal
to such fraction, multiplied by the Current Value of one full share of Common
Stock on the date of exercise. Certificates for shares of Common Stock issuable
by reason of the exercise of the Warrant or Warrants shall be dated and shall be
effective as of the date of the surrendering of the Warrant for exercise,
notwithstanding any delays in the actual execution, issuance or delivery of the
certificates for the shares so purchased. In the event a Warrant or Warrants is
exercised as to less than the aggregate amount of all shares of Common Stock
issuable upon exercise of all Warrants held by such person, the Company shall
issue a new Warrant to the holder of the Warrant so exercised covering the
aggregate number of shares of Common Stock as to which Warrants remain
unexercised.
For purposes of this section, Current Value is defined (i) in the
case for which a public market exists for the Common Stock at the time of such
exercise, at a price per share equal to (A) the average of the means between the
closing bid and asked prices of the Common Stock in the over-the-counter market
for 20 consecutive business days commencing 30 business days before the date of
such notice, (B) if the Common Stock is quoted on Nasdaq, at the average of the
means of the daily closing bid and asked prices of the Common Stock for 20
consecutive business days commencing 30 business days before the date of such
notice, or (C) if the Common Stock is listed on any national securities exchange
or The Nasdaq National Market, at the average of the daily closing prices of the
Common Stock for 20 consecutive business days commencing 30 business days before
the date of such notice, and (ii) in the case no public market exists at the
time of such exercise, at the Appraised Value. For the purposes of this
Agreement, "Appraised Value" is the value determined in accordance with the
following procedures. For a period of five (5) days after the date of an event
(a "Valuation Event") requiring determination of Current Value at a time when no
public market exists for the Common Stock (the "Negotiation Period"), each party
to this Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date of the
Valuation Event, which will be the fair market value of such securities or
property, without premium for control or discount for minority interests,
illiquidity or restrictions on transfer. In the event that the parties are
unable to agree upon the Appraised Value of such securities or other property by
the end of the Negotiation Period, then the Appraised Value of such securities
or property will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the holders of the
Warrants and the Company (the "Appraiser"). If the holders of the Warrants and
the Company cannot agree on an Appraiser within two (2) business days after the
end of the Negotiation Period, the Company, on the one hand, and the holders of
the Warrants, on the other hand, will each select an Appraiser within ten (10)
business days after the end of the Negotiation Period and those Appraisers will
determine the fair market value of such securities or property, without premium
for control or discount for minority interests. Such independent
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<PAGE>
Appraiser(s) will be directed to determine fair market value of such securities
or property as soon as practicable, but in no event later than thirty (30) days
from the date of its selection. The determination by Appraiser(s) of the fair
market value will be conclusive and binding on all parties to this Agreement. If
there are two Appraisers, and they do not agree as to fair market value, then
fair market value shall be determined to be the average of the fair market
values as determined by each Appraiser. Appraised Value of each share of Common
Stock at a time when (i) the Company is not a reporting company under the
Securities Exchange Act of 1934 and (ii) the Common Stock is not traded in the
organized securities markets, will, in all cases, be calculated by determining
the Appraised Value of the entire Company taken as a whole and dividing that
value by the number of shares of Common Stock then outstanding, without premium
for control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser(s) will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
5. Protection Against Dilution. The Exercise Price for the shares
of Common Stock and number of shares of Common Stock issuable upon exercise of
the Warrants is subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications, Etc..
In case at any time or from time to time after the date of execution of this
Agreement, the Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them to receive a dividend or a distribution on
shares of Common Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, then, and in each such case, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted in such a manner that the Exercise Price for
the shares issuable upon exercise of the Warrants immediately after such event
shall bear the same ratio to the Exercise Price in effect immediately prior to
any such event as the total number of shares of Common Stock outstanding
immediately prior to such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of shares of Common Stock issuable upon exercise of the Warrants
shall be changed (upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number
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<PAGE>
of shares issuable pursuant to the exercise of the Warrants immediately prior to
the adjustment, multiplied by the Exercise Price in effect immediately prior to
the adjustment, by (y) the Exercise Price in effect immediately after such
adjustment, and (ii) upon exercise of the Warrant, the holder will be entitled
to receive the number of shares of other securities referred to in Section 5(a)
that such holder would have received had the Warrant been exercised prior to the
events referred to in Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Company with, or any
merger of the Company with or into, another entity (other than a consolidation
or merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of
adjustment as herein provided in paragraphs of this Section 5, the Company shall
promptly mail to each Warrant holder a certificate setting forth the Exercise
Price and number of shares of Common Stock issuable upon exercise after such
adjustment and setting forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which the Warrants shall be exercisable
after any adjustment of the Exercise Price as provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
6. Registration Rights. The Company agrees to maintain the
registration of this Warrant and the shares underlying this Warrant under the
Securities Act of 1933, as amended
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<PAGE>
(the "Act"), by preparing and filing with the Securities and Exchange Commission
such amendments and supplements to the registration statement and prospectus
used in connection with the initial registration of this Warrant and the shares
underlying this Warrant as may be necessary to keep such registration statement
effective and comply with the provisions of the Act with respect to the sale or
other disposition of all or a portion of this Warrant and the shares underlying
this Warrant; provided, however, that the Company shall have no obligation to
file any amendment or supplement after June 25, 2002.
7. Indemnification; Contribution.
(a) Each holder of Common Stock registered pursuant to this
Agreement will indemnify and hold harmless the Company against any losses,
claims, damages or liabilities to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, registration statement or prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that (i) such untrue statement or alleged untrue statement or
omission or alleged omission was made in any preliminary prospectus,
registration statement or prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by such holder expressly for use therein, or (ii) you failed to deliver
an amendment or supplement to the prospectus that the Company made available to
you prior to the applicable date of sale of Common Stock to which the claim
relates and that corrected any statement or omission in a preliminary
prospectus, registration statement or prospectus that forms the basis for a
claim against the Company.
(b) Promptly after receipt by an indemnified party under
Section 7(a) above of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under either such subsection, notify the indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability that it may otherwise have to any
indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof the indemnifying party shall be entitled to assume the defense thereof
by notice in writing to the indemnified party. After notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under either of such subsections for any legal expenses of other counsel
or any other expense, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation incurred prior to the assumption by the indemnifying party, unless
such expenses have been specifically authorized in writing by the
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<PAGE>
indemnifying party, the indemnifying party has failed to assume the defense and
employ counsel, or the named parties to any such action include both the
indemnified party and the indemnifying party, as appropriate, and such
indemnified party has been advised by counsel that the representation of such
indemnified party and the indemnifying party by the same counsel would be
inappropriate due to actual or potential differing interests between them, in
each of which cases the fees of counsel for the indemnified party will be paid
by the indemnifying party.
(c) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7(a) in respect of any losses, claims, damages or liabilities (or action in
respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the holder or holders from this Agreement and from the
offering of the shares of Common Stock. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the holders in
connection with the statement or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the holder and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the holders agree that it
would not be just and equitable if contribution pursuant to this Section 7(c)
were determined by pro rata allocation (even if the holders were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this subsection
(c). Except as provided in Section 7(b), the amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 7(c) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigation or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding any
provision in this Section 7(c) to the contrary, no holder shall be liable for
any amount, in the aggregate, in excess of the net proceeds to such holder from
the sale of such holder's shares (obtained upon exercise of Warrants) giving
rise to such losses, claims, damages or liabilities.
(d) The obligations of the holders of Common Stock under
this Section 7 shall be in addition to any liability that such holders may
otherwise have and shall extend,
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<PAGE>
upon the same terms and conditions to each person, if any, who controls the
Company within the meaning of the Act.
8. Stock Exchange Listing. In the event the Company lists its
Common Stock on any national securities exchange or market, the Company will, at
its expense, also list on such exchange, upon exercise of a Warrant, all shares
of Common Stock issuable pursuant to such Warrant.
9. Restrictive Legend. Executed copies of this Agreement shall be
filed in the principal office of the Company. Instruments evidencing all or
part of the Warrants shall contain the legend shown on Exhibit A until
_______________, 1998, after which time such legend may be removed at the
request of the holder thereof.
10. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
11. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
12. Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the remainder
of this Agreement.
13. Assignment; Replacement of Warrants. The Warrants may be sold,
transferred, assigned, pledged or hypothecated by you prior to _____________,
1998 only to bona fide officers of Anderson & Strudwick, Incorporated, who in
turn shall be subject to the same restriction. If the Warrant or Warrants are
assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor.
14. Rights of Stockholders. Until exercised, the Warrants shall not
entitle the holders thereof to any of the rights of a stockholder of the
Company.
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15. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia without giving
effect to the principles of choice of laws thereof.
16. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding shares of Common Stock issuable
upon exercise of Warrants.
17. Headings. The headings herein are for purposes of reference
only and shall not limit or otherwise affect the meaning of any of the
provisions hereof.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:______________________________
President
Accepted as of the ____ day of __________, 1997.
ANDERSON & STRUDWICK, INCORPORATED
By:__________________________
L. McCarthy Downs, III
Senior Vice President
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EXHIBIT A
No. _________
101,500 Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that ANDERSON & STRUDWICK, INCORPORATED or its
assigns as permitted in that certain Warrant Agreement (the "Warrant Agreement")
dated ___________, 1997 between the Company (as hereafter defined) and Anderson
& Strudwick, Incorporated is entitled to purchase at any time or from time to
time on or after ____________, 1998 until 5:00 p.m., Richmond, Virginia time on
___________, 2002, 101,500 shares of Common Stock of Commonwealth
Biotechnologies, Inc., a Virginia corporation (the "Company"), for an exercise
price per share as set forth in the Warrant Agreement referred to herein. This
Warrant is issued pursuant to the Warrant Agreement, and all rights of the
holder of this Warrant are further governed by, and subject to the terms and
provisions of such Warrant Agreement, copies of which are available upon request
to the Company. The holder of this Warrant and the shares issuable upon the
exercise hereof shall be entitled to the benefits, rights and privileges and
subject to the obligations, duties and liabilities provided in the Warrant
Agreement.
UNTIL _____________, 1998, NEITHER ANDERSON & STRUDWICK, INCORPORATED
NOR ANY ASSIGNEE OF ALL OR A PORTION OF THE RIGHTS PURSUANT TO THIS WARRANT MAY
SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE ANY OF ITS RIGHTS PURSUANT TO THIS
WARRANT OTHER THAN TO BONA FIDE OFFICERS OF ANDERSON & STRUDWICK, INCORPORATED.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:_______________________________ (SEAL)
President
ATTEST:
________________________
Secretary
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Commonwealth Biotechnologies, Inc.:
The undersigned, the holder of Warrant Number ____, hereby irrevocably
elects to exercise the purchase right represented by such Warrant, and to
purchase thereunder_________ * shares of Common Stock of Commonwealth
Biotechnologies, Inc. and herewith makes a payment in cash or by check of
$________ thereof and requests that the certificate or certificates for such
shares be issued in the name of and delivered to the undersigned. The
undersigned acknowledges and agrees that the shares of Common Stock to be
received by the undersigned are subject to the restrictions on transfer set
forth in the Warrant.
_________________________
(Signature)
_________________________
_________________________
(Address)
Dated:______________
*Insert here the number of shares set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Common Stock, other stock,
securities, property, or cash) for additional Common Stock or any other stock or
other securities or property or cash that, pursuant to the adjustment provisions
of the Warrant, is deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ________________ the right represented by Warrant Number ____ to purchase
________ shares of Common Stock of Commonwealth Biotechnologies, Inc. to which
the attached Warrant related, and appoints _______________________ as
Attorney-in-Fact to transfer such right on the books of Commonwealth
Biotechnologies, Inc. with the full power of substitution in the premises.
<PAGE>
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
_________________________
(Signature)
_________________________
_________________________
(Address)
Dated:_________________
EXHIBIT 10.3
COMMONWEALTH BIOTECHNOLOGIES, INC.
WARRANT AGREEMENT
June 25, 1997
Richard J. Freer, Ph.D.
911 East Leigh Street, Suite G-19
Richmond, Virginia 23219
Dear Sir:
Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), agrees to issue and sell to you warrants (the "Warrants") to
purchase the number of shares of common stock (the "Common Stock"), of the
Company set forth herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall
be in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrants shall
provide that you and such other holder or holders of the Warrants shall have the
right to purchase an aggregate of 28,947 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $286,575.30 in the
aggregate. The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as hereinafter provided, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock and other
securities and property receivable upon exercise of the Warrants. The term
"Exercise Price" shall mean, unless the context otherwise requires, the price
per share of the Common Stock purchasable under the Warrants as set forth in
this Section 1, as adjusted from time to time pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by
the Company of a record date with respect to the holders of any class of
securities of the Company for purposes of determining which of such holders are
entitled to dividends or other distributions (other than regular quarterly
dividends), or any right to subscribe for, purchase or otherwise acquire shares
of stock of any class or any other securities or property, or to receive any
other right, (ii) any capital reorganization of the Company, or reclassification
or recapitalization of capital stock of the Company or any transfer in one or
more related transactions of all or a majority of the assets or revenue or
income generating capacity of the Company to, or
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consolidation or merger of the Company with or into, any other entity or person,
or (iii) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 5, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event. Any
such notice shall be deposited in the United States mail, postage prepaid, at
least ten (10) days prior to the date therein specified, and the holder(s) of
the Warrant(s) may exercise the Warrant(s) and participate in such event as a
registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
3. No Impairment. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
4. Exercise of Warrants. At any time before June 25, 2007 at 5:00
p.m., Richmond, Virginia time, Warrants may be exercised as to all or any
portion of the whole number of shares of Common Stock covered by the Warrants by
the holder thereof by surrender of the Warrants, accompanied by a subscription
for shares to be purchased in the form attached hereto as Exhibit B and by a
check payable to the order of the Company in the amount required for purchase of
the shares as to which the Warrant is being exercised, delivered to the Company
at its principal office at Commonwealth Biotechnologies, Inc., 911 East Leigh
Street, Richmond, Virginia 23219, Attention: Chairman. Upon the exercise of a
Warrant in whole or in part, the Company will within five (5) days thereafter,
at its expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and delivered to the Warrant
holder a certificate or certificates for the
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number of fully paid and non-assessable shares of Common Stock to which such
holder is entitled upon exercise of the Warrant. In the event such holder is
entitled to a fractional share, in lieu thereof such holder shall be paid a cash
amount equal to such fraction, multiplied by the Current Value of one full share
of Common Stock on the date of exercise. Certificates for shares of Common Stock
issuable by reason of the exercise of the Warrant or Warrants shall be dated and
shall be effective as of the date of the surrendering of the Warrant for
exercise, notwithstanding any delays in the actual execution, issuance or
delivery of the certificates for the shares so purchased. In the event a Warrant
or Warrants is exercised as to less than the aggregate amount of all shares of
Common Stock issuable upon exercise of all Warrants held by such person, the
Company shall issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to which Warrants
remain unexercised.
For purposes of this section, Current Value is defined (i) in
the case for which a public market exists for the Common Stock at the time of
such exercise, at a price per share equal to (A) the average of the means
between the closing bid and asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business days commencing 30 business
days before the date of such notice, (B) if the Common Stock is quoted on
Nasdaq, at the average of the means of the daily closing bid and asked prices of
the Common Stock for 20 consecutive business days commencing 30 business days
before the date of such notice, or (C) if the Common Stock is listed on any
national securities exchange or The Nasdaq National Market, at the average of
the daily closing prices of the Common Stock for 20 consecutive business days
commencing 30 business days before the date of such notice, and (ii) in the case
no public market exists at the time of such exercise, at the Appraised Value.
For the purposes of this Agreement, "Appraised Value" is the value determined in
accordance with the following procedures. For a period of five (5) days after
the date of an event (a "Valuation Event") requiring determination of Current
Value at a time when no public market exists for the Common Stock (the
"Negotiation Period"), each party to this Agreement agrees to negotiate in good
faith to reach agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be the fair market
value of such securities or property, without premium for control or discount
for minority interests, illiquidity or restrictions on transfer. In the event
that the parties are unable to agree upon the Appraised Value of such securities
or other property by the end of the Negotiation Period, then the Appraised Value
of such securities or property will be determined for purposes of this Agreement
by a recognized appraisal or investment banking firm mutually agreeable to the
holders of the Warrants and the Company (the "Appraiser"). If the holders of the
Warrants and the Company cannot agree on an Appraiser within two (2) business
days after the end of the Negotiation Period, the Company, on the one hand, and
the holders of the Warrants, on the other hand, will each select an Appraiser
within ten (10) business days after the end of the Negotiation Period and those
Appraisers will determine the fair market value of such securities or property,
without premium for control or discount for minority interests. Such independent
Appraiser(s) will be directed to determine fair market value of such securities
or property as
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<PAGE>
soon as practicable, but in no event later than thirty (30) days from the date
of its selection. The determination by Appraiser(s) of the fair market value
will be conclusive and binding on all parties to this Agreement. If there are
two Appraisers, and they do not agree as to fair market value, then fair market
value shall be determined to be the average of the fair market values as
determined by each Appraiser. Appraised Value of each share of Common Stock at a
time when (i) the Company is not a reporting company under the Securities
Exchange Act of 1934 and (ii) the Common Stock is not traded in the organized
securities markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and dividing that value
by the number of shares of Common Stock then outstanding, without premium for
control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser(s) will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
5. Protection Against Dilution. The Exercise Price for the
shares of Common Stock and number of shares of Common Stock issuable upon
exercise of the Warrants is subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications, Etc.. In
case at any time or from time to time after the date of execution of this
Agreement, the Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them to receive a dividend or a distribution on
shares of Common Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, then, and in each such case, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted in such a manner that the Exercise Price for
the shares issuable upon exercise of the Warrants immediately after such event
shall bear the same ratio to the Exercise Price in effect immediately prior to
any such event as the total number of shares of Common Stock outstanding
immediately prior to such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of shares of Common Stock issuable upon exercise of the Warrants
shall be changed (upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number of shares issuable
pursuant to the exercise of the Warrants immediately prior to the
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<PAGE>
adjustment, multiplied by the Exercise Price in effect immediately prior to the
adjustment, by (y) the Exercise Price in effect immediately after such
adjustment, and (ii) upon exercise of the Warrant, the holder will be entitled
to receive the number of shares of other securities referred to in Section 5(a)
that such holder would have received had the Warrant been exercised prior to the
events referred to in Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Company with, or any
merger of the Company with or into, another entity (other than a consolidation
or merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of adjustment
as herein provided in paragraphs of this Section 5, the Company shall promptly
mail to each Warrant holder a certificate setting forth the Exercise Price and
number of shares of Common Stock issuable upon exercise after such adjustment
and setting forth a brief statement of facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which the Warrants shall be exercisable after any
adjustment of the Exercise Price as provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
6. Representations and Warranties. You hereby acknowledge,
represent and warrant to, and agree with, the Company as follows:
5
<PAGE>
(a) You are acquiring the Warrants and the Common Stock for
your own account, for investment purposes only, and not with a view to or for
the resale, distribution or fractionalization thereof, in whole or in part, and
no other person has a direct or indirect beneficial interest in the Warrants
herein agreed to be purchased or in the Common Stock.
(b) You acknowledge your understanding that the offering and
sale of the Warrants and the Common Stock is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act"). In
furtherance thereof, you represent and warrant and agree with the Company as
follows:
(i) You have the financial abilioty to bear the
economic risk of your investment in the Company (including its possible loss),
have adequate means of providing for your current needs and personal
contingencies and have no need for liquidity with respect to your investment.
(ii) You have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Warrants and the Common Stock and have obtained,
in your judgment, sufficient information from the Company to evaluate the merits
and risks of such an investment.
(c) You represent, warrant and agree that the you will not
sell or otherwise transfer the Warrants or the Common Stock without registration
under the Act or an exemption therefrom as evidenced by an opinion of legal
counsel having sufficient expertise in the transfer of restricted securities,
which opinion shall be satisfactory to the Company, and fully understands and
agrees that you may bear the economic risk of this investment for an indefinite
period of time because, among other reasons, the Warrants and the Common Stock
have not been registered under the Act or under the securities laws of states
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Act and under applicable
securities laws of such states or an exemption from such registration is
available. You also understand that sales or transfers of the Warrants and the
Common Stock are further restricted by state securities laws.
The foregoing representations and warranties will be deemed to have been given
on the date of this Agreement and on the date of each exercise of the Warrants.
7. Restrictive Legend. Executed copies of this Agreement shall
be filed in the principal office of the Company. Instruments evidencing all or
part of the Warrants or the Common Stock, whether now or hereafter issued, shall
contain the legend shown on Exhibit A.
6
<PAGE>
8. Successors and Assigns; Binding Effect. This Agreement shall
be binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
9. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
10. Severability. Every provision of this Agreement is intended
to be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the remainder
of this Agreement.
11. Assignment; Replacement of Warrants. If the Warrant or
Warrants are assigned, in whole or in part, the Warrants shall be surrendered at
the principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor.
12. Rights of Stockholders. Until exercised, the Warrants shall
not entitle the holders thereof to any of the rights of a stockholder of the
Company.
13. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia without giving
effect to the principles of choice of laws thereof.
14. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding shares of Common Stock issuable
upon exercise of Warrants.
7
<PAGE>
15. Headings. The headings herein are for purposes of reference
only and shall not limit or otherwise affect the meaning of any of the
provisions hereof.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: ______________________________________
President
Accepted as of the 25th day of June, 1997.
________________________________________
Richard J. Freer
8
<PAGE>
No. 5
28,947 Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
NEITHER THIS SECURITY NOR ANY SECURITY FOR WHICH IT MAY BE EXERCISED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY SECURITY FOR
WHICH IT MAY BE EXERCISED NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THIS IS TO CERTIFY that Richard J. Freer or his assigns as permitted in
that certain Warrant Agreement (the "Warrant Agreement") dated June 25, 1997
between the Company (as hereafter defined) and Richard J. Freer is entitled to
purchase until 5:00 p.m., Richmond, Virginia time on June 25, 2007, 28,947
shares of Common Stock of Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), for an exercise price per share as set forth in the
Warrant Agreement referred to herein. This Warrant is issued pursuant to the
Warrant Agreement, and all rights of the holder of this Warrant are further
governed by, and subject to the terms and provisions of such Warrant Agreement,
copies of which are available upon request to the Company. The holder of this
Warrant and the shares issuable upon the exercise hereof shall be entitled to
the benefits, rights and privileges and subject to the obligations, duties and
liabilities provided in the Warrant Agreement.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: _____________________________ (SEAL)
President
ATTEST:
___________________________
Secretary
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Commonwealth Biotechnologies, Inc.:
The undersigned, the holder of Warrant Number ______, hereby
irrevocably elects to exercise the purchase right represented by such Warrant,
and to purchase thereunder ______* shares of Common Stock of Commonwealth
Biotechnologies, Inc. and herewith makes a payment in cash or by check of
$______ thereof and requests that the certificate or certificates for such
shares be issued in the name of and delivered to the undersigned. The
undersigned acknowledges and agrees that the shares of Common Stock to be
received by the undersigned are subject to the restrictions on transfer set
forth in the Warrant.
______________________________
(Signature)
______________________________
______________________________
(Address)
Dated: ______________________
*Insert here the number of shares set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Common Stock, other stock,
securities, property, or cash) for additional Common Stock or any other stock or
other securities or property or cash that, pursuant to the adjustment provisions
of the Warrant, is deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ________ the right represented by Warrant Number ______ to purchase ______
shares of Common Stock of Commonwealth Biotechnologies, Inc. to which the
attached Warrant related,
<PAGE>
and appoints _______________________ as Attorney-in-Fact to transfer such right
on the books of Commonwealth Biotechnologies, Inc. with the full power of
substitution in the premises.
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
____________________________________
(Signature)
____________________________________
____________________________________
(Address)
Dated: __________________________
<PAGE>
FIRST AMENDMENT TO WARRANT AGREEMENT FIRST AMENDMENT TO
WARRANT AGREEMENT (the "Amendment") is made effective as of the 1st day of
October, 1997, by and between COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia
corporation (the "Company"), and RICHARD J. FREER (the "Warrantholder").
BACKGROUND
The Company and the Warrantholder are parties to a Warrant Agreement dated June
25, 1997, (the "Warrant Agreement") pursuant to which the Company has issued to
the Warrantholder warrants (the "Warrants") to purchase the number of shares of
Common Stock of the Company set forth in the Warrants. The Warrant Agreement and
the Warrants provide that the Warrants first became exercisable upon the date of
their issuance, which was June 25, 1997 (the "Issuance Date"). In connection
with the Company's initial public offering of shares of Common Stock, the
registration statement for which includes the registration of the shares of
Common Stock issuable to the Warrantholder upon exercise of the Warrants, the
Company and the Warrantholder now wish to provide that the Warrants will not
become exercisable until the first anniversary of the Issuance Date.
AGREEMENT
In consideration of the recitals set forth under "Background" and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Warrantholder hereby agree as follows:
1. The terms and conditions of the Warrants and the Warrant Agreement are
amended to provide that the Warrants will not be exercisable at any time prior
to June 25, 1998. From and after such date, the Warrants will remain exercisable
until June 25, 2007.
2. All terms and conditions of the Warrants and the Warrant Agreement will
remain in full force and effect except to the extent expressly amended hereby.
3. The Warrantholder shall surrender to the Company the certificate
representing the Warrant, whereupon the Company shall execute and deliver to the
Warrantholder a new form of certificate representing the Warrant and reflecting
the changes thereto effected by this Amendment.
4. This Amendment shall be binding upon and insure to the benefit of the
Company and the Warrantholder and their respective successors and permitted
assigns. This Amendment shall be governed by the laws of the Commonwealth of
Virginia without reference to the choice of law principles of any jurisdiction.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized officer, and by the Warrantholder, as of the
date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: ---------------------------------
Title: ------------------------------
Date: October____, 1997
-------------------------------------
Richard J. Freer
Date: October____, 1997
EXHIBIT 10.4
COMMONWEALTH BIOTECHNOLOGIES, INC.
WARRANT AGREEMENT
June 25, 1997
Mr. Thomas R. Reynolds
911 East Leigh Street, Suite G-19
Richmond, Virginia 23219
Dear Sir:
Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), agrees to issue and sell to you warrants (the "Warrants") to
purchase the number of shares of common stock (the "Common Stock"), of the
Company set forth herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall
be in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrants shall
provide that you and such other holder or holders of the Warrants shall have the
right to purchase an aggregate of 13,158 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $130,264.20 in the
aggregate. The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as hereinafter provided, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock and other
securities and property receivable upon exercise of the Warrants. The term
"Exercise Price" shall mean, unless the context otherwise requires, the price
per share of the Common Stock purchasable under the Warrants as set forth in
this Section 1, as adjusted from time to time pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by
the Company of a record date with respect to the holders of any class of
securities of the Company for purposes of determining which of such holders are
entitled to dividends or other distributions (other than regular quarterly
dividends), or any right to subscribe for, purchase or otherwise acquire shares
of stock of any class or any other securities or property, or to receive any
other right, (ii) any capital reorganization of the Company, or reclassification
or recapitalization of capital stock of the Company or any transfer in one or
more related transactions of all or a majority of the assets or revenue or
income generating capacity of the Company to, or
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consolidation or merger of the Company with or into, any other entity or person,
or (iii) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 5, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event. Any
such notice shall be deposited in the United States mail, postage prepaid, at
least ten (10) days prior to the date therein specified, and the holder(s) of
the Warrant(s) may exercise the Warrant(s) and participate in such event as a
registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
3. No Impairment. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
4. Exercise of Warrants. At any time before June 25, 2007 at 5:00
p.m., Richmond, Virginia time, Warrants may be exercised as to all or any
portion of the whole number of shares of Common Stock covered by the Warrants by
the holder thereof by surrender of the Warrants, accompanied by a subscription
for shares to be purchased in the form attached hereto as Exhibit B and by a
check payable to the order of the Company in the amount required for purchase of
the shares as to which the Warrant is being exercised, delivered to the Company
at its principal office at Commonwealth Biotechnologies, Inc., 911 East Leigh
Street, Richmond, Virginia 23219, Attention: Chairman. Upon the exercise of a
Warrant in whole or in part, the Company will within five (5) days thereafter,
at its expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and delivered to the Warrant
holder a certificate or certificates for the
2
<PAGE>
number of fully paid and non-assessable shares of Common Stock to which such
holder is entitled upon exercise of the Warrant. In the event such holder is
entitled to a fractional share, in lieu thereof such holder shall be paid a cash
amount equal to such fraction, multiplied by the Current Value of one full share
of Common Stock on the date of exercise. Certificates for shares of Common Stock
issuable by reason of the exercise of the Warrant or Warrants shall be dated and
shall be effective as of the date of the surrendering of the Warrant for
exercise, notwithstanding any delays in the actual execution, issuance or
delivery of the certificates for the shares so purchased. In the event a Warrant
or Warrants is exercised as to less than the aggregate amount of all shares of
Common Stock issuable upon exercise of all Warrants held by such person, the
Company shall issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to which Warrants
remain unexercised.
For purposes of this section, Current Value is defined (i) in
the case for which a public market exists for the Common Stock at the time of
such exercise, at a price per share equal to (A) the average of the means
between the closing bid and asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business days commencing 30 business
days before the date of such notice, (B) if the Common Stock is quoted on
Nasdaq, at the average of the means of the daily closing bid and asked prices of
the Common Stock for 20 consecutive business days commencing 30 business days
before the date of such notice, or (C) if the Common Stock is listed on any
national securities exchange or The Nasdaq National Market, at the average of
the daily closing prices of the Common Stock for 20 consecutive business days
commencing 30 business days before the date of such notice, and (ii) in the case
no public market exists at the time of such exercise, at the Appraised Value.
For the purposes of this Agreement, "Appraised Value" is the value determined in
accordance with the following procedures. For a period of five (5) days after
the date of an event (a "Valuation Event") requiring determination of Current
Value at a time when no public market exists for the Common Stock (the
"Negotiation Period"), each party to this Agreement agrees to negotiate in good
faith to reach agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be the fair market
value of such securities or property, without premium for control or discount
for minority interests, illiquidity or restrictions on transfer. In the event
that the parties are unable to agree upon the Appraised Value of such securities
or other property by the end of the Negotiation Period, then the Appraised Value
of such securities or property will be determined for purposes of this Agreement
by a recognized appraisal or investment banking firm mutually agreeable to the
holders of the Warrants and the Company (the "Appraiser"). If the holders of the
Warrants and the Company cannot agree on an Appraiser within two (2) business
days after the end of the Negotiation Period, the Company, on the one hand, and
the holders of the Warrants, on the other hand, will each select an Appraiser
within ten (10) business days after the end of the Negotiation Period and those
Appraisers will determine the fair market value of such securities or property,
without premium for control or discount for minority interests. Such independent
Appraiser(s) will be directed to determine fair market value of such securities
or property as
3
<PAGE>
soon as practicable, but in no event later than thirty (30) days from the date
of its selection. The determination by Appraiser(s) of the fair market value
will be conclusive and binding on all parties to this Agreement. If there are
two Appraisers, and they do not agree as to fair market value, then fair market
value shall be determined to be the average of the fair market values as
determined by each Appraiser. Appraised Value of each share of Common Stock at a
time when (i) the Company is not a reporting company under the Securities
Exchange Act of 1934 and (ii) the Common Stock is not traded in the organized
securities markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and dividing that value
by the number of shares of Common Stock then outstanding, without premium for
control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser(s) will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
5. Protection Against Dilution. The Exercise Price for the shares
of Common Stock and number of shares of Common Stock issuable upon exercise of
the Warrants is subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications, Etc..
In case at any time or from time to time after the date of execution of this
Agreement, the Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them to receive a dividend or a distribution on
shares of Common Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, then, and in each such case, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted in such a manner that the Exercise Price for
the shares issuable upon exercise of the Warrants immediately after such event
shall bear the same ratio to the Exercise Price in effect immediately prior to
any such event as the total number of shares of Common Stock outstanding
immediately prior to such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of shares of Common Stock issuable upon exercise of the Warrants
shall be changed (upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number of shares issuable
pursuant to the exercise of the Warrants immediately prior to the
4
<PAGE>
adjustment, multiplied by the Exercise Price in effect immediately prior to the
adjustment, by (y) the Exercise Price in effect immediately after such
adjustment, and (ii) upon exercise of the Warrant, the holder will be entitled
to receive the number of shares of other securities referred to in Section 5(a)
that such holder would have received had the Warrant been exercised prior to the
events referred to in Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Company with, or any
merger of the Company with or into, another entity (other than a consolidation
or merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of
adjustment as herein provided in paragraphs of this Section 5, the Company shall
promptly mail to each Warrant holder a certificate setting forth the Exercise
Price and number of shares of Common Stock issuable upon exercise after such
adjustment and setting forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which the Warrants shall be exercisable
after any adjustment of the Exercise Price as provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
6. Representations and Warranties. You hereby acknowledge,
represent and warrant to, and agree with, the Company as follows:
5
<PAGE>
(a) You are acquiring the Warrants and the Common Stock for
your own account, for investment purposes only, and not with a view to or for
the resale, distribution or fractionalization thereof, in whole or in part, and
no other person has a direct or indirect beneficial interest in the Warrants
herein agreed to be purchased or in the Common Stock.
(b) You acknowledge your understanding that the offering and
sale of the Warrants and the Common Stock is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act"). In
furtherance thereof, you represent and warrant and agree with the Company as
follows:
(i) You have the financial abilioty to bear the
economic risk of your investment in the Company (including its possible loss),
have adequate means of providing for your current needs and personal
contingencies and have no need for liquidity with respect to your investment.
(ii) You have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Warrants and the Common Stock and have obtained,
in your judgment, sufficient information from the Company to evaluate the merits
and risks of such an investment.
(c) You represent, warrant and agree that the you will not
sell or otherwise transfer the Warrants or the Common Stock without registration
under the Act or an exemption therefrom as evidenced by an opinion of legal
counsel having sufficient expertise in the transfer of restricted securities,
which opinion shall be satisfactory to the Company, and fully understands and
agrees that you may bear the economic risk of this investment for an indefinite
period of time because, among other reasons, the Warrants and the Common Stock
have not been registered under the Act or under the securities laws of states
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Act and under applicable
securities laws of such states or an exemption from such registration is
available. You also understand that sales or transfers of the Warrants and the
Common Stock are further restricted by state securities laws.
The foregoing representations and warranties will be deemed to have been given
on the date of this Agreement and on the date of each exercise of the Warrants.
7. Restrictive Legend. Executed copies of this Agreement shall be
filed in the principal office of the Company. Instruments evidencing all or
part of the Warrants or the Common Stock, whether now or hereafter issued, shall
contain the legend shown on Exhibit A.
6
<PAGE>
8. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
9. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
10. Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the remainder
of this Agreement.
11. Assignment; Replacement of Warrants. If the Warrant or Warrants
are assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor.
12. Rights of Stockholders. Until exercised, the Warrants shall not
entitle the holders thereof to any of the rights of a stockholder of the
Company.
13. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia without giving
effect to the principles of choice of laws thereof.
14. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding shares of Common Stock issuable
upon exercise of Warrants.
7
<PAGE>
15. Headings. The headings herein are for purposes of reference
only and shall not limit or otherwise affect the meaning of any of the
provisions hereof.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:
-------------------------------
President
Accepted as of the 25th day of June, 1997.
