As filed with the Securities and Exchange Commission on July 21, 1997
REGISTRATION NO. 333-_______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------
COMMONWEALTH BIOTECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
VIRGINIA 8733 56-1641133
<S> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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 OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED
OFFICES) 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:
J. BENJAMIN ENGLISH, ESQ. JAMES J. WHEATON, ESQ.
LECLAIR RYAN, A PROFESSIONAL CORPORATION WILLCOX & SAVAGE, P.C.
707 EAST MAIN STREET, SUITE 1100 1800 NATIONSBANK CENTER
RICHMOND, VIRGINIA 23233 NORFOLK, VIRGINIA 23510
(804) 783-2003 (757) 628-5619
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. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
Amount to be Proposed Maximum Proposed Maximum Amount
Title of Each Class of Securities to be Registered Offering Price Per Aggregate Offering of
Registered Unit (1) Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock 834,000 $ 6.00 $ 5,004,000.00
- --------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants (2) 83,400 $ 0.001 $ 83.40
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of the
Underwriter's Warrants 83,400 $ 9.90 $ 825,660.00
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock (3) 541,370 $ 6.00 $ 3,248,220.00
- --------------------------------------------------------------------------------------------------------------------------------
Private Placement Warrants (4) 50,000 $ 0.001 $ 50.00
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of the
Private Placement Warrants 50,000 $ 9.90 $ 495,000.00
- --------------------------------------------------------------------------------------------------------------------------------
Management Warrants (5) 100,000 $ 0.001 $ 100.00
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of the
Management Warrants 100,000 $ 9.90 $ 990,000.00
- --------------------------------------------------------------------------------------------------------------------------------
Total -- -- $10,563,113.40 $ 3,201
- --------------------------------------------------------------------------------------------------------------------------------
</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 83,400 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.
(3) 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.
(4) In connection with the Private Placement, the Registrant sold to the
Underwriter warrants to purchase an aggregate of 50,000 shares of
Common Stock (the "Private Placement Warrants"). The price paid by the
Underwriter for the Private Placement Warrants was $.001 per warrant.
The exercise price of the Private Placement Warrants is $9.90 per
share.
(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 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.
-------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 21, 1997
PROSPECTUS
[LOGO--COMMONWEALTH BIOTECHNOLOGIES, INC.]
834,000 Shares of Common Stock
Commonwealth Biotechnologies, Inc. ("CBI" or the "Company")
hereby offers (the "Offering") 834,000 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." In addition, resales of (a) an aggregate of 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 83,400
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, (c)
warrants to purchase an aggregate of 50,000 shares of Common Stock (the "Private
Placement 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 the Underwriter as additional compensation for
placement services rendered to the Company during the Private Placement, (d)
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, issued to certain executive officers of the Company and
(e) an aggregate of 233,400 shares of Common Stock issuable upon the exercise of
the Underwriter's Warrants, the Private Placement Warrants and the Management
Warrants (collectively, the "Resale Securities") are being registered hereby.
The Resale Securities are not being sold concurrently with the Common Stock
offered by the Company to the public and are not underwritten. Such securities
may, however, be sold at a later time. See "RISK FACTORS--Shares Eligible for
Future Sale." The Company intends to apply 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."
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY
A HIGH DEGREE OF RISK. INVESTORS SHOULD BE ABLE TO
SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT. SEE
"RISK FACTORS" ON PAGES ___ THROUGH ___
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.
- ------------------------------------------------------------------------------
Price to Public Underwriting Discount(1) Proceeds to Company(2)
- ------------------------------------------------------------------------------
Per Share.... $ 6.00 $ 0.48 $ 5.52
- ------------------------------------------------------------------------------
Total........ $5,004,000 $ 400,320.00 $4,603,680.00
- ------------------------------------------------------------------------------
(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.
<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 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 83,400 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, (c) warrants to purchase an aggregate of 50,000
shares of Common Stock (the "Private Placement 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 the
Underwriter as additional compensation for placement services rendered to the
Company during the Private Placement, (d) 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, issued to certain
executive officers of the Company, and (e) an aggregate of 233,400 shares of
Common Stock issuable upon conversion of the Underwriter's Warrants, the Private
Placement Warrants and the Management Warrants. The offering of such securities
by the Selling Securityholders may occur contemporaneously with the separate
offering of 834,000 shares of Common Stock by the Company in an underwritten
public offering (the "Offering"). In the event the Underwriter's Warrants, the
Private Placement Warrants and the Management's Warrants are exercised, the
shares being registered on behalf of the Selling Securityholders will constitute
53.6% of the outstanding shares of Common Stock upon completion of the Offering.
The resale of the securities of the Selling Securityholders 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, the
Underwriter's Warrants and the Private Placement 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 Common Stock offered by this Prospectus may be sold from time to
time by the Selling Securityholders, or by their transferees. 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.
<PAGE>
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 ___ THROUGH ___
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>
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. 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
__________ (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, within five business days after such termination
or withdrawal.
ANDERSON & STRUDWICK
INCORPORATED
The date of this Prospectus is _________________, 1997.
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 $179,146. 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."
<PAGE>
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.
The Offering
Securities Offered by the Company 834,000 shares of Common Stock. See
"DESCRIPTION OF SECURITIES."
Shares of Common Stock Outstanding
before Offering 612,643
Common Stock to be Outstanding
after the Offering 1,446,643 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
- -----------------------------------
(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 the Conversion
Shares 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 233,400 shares of Common Stock issuable upon
the exercise of the Underwriter's Warrants, the Private Placement Warrants and
the Management Warrants; and (c) assume no issuance of an aggregate of 376,667
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
236,667 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."
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain historical financial information
of the Company.
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Operations Data:
Revenue $ 599,916 $ 193,054 $ 989,925 $ 369,301
Net income before proforma income tax expense $ 248,947 $ 83,184 $ 179,146 $ 53,714
Proforma net income (1) $ 178,828 $ 77,662 $ 129,495 $ 31,622
Proforma earnings per common and common equivalent share (2) $ 0.38 $ 0.16 $ 0.27 $ 0.07
</TABLE>
Balance Sheet Data as of:
<TABLE>
<CAPTION>
March 31, 1997 December 31,
------------------------- ----------------------------
(Unaudited) (Actual)
As
Actual Adjusted (3) 1996 1995
--------- ------------ ----------- ------------
<S> <C>
Working capital $ 243,928 $ 7,177,996 $ 91,637 $ (34)
Current ratio 2.37 $ 31.25 $ 1.32 $ 1.00
Total assets $ 846,858 $ 7,840,538 $ 634,193 $ 186,818
Shareholders' equity $ 388,692 $ 7,322,760 $ 162,269 $ 62,656
Book value per share (2) $ 0.82 $ 5.60 $ 0.34 $ 0.13
</TABLE>
(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation.
(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997.
(3) As adjusted to reflect (i) the sale of 834,000 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 convertible subordinated notes to common stock at a conversion price of
$6.00 per share. See "Description of Capital Stock."
<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 21% for the quarter ended March 31, 1997),
and substantially all of its financing for proprietary research projects, is
funded by grants from federal government agencies. 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."
<PAGE>
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 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."
<PAGE>
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.
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. See "BUSINESS--Government Regulation."
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.
<PAGE>
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 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
<PAGE>
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
The Company has entered into certain transactions with parties who were
stockholders of the Company at the time of the transactions. A summary 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.
Substantial Shares of Common Stock Reserved for the Exercise of Options and
Warrants
The Company has reserved 376,667 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 236,667 shares of Common Stock to the Company's founders upon the
completion of the Offering. In addition, the Company has reserved an aggregate
of 233,400 shares of Common Stock for issuance upon exercise of (a) the
Underwriter's Warrants, (b) the Private Placement Warrants, and (c) 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."
<PAGE>
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 834,000 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, resales of 233,400 shares of the Company's Common
Stock (to be issued when and if the Underwriter's Warrants, the Private
Placement Warrants and the Management Warrants are exercised), none of which are
subject to any "lock-up" agreements, are being registered concurrent with the
Offering. Such shares may be resold in accordance with the resale provisions
contained in this Prospectus. Notwithstanding the foregoing, however, transfer
of the Underwriter's Warrants, the Private Placement 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 236,667 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 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."
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. See "UNDERWRITING."
<PAGE>
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.
<PAGE>
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 $4,403,680. 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:
Equipment Purchases - $2,000,000
Lease of Facilities - $ 500,000
Sales & Marketing - $ 803,680
Personnel - $ 400,000
Working Capital - $ 700,000
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.
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."
<PAGE>
DILUTION
At March 31, 1997, the net tangible book value of the Company was
$2,978,692. "Net tangible book value" per share of Common Stock represents the
amount of the Company's total assets, less the amount of its total liabilities,
divided by the number of shares of Common Stock outstanding. Dilution represents
the difference between the amount per share of Common Stock paid by the new
investors purchasing 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 834,000 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 March 31, 1997
would have been $7,382,732, or $5.60 per share of Common Stock. This represents
an immediate increase in net tangible book value of $.39 per share of Common
Stock to existing shareholders and an immediate dilution of $.40 per share of
Common Stock to new investors purchasing Common Stock in the Offering, as
illustrated in the following table:
Price Per Share in the Offering $ 6.00
Net tangible book value per share before the Offering $ 5.21
Increase per share attributable to new investors $ .79
Pro forma net tangible book value per share after the Offering $ 5.60
Dilution to new investors $ .40
The following table sets forth, at July 18, 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 834,000 57.7% $5,004,000(1) 62.5% $6.00
Holders of
Conversion Shares 541,370 37.4 $3,000,000(1) 37.5 $5.25
Company Founders 71,273 4.9 -- -- --
--------- ----- ---------- -----
Total 1,446,643 100.0% $8,004,000(1) 100.0%
</TABLE>
- -----------------------------------
(1) Prior to the deduction of expenses related to the issuance thereof.
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the
Company at March 31, 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
March 31, 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 58,496 58,496 37,293
----------------------------- -----------------
100,496 100,496 37,293
----------------------------- -----------------
Long-term debt, net of current portion 280,507 280,507 185,627
----------------------------- -----------------
Shareholders' equity:
Common stock, no par value, 10,000,000 shares authorized,
71,273 shares issued and outstanding; 1,405,273 shares
issued and outstanding as adjusted (1) (2) 760 760 760
Additional paid-in capital (1) (3) 7,322,000 - -
Retained earnings (3) - 387,932 161,509
----------------------------- -----------------
7,322,760 388,692 162,269
----------------------------- -----------------
Total capitalization $ 7,703,763 $ 769,695 $ 385,189
============================= =================
</TABLE>
(1) Reflects the (i) conversion of the convertible subordinated notes into
500,000 shares of common stock, and (ii) the sale 834,000 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 reserved for issuance upon exercise of
Management Warrants; (ii) up to 376,667 shares reserved for issuance under
the Company's Incentive Plan; (iii) 83,400 shares issuable upon exercise of
the Underwriter's Warrants for the Offering and (iv) 50,000 shares issuable
issuable upon exercise of the Underwriter's Private Placement Warrants.
(3) Reflects the June 25, 1997 conversion from S Corporation to C Corporation
status and the reclassification of $328,320 in retained earnings, net of
$59,612 in distributions payable to the S Corporation shareholders to cover
their respective share of tax liability resulting from the Company's
earnings up to the date of conversion.
<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 three months ended March 31, 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.
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Operations Data:
Revenue $ 599,916 $ 193,054 $ 989,925 $ 369,301
Net income before proforma income tax expense $ 248,947 $ 83,184 $ 179,146 $ 53,714
Proforma net income (1) $ 178,828 $ 77,662 $ 129,495 $ 31,622
Proforma earnings per common and common equivalent share (2) $ 0.38 $ 0.16 $ 0.27 $ 0.07
Proforma weighted average common and common
equivalent shares outstanding and used in
computation (2) 473,773 473,773 473,773 473,773
</TABLE>
Balance Sheet Data as of:
<TABLE>
<CAPTION>
March 31, 1997 December 31,
-------------------------- -------------------------
(Unaudited) (Actual)
As
Actual Adjusted (3) 1996 1995
-------------------------- -------------------------
<S> <C>
Working capital $ 243,928 $7,177,996 $ 91,637 $ (34)
Current ratio 2.37 31.25 1.32 1.00
Property and equipment, net $ 422,280 $ 422,280 $ 243,611 $ 100,749
Total assets $ 846,858 $7,840,538 $ 634,193 $ 186,818
Total long-term debt $ 280,507 $ 280,507 $ 185,687 $ -
Shareholders' equity $ 388,692 $7,322,760 $ 162,269 $ 62,656
Book value per share (2) $ 0.82 $ 5.60 $ 0.34 $ 0.13
</TABLE>
(1) The above financial data gives retroactive effect to conversion from S
Corporation to C Corporation.
(2) The above financial data gives retroactive effect to the 93.78-for-one stock
split effective June 24, 1997.
(3) As adjusted to reflect (i) the sale of 834,000 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 convertible subordinated notes to common stock at a conversion price of
$6.00 per share. See "Description of Capital Stock."
<PAGE>
<TABLE>
<CAPTION>
December 31,
March 31, 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 58,496 58,496 37,293
---------------------------- ------------
100,496 100,496 37,293
---------------------------- ------------
Long-term debt, net of current portion 280,507 280,507 185,627
---------------------------- ------------
Shareholders' equity:
Common stock, no par value, 10,000,000 shares authorized,
71,273 shares issued and outstanding; 1,405,273 shares
issued and outstanding as adjusted (1) (2) 760 760 760
Additional paid-in capital (1) (3) 7,322,000 - -
Retained earnings (3) - 387,932 161,509
---------------------------- ------------
7,322,760 388,692 162,269
---------------------------- ------------
Total capitalization $ 7,703,763 $ 769,695 $ 385,189
============================ ============
</TABLE>
(1) Reflects the (i) conversion of the convertible subordinated notes into
500,000 shares of common stock, and (ii) the sale 834,000 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 reserved for issuance upon exercise of
Management Warrants; (ii) up to 376,667 shares reserved for issuance under
the Company's Incentive Plan; (iii) 83,400 shares issuable upon exercise of
the Underwriter's Warrants for the Offering and (iv) 50,000 shares issuable
issuable upon exercise of the Underwriter's Private Placement Warrants.
(3) Reflects the June 25, 1997 conversion from S Corporation to C Corporation
status and the reclassification of $328,320 in retained earnings, net of
$59,612 in distributions payable to the S Corporation shareholders to cover
their respective share of tax liability resulting from the Company's
earnings up to the date of conversion.
<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 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.
<PAGE>
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. The Company's
proprietary research business uses the same personnel, equipment and facilities
as its service business.
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 primarily attributable to an
increase in new customer accounts and to larger orders with existing customers
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. An extension of this
contract may be granted during the third quarter of 1997. This extension or lack
thereof will have a significant material impact on the Company's revenue in the
third and possibly fourth quarters of 1997.
<PAGE>
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
$161,014 to $260,791, or 62.0%, in 1995 and 1996, respectively. Sales, general
and administrative expenses as a percentage of revenue were 43.6% and 26.3% 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 $64,134 and $302,455, or
17.4% and 30.6% of revenue, in 1995 and 1996, respectively. The increase of
$238,321 in 1996 research and development costs represented an increase of
371.6% 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 will 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.
Three Months Ended March 31, 1996 and March 31, 1997
Results of Operations
Revenues
Gross revenues increased 210.8% from $193,054 to $599,916 for the three
month periods ended March 31, 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 sales, reputation in the
industry and advertising activities while the increase in the cell culture and
protein purification services is due to the increased advertising as well as
increased management involvement in promotional activities.
<PAGE>
Expenses
Cost of services increased 350.4% from $31,615 to $142,383 for the
three months ended March 31, 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 16.4% and 23.7% for the three month periods ending
March 31, 1996 and 1997, respectively.
Sales, general and administrative expenses increased from $34,743 to
$98,822, or 184.7%, for the three months ended March 31, 1996 and 1997,
respectively. Sales, general and administrative expenses as a percentage of
revenue was 18.0% and 16.5% for the three months ended March 31, 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 three months ended March 31,
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 $41,618 and $104,602, or 21.6% and 17.4% of revenue, for
the three months ended March 31, 1996 and 1997, respectively. The increase of
$62,984 in research and development costs for the three months ended March 31,
1997 represented an increase of 151.3% 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 will need
additional capital in order to expand its research and development efforts.
Variability of Future Operating Results
The Company experienced another significant revenue increase in the
latter half of 1996, due mostly to the commencement of another contract with a
large customer. This contract is expected to be completed during the last
quarter of 1997. Presently, the Company is expecting an additional contract with
this customer for services to begin in the last quarter of 1997 and to be
completed sometime in 1998. Renewal of another contract completed in the first
quarter of 1997 would have a material impact on the Company's revenue in the
third and fourth quarters of 1997. Completion of these contracts without a
replacement source of revenue from this or another large customer could have a
material adverse impact on the Company.
<PAGE>
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 (used) was $4,135 and $229,990 for 1995 and 1996,
respectively, and $77,261 and ($10,244) for the three months ended March 31,
1996 and 1997, respectively. Net working capital (deficit) at December 31, 1995
and 1996 was ($34) and $91,637, respectively, and $243,928 at March 31, 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
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.
The Company, as an S Corporation, also made distributions to its
shareholders. These distributions totaled an aggregate of $79,533 in 1996 and
$82,136 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").
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."
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
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.
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.
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 Company believes that the principal competitive
factors are pricing, expertise, and range of services offered. See "RISK
FACTORS--Competition."
<PAGE>
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 5,000 square feet of laboratory and
office space and has executed a lease to continue to occupy its present space
through the year 2000. This lease is subject to cancellation by the Company upon
nine 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. The Company and VCU are parties to one license agreement under
which VCU licenses certain intellectual property rights to the Company. 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, has
completed two different Phase I Small Business Technology Transfer Research
("SBTTR") grants from the National Institutes of Health ($100,000 each), is in
the first year of a Phase II SBTTR grant ($500,000), and has been awarded a
<PAGE>
third Phase I SBTTR grant ($100,000), and Small Business Innovative Research
Award ("SBIR") ($55,000), from the United States Department of Agriculture.
Revenues from federally funded contracts are recognized on a cost reimbursement
basis. See "RISK FACTORS--Dependence on Government Grants."
Intellectual Property
The Company's principal intellectual property rights consist of a
patent application relating to an anti-coagulation technology it is developing
and one exclusive license from VCU relating to technologies for catalytic RNA
molecules, which has not been the subject of any patent filings. 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.
<PAGE>
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 for the operation of a new laboratory facility.
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.
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their ages, as
of July 15, 1997, are as follows:
Name Age Position
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 34 Senior Vice President, Director
and Founder
Chester M. Trzaski 51 Chief Operating Officer
Charles A. Mills, III 50 Director
Peter C. Einselen 57 Director
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
<PAGE>
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.
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
<PAGE>
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 at least two 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.
<PAGE>
Summary Compensation Table
Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation
Richard J. Freer, Ph.D., 1996 $8,729 -- $23,024 (1)
Chairman of the Board 1995 -- -- --
1994 -- -- --
(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. The maximum number of shares of Common Stock that may be issued pursuant
to options under the Incentive Plan is 376,667, 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 theses share, 236,667 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
<PAGE>
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 the Compensation Committee
and they may operate concurrently or for varied periods of time and a
<PAGE>
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.
<PAGE>
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 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.
<PAGE>
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
options to acquire a total of 236,667 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 166,667 shares will have an exercise
price of $9.90 per share. All such 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. These provisions prohibit each executive
officer from competing with the Company or soliciting its employees under
certain circumstances.
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
<PAGE>
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 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.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of July 15, 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
-----------------
After
Name and Address of Beneficial Owner Number of Shares (1) Before Offering Offering
- ------------------------------------ -------------------- --------------- --------
<S> <C>
Richard J. Freer, Ph.D. (2) 49,579 7.7% 3.4%
Robert B. Harris, Ph.D. (2) 49,578 7.7% 3.4%
Gregory A. Buck, Ph.D. (2) 57,912 (3) 9.0% 3.9%
Thomas R. Reynolds (2) 22,537 3.6% 1.5%
Chester M. Trzaski (2) 8,333 (4) 1.4% 0
Charles A. Mills, III (5) 0 0 0
Peter C. Einselen (5) 0 0 0
James T. Martin (6)(7) 133,333 21.8% 9.2%
James H. Wallace (8)(9) 33,333 5.4% 2.3%
All Directors and Executive Officers 187,939 26.4% 12.2%
as a Group (7 persons)
</TABLE>
- ----------
* 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 July 15, 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.
<PAGE>
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 236,667 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 166,667 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 for a
period of ten years at an exercise price of $9.90 per share. The Management
Warrants were issued as noted below:
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
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.
In connection with the Private Placement, the Company issued the
Private Placement Warrants to the Underwriter. Shortly thereafter, the
Underwriter assigned warrants to purchase 25,000 shares of the Company's Common
Stock to Charles A. Mills, III, a director of the Company and a principal of the
Underwriter.
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 $82,136 for the first six months of 1997.
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
<PAGE>
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.
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) 83,400
shares of Common Stock issuable upon the exercise of the Underwriter's Warrants,
(b) 50,000 shares of Common Stock issuable upon the exercise of the Private
Placement Warrants, and (c) 100,000 shares of Common Stock issuable upon the
exercise of the Management Warrants.
The Underwriter's Warrants, the Private Placement Warrants and the
Management Warrants (and the shares of Common Stock underlying each) are being
registered with the Offering but are not underwritten and will not necessarily
be sold concurrently with the Common Stock being offered through the
Underwriter. It is anticipated that the Underwriter's Warrants and the Private
Placement Warrants will, however, be listed for trading on the Nasdaq SmallCap
Market under the symbol "______." The Underwriter's Warrants, the Private
Placement Warrants and the Management Warrants were issued subject to the terms
and conditions of certain warrant agreements between the Company and the holders
<PAGE>
of such warrants. The following description of the Underwriter's Warrants, the
Private Placement 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 and Private Placement 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. The Private Placement Warrants are exercisable during the period
from June 25, 1998 through June 24, 2002. Holders of the Underwriter's Warrants
or the Private Placement 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 at any time for a period of ten years
following the issuance thereof. 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, the Private Placement 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, the Private Placement 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.
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
<PAGE>
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.
<PAGE>
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
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.
<PAGE>
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."
<PAGE>
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.
<PAGE>
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 1,446,643 shares
of Common Stock outstanding. Of these shares, the 834,000 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. Notwithstanding the foregoing, however,
transfer of the Underwriter's Warrants, the Private Placement Warrants and the
shares of Common Stock underlying these warrants is restricted to bona fide
officers of the Underwriter for a one-year period in accordance with the rules
of the 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, the Private Placement Warrants
or the Management Warrants are exercised, the holders of 233,400 shares of
Common Stock, or their permitted transferees, will hold shares that are freely
tradable without restriction under the Securities Act in accordance with the
resale provisions contained in this Prospectus.
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.
<PAGE>
SELLING SECURITYHOLDERS
In addition to the shares of Common Stock included in the Offering, 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) 541,370 shares of Common Stock issuable upon conversion of the
Notes, (b) the Underwriter's Warrants, (c) the Private Placement Warrants, (d)
the Management Warrants, and (e) an aggregate of 233,400 shares of Common Stock
underlying the Underwriter's Warrants, the Private Placement Warrants and the
Management Warrants. In the event such warrants are exercised, the shares being
registered on behalf of the Underwriter, the holders of Notes and certain
affiliates of the Company noted below (collectively, the "Selling
Securityholders") will constitute 53.6% 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.
<TABLE>
<CAPTION>
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Shares of
Common Warrants Common Shares of Percent of
Stock Owned Warrants Stock Stock Owned Common
Owned Before Offered Offered After Stock
Before Offering Hereby(1) Hereby Offering After
Offering Offering
________ __________ ___________ ___________ ___________ _________
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Dr. John F. Bourgeois 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Haley Chisholm & Morris 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Joseph J. Cockriel 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Michael Riggs Crane 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Dennis R. Deans 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Robert G. Doumar 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Gerald Einhorn, DDS LTD 8,333 -- -- 8,333 0 0
Defined S Benefit Trust DTD
4-1-84
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Stephen F. Evans 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Gerald T. George 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Thomas T. Goodale 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Jonathan M. Gorog 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Harold P. Heafner, Jr. 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
George C. Hutter 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Ali R. Jamali 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Paul L. Johnson and Margaret 8,333 -- -- 8,333 0 0
W. Johnson, JT TEN WROS
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Edwin A. Joseph 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Edward C. Kvetko 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Willard H. Lane and 8,333 -- -- 8,333 0 0
Hellen M. Lane
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
James T. Martin 133,333 -- -- 133,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Martha D. Massie 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
<PAGE>
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Dr. Andrew A. Mayer 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Milton Miller and Louis 8,333 -- -- 8,333 0 0
Miller, JT CON
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Joan Miller 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Eugene Moos and Susan 8,333 -- -- 8,333 0 0
Bell Moos, JT TEN WROS
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Padua Ventures Limited 8,333 -- -- 8,333 0 0
BVI
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Leah T. Robinson TTEE of 8,333 -- -- 8,333 0 0
the Revocable TR DTD
3-21-89 FBO Leah T.