- -----------------------------------------
Thomas R. Reynolds
8
<PAGE>
No. 5
13,158 Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
NEITHER THIS SECURITY NOR ANY SECURITY FOR WHICH IT MAY BE EXERCISED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY SECURITY FOR
WHICH IT MAY BE EXERCISED NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THIS IS TO CERTIFY that Thomas R. Reynolds or his assigns as permitted
in that certain Warrant Agreement (the "Warrant Agreement") dated June 25, 1997
between the Company (as hereafter defined) and Thomas R. Reynolds is entitled to
purchase until 5:00 p.m., Richmond, Virginia time on June 25, 2007, 13,158
shares of Common Stock of Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), for an exercise price per share as set forth in the
Warrant Agreement referred to herein. This Warrant is issued pursuant to the
Warrant Agreement, and all rights of the holder of this Warrant are further
governed by, and subject to the terms and provisions of such Warrant Agreement,
copies of which are available upon request to the Company. The holder of this
Warrant and the shares issuable upon the exercise hereof shall be entitled to
the benefits, rights and privileges and subject to the obligations, duties and
liabilities provided in the Warrant Agreement.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: (SEAL)
--------------------------
President
ATTEST:
- ---------------------------------
Secretary
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Commonwealth Biotechnologies, Inc.:
The undersigned, the holder of Warrant Number , hereby
irrevocably elects to exercise the purchase right represented by such Warrant,
and to purchase thereunder * shares of Common Stock of Commonwealth
Biotechnologies, Inc. and herewith makes a payment in cash or by check of
$ thereof and requests that the certificate or certificates for such
shares be issued in the name of and delivered to the undersigned. The
undersigned acknowledges and agrees thatt the shares of Common Stock to be
received by the undersigned are subject to the restrictions on transfer set
forth in the Warrant.
----------------------------
(Signature)
----------------------------
----------------------------
(Address)
Dated:
-----------------
*Insert here the number of shares set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Common Stock, other stock,
securities, property, or cash) for additional Common Stock or any other stock or
other securities or property or cash that, pursuant to the adjustment provisions
of the Warrant, is deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and
transfers unto the right represented by Warrant Number to purchase
shares of Common Stock of Commonwealth Biotechnologies, Inc. to which
the attached Warrant related,
<PAGE>
and appoints as Attorney-in-Fact to transfer such right on
the books of Commonwealth Biotechnologies, Inc. with the full power of
substitution in the premises.
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
------------------------------
(Signature)
------------------------------
------------------------------
(Address)
Dated:
-------------
<PAGE>
FIRST AMENDMENT TO WARRANT AGREEMENT
FIRST AMENDMENT TO WARRANT AGREEMENT (the "Amendment") is made effective as of
the 1st day of October, 1997, by and between COMMONWEALTH BIOTECHNOLOGIES,
INC., a Virginia corporation (the "Company"), and THOMAS R. REYNOLDS (the
"Warrantholder").
BACKGROUND
The Company and the Warrantholder are parties to a Warrant Agreement dated June
25, 1997, (the "Warrant Agreement") pursuant to which the Company has issued to
the Warrantholder warrants (the "Warrants") to purchase the number of shares of
Common Stock of the Company set forth in the Warrants. The Warrant Agreement and
the Warrants provide that the Warrants first became exercisable upon the date of
their issuance, which was June 25, 1997 (the "Issuance Date"). In connection
with the Company's initial public offering of shares of Common Stock, the
registration statement for which includes the registration of the shares of
Common Stock issuable to the Warrantholder upon exercise of the Warrants, the
Company and the Warrantholder now wish to provide that the Warrants will not
become exercisable until the first anniversary of the Issuance Date.
AGREEMENT
In consideration of the recitals set forth under "Background" and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Warrantholder hereby agree as follows:
1. The terms and conditions of the Warrants and the Warrant Agreement are
amended to provide that the Warrants will not be exercisable at any time prior
to June 25, 1998. From and after such date, the Warrants will remain exercisable
until June 25, 2007.
2. All terms and conditions of the Warrants and the Warrant Agreement will
remain in full force and effect except to the extent expressly amended hereby.
3. The Warrantholder shall surrender to the Company the certificate
representing the Warrant, whereupon the Company shall execute and deliver to the
Warrantholder a new form of certificate representing the Warrant and reflecting
the changes thereto effected by this Amendment.
4. This Amendment shall be binding upon and insure to the benefit of the
Company and the Warrantholder and their respective successors and permitted
assigns. This Amendment shall be governed by the laws of the Commonwealth of
Virginia without reference to the choice of law principles of any jurisdiction.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized officer, and by the Warrantholder, as of the
date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: ---------------------------------
Title: ------------------------------
Date: October____, 1997
-------------------------------------
Thomas R. Reynolds
Date: October____, 1997
EXHIBIT 10.5
COMMONWEALTH BIOTECHNOLOGIES, INC.
WARRANT AGREEMENT
June 25, 1997
Mr. Gregory A. Buck
911 East Leigh Street, Suite G-19
Richmond, Virginia 23219
Dear Sir:
Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), agrees to issue and sell to you warrants (the "Warrants") to
purchase the number of shares of common stock (the "Common Stock"), of the
Company set forth herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall be
in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrants shall
provide that you and such other holder or holders of the Warrants shall have the
right to purchase an aggregate of 28,948 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $286,585.20 in the
aggregate. The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as hereinafter provided, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock and other
securities and property receivable upon exercise of the Warrants. The term
"Exercise Price" shall mean, unless the context otherwise requires, the price
per share of the Common Stock purchasable under the Warrants as set forth in
this Section 1, as adjusted from time to time pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by the
Company of a record date with respect to the holders of any class of securities
of the Company for purposes of determining which of such holders are entitled to
dividends or other distributions (other than regular quarterly dividends), or
any right to subscribe for, purchase or otherwise acquire shares of stock of any
class or any other securities or property, or to receive any other right, (ii)
any capital reorganization of the Company, or reclassification or
recapitalization of capital stock of the Company or any transfer in one or more
related transactions of all or a majority of the assets or revenue or income
generating capacity of the Company to, or
1
<PAGE>
consolidation or merger of the Company with or into, any other entity or person,
or (iii) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 5, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event. Any
such notice shall be deposited in the United States mail, postage prepaid, at
least ten (10) days prior to the date therein specified, and the holder(s) of
the Warrant(s) may exercise the Warrant(s) and participate in such event as a
registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
3. No Impairment. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
4. Exercise of Warrants. At any time before June 25, 2007 at 5:00 p.m.,
Richmond, Virginia time, Warrants may be exercised as to all or any portion of
the whole number of shares of Common Stock covered by the Warrants by the holder
thereof by surrender of the Warrants, accompanied by a subscription for shares
to be purchased in the form attached hereto as Exhibit B and by a check payable
to the order of the Company in the amount required for purchase of the shares as
to which the Warrant is being exercised, delivered to the Company at its
principal office at Commonwealth Biotechnologies, Inc., 911 East Leigh Street,
Richmond, Virginia 23219, Attention: Chairman. Upon the exercise of a Warrant in
whole or in part, the Company will within five (5) days thereafter, at its
expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and delivered to the Warrant
holder a certificate or certificates for the
2
<PAGE>
number of fully paid and non-assessable shares of Common Stock to which such
holder is entitled upon exercise of the Warrant. In the event such holder is
entitled to a fractional share, in lieu thereof such holder shall be paid a cash
amount equal to such fraction, multiplied by the Current Value of one full share
of Common Stock on the date of exercise. Certificates for shares of Common Stock
issuable by reason of the exercise of the Warrant or Warrants shall be dated and
shall be effective as of the date of the surrendering of the Warrant for
exercise, notwithstanding any delays in the actual execution, issuance or
delivery of the certificates for the shares so purchased. In the event a Warrant
or Warrants is exercised as to less than the aggregate amount of all shares of
Common Stock issuable upon exercise of all Warrants held by such person, the
Company shall issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to which Warrants
remain unexercised.
For purposes of this section, Current Value is defined (i) in
the case for which a public market exists for the Common Stock at the time of
such exercise, at a price per share equal to (A) the average of the means
between the closing bid and asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business days commencing 30 business
days before the date of such notice, (B) if the Common Stock is quoted on
Nasdaq, at the average of the means of the daily closing bid and asked prices of
the Common Stock for 20 consecutive business days commencing 30 business days
before the date of such notice, or (C) if the Common Stock is listed on any
national securities exchange or The Nasdaq National Market, at the average of
the daily closing prices of the Common Stock for 20 consecutive business days
commencing 30 business days before the date of such notice, and (ii) in the case
no public market exists at the time of such exercise, at the Appraised Value.
For the purposes of this Agreement, "Appraised Value" is the value determined in
accordance with the following procedures. For a period of five (5) days after
the date of an event (a "Valuation Event") requiring determination of Current
Value at a time when no public market exists for the Common Stock (the
"Negotiation Period"), each party to this Agreement agrees to negotiate in good
faith to reach agreement upon the Appraised Value of the securities or property
at issue, as of the date of the Valuation Event, which will be the fair market
value of such securities or property, without premium for control or discount
for minority interests, illiquidity or restrictions on transfer. In the event
that the parties are unable to agree upon the Appraised Value of such securities
or other property by the end of the Negotiation Period, then the Appraised Value
of such securities or property will be determined for purposes of this Agreement
by a recognized appraisal or investment banking firm mutually agreeable to the
holders of the Warrants and the Company (the "Appraiser"). If the holders of the
Warrants and the Company cannot agree on an Appraiser within two (2) business
days after the end of the Negotiation Period, the Company, on the one hand, and
the holders of the Warrants, on the other hand, will each select an Appraiser
within ten (10) business days after the end of the Negotiation Period and those
Appraisers will determine the fair market value of such securities or property,
without premium for control or discount for minority interests. Such independent
Appraiser(s) will be directed to determine fair market value of such securities
or property as
3
<PAGE>
soon as practicable, but in no event later than thirty (30) days from the date
of its selection. The determination by Appraiser(s) of the fair market value
will be conclusive and binding on all parties to this Agreement. If there are
two Appraisers, and they do not agree as to fair market value, then fair market
value shall be determined to be the average of the fair market values as
determined by each Appraiser. Appraised Value of each share of Common Stock at a
time when (i) the Company is not a reporting company under the Securities
Exchange Act of 1934 and (ii) the Common Stock is not traded in the organized
securities markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and dividing that value
by the number of shares of Common Stock then outstanding, without premium for
control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser(s) will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
5. Protection Against Dilution. The Exercise Price for the
shares of Common Stock and number of shares of Common Stock issuable upon
exercise of the Warrants is subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications, Etc.. In
case at any time or from time to time after the date of execution of this
Agreement, the Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them to receive a dividend or a distribution on
shares of Common Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, then, and in each such case, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted in such a manner that the Exercise Price for
the shares issuable upon exercise of the Warrants immediately after such event
shall bear the same ratio to the Exercise Price in effect immediately prior to
any such event as the total number of shares of Common Stock outstanding
immediately prior to such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of shares of Common Stock issuable upon exercise of the Warrants
shall be changed (upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number of shares issuable
pursuant to the exercise of the Warrants immediately prior to the
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<PAGE>
adjustment, multiplied by the Exercise Price in effect immediately prior to the
adjustment, by (y) the Exercise Price in effect immediately after such
adjustment, and (ii) upon exercise of the Warrant, the holder will be entitled
to receive the number of shares of other securities referred to in Section 5(a)
that such holder would have received had the Warrant been exercised prior to the
events referred to in Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Company with, or any
merger of the Company with or into, another entity (other than a consolidation
or merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of adjustment
as herein provided in paragraphs of this Section 5, the Company shall promptly
mail to each Warrant holder a certificate setting forth the Exercise Price and
number of shares of Common Stock issuable upon exercise after such adjustment
and setting forth a brief statement of facts requiring such adjustment. Such
certificate shall also set forth the kind and amount of stock or other
securities or property into which the Warrants shall be exercisable after any
adjustment of the Exercise Price as provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
6. Representations and Warranties. You hereby acknowledge,
represent and warrant to, and agree with, the Company as follows:
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(a) You are acquiring the Warrants and the Common Stock for
your own account, for investment purposes only, and not with a view to or for
the resale, distribution or fractionalization thereof, in whole or in part, and
no other person has a direct or indirect beneficial interest in the Warrants
herein agreed to be purchased or in the Common Stock.
(b) You acknowledge your understanding that the offering and
sale of the Warrants and the Common Stock is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act"). In
furtherance thereof, you represent and warrant and agree with the Company as
follows:
(i) You have the financial abilioty to bear the
economic risk of your investment in the Company (including its possible loss),
have adequate means of providing for your current needs and personal
contingencies and have no need for liquidity with respect to your investment.
(ii) You have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Warrants and the Common Stock and have obtained,
in your judgment, sufficient information from the Company to evaluate the merits
and risks of such an investment.
(c) You represent, warrant and agree that the you will not
sell or otherwise transfer the Warrants or the Common Stock without registration
under the Act or an exemption therefrom as evidenced by an opinion of legal
counsel having sufficient expertise in the transfer of restricted securities,
which opinion shall be satisfactory to the Company, and fully understands and
agrees that you may bear the economic risk of this investment for an indefinite
period of time because, among other reasons, the Warrants and the Common Stock
have not been registered under the Act or under the securities laws of states
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Act and under applicable
securities laws of such states or an exemption from such registration is
available. You also understand that sales or transfers of the Warrants and the
Common Stock are further restricted by state securities laws.
The foregoing representations and warranties will be deemed to have been given
on the date of this Agreement and on the date of each exercise of the Warrants.
7. Restrictive Legend. Executed copies of this Agreement shall
be filed in the principal office of the Company. Instruments evidencing all or
part of the Warrants or the Common Stock, whether now or hereafter issued, shall
contain the legend shown on Exhibit A.
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8. Successors and Assigns; Binding Effect. This Agreement shall
be binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
9. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
10. Severability. Every provision of this Agreement is intended
to be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the remainder
of this Agreement.
11. Assignment; Replacement of Warrants. If the Warrant or
Warrants are assigned, in whole or in part, the Warrants shall be surrendered at
the principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor.
12. Rights of Stockholders. Until exercised, the Warrants shall
not entitle the holders thereof to any of the rights of a stockholder of the
Company.
13. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia without giving
effect to the principles of choice of laws thereof.
14. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding shares of Common Stock issuable
upon exercise of Warrants.
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<PAGE>
15. Headings. The headings herein are for purposes of reference
only and shall not limit or otherwise affect the meaning of any of the
provisions hereof.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: ________________________________________
President
Accepted as of the 25th day of June, 1997.
________________________________
Gregory A. Buck
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<PAGE>
No. 5
28,948 Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
NEITHER THIS SECURITY NOR ANY SECURITY FOR WHICH IT MAY BE EXERCISED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY SECURITY FOR
WHICH IT MAY BE EXERCISED NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THIS IS TO CERTIFY that Gregory A. Buck or his assigns as permitted in
that certain Warrant Agreement (the "Warrant Agreement") dated June 25, 1997
between the Company (as hereafter defined) and Gregory A. Buck is entitled to
purchase until 5:00 p.m., Richmond, Virginia time on June 25, 2007, 28,948
shares of Common Stock of Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), for an exercise price per share as set forth in the
Warrant Agreement referred to herein. This Warrant is issued pursuant to the
Warrant Agreement, and all rights of the holder of this Warrant are further
governed by, and subject to the terms and provisions of such Warrant Agreement,
copies of which are available upon request to the Company. The holder of this
Warrant and the shares issuable upon the exercise hereof shall be entitled to
the benefits, rights and privileges and subject to the obligations, duties and
liabilities provided in the Warrant Agreement.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: _____________________________ (SEAL)
President
ATTEST:
_____________________________
Secretary
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Commonwealth Biotechnologies, Inc.:
The undersigned, the holder of Warrant Number _______, hereby
irrevocably elects to exercise the purchase right represented by such Warrant,
and to purchase thereunder __________* shares of Common Stock of Commonwealth
Biotechnologies, Inc. and herewith makes a payment in cash or by check of
$___________ thereof and requests that the certificate or certificates for such
shares be issued in the name of and delivered to the undersigned. The
undersigned acknowledges and agrees that the shares of Common Stock to be
received by the undersigned are subject to the restrictions on transfer set
forth in the Warrant.
_____________________________
(Signature)
_____________________________
_____________________________
(Address)
Dated: ________________________
*Insert here the number of shares set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Common Stock, other stock,
securities, property, or cash) for additional Common Stock or any other stock or
other securities or property or cash that, pursuant to the adjustment provisions
of the Warrant, is deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ___________ the right represented by Warrant Number _________ to purchase
_________ shares of Common Stock of Commonwealth Biotechnologies, Inc. to which
the attached Warrant related,
<PAGE>
and appoints _______________________ as Attorney-in-Fact to transfer such right
on the books of Commonwealth Biotechnologies, Inc. with the full power of
substitution in the premises.
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
__________________________________
(Signature)
__________________________________
__________________________________
(Address)
Dated: _______________________
<PAGE>
FIRST AMENDMENT TO WARRANT AGREEMENT
FIRST AMENDMENT TO WARRANT AGREEMENT (the "Amendment") is made effective as of
the 1st day of October, 1997, by and between COMMONWEALTH BIOTECHNOLOGIES,
INC., a Virginia corporation (the "Company"), and GREGORY A. BUCK (the
"Warrantholder").
BACKGROUND
The Company and the Warrantholder are parties to a Warrant Agreement dated June
25, 1997, (the "Warrant Agreement") pursuant to which the Company has issued to
the Warrantholder warrants (the "Warrants") to purchase the number of shares of
Common Stock of the Company set forth in the Warrants. The Warrant Agreement and
the Warrants provide that the Warrants first became exercisable upon the date of
their issuance, which was June 25, 1997 (the "Issuance Date"). In connection
with the Company's initial public offering of shares of Common Stock, the
registration statement for which includes the registration of the shares of
Common Stock issuable to the Warrantholder upon exercise of the Warrants, the
Company and the Warrantholder now wish to provide that the Warrants will not
become exercisable until the first anniversary of the Issuance Date.
AGREEMENT
In consideration of the recitals set forth under "Background" and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Warrantholder hereby agree as follows:
1. The terms and conditions of the Warrants and the Warrant Agreement are
amended to provide that the Warrants will not be exercisable at any time prior
to June 25, 1998. From and after such date, the Warrants will remain exercisable
until June 25, 2007.
2. All terms and conditions of the Warrants and the Warrant Agreement will
remain in full force and effect except to the extent expressly amended hereby.
3. The Warrantholder shall surrender to the Company the certificate
representing the Warrant, whereupon the Company shall execute and deliver to the
Warrantholder a new form of certificate representing the Warrant and reflecting
the changes thereto effected by this Amendment.
4. This Amendment shall be binding upon and insure to the benefit of the
Company and the Warrantholder and their respective successors and permitted
assigns. This Amendment shall be governed by the laws of the Commonwealth of
Virginia without reference to the choice of law principles of any jurisdiction.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized officer, and by the Warrantholder, as of the
date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: ---------------------------------
Title: ------------------------------
Date: October____, 1997
-------------------------------------
Gregory A. Buck
Date: October____, 1997
EXHIBIT 10.6
COMMONWEALTH BIOTECHNOLOGIES, INC.
WARRANT AGREEMENT
June 25, 1997
Robert B. Harris, Ph.D.
911 East Leigh Street, Suite G-19
Richmond, Virginia 23219
Dear Sir:
Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), agrees to issue and sell to you warrants (the "Warrants") to
purchase the number of shares of common stock (the "Common Stock"), of the
Company set forth herein, subject to the terms and conditions contained herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall
be in the form attached hereto as Exhibit A, shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrants shall
provide that you and such other holder or holders of the Warrants shall have the
right to purchase an aggregate of 28,947 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $286,575.30 in the
aggregate. The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as hereinafter provided, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock and other
securities and property receivable upon exercise of the Warrants. The term
"Exercise Price" shall mean, unless the context otherwise requires, the price
per share of the Common Stock purchasable under the Warrants as set forth in
this Section 1, as adjusted from time to time pursuant to Section 5.
2. Notices of Record Date; Etc.. In the event of (i) any taking by
the Company of a record date with respect to the holders of any class of
securities of the Company for purposes of determining which of such holders are
entitled to dividends or other distributions (other than regular quarterly
dividends), or any right to subscribe for, purchase or otherwise acquire shares
of stock of any class or any other securities or property, or to receive any
other right, (ii) any capital reorganization of the Company, or reclassification
or recapitalization of capital stock of the Company or any transfer in one or
more related transactions of all or a majority of the assets or revenue or
income generating capacity of the Company to, or
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consolidation or merger of the Company with or into, any other entity or person,
or (iii) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 5, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event. Any
such notice shall be deposited in the United States mail, postage prepaid, at
least ten (10) days prior to the date therein specified, and the holder(s) of
the Warrant(s) may exercise the Warrant(s) and participate in such event as a
registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
3. No Impairment. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
4. Exercise of Warrants. At any time before June 25, 2007 at 5:00
p.m., Richmond, Virginia time, Warrants may be exercised as to all or any
portion of the whole number of shares of Common Stock covered by the Warrants by
the holder thereof by surrender of the Warrants, accompanied by a subscription
for shares to be purchased in the form attached hereto as Exhibit B and by a
check payable to the order of the Company in the amount required for purchase of
the shares as to which the Warrant is being exercised, delivered to the Company
at its principal office at Commonwealth Biotechnologies, Inc., 911 East Leigh
Street, Richmond, Virginia 23219, Attention: Chairman. Upon the exercise of a
Warrant in whole or in part, the Company will within five (5) days thereafter,
at its expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and delivered to the Warrant
holder a certificate or certificates for the
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<PAGE>
number of fully paid and non-assessable shares of Common Stock to which such
holder is entitled upon exercise of the Warrant. In the event such holder is
entitled to a fractional share, in lieu thereof such holder shall be paid a cash
amount equal to such fraction, multiplied by the Current Value of one full share
of Common Stock on the date of exercise. Certificates for shares of Common Stock
issuable by reason of the exercise of the Warrant or Warrants shall be dated and
shall be effective as of the date of the surrendering of the Warrant for
exercise, notwithstanding any delays in the actual execution, issuance or
delivery of the certificates for the shares so purchased. In the event a Warrant
or Warrants is exercised as to less than the aggregate amount of all shares of
Common Stock issuable upon exercise of all Warrants held by such person, the
Company shall issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to which Warrants
remain unexercised.
For purposes of this section, Current Value is defined (i) in the case
for which a public market exists for the Common Stock at the time of such
exercise, at a price per share equal to (A) the average of the means between the
closing bid and asked prices of the Common Stock in the over-the-counter market
for 20 consecutive business days commencing 30 business days before the date of
such notice, (B) if the Common Stock is quoted on Nasdaq, at the average of the
means of the daily closing bid and asked prices of the Common Stock for 20
consecutive business days commencing 30 business days before the date of such
notice, or (C) if the Common Stock is listed on any national securities exchange
or The Nasdaq National Market, at the average of the daily closing prices of the
Common Stock for 20 consecutive business days commencing 30 business days before
the date of such notice, and (ii) in the case no public market exists at the
time of such exercise, at the Appraised Value. For the purposes of this
Agreement, "Appraised Value" is the value determined in accordance with the
following procedures. For a period of five (5) days after the date of an event
(a "Valuation Event") requiring determination of Current Value at a time when no
public market exists for the Common Stock (the "Negotiation Period"), each party
to this Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date of the
Valuation Event, which will be the fair market value of such securities or
property, without premium for control or discount for minority interests,
illiquidity or restrictions on transfer. In the event that the parties are
unable to agree upon the Appraised Value of such securities or other property by
the end of the Negotiation Period, then the Appraised Value of such securities
or property will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the holders of the
Warrants and the Company (the "Appraiser"). If the holders of the Warrants and
the Company cannot agree on an Appraiser within two (2) business days after the
end of the Negotiation Period, the Company, on the one hand, and the holders of
the Warrants, on the other hand, will each select an Appraiser within ten (10)
business days after the end of the Negotiation Period and those Appraisers will
determine the fair market value of such securities or property, without premium
for control or discount for minority interests. Such independent Appraiser(s)
will be directed to determine fair market value of such securities or property
as
3
<PAGE>
soon as practicable, but in no event later than thirty (30) days from the date
of its selection. The determination by Appraiser(s) of the fair market value
will be conclusive and binding on all parties to this Agreement. If there are
two Appraisers, and they do not agree as to fair market value, then fair market
value shall be determined to be the average of the fair market values as
determined by each Appraiser. Appraised Value of each share of Common Stock at a
time when (i) the Company is not a reporting company under the Securities
Exchange Act of 1934 and (ii) the Common Stock is not traded in the organized
securities markets, will, in all cases, be calculated by determining the
Appraised Value of the entire Company taken as a whole and dividing that value
by the number of shares of Common Stock then outstanding, without premium for
control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser(s) will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
5. Protection Against Dilution. The Exercise Price for the shares
of Common Stock and number of shares of Common Stock issuable upon exercise of
the Warrants is subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications, Etc..
In case at any time or from time to time after the date of execution of this
Agreement, the Company shall (i) take a record of the holders of Common Stock
for the purpose of entitling them to receive a dividend or a distribution on
shares of Common Stock payable in shares of Common Stock or other class of
securities, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, then, and in each such case, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted in such a manner that the Exercise Price for
the shares issuable upon exercise of the Warrants immediately after such event
shall bear the same ratio to the Exercise Price in effect immediately prior to
any such event as the total number of shares of Common Stock outstanding
immediately prior to such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event.
(b) Adjustment of Number of Shares Purchasable. When any
adjustment is required to be made in the Exercise Price under this Section 5,
(i) the number of shares of Common Stock issuable upon exercise of the Warrants
shall be changed (upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number of shares issuable
pursuant to the exercise of the Warrants immediately prior to the
4
<PAGE>
adjustment, multiplied by the Exercise Price in effect immediately prior to the
adjustment, by (y) the Exercise Price in effect immediately after such
adjustment, and (ii) upon exercise of the Warrant, the holder will be entitled
to receive the number of shares of other securities referred to in Section 5(a)
that such holder would have received had the Warrant been exercised prior to the
events referred to in Section 5(a).
(c) Adjustment for Reorganization, Consolidation, Merger,
Etc.. In case of any reorganization or consolidation of the Company with, or any
merger of the Company with or into, another entity (other than a consolidation
or merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 5.
(d) Certificate as to Adjustments. In the event of
adjustment as herein provided in paragraphs of this Section 5, the Company shall
promptly mail to each Warrant holder a certificate setting forth the Exercise
Price and number of shares of Common Stock issuable upon exercise after such
adjustment and setting forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which the Warrants shall be exercisable
after any adjustment of the Exercise Price as provided in this Agreement.
(e) Minimum Adjustment. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change in the Exercise Price then in effect of less
than five cents ($0.05) and any adjustment of less than five cents ($0.05) of
any Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
6. Representations and Warranties. You hereby acknowledge,
represent and warrant to, and agree with, the Company as follows:
5
<PAGE>
(a) You are acquiring the Warrants and the Common Stock for
your own account, for investment purposes only, and not with a view to or for
the resale, distribution or fractionalization thereof, in whole or in part, and
no other person has a direct or indirect beneficial interest in the Warrants
herein agreed to be purchased or in the Common Stock.
(b) You acknowledge your understanding that the offering and
sale of the Warrants and the Common Stock is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act"). In
furtherance thereof, you represent and warrant and agree with the Company as
follows:
(i) You have the financial abilioty to bear the
economic risk of your investment in the Company (including its possible loss),
have adequate means of providing for your current needs and personal
contingencies and have no need for liquidity with respect to your investment.
(ii) You have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Warrants and the Common Stock and have obtained,
in your judgment, sufficient information from the Company to evaluate the merits
and risks of such an investment.
(c) You represent, warrant and agree that the you will not
sell or otherwise transfer the Warrants or the Common Stock without registration
under the Act or an exemption therefrom as evidenced by an opinion of legal
counsel having sufficient expertise in the transfer of restricted securities,
which opinion shall be satisfactory to the Company, and fully understands and
agrees that you may bear the economic risk of this investment for an indefinite
period of time because, among other reasons, the Warrants and the Common Stock
have not been registered under the Act or under the securities laws of states
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Act and under applicable
securities laws of such states or an exemption from such registration is
available. You also understand that sales or transfers of the Warrants and the
Common Stock are further restricted by state securities laws.
The foregoing representations and warranties will be deemed to have been given
on the date of this Agreement and on the date of each exercise of the Warrants.
7. Restrictive Legend. Executed copies of this Agreement shall be
filed in the principal office of the Company. Instruments evidencing all or
part of the Warrants or the Common Stock, whether now or hereafter issued, shall
contain the legend shown on Exhibit A.
6
<PAGE>
8. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
9. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
10. Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the remainder
of this Agreement.
11. Assignment; Replacement of Warrants. If the Warrant or Warrants
are assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor.
12. Rights of Stockholders. Until exercised, the Warrants shall not
entitle the holders thereof to any of the rights of a stockholder of the
Company.
13. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Virginia without giving
effect to the principles of choice of laws thereof.
14. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding shares of Common Stock issuable
upon exercise of Warrants.
7
<PAGE>
15. Headings. The headings herein are for purposes of reference
only and shall not limit or otherwise affect the meaning of any of the
provisions hereof.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:_______________________________
President
Accepted as of the 25th day of June, 1997.
________________________
Robert B. Harris
8
<PAGE>
No. 5
28,947 Shares
COMMONWEALTH BIOTECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
NEITHER THIS SECURITY NOR ANY SECURITY FOR WHICH IT MAY BE EXERCISED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY SECURITY FOR
WHICH IT MAY BE EXERCISED NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THIS IS TO CERTIFY that Robert B. Harris or his assigns as permitted in
that certain Warrant Agreement (the "Warrant Agreement") dated June 25, 1997
between the Company (as hereafter defined) and Robert B. Harris is entitled to
purchase until 5:00 p.m., Richmond, Virginia time on June 25, 2007, 28,947
shares of Common Stock of Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), for an exercise price per share as set forth in the
Warrant Agreement referred to herein. This Warrant is issued pursuant to the
Warrant Agreement, and all rights of the holder of this Warrant are further
governed by, and subject to the terms and provisions of such Warrant Agreement,
copies of which are available upon request to the Company. The holder of this
Warrant and the shares issuable upon the exercise hereof shall be entitled to
the benefits, rights and privileges and subject to the obligations, duties and
liabilities provided in the Warrant Agreement.
Subject to the provisions of the Securities Act of 1933, of the Warrant
Agreement and of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, only to the extent expressly permitted in
such documents and then only at the office of the Company at Commonwealth
Biotechnologies, Inc., 911 East Leigh Street, Richmond, Virginia 23219,
Attention: Chairman, by the holder hereof or by a duly authorized
attorney-in-fact, upon surrender of this Warrant duly endorsed, together with
the Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder hereof as the owner hereof
for all purposes.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:_________________________(SEAL)
President
ATTEST:
_________________________
Secretary
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION
To Commonwealth Biotechnologies, Inc.:
The undersigned, the holder of Warrant Number ____, hereby irrevocably
elects to exercise the purchase right represented by such Warrant, and to
purchase thereunder _________* shares of Common Stock of Commonwealth
Biotechnologies, Inc. and herewith makes a payment in cash or by check of
$__________ thereof and requests that the certificate or certificates for such
shares be issued in the name of and delivered to the undersigned. The
undersigned acknowledges and agrees that the shares of Common Stock to be
received by the undersigned are subject to the restrictions on transfer set
forth in the Warrant.
__________________________
(Signature)
__________________________
__________________________
(Address)
Dated:___________________
*Insert here the number of shares set forth on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment (which
adjustment will be made in the issuance of such Common Stock, other stock,
securities, property, or cash) for additional Common Stock or any other stock or
other securities or property or cash that, pursuant to the adjustment provisions
of the Warrant, is deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _____________ the right represented by Warrant Number _____ to purchase
______________ shares of Common Stock of Commonwealth Biotechnologies,
Inc. to which the attached Warrant related,
<PAGE>
and appoints _______________________ as Attorney-in-Fact to transfer such right
on the books of Commonwealth Biotechnologies, Inc. with the full power of
substitution in the premises.
The undersigned represents and warrants that the transfer of the
attached Warrant is permitted by the terms of the Warrant Agreement pursuant to
which the attached Warrant has been issued, and the transferee hereof, by
acceptance of this Assignment, agrees to be bound by the terms of the Warrant
Agreement with the same force and effect as if a signatory thereto.
___________________________
(Signature)
___________________________
___________________________
(Address)
Dated: ______________
<PAGE>
FIRST AMENDMENT TO WARRANT AGREEMENT
FIRST AMENDMENT TO WARRANT AGREEMENT (the "Amendment") is made effective as of
the 1st day of October, 1997, by and between COMMONWEALTH BIOTECHNOLOGIES,
INC., a Virginia corporation (the "Company"), and ROBERT B. HARRIS (the
"Warrantholder").
BACKGROUND
The Company and the Warrantholder are parties to a Warrant Agreement dated June
25, 1997, (the "Warrant Agreement") pursuant to which the Company has issued to
the Warrantholder warrants (the "Warrants") to purchase the number of shares of
Common Stock of the Company set forth in the Warrants. The Warrant Agreement and
the Warrants provide that the Warrants first became exercisable upon the date of
their issuance, which was June 25, 1997 (the "Issuance Date"). In connection
with the Company's initial public offering of shares of Common Stock, the
registration statement for which includes the registration of the shares of
Common Stock issuable to the Warrantholder upon exercise of the Warrants, the
Company and the Warrantholder now wish to provide that the Warrants will not
become exercisable until the first anniversary of the Issuance Date.
AGREEMENT
In consideration of the recitals set forth under "Background" and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Warrantholder hereby agree as follows:
1. The terms and conditions of the Warrants and the Warrant Agreement are
amended to provide that the Warrants will not be exercisable at any time prior
to June 25, 1998. From and after such date, the Warrants will remain exercisable
until June 25, 2007.
2. All terms and conditions of the Warrants and the Warrant Agreement will
remain in full force and effect except to the extent expressly amended hereby.
3. The Warrantholder shall surrender to the Company the certificate
representing the Warrant, whereupon the Company shall execute and deliver to the
Warrantholder a new form of certificate representing the Warrant and reflecting
the changes thereto effected by this Amendment.
4. This Amendment shall be binding upon and insure to the benefit of the
Company and the Warrantholder and their respective successors and permitted
assigns. This Amendment shall be governed by the laws of the Commonwealth of
Virginia without reference to the choice of law principles of any jurisdiction.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by
the Company, by its duly authorized officer, and by the Warrantholder, as of the
date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: ---------------------------------
Title: ------------------------------
Date: October____, 1997
-------------------------------------
Robert B. Harris
Date: October____, 1997
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 25th day of June, 1997, by and
between COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia corporation (the
"Employer"), and Richard J. Freer, Ph.D. (the "Executive").
In consideration of the mutual covenants contained herein, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and
the Executive agrees to enter into the employ of the Employer on the terms and
conditions hereinafter set forth.
2. Capacity. The Executive shall serve the Employer as Chairman
of the Board with such powers and duties as may be prescribed from time to time
by the Employer's Board of Directors, and shall serve the Employer in such other
or additional offices in which he may be requested to serve, subject in every
case to his election by the Board of Directors of the Employer.
3. Effective Date and Term. The commencement date of this
Agreement shall be as of June 25, 1997 (the "Commencement Date"). Subject to the
provisions of Section 6, the term of the Executive's employment hereunder shall
be for five years from the Commencement Date; provided, however, that the term
shall be extended automatically for an additional period of one year commencing
on the first anniversary of the Commencement Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other, at least 30 days prior to the date of any such
anniversary, of such party's election not to extend the terms of this Agreement.