Robinson
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Karen Lee Sobel Sachs 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Joyce M. Salzberg 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Leon I. Salzberg and 8,333 -- -- 8,333 (2) 0 0
Gregory A. Buck, JTTEN COM
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Steven E. Shinholser and 8,333 -- -- 8,333 0 0
Keller R. Shinholser, JT
WROS
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Louise Williams Sloan 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Jacquelyn C. Smith 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Robert M. Smith, III 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Robert G. Sullivan 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Chester M. Trzaski and 8,333 -- -- 8,333 0 0
Stella M. Trzaski (3)
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Noell P. Vawter 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
James H. Wallace 33,333 -- -- 33,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Maurice Edward Waller 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Eric M. Warner 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Kent J. Weber 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Transerve Marine, Inc. 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Jeffrey M. Zwerdling 8,333 -- -- 8,333 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Richard J. Freer, Ph.D. 20,652 28,947 28,947 -- 20,632 1.4
(3)
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Robert B. Harris, Ph.D. 20,631 28,947 28,947 -- 20,631 1.4
(3)
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Gregory A. Buck, Ph.D. (3) 20,632 28,948 28,948 -- 20,632 2.0 (4)
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Thomas R. Reynolds (3) 9,379 13,158 13,158 -- 9,379 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Anderson & Strudwick, Inc. -- 12,500 12,500 -- 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
L. McCarthy Downs, III -- 12,500 12,500 -- 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
Charles A. Mills, III -- 25,000 25,000 -- 0 0
- --------------------------- ------------ ------------- ------------ ------------- ------------- ------------
</TABLE>
- ------------
* Less than one percent (1%)
(1) The warrants offered hereby may be exercised and an identical number of
shares of Common Stock is issuable by the Company.
(2) Excludes shares of Common Stock held by Dr. Buck in an individual capacity.
(3) Officers and directors of the Company
(4) Includes shares of Common Stock held by Dr. Buck and Leon I. Salzberg, as
tenants in common.
<PAGE>
PLAN OF DISTRIBUTION
FOR SELLING SECURITYHOLDERS
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities 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 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."
<PAGE>
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 $.04 per share.
The shares of Common Stock underlying the Notes, the Underwriter's
Warrants, the Private Placement Warrants the Management Warrants, and the shares
of Common Stock underlying such warrants, 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
______________ (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 834,000 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 within five
(5) business days after such withdrawal or cancellation.
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.
<PAGE>
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 prices of the Underwriter's Warrants and the Private Placement
Warrants, which are being registered with the Common Stock, but are not very
underwritten, have been determined by negotiation between the Company and the
Underwriter and is 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 prices of the
Underwriter's Warrants and the Private Placement 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.
<PAGE>
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).
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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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.)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INDEX
PAGE
FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEETS F-3
STATEMENTS OF INCOME F-4
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7 - F-14
<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)
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Proforma
March 31, March 31, December 31,
1997 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,175,426 $ 181,746 $ 260,357 $ 1,115
Accounts receivable 237,912 237,912 116,437 79,015
Prepaid expenses 1,929 1,929 1,080 -
-----------------------------------------------------------
Total current assets 7,415,267 421,587 377,874 80,130
-----------------------------------------------------------
Property and equipment, net 422,280 422,280 243,611 100,749
-----------------------------------------------------------
Other assets
Organization costs, net 2,591 2,591 3,183 5,539
Deposits 400 400 9,525 400
-----------------------------------------------------------
Total other assets 2,991 2,991 12,708 5,939
-----------------------------------------------------------
$ 7,840,538 $ 846,858 $ 634,193 $ 186,818
===========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand note payable $ 42,000 $ 42,000 $ - $ -
Current portion of long-term debt 58,496 58,496 37,293 25,468
Current portion of capital lease obligation - - - 19,862
Accounts payable 42,163 42,163 48,944 33,004
Distributions payable to shareholders 59,612 - - -
Deferred revenue 35,000 35,000 200,000 1,830
-----------------------------------------------------------
Total current liabilities 237,271 177,659 286,237 80,164
Long-term debt 280,507 280,507 185,687 -
Long-term portion of capital lease obligation - - - 43,998
-----------------------------------------------------------
Total liabilities 517,778 458,166 471,924 124,162
-----------------------------------------------------------
Shareholders' equity
Common stock, no par value, 10,000,000 shares authorized,
71,273 shares issued and outstanding at March 31, 1997
(unaudited) and December 31, 1996 and 1995 and on a
proforma basis, 1,405,273 shares issued and outstanding
at March 31, 1997 (unaudited) 760 760 760 760
Additional paid-in capital 7,322,000 - - -
Retained earnings - 387,932 161,509 61,896
----------------------------------------------------------
Total stockholders' equity 7,322,760 388,692 162,269 62,656
-----------------------------------------------------------
$ 7,840,538 $ 846,858 $ 634,193 $ 186,818
===========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Revenue
Laboratory services $ 599,916 $ 193,054 $ 989,925 $ 369,301
---------------------------------------------------------
Costs and expenses
Cost of services 142,383 31,615 237,726 79,948
Sales, general and administrative 98,822 34,743 260,791 161,014
Research and development 104,602 41,618 302,455 64,134
---------------------------------------------------------
Total cost and expenses 345,807 107,976 800,972 305,096
---------------------------------------------------------
Operating income 254,109 85,078 188,953 64,205
Other income (expense)
Interest expense (5,324) (1,894) (10,102) (10,545)
Interest income 162 - 295 54
---------------------------------------------------------
Total other income (expense) (5,162) (1,894) (9,807) (10,491)
---------------------------------------------------------
Net income 248,947 83,184 179,146 53,714
=========================================================
Proforma presentation applicable to conversion from S Corporation to C Corporation
Net income before proforma income tax expense $ 248,947 $ 83,184 $ 179,146 $ 53,714
Proforma Income tax expense 70,119 5,522 49,651 22,092
---------------------------------------------------------
Proforma net income $ 178,828 $ 77,662 $ 129,495 $ 31,622
=========================================================
Proforma earnings per common and common equivalent share $ 0.38 $ 0.16 $ 0.27 $ 0.07
Proforma weighted average common and
common equivalent shares outstanding 473,773 473,773 473,773 473,773
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number Additional
of Shares Common Paid-in Retained
Outstanding Stock Capital Earnings Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1995 71,273 $ 760 $ - $ 8,182 $ 8,942
Net income - - - 53,714 53,714
Distributions - - - - -
------------------------------------------------------------------------------
Balance at December 31, 1995 71,273 760 - 61,896 62,656
Net income - - - 179,146 179,146
Distributions - - - (79,533) (79,533)
------------------------------------------------------------------------------
Balance at December 31, 1996 71,273 760 - 161,509 162,269
Net income (unaudited) - - - 248,947 248,947
Distributions (unaudited) - - - (22,524) (22,524)
------------------------------------------------------------------------------
Balance at March 31, 1997 (unaudited) 71,273 760 - 387,932 388,692
Proforma distribution payable to
shareholders for payment of
income taxes through June 25,
1997 (unaudited) - - - (59,612) (59,612)
Proforma effects of conversion to
C Corporation (unaudited) - - 328,320 (328,320) -
Proforma effects of the conversion of
convertible subordinated notes to
common stock at a conversion price
of $6.00 per share (unaudited) 500,000 - 2,590,000 - 2,590,000
Proforma effects of the intial public
offering of 834,000 shares of common
stock at $6.00 per share (unaudited) 834,000 - 4,403,680 - 4,403,680
------------------------------------------------------------------------------
Proforma Balance at
March 31, 1997 (unaudited) 1,405,273 $ 760 $ 7,322,000 $ - $ 7,322,760
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Cash flows from operating activities
Net income $ 248,947 $ 83,184 $ 179,146 $ 53,714
--------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,789 9,767 54,382 38,938
Changes in:
Accounts receivable (121,475) (4,315) (37,422) (40,225)
Prepaid expenses (849) (2,001) (1,080) 5,457
Deposits 9,125 - - -
Accounts payable (6,781) (5,996) 15,940 (1,865)
Deferred revenue (165,000) (3,378) 198,170 1,830
--------------------------------------------------------
Total adjustments (259,191) (5,923) 229,990 4,135
--------------------------------------------------------
Net cash provided by (used in) operating activities (10,244) 77,261 409,136 57,849
--------------------------------------------------------
Cash flows from investing activities
Purchases of property and equipment (203,866) (1,817) (194,798) (961)
Deposits - - (9,125) 5,752
--------------------------------------------------------
Net cash provided by (used in) investing activities (203,866) (1,817) (203,023) 4,791
--------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of long-term debt 168,540 - 231,000 -
Principal payments on long-term debt (10,517) (4,843) (33,578) (41,006)
Principal payments on capital lease obligations - (6,115) (63,860) (18,545)
Principal payments on related party notes payable - - - (7,500)
Shareholder distributions (22,524) (10,363) (79,533) -
--------------------------------------------------------
Net cash provided by (used in) financing activities 135,499 (21,321) 54,029 (67,051)
--------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (78,611) 54,123 259,242 (4,411)
Cash and cash equivalents, beginning of period 260,357 1,115 1,115 5,526
--------------------------------------------------------
Cash and cash equivalents, end of period $ 181,746 $ 55,238 $ 260,357 $ 1,115
========================================================
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 5,324 $ 1,894 $ 10,102 $ 10,545
========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1997, and for the
three months ended March 31, 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 three months ended March 31, 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 delivery of biologically relevant
materials that have been synthesized. Research revenues are generally recognized
as the expenses for research and development performed under the terms of the
research contracts and grants are incurred. However, any revenues resulting from
the achievement of objectives would be recognized when the objectives are
achieved. Amounts received in advance of services to be performed 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
(Notes continued on next page)
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
As more fully described in Note 10, 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, any undistributed earnings or losses will be treated as a
constructive distribution and reclassified 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 March 31, 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
March 31, 1997, its current tax liability for federal and state taxes would have
been $34,268; its deferred tax liabilities would have been $70,919 and its
retained earnings would be decreased by $145,118. 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 three months ended March 31, 1997 (unaudited), March
31, 1996 (unaudited), and for the years ended December 31, 1996 and 1995 was
$11,293, $4,045, $25,008 and $26,286, respectively.
Proforma Earnings Per Common and Common Equivalent Share
The proforma earnings per common and common equivalent share was
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 effects 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.
(Notes continued on next page)
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Proforma Earnings Per Common and Common Equivalent Share (Continued)
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 three months ended
March 31, 1997 (unaudited) was 71,273. For December 31, 1996 and 1995, and March
31, 1997 (unaudited) and March 31, 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 150,000 warrants converted using the Treasury Stock method to
reduce the shares outstanding by 97,500. 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.
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:
March 31, December 31,
1997 1996 1995
------------- ------------------------
(Unaudited)
Laboratory equipment $ 563,342 $ 359,476 $ 180,574
Furniture and fixtures 1,925 1,925 -
Office equipment and improvements 16,983 16,983 3,012
------------- ------------------------
582,250 378,384 183,586
Less accumulated depreciation and
amortization (159,970) (134,773) (82,837)
------------- ------------------------
Property and equipment, net $ 422,280 $ 243,611 $ 100,749
============= ========================
(Notes continued on next page)
<PAGE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
March 31, 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
2,002. 101,444 - -
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. 23,741 - -
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. 183,818 192,980 -
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 -
----------- ----------------------
339,003 222,980 25,468
Less - current portion of long-term debt (58,496) (37,293) (25,468)
----------- ----------------------
$ 280,507 $ 185,687 $ -
=========== ======================
</TABLE>
(Notes continued on next page)
<PAGE>
NOTE 4 - LONG-TERM DEBT (Continued)
Five-year maturities of long-term debt are as follows at December 31, 1996:
1997 $ 37,293
1998 40,417
1999 43,826
2000 47,545
2001 38,899
Thereafter 15,000
-----------
$ 222,980
===========
NOTE 5 - DEMAND NOTE PAYABLE
The Company has a demand note payable to Crestar Bank in the amount of
$42,000 at March 31, 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.
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 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.
(Notes continued on next page)
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
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 three-month period
ended March 31, 1997, or in 1996 or 1995.
NOTE 9 - MAJOR CUSTOMERS
The Company had the following revenue concentrations that exceeded 10%:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------- -------------------------
(Unaudited)
<S> <C>
Bayer Pharmaceuticals, AG $ 165,000 $ - $ -
Small Business Technology Transfer Research Grant Phase I - - 39,000
Small Business Technology Transfer Research Grant Phase II 37,082 63,773 -
Small Business Technology Transfer Research 2 Grant Phase I - 90,766 6,460
Small Business Technology Transfer Research 3 Grant Phase I 14,333 26,025 -
University of New Mexico Grant 73,547 124,423 64,359
------------- -------------------------
$ 289,962 $ 304,987 $ 109,819
============= =========================
</TABLE>
These research revenues represent 48.3%, 30.81% and 29.74% of total
revenue for the three months ended March 31, 1997 (unaudited) and for the years
ended December 31, 1996 and 1995, respectively.
(Notes continued on next page)
<PAGE>
NOTE 10 - COMPENSATION AND BENEFIT COSTS
Compensation and benefit costs are included in the statements of
operations as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------ ----------------------
(Unaudited)
<S> <C>
Cost of services $ 57,556 $ 104,703 $ 21,346
Selling, general and administrative expenses 25,602 43,925 35,847
Research and development costs 55,078 170,415 44,945
----------- -----------------------
$ 138,236 $ 319,043 $ 102,138
=========== =======================
</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
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 approximately $2,590,000, after underwriting and other offering
costs of $410,000.
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 also agreed to grant the underwriter five-year warrants to
purchase 50,000 shares of the Company's common stock 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 834,000 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.
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 376,667. 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, 236,667 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.
(Notes continued on next page)
<PAGE>
NOTE 12 - STOCK COMPENSATON (Continued)
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:
March 31, December 31,
1997 1996
-----------------------
(Unaudited)
Net income As previously reported $ 248,947 $ 179,146
Proforma $ 201,126 $ 131,325
Earnings per common and As previously reported $ 0.53 $ 0.38
common equivalent share Proforma $ 0.42 $ 0.28
NOTE 13 - EMPLOYMENT AGREEMENTS
Also 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.
* * * * *
<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
Risk Factors
Special Note Regarding Forward-Looking
Statements
Use of Proceeds
Dividend Policy
Dilution
Capitalization
Selected Financial Data
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Business
Management
Principal Shareholders
Certain Relationships and Related
Transactions
Description of Capital Stock
Shares Eligible for Future Sale
Selling Securityholders
Plan of Distribution for Selling Shareholders
Underwriting
Legal Matters
Experts
Available Information
Glossary
Index to Financial Statements
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.
834,000
SHARES OF COMMON STOCK
[INSERT LOGO]
------------------------------
PROSPECTUS
------------------------------
ANDERSON & STRUDWICK,
INCORPORATED
July ______, 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 $ 3,201.00
-----------------------------------------------------------------
Nasdaq SmallCap Fee $ 7,843.00
-----------------------------------------------------------------
NASD Filing Fee $ 1,465.00
-----------------------------------------------------------------
Blue Sky Fees and Expenses $ 10,000.00
-----------------------------------------------------------------
Printing and Engraving Expenses $ 20,000.00
-----------------------------------------------------------------
Accounting Fees and Expenses $ 35,000.00
-----------------------------------------------------------------
Legal Fees and Expenses $100,000.00
-----------------------------------------------------------------
Transfer Agent and Registrar Fees $ 5,000.00
-----------------------------------------------------------------
Miscellaneous Fees and Expenses $ 27,491.00
-----------------------------------------------------------------
Total (Estimated) $200,000.00
=================================================================
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Since July 18, 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. As additional compensation, the Company issued the
Private Placement Warrants to the Underwriter. The Private Placement Warrants
are exercisable for a period of five years at an exercise price of $9.90 per
share.
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.
The sales and issuance of the securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Sections 3(b) and/or
4(2) thereof and/or Regulation D promulgated thereunder 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.
<PAGE>
Item 27. Exhibits
Exhibit Number Description of Exhibits
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealers Agreement*
1.3 Form of Escrow Agreement*
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*
4.4 Form of Private Placement Warrant*
4.5 Form of Management Warrant*
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 Private Placement*
10.2 Warrant Agreement between the Company and the Underwriter
relating to the Offering*
10.4 Warrant Agreement between the Company and Richard J. Freer*
10.5 Warrant Agreement between the Company and Thomas R. Reynolds*
10.6 Warrant Agreement between the Company and Gregory A. Buck*
10.7 Warrant Agreement between the Company and Robert B. Harris*
10.8 Employment Agreement for Richard J. Freer*
10.9 Employment Agreement for Thomas R. Reynolds*
10.10 Employment Agreement for Gregory A. Buck*
10.11 Employment Agreement for Robert B. Harris*
10.12 Executive Severance Agreement for Richard J. Freer*
10.13 Executive Severance Agreement for Thomas R. Reynolds*
10.14 Executive Severance Agreement for Gregory A. Buck*
10.15 Executive Severance Agreement for Robert B. Harris*
10.16 Escrow 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 (see Page II-6)*
99.1 1997 Stock Incentive Plan*
- -----------
* Filed Herewith
** To be filed by amendment
<PAGE>
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 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
<PAGE>
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.
<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 July 21, 1997.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: /s/ Richard J. Freer, Ph.D.
---------------------------
Richard J. Freer, Ph.D.,
Chairman of the Board
Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints Richard J. Freer, Ph.D.. and Robert B.
Harris, Ph.D. and each of them, with full power to act without the other, his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities (until revoked by writing) to sign any and all amendments
to this Registration Statement (including post-effective amendments and
amendments thereto) and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing, ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
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>
/s/ Richard J. Freer, Ph.D. Chairman of the Board (Principal July 21, 1997
--------------------------- Executive Officer) and Director
Richard J. Freer, Ph.D.
/s/ Robert B. Harris, Ph.D. President and Director July 21, 1997
---------------------------
Robert B. Harris, Ph.D..
/s/ Gregory A. Buck, Ph.D. Secretary, Vice President and July 21, 1997
-------------------------- Director
Gregory A. Buck, Ph.D.
/s/ Thomas R. Reynolds Vice President and Director July 21, 1997
----------------------
Thomas R. Reynolds
/s/ Charles A. Mills, III Director July 21, 1997
-------------------------
Charles A. Mills, III
/s/ Peter C. Einselen Director July 21, 1997
---------------------
Peter C. Einselen
/s/ Chester M. Trzaski Chief Operating Officer (Principal July 21, 1997
---------------------- Financial Officer)
Chester M. Trzaski
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibits
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealer Agreement*
1.3 Form of Escrow Agreement*
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*
4.4 Form of Private Placement Warrant*
4.5 Form of Management Warrant*
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 Private Placement*
10.3 Warrant Agreement between the Company and the
Underwriter relating to the Offering*
10.4 Warrant Agreement between the Company and
Richard J. Freer*
10.5 Warrant Agreement between the Company and
Thomas R. Reynolds*
10.6 Warrant Agreement between the Company and
Gregory A. Buck*
10.7 Warrant Agreement between the Company and
Robert B. Harris*
10.8 Employment Agreement for Richard J. Freer*
10.9 Employment Agreement for Thomas R. Reynolds*
10.10 Employment Agreement for Gregory A. Buck*
10.11 Employment Agreement for Robert B. Harris*
10.12 Executive Severance Agreement for Richard J.
Freer*
10.13 Executive Severance Agreement for Thomas R.
Reynolds*
10.14 Executive Severance Agreement for Gregory A.
Buck*
10.15 Executive Severance Agreement for Robert B.
Harris*
10.16 Escrow 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 (see Page II-6)*
99.1 1997 Stock Incentive Plan*
- --------------------------
* Filed Herewith
** To be filed by amendment
COMMONWEALTH BIOTECHNOLOGIES, INC.
(a Virginia corporation)
834,000 Shares of Common Stock
($6.00 per share)
UNDERWRITING AGREEMENT
July ___, 1997
Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, Virginia 23219
Ladies and Gentlemen:
The undersigned, Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), hereby confirms its agreement with you as follows:
1. Introduction. This Agreement sets forth the understandings and
agreements between the Company and you whereby, subject to the terms and
conditions herein contained, you will offer to sell, on a best efforts
all-or-none basis on behalf of the Company as provided in Section 4.(a) (the
"Offering"), at an offering price of $6.00 per share, 834,000 shares of common
stock (the "Common Stock"), to be issued by the Company (the "Shares").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Prospectus prepared by the Company and dated
July ___, 1997 (the "Prospectus").
2. Representations and Warranties of the Company. The Company makes the
following representations and warranties to you. Certain exceptions to the
representations and warranties are set forth in the disclosure schedule attached
hereto as Exhibit A (the "Disclosure Schedule"), and no matter set forth in the
Disclosure Schedule shall constitute a breach of the representations and
warranties for any purpose of this Agreement.
(a) Registration Statement and Prospectus. The Company
has prepared and filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. __________) (as
defined below, the "Registration Statement") conforming to the requirements of
the Securities Act of 1933, as amended (the
1
<PAGE>
"1933 Act"), and the applicable rules and regulations (the "Rules and
Regulations") of the Commission. Such amendments to such Registration Statement
as may have been required prior to the date hereof have been filed with the
Commission, and such amendments have been similarly prepared. Copies of the
Registration Statement, any and all amendments thereto prepared and filed with
the Commission, and each related Preliminary Prospectus, and the exhibits,
financial statements and schedules, as finally amended and revised, have been
delivered to you for review.
The term "Registration Statement" as used in this
Agreement shall mean the Company's Registration Statement on Form SB-2,
including the Prospectus, any documents incorporated by reference therein, and
all financial schedules and exhibits thereto, as amended on the date that the
Registration Statement becomes effective. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares in the form in which
it was filed with the Commission pursuant to Rule 424(b) of the 1933 Act or, if
no filing pursuant to Rule 424(b) of the 1993 Act is required, shall mean the
form of the final prospectus included in the Registration Statement when the
Registration Statement becomes effective. The term "Preliminary Prospectus"
shall mean any prospectus included in the Registration Statement before it
becomes effective. The terms "effective date" and "effective" refer to the date
the Commission declares the Registration Statement effective pursuant to Section
8 of the 1933 Act.
(b) Adequacy of Disclosure. Each Preliminary Prospectus filed
on or after _______________, 1997, at the time of filing thereof, conformed in
all material respects to the requirements of the 1933 Act and the Rules and
Regulations, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by you expressly for use in
the Registration Statement. When the Registration Statement shall become
effective, when the Prospectus is first filed pursuant to Rule 424(b) of the
Rules and Regulations, when any amendment to the Registration Statement becomes
effective, when any supplement to the Prospectus is filed with the Commission
and on the Closing Date (as hereinafter defined), (i) the Registration
Statement, the Prospectus and any amendments thereof and supplements thereto
will conform in all material respects with the applicable requirements of the
1933 Act and the Rules and Regulations, and (ii) neither the Registration
Statement, the Prospectus nor any amendment or supplement thereto will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by you expressly
for use in the Registration Statement.
2
<PAGE>
(c) No Stop Order. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus with respect to
the Shares, and no proceedings for that purpose have been instituted or
threatened by the Commission or the state securities or blue sky authority of
any jurisdiction.
(d) Company: Organization and Qualification. The Company has
been duly incorporated and is validly existing in good standing as a corporation
under the laws of the Commonwealth of Virginia with all requisite corporate
power and authority to enter into this Agreement, to conduct its business as now
conducted and as proposed to be conducted, and to own and operate its
properties, investments and assets, as described in the Registration Statement
and Prospectus, and is qualified to do business and in good standing as a
foreign corporation in each other jurisdiction in which the failure so to
qualify could reasonably be expected to have a material adverse effect on the
Company. Except as set forth on the Disclosure Schedule, the Company is not in
violation of any provision of its articles of incorporation, bylaws or other
governing documents and is not in default under or in breach of, and does not
know of the occurrence of any event that with the giving of notice or the lapse
of time or both would constitute a default under or breach of, any term or
condition of any material agreement or instrument to which it is a party or by
which any of its properties, investments or assets is bound, except as disclosed
in the Registration Statement and Prospectus. The Company does not own or
control, directly or indirectly, any other corporation, association, or other
entity. The Company has furnished to you copies of its articles of incorporation
and bylaws, as amended, and all such copies are true, correct and complete and
contain all amendments thereto through the Closing Date.
(e) Validity of Shares. The Shares have been duly and validly
authorized by the Company, and upon issuance, will be validly issued, fully paid
and nonassessable, with no personal liability attaching to the ownership
thereof, and will conform to the description thereof contained in the
Prospectus. The preferences, rights and limitations of the Shares are set forth
in the Prospectus under the caption "Description of Capital Stock". No party has
any preemptive rights with respect to any of the Shares or any right of
participation or first refusal with respect to the sale of the Shares by the
Company. No person or entity holds a right to require or participate in the
registration under the 1933 Act of the Shares pursuant to the Registration
Statement except for those persons and entities whose shares of Common Stock or
other securities are being so registered in the Registration Statement; and,
except as set forth in the Prospectus, no person holds a right to require
registration under the 1933 Act of any Common Stock of the Company at any other
time. The form of certificates evidencing the Shares complies with all
applicable requirements of Virginia law.
(f) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Description of Capital Stock." All of the issued and outstanding shares of
Common Stock of the Company have been duly authorized, validly issued, fully
paid and are non-assessable. Except as disclosed in the
3
<PAGE>
Prospectus or as set forth on the Disclosure Schedule, there is no outstanding
option, warrant or other right calling for the issuance of, and no commitment,
plan or arrangement to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of the Company.
(g) Full Power: Company. The Company has full legal right,
power, and authority to enter into this Agreement and the Escrow Agreement among
the Company, _____________________ (the "Escrow Agent") and you (the "Escrow
Agreement"), to issue and deliver the Shares as provided herein and in the
Prospectus and to consummate the transactions contemplated herein and in the
Prospectus. Each of this Agreement and the Escrow Agreement have been duly
authorized, executed, and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable in accordance with its terms,
except to the extent that enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, liquidation, reorganization, or similar laws affecting
creditors' rights generally, regardless of whether such enforceability is
considered in equity or at law, (ii) general equity principles, and (iii)
limitations imposed by federal and state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.
(h) Disclosed Agreements. All agreements between or among the
Company and third parties expressly referenced in the Prospectus are legal,
valid, and binding obligations of the Company, enforceable in accordance with
their respective terms, except to the extent enforceability may be limited by
(i) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar
laws affecting creditors' rights generally, regardless of whether such
enforceability is considered in equity or at law, (ii) general equity principles
and (iii) limitations imposed by federal or state securities laws or the public
policy underlying such laws regarding the enforceability of indemnification or
contribution provisions.