The Employer may not give notice of an election not to extend before December
31, 1998. The last day of such term as so extended from time to time, is herein
sometimes referred to as the "Expiration Date." The Executive shall commence
full-time work with the Employer as soon as he concludes his work for Virginia
Commonwealth University ("VCU"), and in no event later than September 1, 1997.
During the period between the Commencement Date and the date the Executive
commences full-time work for the Employer (the "Interim Period"), Section 5
shall not be in effect.
4. Compensation and Benefits. The regular compensation and
benefits payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive
under this Agreement, the Employer shall pay the Executive a total salary at the
rate of $165,000 per year, subject to increase from time to time in accordance
with the usual practice of the Employer with respect to review of compensation
of its senior executives. The Executive's salary shall be payable in periodic
installments in accordance with the Employer's usual practice for its senior
executives. During the Interim Period, the Employer shall deduct from amounts
due to the Executive under this Section 4(a) all amounts of salary paid to the
Executive by VCU, which the Executive shall report to the Employer. For a period
of five years from the date of this Agreement, the Executive's salary shall not
materially differ from the salaries of Dr. Robert B. Harris and Dr. Gregory A.
Buck, assuming equal contributions to the Employer.
<PAGE>
(b) Annual Bonus. For each complete calendar year ending
during the term hereof, the Executive shall be entitled to a cash bonus (the
"Bonus") equal to 4.342% of the cumulative earnings before taxes ("Pre-Tax
Earnings") (as defined below) of the Employer during each complete calendar year
hereof.
(i) Calculation of Payment. The Employer shall
calculate and pay the Bonus for each year within 30 days after the Company's
receipt from its independent auditor of audited financial statements for each
calendar year (the "Audit Release Date"), should any Bonus be due. The Employer
shall provide to the Executive concurrently with the payment of the Bonus or, if
the Employer determines that no Bonus is due in respect of a year during the
term of this Agreement, then within 30 days following the Audit Release Date, a
statement of its Chief Financial Officer regarding the calculation of the Bonus
payable with respect to such year. Such statement shall provide such
computations and set forth such detail as is reasonably necessary to
substantiate the calculation of Pre-Tax Earnings and the amount of the Bonus
payable with respect to such year. Notwithstanding any other provision of this
Agreement, (i) the Executive's Bonus for the year ending December 31, 1997 shall
not be less than $43,421 (the "1997 Minimum Bonus"), with the 1997 Minimum Bonus
to be paid between December 15, 1997 and December 31, 1997 and any additional
Bonus amounts due with respect to 1997 to be paid within 30 days following the
Audit Release Date, and (ii) for any year in which the Expiration Date precedes
the end of the year, the Bonus shall be payable solely with respect to the
fiscal quarters that shall be completed on or before the 30th day after the
Expiration Date, and solely for purposes of calculating the Bonus due with
respect to such partial-year period, all references in this Section 4(b)(ii) to
year end shall be deemed to be references to the last day of the last completed
fiscal quarter.
(ii) Pre-Tax Earnings. Pre-Tax Earnings shall
mean for any year of the Employer, the net income of the Employer for such year
determined by the Employer's auditors on a stand-alone basis in accordance with
generally accepted accounting principles consistently applied plus, to the
extent deducted in determining net income and without duplication, total income
tax expense, including for this purpose any amounts paid under a tax-sharing or
similar agreement or arrangement in lieu of such taxes; minus, to the extent
included in determining net income and without duplication, any extraordinary
gains.
(c) Regular Benefits. The Executive shall also be
entitled to participate in any and all employee benefit plans, medical insurance
plans, life insurance plans, disability income plans, retirement plans, bonus
incentive plans and other benefit plans from time to time in effect for senior
executives of the Employer. Such participation shall be subject to (i) the terms
of the applicable plan documents, (ii) generally applicable policies of the
Employer and (iii) the discretion of the Board of Directors of the Employer or
any administrative or other committee provided for in or contemplated by such
plan.
(d) Business Expenses. The Employer shall reimburse the
Executive for all reasonable travel and other business expenses incurred by him
in the performance of his duties and responsibilities, subject to such
reasonable requirements with respect to substantiation and documentation as may
be specified by the Employer.
<PAGE>
(e) Vacation. The Executive shall be entitled to such
number of weeks of vacation per year as shall be provided for in the Employer's
employee handbook as the same shall be modified from time to time, to be taken
at such times and intervals as shall be determined by the Executive with the
approval of the Employer, which approval shall not be unreasonably withheld.
5. Extent of Service. During his employment hereunder, the
Executive shall, subject to the direction and supervision of the Board of
Directors of the Employer, devote his full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Employer's
interests and to the discharge of his duties and responsibilities hereunder. He
shall not engage in any other business activity, except as may be approved by
the Board of Directors; provided, however, that this Section 5 shall not be
construed as preventing the Executive from:
(a) investing his assets in a manner not prohibited by
Section 8(a) hereof, and in such form or manner as shall not require any
material services on his part in the operations or affairs of the companies or
other entities in which such investments are made;
(b) serving on the board of directors of any company,
subject to the prohibitions set forth in section 8(a), to the extent that such
service does not impair his ability to fulfill his duties and responsibilities
under this Agreement;
(c) engaging in religious, charitable or other community
or non-profit activities which do not impair his ability to fulfill his duties
and responsibilities under this Agreement; or
(d) serving as an external affiliate of MCV-VCU, or any
other university, research institution or agency, to engage in or supervise
research or other activities, obligations or responsibilities related to
operations or affairs of the Employer or the professional standing of the
Executive, to the extent that such service does not impair his ability to
fulfill his duties and responsibilities under this Agreement; provided that (i)
such activities shall not violate any obligations of the Executive under Section
8 of this Agreement and (ii) all compensation paid to the Executive as a result
of such activities shall be paid to the Employer.
6. Termination and Termination Benefits.
Notwithstanding the provisions of Section 3, the Executive's
employment hereunder shall terminate under the following circumstances and shall
be subject to the following provisions:
(a) Death. In the event of the Executive's death during
the Executive's employment hereunder, the Executive's employment shall terminate
on the date of his death; provided, however, that the Employer shall continue to
pay an amount equal to the Executive's salary to the Executive's beneficiary
designated in writing to the Employer prior to his death (or to his estate, if
he fails to make such designation) for a period of one month after the date of
the Executive's death, at the salary rate in effect on the date of his death,
said payments to be made on the same periodic dates as salary payments would
have been made to the Executive had he not died. The Employer shall also pay to
the Executive's beneficiary or estate the Bonus solely with respect to the
fiscal quarters completed on or before the date of death, with all references in
Section 4(b)(ii) to year end being deemed to be references to the last day of
the last completed fiscal quarter.
<PAGE>
(b) Termination by the Employer for Cause. The
Executive's employment hereunder may be terminated without further liability on
the part of the Employer effective immediately by a two-thirds vote of the Board
of Directors of the Employer for Cause by written notice to the Executive
setting forth in reasonable detail the nature of such Cause. Only the following
shall constitute "Cause" for such termination:
(i) gross incompetence, gross negligence,
willful misconduct in office or breach of a material fiduciary duty owed to the
Employer or any subsidiary or affiliate thereof, it being agreed that the
Executive's pursuit of activities provided for in Section 5(d) does not
constitute a breach of a material fiduciary duty;
(ii) conviction of a felony, a crime of moral
turpitude or commission of an act of embezzlement or fraud against the Employer
or any subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a
material term of this Agreement, including without limitation material failure
to perform a substantial portion of his duties and responsibilities hereunder;
or
(iv) deliberate dishonesty of the Executive with
respect to the Employer or any subsidiary or affiliate thereof.
(c) Termination by the Executive. The Executive may
terminate his employment hereunder with or without Good Reason (as defined
below) and he shall not be required to render any further services to the
Employer. In the event of termination with Good Reason, the Executive shall give
written notice of the event or circumstances constituting Good Reason to the
Board of Directors of the Employer. If such event or circumstances shall remain
unremedied for a period of 30 days after receipt of such notice by the Board of
Directors, the Executive may then terminate his employment hereunder for Good
Reason by written notice effective immediately. In the event of termination for
Good Reason, the Executive shall be entitled to the benefits specified in
Section 6(e). Upon termination of employment by the Executive without Good
Reason, the Executive shall be entitled to no further compensation or benefits
under this Agreement. "Good Reason" shall be the material breach by the Employer
of any material provision of this Agreement.
(d) Termination by the Employer Without Cause. The
Executive's employment with the Employer may be terminated without Cause by a
two-thirds vote of the Board of Directors of the Employer effective immediately
by written notice to the Executive.
(e) Certain Termination Benefits. Except as expressly
provided in this Section 6(e), or in Section 6(a) with respect to death or
Section 7 with respect to disability, or as may be required by applicable law,
the Executive shall not be entitled to any benefits in connection with the
termination of this Agreement. In the event of termination by the Employer
without Cause and other than for death or disability (as defined in Section 7),
or by the Executive with Good Reason, the Executive shall be entitled to the
following benefits:
<PAGE>
(i) For the period subsequent to the date of
termination until the Expiration Date, the Employer shall continue to pay the
Executive a salary and Bonus in accordance with Sections 4(a) and 4(b), said
payments to be made on the same periodic dates as salary and Bonus payments
would have been made to the Executive had he not been terminated.
(ii) For the period subsequent to the date of
termination until the Expiration Date, the Executive shall continue to receive
medical, dental and life insurance benefits pursuant to plans made available by
the Employer to its employees at the expense of the Employer to substantially
the same extent the Executive received such benefits on the date of termination
(it being acknowledged that the post-termination plans may be different from the
plans in effect on the date of termination). For purposes of application of such
benefits, the Executive shall be treated as if he had remained in the employ of
the Employer, and service credits will continue to accrue during such period as
if the Executive had remained in the employ of the Employer.
(iii) If, in spite of the provisions of Section
6(e)(ii) above, benefits or service credits under any medical, dental or life
insurance plan shall not be payable or provided under any such plan to the
Executive, or to the Executive's dependents, beneficiaries or estate, because
the Executive is no longer deemed to be an employee of the Employer, the
Employer shall pay or provide for payment of equivalent benefits, taking into
account service credits for such benefits to the Executive, or to the
Executive's dependents, beneficiaries or estate.
(iv) The Employer's obligation to provide the
Executive with medical or dental insurance pursuant to subsections 6(e)(ii) and
6(e)(iii) hereof shall terminate with respect to each particular type of
insurance in the event the Executive becomes employed and has made available to
him in connection with such employment at the expense of the employer that
particular type of insurance, so long as such insurance is substantially similar
to the insurance provided by the Employer.
(v) In the event the Executive becomes employed
and has made available to him in connection with such employment at the expense
of the employer life insurance which is substantially similar to the life
insurance provided by the Employer pursuant to Subsections 6(e)(ii) and
6(e)(iii) hereof, the Employer shall be required to provide the Executive with
life insurance pursuant to such subsections only in an amount equal to the
excess, if any, of the amount of life insurance which would be provided by the
Employer pursuant to such subsections if the Executive had not been provided
with life insurance in connection with his new employment over the amount of
life insurance provided by the Executive's new employer.
(f) Set-off. The Employer shall be entitled to set off on
a monthly basis against any cash compensation to be provided to the Executive
under Section 6(e)(i) above one-half of the amount of any cash compensation
received by the Executive from other employment during the period in which the
Executive receives cash compensation under Section 6(e)(i). The Executive shall
inform the Employer of any such amounts of cash compensation and upon request
shall provide the Employer with reasonably satisfactory evidence thereof, and
shall refund to the Employer any amounts which the Employer has paid which
exceed the amounts due from the Employer after application of the set-off
provided for in this section. Notwithstanding the foregoing and any other
provision of this Agreement, the Executive shall be under no obligation to seek
or accept any employment after termination of employment with the Employer for
any reason.
<PAGE>
(g) Litigation and Regulatory Cooperation. During the term
of this Agreement and the period in which the Executive is subject to the
obligations in Section 8, the Executive shall cooperate fully with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Executive was employed by the
Employer. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Employer at mutually convenient times. The Executive shall also cooperate
fully with the Employer in connection with any examination or review of any
federal or state regulatory authority as any such examination or review relates
to events or occurrences that transpired while the Executive was employed by the
Employer. If such cooperation is required after the Executive ceases to receive
cash compensation from the Employer under Section 4 or Section 6, the Employer
shall pay the Executive for such cooperation a fee of one hundred dollars
($100.00) per hour, payable monthly in arrears, and will reimburse the Executive
for any reasonable out-of-pocket expenses incurred in connection therewith.
7. Disability. If, due to physical or mental illness, the
Executive shall be disabled so as to be unable to perform substantially all of
his duties and responsibilities hereunder, which disability lasts for an
uninterrupted period of at least 90 days or a total of at least 180 days in any
calendar year (as determined by the opinion of an independent physician selected
by the Board of Directors of the Employer), the Employer, acting through its
Board of Directors, may designate another executive to act in his place during
the period of such disability. Notwithstanding any such designation, the
Executive shall continue to receive his full salary and benefits under Section 4
of this Agreement until he becomes eligible for disability income under the
Employer's disability income plan. While receiving disability income payments
under such plan, the Executive shall receive the difference between such
payments and his salary under Section 4(a) (but not any Bonus, except as accrued
through the date of determination of disability) and shall continue to
participate in the Employer's benefit plans and to receive other benefits as
specified in Section 4 until the Expiration Date.
8. Noncompetition and Confidential Information.
(a) Noncompetition. During:
(i) a period of three years following the date of
termination of the Executive's employment with the Employer (x) by the Employer
for Cause pursuant to Section 6(b) hereof, or (y) by the Executive in the event
that such termination is not for Good Reason, and
<PAGE>
(ii) the period during which the Employer continues
to provide benefits to the Executive pursuant to Section 6(e)(i)-(iii) hereof;
the Executive will not, directly or indirectly, whether individually or as an
owner, partner, shareholder, consultant, agent, employee, co-venturer of or to
any business the principal purpose of which is to provide analytical services to
others, or through any such Person (as defined in Section 10), compete in any
state within the United States of America in which the Company conducts business
as of the date of termination, with the Employer's business of providing
analytical services to the biotechnology, pharmaceutical and agricultural
industries or any other business conducted by the Employer during the period of
his employment hereunder, nor will he attempt to hire any employee of the
Employer, assist in or recommend such hiring by any other Person, encourage any
such employee to terminate his or her relationship with the Employer, or solicit
or encourage any customer of the Employer to terminate its relationship with the
Employer or to conduct with any other Person any business or activity which such
customer conducts or could conduct with the Employer. This Section 8 shall not
preclude the Executive from owning not more than 5% of the outstanding stock of
any company that has securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
(b) Confidential Information. The Executive agrees and
acknowledges that, by reason of his employment by and service to the Employer,
he has had and will have access to confidential information of the Employer (and
its affiliates, vendors, customers, and others having business dealings with it)
including, without limitation, information and knowledge pertaining to products
and services, sales and profit figures, customer and client lists and
information related to relationships between the Employer and its affiliates,
customers, vendors, and others having business dealings with it (collectively,
the "Confidential Information"). The Executive acknowledges that the
Confidential Information is a valuable and unique asset of the Employer (and its
affiliates, vendors, customers, and others having business dealings with it) and
covenants that, both during and after the term of his employment by the
Employer, he will not disclose any Confidential Information to any person or use
any Confidential Information (except as his duties as an employee of the
Employer may require) without the prior written authorization of the Board of
Directors of the Employer. The Executive further agrees that all files, computer
programs and files, letters, memoranda, reports, records, data, sketches,
drawings, program listings or other written, photographic, or other tangible
material containing Confidential Information, whether created by the Executive
or others, which shall come into his custody or possession, shall be and are the
exclusive property of the Employer to be used by the Executive only in the
performance of his duties for the Employer. All such records or copies thereof
and all tangible property of the Employer in the custody or possession of the
Executive shall be delivered to the Employer, upon the earlier of (i) a request
by the Employer or (ii) termination of the Executive's employment. After such
delivery, the Executive shall not retain any such records or copies thereof or
any such tangible property. The obligation of confidentiality imposed by this
Section shall not apply to information that is required by law, regulation or
judicial or governmental authorities to be disclosed or that otherwise becomes
part of the public domain by means not involving a breach of a convenant of
confidentiality owed to the Employer.
<PAGE>
(c) Rights and Remedies Upon Breach. If the Executive
breaches, or threatens to commit a breach of, any of provisions of Section 8
hereof (collectively, the "Restrictive Covenants"), the Employer shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Employer under law or in equity:
(i) Specific Performance. The Executive
recognizes and agrees that the violation of the Restrictive Covenants may not be
reasonably or adequately compensated in damages and that, in addition to any
other relief to which the Employer may be entitled by reason of such violation,
it shall also be entitled to permanent and temporary injunctive and equitable
relief and, pending determination of any dispute with respect to such violation,
no bond or security shall be required in connection therewith. Without limiting
the generality of the foregoing, the Executive specifically acknowledges that
showing by the Employer of any breach of any provision of any Restrictive
Covenant shall constitute, for the purposes of all judicial determinations of
the issue of injunctive relief, conclusive proof of all of the elements
necessary to entitle the Employer to interim and permanent injunctive relief
against the Executive with respect to such breach. If any dispute arises with
respect to this Section 8, without limiting in any way any other rights or
remedies to which the Employer may be entitled, the Executive agrees that the
Restrictive Covenants shall be enforceable by a decree of specific performance.
(ii) Accounting. The Employer shall have the
right and remedy to require the Executive to account for and pay over to the
Employer all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by the Executive as the
result of any transactions constituting a breach of any of the Restrictive
Covenants, and the Executive shall account for and pay overall such Benefits to
the Employer.
(d) Severability of Covenants. If any of the Restrictive
Covenants, or any part thereof, or any of the other provisions of this Section 8
is held by a court of competent jurisdiction or any other governmental authority
to be invalid, void, unenforceable or against public policy for any reason, the
remainder of the Restrictive Covenants or such other provisions shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and such court or authority shall be empowered to substitute, to the extent
enforceable, provisions similar thereto or other provisions so as to provide to
the Employer to the fullest extent permitted by applicable law, the benefits
intended by such provisions.
(e) Enforceability in Jurisdictions. The parties intend
to and hereby confer jurisdiction to enforce the Restrictive Covenants and the
other provision of this Section 8 upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants or other provisions, as the
case may be. If the courts of any one or more of such jurisdictions hold the
Restrictive covenants or other provisions, as the case may be, wholly invalid or
unenforceable by reason of the breadth or scope or otherwise, it is the
intention of the parties that such determination not bar or in any way affect
the Employer's right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenant or other
provisions, as the case may be, as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
<PAGE>
(f) Definition and Survival. For purposes of this
Section 8 only, the term "Employer" shall mean Commonwealth Biotechnologies,
Inc. and any of its subsidiaries and affiliates. All provisions of this Section
8 shall survive termination of this Agreement.
9. Conflicting Agreements. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which he is a party or by which he is bound, and that he is not subject to
any covenants against competition or similar covenants which would affect the
performance of his obligations hereunder.
10. Definition of "Person". For all purposes of this Agreement,
the term "Person" shall mean an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization.
11. Withholding. All payments made by the Employer under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Employer under applicable law.
12. Arbitration of Disputes. Any controversy or claim arising out
of or relating to the employment relationship between the Executive and the
Employer, this Agreement or any breach thereof, other than a controversy or
claim relating to Section 8 of this Agreement, shall be settled by arbitration
in accordance with the laws of the Commonwealth of Virginia by three
arbitrators, one of whom shall be appointed by the Employer, one by the
Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Richmond. Such arbitration shall be conducted in the City of
Richmond in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Section 12. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The party against whom the
arbitrators shall render an award shall pay the other party's reasonable
attorneys' fees and other reasonable costs and expenses in connection with the
enforcement of its rights under this Agreement (including the enforcement of any
arbitration award in court), unless and to the extent the arbitrators shall
determine that under the circumstances recovery by the prevailing party of all
or a part of any such fees and costs and expenses would be unjust.
13. Assignment; Successors and Assigns, etc. Neither the Employer
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party; provided, however, that the Employer may assign its rights
under this Agreement without the consent of the Executive in the event that the
Employer shall hereafter effect a reorganization, consolidate with or merge into
any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns. In the event of the
Executive's death prior to the completion by the Employer of all payments due
him under this Agreement, the Employer shall continue such payments to the
Executive's beneficiary designated in writing to the Employer prior to his death
(or to his estate, if he fails to make such designation).
<PAGE>
14. Enforceability. If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. Waiver. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
16. Notices. Any notices, request, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid (in which
case notice shall be deemed to have been given on the third day after mailing),
or by overnight delivery by a reliable overnight courier service (in which case
notice shall be deemed to have been given on the day after delivery to such
courier service) to the Executive at the last address the Executive has filed in
writing with the Employer or, in the case of the Employer, at its main offices,
attention of the Board of Directors.
17. Entire Agreement; Amendment. This Agreement may be amended or
modified only by a written instrument approved by each of the Board of Directors
of the Employer and the Compensation Committee thereof, signed by the Executive
and by a duly authorized representative of the Employer who is the Chairman of
the Board or President or an Executive Vice President of the Employer and who is
not the Executive. This Agreement, together with the Executive Severance
Agreement of even date herewith entered into between the parties hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and no agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement or in the Executive
Severance Agreement.
18. Governing Law. This is a Virginia contract and shall be
construed under and be governed in all respects by the laws of the Commonwealth
of Virginia, without giving effect to the choice of law principles of any state.
19. Legal Counsel. This Agreement has been prepared by LeClair
Ryan, A Professional Corporation, as counsel to the Company, after full
disclosure of its representation of the Company and with the consent of the
Executive. The Executive has reviewed the contents of this Agreement and fully
understands its terms. The Executive acknowledges that he is fully aware of his
right to the advice of counsel independent from that of the Company, that
LeClair Ryan, A Professional Corporation, has advised him of such right and
disclosed to him the risks in not seeking such independent advice, and that he
understands the potentially adverse interests of the parties with respect to
this Agreement. The Executive further acknowledges that no representations have
been made with respect to the income or estate tax or other consequences of this
Agreement to him and that he has been advised of the importance of seeking
independent advice of counsel with respect to such consequences.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:--------------------------------
Title:-----------------------------
Date: June 25, 1997
-----------------------------------
Richard J. Freer, Ph.D.
Date: June 25, 1997
Address:--------------------------
--------------------------
--------------------------
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 25th day of June, 1997, by and
between COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia corporation (the
"Employer"), and Thomas R. Reynolds (the "Executive").
In consideration of the mutual covenants contained herein, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and
the Executive agrees to enter into the employ of the Employer on the terms and
conditions hereinafter set forth.
2. Capacity. The Executive shall serve the Employer as Senior
Vice President with such powers and duties as may be prescribed from time to
time by the Employer's Board of Directors, and shall serve the Employer in such
other or additional offices in which he may be requested to serve, subject in
every case to his election by the Board of Directors of the Employer.
3. Effective Date and Term. The commencement date of this
Agreement shall be as of June 25, 1997 (the "Commencement Date"). Subject to the
provisions of Section 6, the term of the Executive's employment hereunder shall
be for five years from the Commencement Date; provided, however, that the term
shall be extended automatically for an additional period of one year commencing
on the first anniversary of the Commencement Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other, at least 30 days prior to the date of any such
anniversary, of such party's election not to extend the terms of this Agreement.
The Employer may not give notice of an election not to extend before December
31, 1998. The last day of such term as so extended from time to time, is herein
sometimes referred to as the "Expiration Date." The Executive shall commence
full-time work with the Employer as soon as he concludes his work for Virginia
Commonwealth University ("VCU"), and in no event later than September 1, 1997.
During the period between the Commencement Date and the date the Executive
commences full-time work for the Employer (the "Interim Period"), Section 5
shall not be in effect.
4. Compensation and Benefits. The regular compensation and
benefits payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive
under this Agreement, the Employer shall pay the Executive a total salary at the
rate of $120,000 per year, subject to increase from time to time in accordance
with the usual practice of the Employer with respect to review of compensation
of its senior executives. The Executive's salary shall be payable in periodic
installments in accordance with the Employer's usual practice for its senior
executives. During the Interim Period, the Employer shall deduct from amounts
due to the Executive under this Section 4(a) all amounts of salary paid to the
Executive by VCU, which the Executive shall report to the Employer.
(b) Annual Bonus. For each complete calendar year ending
during the term hereof, the Executive shall be entitled to a cash bonus (the
"Bonus") equal to 1.974% of the cumulative earnings before taxes ("Pre-Tax
Earnings") (as defined below) of the Employer during each complete calendar year
hereof.
<PAGE>
(i) Calculation of Payment. The Employer shall
calculate and pay the Bonus for each year within 30 days after the Company's
receipt from its independent auditor of audited financial statements for each
calendar year (the "Audit Release Date"), should any Bonus be due. The Employer
shall provide to the Executive concurrently with the payment of the Bonus or, if
the Employer determines that no Bonus is due in respect of a year during the
term of this Agreement, then within 30 days following the Audit Release Date, a
statement of its Chief Financial Officer regarding the calculation of the Bonus
payable with respect to such year. Such statement shall provide such
computations and set forth such detail as is reasonably necessary to
substantiate the calculation of Pre-Tax Earnings and the amount of the Bonus
payable with respect to such year. Notwithstanding any other provision of this
Agreement, (i) the Executive's Bonus for the year ending December 31, 1997 shall
not be less than $19,737 (the "1997 Minimum Bonus"), with the 1997 Minimum Bonus
to be paid between December 15, 1997 and December 31, 1997 and any additional
Bonus amounts due with respect to 1997 to be paid within 30 days following the
Audit Release Date, and (ii) for any year in which the Expiration Date precedes
the end of the year, the Bonus shall be payable solely with respect to the
fiscal quarters that shall be completed on or before the 30th day after the
Expiration Date, and solely for purposes of calculating the Bonus due with
respect to such partial-year period, all references in this Section 4(b)(ii) to
year end shall be deemed to be references to the last day of the last completed
fiscal quarter.
(ii) Pre-Tax Earnings. Pre-Tax Earnings shall
mean for any year of the Employer, the net income of the Employer for such year
determined by the Employer's auditors on a stand-alone basis in accordance with
generally accepted accounting principles consistently applied plus, to the
extent deducted in determining net income and without duplication, total income
tax expense, including for this purpose any amounts paid under a tax-sharing or
similar agreement or arrangement in lieu of such taxes; minus, to the extent
included in determining net income and without duplication, any extraordinary
gains.
(c) Regular Benefits. The Executive shall also be
entitled to participate in any and all employee benefit plans, medical insurance
plans, life insurance plans, disability income plans, retirement plans, bonus
incentive plans and other benefit plans from time to time in effect for senior
executives of the Employer. Such participation shall be subject to (i) the terms
of the applicable plan documents, (ii) generally applicable policies of the
Employer and (iii) the discretion of the Board of Directors of the Employer or
any administrative or other committee provided for in or contemplated by such
plan.
(d) Business Expenses. The Employer shall reimburse the
Executive for all reasonable travel and other business expenses incurred by him
in the performance of his duties and responsibilities, subject to such
reasonable requirements with respect to substantiation and documentation as may
be specified by the Employer.
(e) Vacation. The Executive shall be entitled to such
number of weeks of vacation per year as shall be provided for in the Employer's
employee handbook as the same shall be modified from time to time, to be taken
at such times and intervals as shall be determined by the Executive with the
approval of the Employer, which approval shall not be unreasonably withheld.
<PAGE>
5. Extent of Service. During his employment hereunder, the
Executive shall, subject to the direction and supervision of the Board of
Directors of the Employer, devote his full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Employer's
interests and to the discharge of his duties and responsibilities hereunder. He
shall not engage in any other business activity, except as may be approved by
the Board of Directors; provided, however, that this Section 5 shall not be
construed as preventing the Executive from:
(a) investing his assets in a manner not prohibited by
Section 8(a) hereof, and in such form or manner as shall not require any
material services on his part in the operations or affairs of the companies or
other entities in which such investments are made;
(b) serving on the board of directors of any company,
subject to the prohibitions set forth in section 8(a), to the extent that such
service does not impair his ability to fulfill his duties and responsibilities
under this Agreement;
(c) engaging in religious, charitable or other community
or non-profit activities which do not impair his ability to fulfill his duties
and responsibilities under this Agreement; or
(d) serving as an external affiliate of MCV-VCU, or any
other university, research institution or agency, to engage in or supervise
research or other activities, obligations or responsibilities related to
operations or affairs of the Employer or the professional standing of the
Executive, to the extent that such service does not impair his ability to
fulfill his duties and responsibilities under this Agreement; provided that (i)
such activities shall not violate any obligations of the Executive under Section
8 of this Agreement and (ii) all compensation paid to the Executive as a result
of such activities shall be paid to the Employer.
6. Termination and Termination Benefits.
Notwithstanding the provisions of Section 3, the Executive's
employment hereunder shall terminate under the following circumstances and shall
be subject to the following provisions:
(a) Death. In the event of the Executive's death during
the Executive's employment hereunder, the Executive's employment shall terminate
on the date of his death; provided, however, that the Employer shall continue to
pay an amount equal to the Executive's salary to the Executive's beneficiary
designated in writing to the Employer prior to his death (or to his estate, if
he fails to make such designation) for a period of one month after the date of
the Executive's death, at the salary rate in effect on the date of his death,
said payments to be made on the same periodic dates as salary payments would
have been made to the Executive had he not died. The Employer shall also pay to
the Executive's beneficiary or estate the Bonus solely with respect to the
fiscal quarters completed on or before the date of death, with all references in
Section 4(b)(ii) to year end being deemed to be references to the last day of
the last completed fiscal quarter.
<PAGE>
(b) Termination by the Employer for Cause. The
Executive's employment hereunder may be terminated without further liability on
the part of the Employer effective immediately by a two-thirds vote of the Board
of Directors of the Employer for Cause by written notice to the Executive
setting forth in reasonable detail the nature of such Cause. Only the following
shall constitute "Cause" for such termination:
(i) gross incompetence, gross negligence,
willful misconduct in office or breach of a material fiduciary duty owed to the
Employer or any subsidiary or affiliate thereof, it being agreed that the
Executive's pursuit of activities provided for in Section 5(d) does not
constitute a breach of a material fiduciary duty;
(ii) conviction of a felony, a crime of moral
turpitude or commission of an act of embezzlement or fraud against the Employer
or any subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a
material term of this Agreement, including without limitation material failure
to perform a substantial portion of his duties and responsibilities hereunder;
or
(iv) deliberate dishonesty of the Executive with
respect to the Employer or any subsidiary or affiliate thereof.
(c) Termination by the Executive. The Executive may
terminate his employment hereunder with or without Good Reason (as defined
below) and he shall not be required to render any further services to the
Employer. In the event of termination with Good Reason, the Executive shall give
written notice of the event or circumstances constituting Good Reason to the
Board of Directors of the Employer. If such event or circumstances shall remain
unremedied for a period of 30 days after receipt of such notice by the Board of
Directors, the Executive may then terminate his employment hereunder for Good
Reason by written notice effective immediately. In the event of termination for
Good Reason, the Executive shall be entitled to the benefits specified in
Section 6(e). Upon termination of employment by the Executive without Good
Reason, the Executive shall be entitled to no further compensation or benefits
under this Agreement. "Good Reason" shall be the material breach by the Employer
of any material provision of this Agreement.
(d) Termination by the Employer Without Cause. The
Executive's employment with the Employer may be terminated without Cause by a
two-thirds vote of the Board of Directors of the Employer effective immediately
by written notice to the Executive.
(e) Certain Termination Benefits. Except as expressly
provided in this Section 6(e), or in Section 6(a) with respect to death or
Section 7 with respect to disability, or as may be required by applicable law,
the Executive shall not be entitled to any benefits in connection with the
termination of this Agreement. In the event of termination by the Employer
without Cause and other than for death or disability (as defined in Section 7),
or by the Executive with Good Reason, the Executive shall be entitled to the
following benefits:
<PAGE>
(i) For the period subsequent to the date of
termination until the Expiration Date, the Employer shall continue to pay the
Executive a salary and Bonus in accordance with Sections 4(a) and 4(b), said
payments to be made on the same periodic dates as salary and Bonus payments
would have been made to the Executive had he not been terminated.
(ii) For the period subsequent to the date of
termination until the Expiration Date, the Executive shall continue to receive
medical, dental and life insurance benefits pursuant to plans made available by
the Employer to its employees at the expense of the Employer to substantially
the same extent the Executive received such benefits on the date of termination
(it being acknowledged that the post-termination plans may be different from the
plans in effect on the date of termination). For purposes of application of such
benefits, the Executive shall be treated as if he had remained in the employ of
the Employer, and service credits will continue to accrue during such period as
if the Executive had remained in the employ of the Employer.
(iii) If, in spite of the provisions of Section
6(e)(ii) above, benefits or service credits under any medical, dental or life
insurance plan shall not be payable or provided under any such plan to the
Executive, or to the Executive's dependents, beneficiaries or estate, because
the Executive is no longer deemed to be an employee of the Employer, the
Employer shall pay or provide for payment of equivalent benefits, taking into
account service credits for such benefits to the Executive, or to the
Executive's dependents, beneficiaries or estate.
(iv) The Employer's obligation to provide the
Executive with medical or dental insurance pursuant to subsections 6(e)(ii) and
6(e)(iii) hereof shall terminate with respect to each particular type of
insurance in the event the Executive becomes employed and has made available to
him in connection with such employment at the expense of the employer that
particular type of insurance, so long as such insurance is substantially similar
to the insurance provided by the Employer.
(v) In the event the Executive becomes employed
and has made available to him in connection with such employment at the expense
of the employer life insurance which is substantially similar to the life
insurance provided by the Employer pursuant to Subsections 6(e)(ii) and
6(e)(iii) hereof, the Employer shall be required to provide the Executive with
life insurance pursuant to such subsections only in an amount equal to the
excess, if any, of the amount of life insurance which would be provided by the
Employer pursuant to such subsections if the Executive had not been provided
with life insurance in connection with his new employment over the amount of
life insurance provided by the Executive's new employer.
(f) Set-off. The Employer shall be entitled to set off on
a monthly basis against any cash compensation to be provided to the Executive
under Section 6(e)(i) above one-half of the amount of any cash compensation
received by the Executive from other employment during the period in which the
Executive receives cash compensation under Section 6(e)(i). The Executive shall
inform the Employer of any such amounts of cash compensation and upon request
shall provide the Employer with reasonably satisfactory evidence thereof, and
shall refund to the Employer any amounts which the Employer has paid which
exceed the amounts due from the Employer after application of the set-off
provided for in this section. Notwithstanding the foregoing and any other
provision of this Agreement, the Executive shall be under no obligation to seek
or accept any employment after termination of employment with the Employer for
any reason.
<PAGE>
(g) Litigation and Regulatory Cooperation. During the
term of this Agreement and the period in which the Executive is subject to the
obligations in Section 8, the Executive shall cooperate fully with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Executive was employed by the
Employer. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Employer at mutually convenient times. The Executive shall also cooperate
fully with the Employer in connection with any examination or review of any
federal or state regulatory authority as any such examination or review relates
to events or occurrences that transpired while the Executive was employed by the
Employer. If such cooperation is required after the Executive ceases to receive
cash compensation from the Employer under Section 4 or Section 6, the Employer
shall pay the Executive for such cooperation a fee of one hundred dollars
($100.00) per hour, payable monthly in arrears, and will reimburse the Executive
for any reasonable out-of-pocket expenses incurred in connection therewith.