(i) Consents. Except as disclosed in the Registration
Statement and Prospectus or as set forth on the Disclosure Schedule, each
consent, approval, authorization, order, license, certificate, permit,
registration, designation or filing by or with any governmental agency or body
or any other third party necessary for the valid authorization, issuance, sale
and delivery of the Shares, the execution, delivery and performance of this
Agreement and the consummation by the Company of the transactions contemplated
hereby and by the Registration Statement and Prospectus, except such as may be
required under the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), or under state securities laws has been made or obtained and
is in full force and effect.
(j) Litigation. There is not pending or, to the knowledge of
the Company, threatened or contemplated, any action, suit, proceeding, inquiry,
or investigation before or by any court or any federal, state, or local
governmental authority or agency to which the Company may be a party, or to
which any of the properties or rights of the Company may be
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subject, that is not described in the Registration Statement and Prospectus and
(i) that may reasonably be expected to result in any material adverse change in
the condition (financial or otherwise) or business of the Company; or (ii) that
may reasonably be expected to materially adversely affect any of the material
properties of the Company; or (iii) that may reasonably be expected to adversely
affect the consummation of the transactions contemplated by this Agreement, nor,
to the knowledge of the Company, is there any meritorious basis therefor.
(k) Financial Statements. The financial statements of the
Company together with related schedules and notes included in the Registration
Statement and Prospectus present fairly the financial position of the Company as
of the dates indicated and the results of operations and cash flows for the
periods specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
during the periods involved. The financial statement schedules included in the
Registration Statement and the amounts in the Prospectus under the captions
"Prospectus Summary-Summary Financial Information" and "Selected Financial Data"
fairly present the information shown therein and have been compiled on a basis
consistent with the financial statements included in the Registration Statement
and the Prospectus. No other financial statements or schedules are required by
Form SB-2 or otherwise to be included in the Registration Statement, the
Prospectus or any Preliminary Prospectus. The unaudited pro forma financial
information (including the related notes) included in the Prospectus or any
Preliminary Prospectus complies as to form in all material respects to the
applicable accounting requirements of the 1933 Act and the Rules and
Regulations, and management of the Company believes that the assumptions
underlying the pro forma adjustments are reasonable. Such pro forma adjustments
have been properly applied to the historical amounts in the compilation of the
information and such information fairly presents with respect to the Company the
financial position, results of operations and other information purported to be
shown therein at the respective dates and for the respective periods specified.
(l) Independent Accountants. Goodman & Company, L.L.P., the
accountants that have expressed an opinion on the financial statements that are
included in the Registration Statement and Prospectus are, and Goodman &
Company, L.L.P. was during the periods covered by their Reports included in the
Registration Statement and Prospectus, with respect to the Company, to the
Company's knowledge, independent public accountants as required by the 1933 Act
and the Rules and Regulations.
(m) Disclosed Liabilities. The Company has not sustained,
since December 31, 1996, any material loss or interference with its business
from fire, explosion, flood, hurricane, accident, or other calamity, whether or
not covered by insurance, or from any labor dispute or arbitrators' or court or
governmental action, order, or decree, otherwise than as set forth or
contemplated in the Registration Statement and Prospectus; and, since the
respective dates as of which information is given in the Registration Statement
and Prospectus, and except as otherwise stated in the Registration Statement and
Prospectus or as set forth on the
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Disclosure Schedule, there has not been (i) any material change in the capital
stock, long-term debt, obligations under capital leases, or short-term
borrowings of the Company, (ii) any material adverse change, or any development
that could be reasonably be seen as involving a prospective material adverse
change in or affecting the business, prospects, properties, assets, results of
operations or condition (financial or other) of the Company, (iii) any liability
or obligation, direct or contingent, incurred or undertaken by the Company that
is material to the business or condition (financial or other) of the Company,
except for liabilities or obligations incurred in the ordinary course of
business, (iv) any declaration or payment of any dividend or distribution of any
kind on or with respect to the capital stock of the Company, or (v) any
transaction that is material to the Company, except transactions in the ordinary
course of business or as otherwise disclosed in the Registration Statement and
Prospectus.
(n) Required Licenses and Permits. Except as disclosed in the
Prospectus, the Company owns, possesses, has obtained or in the ordinary course
of business will obtain, and has made available for your review, all material
permits, licenses, franchises, certificates, consents, orders, approvals, and
other authorizations of governmental or regulatory authorities as are necessary
to own or lease, as the case may be, and to operate its properties and to carry
on its business as presently conducted, or as contemplated in the Prospectus to
be conducted (the "Permits"), and the Company has not received any notice of
proceedings relating to revocation or modification of any such Permits.
(o) Internal Accounting Measures. To the knowledge of the
Company, the Company's system of internal accounting controls taken as a whole
is sufficient to meet the broad objectives of internal accounting control
insofar as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to the Company's
financial statements; and, to the knowledge of the Company, none of the Company
or any employee or agent thereof, has made any payment of funds of the Company,
or received or retained any funds of the Company, and no funds of the Company
have been set aside to be used for any payment, in each case in violation of any
law, rule, or regulation.
(p) Taxes. The Company has timely filed all required federal
and state tax returns, and has paid all taxes that have become due and have no
tax deficiency asserted against the Company, and the Company does not know of
any tax deficiency that is likely to be asserted against the Company that if
determined adversely to the Company, would, either individually or in the
aggregate, have a material adverse effect on the business, prospects,
properties, assets, results of operations, or condition (financial or otherwise)
of the Company. All tax liabilities are adequately provided for on the books of
the Company.
(q) Compliance with Instruments. Except as set forth on the
Disclosure Schedule, the execution, delivery and performance of this Agreement
and the Escrow Agreement, the compliance with the terms and provisions hereof
and the consummation of the transactions contemplated herein, therein and in the
Registration Statement and Prospectus by
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the Company, do not and will not violate or constitute a breach of, or default
under (i) the articles of incorporation or bylaws of the Company; (ii) any of
the material terms, provisions, or conditions of any material instrument,
agreement, or indenture to which the Company is a party or by which it is bound
or by which its business, assets, investments or properties may be affected; or
(iii) any order, statute, rule, or regulation applicable to the Company, or any
of its business, investments, assets or properties, of any court or any federal,
state or local (to the knowledge of the Company) governmental authority or
agency having jurisdiction over the Company, or any of its business,
investments, properties or assets; and to the knowledge of the Company do not
and will not result in the creation or imposition of any lien, charge, claim, or
encumbrance upon any property or asset of the Company.
(r) Insurance. The Company maintains insurance (issued by
insurers of recognized financial responsibility) of the types and in the amounts
generally deemed adequate for its business and, to the knowledge of the Company,
consistent with insurance coverage maintained by similar companies and similar
businesses, all of which insurance is in full force and effect.
(s) Work Force. To the knowledge of the Company, no
general labor problem exists or is imminent with the employees of the Company.
(t) Securities Matters. The Company and its officers,
directors, or affiliates have not taken and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in or constitute the stabilization or manipulation of any
security of the Company or to facilitate the sale or resale of the Shares.
(u) Environment. To the Company's knowledge, after due
inquiry, the Company has duly complied with, and its business, operations,
assets, equipment, property, leaseholds or other facilities are in compliance
with, the provisions of all federal, state and local environmental, health,
nuclear regulatory and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder. To the Company's knowledge, after due
inquiry, the Company has been issued, or in the ordinary course of business is
in the process of obtaining, and will maintain all required federal, state and
local permits, licenses, certificates and approvals relating to (1) air
emissions, (2) discharges to surface water or groundwater, (3) noise emissions,
(4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation or disposal of radioactive or otherwise toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and regulations
promulgated thereunder as hazardous or potentially hazardous), or (6) other
environmental, health, nuclear regulatory or safety matters. The Company has not
received notice of, and does not know of or suspect facts which might constitute
violations of any federal, state or local environmental, health, nuclear
regulatory or safety laws, codes or ordinances, or any rules or regulations
promulgated thereunder with respect to its business, operations, assets,
equipment, property, leaseholds, or
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other facilities, which could reasonably be expected to have a material adverse
effect on the Company. Except in accordance with a valid governmental permit,
license, certificate or approval, the Company has made no emission, spill,
release or discharge into or upon (1) the air, (2) soils, or any improvements
located thereon, (3) surface water or groundwater, or (4) the sewer, septic
system or waste treatment, storage or disposal system servicing the premises, of
any radioactive or otherwise toxic or hazardous substances or wastes at or from
the premises of the Company. To the knowledge of the Company, there has been no
complaint, order, directive, claim, citation or notice by any governmental
authority or any person or entity with respect to (1) air emissions, (2) spills,
releases or discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or disposal
systems servicing the premises, (3) noise emissions, (4) solid or liquid waste
disposal, (5) the use, generation, storage, transportation or disposal of
radioactive or otherwise toxic or hazardous substances or waste, or (6) other
environmental, health or safety matters affecting the Company or its business,
operations, assets, equipment, property, leaseholds or other facilities. To the
knowledge of the Company, the Company does not have any indebtedness, obligation
or liability (absolute or contingent, matured or not matured), with respect to
the storage, treatment, cleanup or disposal of any solid wastes, hazardous
wastes or other radioactive or otherwise toxic or hazardous substances
(including without limitation any such indebtedness, obligation, or liability
with respect to any current regulation, law or statute regarding such storage,
treatment, cleanup or disposal).
(v) Investment Company Act. The Company is not, and will not
become as a result of the consummation of the Offering, an "investment company"
or an entity which that "controls" or is "controlled by" an "investment
company," as such terms are defined under the Investment Company Act of 1940, as
amended (the "1940 Act").
(w) Receipt of Commissions and Fees. Except as stated in or
contemplated by the Prospectus, neither the Company nor any affiliate of the
Company has received or is entitled to receive, directly or indirectly, any
compensation or other benefit, including, but not limited to, any finder's fee,
acquisition fee, selection fee, nonrecurring management fee or other fee or
commission, relating to the investments of the Company.
(x) Payment of Commissions and Fees. Except as stated in or
contemplated by the Prospectus, neither the Company nor any affiliate of the
Company has paid or awarded, nor will any such person pay or award, directly or
indirectly, any commission or other compensation to any person engaged to render
investment advice to a potential purchaser of Shares as an inducement to advise
the purchase of Shares.
3. Representations and Warranties of Placement Agent. You
represent and warrant to the Company that:
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(a) You are a member, in good standing, of the National
Association of Securities Dealers, Inc. ("NASD"), and are duly registered as a
broker-dealer under the 1934 Act, and under the laws of each state in which you
propose to offer the Shares, except where such registration would not be
required by law.
(b) This Agreement when accepted and approved will be duly
authorized, executed and delivered by you and is a valid and binding agreement
of you, enforceable in accordance with its terms, except to the extent that
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
liquidation, reorganization, or similar laws affecting creditors' rights
generally, regardless of whether such enforceability is considered in equity or
at law, (ii) general equity principles, and (iii) limitations imposed by federal
and state securities laws or the public policy underlying such laws regarding
the enforceability of indemnification or contribution provisions.
(c) The consummation of the transactions contemplated by the
Prospectus relating to the Offering will not violate or constitute a breach of,
or default under, your articles of incorporation or bylaws, or any material
instrument, agreement, or indenture to which you are a party, or violate any
order applicable to you of any federal or state regulatory body or
administrative agency having jurisdiction over you or your property.
4. Sale of Shares.
(a) Exclusive Agency. The Company hereby appoints you as its
exclusive agent to offer for sale, and hereby agrees to sell during the Offering
Period (as defined in Section 4.(c)), 834,000 Shares of Common Stock, and on the
basis of the representations and warranties herein contained but subject to the
terms and conditions herein set forth, you accept such appointment and agree to
use your best efforts as agent to offer the Shares for sale for the account of
the Company, on a cash basis only at the offering price of $6.00 per Share.
During the Offering Period, the Company will not sell or agree to sell any debt
or equity securities otherwise than through you. Subject to your commitment to
the sell the Shares on a "best efforts all-or-none basis" as provided herein,
nothing in this Agreement shall prevent you from entering into an agency
agreement, underwriting agreement, or other similar agreement governing the
offer and sale of securities with any other issuer of securities, and nothing
contained herein shall be construed in any way as precluding or restricting your
right to sell or offer for sale securities issued by any other person, including
securities similar to, or competing with, the Shares. It is understood between
the parties that there is no firm commitment by you to purchase any or all of
the Shares.
(b) Obligation to Offer Shares. Your obligation to offer the
Shares is subject to receipt by you of written advice from the Commission that
the Registration Statement is effective, is subject to the Shares being
qualified for offering under applicable laws in the states as may be reasonably
designated by you, is subject to the absence of any
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prohibitory action by any governmental body, agency, or official, and is subject
to the terms and conditions contained in this Agreement and in the Registration
Statement.
(c) Offering Termination Date. The "Offering Period" shall
commence on the day that the Prospectus is first made available to prospective
investors in connection with the offering for sale of the Shares and shall
continue until the "Offering Termination Date," which shall be the earlier of
(i) the date all of the Shares offered have been sold, (ii) November 21, 1997,
or (iii) an earlier termination date as determined by you as permitted herein.
The Company and you agree that unless all of the 834,000 Shares offered are sold
on or before the Offering Termination Date, the agency between the Company and
you will terminate, and the full proceeds that have been paid for the Shares
will be returned to the purchasers.
(d) Escrow Agent. Prior to the sale of all of the Shares, all
funds received from purchasers of the Shares shall be placed in an escrow
account (the "Escrow Account") with the Escrow Agent pursuant to the Escrow
Agreement, the form of which is attached as Exhibit 1.3 to the Registration
Statement, and all payments of, from or on account of such funds shall be made
pursuant to the Escrow Agreement. In the event that all of the Shares are not
sold on or before the Offering Termination Date, all funds then held in the
Escrow Account shall be returned promptly to the respective purchasers as
provided in the Escrow Agreement.
(e) Closing Date. As and when the closing of the Offering is
effected, which shall be on or before the Offering Termination Date, and
proceeds from the Shares sold are received and accepted, on such date (the
"Closing Date") and at such time and place as determined by you (which
determination shall be subject to the satisfaction on such date of the
conditions contained herein), the funds received from purchasers will be
delivered by the Escrow Agent to the Company, by wire transfer of immediately
available funds, except for the Selling Commissions payable to you and to
selected dealers on your behalf ("Selected Dealers") on the Closing Date
pursuant to the provisions of Section 4.(f) of this Agreement (which Selling
Commissions shall be delivered to you by the Escrow Agent on behalf of the
Company on the Closing Date).
(f) Selling Commissions. In consideration for your execution
of this Agreement and for the performance of your obligations hereunder, the
Company agrees to pay you, as provided in Section 4.(e) of this Agreement, by
wire transfer of immediately available funds on the Closing Date, if any, a
Selling Commission computed at the rate of eight percent (8.0%) of the public
offering price of the Shares sold by you. With respect to Shares sold by
Selected Dealers, the Escrow Agent shall pay the Selected Dealer on your behalf
a Selling Commission computed at the rate of four percent (4%) of the public
offering price per Share and shall pay you a Selling Commission of four percent
(4%) of the public offering price per Share. In addition, on the Closing Date,
we will issue to you a warrant for the purchase of
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83,400 additional shares of Common Stock, substantially in the form of Exhibit B
attached to this Agreement.
(g) Finder's Fees. Except as set forth in the Registration
Statement or Prospectus, neither you nor the Company, directly or indirectly,
shall pay or award any finder's fee, commission, or other compensation to any
person engaged by a potential purchaser for investment advice as an inducement
to such advisor to advise the purchase of the Shares or for any other purpose.
(h) Delivery of Share Certificates. Delivery of certificates
in definitive form representing the Shares shall be made at the offices of
Newbridge Securities, Inc. or at such other place as shall be agreed upon by the
Company and you, on such date as you may request (the "Date of Delivery"). The
certificates representing the Shares shall be in such denominations and
registered in such names as you may request in writing at least three full
business days before the Date of Delivery. The certificates representing the
Shares will be made available for examination and packaging at the offices of
Newbridge Securities, Inc. or at such other place as shall be agreed upon by the
Company and you, not later than at least two (2) full business days prior to
each Date of Delivery.
5. Covenants.
(a) Covenants of the Company. The Company covenants with
you as follows:
(i) Notices. The Company immediately will
notify you, and confirm such notice in writing, (A) of any fact that would make
inaccurate any representation or warranty by the Company, and (B) of any change
in facts on which your obligation to perform under this Agreement is dependent.
(ii) Effectiveness of Registration Statement.
The Company will use its best efforts to cause the Registration Statement to
become effective (if not yet effective at the date and time this Agreement is
executed and delivered by the parties hereto). If the Company elects to rely
upon Rule 430A of the Rules and Regulations or the filing of the Prospectus is
otherwise required under Rule 424(b) of the Rules and Regulations, and subject
to the provisions of Section 5.(a)(iii) of this Agreement, the Company will
comply with the requirements of Rule 430A and will file the Prospectus, properly
completed, pursuant to the applicable provisions of Rule 424(b) within the time
prescribed. The Company will notify you immediately, and confirm the notice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement, shall have become effective, or any supplement to
the Prospectus, or any amended Prospectus shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission to amend the Registration Statement or amend or supplement the
Prospectus or for additional
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information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the suspension
of the qualification of the Shares for offering or sale in any jurisdiction, or
of the institution or threatening of any proceeding for any such purposes. The
Company will use all reasonable efforts to prevent the issuance of any such stop
order or of any order preventing or suspending such use and, if any such order
is issued, to obtain the withdrawal thereof at the earliest possible moment.
(iii) Amendments to Registration Statement
and Prospectus. The Company will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement (i) to the
Prospectus, if the Company has not elected to rely upon Rule 430A, or (ii) if
the Company has elected to rely upon Rule 430A, to either the Prospectus
included in the Registration Statement at the time it becomes effective or to
the Prospectus filed in accordance with Rule 424(b), in either case if you shall
not have previously been advised and furnished a copy thereof a reasonable time
prior to the proposed filing, or if you or your counsel shall reasonably object
to such amendment or supplement; provided, however, that if you shall have
objected to such amendment or supplement, you shall cease your efforts to sell
the Shares until an amendment or supplement is filed.
(iv) Delivery of Registration Statement. The
Company has delivered to you or will deliver to you, without expense to you, at
such locations as you shall request, as soon as the Registration Statement or
any amended Registration Statement is available, such number of signed copies of
the Registration Statement as originally filed and of amended Registration
Statements, if any, copies of all exhibits and documents filed therewith, and
signed copies of all consents and certificates of experts, as you may reasonably
request.
(v) Delivery of Prospectus. The Company will
deliver to you at its expense, from time to time, as many copies of each
Preliminary Prospectus as you may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the 1933 Act. The
Company will deliver to you at its expense, as soon as the Registration
Statement shall have become effective and thereafter from time to time as
requested during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectus (as supplemented or
amended) as you may reasonably request. The Company will comply to the best of
its ability with the 1933 Act and the Rules and Regulations so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and in the prospectus. If the delivery of a prospectus is required at any time
prior to the expiration of nine months after the time of issue of the Prospectus
in connection with the offering or sale of the Shares and if at such time any
events shall have occurred as result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made when such Prospectus is
delivered not misleading or, if for any reason it shall be
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necessary during the same period to amend or supplement the Prospectus in order
to comply with the 1933 Act, the Company will notify you and upon your request
prepare and furnish without charge to you and to any dealer in securities as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus that will correct such statement or
omission or effect such compliance, and in case you are required to deliver a
prospectus in connection with sales of any of the Shares at any time after
__________________, upon your request but at your expense, the Company will
prepare and deliver to you as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the 1933 Act.
(vi) Blue Sky Qualification. The Company, in
good faith and in cooperation with you, will use its best efforts to qualify the
Shares for offering and sale under the applicable "blue sky" or securities laws
of such jurisdictions as you from time to time may reasonably designate and to
maintain such qualifications in effect until the date on which the Company
ceases to be obligated to maintain the effectiveness of the Registration
Statement, as provided in Section 5.(a)(xvi) below; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to make any undertakings in
respect of doing business in any jurisdiction in which it is not otherwise so
subject. The Company will file such statements and reports as may be required by
the laws of each jurisdiction in which the Shares have been qualified as above
provided.
(vii) Financial and Other Information.
(A) Earnings Statement. The Company
will make generally available to its securityholders, in the manner specified in
Rule 158(b) under the 1933 Act and deliver to you as soon as practicable and in
any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earnings statement meeting the requirements of Rule 158(a) under the
1933 Act covering a period of at least twelve consecutive months beginning after
the effective date of the Registration Statement.
(B) Annual and Quarterly Reports. The
Company will furnish to its securityholders, as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year. For a period
through and including ___________, 2002, the Company will furnish to you: (i)
concurrently with the date on which the same shall be sent to the
securityholders of the Company, if applicable, and in any event not later than
sixty (60) days after the end of each fiscal quarter of the Company, statements
of operations of the Company for each of the first three quarters in the form
furnished to the Company's securityholders; (ii) concurrently with the date on
which the same shall be sent to the securityholders of the Company, if
applicable, and in any event not later than one hundred twenty (120) days after
the end of each fiscal year
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of the Company, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of cash flows, and of
securityholders' equity of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent public accountants;
(iii) as soon as they are available, copies of all reports (financial or
otherwise) mailed to securityholders; and (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange, or the NASD. During the period through and
including ___________, 2002, the foregoing financial statements shall be made on
a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so consolidated.
(C) Press Releases. For a period
through and including ______________, 2002, the Company will furnish to you,
concurrently with the release thereof, one copy of every press release to be
issued and every material news item and article in respect of the Company or its
affairs to be released by the Company; and promptly, such additional documents
and information with respect to the Company and its affairs as you from time to
time may reasonably request.
(D) Other Information. For a period
through and including ____________, 2002, the Company will furnish to you any
additional information of a public nature concerning the Company or its business
that you may reasonably request in writing.
(E) Notice of Major Events. Until the
Offering Termination Date, the Company will notify you in writing promptly, but
in any event not later than two (2) business days after any officer of the
Company becomes aware of the occurrence of any of the following events:
(1) Material Litigation. The
Company shall have become a party to one or more suits, actions or proceedings
which, if adversely determined, could have a material adverse effect on the
business, properties, operations or condition, financial or otherwise, of the
Company taken as a whole;
(2) Defaults. The Company has
received notice of any default or failure to perform any covenant or failure to
maintain any representation or warranty by the Company under any agreement
relating to indebtedness for money borrowed to which the Company is a party;
(3) Material Adverse Change.
Any condition shall exist (i) which would cause the representations and
warranties set forth herein to not be true and correct in all material respects
or (ii) which has resulted in or which is likely, in the reasonable judgment of
the Company, to result in a material adverse change in the business, properties,
operations or condition, financial or otherwise, of the Company taken as a
whole.
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(viii) Application of Net Proceeds. The
Company will apply the net proceeds received from the sale of the Shares in all
material respects as set forth in the Prospectus under the caption "Use of
Proceeds."
(ix) Solicitation of Purchasers; Right of First
Refusal.
(A) Except as hereinafter specified, the
Company will not, and will not permit any of its affiliates or agents to, (1)
engage in any offering or placement of any debt or equity security or long-term
debt other than in a commercial lending transaction, or pursuant to a stock
incentive plan, or in a transaction that would result in a change in control as
defined in the Incentive Plan for a period of three (3) years from the Closing
Date for which you are not acting as the underwriter or sales or placement
agent, unless you shall have failed to exercise a right of first refusal to act
as the underwriter or sales agent for the proposed offering within fifteen (15)
days of a notice from the Company of the proposed terms of the offering, (2)
solicit the purchasers of Shares in connection with any other offering of any
security for a period of three (3) years from the Closing Date, unless you shall
have been given a right of first refusal to conduct such solicitation or you are
notified and compensated therefor in an amount equal to 8.0% of the purchase
price of any securities purchased by any such purchaser, or (3) furnish the
names of such purchasers or of other potential investors obtained through you to
any person other than as may be required in connection with the normal and usual
conduct by the Company of its business or required by court order or law.
(B) The Company agrees and understands
that a violation of the provisions of Section 5.(a)(ix)(A)(2) or (3) of this
Agreement will cause you irreparable harm and injury and that any money damages
you receive will not compensate you for any breach thereof. Accordingly, the
Company agrees that, in addition to monetary damages, you will be entitled to
all such equitable relief including, without limitation, injunctive relief, as a
court of equity or proper jurisdiction shall deem appropriate in the
circumstances. Such relief shall not be exclusive of any rights you may have at
law or in equity. All of the rights and remedies you have hereunder shall be
cumulative and not alternative. The provisions of this Section shall not limit
your remedies upon the breach by the Company of any other section of this
Agreement.
(x) Cooperation with Your Due Diligence. At all
times prior to the Offering Termination Date, the Company will cooperate with
you in such investigation as you may make or cause to be made of all the
business and operations of the Company in connection with the sale of the
Shares, and will make available to you in connection therewith such information
in its possession as you may reasonably request, all of which you agree to
safeguard as the confidential information of the Company and to refrain from
using for any purpose adverse to the interests of the Company.
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(xi) Transfer Agent. The Company will maintain a
transfer agent and, if necessary under applicable jurisdictions, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(xii) Nasdaq. The Company will use its
reasonable best efforts to maintain the quotation of its shares of Common Stock
on The Nasdaq Small Cap Market.
(xiii) Actions of Company, Officers,
Directors, and Affiliates. The Company will not and will use its best efforts
to cause its officers, directors, and affiliates not to (i) take, directly or
indirectly, prior to termination of the offering contemplated by this Agreement,
any action designed to stabilize or manipulate the price of any security of the
Company, or that may cause or result in, or that might in the future reasonably
be expected to cause or result in, the stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale of any of
the Shares, (ii) other than under this Agreement, sell, bid for, purchase, or
pay anyone any compensation for soliciting purchases of the Shares or (iii) pay
or agree to pay to any person any compensation for soliciting any order to
purchase any other securities of the Company.