7. Disability. If, due to physical or mental illness, the
Executive shall be disabled so as to be unable to perform substantially all of
his duties and responsibilities hereunder, which disability lasts for an
uninterrupted period of at least 90 days or a total of at least 180 days in any
calendar year (as determined by the opinion of an independent physician selected
by the Board of Directors of the Employer), the Employer, acting through its
Board of Directors, may designate another executive to act in his place during
the period of such disability. Notwithstanding any such designation, the
Executive shall continue to receive his full salary and benefits under Section 4
of this Agreement until he becomes eligible for disability income under the
Employer's disability income plan. While receiving disability income payments
under such plan, the Executive shall receive the difference between such
payments and his salary under Section 4(a) (but not any Bonus, except as accrued
through the date of determination of disability) and shall continue to
participate in the Employer's benefit plans and to receive other benefits as
specified in Section 4 until the Expiration Date.
8. Noncompetition and Confidential Information.
(a) Noncompetition. During:
(i) a period of three years following the date of
termination of the Executive's employment with the Employer (x) by the Employer
for Cause pursuant to Section 6(b) hereof, or (y) by the Executive in the event
that such termination is not for Good Reason, and
(ii) the period during which the Employer continues
to provide benefits to the Executive pursuant to Section 6(e)(i)-(iii) hereof;
<PAGE>
the Executive will not, directly or indirectly, whether individually or as an
owner, partner, shareholder, consultant, agent, employee, co-venturer of or to
any business the principal purpose of which is to provide analytical services to
others, or through any such Person (as defined in Section 10), compete in any
state within the United States of America in which the Company conducts business
as of the date of termination, with the Employer's business of providing
analytical services to the biotechnology, pharmaceutical and agricultural
industries or any other business conducted by the Employer during the period of
his employment hereunder, nor will he attempt to hire any employee of the
Employer, assist in or recommend such hiring by any other Person, encourage any
such employee to terminate his or her relationship with the Employer, or solicit
or encourage any customer of the Employer to terminate its relationship with the
Employer or to conduct with any other Person any business or activity which such
customer conducts or could conduct with the Employer. This Section 8 shall not
preclude the Executive from owning not more than 5% of the outstanding stock of
any company that has securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
(b) Confidential Information. The Executive agrees and
acknowledges that, by reason of his employment by and service to the Employer,
he has had and will have access to confidential information of the Employer (and
its affiliates, vendors, customers, and others having business dealings with it)
including, without limitation, information and knowledge pertaining to products
and services, sales and profit figures, customer and client lists and
information related to relationships between the Employer and its affiliates,
customers, vendors, and others having business dealings with it (collectively,
the "Confidential Information"). The Executive acknowledges that the
Confidential Information is a valuable and unique asset of the Employer (and its
affiliates, vendors, customers, and others having business dealings with it) and
covenants that, both during and after the term of his employment by the
Employer, he will not disclose any Confidential Information to any person or use
any Confidential Information (except as his duties as an employee of the
Employer may require) without the prior written authorization of the Board of
Directors of the Employer. The Executive further agrees that all files, computer
programs and files, letters, memoranda, reports, records, data, sketches,
drawings, program listings or other written, photographic, or other tangible
material containing Confidential Information, whether created by the Executive
or others, which shall come into his custody or possession, shall be and are the
exclusive property of the Employer to be used by the Executive only in the
performance of his duties for the Employer. All such records or copies thereof
and all tangible property of the Employer in the custody or possession of the
Executive shall be delivered to the Employer, upon the earlier of (i) a request
by the Employer or (ii) termination of the Executive's employment. After such
delivery, the Executive shall not retain any such records or copies thereof or
any such tangible property. The obligation of confidentiality imposed by this
Section shall not apply to information that is required by law, regulation or
judicial or governmental authorities to be disclosed or that otherwise becomes
part of the public domain by means not involving a breach of a convenant of
confidentiality owed to the Employer.
(c) Rights and Remedies Upon Breach. If the Executive
breaches, or threatens to commit a breach of, any of provisions of Section 8
hereof (collectively, the "Restrictive Covenants"), the Employer shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Employer under law or in equity:
<PAGE>
(i) Specific Performance. The Executive
recognizes and agrees that the violation of the Restrictive Covenants may not be
reasonably or adequately compensated in damages and that, in addition to any
other relief to which the Employer may be entitled by reason of such violation,
it shall also be entitled to permanent and temporary injunctive and equitable
relief and, pending determination of any dispute with respect to such violation,
no bond or security shall be required in connection therewith. Without limiting
the generality of the foregoing, the Executive specifically acknowledges that
showing by the Employer of any breach of any provision of any Restrictive
Covenant shall constitute, for the purposes of all judicial determinations of
the issue of injunctive relief, conclusive proof of all of the elements
necessary to entitle the Employer to interim and permanent injunctive relief
against the Executive with respect to such breach. If any dispute arises with
respect to this Section 8, without limiting in any way any other rights or
remedies to which the Employer may be entitled, the Executive agrees that the
Restrictive Covenants shall be enforceable by a decree of specific performance.
(ii) Accounting. The Employer shall have the
right and remedy to require the Executive to account for and pay over to the
Employer all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by the Executive as the
result of any transactions constituting a breach of any of the Restrictive
Covenants, and the Executive shall account for and pay overall such Benefits to
the Employer.
(d) Severability of Covenants. If any of the Restrictive
Covenants, or any part thereof, or any of the other provisions of this Section 8
is held by a court of competent jurisdiction or any other governmental authority
to be invalid, void, unenforceable or against public policy for any reason, the
remainder of the Restrictive Covenants or such other provisions shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and such court or authority shall be empowered to substitute, to the extent
enforceable, provisions similar thereto or other provisions so as to provide to
the Employer to the fullest extent permitted by applicable law, the benefits
intended by such provisions.
(e) Enforceability in Jurisdictions. The parties intend
to and hereby confer jurisdiction to enforce the Restrictive Covenants and the
other provision of this Section 8 upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants or other provisions, as the
case may be. If the courts of any one or more of such jurisdictions hold the
Restrictive covenants or other provisions, as the case may be, wholly invalid or
unenforceable by reason of the breadth or scope or otherwise, it is the
intention of the parties that such determination not bar or in any way affect
the Employer's right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenant or other
provisions, as the case may be, as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
<PAGE>
(f) Definition and Survival. For purposes of this
Section 8 only, the term "Employer" shall mean Commonwealth Biotechnologies,
Inc. and any of its subsidiaries and affiliates. All provisions of this Section
8 shall survive termination of this Agreement.
9. Conflicting Agreements. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which he is a party or by which he is bound, and that he is not subject to
any covenants against competition or similar covenants which would affect the
performance of his obligations hereunder.
10. Definition of "Person". For all purposes of this Agreement,
the term "Person" shall mean an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization.
11. Withholding. All payments made by the Employer under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Employer under applicable law.
12. Arbitration of Disputes. Any controversy or claim arising out
of or relating to the employment relationship between the Executive and the
Employer, this Agreement or any breach thereof, other than a controversy or
claim relating to Section 8 of this Agreement, shall be settled by arbitration
in accordance with the laws of the Commonwealth of Virginia by three
arbitrators, one of whom shall be appointed by the Employer, one by the
Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Richmond. Such arbitration shall be conducted in the City of
Richmond in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Section 12. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The party against whom the
arbitrators shall render an award shall pay the other party's reasonable
attorneys' fees and other reasonable costs and expenses in connection with the
enforcement of its rights under this Agreement (including the enforcement of any
arbitration award in court), unless and to the extent the arbitrators shall
determine that under the circumstances recovery by the prevailing party of all
or a part of any such fees and costs and expenses would be unjust.
13. Assignment; Successors and Assigns, etc. Neither the Employer
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party; provided, however, that the Employer may assign its rights
under this Agreement without the consent of the Executive in the event that the
Employer shall hereafter effect a reorganization, consolidate with or merge into
any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns. In the event of the
Executive's death prior to the completion by the Employer of all payments due
him under this Agreement, the Employer shall continue such payments to the
Executive's beneficiary designated in writing to the Employer prior to his death
(or to his estate, if he fails to make such designation).
<PAGE>
14. Enforceability. If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. Waiver. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
16. Notices. Any notices, request, demands and other
communications provided for by this Agreement shall be sufficient if in writing
and delivered in person or sent by registered or certified mail, postage prepaid
(in which case notice shall be deemed to have been given on the third day after
mailing), or by overnight delivery by a reliable overnight courier service (in
which case notice shall be deemed to have been given on the day after delivery
to such courier service) to the Executive at the last address the Executive has
filed in writing with the Employer or, in the case of the Employer, at its main
offices, attention of the Board of Directors.
17. Entire Agreement; Amendment. This Agreement may be amended or
modified only by a written instrument approved by each of the Board of Directors
of the Employer and the Compensation Committee thereof, signed by the Executive
and by a duly authorized representative of the Employer who is the Chairman of
the Board or President or an Executive Vice President of the Employer and who is
not the Executive. This Agreement, together with the Executive Severance
Agreement of even date herewith entered into between the parties hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and no agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement or in the Executive
Severance Agreement.
18. Governing Law. This is a Virginia contract and shall be
construed under and be governed in all respects by the laws of the Commonwealth
of Virginia, without giving effect to the choice of law principles of any state.
19. Legal Counsel. This Agreement has been prepared by LeClair
Ryan, A Professional Corporation, as counsel to the Company, after full
disclosure of its representation of the Company and with the consent of the
Executive. The Executive has reviewed the contents of this Agreement and fully
understands its terms. The Executive acknowledges that he is fully aware of his
right to the advice of counsel independent from that of the Company, that
LeClair Ryan, A Professional Corporation, has advised him of such right and
disclosed to him the risks in not seeking such independent advice, and that he
understands the potentially adverse interests of the parties with respect to
this Agreement. The Executive further acknowledges that no representations have
been made with respect to the income or estate tax or other consequences of this
Agreement to him and that he has been advised of the importance of seeking
independent advice of counsel with respect to such consequences.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:-------------------------------
Title:----------------------------
Date: June 25, 1997
-----------------------------------
Thomas R. Reynolds
Date: June 25, 1997
Address:---------------------------
---------------------------
---------------------------
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 25th day of June, 1997, by and
between COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia corporation (the
"Employer"), and Gregory A. Buck, Ph.D. (the "Executive").
In consideration of the mutual covenants contained herein, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and
the Executive agrees to enter into the employ of the Employer on the terms and
conditions hereinafter set forth.
2. Capacity. The Executive shall serve the Employer as Senior
Vice President, Chief Scientific Officer and Secretary with such powers and
duties as may be prescribed from time to time by the Employer's Board of
Directors, and shall serve the Employer in such other or additional offices in
which he may be requested to serve, subject in every case to his election by the
Board of Directors of the Employer.
3. Effective Date and Term. The commencement date of this
Agreement shall be as of June 25, 1997 (the "Commencement Date"). Subject to the
provisions of Section 6, the term of the Executive's employment hereunder shall
be for five years from the Commencement Date; provided, however, that the term
shall be extended automatically for an additional period of one year commencing
on the first anniversary of the Commencement Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other, at least 30 days prior to the date of any such
anniversary, of such party's election not to extend the terms of this Agreement.
The Employer may not give notice of an election not to extend before December
31, 1998. The last day of such term as so extended from time to time, is herein
sometimes referred to as the "Expiration Date." The Executive shall commence
full-time work with the Employer as soon as he concludes his work for Virginia
Commonwealth University ("VCU"), and in no event later than September 1, 1997.
During the period between the Commencement Date and the date the Executive
commences full-time work for the Employer (the "Interim Period"), Section 5
shall not be in effect.
4. Compensation and Benefits. The regular compensation and
benefits payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive
under this Agreement, the Employer shall pay the Executive a total salary at the
rate of $165,000 per year, subject to increase from time to time in accordance
with the usual practice of the Employer with respect to review of compensation
of its senior executives. The Executive's salary shall be payable in periodic
installments in accordance with the Employer's usual practice for its senior
executives. During the Interim Period, the Employer shall deduct from amounts
due to the Executive under this Section 4(a) all amounts of salary paid to the
Executive by VCU, which the Executive shall report to the Employer. For a period
of five years from the date of this Agreement, the Executive's salary shall not
materially differ from the salaries of Dr. Richard J. Freer and Dr. Robert B.
Harris, assuming equal contributions to the Employer.
<PAGE>
(b) Annual Bonus. For each complete calendar year ending
during the term hereof, the Executive shall be entitled to a cash bonus (the
"Bonus") equal to 4.342% of the cumulative earnings before taxes ("Pre-Tax
Earnings") (as defined below) of the Employer during each complete calendar year
hereof.
(i) Calculation of Payment. The Employer shall
calculate and pay the Bonus for each year within 30 days after the Company's
receipt from its independent auditor of audited financial statements for each
calendar year (the "Audit Release Date"), should any Bonus be due. The Employer
shall provide to the Executive concurrently with the payment of the Bonus or, if
the Employer determines that no Bonus is due in respect of a year during the
term of this Agreement, then within 30 days following the Audit Release Date, a
statement of its Chief Financial Officer regarding the calculation of the Bonus
payable with respect to such year. Such statement shall provide such
computations and set forth such detail as is reasonably necessary to
substantiate the calculation of Pre-Tax Earnings and the amount of the Bonus
payable with respect to such year. Notwithstanding any other provision of this
Agreement, (i) the Executive's Bonus for the year ending December 31, 1997 shall
not be less than $43,421 (the "1997 Minimum Bonus"), with the 1997 Minimum Bonus
to be paid between December 15, 1997 and December 31, 1997 and any additional
Bonus amounts due with respect to 1997 to be paid within 30 days following the
Audit Release Date, and (ii) for any year in which the Expiration Date precedes
the end of the year, the Bonus shall be payable solely with respect to the
fiscal quarters that shall be completed on or before the 30th day after the
Expiration Date, and solely for purposes of calculating the Bonus due with
respect to such partial-year period, all references in this Section 4(b)(ii) to
year end shall be deemed to be references to the last day of the last completed
fiscal quarter.
(ii) Pre-Tax Earnings. Pre-Tax Earnings shall
mean for any year of the Employer, the net income of the Employer for such year
determined by the Employer's auditors on a stand-alone basis in accordance with
generally accepted accounting principles consistently applied plus, to the
extent deducted in determining net income and without duplication, total income
tax expense, including for this purpose any amounts paid under a tax-sharing or
similar agreement or arrangement in lieu of such taxes; minus, to the extent
included in determining net income and without duplication, any extraordinary
gains.
(c) Regular Benefits. The Executive shall also be
entitled to participate in any and all employee benefit plans, medical insurance
plans, life insurance plans, disability income plans, retirement plans, bonus
incentive plans and other benefit plans from time to time in effect for senior
executives of the Employer. Such participation shall be subject to (i) the terms
of the applicable plan documents, (ii) generally applicable policies of the
Employer and (iii) the discretion of the Board of Directors of the Employer or
any administrative or other committee provided for in or contemplated by such
plan.
(d) Business Expenses. The Employer shall reimburse the
Executive for all reasonable travel and other business expenses incurred by him
in the performance of his duties and responsibilities, subject to such
reasonable requirements with respect to substantiation and documentation as may
be specified by the Employer.
<PAGE>
(e) Vacation. The Executive shall be entitled to such
number of weeks of vacation per year as shall be provided for in the Employer's
employee handbook as the same shall be modified from time to time, to be taken
at such times and intervals as shall be determined by the Executive with the
approval of the Employer, which approval shall not be unreasonably withheld.
5. Extent of Service. During his employment hereunder, the
Executive shall, subject to the direction and supervision of the Board of
Directors of the Employer, devote his full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Employer's
interests and to the discharge of his duties and responsibilities hereunder. He
shall not engage in any other business activity, except as may be approved by
the Board of Directors; provided, however, that this Section 5 shall not be
construed as preventing the Executive from:
(a) investing his assets in a manner not prohibited by
Section 8(a) hereof, and in such form or manner as shall not require any
material services on his part in the operations or affairs of the companies or
other entities in which such investments are made;
(b) serving on the board of directors of any company,
subject to the prohibitions set forth in section 8(a), to the extent that such
service does not impair his ability to fulfill his duties and responsibilities
under this Agreement;
(c) engaging in religious, charitable or other community
or non-profit activities which do not impair his ability to fulfill his duties
and responsibilities under this Agreement; or
(d) serving as an external affiliate of MCV-VCU, or any
other university, research institution or agency, to engage in or supervise
research or other activities, obligations or responsibilities related to
operations or affairs of the Employer or the professional standing of the
Executive, to the extent that such service does not impair his ability to
fulfill his duties and responsibilities under this Agreement; provided that (i)
such activities shall not violate any obligations of the Executive under Section
8 of this Agreement and (ii) all compensation paid to the Executive as a result
of such activities shall be paid to the Employer.
6. Termination and Termination Benefits.
Notwithstanding the provisions of Section 3, the Executive's
employment hereunder shall terminate under the following circumstances and shall
be subject to the following provisions:
(a) Death. In the event of the Executive's death during
the Executive's employment hereunder, the Executive's employment shall terminate
on the date of his death; provided, however, that the Employer shall continue to
pay an amount equal to the Executive's salary to the Executive's beneficiary
designated in writing to the Employer prior to his death (or to his estate, if
he fails to make such designation) for a period of one month after the date of
the Executive's death, at the salary rate in effect on the date of his death,
said payments to be made on the same periodic dates as salary payments would
have been made to the Executive had he not died. The Employer shall also pay to
the Executive's beneficiary or estate the Bonus solely with respect
<PAGE>
to the fiscal quarters completed on or before the date of death, with all
references in Section 4(b)(ii) to year end being deemed to be references to the
last day of the last completed fiscal quarter.
(b) Termination by the Employer for Cause. The
Executive's employment hereunder may be terminated without further liability on
the part of the Employer effective immediately by a two-thirds vote of the Board
of Directors of the Employer for Cause by written notice to the Executive
setting forth in reasonable detail the nature of such Cause. Only the following
shall constitute "Cause" for such termination:
(i) gross incompetence, gross negligence,
willful misconduct in office or breach of a material fiduciary duty owed to the
Employer or any subsidiary or affiliate thereof, it being agreed that the
Executive's pursuit of activities provided for in Section 5(d) does not
constitute a breach of a material fiduciary duty;
(ii) conviction of a felony, a crime of moral
turpitude or commission of an act of embezzlement or fraud against the Employer
or any subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a
material term of this Agreement, including without limitation material failure
to perform a substantial portion of his duties and responsibilities hereunder;
or
(iv) deliberate dishonesty of the Executive with
respect to the Employer or any subsidiary or affiliate thereof.
(c) Termination by the Executive. The Executive may
terminate his employment hereunder with or without Good Reason (as defined
below) and he shall not be required to render any further services to the
Employer. In the event of termination with Good Reason, the Executive shall give
written notice of the event or circumstances constituting Good Reason to the
Board of Directors of the Employer. If such event or circumstances shall remain
unremedied for a period of 30 days after receipt of such notice by the Board of
Directors, the Executive may then terminate his employment hereunder for Good
Reason by written notice effective immediately. In the event of termination for
Good Reason, the Executive shall be entitled to the benefits specified in
Section 6(e). Upon termination of employment by the Executive without Good
Reason, the Executive shall be entitled to no further compensation or benefits
under this Agreement. "Good Reason" shall be the material breach by the Employer
of any material provision of this Agreement.
(d) Termination by the Employer Without Cause. The
Executive's employment with the Employer may be terminated without Cause by a
two-thirds vote of the Board of Directors of the Employer effective immediately
by written notice to the Executive.
(e) Certain Termination Benefits. Except as expressly
provided in this Section 6(e), or in Section 6(a) with respect to death or
Section 7 with respect to disability, or as may be required by applicable law,
the Executive shall not be entitled to any benefits in connection with the
termination of this Agreement. In the event of termination by the Employer
without Cause and
<PAGE>
other than for death or disability (as defined in Section 7), or by the
Executive with Good Reason, the Executive shall be entitled to the following
benefits:
(i) For the period subsequent to the date of
termination until the Expiration Date, the Employer shall continue to pay the
Executive a salary and Bonus in accordance with Sections 4(a) and 4(b), said
payments to be made on the same periodic dates as salary and Bonus payments
would have been made to the Executive had he not been terminated.
(ii) For the period subsequent to the date of
termination until the Expiration Date, the Executive shall continue to receive
medical, dental and life insurance benefits pursuant to plans made available by
the Employer to its employees at the expense of the Employer to substantially
the same extent the Executive received such benefits on the date of termination
(it being acknowledged that the post-termination plans may be different from the
plans in effect on the date of termination). For purposes of application of such
benefits, the Executive shall be treated as if he had remained in the employ of
the Employer, and service credits will continue to accrue during such period as
if the Executive had remained in the employ of the Employer.
(iii) If, in spite of the provisions of Section
6(e)(ii) above, benefits or service credits under any medical, dental or life
insurance plan shall not be payable or provided under any such plan to the
Executive, or to the Executive's dependents, beneficiaries or estate, because
the Executive is no longer deemed to be an employee of the Employer, the
Employer shall pay or provide for payment of equivalent benefits, taking into
account service credits for such benefits to the Executive, or to the
Executive's dependents, beneficiaries or estate.
(iv) The Employer's obligation to provide the
Executive with medical or dental insurance pursuant to subsections 6(e)(ii) and
6(e)(iii) hereof shall terminate with respect to each particular type of
insurance in the event the Executive becomes employed and has made available to
him in connection with such employment at the expense of the employer that
particular type of insurance, so long as such insurance is substantially similar
to the insurance provided by the Employer.
(v) In the event the Executive becomes employed
and has made available to him in connection with such employment at the expense
of the employer life insurance which is substantially similar to the life
insurance provided by the Employer pursuant to Subsections 6(e)(ii) and
6(e)(iii) hereof, the Employer shall be required to provide the Executive with
life insurance pursuant to such subsections only in an amount equal to the
excess, if any, of the amount of life insurance which would be provided by the
Employer pursuant to such subsections if the Executive had not been provided
with life insurance in connection with his new employment over the amount of
life insurance provided by the Executive's new employer.
(f) Set-off. The Employer shall be entitled to set off on
a monthly basis against any cash compensation to be provided to the Executive
under Section 6(e)(i) above one-half of the amount of any cash compensation
received by the Executive from other employment during the period in which the
Executive receives cash compensation under Section 6(e)(i). The Executive shall
inform the Employer of any such amounts of cash compensation and upon request
shall
provide the Employer with reasonably satisfactory evidence thereof, and shall
refund to the Employer any amounts which the Employer has paid which exceed the
amounts due from the Employer after application of the set-off provided for in
this section. Notwithstanding the foregoing and any other provision of this
Agreement, the Executive shall be under no obligation to seek or accept any
employment after termination of employment with the Employer for any reason.
(g) Litigation and Regulatory Cooperation. During the
term of this Agreement and the period in which the Executive is subject to the
obligations in Section 8, the Executive shall cooperate fully with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Executive was employed by the
Employer. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Employer at mutually convenient times. The Executive shall also cooperate
fully with the Employer in connection with any examination or review of any
federal or state regulatory authority as any such examination or review relates
to events or occurrences that transpired while the Executive was employed by the
Employer. If such cooperation is required after the Executive ceases to receive
cash compensation from the Employer under Section 4 or Section 6, the Employer
shall pay the Executive for such cooperation a fee of one hundred dollars
($100.00) per hour, payable monthly in arrears, and will reimburse the Executive
for any reasonable out-of-pocket expenses incurred in connection therewith.
7. Disability. If, due to physical or mental illness, the
Executive shall be disabled so as to be unable to perform substantially all of
his duties and responsibilities hereunder, which disability lasts for an
uninterrupted period of at least 90 days or a total of at least 180 days in any
calendar year (as determined by the opinion of an independent physician selected
by the Board of Directors of the Employer), the Employer, acting through its
Board of Directors, may designate another executive to act in his place during
the period of such disability. Notwithstanding any such designation, the
Executive shall continue to receive his full salary and benefits under Section 4
of this Agreement until he becomes eligible for disability income under the
Employer's disability income plan. While receiving disability income payments
under such plan, the Executive shall receive the difference between such
payments and his salary under Section 4(a) (but not any Bonus, except as accrued
through the date of determination of disability) and shall continue to
participate in the Employer's benefit plans and to receive other benefits as
specified in Section 4 until the Expiration Date.
8. Noncompetition and Confidential Information.
(a) Noncompetition. During:
(i) a period of three years following the date
of termination of the Executive's employment with the Employer (x) by the
Employer for Cause pursuant to Section 6(b) hereof, or (y) by the Executive in
the event that such termination is not for Good Reason, and
<PAGE>
(ii) the period during which the Employer
continues to provide benefits to the Executive pursuant to Section 6(e)(i)-(iii)
hereof;
the Executive will not, directly or indirectly, whether individually or as an
owner, partner, shareholder, consultant, agent, employee, co-venturer of or to
any business the principal purpose of which is to provide analytical services to
others, or through any such Person (as defined in Section 10), compete in any
state within the United States of America in which the Company conducts business
as of the date of termination, with the Employer's business of providing
analytical services to the biotechnology, pharmaceutical and agricultural
industries or any other business conducted by the Employer during the period of
his employment hereunder, nor will he attempt to hire any employee of the
Employer, assist in or recommend such hiring by any other Person, encourage any
such employee to terminate his or her relationship with the Employer, or solicit
or encourage any customer of the Employer to terminate its relationship with the
Employer or to conduct with any other Person any business or activity which such
customer conducts or could conduct with the Employer. This Section 8 shall not
preclude the Executive from owning not more than 5% of the outstanding stock of
any company that has securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
(b) Confidential Information. The Executive agrees and
acknowledges that, by reason of his employment by and service to the Employer,
he has had and will have access to confidential information of the Employer (and
its affiliates, vendors, customers, and others having business dealings with it)
including, without limitation, information and knowledge pertaining to products
and services, sales and profit figures, customer and client lists and
information related to relationships between the Employer and its affiliates,
customers, vendors, and others having business dealings with it (collectively,
the "Confidential Information"). The Executive acknowledges that the
Confidential Information is a valuable and unique asset of the Employer (and its
affiliates, vendors, customers, and others having business dealings with it) and
covenants that, both during and after the term of his employment by the
Employer, he will not disclose any Confidential Information to any person or use
any Confidential Information (except as his duties as an employee of the
Employer may require) without the prior written authorization of the Board of
Directors of the Employer. The Executive further agrees that all files, computer
programs and files, letters, memoranda, reports, records, data, sketches,
drawings, program listings or other written, photographic, or other tangible
material containing Confidential Information, whether created by the Executive
or others, which shall come into his custody or possession, shall be and are the
exclusive property of the Employer to be used by the Executive only in the
performance of his duties for the Employer. All such records or copies thereof
and all tangible property of the Employer in the custody or possession of the
Executive shall be delivered to the Employer, upon the earlier of (i) a request
by the Employer or (ii) termination of the Executive's employment. After such
delivery, the Executive shall not retain any such records or copies thereof or
any such tangible property. The obligation of confidentiality imposed by this
Section shall not apply to information that is required by law, regulation or
judicial or governmental authorities to be disclosed or that otherwise becomes
part of the public domain by means not involving a breach of a convenant of
confidentiality owed to the Employer.
<PAGE>
(c) Rights and Remedies Upon Breach. If the Executive
breaches, or threatens to commit a breach of, any of provisions of Section 8
hereof (collectively, the "Restrictive Covenants"), the Employer shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Employer under law or in equity:
(i) Specific Performance. The Executive
recognizes and agrees that the violation of the Restrictive Covenants may not be
reasonably or adequately compensated in damages and that, in addition to any
other relief to which the Employer may be entitled by reason of such violation,
it shall also be entitled to permanent and temporary injunctive and equitable
relief and, pending determination of any dispute with respect to such violation,
no bond or security shall be required in connection therewith. Without limiting
the generality of the foregoing, the Executive specifically acknowledges that
showing by the Employer of any breach of any provision of any Restrictive
Covenant shall constitute, for the purposes of all judicial determinations of
the issue of injunctive relief, conclusive proof of all of the elements
necessary to entitle the Employer to interim and permanent injunctive relief
against the Executive with respect to such breach. If any dispute arises with
respect to this Section 8, without limiting in any way any other rights or
remedies to which the Employer may be entitled, the Executive agrees that the
Restrictive Covenants shall be enforceable by a decree of specific performance.
(ii) Accounting. The Employer shall have the
right and remedy to require the Executive to account for and pay over to the
Employer all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by the Executive as the
result of any transactions constituting a breach of any of the Restrictive
Covenants, and the Executive shall account for and pay overall such Benefits to
the Employer.
(d) Severability of Covenants. If any of the Restrictive
Covenants, or any part thereof, or any of the other provisions of this Section 8
is held by a court of competent jurisdiction or any other governmental authority
to be invalid, void, unenforceable or against public policy for any reason, the
remainder of the Restrictive Covenants or such other provisions shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and such court or authority shall be empowered to substitute, to the extent
enforceable, provisions similar thereto or other provisions so as to provide to
the Employer to the fullest extent permitted by applicable law, the benefits
intended by such provisions.
(e) Enforceability in Jurisdictions. The parties intend
to and hereby confer jurisdiction to enforce the Restrictive Covenants and the
other provision of this Section 8 upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants or other provisions, as the
case may be. If the courts of any one or more of such jurisdictions hold the
Restrictive covenants or other provisions, as the case may be, wholly invalid or
unenforceable by reason of the breadth or scope or otherwise, it is the
intention of the parties that such determination not bar or in any way affect
the Employer's right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenant or other
provisions, as
<PAGE>
the case may be, as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.
(f) Definition and Survival. For purposes of this
Section 8 only, the term "Employer" shall mean Commonwealth Biotechnologies,
Inc. and any of its subsidiaries and affiliates. All provisions of this Section
8 shall survive termination of this Agreement.
9. Conflicting Agreements. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which he is a party or by which he is bound, and that he is not subject to
any covenants against competition or similar covenants which would affect the
performance of his obligations hereunder.
10. Definition of "Person". For all purposes of this Agreement,
the term "Person" shall mean an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization.
11. Withholding. All payments made by the Employer under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Employer under applicable law.
12. Arbitration of Disputes. Any controversy or claim arising out
of or relating to the employment relationship between the Executive and the
Employer, this Agreement or any breach thereof, other than a controversy or
claim relating to Section 8 of this Agreement, shall be settled by arbitration
in accordance with the laws of the Commonwealth of Virginia by three
arbitrators, one of whom shall be appointed by the Employer, one by the
Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Richmond. Such arbitration shall be conducted in the City of
Richmond in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Section 12. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The party against whom the
arbitrators shall render an award shall pay the other party's reasonable
attorneys' fees and other reasonable costs and expenses in connection with the
enforcement of its rights under this Agreement (including the enforcement of any
arbitration award in court), unless and to the extent the arbitrators shall
determine that under the circumstances recovery by the prevailing party of all
or a part of any such fees and costs and expenses would be unjust.
13. Assignment; Successors and Assigns, etc. Neither the Employer
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party; provided, however, that the Employer may assign its rights
under this Agreement without the consent of the Executive in the event that the
Employer shall hereafter effect a reorganization, consolidate with or merge into
any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns. In the event of the
<PAGE>
Executive's death prior to the completion by the Employer of all payments due
him under this Agreement, the Employer shall continue such payments to the
Executive's beneficiary designated in writing to the Employer prior to his death
(or to his estate, if he fails to make such designation).
14. Enforceability. If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. Waiver. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
16. Notices. Any notices, request, demands and other
communications provided for by this Agreement shall be sufficient if in writing
and delivered in person or sent by registered or certified mail, postage prepaid
(in which case notice shall be deemed to have been given on the third day after
mailing), or by overnight delivery by a reliable overnight courier service (in
which case notice shall be deemed to have been given on the day after delivery
to such courier service) to the Executive at the last address the Executive has
filed in writing with the Employer or, in the case of the Employer, at its main
offices, attention of the Board of Directors.
17. Entire Agreement; Amendment. This Agreement may be amended or
modified only by a written instrument approved by each of the Board of Directors
of the Employer and the Compensation Committee thereof, signed by the Executive
and by a duly authorized representative of the Employer who is the Chairman of
the Board or President or an Executive Vice President of the Employer and who is
not the Executive. This Agreement, together with the Executive Severance
Agreement of even date herewith entered into between the parties hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and no agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement or in the Executive
Severance Agreement.
18. Governing Law. This is a Virginia contract and shall be
construed under and be governed in all respects by the laws of the Commonwealth
of Virginia, without giving effect to the choice of law principles of any state.
19. Legal Counsel. This Agreement has been prepared by LeClair
Ryan, A Professional Corporation, as counsel to the Company, after full
disclosure of its representation of the Company and with the consent of the
Executive. The Executive has reviewed the contents of this Agreement and fully
understands its terms. The Executive acknowledges that he is fully aware of his
right to the advice of counsel independent from that of the Company, that
LeClair Ryan, A Professional Corporation, has advised him of such right and
disclosed to
<PAGE>
him the risks in not seeking such independent advice, and that he understands
the potentially adverse interests of the parties with respect to this Agreement.
The Executive further acknowledges that no representations have been made with
respect to the income or estate tax or other consequences of this Agreement to
him and that he has been advised of the importance of seeking independent advice
of counsel with respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:--------------------------------
Title:-----------------------------
Date: June 25, 1997
-----------------------------------
Gregory A. Buck, Ph.D.
Date: June 25, 1997
Address:---------------------------
---------------------------
---------------------------
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 25th day of June, 1997, by and
between COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia corporation (the
"Employer"), and Robert B. Harris, Ph.D. (the "Executive").
In consideration of the mutual covenants contained herein, the Employer
and the Executive agree as follows:
1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to enter into the employ of the Employer on the terms and
conditions hereinafter set forth.
2. Capacity. The Executive shall serve the Employer as President
with such powers and duties as may be prescribed from time to time by the
Employer's Board of Directors, and shall serve the Employer in such other or
additional offices in which he may be requested to serve, subject in every case
to his election by the Board of Directors of the Employer.
3. Effective Date and Term. The commencement date of this Agreement
shall be as of June 25, 1997 (the "Commencement Date"). Subject to the
provisions of Section 6, the term of the Executive's employment hereunder shall
be for five years from the Commencement Date; provided, however, that the term
shall be extended automatically for an additional period of one year commencing
on the first anniversary of the Commencement Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other, at least 30 days prior to the date of any such
anniversary, of such party's election not to extend the terms of this Agreement.
The Employer may not give notice of an election not to extend before December
31, 1998. The last day of such term as so extended from time to time, is herein
sometimes referred to as the "Expiration Date." The Executive shall commence
full-time work with the Employer as soon as he concludes his work for Virginia
Commonwealth University ("VCU"), and in no event later than September 1, 1997.
During the period between the Commencement Date and the date the Executive
commences full-time work for the Employer (the "Interim Period"), Section 5
shall not be in effect.
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under
this Agreement, the Employer shall pay the Executive a total salary at the rate
of $165,000 per year, subject to increase from time to time in accordance with
the usual practice of the Employer with respect to review of compensation of its
senior executives. The Executive's salary shall be payable in periodic
installments in accordance with the Employer's usual practice for its senior
executives. During the Interim Period, the Employer shall deduct from amounts
due to the Executive under this Section 4(a) all amounts of salary paid to the
Executive by VCU, which the Executive shall report to the Employer. For a period
of five years from the date of this Agreement, the Executive's salary shall not
materially differ from the salaries of Dr. Richard J. Freer and Dr. Gregory A.
Buck, assuming equal contributions to the Employer.
<PAGE>
(b) Annual Bonus. For each complete calendar year ending
during the term hereof, the Executive shall be entitled to a cash bonus (the
"Bonus") equal to 4.342% of the cumulative earnings before taxes ("Pre-Tax
Earnings") (as defined below) of the Employer during each complete calendar year
hereof.
(i) Calculation of Payment. The Employer shall
calculate and pay the Bonus for each year within 30 days after the Company's
receipt from its independent auditor of audited financial statements for each
calendar year (the "Audit Release Date"), should any Bonus be due. The Employer
shall provide to the Executive concurrently with the payment of the Bonus or, if
the Employer determines that no Bonus is due in respect of a year during the
term of this Agreement, then within 30 days following the Audit Release Date, a
statement of its Chief Financial Officer regarding the calculation of the Bonus
payable with respect to such year. Such statement shall provide such
computations and set forth such detail as is reasonably necessary to
substantiate the calculation of Pre-Tax Earnings and the amount of the Bonus
payable with respect to such year. Notwithstanding any other provision of this
Agreement, (i) the Executive's Bonus for the year ending December 31, 1997 shall
not be less than $43,421 (the "1997 Minimum Bonus"), with the 1997 Minimum Bonus
to be paid between December 15, 1997 and December 31, 1997 and any additional
Bonus amounts due with respect to 1997 to be paid within 30 days following the
Audit Release Date, and (ii) for any year in which the Expiration Date precedes
the end of the year, the Bonus shall be payable solely with respect to the
fiscal quarters that shall be completed on or before the 30th day after the
Expiration Date, and solely for purposes of calculating the Bonus due with
respect to such partial-year period, all references in this Section 4(b)(ii) to
year end shall be deemed to be references to the last day of the last completed
fiscal quarter.
(ii) Pre-Tax Earnings. Pre-Tax Earnings shall mean for
any year of the Employer, the net income of the Employer for such year
determined by the Employer's auditors on a stand-alone basis in accordance with
generally accepted accounting principles consistently applied plus, to the
extent deducted in determining net income and without duplication, total income
tax expense, including for this purpose any amounts paid under a tax-sharing or
similar agreement or arrangement in lieu of such taxes; minus, to the extent
included in determining net income and without duplication, any extraordinary
gains.
(c) Regular Benefits. The Executive shall also be entitled to
participate in any and all employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans, bonus incentive
plans and other benefit plans from time to time in effect for senior executives
of the Employer. Such participation shall be subject to (i) the terms of the
applicable plan documents, (ii) generally applicable policies of the Employer
and (iii) the discretion of the Board of Directors of the Employer or any
administrative or other committee provided for in or contemplated by such plan.
(d) Business Expenses. The Employer shall reimburse the
Executive for all reasonable travel and other business expenses incurred by him
in the performance of his duties and responsibilities, subject to such
reasonable requirements with respect to substantiation and documentation as may
be specified by the Employer.
<PAGE>
(e) Vacation. The Executive shall be entitled to such number
of weeks of vacation per year as shall be provided for in the Employer's
employee handbook as the same shall be modified from time to time, to be taken
at such times and intervals as shall be determined by the Executive with the
approval of the Employer, which approval shall not be unreasonably withheld.
5. Extent of Service. During his employment hereunder, the
Executive shall, subject to the direction and supervision of the Board of
Directors of the Employer, devote his full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Employer's
interests and to the discharge of his duties and responsibilities hereunder. He
shall not engage in any other business activity, except as may be approved by
the Board of Directors; provided, however, that this Section 5 shall not be
construed as preventing the Executive from:
(a) investing his assets in a manner not prohibited by Section
8(a) hereof, and in such form or manner as shall not require any material
services on his part in the operations or affairs of the companies or other
entities in which such investments are made;
(b) serving on the board of directors of any company, subject
to the prohibitions set forth in section 8(a), to the extent that such service
does not impair his ability to fulfill his duties and responsibilities under
this Agreement;
(c) engaging in religious, charitable or other community or
non-profit activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement; or
(d) serving as an external affiliate of MCV-VCU, or any other
university, research institution or agency, to engage in or supervise research
or other activities, obligations or responsibilities related to operations or
affairs of the Employer or the professional standing of the Executive, to the
extent that such service does not impair his ability to fulfill his duties and
responsibilities under this Agreement; provided that (i) such activities shall
not violate any obligations of the Executive under Section 8 of this Agreement
and (ii) all compensation paid to the Executive as a result of such activities
shall be paid to the Employer.
6. Termination and Termination Benefits.
Notwithstanding the provisions of Section 3, the Executive's
employment hereunder shall terminate under the following circumstances and shall
be subject to the following provisions:
(a) Death. In the event of the Executive's death during the
Executive's employment hereunder, the Executive's employment shall terminate on
the date of his death; provided, however, that the Employer shall continue to
pay an amount equal to the Executive's salary to the Executive's beneficiary
designated in writing to the Employer prior to his death (or to his estate, if
he fails to make such designation) for a period of one month after the date of
the Executive's death, at the salary rate in effect on the date of his death,
said payments to be made on the same periodic dates as salary payments would
have been made to the Executive had he not died. The Employer shall also pay to
the Executive's beneficiary or estate the Bonus solely with respect to the
fiscal quarters completed on or before the date of death, with all references in
Section 4(b)(ii) to year end being deemed to be references to the last day of
the last completed fiscal quarter.
<PAGE>
(b) Termination by the Employer for Cause. The Executive's
employment hereunder may be terminated without further liability on the part of
the Employer effective immediately by a two-thirds vote of the Board of
Directors of the Employer for Cause by written notice to the Executive setting
forth in reasonable detail the nature of such Cause. Only the following shall
constitute "Cause" for such termination:
(i) gross incompetence, gross negligence, willful
misconduct in office or breach of a material fiduciary duty owed to the Employer
or any subsidiary or affiliate thereof, it being agreed that the Executive's
pursuit of activities provided for in Section 5(d) does not constitute a breach
of a material fiduciary duty;
(ii) conviction of a felony, a crime of moral turpitude
or commission of an act of embezzlement or fraud against the Employer or any
subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a material
term of this Agreement, including without limitation material failure to perform
a substantial portion of his duties and responsibilities hereunder; or
(iv) deliberate dishonesty of the Executive with
respect to the Employer or any subsidiary or affiliate thereof.
(c) Termination by the Executive. The Executive may terminate
his employment hereunder with or without Good Reason (as defined below) and he
shall not be required to render any further services to the Employer. In the
event of termination with Good Reason, the Executive shall give written notice
of the event or circumstances constituting Good Reason to the Board of Directors
of the Employer. If such event or circumstances shall remain unremedied for a
period of 30 days after receipt of such notice by the Board of Directors, the
Executive may then terminate his employment hereunder for Good Reason by written
notice effective immediately. In the event of termination for Good Reason, the
Executive shall be entitled to the benefits specified in Section 6(e). Upon
termination of employment by the Executive without Good Reason, the Executive
shall be entitled to no further compensation or benefits under this Agreement.
"Good Reason" shall be the material breach by the Employer of any material
provision of this Agreement.
(d) Termination by the Employer Without Cause. The
Executive's employment with the Employer may be terminated without Cause by a
two-thirds vote of the Board of Directors of the Employer effective immediately
by written notice to the Executive.
(e) Certain Termination Benefits. Except as expressly provided
in this Section 6(e), or in Section 6(a) with respect to death or Section 7 with
respect to disability, or as may be required by applicable law, the Executive
shall not be entitled to any benefits in connection with the termination of this
Agreement. In the event of termination by the Employer without Cause and other
than for death or disability (as defined in Section 7), or by the Executive with
Good Reason, the Executive shall be entitled to the following benefits:
<PAGE>
(i) For the period subsequent to the date of
termination until the Expiration Date, the Employer shall continue to pay the
Executive a salary and Bonus in accordance with Sections 4(a) and 4(b), said
payments to be made on the same periodic dates as salary and Bonus payments
would have been made to the Executive had he not been terminated.
(ii) For the period subsequent to the date of
termination until the Expiration Date, the Executive shall continue to receive
medical, dental and life insurance benefits pursuant to plans made available by
the Employer to its employees at the expense of the Employer to substantially
the same extent the Executive received such benefits on the date of termination
(it being acknowledged that the post-termination plans may be different from the
plans in effect on the date of termination). For purposes of application of such
benefits, the Executive shall be treated as if he had remained in the employ of
the Employer, and service credits will continue to accrue during such period as
if the Executive had remained in the employ of the Employer.
(iii) If, in spite of the provisions of Section 6(e)(ii)
above, benefits or service credits under any medical, dental or life insurance
plan shall not be payable or provided under any such plan to the Executive, or
to the Executive's dependents, beneficiaries or estate, because the Executive is
no longer deemed to be an employee of the Employer, the Employer shall pay or
provide for payment of equivalent benefits, taking into account service credits
for such benefits to the Executive, or to the Executive's dependents,
beneficiaries or estate.
(iv) The Employer's obligation to provide the Executive
with medical or dental insurance pursuant to subsections 6(e)(ii) and 6(e)(iii)
hereof shall terminate with respect to each particular type of insurance in the
event the Executive becomes employed and has made available to him in connection
with such employment at the expense of the employer that particular type of
insurance, so long as such insurance is substantially similar to the insurance
provided by the Employer.
(v) In the event the Executive becomes employed and
has made available to him in connection with such employment at the expense of
the employer life insurance which is substantially similar to the life insurance
provided by the Employer pursuant to Subsections 6(e)(ii) and 6(e)(iii) hereof,
the Employer shall be required to provide the Executive with life insurance
pursuant to such subsections only in an amount equal to the excess, if any, of
the amount of life insurance which would be provided by the Employer pursuant to
such subsections if the Executive had not been provided with life insurance in
connection with his new employment over the amount of life insurance provided by
the Executive's new employer.
(f) Set-off. The Employer shall be entitled to set off on a
monthly basis against any cash compensation to be provided to the Executive
under Section 6(e)(i) above one-half of the amount of any cash compensation
received by the Executive from other employment during the period in which the
Executive receives cash compensation under Section 6(e)(i). The Executive shall
inform the Employer of any such amounts of cash compensation and upon request
shall
<PAGE>
provide the Employer with reasonably satisfactory evidence thereof, and shall
refund to the Employer any amounts which the Employer has paid which exceed the
amounts due from the Employer after application of the set-off provided for in
this section. Notwithstanding the foregoing and any other provision of this
Agreement, the Executive shall be under no obligation to seek or accept any
employment after termination of employment with the Employer for any reason.
(g) Litigation and Regulatory Cooperation. During the term of
this Agreement and the period in which the Executive is subject to the
obligations in Section 8, the Executive shall cooperate fully with the Employer
in the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer which relate
to events or occurrences that transpired while the Executive was employed by the
Employer. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Employer at mutually convenient times. The Executive shall also cooperate
fully with the Employer in connection with any examination or review of any
federal or state regulatory authority as any such examination or review relates
to events or occurrences that transpired while the Executive was employed by the
Employer. If such cooperation is required after the Executive ceases to receive
cash compensation from the Employer under Section 4 or Section 6, the Employer
shall pay the Executive for such cooperation a fee of one hundred dollars
($100.00) per hour, payable monthly in arrears, and will reimburse the Executive
for any reasonable out-of-pocket expenses incurred in connection therewith.
7. Disability. If, due to physical or mental illness, the Executive
shall be disabled so as to be unable to perform substantially all of his duties
and responsibilities hereunder, which disability lasts for an uninterrupted
period of at least 90 days or a total of at least 180 days in any calendar year
(as determined by the opinion of an independent physician selected by the Board
of Directors of the Employer), the Employer, acting through its Board of
Directors, may designate another executive to act in his place during the period
of such disability. Notwithstanding any such designation, the Executive shall
continue to receive his full salary and benefits under Section 4 of this
Agreement until he becomes eligible for disability income under the Employer's
disability income plan. While receiving disability income payments under such
plan, the Executive shall receive the difference between such payments and his
salary under Section 4(a) (but not any Bonus, except as accrued through the date
of determination of disability) and shall continue to participate in the
Employer's benefit plans and to receive other benefits as specified in Section 4
until the Expiration Date.
8. Noncompetition and Confidential Information.
(a) Noncompetition. During:
(i) a period of three years following the date of
termination of the Executive's employment with the Employer (x) by the Employer
for Cause pursuant to Section 6(b) hereof, or (y) by the Executive in the event
that such termination is not for Good Reason, and
<PAGE>
(ii) the period during which the Employer continues to
provide benefits to the Executive pursuant to Section 6(e)(i)-(iii) hereof;
the Executive will not, directly or indirectly, whether individually or as an
owner, partner, shareholder, consultant, agent, employee, co-venturer of or to
any business the principal purpose of which is to provide analytical services to
others, or through any such Person (as defined in Section 10), compete in any
state within the United States of America in which the Company conducts business
as of the date of termination, with the Employer's business of providing
analytical services to the biotechnology, pharmaceutical and agricultural
industries or any other business conducted by the Employer during the period of
his employment hereunder, nor will he attempt to hire any employee of the
Employer, assist in or recommend such hiring by any other Person, encourage any
such employee to terminate his or her relationship with the Employer, or solicit
or encourage any customer of the Employer to terminate its relationship with the
Employer or to conduct with any other Person any business or activity which such
customer conducts or could conduct with the Employer. This Section 8 shall not
preclude the Executive from owning not more than 5% of the outstanding stock of
any company that has securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended.
(b) Confidential Information. The Executive agrees and
acknowledges that, by reason of his employment by and service to the Employer,
he has had and will have access to confidential information of the Employer (and
its affiliates, vendors, customers, and others having business dealings with it)
including, without limitation, information and knowledge pertaining to products
and services, sales and profit figures, customer and client lists and
information related to relationships between the Employer and its affiliates,
customers, vendors, and others having business dealings with it (collectively,
the "Confidential Information"). The Executive acknowledges that the
Confidential Information is a valuable and unique asset of the Employer (and its
affiliates, vendors, customers, and others having business dealings with it) and
covenants that, both during and after the term of his employment by the
Employer, he will not disclose any Confidential Information to any person or use
any Confidential Information (except as his duties as an employee of the
Employer may require) without the prior written authorization of the Board of
Directors of the Employer. The Executive further agrees that all files, computer
programs and files, letters, memoranda, reports, records, data, sketches,
drawings, program listings or other written, photographic, or other tangible
material containing Confidential Information, whether created by the Executive
or others, which shall come into his custody or possession, shall be and are the
exclusive property of the Employer to be used by the Executive only in the
performance of his duties for the Employer. All such records or copies thereof
and all tangible property of the Employer in the custody or possession of the
Executive shall be delivered to the Employer, upon the earlier of (i) a request
by the Employer or (ii) termination of the Executive's employment. After such
delivery, the Executive shall not retain any such records or copies thereof or
any such tangible property. The obligation of confidentiality imposed by this
Section shall not apply to information that is required by law, regulation or
judicial or governmental authorities to be disclosed or that otherwise becomes
part of the public domain by means not involving a breach of a convenant of
confidentiality owed to the Employer.
<PAGE>
(c) Rights and Remedies Upon Breach. If the Executive
breaches, or threatens to commit a breach of, any of provisions of Section 8
hereof (collectively, the "Restrictive Covenants"), the Employer shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Employer under law or in equity:
(i) Specific Performance. The Executive recognizes
and agrees that the violation of the Restrictive Covenants may not be reasonably
or adequately compensated in damages and that, in addition to any other relief
to which the Employer may be entitled by reason of such violation, it shall also
be entitled to permanent and temporary injunctive and equitable relief and,
pending determination of any dispute with respect to such violation, no bond or
security shall be required in connection therewith. Without limiting the
generality of the foregoing, the Executive specifically acknowledges that
showing by the Employer of any breach of any provision of any Restrictive
Covenant shall constitute, for the purposes of all judicial determinations of
the issue of injunctive relief, conclusive proof of all of the elements
necessary to entitle the Employer to interim and permanent injunctive relief
against the Executive with respect to such breach. If any dispute arises with
respect to this Section 8, without limiting in any way any other rights or
remedies to which the Employer may be entitled, the Executive agrees that the
Restrictive Covenants shall be enforceable by a decree of specific performance.
(ii) Accounting. The Employer shall have the right and
remedy to require the Executive to account for and pay over to the Employer all
compensation, profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by the Executive as the result of
any transactions constituting a breach of any of the Restrictive Covenants, and
the Executive shall account for and pay overall such Benefits to the Employer.
(d) Severability of Covenants. If any of the Restrictive
Covenants, or any part thereof, or any of the other provisions of this Section 8
is held by a court of competent jurisdiction or any other governmental authority
to be invalid, void, unenforceable or against public policy for any reason, the
remainder of the Restrictive Covenants or such other provisions shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and such court or authority shall be empowered to substitute, to the extent
enforceable, provisions similar thereto or other provisions so as to provide to
the Employer to the fullest extent permitted by applicable law, the benefits
intended by such provisions.
(e) Enforceability in Jurisdictions. The parties intend to and
hereby confer jurisdiction to enforce the Restrictive Covenants and the other
provision of this Section 8 upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants or other provisions, as the
case may be. If the courts of any one or more of such jurisdictions hold the
Restrictive covenants or other provisions, as the case may be, wholly invalid or
unenforceable by reason of the breadth or scope or otherwise, it is the
intention of the parties that such determination not bar or in any way affect
the Employer's right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenant or other
provisions, as
<PAGE>
the case may be, as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
(f) Definition and Survival. For purposes of this Section 8
only, the term "Employer" shall mean Commonwealth Biotechnologies, Inc. and any
of its subsidiaries and affiliates. All provisions of this Section 8 shall
survive termination of this Agreement.
9. Conflicting Agreements. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which he is a party or by which he is bound, and that he is not subject to
any covenants against competition or similar covenants which would affect the
performance of his obligations hereunder.
10. Definition of "Person". For all purposes of this Agreement,
the term "Person" shall mean an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization.
11. Withholding. All payments made by the Employer under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Employer under applicable law.
12. Arbitration of Disputes. Any controversy or claim arising out of
or relating to the employment relationship between the Executive and the
Employer, this Agreement or any breach thereof, other than a controversy or
claim relating to Section 8 of this Agreement, shall be settled by arbitration
in accordance with the laws of the Commonwealth of Virginia by three
arbitrators, one of whom shall be appointed by the Employer, one by the
Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Richmond. Such arbitration shall be conducted in the City of
Richmond in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Section 12. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The party against whom the
arbitrators shall render an award shall pay the other party's reasonable
attorneys' fees and other reasonable costs and expenses in connection with the
enforcement of its rights under this Agreement (including the enforcement of any
arbitration award in court), unless and to the extent the arbitrators shall
determine that under the circumstances recovery by the prevailing party of all
or a part of any such fees and costs and expenses would be unjust.
13. Assignment; Successors and Assigns, etc. Neither the Employer
nor the Executive may make any assignment of this Agreement or any interest
herein, by operation of law or otherwise, without the prior written consent of
the other party; provided, however, that the Employer may assign its rights
under this Agreement without the consent of the Executive in the event that the
Employer shall hereafter effect a reorganization, consolidate with or merge into
any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns. In the event of the
<PAGE>
Executive's death prior to the completion by the Employer of all payments due
him under this Agreement, the Employer shall continue such payments to the
Executive's beneficiary designated in writing to the Employer prior to his death
(or to his estate, if he fails to make such designation).
14. Enforceability. If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. Waiver. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of any party
to require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
16. Notices. Any notices, request, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid (in which
case notice shall be deemed to have been given on the third day after mailing),
or by overnight delivery by a reliable overnight courier service (in which case
notice shall be deemed to have been given on the day after delivery to such
courier service) to the Executive at the last address the Executive has filed in
writing with the Employer or, in the case of the Employer, at its main offices,
attention of the Board of Directors.
17. Entire Agreement; Amendment. This Agreement may be amended or
modified only by a written instrument approved by each of the Board of Directors
of the Employer and the Compensation Committee thereof, signed by the Executive
and by a duly authorized representative of the Employer who is the Chairman of
the Board or President or an Executive Vice President of the Employer and who is
not the Executive. This Agreement, together with the Executive Severance
Agreement of even date herewith entered into between the parties hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and no agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement or in the Executive
Severance Agreement.
18. Governing Law. This is a Virginia contract and shall be
construed under and be governed in all respects by the laws of the Commonwealth
of Virginia, without giving effect to the choice of law principles of any state.
19. Legal Counsel. This Agreement has been prepared by LeClair Ryan,
A Professional Corporation, as counsel to the Company, after full disclosure of
its representation of the Company and with the consent of the Executive. The
Executive has reviewed the contents of this Agreement and fully understands its
terms. The Executive acknowledges that he is fully aware of his right to the
advice of counsel independent from that of the Company, that LeClair Ryan, A
Professional Corporation, has advised him of such right and disclosed to
<PAGE>
him the risks in not seeking such independent advice, and that he understands
the potentially adverse interests of the parties with respect to this Agreement.
The Executive further acknowledges that no representations have been made with
respect to the income or estate tax or other consequences of this Agreement to
him and that he has been advised of the importance of seeking independent advice
of counsel with respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:
------------------------------------
Title:
---------------------------------
Date: June 25, 1997
---------------------------------------
Robert B. Harris, Ph.D.
Date: June 25, 1997
Address:
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EXHIBIT 10.11
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of June 25, 1997
between Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), and Richard J. Freer, Ph.D. (the "Executive").
1. Purpose.
The Company considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its shareholders. In this connection, the Company recognizes
that the possibility of a Change in Control (as defined herein) may arise and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Board of Directors of the Company (the "Board") has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its shareholders receive a proposal for transfer of control of
the Company, that the Executive be able to assess and advise the Board whether
such proposal would be in the best interests of the Company and its shareholders
and to take such other action regarding such proposal as the Board might
determine to be appropriate, without being influenced by the uncertainties of
the Executive's own situation. The execution of this Agreement is an integral
element of the employment relationship between the Company and the Executive and
the Executive's agreement to remain in the employment of the Company. However,
nothing in this Agreement shall be construed as creating an express or implied
contract of employment and, except as provided in the Employment Agreement (as
defined below) or as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in the employ of
the Company.
2. Coordination with Employment Agreement.
(a) The Company and the Executive have entered into an Employment
Agreement dated June 25, 1997 (the "Employment Agreement"). Pursuant to such
Employment Agreement, the Company agreed to employ the Executive, and the
Executive agreed to be employed by the Company, as Chairman of the Board until
the Expiration Date (as such term is defined in the Employment Agreement.)
(b) Notwithstanding the terms of this Agreement, the Employment
Agreement shall continue in full force and effect. To the extent that any
provision of any other agreement between the Company or any of its subsidiaries
or affiliates and the Executive, (including, without limitation, the Employment
Agreement), shall limit, qualify or be inconsistent with any provision of this
Agreement, then for purposes of this Agreement, while the same shall remain in
force, the provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose. Without
<PAGE>
limiting the generality of the foregoing, in the event the Company shall pay to
the Executive all amounts the Executive shall be eligible to receive under
Section 6 hereof, the Company shall have no obligations to make payments to the
Executive under Section 6(e) of the Employment Agreement; provided, however,
that the Executive may, in his sole discretion, elect to forgo all benefits due
to him hereunder and receive, in lieu thereof, the full benefits available to
him under the Employment Agreement.
3. Term of Agreement.
This Agreement shall commence on the date hereof (the "Commencement
Date") and shall continue in effect until the first anniversary of the
Commencement Date; provided, however, that commencing on the fifth anniversary
of the Commencement Date and on each anniversary of the Commencement Date
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless at least 30 days prior to such anniversary date, the
Company or the Executive shall have given notice that this Agreement shall not
be extended; and provided further that, notwithstanding the delivery of any such
notice, this Agreement shall continue in effect for a period of 60 months after
a Change in Control of the Company if such Change in Control shall have occurred
while this Agreement is in effect. The Company may not give notice of an
election not to extend before December 31, 1998. Notwithstanding anything in
this Section 3 to the contrary, this Agreement shall terminate if the Executive
or the Company terminates the Executive's employment prior to a Change in
Control of the Company.
4. Change in Control.
For all purposes of this Agreement, a "Change in Control" shall mean
the occurrence of any of the following events or circumstances subsequent to the
date of this Agreement, it being agreed that no circumstance or event occurring
on or before the date of this Agreement shall constitute a change in control:
(a) The acquisition, after the effective date of the Company's
registration statement for its initial public offering of share of Common Stock
under the Securities Act of 1933, as amended (the "IPO Date"), other than from
the Company, by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than a trustee or other fiduciary holding securities
under an employee benefits plan of the Company (a "Person"), who was not a
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of such securities prior to the IPO Date, of
beneficial ownership of 50% or more of either the then outstanding shares of
Common Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (collectively, the "Voting Securities") but excluding for this
purpose, any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its subsidiaries, or
any corporation with respect to which, following such acquisition, more than 50%
of the then outstanding shares of Voting Securities of such is then beneficially
owned, directly or indirectly, by the individuals and entities who were the
beneficial owners of Voting Securities of the Company immediately prior to such
acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding shares of Voting Securities
of the Company; or
<PAGE>
(b) Individuals who, immediately following the closing on the date
of this Agreement of the Company's sale of $3 million principal amount of
Convertible Subordinated Notes, constitute the Board (the "Incumbent Board")
cease for any reason, other than their resignation from the Board or failure to
stand for re-election to the Board, to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) There occurs any acquisition, merger or consolidation of the
Company, by, with or into any other corporation (other than a wholly owned
subsidiary of the Company) and individuals who are directors of the Company
immediately prior to the time the agreement of acquisition, merger or
consolidation is executed shall fail to constitute a majority of the board of
directors of the survivor or successor company at any time after consummation of
the transaction; or
(d) There occurs a sale or disposition by the Company of all or
substantially all of the Company's assets and individuals who are directors of
the Company immediately prior to the time the agreement of acquisition, merger
or consolidation is executed shall fail to constitute a majority of the board of
directors of the acquiring company at any time after consummation of the
transaction; or
(e) There occurs a change of control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Act, in a Form 8-K filed under the Act
or in any other filing by the Company with the Securities and Exchange
Commission.
(f) Notwithstanding anything in subsections (a) - (f) of this
Section 4 to the contrary, no Change in Control shall be deemed to have occurred
for purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of Persons which includes the Executive, acquiring,
directly or indirectly, 25% or more of the combined voting power of the Voting
Securities. Without limiting the generality of this Section 4(g), the persons
who were shareholders of the Company as of June 15, 1997 shall constitute a
group of Persons which includes the Executive.
5. Termination Following Change in Control.
If any of the events described in Section 4 hereof constituting a
Change in Control of the Company shall have occurred, the Executive shall be
entitled to the benefits provided in Section 6
<PAGE>
hereof upon the termination of the Executive's employment with the Company
within sixty (60) months after such Change in Control, unless such termination
is (a) because of death of the Executive, (b) by the Company for Cause or
Disability or (c) by the Executive other than during the Window Period or for
Good Reason (as all such capitalized terms are hereinafter defined).
(a) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of the
Executive's inability to perform his duties with the Company on a full time
basis for 90 consecutive days or a total of at least 180 days in any calendar
year as a result of the Executive's incapacity due to physical or mental illness
(as determined by an independent physician selected by the Board of Directors of
the Company).
(b) Cause. Termination by the Company of the Executive's
employment for "Cause" shall mean termination for:
(i) gross incompetence, gross negligence, willful
misconduct in office or breach of a material fiduciary duty owed to the Company
or any subsidiary or affiliate thereof;
(ii) conviction of a felony, a crime of moral turpitude or
commission of an act of embezzlement or fraud against the Company or any
subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a material
term of this Agreement, including without limitation material failure to perform
a substantial portion of his duties and responsibilities hereunder; or
(iv) deliberate dishonesty of the Executive with respect
to the Company or any subsidiary or affiliate thereof.
(c) Good Reason. Termination by the Executive of his employment
for "Good Reason" shall mean termination based on:
(i) a determination by the Executive, in his reasonable
judgment, that there has been a material adverse change in the Executive's
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, any
material adverse change in his status or position as a result of a diminution in
his duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company shall cease to be publicly
owned) or the assignment to the Executive of any duties or responsibilities
which are inconsistent with such status or position(s), or any removal of the
Executive from, or any failure to reappoint or reelect the Executive to, such
positions(s) (except in connection with the termination of the Executive's
employment for Cause or Disability or as a result of the Executive's death or by
the Executive other than for Good Reason), but excluding any failure to nominate
the Executive to the Board;
(ii) a reduction by the Company in the Executive's base
salary as in effect immediately prior to the Change in Control;
<PAGE>
(iii) the failure by the Company to continue in effect any
Plan (as hereinafter defined) in which the Executive is participating at the
time of the Change in Control of the Company (or Plans providing the Executive
with at least substantially similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with its terms as in effect at
the time of the Change in Control, or the taking of any action, or the failure
to act, by the Company which would adversely affect the Executive's continued
participation in any of such Plans on a substantiality similar basis to the
Executive as is the case on the date of the Change in Control, or which would
materially reduce the Executive's benefits in the future under any of such Plans
or deprive the Executive of any material benefit enjoyed by the Executive at the
time of the Change in Control;
(iv) the failure by the Company to provide and credit the
Executive with the number of paid vacation days to which the Executive is then
entitled in accordance with Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(v) the Company's requiring the Executive to be based at
any office that is greater than fifty (50) miles from where the Executive's
office is located immediately prior to the Change in Control, except for
required travel on the Company's business to an extent substantially consistent
with the business travel obligations which the Executive undertook on behalf of
the Company prior to the Change in Control;
(vi) the failure by the Company to obtain an agreement
reasonably satisfactory to the Executive from any Successor (as defined in
Section 7(a) hereof) to assume and agree to perform this Agreement;
(vii) the failure by the Company to pay to the Executive
any portion of his compensation or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company within 15 days of the date the Executive gives notice of such
failure, without prior written consent of the Executive; or
(viii) any unreasonable refusal by the Company to continue
to allow the Executive to attend to matters or engage in activities not directly
related to the business of the Company which, prior to the Change in Control,
the Executive was permitted by the Board to attend to or engage in.
(ix) For purposes of this Agreement, "Plan" shall mean any
compensation plan or any employee benefit plan such as a thrift, pension, profit
sharing, medical, disability, accident, life insurance plan or a relocation plan
or policy or any other plan, program or policy of the Company intended to
benefit employees.
(d) Window Period. The term "Window Period" shall mean the 45 day
period immediately following the first anniversary of the date on which a Change
in Control occurred.
(e) Notice of Termination. Any purported termination by the Company
or by the Executive following a Change in Control shall be communicated by a
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice
<PAGE>
which shall indicate the specific termination provision in this Agreement
relied upon.
6. Compensation Upon Termination.
(a) If, within 60 months after a Change in Control of the Company
has occurred, the Executive's employment by the Company is terminated other than
on account of the Executive's death and is terminated (x) by the Company other
than for Cause or Disability or (y) by the Executive during the Window Period or
for Good Reason, then the Company shall pay to the Executive, no later than the
fifteenth day following the date of termination, without regard to any contrary
provisions of any Plan, the following:
(i) The Executive's base salary through the date of
termination at the rate in effect immediately prior to the time a Notice of
Termination is given, plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to the Executive (including
amounts which previously had been deferred at the Executive's request).
(ii) A lump sum payment in cash in an amount equal to two
times the Executive's base salary at the rate in effect immediately prior to the
time a Notice of Termination is given.
(iii) A lump sum payment in cash in an amount equal to
three times the Executive's Bonus (as such term is defined in the Employment
Agreement) paid with respect to the most recent completed twelve-month fiscal
year of the Company.
(iv) In the event any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 6(a)(iv)) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties are incurred by the Executive with respect to such excise
tax (collectively, the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any income taxes and
interest or penalties imposed with respect to such taxes) and the Excise Tax
imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed on the Payments. All determinations
required to be made under this Section 6(a)(iv) shall be made by the Company's
regular independent auditors as of the date of the Notice of Termination (the
"Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne
solely by the Company, and any determination by the Accounting Firm shall be
binding upon the Company and the Executive. Any Gross Up Payment shall be paid
to the Executive by the Company within 10 days of the Company's receipt of the
Accounting Firm's determination.
(b) If, within 60 months after a Change in Control of the Company
has occurred, the Executive's employment by the Company is terminated other than
on account of the Executive's death and is terminated (x) by the Company other
than for Cause or Disability, or (y) by the Executive during the Window Period
or for Good Reason, then the Company shall maintain in full force and effect, at
<PAGE>
the sole cost of the Company (except for the regular contributions of the
Executive as described below, if any), for the continued benefit of the
Executive and his dependents for a period terminating on the earliest of (a) 12
months after the date of termination, or (b) the commencement date of equivalent
benefits from a new employer, all insured and self-insured employee welfare
benefit Plans in which the Executive was entitled to participate immediately
prior to the date of termination; provided that (i) the Executive's continued
participation is possible under the general terms and provisions of such Plans
(and any applicable funding media), (ii) the Executive continues to pay an
amount equal to his regular contribution under such Plans prior to the Change in
Control for such participation, and (iii) it is acknowledged that the
post-termination Plans may be different from the Plans in effect on the date of
termination. In the event that the Executive's participation in any such Plan is
barred, the Company, at its sole cost and expense, shall arrange to have issued
for the benefit of the Executive and his dependents individual policies of
insurance providing benefits substantially similar (on an after-tax basis) to
those which the Executive otherwise would have been entitled to receive under
such Plans pursuant to this Section 6(b) or, if such insurance is not available
at a reasonable cost to the Company, the Company shall otherwise provide the
Executive and his dependents with equivalent benefits (on an after-tax basis).
The Executive shall not be required to pay any premiums or other charges in an
amount greater than that which the Executive would have paid in order to
participate in such Plans. The Company's obligation to provide the Executive
with medical or dental insurance shall terminate with respect to each particular
type of insurance in the event the Executive becomes employed and has made
available to him in connection with such employment at the expense of the
employer that particular type of insurance, so long as such insurance is
substantially similar to the insurance provided by the Employer. In the event
the Executive becomes employed and has made available to him in connection with
such employment at the expense of the employer life insurance which is
substantially similar to the life insurance provided by the Company, the Company
shall be required to provide the Executive with life insurance only in an amount
equal to the excess, if any, of the amount of life insurance which would be
provided by the Company if the Executive had not been provided with life
insurance in connection with his new employment over the amount of life
insurance provided by the Executive's new employer
(c) Except as specifically provided in paragraph (b) above, the
amount of any payment provided for in this Section 6 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by the Executive as the result of employment by another employer after
the date of termination, or otherwise.
<PAGE>
7. Successors; Binding Agreement.
(a) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to the Executive, assent to the fulfillment of the Company's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(x) three business days prior to the time such Person becomes a Successor or (y)
ten business days after such Person receives a written request to so assent may,
at the election of the Executive, constitute Good Reason for termination by the
Executive of his employment if a Change in Control of the Company occurs or has
occurred, and the failure of the Executive to elect to terminate for Good Reason
upon the expiration of the applicable period shall not constitute a waiver of
his right to do so, which right he shall retain until the commencement of the
Window Period. For purposes of this Agreement, "Successor" shall mean any Person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting Securities or
otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee
or other designee or, if no such designee exists, to his estate.
(c) For purposes of this Agreement, the term "Company" shall
include any subsidiaries of the Company and any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist.