(xiv) Transactions with Affiliates. The
Company will not, and will not permit any wholly-owned subsidiary to, sell or
transfer any assets or services to, or purchase or acquire any assets or
services of, or otherwise engage in any transaction with, any of their
respective affiliates, except in the ordinary course of business and upon fair
and reasonable terms no less favorable than the Company or such wholly-owned
subsidiary could obtain or could become entitled to in an arm's-length
transaction with a person which was not any such affiliate.
(xv) Nasdaq National Market. The Company will
use its reasonable best efforts to obtain the approval of its shares of Common
Stock for quotation on The Nasdaq National Market as soon as practicable, and to
maintain such status thereafter.
(xvi) Maintenance of Registration. The
Company will maintain the effectiveness of the Registration Statement, and file
and use its best efforts to secure and maintain the effectiveness of all
appropriate post-effective amendments to the Registration Statement, until the
earlier to occur of (A) the sale of all shares of Common Stock and warrants to
purchase Common Stock that are included in the Registration Statement, other
than the Shares (collectively, the "Other Securities"), or (B) your written
consent to remove from registration any of the unsold Other Securities.
(b) Your Covenants. You covenant with the Company as
follows:
(i) Information Provided. You have not provided
and will not provide to the purchasers of Shares any written or oral information
regarding the business of
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the Company, including any representations regarding the Company's financial
condition or financial prospects, other than such information as is contained in
the Prospectus. You further covenant that you will use your best efforts to
comply in the offering of the Shares with such purchaser suitability
requirements as may be imposed by state securities or blue sky requirements.
(ii) Prospectus Supplements. Until the
termination of this Agreement, if any event affecting the Prospectus, the
Company or you shall occur which, in the opinion of counsel to the Company,
should be set forth in a supplement to the Prospectus, you agree to distribute
each supplement of the Prospectus to each person who has previously received a
copy of the Prospectus from you and you further agree to include such supplement
in all future deliveries of the Prospectus. You agree that following notice from
the Company that a supplement to the Prospectus is necessary, you will cease
further efforts to sell the Shares until such a supplement is prepared and
delivered to you.
(iii) Compliance with Laws, Etc. In your
sale of the Shares, you will comply in all material respects with applicable
federal and state laws, rules and regulations and the rules and regulations of
applicable self-regulatory organizations (provided, however, that you shall be
deemed not to have breached this covenant if your failure to so comply is based
on a breach by the Company of any of its representations, warranties or
covenants contained in this Agreement and you shall have complied with Section
5.(b)(ii) above).
6. Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, and subject to
the provisions of Section 10 of this Agreement, the Company hereby agrees that
it will pay all fees and expenses incident to the performance of its obligations
under this Agreement (excluding fees and expenses of counsel for you, except as
specifically set forth below), including (a) the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), as originally filed and as amended, the Preliminary Prospectuses and
the Prospectus and any amendments or supplements thereto, and the cost of
furnishing copies thereof to you, (b) the preparation, printing, and
distribution of this Agreement, any Selected Dealer Agreement, the certificates
representing the Shares, the Blue Sky Memoranda, and any instruments relating to
any of the foregoing, (c) the issuance and delivery of the Shares, including any
transfer taxes payable thereon, (d) the fees and disbursements of the Company's
counsel and accountants, (e) the qualification of the Shares under applicable
securities laws in accordance with Section 5.(a) of this Agreement and any
filing fee paid in connection with the review of the offering by the NASD,
including filing fees and fees and disbursements made in connection therewith
and in connection with the Blue Sky Memoranda supplied to you by counsel for the
Company, (f) all costs, fees, and expenses in connection with the application
for qualifying the Shares for quotation on the Nasdaq Small Cap Market, (g) the
transfer agent's and registrar's fees and all miscellaneous expenses referred to
in Item 25 of the Registration Statement, (h) costs related to travel and
lodging incurred by the Company and its
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representatives relating to meetings with and presentations to prospective
purchasers of the Shares reasonably determined by you to be necessary or
desirable to effect the sale of the Shares to the public, (i) any escrow
arrangements in connection with the transactions described herein, including any
compensation or reimbursement to the Escrow Agent for its services as such, and
(j) all other costs and expenses incident to the performance of the Company's
obligations hereunder that are not otherwise specifically provided for in this
Section.
7. Conditions of Your Obligations. Your obligations hereunder
shall be subject to, in your discretion, the following terms and conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:30 p.m. on the date of
this Agreement or, at such later time or on such later date as you may agree to
in writing; and as of the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
your counsel.
(b) Closing Date Matters. On the Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the Rules and Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the Rules and
Regulations; the Company shall have complied in all material respects with Rule
430A (if it shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any material adverse
change in the business, prospects, properties, assets, results of operations or
condition (financial or otherwise) of the Company whether or not arising in the
ordinary course of business, (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the Company's knowledge, threatened against the
Company that would be required to be set forth in the Prospectus other than as
set forth therein and no proceedings shall be pending or, to the knowledge of
the Company, threatened against the Company before or by any federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding could materially adversely affect the business,
prospects, assets, results of operations or condition (financial or otherwise)
of the Company other than as set forth in the Prospectus, (iv) the Company shall
have complied with all agreements and satisfied all conditions on their part to
be performed or satisfied on or prior to the Closing Date, and (v) the
representations and warranties of the Company set forth in Section 2 of this
Agreement shall be accurate in all material respects as though expressly made at
and as of the Closing Date. On each Closing
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Date, you shall have received a certificate executed by the President of the
Company, dated as of the Closing Date, to such effect and with respect to the
following additional matters: (A) the Registration Statement has become
effective under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement or preventing or suspending the use of the Prospectus
has been issued, and no proceedings for that purpose have been instituted or are
pending or, to his knowledge, threatened under the 1933 Act; and (B) he has
reviewed the Registration Statement and the Prospectus and, when the
Registration Statement became effective and at all times subsequent thereto up
to the delivery of such certificate, the Registration Statement and the
Prospectus and any amendments or supplements thereto contained all statements
and information required to be included therein or necessary to make the
statements therein not misleading and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and, since the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented Prospectus that
has not been so set forth.
(c) Opinions of LeClair Ryan. At the Closing Date, you shall
receive the opinion of LeClair Ryan, a Professional Corporation, counsel for the
Company, in form and substance reasonably satisfactory to you, to the effect of
Exhibit C.
(d) Opinion of Your Counsel. At the Closing Date, you shall
receive the favorable opinion of Willcox & Savage, P.C., your counsel, with
respect to such matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents as they may reasonably request for
the purpose of enabling them to pass on such matters.
(e) Independent Public Accountants. At the time that this
Agreement is executed by the Company, you shall have received from Goodman &
Company, L.L.P. a letter, dated the date hereof, in form and substance
satisfactory to you, confirming that they are independent public accountants
with respect to the Company within the meanings of the 1933 Act and the Rules
and Regulations, and stating in effect that:
(i) in their opinion, the financial statements
and any supplementary financial information and schedule included in the
Registration Statement and covered by their opinion therein comply as to form
and in all material respects with the applicable accounting requirements of the
1933 Act and the Rules and Regulations;
(ii) on the basis of limited procedures (set
forth in detail in such letter and made in accordance with such procedures as
may be specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a reading of the
latest available internal unaudited financial statements of
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the Company, a reading of the minute books of the Company, inquiries of
officials of the Company responsible for financial and accounting matters, and
such other inquiries and procedures as may be specified in such letter, nothing
came to their attention to cause them to believe that:
(A) the unaudited financial statements
and supporting schedule and other unaudited financial data of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
Rules and Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement;
(B) any other unaudited income statement
data and balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited financial statements from which such data
and items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements included in the
Prospectus;
(C) any unaudited pro forma financial
information included in the Prospectus does not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the Rules and Regulations or the pro forma adjustments have not been
properly applied to historical amounts in the compilation of that information;
(D) at a specified date not more than
five (5) days prior to the date of such letter, there was any change in the
capital stock or long-term debt or obligations of the Company or there were any
decreases in net current assets or net assets, shareholders' equity, or other
items specified by you from that set forth in the Company's balance sheet at
March 31, 1996, except as described in such letter; and
(E) for the period from ____________,
1997 to a specified date not more than five (5) days prior to the date of such
letter, there were any decreases in revenues or operating income before
interest, depreciation and amortization for the Company, in each case as
compared with the corresponding period of the preceding year, except in each
case for decreases that the Prospectus discloses have occurred or may occur or
that are described in such letter; and
(iii) in addition to the procedures
referred to in clause (ii) above and the examination referred to in their
Reports including in the Registration Statement, they have carried out certain
specified procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts, percentages, and
financial information specified by you that are derived from the general
accounting records of the
20
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Company, that appear in the Registration Statement or the exhibits or schedules
thereto and are specified by you, and have compared such amounts, percentages,
and financial information with the accounting records of the Company and with
material derived from such records and have found them to be in agreement.
(f) Updated Comfort Letter. At each Closing Date, you shall
have received from Goodman & Company, L.L.P. a letter, in form and substance
satisfactory to you and dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to Section 7.(e)
above, except that the specified date referred to shall be a date not more than
five (5) days prior to the Closing Date.
(g) Post-Financial Developments. In the event that either of
the letters to be delivered pursuant to Sections 7.(e) and 7.(f) above sets
forth any changes, decreases or increases, it shall be a further condition to
your obligations that you shall have reasonably determined, after discussions
with officers of the Company responsible for financial and accounting matters
and with Goodman & Company, L.L.P., that such changes, decreases or increases as
are set forth in such letter do not reflect a material adverse change in the
capital stock, long-term debt, obligations under capital leases, total assets,
net current assets, or shareholders' equity of the Company as compared with the
amounts shown in the latest consolidated pro forma balance sheet of the Company,
or a material adverse change in the revenues or operating income before
interest, depreciation and amortization for the Company in each case as compared
with the corresponding period of the prior year.
(h) Additional Information. On the Closing Date, you shall
have been furnished with all such documents, certificates and opinions as you
may reasonably request for the purpose of enabling your counsel to pass upon the
issuance and sale of the Shares as contemplated in this Agreement and the
matters referred to in Section 7.(b), and in order to evidence the accuracy and
completeness of, any of the representations, warranties or statements of the
Company, the performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all proceedings taken
by the Company at or prior to the Closing Date in connection with the
authorization, issuance and sale of the Shares as contemplated in this
Agreement, shall be satisfactory in form and substance to you and to your
counsel. The Company will furnish you with such number of conformed copies of
such opinions, certificates, letters and documents as you shall reasonably
request. Any certificate signed by any officer, partner, or other official of
the Company and delivered to you or your counsel shall be deemed a
representation and warranty by the Company to you as to the statements made
therein.
(i) Adverse Events. Subsequent to the date hereof, there
shall not have occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York Stock Exchange or
American Stock Exchange or The Nasdaq National Market, (ii) a general moratorium
on commercial banking activities in Virginia or
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New York declared by either federal or state authorities, as the case may be,
(iii) the outbreak or escalation of hostilities involving the United States or
the declaration by the United States of a national emergency or war if the
effect of any such event specified in this clause (iii) in your reasonable
judgment makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares on the terms and in the manner
contemplated in the Prospectus, or (iv) such a material adverse change in
general economic, political, financial or international conditions affecting
financial markets in the United States having a material adverse impact on
trading prices of securities in general, as, in your reasonable judgment, makes
it impracticable or inadvisable to proceed with the public offering of the
Shares or the delivery of the Shares on the terms and in the manner contemplated
in the Prospectus.
(j) NASD Review. The NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering, the
terms of the offering or your participation in the offering.
(k) Nasdaq Quotation. The Shares shall be approved for
quotation on The Nasdaq Small Cap Market.
If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by you on notice to the Company at any time at or
prior to the Closing Date, and such termination shall be without liability of
any party to any other party, except as provided in Sections 6 and 10.
Notwithstanding any such termination, the provisions of Section 8 shall remain
in effect.