8. Fees and Expenses; Mitigation.
(a) The Company shall reimburse the Executive, on a current basis,
for all reasonable legal fees and related expenses which he shall incur in
connection with the Agreement following a Change in Control of the Company,
including without limitation, all such fees and expenses, if any, incurred (i)
in contesting or disputing any termination of the Executive's employment or (ii)
the Executive's seeking to obtain or enforce any right or benefit provided by
this Agreement, in each case, regardless of whether or not the Executive's claim
is upheld by a court of competent jurisdiction; provided, however, the Executive
shall be required to repay any such amounts to the Company to the extent that a
court issues a final and non-appealable order setting forth the determination
that the position taken by the Executive was frivolous or advanced by him in bad
faith.
(b) The Executive shall not be required to mitigate the amount of
any payment the Company becomes obligated to make to the Executive in connection
with this Agreement, by seeking other employment or otherwise.
<PAGE>
9. Taxes.
All payments to be made to the Executive under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
10. Notice.
Any notices, requests, demands and other communications provided for by
this Agreement shall be sufficient if in writing and delivered in person or sent
by registered or certified mail, postage prepaid (in which case notice shall be
deemed to have been given on the third day after mailing), or by overnight
delivery by a reliable overnight courier service (in which case notice shall be
deemed to have been given on the day after delivery to such courier service) to
the Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors.
11. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is approved by each of the Board
and the Compensation Committee of the Board and is agreed to in a writing signed
by the Executive and a duly authorized person who is the Chairman of the Board
or President or an Executive Vice President of the Company and who is not the
Executive. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
12. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia, without
regard to the choice of law provisions of any jurisdiction.
13. Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Legal Counsel.
This Agreement has been prepared by LeClair Ryan, A Professional
Corporation, as counsel to the Company, after full disclosure of its
representation of the Company and with the consent of the Executive. The
Executive has reviewed the contents of this Agreement and fully understands its
terms. The Executive acknowledges that he is fully aware of his right to the
<PAGE>
advice of counsel independent from that of the Company, that LeClair Ryan, A
Professional Corporation, has advised him of such right and disclosed to him the
risks in not seeking such independent advice, and that he understands the
potentially adverse interests of the parties with respect to this Agreement. The
Executive further acknowledges that no representations have been made with
respect to the income or estate tax or other consequences of this Agreement to
him and that he has been advised of the importance of seeking independent advice
of counsel with respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Executive,
as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:
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Title:
------------------------------------
Date: June 25, 1997
------------------------------------
Richard J. Freer, Ph.D.
Date: June 25, 1997
Address:
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EXHIBIT 10.12
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of June 25, 1997
between Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), and Thomas R. Reynolds (the "Executive").
1. Purpose.
The Company considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its shareholders. In this connection, the Company recognizes
that the possibility of a Change in Control (as defined herein) may arise and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Board of Directors of the Company (the "Board") has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its shareholders receive a proposal for transfer of control of
the Company, that the Executive be able to assess and advise the Board whether
such proposal would be in the best interests of the Company and its shareholders
and to take such other action regarding such proposal as the Board might
determine to be appropriate, without being influenced by the uncertainties of
the Executive's own situation. The execution of this Agreement is an integral
element of the employment relationship between the Company and the Executive and
the Executive's agreement to remain in the employment of the Company. However,
nothing in this Agreement shall be construed as creating an express or implied
contract of employment and, except as provided in the Employment Agreement (as
defined below) or as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in the employ of
the Company.
2. Coordination with Employment Agreement.
(a) The Company and the Executive have entered into an Employment
Agreement dated June 25, 1997 (the "Employment Agreement"). Pursuant to such
Employment Agreement, the Company agreed to employ the Executive, and the
Executive agreed to be employed by the Company, as Senior Vice President until
the Expiration Date (as such term is defined in the Employment Agreement.)
(b) Notwithstanding the terms of this Agreement, the Employment
Agreement shall continue in full force and effect. To the extent that any
provision of any other agreement between the Company or any of its subsidiaries
or affiliates and the Executive, (including, without limitation, the Employment
Agreement), shall limit, qualify or be inconsistent with any provision of this
Agreement, then for purposes of this Agreement, while the same shall remain in
force, the provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose. Without
<PAGE>
limiting the generality of the foregoing, in the event the Company shall pay to
the Executive all amounts the Executive shall be eligible to receive under
Section 6 hereof, the Company shall have no obligations to make payments to the
Executive under Section 6(e) of the Employment Agreement; provided, however,
that the Executive may, in his sole discretion, elect to forgo all benefits due
to him hereunder and receive, in lieu thereof, the full benefits available to
him under the Employment Agreement.
3. Term of Agreement.
This Agreement shall commence on the date hereof (the "Commencement
Date") and shall continue in effect until the first anniversary of the
Commencement Date; provided, however, that commencing on the fifth anniversary
of the Commencement Date and on each anniversary of the Commencement Date
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless at least 30 days prior to such anniversary date, the
Company or the Executive shall have given notice that this Agreement shall not
be extended; and provided further that, notwithstanding the delivery of any such
notice, this Agreement shall continue in effect for a period of 60 months after
a Change in Control of the Company if such Change in Control shall have occurred
while this Agreement is in effect. The Company may not give notice of an
election not to extend before December 31, 1998. Notwithstanding anything in
this Section 3 to the contrary, this Agreement shall terminate if the Executive
or the Company terminates the Executive's employment prior to a Change in
Control of the Company.
4. Change in Control.
For all purposes of this Agreement, a "Change in Control" shall mean
the occurrence of any of the following events or circumstances subsequent to the
date of this Agreement, it being agreed that no circumstance or event occurring
on or before the date of this Agreement shall constitute a change in control:
(a) The acquisition, after the effective date of the Company's
registration statement for its initial public offering of share of Common Stock
under the Securities Act of 1933, as amended (the "IPO Date"), other than from
the Company, by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than a trustee or other fiduciary holding securities
under an employee benefits plan of the Company (a "Person"), who was not a
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of such securities prior to the IPO Date, of
beneficial ownership of 50% or more of either the then outstanding shares of
Common Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (collectively, the "Voting Securities") but excluding for this
purpose, any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its subsidiaries, or
any corporation with respect to which, following such acquisition, more than 50%
of the then outstanding shares of Voting Securities of such is then beneficially
owned, directly or indirectly, by the individuals and entities who were the
beneficial owners of Voting Securities of the Company immediately
<PAGE>
prior to such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the then outstanding shares
of Voting Securities of the Company; or
(b) Individuals who, immediately following the closing on the date
of this Agreement of the Company's sale of $3 million principal amount of
Convertible Subordinated Notes, constitute the Board (the "Incumbent Board")
cease for any reason, other than their resignation from the Board or failure to
stand for re-election to the Board, to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) There occurs any acquisition, merger or consolidation of the
Company, by, with or into any other corporation (other than a wholly owned
subsidiary of the Company) and individuals who are directors of the Company
immediately prior to the time the agreement of acquisition, merger or
consolidation is executed shall fail to constitute a majority of the board of
directors of the survivor or successor company at any time after consummation of
the transaction; or
(d) There occurs a sale or disposition by the Company of all or
substantially all of the Company's assets and individuals who are directors of
the Company immediately prior to the time the agreement of acquisition, merger
or consolidation is executed shall fail to constitute a majority of the board of
directors of the acquiring company at any time after consummation of the
transaction; or
(e) There occurs a change of control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Act, in a Form 8-K filed under the Act
or in any other filing by the Company with the Securities and Exchange
Commission.
(f) Notwithstanding anything in subsections (a) - (f) of this
Section 4 to the contrary, no Change in Control shall be deemed to have occurred
for purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of Persons which includes the Executive, acquiring,
directly or indirectly, 25% or more of the combined voting power of the Voting
Securities. Without limiting the generality of this Section 4(g), the persons
who were shareholders of the Company as of June 15, 1997 shall constitute a
group of Persons which includes the Executive.
5. Termination Following Change in Control.
If any of the events described in Section 4 hereof constituting a
Change in Control of the Company shall have occurred, the Executive shall be
entitled to the benefits provided in Section 6
<PAGE>
hereof upon the termination of the Executive's employment with the Company
within sixty (60) months after such Change in Control, unless such termination
is (a) because of death of the Executive, (b) by the Company for Cause or
Disability or (c) by the Executive other than during the Window Period or for
Good Reason (as all such capitalized terms are hereinafter defined).
(a) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of the
Executive's inability to perform his duties with the Company on a full time
basis for 90 consecutive days or a total of at least 180 days in any calendar
year as a result of the Executive's incapacity due to physical or mental illness
(as determined by an independent physician selected by the Board of Directors of
the Company).
(b) Cause. Termination by the Company of the Executive's
employment for "Cause" shall mean termination for:
(i) gross incompetence, gross negligence, willful
misconduct in office or breach of a material fiduciary duty owed to the Company
or any subsidiary or affiliate thereof;
(ii) conviction of a felony, a crime of moral turpitude or
commission of an act of embezzlement or fraud against the Company or any
subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a material
term of this Agreement, including without limitation material failure to perform
a substantial portion of his duties and responsibilities hereunder; or
(iv) deliberate dishonesty of the Executive with respect
to the Company or any subsidiary or affiliate thereof.
(c) Good Reason. Termination by the Executive of his employment
for "Good Reason" shall mean termination based on:
(i) a determination by the Executive, in his reasonable
judgment, that there has been a material adverse change in the Executive's
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, any
material adverse change in his status or position as a result of a diminution in
his duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company shall cease to be publicly
owned) or the assignment to the Executive of any duties or responsibilities
which are inconsistent with such status or position(s), or any removal of the
Executive from, or any failure to reappoint or reelect the Executive to, such
positions(s) (except in connection with the termination of the Executive's
employment for Cause or Disability or as a result of the Executive's death or by
the Executive other than for Good Reason), but excluding any failure to nominate
the Executive to the Board;
(ii) a reduction by the Company in the Executive's base
salary as in effect immediately prior to the Change in Control;
<PAGE>
(iii) the failure by the Company to continue in effect any
Plan (as hereinafter defined) in which the Executive is participating at the
time of the Change in Control of the Company (or Plans providing the Executive
with at least substantially similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with its terms as in effect at
the time of the Change in Control, or the taking of any action, or the failure
to act, by the Company which would adversely affect the Executive's continued
participation in any of such Plans on a substantiality similar basis to the
Executive as is the case on the date of the Change in Control, or which would
materially reduce the Executive's benefits in the future under any of such Plans
or deprive the Executive of any material benefit enjoyed by the Executive at the
time of the Change in Control;
(iv) the failure by the Company to provide and credit the
Executive with the number of paid vacation days to which the Executive is then
entitled in accordance with Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(v) the Company's requiring the Executive to be based at
any office that is greater than fifty (50) miles from where the Executive's
office is located immediately prior to the Change in Control, except for
required travel on the Company's business to an extent substantially consistent
with the business travel obligations which the Executive undertook on behalf of
the Company prior to the Change in Control;
(vi) the failure by the Company to obtain an agreement
reasonably satisfactory to the Executive from any Successor (as defined in
Section 7(a) hereof) to assume and agree to perform this Agreement;
(vii) the failure by the Company to pay to the Executive
any portion of his compensation or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company within 15 days of the date the Executive gives notice of such
failure, without prior written consent of the Executive; or
(viii) any unreasonable refusal by the Company to continue
to allow the Executive to attend to matters or engage in activities not directly
related to the business of the Company which, prior to the Change in Control,
the Executive was permitted by the Board to attend to or engage in.
(ix) For purposes of this Agreement, "Plan" shall mean any
compensation plan or any employee benefit plan such as a thrift, pension, profit
sharing, medical, disability, accident, life insurance plan or a relocation plan
or policy or any other plan, program or policy of the Company intended to
benefit employees.
(d) Window Period. The term "Window Period" shall mean the 45 day
period immediately following the first anniversary of the date on which a Change
in Control occurred.
(e) Notice of Termination. Any purported termination by the Company
or by the Executive following a Change in Control shall be communicated by a
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice
<PAGE>
which shall indicate the specific termination provision in this Agreement relied
upon.
6. Compensation Upon Termination.
(a) If, within 60 months after a Change in Control of the Company
has occurred, the Executive's employment by the Company is terminated other than
on account of the Executive's death and is terminated (x) by the Company other
than for Cause or Disability or (y) by the Executive during the Window Period or
for Good Reason, then the Company shall pay to the Executive, no later than the
fifteenth day following the date of termination, without regard to any contrary
provisions of any Plan, the following:
(i) The Executive's base salary through the date of
termination at the rate in effect immediately prior to the time a Notice of
Termination is given, plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to the Executive (including
amounts which previously had been deferred at the Executive's request).
(ii) A lump sum payment in cash in an amount equal to two
times the Executive's base salary at the rate in effect immediately prior to the
time a Notice of Termination is given.
(iii) A lump sum payment in cash in an amount equal to
three times the Executive's Bonus (as such term is defined in the Employment
Agreement) paid with respect to the most recent completed twelve-month fiscal
year of the Company.
(iv) In the event any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 6(a)(iv)) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties are incurred by the Executive with respect to such excise
tax (collectively, the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any income taxes and
interest or penalties imposed with respect to such taxes) and the Excise Tax
imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed on the Payments. All determinations
required to be made under this Section 6(a)(iv) shall be made by the Company's
regular independent auditors as of the date of the Notice of Termination (the
"Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne
solely by the Company, and any determination by the Accounting Firm shall be
binding upon the Company and the Executive. Any Gross Up Payment shall be paid
to the Executive by the Company within 10 days of the Company's receipt of the
Accounting Firm's determination.
(b) If, within 60 months after a Change in Control of the Company
has occurred, the Executive's employment by the Company is terminated other than
on account of the Executive's death and is terminated (x) by the Company other
than for Cause or Disability, or (y) by the Executive during the Window Period
or for Good Reason, then the Company shall maintain in full force and effect, at
<PAGE>
the sole cost of the Company (except for the regular contributions of the
Executive as described below, if any), for the continued benefit of the
Executive and his dependents for a period terminating on the earliest of (a) 12
months after the date of termination, or (b) the commencement date of equivalent
benefits from a new employer, all insured and self-insured employee welfare
benefit Plans in which the Executive was entitled to participate immediately
prior to the date of termination; provided that (i) the Executive's continued
participation is possible under the general terms and provisions of such Plans
(and any applicable funding media), (ii) the Executive continues to pay an
amount equal to his regular contribution under such Plans prior to the Change in
Control for such participation, and (iii) it is acknowledged that the
post-termination Plans may be different from the Plans in effect on the date of
termination. In the event that the Executive's participation in any such Plan is
barred, the Company, at its sole cost and expense, shall arrange to have issued
for the benefit of the Executive and his dependents individual policies of
insurance providing benefits substantially similar (on an after-tax basis) to
those which the Executive otherwise would have been entitled to receive under
such Plans pursuant to this Section 6(b) or, if such insurance is not available
at a reasonable cost to the Company, the Company shall otherwise provide the
Executive and his dependents with equivalent benefits (on an after-tax basis).
The Executive shall not be required to pay any premiums or other charges in an
amount greater than that which the Executive would have paid in order to
participate in such Plans. The Company's obligation to provide the Executive
with medical or dental insurance shall terminate with respect to each particular
type of insurance in the event the Executive becomes employed and has made
available to him in connection with such employment at the expense of the
employer that particular type of insurance, so long as such insurance is
substantially similar to the insurance provided by the Employer. In the event
the Executive becomes employed and has made available to him in connection with
such employment at the expense of the employer life insurance which is
substantially similar to the life insurance provided by the Company, the Company
shall be required to provide the Executive with life insurance only in an amount
equal to the excess, if any, of the amount of life insurance which would be
provided by the Company if the Executive had not been provided with life
insurance in connection with his new employment over the amount of life
insurance provided by the Executive's new employer
(c) Except as specifically provided in paragraph (b) above, the
amount of any payment provided for in this Section 6 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by the Executive as the result of employment by another employer after
the date of termination, or otherwise.
<PAGE>
7. Successors; Binding Agreement.
(a) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to the Executive, assent to the fulfillment of the Company's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(x) three business days prior to the time such Person becomes a Successor or (y)
ten business days after such Person receives a written request to so assent may,
at the election of the Executive, constitute Good Reason for termination by the
Executive of his employment if a Change in Control of the Company occurs or has
occurred, and the failure of the Executive to elect to terminate for Good Reason
upon the expiration of the applicable period shall not constitute a waiver of
his right to do so, which right he shall retain until the commencement of the
Window Period. For purposes of this Agreement, "Successor" shall mean any Person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting Securities or
otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee
or other designee or, if no such designee exists, to his estate.
(c) For purposes of this Agreement, the term "Company" shall
include any subsidiaries of the Company and any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist.
8. Fees and Expenses; Mitigation.
(a) The Company shall reimburse the Executive, on a current basis,
for all reasonable legal fees and related expenses which he shall incur in
connection with the Agreement following a Change in Control of the Company,
including without limitation, all such fees and expenses, if any, incurred (i)
in contesting or disputing any termination of the Executive's employment or (ii)
the Executive's seeking to obtain or enforce any right or benefit provided by
this Agreement, in each case, regardless of whether or not the Executive's claim
is upheld by a court of competent jurisdiction; provided, however, the Executive
shall be required to repay any such amounts to the Company to the extent that a
court issues a final and non-appealable order setting forth the determination
that the position taken by the Executive was frivolous or advanced by him in bad
faith.
(b) The Executive shall not be required to mitigate the amount of
any payment the Company becomes obligated to make to the Executive in connection
with this Agreement, by seeking other employment or otherwise.
<PAGE>
9. Taxes.
All payments to be made to the Executive under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
10. Notice.
Any notices, requests, demands and other communications provided for by
this Agreement shall be sufficient if in writing and delivered in person or sent
by registered or certified mail, postage prepaid (in which case notice shall be
deemed to have been given on the third day after mailing), or by overnight
delivery by a reliable overnight courier service (in which case notice shall be
deemed to have been given on the day after delivery to such courier service) to
the Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors.
11. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is approved by each of the Board
and the Compensation Committee of the Board and is agreed to in a writing signed
by the Executive and a duly authorized person who is the Chairman of the Board
or President or an Executive Vice President of the Company and who is not the
Executive. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
12. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia, without
regard to the choice of law provisions of any jurisdiction.
13. Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Legal Counsel.
This Agreement has been prepared by LeClair Ryan, A Professional
Corporation, as counsel to the Company, after full disclosure of its
representation of the Company and with the consent of the Executive. The
Executive has reviewed the contents of this Agreement and fully understands its
terms. The Executive acknowledges that he is fully aware of his right to the
<PAGE>
advice of counsel independent from that of the Company, that LeClair Ryan, A
Professional Corporation, has advised him of such right and disclosed to him the
risks in not seeking such independent advice, and that he understands the
potentially adverse interests of the parties with respect to this Agreement. The
Executive further acknowledges that no representations have been made with
respect to the income or estate tax or other consequences of this Agreement to
him and that he has been advised of the importance of seeking independent advice
of counsel with respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Executive,
as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:
--------------------------------------
Title:
-----------------------------------
Date: June 25, 1997
-----------------------------------
Thomas R. Reynolds
Date: June 25, 1997
Address:
---------------------------------
---------------------------------
---------------------------------
EXHIBIT 10.13
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of June 25, 1997
between Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), and Gregory A. Buck, Ph.D. (the "Executive").
1. Purpose.
The Company considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its shareholders. In this connection, the Company recognizes
that the possibility of a Change in Control (as defined herein) may arise and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Board of Directors of the Company (the "Board") has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its shareholders receive a proposal for transfer of control of
the Company, that the Executive be able to assess and advise the Board whether
such proposal would be in the best interests of the Company and its shareholders
and to take such other action regarding such proposal as the Board might
determine to be appropriate, without being influenced by the uncertainties of
the Executive's own situation. The execution of this Agreement is an integral
element of the employment relationship between the Company and the Executive and
the Executive's agreement to remain in the employment of the Company. However,
nothing in this Agreement shall be construed as creating an express or implied
contract of employment and, except as provided in the Employment Agreement (as
defined below) or as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in the employ of
the Company.
2. Coordination with Employment Agreement.
(a) The Company and the Executive have entered into an Employment
Agreement dated June 25, 1997 (the "Employment Agreement"). Pursuant to such
Employment Agreement, the Company agreed to employ the Executive, and the
Executive agreed to be employed by the Company, as Senior Vice President, Chief
Scientific Officer and Secretary until the Expiration Date (as such term is
defined in the Employment Agreement.)
(b) Notwithstanding the terms of this Agreement, the Employment
Agreement shall continue in full force and effect. To the extent that any
provision of any other agreement between the Company or any of its subsidiaries
or affiliates and the Executive, (including, without limitation, the Employment
Agreement), shall limit, qualify or be inconsistent with any provision of this
Agreement, then for purposes of this Agreement, while the same shall remain in
force, the provision of such other agreement shall be deemed to have been
<PAGE>
superseded, and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose. Without
limiting the generality of the foregoing, in the event the Company shall pay to
the Executive all amounts the Executive shall be eligible to receive under
Section 6 hereof, the Company shall have no obligations to make payments to the
Executive under Section 6(e) of the Employment Agreement; provided, however,
that the Executive may, in his sole discretion, elect to forgo all benefits due
to him hereunder and receive, in lieu thereof, the full benefits available to
him under the Employment Agreement.
3. Term of Agreement.
This Agreement shall commence on the date hereof (the "Commencement
Date") and shall continue in effect until the first anniversary of the
Commencement Date; provided, however, that commencing on the fifth anniversary
of the Commencement Date and on each anniversary of the Commencement Date
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless at least 30 days prior to such anniversary date, the
Company or the Executive shall have given notice that this Agreement shall not
be extended; and provided further that, notwithstanding the delivery of any such
notice, this Agreement shall continue in effect for a period of 60 months after
a Change in Control of the Company if such Change in Control shall have occurred
while this Agreement is in effect. The Company may not give notice of an
election not to extend before December 31, 1998. Notwithstanding anything in
this Section 3 to the contrary, this Agreement shall terminate if the Executive
or the Company terminates the Executive's employment prior to a Change in
Control of the Company.
4. Change in Control.
For all purposes of this Agreement, a "Change in Control" shall mean
the occurrence of any of the following events or circumstances subsequent to the
date of this Agreement, it being agreed that no circumstance or event occurring
on or before the date of this Agreement shall constitute a change in control:
(a) The acquisition, after the effective date of the Company's
registration statement for its initial public offering of share of Common Stock
under the Securities Act of 1933, as amended (the "IPO Date"), other than from
the Company, by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than a trustee or other fiduciary holding securities
under an employee benefits plan of the Company (a "Person"), who was not a
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of such securities prior to the IPO Date, of
beneficial ownership of 50% or more of either the then outstanding shares of
Common Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (collectively, the "Voting Securities") but excluding for this
purpose, any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its subsidiaries, or
any corporation with respect to which, following such acquisition, more than 50%
of the then outstanding shares of Voting Securities of such is then beneficially
<PAGE>
owned, directly or indirectly, by the individuals and entities who were the
beneficial owners of Voting Securities of the Company immediately prior to such
acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding shares of Voting Securities
of the Company; or
(b) Individuals who, immediately following the closing on the date of
this Agreement of the Company's sale of $3 million principal amount of
Convertible Subordinated Notes, constitute the Board (the "Incumbent Board")
cease for any reason, other than their resignation from the Board or failure to
stand for re-election to the Board, to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) There occurs any acquisition, merger or consolidation of the
Company, by, with or into any other corporation (other than a wholly owned
subsidiary of the Company) and individuals who are directors of the Company
immediately prior to the time the agreement of acquisition, merger or
consolidation is executed shall fail to constitute a majority of the board of
directors of the survivor or successor company at any time after consummation of
the transaction; or
(d) There occurs a sale or disposition by the Company of all or
substantially all of the Company's assets and individuals who are directors of
the Company immediately prior to the time the agreement of acquisition, merger
or consolidation is executed shall fail to constitute a majority of the board of
directors of the acquiring company at any time after consummation of the
transaction; or
(e) There occurs a change of control of the Company of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Act, in a Form 8-K filed under the Act or
in any other filing by the Company with the Securities and Exchange Commission.
(f) Notwithstanding anything in subsections (a) - (f) of this Section
4 to the contrary, no Change in Control shall be deemed to have occurred for
purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of Persons which includes the Executive, acquiring,
directly or indirectly, 25% or more of the combined voting power of the Voting
Securities. Without limiting the generality of this Section 4(g), the persons
who were shareholders of the Company as of June 15, 1997 shall constitute a
group of Persons which includes the Executive.
<PAGE>
5. Termination Following Change in Control.
If any of the events described in Section 4 hereof constituting a
Change in Control of the Company shall have occurred, the Executive shall be
entitled to the benefits provided in Section 6 hereof upon the termination of
the Executive's employment with the Company within sixty (60) months after such
Change in Control, unless such termination is (a) because of death of the
Executive, (b) by the Company for Cause or Disability or (c) by the Executive
other than during the Window Period or for Good Reason (as all such capitalized
terms are hereinafter defined).
(a) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of the
Executive's inability to perform his duties with the Company on a full time
basis for 90 consecutive days or a total of at least 180 days in any calendar
year as a result of the Executive's incapacity due to physical or mental illness
(as determined by an independent physician selected by the Board of Directors of
the Company).
(b) Cause. Termination by the Company of the Executive's employment
for "Cause" shall mean termination for:
(i) gross incompetence, gross negligence, willful misconduct
in office or breach of a material fiduciary duty owed to the Company or any
subsidiary or affiliate thereof;
(ii) conviction of a felony, a crime of moral turpitude or
commission of an act of embezzlement or fraud against the Company or any
subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a material term
of this Agreement, including without limitation material failure to perform a
substantial portion of his duties and responsibilities hereunder; or
(iv) deliberate dishonesty of the Executive with respect to
the Company or any subsidiary or affiliate thereof.
(c) Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean termination based on:
(i) a determination by the Executive, in his
reasonable judgment, that there has been a material adverse change in the
Executive's status or position(s) as an executive officer of the Company as in
effect immediately prior to the Change in Control, including, without
limitation, any material adverse change in his status or position as a result of
a diminution in his duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company shall cease to be
publicly owned) or the assignment to the Executive of any duties or
responsibilities which are inconsistent with such status or position(s), or any
removal of the Executive from, or any failure to reappoint or reelect the
Executive to, such positions(s) (except in connection with the termination of
the Executive's employment for Cause or Disability or as a result of the
Executive's death or by the Executive other than for Good Reason), but excluding
any failure to nominate the Executive to the Board;
<PAGE>
(ii) a reduction by the Company in the Executive's
base salary as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to continue in
effect any Plan (as hereinafter defined) in which the Executive is participating
at the time of the Change in Control of the Company (or Plans providing the
Executive with at least substantially similar benefits) other than as a result
of the normal expiration of any such Plan in accordance with its terms as in
effect at the time of the Change in Control, or the taking of any action, or the
failure to act, by the Company which would adversely affect the Executive's
continued participation in any of such Plans on a substantiality similar basis
to the Executive as is the case on the date of the Change in Control, or which
would materially reduce the Executive's benefits in the future under any of such
Plans or deprive the Executive of any material benefit enjoyed by the Executive
at the time of the Change in Control;
(iv) the failure by the Company to provide and credit
the Executive with the number of paid vacation days to which the Executive is
then entitled in accordance with Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(v) the Company's requiring the Executive to be based
at any office that is greater than fifty (50) miles from where the Executive's
office is located immediately prior to the Change in Control, except for
required travel on the Company's business to an extent substantially consistent
with the business travel obligations which the Executive undertook on behalf of
the Company prior to the Change in Control;
(vi) the failure by the Company to obtain an
agreement reasonably satisfactory to the Executive from any Successor (as
defined in Section 7(a) hereof) to assume and agree to perform this Agreement;
(vii) the failure by the Company to pay to the
Executive any portion of his compensation or to pay to the Executive any portion
of an installment of deferred compensation under any deferred compensation
program of the Company within 15 days of the date the Executive gives notice of
such failure, without prior written consent of the Executive; or
(viii) any unreasonable refusal by the Company to
continue to allow the Executive to attend to matters or engage in activities not
directly related to the business of the Company which, prior to the Change in
Control, the Executive was permitted by the Board to attend to or engage in.
(ix) For purposes of this Agreement, "Plan" shall
mean any compensation plan or any employee benefit plan such as a thrift,
pension, profit sharing, medical, disability, accident, life insurance plan or a
relocation plan or policy or any other plan, program or policy of the Company
intended to benefit employees.
<PAGE>
(d) Window Period. The term "Window Period" shall mean the 45 day
period immediately following the first anniversary of the date on which a Change
in Control occurred.
(e) Notice of Termination. Any purported termination by the Company or
by the Executive following a Change in Control shall be communicated by a
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon.
6. Compensation Upon Termination.
(a) If, within 60 months after a Change in Control of the Company has
occurred, the Executive's employment by the Company is terminated other than on
account of the Executive's death and is terminated (x) by the Company other than
for Cause or Disability or (y) by the Executive during the Window Period or for
Good Reason, then the Company shall pay to the Executive, no later than the
fifteenth day following the date of termination, without regard to any contrary
provisions of any Plan, the following:
(i) The Executive's base salary through the date of
termination at the rate in effect immediately prior to the time a Notice of
Termination is given, plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to the Executive (including
amounts which previously had been deferred at the Executive's request).
(ii) A lump sum payment in cash in an amount equal to two
times the Executive's base salary at the rate in effect immediately prior to the
time a Notice of Termination is given.
(iii) A lump sum payment in cash in an amount equal to three
times the Executive's Bonus (as such term is defined in the Employment
Agreement) paid with respect to the most recent completed twelve-month fiscal
year of the Company.
(iv) In the event any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6(a)(iv)) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, or any interest or
penalties are incurred by the Executive with respect to such excise tax
(collectively, the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any income taxes and
interest or penalties imposed with respect to such taxes) and the Excise Tax
imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed on the Payments. All determinations
required to be made under this Section 6(a)(iv) shall be made by the Company's
regular independent auditors as of the date of the Notice of Termination (the
<PAGE>
"Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne
solely by the Company, and any determination by the Accounting Firm shall be
binding upon the Company and the Executive. Any Gross Up Payment shall be paid
to the Executive by the Company within 10 days of the Company's receipt of the
Accounting Firm's determination.
(b) If, within 60 months after a Change in Control of the Company has
occurred, the Executive's employment by the Company is terminated other than on
account of the Executive's death and is terminated (x) by the Company other than
for Cause or Disability, or (y) by the Executive during the Window Period or for
Good Reason, then the Company shall maintain in full force and effect, at the
sole cost of the Company (except for the regular contributions of the Executive
as described below, if any), for the continued benefit of the Executive and his
dependents for a period terminating on the earliest of (a) 12 months after the
date of termination, or (b) the commencement date of equivalent benefits from a
new employer, all insured and self-insured employee welfare benefit Plans in
which the Executive was entitled to participate immediately prior to the date of
termination; provided that (i) the Executive's continued participation is
possible under the general terms and provisions of such Plans (and any
applicable funding media), (ii) the Executive continues to pay an amount equal
to his regular contribution under such Plans prior to the Change in Control for
such participation, and (iii) it is acknowledged that the post-termination Plans
may be different from the Plans in effect on the date of termination. In the
event that the Executive's participation in any such Plan is barred, the
Company, at its sole cost and expense, shall arrange to have issued for the
benefit of the Executive and his dependents individual policies of insurance
providing benefits substantially similar (on an after-tax basis) to those which
the Executive otherwise would have been entitled to receive under such Plans
pursuant to this Section 6(b) or, if such insurance is not available at a
reasonable cost to the Company, the Company shall otherwise provide the
Executive and his dependents with equivalent benefits (on an after-tax basis).
The Executive shall not be required to pay any premiums or other charges in an
amount greater than that which the Executive would have paid in order to
participate in such Plans. The Company's obligation to provide the Executive
with medical or dental insurance shall terminate with respect to each particular
type of insurance in the event the Executive becomes employed and has made
available to him in connection with such employment at the expense of the
employer that particular type of insurance, so long as such insurance is
substantially similar to the insurance provided by the Employer. In the event
the Executive becomes employed and has made available to him in connection with
such employment at the expense of the employer life insurance which is
substantially similar to the life insurance provided by the Company, the Company
shall be required to provide the Executive with life insurance only in an amount
equal to the excess, if any, of the amount of life insurance which would be
provided by the Company if the Executive had not been provided with life
insurance in connection with his new employment over the amount of life
insurance provided by the Executive's new employer
(c) Except as specifically provided in paragraph (b) above, the amount
of any payment provided for in this Section 6 shall not be reduced, offset or
subject to recovery by the Company by reason of any compensation earned by the
Executive as the result of employment by another employer after the date of
termination, or otherwise.
<PAGE>
7. Successors; Binding Agreement.
(a) The Company will seek, by written request at least five business
days prior to the time a Person becomes a Successor (as hereinafter defined), to
have such Person, by agreement in form and substance satisfactory to the
Executive, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (x)
three business days prior to the time such Person becomes a Successor or (y) ten
business days after such Person receives a written request to so assent may, at
the election of the Executive, constitute Good Reason for termination by the
Executive of his employment if a Change in Control of the Company occurs or has
occurred, and the failure of the Executive to elect to terminate for Good Reason
upon the expiration of the applicable period shall not constitute a waiver of
his right to do so, which right he shall retain until the commencement of the
Window Period. For purposes of this Agreement, "Successor" shall mean any Person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting Securities or
otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee
or other designee or, if no such designee exists, to his estate.
(c) For purposes of this Agreement, the term "Company" shall include
any subsidiaries of the Company and any corporation or other entity which is the
surviving or continuing entity in respect of any merger, consolidation or form
of business combination in which the Company ceases to exist.
8. Fees and Expenses; Mitigation.
(a) The Company shall reimburse the Executive, on a current basis, for
all reasonable legal fees and related expenses which he shall incur in
connection with the Agreement following a Change in Control of the Company,
including without limitation, all such fees and expenses, if any, incurred (i)
in contesting or disputing any termination of the Executive's employment or (ii)
the Executive's seeking to obtain or enforce any right or benefit provided by
this Agreement, in each case, regardless of whether or not the Executive's claim
is upheld by a court of competent jurisdiction; provided, however, the Executive
shall be required to repay any such amounts to the Company to the extent that a
court issues a final and non-appealable order setting forth the determination
that the position taken by the Executive was frivolous or advanced by him in bad
faith.
(b) The Executive shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to the Executive in connection
with this Agreement, by seeking other employment or otherwise.
<PAGE>
9. Taxes.
All payments to be made to the Executive under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
10. Notice.
Any notices, requests, demands and other communications provided for by
this Agreement shall be sufficient if in writing and delivered in person or sent
by registered or certified mail, postage prepaid (in which case notice shall be
deemed to have been given on the third day after mailing), or by overnight
delivery by a reliable overnight courier service (in which case notice shall be
deemed to have been given on the day after delivery to such courier service) to
the Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors.
11. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is approved by each of the Board
and the Compensation Committee of the Board and is agreed to in a writing signed
by the Executive and a duly authorized person who is the Chairman of the Board
or President or an Executive Vice President of the Company and who is not the
Executive. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
12. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia, without
regard to the choice of law provisions of any jurisdiction.
13. Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Legal Counsel.
This Agreement has been prepared by LeClair Ryan, A Professional
Corporation, as counsel to the Company, after full disclosure of its
representation of the Company and with the consent of the Executive. The
Executive has reviewed the contents of this Agreement and fully understands its
<PAGE>
terms. The Executive acknowledges that he is fully aware of his right to the
advice of counsel independent from that of the Company, that LeClair Ryan, A
Professional Corporation, has advised him of such right and disclosed to him the
risks in not seeking such independent advice, and that he understands the
potentially adverse interests of the parties with respect to this Agreement. The
Executive further acknowledges that no representations have been made with
respect to the income or estate tax or other consequences of this Agreement to
him and that he has been advised of the importance of seeking independent advice
of counsel with respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Executive,
as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:
-------------------------------------
Title:
----------------------------------
Date: June 25, 1997
----------------------------------
Gregory A. Buck, Ph.D.
Date: June 25, 1997
Address:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
EXHIBIT 10.14
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of June 25, 1997
between Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), and Robert B. Harris, Ph.D. (the "Executive").
1. Purpose.
The Company considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of the Company and its shareholders. In this connection, the Company recognizes
that the possibility of a Change in Control (as defined herein) may arise and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Board of Directors of the Company (the "Board") has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a Change in
Control of the Company. In particular, the Board believes it important, should
the Company or its shareholders receive a proposal for transfer of control of
the Company, that the Executive be able to assess and advise the Board whether
such proposal would be in the best interests of the Company and its shareholders
and to take such other action regarding such proposal as the Board might
determine to be appropriate, without being influenced by the uncertainties of
the Executive's own situation. The execution of this Agreement is an integral
element of the employment relationship between the Company and the Executive and
the Executive's agreement to remain in the employment of the Company. However,
nothing in this Agreement shall be construed as creating an express or implied
contract of employment and, except as provided in the Employment Agreement (as
defined below) or as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in the employ of
the Company.
2. Coordination with Employment Agreement.
(a) The Company and the Executive have entered into an Employment
Agreement dated June 25, 1997 (the "Employment Agreement"). Pursuant to such
Employment Agreement, the Company agreed to employ the Executive, and the
Executive agreed to be employed by the Company, as President until the
Expiration Date (as such term is defined in the Employment Agreement.)
(b) Notwithstanding the terms of this Agreement, the Employment
Agreement shall continue in full force and effect. To the extent that any
provision of any other agreement between the Company or any of its subsidiaries
or affiliates and the Executive, (including, without limitation, the Employment
Agreement), shall limit, qualify or be inconsistent with any provision of this
Agreement, then for purposes of this Agreement, while the same shall remain in
force, the provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose. Without
limiting the generality of the foregoing, in the event the Company shall pay to
the Executive all
<PAGE>
amounts the Executive shall be eligible to receive under Section 6 hereof, the
Company shall have no obligations to make payments to the Executive under
Section 6(e) of the Employment Agreement; provided, however, that the Executive
may, in his sole discretion, elect to forgo all benefits due to him hereunder
and receive, in lieu thereof, the full benefits available to him under the
Employment Agreement.
3. Term of Agreement.
This Agreement shall commence on the date hereof (the "Commencement
Date") and shall continue in effect until the first anniversary of the
Commencement Date; provided, however, that commencing on the fifth anniversary
of the Commencement Date and on each anniversary of the Commencement Date
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless at least 30 days prior to such anniversary date, the
Company or the Executive shall have given notice that this Agreement shall not
be extended; and provided further that, notwithstanding the delivery of any such
notice, this Agreement shall continue in effect for a period of 60 months after
a Change in Control of the Company if such Change in Control shall have occurred
while this Agreement is in effect. The Company may not give notice of an
election not to extend before December 31, 1998. Notwithstanding anything in
this Section 3 to the contrary, this Agreement shall terminate if the Executive
or the Company terminates the Executive's employment prior to a Change in
Control of the Company.
4. Change in Control.
For all purposes of this Agreement, a "Change in Control" shall mean
the occurrence of any of the following events or circumstances subsequent to the
date of this Agreement, it being agreed that no circumstance or event occurring
on or before the date of this Agreement shall constitute a change in control:
(a) The acquisition, after the effective date of the Company's
registration statement for its initial public offering of share of Common Stock
under the Securities Act of 1933, as amended (the "IPO Date"), other than from
the Company, by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than a trustee or other fiduciary holding securities
under an employee benefits plan of the Company (a "Person"), who was not a
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of such securities prior to the IPO Date, of
beneficial ownership of 50% or more of either the then outstanding shares of
Common Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (collectively, the "Voting Securities") but excluding for this
purpose, any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its subsidiaries, or
any corporation with respect to which, following such acquisition, more than 50%
of the then outstanding shares of Voting Securities of such is then beneficially
owned, directly or indirectly, by the individuals and entities who were the
beneficial owners of Voting Securities of the Company immediately prior to such
acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding shares of Voting Securities
of the Company; or
<PAGE>
(b) Individuals who, immediately following the closing on the date
of this Agreement of the Company's sale of $3 million principal amount of
Convertible Subordinated Notes, constitute the Board (the "Incumbent Board")
cease for any reason, other than their resignation from the Board or failure to
stand for re-election to the Board, to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) There occurs any acquisition, merger or consolidation of the
Company, by, with or into any other corporation (other than a wholly owned
subsidiary of the Company) and individuals who are directors of the Company
immediately prior to the time the agreement of acquisition, merger or
consolidation is executed shall fail to constitute a majority of the board of
directors of the survivor or successor company at any time after consummation of
the transaction; or
(d) There occurs a sale or disposition by the Company of all or
substantially all of the Company's assets and individuals who are directors of
the Company immediately prior to the time the agreement of acquisition, merger
or consolidation is executed shall fail to constitute a majority of the board of
directors of the acquiring company at any time after consummation of the
transaction; or
(e) There occurs a change of control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Act, in a Form 8-K filed under the Act
or in any other filing by the Company with the Securities and Exchange
Commission.
(f) Notwithstanding anything in subsections (a) - (f) of this
Section 4 to the contrary, no Change in Control shall be deemed to have occurred
for purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of Persons which includes the Executive, acquiring,
directly or indirectly, 25% or more of the combined voting power of the Voting
Securities. Without limiting the generality of this Section 4(g), the persons
who were shareholders of the Company as of June 15, 1997 shall constitute a
group of Persons which includes the Executive.
5. Termination Following Change in Control.
If any of the events described in Section 4 hereof constituting a
Change in Control of the Company shall have occurred, the Executive shall be
entitled to the benefits provided in Section 6 hereof upon the termination of
the Executive's employment with the Company within sixty (60) months after such
Change in Control, unless such termination is (a) because of death of the
Executive,
<PAGE>
(b) by the Company for Cause or Disability or (c) by the Executive other than
during the Window Period or for Good Reason (as all such capitalized terms are
hereinafter defined).
(a) Disability. Termination by the Company of the Executive's
employment based on "Disability" shall mean termination because of the
Executive's inability to perform his duties with the Company on a full time
basis for 90 consecutive days or a total of at least 180 days in any calendar
year as a result of the Executive's incapacity due to physical or mental illness
(as determined by an independent physician selected by the Board of Directors of
the Company).
(b) Cause. Termination by the Company of the Executive's
employment for "Cause" shall mean termination for:
(i) gross incompetence, gross negligence, willful
misconduct in office or breach of a material fiduciary duty owed to the Company
or any subsidiary or affiliate thereof;
(ii) conviction of a felony, a crime of moral turpitude or
commission of an act of embezzlement or fraud against the Company or any
subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a material
term of this Agreement, including without limitation material failure to perform
a substantial portion of his duties and responsibilities hereunder; or
(iv) deliberate dishonesty of the Executive with respect
to the Company or any subsidiary or affiliate thereof.
(c) Good Reason. Termination by the Executive of his employment
for "Good Reason" shall mean termination based on:
(i) a determination by the Executive, in his reasonable
judgment, that there has been a material adverse change in the Executive's
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, any
material adverse change in his status or position as a result of a diminution in
his duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company shall cease to be publicly
owned) or the assignment to the Executive of any duties or responsibilities
which are inconsistent with such status or position(s), or any removal of the
Executive from, or any failure to reappoint or reelect the Executive to, such
positions(s) (except in connection with the termination of the Executive's
employment for Cause or Disability or as a result of the Executive's death or by
the Executive other than for Good Reason), but excluding any failure to nominate
the Executive to the Board;
(ii) a reduction by the Company in the Executive's base
salary as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to continue in effect any
Plan (as hereinafter defined) in which the Executive is participating at the
time of the Change in Control of the Company
<PAGE>
(or Plans providing the Executive with at least substantially similar benefits)
other than as a result of the normal expiration of any such Plan in accordance
with its terms as in effect at the time of the Change in Control, or the taking
of any action, or the failure to act, by the Company which would adversely
affect the Executive's continued participation in any of such Plans on a
substantiality similar basis to the Executive as is the case on the date of the
Change in Control, or which would materially reduce the Executive's benefits in
the future under any of such Plans or deprive the Executive of any material
benefit enjoyed by the Executive at the time of the Change in Control;
(iv) the failure by the Company to provide and credit the
Executive with the number of paid vacation days to which the Executive is then
entitled in accordance with Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(v) the Company's requiring the Executive to be based at
any office that is greater than fifty (50) miles from where the Executive's
office is located immediately prior to the Change in Control, except for
required travel on the Company's business to an extent substantially consistent
with the business travel obligations which the Executive undertook on behalf of
the Company prior to the Change in Control;
(vi) the failure by the Company to obtain an agreement
reasonably satisfactory to the Executive from any Successor (as defined in
Section 7(a) hereof) to assume and agree to perform this Agreement;
(vii) the failure by the Company to pay to the Executive
any portion of his compensation or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company within 15 days of the date the Executive gives notice of such
failure, without prior written consent of the Executive; or
(viii) any unreasonable refusal by the Company to continue
to allow the Executive to attend to matters or engage in activities not directly
related to the business of the Company which, prior to the Change in Control,
the Executive was permitted by the Board to attend to or engage in.
(ix) For purposes of this Agreement, "Plan" shall mean any
compensation plan or any employee benefit plan such as a thrift, pension, profit
sharing, medical, disability, accident, life insurance plan or a relocation plan
or policy or any other plan, program or policy of the Company intended to
benefit employees.
(d) Window Period. The term "Window Period" shall mean the 45 day
period immediately following the first anniversary of the date on which a Change
in Control occurred.
(e) Notice of Termination. Any purported termination by the Company
or by the Executive following a Change in Control shall be communicated by a
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon.
6. Compensation Upon Termination.
<PAGE>
(a) If, within 60 months after a Change in Control of the Company
has occurred, the Executive's employment by the Company is terminated other than
on account of the Executive's death and is terminated (x) by the Company other
than for Cause or Disability or (y) by the Executive during the Window Period or
for Good Reason, then the Company shall pay to the Executive, no later than the
fifteenth day following the date of termination, without regard to any contrary
provisions of any Plan, the following:
(i) The Executive's base salary through the date of
termination at the rate in effect immediately prior to the time a Notice of
Termination is given, plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to the Executive (including
amounts which previously had been deferred at the Executive's request).
(ii) A lump sum payment in cash in an amount equal to two
times the Executive's base salary at the rate in effect immediately prior to the
time a Notice of Termination is given.
(iii) A lump sum payment in cash in an amount equal to
three times the Executive's Bonus (as such term is defined in the Employment
Agreement) paid with respect to the most recent completed twelve-month fiscal
year of the Company.
(iv) In the event any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 6(a)(iv)) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties are incurred by the Executive with respect to such excise
tax (collectively, the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any income taxes and
interest or penalties imposed with respect to such taxes) and the Excise Tax
imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed on the Payments. All determinations
required to be made under this Section 6(a)(iv) shall be made by the Company's
regular independent auditors as of the date of the Notice of Termination (the
"Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne
solely by the Company, and any determination by the Accounting Firm shall be
binding upon the Company and the Executive. Any Gross Up Payment shall be paid
to the Executive by the Company within 10 days of the Company's receipt of the
Accounting Firm's determination.
(b) If, within 60 months after a Change in Control of the Company
has occurred, the Executive's employment by the Company is terminated other than
on account of the Executive's death and is terminated (x) by the Company other
than for Cause or Disability, or (y) by the Executive during the Window Period
or for Good Reason, then the Company shall maintain in full force and effect, at
the sole cost of the Company (except for the regular contributions of the
Executive as described below, if any), for the continued benefit of the
Executive and his dependents for a period terminating on the earliest of (a) 12
months after the date of termination, or (b) the commencement date of equivalent
<PAGE>
benefits from a new employer, all insured and self-insured employee welfare
benefit Plans in which the Executive was entitled to participate immediately
prior to the date of termination; provided that (i) the Executive's continued
participation is possible under the general terms and provisions of such Plans
(and any applicable funding media), (ii) the Executive continues to pay an
amount equal to his regular contribution under such Plans prior to the Change in
Control for such participation, and (iii) it is acknowledged that the
post-termination Plans may be different from the Plans in effect on the date of
termination. In the event that the Executive's participation in any such Plan is
barred, the Company, at its sole cost and expense, shall arrange to have issued
for the benefit of the Executive and his dependents individual policies of
insurance providing benefits substantially similar (on an after-tax basis) to
those which the Executive otherwise would have been entitled to receive under
such Plans pursuant to this Section 6(b) or, if such insurance is not available
at a reasonable cost to the Company, the Company shall otherwise provide the
Executive and his dependents with equivalent benefits (on an after-tax basis).
The Executive shall not be required to pay any premiums or other charges in an
amount greater than that which the Executive would have paid in order to
participate in such Plans. The Company's obligation to provide the Executive
with medical or dental insurance shall terminate with respect to each particular
type of insurance in the event the Executive becomes employed and has made
available to him in connection with such employment at the expense of the
employer that particular type of insurance, so long as such insurance is
substantially similar to the insurance provided by the Employer. In the event
the Executive becomes employed and has made available to him in connection with
such employment at the expense of the employer life insurance which is
substantially similar to the life insurance provided by the Company, the Company
shall be required to provide the Executive with life insurance only in an amount
equal to the excess, if any, of the amount of life insurance which would be
provided by the Company if the Executive had not been provided with life
insurance in connection with his new employment over the amount of life
insurance provided by the Executive's new employer
(c) Except as specifically provided in paragraph (b) above, the
amount of any payment provided for in this Section 6 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by the Executive as the result of employment by another employer after
the date of termination, or otherwise.
<PAGE>
7. Successors; Binding Agreement.
(a) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to the Executive, assent to the fulfillment of the Company's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(x) three business days prior to the time such Person becomes a Successor or (y)
ten business days after such Person receives a written request to so assent may,
at the election of the Executive, constitute Good Reason for termination by the
Executive of his employment if a Change in Control of the Company occurs or has
occurred, and the failure of the Executive to elect to terminate for Good Reason
upon the expiration of the applicable period shall not constitute a waiver of
his right to do so, which right he shall retain until the commencement of the
Window Period. For purposes of this Agreement, "Successor" shall mean any Person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting Securities or
otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee
or other designee or, if no such designee exists, to his estate.
(c) For purposes of this Agreement, the term "Company" shall
include any subsidiaries of the Company and any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist.
8. Fees and Expenses; Mitigation.
(a) The Company shall reimburse the Executive, on a current basis,
for all reasonable legal fees and related expenses which he shall incur in
connection with the Agreement following a Change in Control of the Company,
including without limitation, all such fees and expenses, if any, incurred (i)
in contesting or disputing any termination of the Executive's employment or (ii)
the Executive's seeking to obtain or enforce any right or benefit provided by
this Agreement, in each case, regardless of whether or not the Executive's claim
is upheld by a court of competent jurisdiction; provided, however, the Executive
shall be required to repay any such amounts to the Company to the extent that a
court issues a final and non-appealable order setting forth the determination
that the position taken by the Executive was frivolous or advanced by him in bad
faith.
(b) The Executive shall not be required to mitigate the amount of
any payment the Company becomes obligated to make to the Executive in connection
with this Agreement, by seeking other employment or otherwise.
<PAGE>
9. Taxes.
All payments to be made to the Executive under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
10. Notice.
Any notices, requests, demands and other communications provided for by
this Agreement shall be sufficient if in writing and delivered in person or sent
by registered or certified mail, postage prepaid (in which case notice shall be
deemed to have been given on the third day after mailing), or by overnight
delivery by a reliable overnight courier service (in which case notice shall be
deemed to have been given on the day after delivery to such courier service) to
the Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors.
11. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is approved by each of the Board
and the Compensation Committee of the Board and is agreed to in a writing signed
by the Executive and a duly authorized person who is the Chairman of the Board
or President or an Executive Vice President of the Company and who is not the
Executive. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
12. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia, without
regard to the choice of law provisions of any jurisdiction.
13. Validity.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Legal Counsel.
This Agreement has been prepared by LeClair Ryan, A Professional
Corporation, as counsel to the Company, after full disclosure of its
representation of the Company and with the consent of the Executive. The
Executive has reviewed the contents of this Agreement and fully understands its
terms. The Executive acknowledges that he is fully aware of his right to the
<PAGE>
advice of counsel independent from that of the Company, that LeClair Ryan, A
Professional Corporation, has advised him of such right and disclosed to him the
risks in not seeking such independent advice, and that he understands the
potentially adverse interests of the parties with respect to this Agreement. The
Executive further acknowledges that no representations have been made with
respect to the income or estate tax or other consequences of this Agreement to
him and that he has been advised of the importance of seeking independent advice
of counsel with respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Executive,
as of the date first above written.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By:
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Title:
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Date: June 25, 1997
----------------------------------
Robert B. Harris, Ph.D.
Date: June 25, 1997
Address:
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EXHIBIT 10.15
COMMONWEALTH BIOTECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Commonwealth Biotechnologies, Inc.
1997 Stock Incentive Plan (the "Plan") is to further the long term stability and
financial success of Commonwealth Biotechnologies, Inc. (the "Company") by
attracting and retaining personnel, including employees, directors, officers,
consultants, agents, advisors and independent contractors, through the use of
stock incentives. It is believed that ownership of Company stock will stimulate
the efforts of those persons upon whose judgment and interest the Company is and
will be largely dependent for the successful conduct of its business. It is also
believed that Incentive Awards granted to such persons under this Plan will
strengthen their desire to remain with the Company or to continue to contribute
to the growth of the business of the Company and will further the identification
of their interests with those of the Company's shareholders. The Plan is
intended to conform to the provisions of Securities and Exchange Commission Rule
16b-3 promulgated under the 1934 Act, if the Company shall register its Common
Stock under Section 12 of the 1934 Act.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated:
(a) "Agreement" means a written agreement (including any
amendment or supplement thereto) between the Company and a Participant
specifying the terms and conditions of an Incentive Award granted to such
Participant.
(b) "Applicable Withholding Taxes" means the aggregate amount
of federal, state, and local income and payroll taxes that the Company is
required to withhold in connection with any exercise of a Nonstatutory Stock
Option, or Tax Offset Right, any lapse of restrictions on Restricted Stock, or
any grant of Performance Stock.
(c) "Affiliate" means any "parent" or "subsidiary"
corporation (within the meaning of Code Section 424) of the Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means dishonesty, fraud, misconduct, gross
negligence, breach of a material fiduciary duty, material breach of an agreement
with the Company or any of its Subsidiaries, unauthorized use or disclosure of
confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Committee, which determination shall be binding.
(f) "Change of Control" means:
(i) The acquisition, after the effective date of the
Company's registration statement for its initial public offering
of shares of Common Stock
<PAGE>
under the Securities Act of 1933, as amended (the "IPO Date"),
other than from the Company, by any individual, entity, or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934
Act), who was not a beneficial owner (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of 50% or more of such
securities prior to the IPO Date, of beneficial ownership of 50%
or more of either the then outstanding shares of Common Stock or
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (collectively, "Voting Securities"), but
excluding for this purpose, any such acquisition by the Company
or any of its subsidiaries, or any employee benefit plan (or
related trust) of the Company or its subsidiaries, or any
corporation with respect to which, following such acquisition,
more than 50% of the then outstanding shares of Voting Securities
of such is then beneficially owned, directly or indirectly, by
the individuals and entities who were the beneficial owners of
Voting Securities of the Company immediately prior to such
acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the then
outstanding shares of Voting Securities of the Company; or
(ii) Approval by the shareholders of the Company of
(A) a reorganization, merger or consolidation with respect to
which the individuals and entities who were the respective
beneficial owners of the Voting Securities of the Company
immediately prior to such reorganization, merger or consolidation
do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the
then outstanding shares of Voting Securities of the corporation
resulting from such reorganization, merger or consolidation, or
(B) a complete liquidation or dissolution of the Company, or (C)
any sale, lease, exchange, or other disposition in one
transaction or a series of related transactions of all or
substantially all of the Company's assets other than a
disposition of the Company's assets to a majority-owned
Subsidiary.
(g) "Code" means the Internal Revenue Code of 1986, as
amended.
(h) "Committee" means the Compensation Committee appointed by the
Board from time to time as described under Section 15 hereof, or in the absence
of such Committee, the Board.
(i) "Common Stock" means Common Stock, no par value, of the
Company. If the par value of the Common Stock is changed, or in the event of a
change in the capital structure of the Company (as provided in Section 14), the
shares resulting from such a change shall be deemed to be Common Stock within
the meaning of the Plan.
(j) "Company" means Commonwealth Biotechnologies, Inc., a
Virginia corporation.
<PAGE>
(k) "Date of Grant" means the date on which an Incentive
Award is granted by the Committee. If, however, the Committee designates in a
resolution a later date as the date an Incentive Award is to be granted, then
such later date shall be the Date of Grant.
(l) "Disability" or "Disabled" means, as to an ISO, a
Disability within the meaning of Code Section 22(e)(3). As to all other
Incentive Awards, the Committee shall determine whether a Disability exists,
which determination shall be conclusive.
(m) "Fair Market Value" means, on any given date, the value
of a share of Common Stock. If the Common Stock is not publicly traded on the
date of valuation, the value shall be determined by the Committee in good faith
using any reasonable method. If the Common Stock is publicly traded, then Fair
Market Value shall equal (i) if the Common Stock is listed on The Nasdaq
National Market or The Nasdaq SmallCap Market, the average of the high and low
per share sales prices for the Common Stock as reported by The Nasdaq National
Market or The Nasdaq SmallCap Market for a single trading day or (ii) if the
Common Stock is listed on the New York Stock Exchange or the American Stock
Exchange, the average of the high and low per share sales prices for the Common
Stock as such price is officially quoted in the composite tape of transactions
on such exchange for a single trading day. If there is no such reported price
for the Common Stock for the date in question, then such price on the last
preceding date for which such price exists shall be determinative of the Fair
Market Value.
(n) "Incentive Award" means any form of an Option,
Performance Stock, Restricted Stock, or Tax Offset Right granted under the
Plan.
(o) "Incentive Stock Option" or "ISO" means an Option
intended to meet the requirements of, and qualify for favorable federal income
tax treatment, under Code Section 422.
(p) "Insider" means a person subject to Section 16(b) of the
1934 Act.
(q) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(r) "1933 Act" means the Securities Act of 1933, as amended.
(s) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code Section 422, or, even if meeting the requirements
of Code Section 422, is not intended to be an ISO and is so designated.
(t) "Option" means a right to purchase Common Stock granted
under the Plan, at a price determined in accordance with the Plan and set forth
in an Agreement.
(u) "Participant" means an individual to whom an Incentive
Award is granted under the Plan.
(v) "Performance Stock" means Common Stock awarded when
performance goals are achieved pursuant to an incentive program as provided in
Section 7.
<PAGE>
(w) "Plan" means the Commonwealth Biotechnologies, Inc.
Option Plan.
(x) "Reload Feature" means a feature of an Option described
in an Agreement that authorizes the automatic grant of a Reload Option in
accordance with the provisions of Section 10(d).
(y) "Reload Option" means an Option automatically granted to
a Participant equal to the number of shares of already owned Common Stock
delivered by the Participant to exercise an Option having a Reload Feature.
(z) "Restricted Stock" means Common Stock awarded upon the
terms and subject to the restrictions set forth in Section 6.
(aa) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the 1934 Act. A reference in the Plan to
Rule 16b-3 shall include a reference to any corresponding rule (or number
redesignation) of any amendments to Rule 16b-3 enacted after the effective date
of the Plan's adoption.
(bb) "Ten Percent Shareholder" means any individual who owns,
directly or indirectly, more than 10% of the total combined voting power of
all classes of stock of the Company or of an Affiliate. Indirect ownership of
stock shall be determined in accordance with Code Section 424(d).
(cc) "Tax Offset Right" means a right to receive cash amounts
related to Applicable Withholding Taxes from the Company as described in Section
12 of the Plan.
3. General. All types of Incentive Awards may be granted under
the Plan. Options granted under the Plan may be ISOs or Nonstatutory Stock
Options.
4. Stock. Subject to Section 16 of the Plan, there shall be
reserved for issuance under the Plan an aggregate of 376,667 shares of Common
Stock, which shall be authorized, but unissued shares. Of these shares, 236,667
will be reserved for Incentive Awards to be granted to Drs. Richard J. Freer,
Robert B. Harris and Gregory A. Buck and Mr. Thomas R. Reynolds. 140,000 shares
will be reserved for Incentive Awards to be granted to other persons, and the
foregoing named individuals shall not be eligible for Incentive Awards with
respect to these 140,000 shares. Incentive Awards may be made and exercised as
to whole shares or fractional shares, at the discretion of the Committee. If an
Incentive Award is terminated or expires, in whole or in part, for any reason
other than its exercise, the number of shares of Common Stock allocated to the
Incentive Award or portion thereof may be reallocated to other Incentive Awards
to be granted under this Plan. Shares of Common Stock subject to repurchase
which are subsequently repurchased by the Company shall also be available for
issuance in connection with future grants of Incentive Awards. For purposes of
determining the number of shares that are available for Incentive Awards under
the Plan, such number shall, to the extent permissible under Rule 16b-3, include
the number of shares surrendered by a Participant or retained by the Company
<PAGE>
in payment of Applicable Withholding Taxes; provided, however, that for purposes
of Code Section 162(m), any such shares shall be counted in accordance with the
requirements of such Code Section.
5. Eligibility.
(a) Subject to the sole discretion of the Committee, any
employee, director, officer, consultant, agent, advisor, or independent
contractor of the Company (or any Affiliate including a corporation that becomes
an Affiliate after the adoption of this Plan) is eligible to receive Incentive
Awards; provided that only employees of the Company or its Affiliates may be
granted ISO's. The Committee has the sole discretion to determine for each
Participant the terms and conditions, the nature of the award, and the number of
shares to be allocated to each Participant as part of each Incentive Award. Any
Incentive Award granted under this Plan shall be evidenced by an Agreement which
shall be subject to the applicable provisions of this Plan and to other such
provisions as the Committee may impose.
(b) The grant of an Incentive Award shall not obligate the
Company or any Affiliate to pay a Participant any particular amount of
remuneration, to continue the employment of a Participant after the grant, or to
make further grants to the Participant at any time thereafter.
6. Restricted Stock Awards.
(a) Whenever the Committee deems it appropriate to grant
Restricted Stock, notice shall be given to the Participant stating the number of
shares of Restricted Stock granted and the terms and conditions to which the
Restricted Stock is subject. This notice, when accepted in writing by the
Participant, shall become an Agreement and certificates representing the shares
shall be issued and delivered to the Participant. Restricted Stock may be
awarded by the Committee in its discretion without cash consideration.
(b) Restricted Stock issued pursuant to the Plan shall
be subject to the following restrictions:
(i) No shares of Restricted Stock may be sold,
assigned, transferred, or disposed of by an Insider within a
six-month period beginning on the Date of Grant, and Restricted
Stock may not be pledged, hypothecated, or otherwise encumbered
within a six-month period beginning on the Date of Grant if such
action would be treated as a sale or disposition under Rule
16b-3.
(ii) No shares of Restricted Stock may be sold,
assigned, transferred, pledged, hypothecated, or otherwise
encumbered or disposed of until the restrictions on such shares
as set forth in the Participant's Agreement have lapsed or been
removed pursuant to paragraph (d) or (e) below.
(iii) If a Participant ceases to be employed by the
Company or an Affiliate, the Participant shall forfeit to the
Company any shares of Restricted Stock on
<PAGE>
which the restrictions have not lapsed or been removed pursuant
to paragraph (d) or (e) below on the date such Participant shall
cease to be so employed and the Company shall have no obligation
to pay any amounts with respect to such forfeiture, unless the
Committee determines to the contrary.
(c) Upon the acceptance by a Participant of an award of
Restricted Stock, such Participant shall, subject to the restrictions set forth
in paragraph (b) above, have all the rights of a shareholder with respect to
such shares of Restricted Stock, including, but not limited to, the right to
vote such shares of Restricted Stock and the right to receive all dividends and
other distributions paid thereon. Certificates representing Restricted Stock
shall bear a legend referring to the restrictions set forth in the Plan and the
Participant's Agreement.
(d) The Committee shall establish as to each award of
Restricted Stock the terms and conditions upon which the restrictions set forth
in paragraph (b) above shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions as a result of the
Disability, death or Retirement of the Participant or the occurrence of a Change
of Control.
(e) Notwithstanding the provisions of paragraphs (b)(ii) and
(iii) above, the Committee may at any time, in its sole discretion, accelerate
the time at which any or all restrictions will lapse or remove any and all such
restrictions.
(f) Until the requirements of Section 11 have been met, no
stock certificate free of a legend reflecting the restrictions set forth in
paragraph (b) above shall be issued to such Participant.
7. Performance Stock Awards.
(a) Performance Stock may be issued pursuant to the Plan in
connection with incentive programs established from time to time by the
Committee when performance criteria established by the Committee as part of the
incentive program have been achieved.
(b) Whenever the Committee deems it appropriate, the
Committee may establish an incentive program and notify Participants of their
participation in and the terms of the incentive program. More than one incentive
program may be established by the Committee and they may operate concurrently or
for varied periods of time and a Participant may be permitted to participate in
more than one incentive program at the same time. Performance Stock will be
issued only subject to the incentive program and the Plan and consistent with
meeting the performance goals set by the Committee. A Participant in an
incentive program shall have no rights as a shareholder until Performance Stock
is issued. Performance Stock may be issued without cash consideration.
(c) A Participant's interest in an incentive program
may not be sold, assigned, transferred, pledged, hypothecated, or otherwise
encumbered.
<PAGE>
8. Stock Options.
(a) Whenever the Committee deems it appropriate to grant
Options, a written agreement shall be given to the Participant stating the
number of shares for which Options are granted, the Option price per share,
whether the Options are ISOs or Nonstatutory Stock Options, and the conditions
to which the grant and exercise of the Options are subject. This written
agreement, when duly accepted in writing by the Participant, shall become an
Agreement.
(b) The exercise price of shares of Common Stock covered by
an ISO shall be not less than 100% of the Fair Market Value of such shares on
the Date of Grant; provided that if an ISO is granted to a Participant who, at
the time of the grant, is a Ten Percent Shareholder, then the exercise price of
the shares covered by the ISO shall be not less than 110% of the Fair Market
Value of such shares on the Date of Grant.
(c) Options may be exercised in whole or in part at such
times as may be specified by the Committee in the Participant's Agreement,
subject to Section 12; provided that no ISO may be exercised after ten years
(or, in the case of an ISO granted to a Ten Percent Shareholder, five years)
from the Date of Grant. Except as otherwise provided in this paragraph, no ISO
may be exercised unless the Participant is employed by the Company or an
Affiliate at the time of the exercise and has been employed by the Company or an
Affiliate of the Company at all times since the Date of Grant. An ISO by its
terms, shall be exercisable in any calendar year only to the extent that the
aggregate Fair Market Value (determined at the Date of Grant) of the Common
Stock with respect to which ISOs are exercisable for the first time during the
calendar year does not exceed $100,000 (the "Limitation Amount"). ISOs granted
under the Plan and all other plans of the Company and any Affiliate shall be
aggregated for purposes of determining whether the Limitation Amount has been
exceeded. The Board may impose such conditions as it deems appropriate on an ISO
to ensure that the foregoing requirement is met. If ISOs that first become
exercisable in a calendar year exceed the Limitation Amount, the excess will be
treated as Nonstatutory Stock Options to the extent permitted by law.
(d) To obtain certain tax benefits afforded to ISOs under
Section 422 of the Code, the Participant must hold the shares issued upon the
exercise of an ISO for two years after the Date of Grant of the ISO and one year
from the date of exercise. A Participant may be subject to the alternative
minimum tax at the time of exercise of an ISO. The Committee may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an ISO before the expiration of such holding
periods.
(e) Notwithstanding the foregoing, no Option shall be
exercisable within the first six months after it is granted; provided that, this
restriction shall not apply if the Participant becomes Disabled or dies during
the six-month period.
(f) The Committee may, in its sole discretion, grant Options
that by their terms become fully exercisable upon a Change of Control,
notwithstanding other conditions on exercisability in the Agreement.
<PAGE>
9. Method of Exercise of Options.
(a) Options may be exercised by the Participant giving
written notice of the exercise to the Company, stating the number of shares the
Participant has elected to purchase under the Option. Such notice shall be
effective only if accompanied by the exercise price in full in cash; provided
that, if the terms of an Option so permit, the Participant may (i) deliver, or
cause to be withheld from the Option shares, shares of Common Stock (valued at
their Fair Market Value on the date of exercise) that have been held for at
least six months if acquired from the Company and are not subject to any
restrictions in satisfaction of all or any part of the exercise price, (ii)
deliver a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company, from the sale or
loan proceeds with respect to the sale of Common Stock or a loan secured by
Common Stock, the amount necessary to pay the exercise price and, if required by
the Committee, Applicable Withholding Taxes, or (iii) deliver an interest
bearing recourse promissory note, payable to the Company, in payment of all or
part of the exercise price together with such collateral as may be required by
the Committee at the time of exercise. The interest rate under any such
promissory note shall be established by the Committee and shall be at least
equal to the minimum interest rate required at the time to avoid imputed
interest under the Code.
(b) The Company may place on any certificate representing
Common Stock issued upon the exercise of an Option any legend deemed desirable
by the Company's counsel to comply with federal or state securities laws, and
the Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any Applicable Withholding Taxes, and has had issued a certificate for
the shares of Common Stock acquired, he shall possess no shareholder rights with
respect to the shares.
(c) If a Participant exercises an Option that has a Reload
Feature by delivering already owned shares of Common Stock in payment of the
exercise price, the Committee shall grant to the Participant a Reload Option.
The Committee shall grant the Reload Option in the same manner as set forth in
Section 8(a). The Reload Option shall be subject to the following restrictions:
(i) The exercise price of shares of Common Stock
covered by a Reload Option shall be not less than 100% of the
Fair Market Value of such shares on the Date of Grant of the
Reload Option;
(ii) If and to the extent required by Rule 16b-3, a
Reload Option shall not be exercisable within the first six
months after it is granted; provided that this restriction shall
not apply if the Participant becomes Disabled or dies during the
six-month period;
(iii) The Reload Option shall be subject to the same
restrictions on exercisability imposed on the underlying option
(possessing the Reload Feature) exercised unless the Committee
specifies different limitations;
<PAGE>
(iv) The Reload Option shall not be exercisable until
the expiration of any retention holding period imposed on the
disposition of any shares of Common Stock covered by the
underlying Option (possessing the Reload Feature) delivered; and
(v) The Reload Option shall not have a Reload
Feature.
The Committee may, in its sole discretion, cause the Company to place on any
certificate representing Common Stock issued to a Participant upon the exercise
of an underlying Option (possessing a Reload Feature as evidenced by the
Agreement for such Option) delivered pursuant to this subsection (d), a legend
restricting the sale or other disposition of such Common Stock.
(d) Notwithstanding anything herein to the contrary, at all
times at which the Company has any class of securities registered under Section
12 of the 1934 Act, Options shall be granted and exercised in such a manner as
to conform to the provisions of Rule 16b-3.
(e) Each Participant shall, before the exercise of any
Option, deliver to the Company any reasonable information the Company deems
necessary to be able to satisfy itself that the shares of Common Stock issuable
upon exercise of an Option will be acquired in accordance with the terms of an
applicable exemption from the securities registration requirements of applicable
federal and state securities law. With respect to Options that are not ISOs and
without limiting the scope of the Company's or the Committee's discretion to
withhold approval or otherwise administer this Plan, approval may be withheld to
the extent that the exercise, either individually or in the aggregate together
with the exercise of other previously exercised Options and/or offers and sales
pursuant to any prior or contemplated offering of securities, would, in the sole
and absolute judgment of the Company, require the filing of a registration
statement with the United States Securities and Exchange Commission or with the
securities commission of any state. The Company shall avail itself of any
exemptions from registration contained in applicable federal and state
securities laws which are reasonably available to the Company on terms which, in
its sole and absolute discretion, it deems reasonable and not unduly burdensome
or costly. If an Option which is not an ISO cannot be exercised at the time it
would otherwise expire due to the restrictions contained in this Section, the
exercise period for that Option shall be extended for successive one-year
periods until that Option can be exercised in accordance with this Section
10. Nontransferability of Options. Options by their terms, shall not
be transferable except by will or by the laws of descent and distribution or, if
permitted by Rule 16b-3, pursuant to a qualified domestic relations order (as
defined in Code Section 414(p)) ("QDRO") and shall be exercisable, during the
Participant's lifetime, only by the Participant or, if permitted by Rule 16b-3,
an alternative payee under a QDRO, or by his guardian, duly authorized
attorney-in-fact or other legal representative.
11. Payment of Applicable Withholding Taxes. The Company may require
the Participant to pay to the Company the amount of Applicable Withholding Taxes
with respect to
<PAGE>
the grant or exercise of any Incentive Award. Subject to the Plan and applicable
law, the Committee may, in its sole discretion, permit the Participant to
satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock issuable upon the
exercise of an Incentive Award, or by transferring to the Company shares of
Common Stock that have been held for at least six months if acquired from the
Company and are not subject to any restrictions, in such amounts equal to the
Applicable Withholding Taxes. The Company shall have the right to withhold from
any shares of Common Stock issuable pursuant to an Incentive Award or from any
cash amounts otherwise due or to become due from the Company to the Participant
an amount equal to such taxes. The Company shall have no obligation to deliver
shares of Common Stock until the Applicable Withholding Taxes have been
satisfied.
12. Effect of Death, Disability, or Termination of Employment.
(a) In the event of termination of a Participant's employment
or services for the Company or its Affiliates for any reason other than for
Cause, death, or Disability, such Participant shall have the right to exercise
the Incentive Award at any time within three months after such termination of
employment to the extent of the full number of shares that such Participant was
entitled to purchase under the Incentive Award on the date of termination,
subject to the condition that no Incentive Award shall be exercisable after the
expiration of the term of the Incentive Award.
(b) If a Participant's employment or services is terminated
by the Company or its Affiliates for Cause, his Incentive Awards shall be
terminated as of the date of the misconduct.
(c) If a Participant's employment or services for the Company
or its Affiliates terminate for death or Disability, all Incentive Awards then
held by such Participant under the Plan expire on the earlier of (i) 12 months
from the date of such termination, (ii) the expiration date of such option, or
(iii) if for Retirement, the date on which Participant breaches a noncompetition
or other obligation owed to the Company. The Incentive Award may be exercised by
the personal representatives, administrators, or guardian of the Participant or
by any person or persons to whom the Incentive Award is transferred by will or
the applicable laws of descent and distribution, but only to the extent of the
full number of shares such Participant was entitled to purchase under the
Incentive Award on the date of such death or termination of employment.
(d) Notwithstanding the foregoing, the Committee shall
establish and set forth in each Incentive Award agreement whether the Incentive
Award will continue to be exercisable, and the terms and conditions of such
exercise, if a Participant ceases to be employed by, or to provide services to,
the Company or its Affiliates, which provisions may be waived or modified by the
Committee at any time. If not so established in the agreement evidencing the
Incentive Award, the Option will be exercisable according to the provisions of
paragraphs (a), (b), and (c), above, which may be waived or modified by the
Committee at any time. If the Committee extends the exercisability of an ISO
beyond the time provided for in Code Section 422, the ISO will become a
Nonstatutory Stock Option.
13. Tax Offset Rights.
(a) Whenever the Committee deems it appropriate, Tax
Offset Rights may be granted in connection with Nonstatutory Stock Options,
Performance Stock, or Restricted Stock. Tax Offset Rights shall be evidenced in
writing as part of the Agreement to which they pertain.
(b) Tax Offset Rights, (i) upon exercise of all or any part
of Nonstatutory Stock Option (ii) upon grant of Performance Stock, or (iii) upon
the lapse of restrictions on Restricted Stock, entitle the Participant to
receive in cash from the Company an amount equal to or approximating the
Applicable Withholding Taxes.
(c) A Participant may exercise a Tax Offset Right by giving
the Committee written notice of exercise simultaneously with the exercise of a
Nonstatutory Stock Option the receipt of an award of Performance Stock, or the
lapse of restrictions on Restricted Stock. To the extent exercised, the Tax
Offset Right shall lapse.
(d) The Committee may limit the amount the Participant will
be entitled to receive in connection with a Tax Offset Right and may include any
provisions in a Tax Offset Right that the Committee deems appropriate to ensure
that the Tax Offset Right will not be characterized as an "equity security" or
"derivative security" for purposes of Section 16 of the 1934 Act and the rules
and regulations thereunder.
14. Repurchase Rights, Escrow.
(a) The Committee shall have the discretion to authorize the
issuance of unvested shares of Common Stock pursuant to the exercise of an
Incentive Award. In the event of termination of the Participant's employment or
services or breach of a material obligation owed by Participant to the Company
or its Subsidiaries, all shares of Common Stock issued upon exercise of an
Incentive Award which are unvested at the time of cessation of employment or
services shall be subject to repurchase at the exercise price paid for such
shares. The terms and conditions upon which such repurchase right shall be
exercisable (including the period and procedure for exercise) shall be
established by the Committee and set forth in the agreement evidencing such
right. All of the Company's outstanding repurchase rights under this Section
14(a) are assignable by the Company at any time and shall remain in full force
and effect in the event of a Change of Control; provided that if the vesting of
Incentive Awards is accelerated pursuant to Section 17, the repurchase rights
under this Section 14(a) shall terminate and all shares subject to such
terminated rights shall immediately vest in full. The Committee shall have the
discretionary authority, exercisable either before or after the Participant's
cessation of employment or services or breach of a material obligation owed by
Participant to the Company or its Subsidiaries, to cancel the Company's
outstanding repurchase rights with respect to one or more shares purchased or
purchasable by the Participant under an Incentive Award and thereby accelerate
the vesting of such shares in whole or in part at any time.
<PAGE>
(b) To ensure that shares of Common Stock acquired upon
exercise of an Incentive Award that are subject to any repurchase right,
stockholders agreement, security for any promissory note, or other restrictions,
including without limitation those set forth in Section 6(b), will be available
for repurchase, the Committee may require the Participant to deposit the
certificate or certificates evidencing such shares with an agent designated by
the Committee under the terms and conditions of escrow and security agreements
approved by the Committee. If the Committee does not require such deposit as a
condition of exercise of an Incentive Award, the Committee reserves the right at
any time to require the Participant to so deposit the certificate or
certificates in escrow. The Company shall bear the expense of the escrow. As
soon as practicable after the expiration of any repurchase rights, stockholders
agreement, or other restrictions, and after full repayment of any promissory
note secured by the shares in escrow, the agent shall deliver to the Participant
the shares no longer subject to such restrictions and no longer security for any
promissory note. In the event shares held in escrow are subject to the Company's
exercise of a repurchase option or stockholders agreement, the notices required
to be given to the Participant shall be given to the agent and any payment
required to be given to the Participant shall be given to the agent. Within 30
days after payment by the Company, the agent shall deliver the shares which the
Company has purchased to the Company and shall deliver the payment received from
the Company to the Participant. In the event of a stock dividend, stock split,
or consolidation of shares or any like capital adjustment of any of the
outstanding securities of the Company, any and all new, substituted or
additional securities or other property to which the Participant is entitled by
reason of ownership of shares acquired upon exercise of an Incentive Award shall
be subject to any repurchase rights, stockholders agreement, and/or security for
any promissory note with the same force and effect as the shares subject to such
repurchase rights, stockholders agreement and/or security interest immediately
before such event
15. Termination, Modification, Change. If not sooner terminated by
the Board, this Plan shall terminate at the close of business ten years after
the effective date as set forth in Section 24 hereof. No Incentive Awards shall
be made under the Plan after its termination. The Board may terminate the Plan
or may amend the Plan in such respects as it shall deem advisable; provided
that, if and to the extent required by the Code or Rule 16b-3, no change shall
be made that increases the total number of shares of Common Stock reserved for
issuance pursuant to Incentive Awards granted under the Plan (except pursuant to
Section 16), materially modifies the requirements as to eligibility for
participation in the Plan, or materially increases the benefits accruing to
Participants under the Plan, or unless such change is authorized by the
shareholders of the Company. Notwithstanding the foregoing, the Board may
unilaterally amend the Plan and Incentive Awards as it deems appropriate to
ensure compliance with Rule 16b-3 and to cause ISOs to meet the requirements of
the Code and regulations thereunder. Except as provided in the preceding
sentence, a termination or amendment of the Plan shall not, without the consent
of the Participant, adversely affect a Participant's rights under an Incentive
Award previously granted to him.
16. Change in Capital Structure.
(a) In the event of a stock dividend, stock split,
combination of shares, recapitalization or merger in which the Company is the
surviving corporation, or other change in
<PAGE>
the Company's capital stock (including, but not limited to, the creation or
issuance to shareholders generally of rights, options, or warrants for the
purchase of common stock or preferred stock of the Company), the number and kind
of shares of stock or securities of the Company to be subject to the Plan and to
Incentive Awards then outstanding or to be granted thereunder, the maximum
number of shares or securities which may be delivered under the Plan, the
exercise price and other relevant provisions shall be appropriately adjusted by
the Committee, whose determination shall be binding on all persons. If the
adjustment would produce fractional shares with respect to any unexercised
Option, the Committee may, but need not, adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may take the foregoing actions without the consent of any Participant,
and the Committee's determination shall be conclusive and binding on all persons
for all purposes.
17. Change of Control. Except as otherwise provided in the agreement
that evidences the Incentive Award, in the event of a Change of Control, the
Committee shall determine whether provision will be made in connection with the
Change of Control for an appropriate assumption of the Incentive Awards
theretofore granted under the Plan (which assumption may be effected by means of
a payment to each Participant (by the Company or any other person or entity
involved in the Change of Control), in exchange for the cancellation of the
Incentive Awards held by such Participant, of the difference between the then
Fair Market Value of the aggregate number of shares of Common Stock then subject
to such Incentive Awards and the aggregate exercise price that would have to be
paid to acquire such shares) or for substitution of appropriate new Incentive
Awards covering stock of a successor corporation to the Company or stock of an
Affiliate of such successor corporation. If the Committee determines that such
an assumption or substitution will be made, the Committee shall give notice of
such determination to the Participants, and the provisions of such assumption or
substitution, and any adjustments made (i) to the number and kind of shares
subject to the outstanding Incentive Awards (or to the options in substitution
therefor), (ii) to the exercise prices, and/or (iii) to the terms and conditions
of the stock options, shall be binding on the Participants. Any such
determination shall be made in the sole discretion of the Committee and shall be
final, conclusive, and binding on all Participants. If the Committee, in its
sole discretion, determines that no such assumption or substitution will be
made, the Committee shall give notice of such determination to the Participants,
and each Incentive Award that is at the time outstanding shall automatically
accelerate so that each such Incentive Award shall, immediately before the
specified effective date for the Change of Control, become 100% vested and
exercisable, except that such acceleration will not occur if, in the opinion of
the Company's outside accountants, it would render unavailable "pooling of
interest" accounting for a Change of Control that would otherwise qualify for
such accounting treatment. All such Incentive Awards shall terminate and cease
to remain outstanding immediately following the consummation of the Change of
Control, except to the extent assumed by the successor corporation or an
Affiliate thereof.
18. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than two non-employee members of the
Board, who shall be appointed by the Board. In making grants of Incentive
Awards; the Committee shall consult with,
<PAGE>
and seek the recommendations of, the executive officers of the Company, although
it shall have no obligation to act in accordance with such recommendations and
such consultations and recommendations shall not diminish the discretion any
authority otherwise granted to the Committee. The Committee shall have general
authority to impose any limitation or condition upon an Incentive Award the
Committee deems appropriate to achieve the objectives of the Incentive Award and
the Plan and, without limitation and in addition to powers set forth elsewhere
in the Plan, shall have the following specific authority:
(a) The Committee shall have the power and sole and complete
discretion to determine (i) which eligible persons shall receive Incentive
Awards and the nature of each Incentive Award, (ii) the number of shares of
Common Stock to be covered by each Incentive Award, (iii) whether Options shall
be ISOs or Nonstatutory Stock Options, (iv) when, whether and to what extent Tax
Offset Rights shall be granted and the terms thereof, (v) the time or times when
an Incentive Award shall be granted, (vi) whether an Incentive Award shall
become vested over a period of time and when it shall be fully vested, (vii)
when Options may be exercised, (viii) whether a Disability exists, (ix) the
manner in which payment will be made upon the exercise of Options (x) conditions
relating to the length of time before disposition of Common Stock received upon
the exercise of Options is permitted, (xi) whether to approve a Participant's
election (A) to deliver shares of already owned Common Stock to satisfy
Applicable Withholding Taxes or (B) to have the Company withhold from the shares
to be issued upon the exercise of a Nonstatutory Stock Option the number of
shares necessary to satisfy Applicable Withholding Taxes, (xii) the terms and
conditions applicable to Restricted Stock Awards, (xiii) the terms and
conditions on which restrictions upon Restricted Stock shall lapse, (xiv)
whether to accelerate the time at which any or all restrictions with respect to
Restricted Stock will lapse or be removed, (xv) notice provisions relating to
the sale of Common Stock acquired under the Plan, (xvi) the terms of incentive
programs, performance criteria, and other factors relevant to the issuance of
Performance Stock, and (xvii) any additional requirements relating to Incentive
Awards that the Committee deems appropriate. Notwithstanding the foregoing, no
"tandem stock options" (where two stock options are issued together and the
exercise of one option affects the right to exercise the other option) may be
issued in connection with ISOs. The Committee shall have the power to amend the
terms of previously granted Incentive Awards so long as the terms as amended are
consistent with the terms of the Plan and provided that the consent of the
Participant is obtained with respect to any amendment that would be detrimental
to him, except that such consent will not be required if such amendment is for
the purpose of complying with Rule 16b-3 or any requirement of the Code
applicable to the Incentive Award.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of the Plan
by the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any liability
for any action taken in good faith in reliance upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by a
majority of the members present. Any action
<PAGE>
may be taken by a written instrument signed by all of the members, and any
action so taken shall be fully effective as if it had been taken at a meeting.
(d) If and so long as the Common Stock is registered under
Section 12 of the 1934 Act, the Board shall consider in selecting the membership
of the Committee, with respect to any person subject or likely to become subject
to Section 16 of the 1934 Act, the provisions regarding (a) "outside directors"
as contemplated by Code Section 162(m) and (b) "nonemployee directors" as
contemplated by Rule 16b-3 under the 1934 Act. The Committee may consist of one
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
19. Market Standoff.
(a) In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering, a person shall not sell, or make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, otherwise dispose or transfer for
value, or otherwise agree to engage in any of the foregoing transactions with
respect to, any shares issued pursuant to an Incentive Award granted under the
Plan without the prior written consent of the Company or its underwriters. Such
limitations shall be in effect only if and to the extent and for such period of
time as may be requested by the Company or such underwriters and agreed to by
the Company's officers and directors; provided, however, that in no event shall
the weighted average number of days in such period exceed 180 days. The
limitations of this paragraph shall in all events terminate two years after the
effective date of the Company's initial public offering.
(b) In the event of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, or other change
affecting the Company's outstanding Common Stock affected as a class without the
Company's receipt of consideration, then any new, substituted or additional
securities distributed with respect to the purchased shares shall be immediately
subject to the provisions of this Section 20, to the same extent the purchased
shares are at such time covered by such provisions.
(c) To enforce the limitations of this Section 19, the
Company may impose stop-transfer instructions with respect to the purchase
shares and any new, substituted or additional securities distributed with
respect to the purchased shares until the end of the applicable standoff period.
20. Registration.
(a) The Company shall be under no obligation to any
Participant to register for offering or resale or to qualify for exemption under
the 1933 Act, or to register or qualify under state securities laws, any shares
of Common Stock, security or interest in a security paid or issued under, or
created by, the Plan, or to continue in effect any such registrations or
qualifications if made. The Company may issue certificates for shares with such
legends and subject to
<PAGE>
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
(b) Inability of the Company to obtain, from any regulatory
body having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the issuance and sale of
any shares hereunder shall relieve the Company of any liability in respect of
the nonissuance or sale of such shares as to which such requisite authority
shall not have been obtained.
(c) As a condition to the exercise of an Incentive Award, the
Company may require the Participant to represent and warrant at the time of any
such exercise or receipt that such shares are being purchased or received only
for the Participant's own account and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any relevant provision of the aforementioned laws.
At the option of the Company, a stop-transfer order against any such shares may
be placed on the official stock books and records of the Company, and a legend
indicating that such shares may not be pledged, sold or otherwise transferred,
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates to ensure exemption from
registration. The Committee may also require such other action or agreement by
the Participant as may from time to time be necessary to comply with the federal
and state securities laws.
21. Compliance With Laws and Approval of Regulatory Bodies. No Option
shall be exercisable, no Common Stock shall be issued, no certificates for
shares of Common Stock shall be delivered, and no payment shall be made under
this Plan except in compliance with all applicable federal and state laws and
regulations (including, without limitation, withholding tax requirements) and
the rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock for
which an Option is exercised may bear such legends and statements as the
Committee may deem advisable to assure compliance with federal and state laws
and regulations. No Option shall be exercisable, no Common Stock shall be
issued, no certificate for shares shall be delivered, and no payment shall be
made under this Plan until the Company has obtained such consent or approval as
the Committee may deem advisable from regulatory bodies having jurisdiction over
such matters. The exercise of any Option granted under this Plan shall
constitute a Participant's full and complete consent to whatever action the
Committee deems necessary to satisfy any federal and state tax withholding
requirements which the Committee, acting in its discretion, deems applicable to
such exercise.
22. Notice. All notices and other communications required or
permitted to be given under this Plan shall be in writing and shall be deemed to
have been duly given if delivered personally or mailed first class, postage
prepaid, as follows: (a) if to the Company - at its principal business address
to the attention of the Treasurer and (b) if to any Participant - at the last
address of the Participant known to the sender at the time the notice or other
communication is sent.
<PAGE>
23. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of ISOs under the Code. If any provision
of the Plan conflicts with any such regulation or ruling, then that provision of
the Plan shall be void and of no effect. The terms of this Plan shall be
governed by the laws of the Commonwealth of Virginia.
24. Effective Date of the Plan. This Plan shall be effective on June
24, 1997, and shall be submitted to the shareholders of the Company for
approval. Until (i) the Plan has been approved by the Company's shareholders,
and (ii) the requirements of any applicable State securities laws have been met,
no Restricted Stock shall be awarded, no Performance Stock shall be issued and
no Option shall be exercisable.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted
as set forth herein this __ day of June, 1997.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: /s/ Robert B. Harris, Ph.D.
-----------------------------
Its: President
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
FIRST AMENDMENT TO 1997 STOCK INCENTIVE PLAN
Section 4 of the Commonwealth Biotechnologies, Inc. 1997 Stock
Incentive Plan (the "Plan") is amended to read in its entirety as follows:
"4. Stock. Subject to Section 16 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 410,000 shares of Common
Stock, which shall be authorized, but unissued shares. Of these
shares, 270,000 will be reserved for Incentive Awards to be granted
to Drs. Richard J. Freer, Robert B. Harris and Gregory A. Buck and
Mr. Thomas R. Reynolds. 140,000 shares will be reserved for Incentive
Awards to be granted to other persons, and the foregoing named
individuals shall not be eligible for Incentive Awards with respect
to these 140,000 shares. Incentive Awards may be made and exercised
as to whole shares or fractional shares, at the discretion of the
Committee. If an Incentive Award is terminated or expires, in whole
or in part, for any reason other than its exercise, the number of
shares of Common Stock allocated to the Incentive Award or portion
thereof may be reallocated to other Incentive Awards to be granted
under this Plan. Shares of Common Stock subject to repurchase which
are subsequently repurchased by the Company shall also be available
for issuance in connection with future grants of Incentive Awards.
For purposes of determining the number of shares that are available
for Incentive Awards under the Plan, such number shall, to the extent
permissible under Rule 16b-3, include the number of shares surrendered
by a Participant or retained by the Company in payment of Applicable
Withholding Taxes; provided, however, that for purposes of Code Section
162(m), any such shares shall be counted in accordance with the
requirements of such Code Section."
This Amendment shall be effective on October 6, 1997, and shall be
submitted to the shareholders of the Company for approval. Until the Amendment
has been approved by the Company's shareholders, the Plan shall remain in
effect in accordance with its terms in effect without giving effect to this
Amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
adopted as set forth herein effective this 6th day of October, 1997.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: /s/ Robert B. Harris, Ph.D.
-----------------------------
Its: President
Exhibit 10.16
COMMONWEALTH BIOTECHNOLOGIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the ____________, 1997, between
COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia corporation (the "Company"), and
_____________ ("Optionee"), is made pursuant and subject to the provisions of
the Company's 1997 Stock Incentive Plan (the "Plan"), a copy of which is
attached and which is incorporated herein by reference. If there shall be any
inconsistency between this Agreement and the Plan, the terms of the Plan shall
control. All capitalized terms used herein that are defined in the Plan have the
same meanings given them in the Plan. All references herein to the Plan shall
mean the Plan in effect on the date hereof, as the same may be amended from time
to time in accordance with its terms.
1. Grant of Option. Pursuant to the Plan, the Company hereby grants to
Optionee, subject to the terms and conditions set forth herein and in the Plan,
the right and option (the "Option") to purchase from the Company all or any part
of an aggregate of __ shares of Common Stock (the "Option Shares") at the price
(the "Option Price") of $_________ per share, being not less than the Fair
Market Value per share of the Common Stock on the date of grant. Such Option
will be exercisable as hereinafter provided. This Option is intended to be an
Incentive Stock Option under Section 422 of the Code, but the Company does not
represent or warrant that the Option qualifies as such.
2. Terms and Conditions. This Option is subject to the following terms
and conditions:
(a) Expiration Date. The Expiration Date of this Option is
ten years after the date of this Agreement.
(b) Vesting; Exercise of Option. Subject to paragraphs 3,
4, 5, and 7, this Option shall become exercisable in accordance with following
schedule:
[vesting schedule to be inserted]
Once this Option has become exercisable in accordance with the
preceding schedule it shall continue to be exercisable with respect to such
Option Shares until the termination of Optionee's rights hereunder pursuant to
paragraphs 3, 4, 5, or 6, or until the Expiration Date, whichever occurs first.
A partial exercise of this Option shall not affect Optionee's right to exercise
this Option with respect to the remaining Option Shares, subject to the
conditions of the Plan and this Agreement. Any portion of this Option which has
not become exercisable on the effective date of termination of Optionee's
employment by the Company shall lapse.
(c) Method of Exercising and Payment. This Option shall be
exercised by written notice in the form attached hereto as Exhibit A, which is
incorporated herein by reference, delivered to the attention of the Company's
Secretary at the Company's principal office in Virginia. The exercise date shall
be the date such notice is received by the Company. Such notice shall be
accompanied by (i) cash payment or certified check equal to the Option Price
times the number of shares purchased (the "Exercise Price"), (ii) a certificate
representing Common Stock held for at least six months if acquired from the
Company and not subject to any restrictions with a Fair Market Value equal to
the Exercise Price, or (iii) instructions for the Company to withhold from the
purchased shares an amount with a Fair Market Value equal to the Exercise Price.
Upon acceptance of such notice and receipt of payment in full, the Company shall
cause to be issued a certificate representing the shares of Common Stock so
purchased.
(d) Nontransferability. This Option is nontransferable
except by will or by the laws of descent and distribution. During the
Optionee's lifetime, this Option may be exercised only by Optionee.
3. Exercise During Employment. Except as provided in Sections 4, 5 and
this Section 3, this Option may not be exercised (if otherwise exercisable under
Section 2) in whole or in part unless Optionee is then an employee of the
Company or an Affiliate or unless it is exercised, to the extent exercisable on
the date of termination under Section 2(b) above, within the period ending on
the earlier of the Expiration Date or the date 90 days after the effective date
of termination of Optionee's employment by the Company or an Affiliate;
provided, however, that in the event Optionee was terminated by the Company for
Cause, this Option may not be exercised at any time after the effective date of
such termination.
4. Exercise in the Event of Death. In the event Optionee dies while an
employee of the Company or an Affiliate and prior to the Expiration Date of this
Option, this Option may be exercised by Optionee's estate, or other person or
persons to whom his rights under this Option shall pass by will or the laws of
descent and distribution, to the extent exercisable on the date of his death
under Section 2(b) above, within one year after Optionee's death or until the
Expiration Date, whichever is earlier.
5. Exercise in the Event of Permanent and Total Disability. If Optionee
becomes permanently and totally Disabled (as determined in the sole and absolute
discretion of the Company) while an employee of the Company or an Affiliate and
prior to the Expiration Date of this Option, Optionee may exercise this Option,
to the extent exercisable on the date Optionee becomes permanently and totally
Disabled under Section 2(b) above, until the earlier of one year from the date
he ceases to be employed by the Company or an Affiliate due to such Disability
or the Expiration Date.
6. Extension if Optionee Subject to Section 16(b) of the 1934 Act.
Notwithstanding the foregoing paragraphs 3, 4, and 5, if the exercise of the
Option within the applicable time periods set forth above would subject the
Optionee to suit under Section 16(b) of the 1934 Act, the Option shall remain
exercisable to the extent permitted by law until the earliest to occur of (i)
the 10th day following the date on which the Optionee would no longer be subject
to such suit, (ii) the 190th day after the Optionee's termination of employment,
or (iii) the Expiration Date, provided that no additional vesting of the Option
shall occur during such periods. Any such extension of the period in which the
Option may be exercised may result in the Option ceasing to qualify as an
Incentive Stock Option and the Company makes no representation as to the tax
consequences of any such delayed exercise. The Optionee should consult with the
Optionee's own tax advisors as to the tax consequences to the Optionee of any
such delayed exercise.
7. $100,000 Limitation; Acceleration.
(a) Except as provided in Section 7(b) below, the aggregate
Fair Market Value of the stock with respect to which Optionee may exercise the
Option for the first time during any calendar year (determined as of the date
the Option was granted), together with any other Incentive Stock Options which
are exercisable by Optionee for the first time under any Company plan during any
such year, as determined in accordance with Code Section 422, shall not exceed
$100,000 (the "$100,000 Limitation"), other than as a result of an acceleration
of vesting due to a Change of Control transaction pursuant to Section 18 of the
Plan. In the event an acceleration of vesting causes the number of shares for
which the Option is first exercisable to exceed such amount, Section 7(b),
below, will apply. To the extent the exercisability of the Option is deferred by
reason of the $100,000 Limitation, the deferred portion of the Option will first
become exercisable in the first calendar year or years thereafter in which the
$100,000 Limitation would not be contravened.
(b) Notwithstanding any other provisions of this Agreement, in
the event an acceleration of vesting causes the number of shares for which the
Option is first exercisable to exceed the $100,000 Limitation, the Option shall
be deemed to be two options. The first Option shall be for the maximum number of
shares subject to the Option that can comply with the $100,000 Limitation
without causing the Option to be unexercisable as to vested shares. The second
Option, which shall not be treated as an Incentive Stock Option, shall be for
the balance of the shares subject to the Option and shall be exercisable on the
same terms and at the same time as set forth in this Agreement; provided,
however, that such shares shall become vested on the same date or dates as set
forth in this Agreement without regard to this paragraph. Unless Optionee
specifically elects to the contrary in his written notice of exercise, the first
option shall be deemed to be exercised first to the maximum possible extent and
then the second option shall be deemed to be exercised.
8. No Right to Continued Employment. This Option does not confer upon
Optionee any right with respect to continuance of employment by the Company or
an Affiliate, nor shall it interfere in any way with the right of the Company or
an Affiliate to terminate his employment at any time with or without cause.
9. Change in Capital Structure. The terms of this Option shall be
adjusted as provided in Section 17 of the Plan from time to time as the Board
determines is appropriate in the event of any subdivision of consolidation of
shares or other capital adjustment. Any and all new, substitute, or additional
securities or other property to which Optionee is entitled by reason of
ownership of the Option Shares shall be immediately subject to this Agreement
and shall be included in the definition of Option Shares for all purposes.
10. General Restrictions. Notwithstanding anything contained herein to
the contrary, no purported exercise of the Option shall be effective without the
written approval of the Company, which may be withheld to the extent that the
exercise of the Option, either individually or in the aggregate together with
the exercise of other previously exercised stock options and/or offers and sales
pursuant to any prior or contemplated offering of securities, would, in the sole
and absolute judgment of the Company, (i) require the filing of a registration
statement with the United States Securities and Exchange Commission or with the
securities commission of any state or (ii) violate any federal, state, or
foreign securities laws or other law or regulations. The Company shall avail
itself of any exemptions from registration contained in applicable federal and
state securities laws which are reasonably available to the Company on terms
which, in its sole and absolute discretion, it deems reasonable and not unduly
burdensome or costly. The Optionee shall deliver to the Company, prior to the
exercise of this Option, such information, representations and warranties as the
Company may reasonably request for the Company to be able to satisfy itself that
the Common Stock to be acquired pursuant to the exercise of the Option is being
acquired in accordance with the terms of an applicable exemption from the
securities registration requirements of applicable federal and state securities
laws. The Optionee is cautioned that the Option may not be exercisable unless
the foregoing conditions are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested.
11. Tax Withholding. At the time the Option is exercised, in whole or
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for Applicable Withholding Taxes, if any, which arise in connection
with the Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any Option Shares, (iii) the operation of any law or regulation
providing for the imputation of interest, or (iv) the lapsing of any restriction
with respect to any Option Shares. The Company shall have the right to withhold
or retain from any payment to Optionee (whether or not such payment is made
pursuant to this Option) or take such other action as is permissible under the
Plan which the Company deems necessary or appropriate to satisfy any Applicable
Withholding Taxes. The Optionee is cautioned that the Option is not exercisable
unless the Company's withholding obligations are satisfied.
12. Notice of Disqualifying Disposition. To obtain certain tax benefits
afforded to ISOs under Code Section 422, Optionee must hold the shares issued
upon the exercise of an ISO for two years after the date of grant of the option
and one year from the date of exercise. Optionee may be subject to the
alternative minimum tax at the time of exercise. Tax advice should be obtained
when exercising any option and before the disposition of the shares issued upon
the exercise of any option. By accepting the Option, Optionee hereby agrees to
promptly notify the Company's Chief Financial Officer if Optionee disposes of
any of the Option Shares within one year from the date he exercises all or part
of the Option or within two years of the date of grant of the Option.
13. Governing Law. This Agreement shall be governed by the laws of
the Commonwealth of Virginia without reference to the conflicts of laws
principles of any jurisdiction.
14. Optionee Bound by Plan. Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by all the terms and provisions
thereof. Optionee hereby agrees to accept as binding, conclusive, and final
all decisions or interpretations of the Committee upon any questions arising
under this Agreement.
15. Legends. The Company may at any time place legends referencing the
terms of this Agreement and any applicable federal, state, or foreign securities
law restrictions on all certificates representing shares of stock subject to the
provisions of this Agreement. The Optionee shall, at the request of the Company,
promptly present to the Company any and all certificates representing shares
acquired pursuant to the Option in the possession of the Optionee in order to
carry out the provisions of this paragraph. Unless otherwise specified by the
Company, legends placed in such certificates may reference, but shall not be
limited to, (i) the 1933 Act requirements, (ii) the right of first refusal, and
(iii) the requirements of Code Section 422.
16. Binding Effect. Subject to the limitations stated above and in
the Plan, this Agreement shall be binding upon and inure to the benefit of
the legatees, distributees, and personal representatives of Optionee and
the successors of the Company.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous written or oral agreements or understandings with
respect to the subject matter hereof. This Agreement may only be amended by a
writing signed by the party to be charged.
18. Legal Counsel. This Agreement has been prepared by LeClair Ryan, A
Professional Corporation (the "Firm"), as counsel to the Company, after full
disclosure of its representation of the Company to Optionee and with the consent
and direction of Optionee. Optionee has reviewed the contents of this Agreement
and fully understands its terms. Optionee acknowledges that he is fully aware of
his right to the advice of counsel independent from that of the Company, that
the Firm has advised him of such right and disclosed to him the risks in not
seeking such independent advice, and that he understands the potentially adverse
interests of the parties with respect to this Agreement. Optionee further
acknowledges that no representations have been made with respect to the income
or estate tax or other consequences of this Agreement to him and that he has
been advised of the importance of seeking independent advice of counsel with
respect to such consequences.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by a duly authorized officer, and Optionee has affixed his signature hereto.
COMMONWEALTH
BIOTECHNOLOGIES, INC.
By: _____________________________
Its: _____________________________
Date: ________________
___________________________________
______________, Optionee
Date:_________________
Exhibit A
NOTICE OF EXERCISE OF STOCK OPTION
TO PURCHASE COMMON STOCK OF COMMONWEALTH BIOTECHNOLOGIES, INC.
Name:___________________________
Address:_________________________
_________________________________
Date:____________________________
COMMONWEALTH BIOTECHNOLOGIES, INC..
Attention: Secretary
Re: Exercise of Stock Option
Gentlemen:
Subject to acceptance hereof in writing by Commonwealth
Biotechnologies, Inc. (the "Company") pursuant to the provisions of the
Commonwealth Biotechnologies, Inc. 1997 Stock Incentive Plan, I hereby elect to
exercise options granted to me to purchase ______________ shares of Common
Stock, no par value (the "Stock"), of the Company under the Incentive Stock
Option Agreement dated April 23, 1997 (the "Agreement"), at a price of
$__________ per share, for a total of $________ (the "Exercise Price"). Any
capitalized terms not defined herein shall have the meanings ascribed to them in
the Agreement.
I wish to pay for the Stock as follows:
[ ] By cash, certified check, or bank cashier's check, enclosed, for
$_______________ for the full Exercise Price, payable to Commonwealth
Biotechnologies, Inc.
[ ] By the enclosed certificate representing ____ shares of Common Stock
with a Fair Market Value equal to the Exercise Price ($ _________) that I have
held for at least six months (if I acquired them from the Company) and are not
subject to any restrictions.
[ ] By requesting that the Company withhold from the Stock I am purchasing
an amount with a Fair Market Value equal to the Exercise Price.
As soon as the Stock Certificate is registered as indicated below, please
deliver it to me at the above address.
I would like the Stock to be registered in the name(s) of
________________________________ as ____________________________________
(specify individual, joint tenants, tenants by the entirety, for the benefit of,
or other legal designation).
Very truly yours,
____________________________
AGREED TO AND ACCEPTED:
COMMONWEALTH BIOTECHNOLOGIES, INC..
By: _____________________________
Its: ____________________________
Number of Shares
Exercised: ______________________
Number of Shares
Remaining: ______________________