8. Indemnification and Contribution.
(a) Indemnification by the Company. The Company will indemnify
and hold you harmless against any losses, claims, damages, or liabilities, joint
or several, to which you may become subject under the 1933 Act, the 1934 Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any breach of any
representation, warranty or covenant of the Company herein contained or any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the 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, and will
reimburse you for any legal or other expenses reasonably incurred by you in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any such amendment or
22
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supplement, in reliance upon and in conformity with written information
furnished to the Company by you expressly for use therein; provided further,
that the indemnity agreement contained in Section 8.(a) with respect to any
Preliminary Prospectus shall not inure to your benefit if you failed to send or
give a copy of the Prospectus to such person at or prior to the written
confirmation of the sale of such Shares to such person in any case where such
delivery is required by the 1933 Act or the Rules and Regulations and if the
Prospectus would have cured any untrue statement or alleged untrue statement or
omission or alleged omission giving rise to such loss, claim, damage, or
liability. In addition to its other obligations under this Section 8.(a), the
Company agrees that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry, or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8.(a), it will reimburse you on a monthly basis for
all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry, or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse you
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to you within thirty (30) days of a
request for reimbursement shall bear interest at the prime rate (or reference
rate or other commercial lending rate for borrowers of the highest credit
standing) published from time to time by The Wall Street Journal (the "Prime
Rate") from the date of such request. This indemnity agreement shall be in
addition to any liabilities that the Company may otherwise have. For purposes of
this Section 8, the information set forth in the last paragraph on the front
cover page (insofar as such information relates to you) and under "Underwriting"
in any Preliminary Prospectus and in the Prospectus constitutes the only
information furnished by you to the Company for inclusion in any Preliminary
Prospectus, the Prospectus, or the Registration Statement. The Company will not,
without your prior written consent, settle or compromise or consent to the entry
of any judgment in any pending or threatened action or claim or related cause of
action or portion of such cause of action in respect of which indemnification
may be sought hereunder (whether or not you are a party to such action or
claim), unless such settlement, compromise, or consent includes an unconditional
release of you from all liability arising out of such action or claim (or
related cause of action or portion thereof).
The indemnity agreement in this Section 8.(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls you within the meaning of the 1933 Act or the
1934 Act to the same extent as such agreement applies to you.
(b) Indemnification by You. You will indemnify and hold
harmless the Company against any losses, claims, damages, or liabilities to
which the Company may become subject, under the 1933 Act, the 1934 Act, or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any
23
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breach of any warranty or covenant by you herein contained or any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement, or the 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, the Registration Statement, or the Prospectus or any such amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by you 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 Closing Date and that corrected any
statement or omission in a Preliminary Prospectus, the Registration Statement or
the Prospectus which forms the basis for a claim against the Company; and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability, or action. In addition to its other obligations under this
Section 8.(b), you agree that, as an interim measure during the pendency of any
such claim, action, investigation, inquiry, or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or omission,
described in this Section 8.(b), you will reimburse the Company on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry, or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of your obligation to reimburse the Company for
such expenses and the possibility that such payments might later been held to
have been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement shall be in addition to any
liabilities that you may otherwise have. You will not, without the Company's
prior written consent, settle or compromise or consent to the entry of any
judgment in any pending or threatened action or claim or related cause of action
or portion of such cause of action in respect of which indemnification may be
sought hereunder (whether or not the Company is a party to such action or
claim), unless such settlement, compromise, or consent includes an unconditional
release of the Company from all liability arising out of such action or claim
(or related cause of action or portion thereof).
The indemnity agreement in this Section 8.(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each officer and director of the Company and each person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act to the same
extent as such agreement applies to the Company.
(c) Notices of Claims; Employment of Counsel. Any party that
proposes to assert the right to be indemnified under this Section 8 promptly
shall notify in writing each party against which a claim is to be made under
this Section 8 of the institution of such action
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but the omission so to notify such indemnifying party of any such action shall
not relieve it from any liability it may have to any indemnified party except
(i) to the extent that the omission to notify shall have caused or increased the
indemnifying party's liability, and (ii) that the indemnifying party shall be
relieved of its indemnity obligation for expenses of the indemnified party
incurred before the indemnifying party is notified. Such indemnifying party or
parties shall assume the defense of such action, including the employment of
counsel (satisfactory to the indemnified party) and payment of fees and
expenses. An indemnified party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless the employment of such counsel shall have been
authorized in writing by the indemnifying party or parties in connection with
the defense of such action or the indemnifying party or parties shall not have
employed counsel to have charge of the defense of such action or such
indemnified party or parties reasonably shall have concluded that there may be
defenses available to it or them that are different from or additional to those
available to such indemnifying party or parties (in which case such indemnifying
party or parties shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by such indemnifying party or parties. Anything in
this paragraph to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any such claim or action effected without its
written consent.
(d) Arbitration. It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth in Sections
8.(a) and 8.(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8.(a) and 8.(b) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of Sections 8.(a) and 8.(b).
(e) Contribution. If the indemnification provided for in
Section 8.(a) or 8.(b) is unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, or liabilities (or
actions in respect thereof) referred to therein, then the Company on the one
hand and you on the other shall contribute to the amount paid or payable 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 on the one hand and you on the other from the offering
of the Shares. If, however, the allocation
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provided by the immediately preceding sentence is not permitted by applicable
law, then the Company and you shall contribute to such amount paid or payable in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and you on the other in
connection with the statements 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 benefits received by the
Company on the one hand and you on the other shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company bear to the total selling commissions received
by you in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or allegedly untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or to information with respect to you
and furnished by you respectively, in writing specifically for inclusion in the
Prospectus on the other and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section 8.(e) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to above in this Section 8.(e). The amount
paid or payable as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 8.(e) shall be
deemed to include any legal or other expenses reasonably incurred by any such
party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) with respect to the transactions giving rise to the
right of contribution provided in this Section 8.(e) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations in this Section 8.(e) for you to contribute
are several in proportion to your respective underwriting obligations and not
joint. For purposes of this Section 8.(e), each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as you, and each director of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act, shall have the same rights to
contribution as the Company.
9. Representations and Agreements to Survive. Except as the context
otherwise requires, all representations, warranties, covenants and agreements
contained in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by you, or on your behalf, or by any
controlling person, or by or on behalf of the Company, and shall survive until
the fifth anniversary of the Offering Termination Date and the termination of
this Agreement pursuant to Section 10 hereof.
26
<PAGE>
10. Termination of Agreement.
(a) Termination of Agreement. You shall have the right to
terminate this Agreement at any time prior to the Closing Date (i) if any
representation or warranty of the Company hereunder shall be found to have been
incorrect or misleading in any material respect when made or the Company shall
fail, refuse, or be unable to perform any of its agreements hereunder or to
fulfill any condition of your obligations hereunder, (ii) if there shall have
been since the respective dates as of which information is given in the
Registration Statement, a material adverse change, or any development which
could reasonably be expected to result in a prospective material adverse change,
in or affecting the business, prospects, management, properties, assets, results
of operations, or condition (financial or otherwise) of the Company, whether or
not arising in the ordinary course of business, (iii) if trading on any national
securities exchange shall have been suspended (other than for reasons unrelated
to the securities markets), or minimum or maximum prices for trading generally
shall have been fixed or maximum ranges for prices for all securities shall have
been required on any such exchange by such exchange or by order of the
Commission or any other governmental authority having jurisdiction, (iv) if
there has occurred or accelerated any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions the effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable to market the
Shares or enforce contracts for the sale of the Shares, (v) if a banking
moratorium has been declared by Virginia, New York or federal authorities, (vi)
any federal or state statute, regulation, rule, or order of any court or other
governmental authority has been enacted, published, decreed, or otherwise
promulgated that in your sole judgment materially adversely affects or will
materially adversely affect the business or operations of the Company, or (vii)
any action has been taken by any federal, state, or local government or agency
in respect of its monetary or fiscal affairs that in your reasonable opinion has
a material adverse effect on the securities markets in the United States. You
shall have no liability to the Company pursuant to this Agreement or otherwise
as a result of any such termination.
(b) Result of Termination.
(i) If the sale of the Shares provided for
herein is not consummated (A) because of any termination of this Agreement
pursuant to Section 10.(a), (B) because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or comply with any
provision hereof other than by reason of your default, (C) by ____________, 1997
due to reasons within the control of the Company or any of its affiliates, or
(D) the Company abandons this Offering and obtains financing from other sources
and you are not retained as a senior investment banker in connection with such
financing, then in addition to its obligations with respect to expenses as set
forth in Section 6, the Company will reimburse you on demand for all your
reasonable out-of-pocket expenses (including the fees and expenses of your
counsel), including disbursements reasonably incurred by you in reviewing the
27
<PAGE>
Registration Statement and the Prospectus, and in investigating and making
preparations for the marketing of the Shares.
(ii) If the sale of all of the Shares is not
consummated by reason of your inability or failure to sell the Shares within
sixty (60) days of the effective date of the Registration Statement, and if the
inability or failure to sell the Shares is unrelated (A) to any matter giving
rise to a right of termination pursuant to Section 10.(a)(i), (B) to any matter
described in subsections (B) through (D) of Section 10.(b)(i), or (C) to any
significant unforeseen matter concerning the Company detected by you in the
course of your due diligence and other investigations, then you will reimburse
the Company on demand for all of the Company's reasonable out-of-pocket expenses
(including the fees and expenses of its counsel, accountants and the Escrow
Agent), including disbursements reasonably incurred by the Company, incurred in
connection with the Offering.
(iii) If the sale of the Shares provided
for herein is not consummated for any other reason, the Company shall pay
expenses as required by Section 6, and the neither party shall have any
additional liability to the other except for such liabilities, if any, as may
exist or thereafter arise under Section 8.
11. Notices.
(a) Method and Location of Notices. All communications
hereunder, except as herein otherwise specifically provided, shall be in writing
and shall be sent by overnight courier, hand-delivered or telecopied and
confirmed as follows:
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
28
<PAGE>
To You:
Anderson & Strudwick, Incorporated
1108 E. Main Street
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
(b) Time of Notices. Notice shall be deemed to be given
by you to the Company or by the Company to you when it is sent by overnight
courier, hand-delivered or telecopied as provided in Section 11.(a).
12. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon you, the Company and the controlling persons referred to
in Section 8, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have a legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained.
13. Governing Law, Construction, and Time. This Agreement shall
be governed by and construed in accordance with the laws of the Commonwealth of
Virginia. Specified time of day refers to United States Eastern Time. Time
shall be of the essence of this Agreement.
14. Description Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
15. Counterparts. 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.
29
<PAGE>
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:
Name:
Title:
Confirmed and accepted as of the date first above written:
ANDERSON & STRUDWICK, INCORPORATED
By:
L. McCarthy Downs, III
Senior Vice President
30
<PAGE>
EXHIBIT A
Disclosure Schedule
None.
<PAGE>
EXHIBIT B
Form of Warrant
See attached.
<PAGE>
EXHIBIT C
Company's Legal Opinion
(i) The Company has been duly incorporated and
is validly existing in good standing as a corporation under the laws of the
Commonwealth of Virginia with all requisite corporate power and authority to
enter into this Agreement, to conduct its business and to own and operate its
properties, investments and assets as described in the Prospectus. To the actual
knowledge of such counsel, the Company is not in violation of any provision of
its articles of incorporation or bylaws, and is not in material default under or
in breach of any term or condition of any material agreement or instrument of
which such counsel has actual knowledge to which the Company is a party or by
which any of its properties, investments or assets is bound, except as disclosed
in the Prospectus.
(ii) To their actual knowledge, there is not
pending or threatened, any action, suit or proceeding before or by any federal,
state or local court or government authority or agency to which the Company is
or may be a party, or to which any of the investments, properties or assets of
the Company is or may be subject which is not disclosed in the Prospectus that,
if adversely determined, would materially affect the ability of the Company to
carry out and implement the business of the Company as described in the
Prospectus.
(iii) The Shares conform in all material
respects to the descriptions thereof contained in the Prospectus.
(iv) The information in the Prospectus under the
captions "Risk Factors" and "Description of Capital Stock," has been reviewed by
such counsel and, insofar as they contain statements of law or describe legal
documents, such statements are correct in all material respects.
(v) This Agreement has been duly and validly
authorized, executed and delivered by or on behalf of the Company and assuming
due execution and delivery by the other parties thereto constitutes a valid and
binding agreement of the Company enforceable in accordance with its terms,
except to the extent enforceability may be limited by (A) bankruptcy,
insolvency, moratorium, liquidation, reorganization, or similar laws affecting
creditors' rights generally, regardless of whether such enforceability is
considered in equity or at law, (B) general equity principles and (C)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.
<PAGE>
(vi) The Shares have been duly and validly
authorized by the Company, and upon issuance, will be validly issued, fully paid
and non-assessable, with no personal liability attaching to the ownership
thereof, and conform to the description thereof contained in the Prospectus. The
form of certificates evidencing the Shares complies with all applicable
requirements of Virginia law.
(vii) The execution and delivery of this
Agreement, the incurrence of the obligations herein set forth, the compliance
with the terms and provisions hereof and the consummation of the transactions
contemplated herein and in the Prospectus do not and will not conflict with or
constitute a breach of, or default under, the articles of incorporation or
bylaws of the Company, or a material breach of or material default under the
terms, provisions or conditions of any other material instrument, agreement or
indenture of which such counsel has actual knowledge to which the Company is a
party or by which it is bound or by which its properties, assets, business or
investments are affected or any statute, order, rule or regulation applicable to
the Company or any of the investments, properties or assets of the Company of
any court or any federal, state or local governmental authority or agency having
jurisdiction over the Company or any of the investments, properties, assets or
business of the Company.
(viii) To their actual knowledge, other
than with respect to the securities or blue sky laws of any jurisdiction, no
authorization, approval or consent of any federal, state or local court or
governmental authority or agency is necessary in connection with the execution
and delivery by the Company of this Agreement, the consummation of the
transactions contemplated herein and in the Prospectus or the issuance and sale
of the Shares.
(ix) All corporate action required to be taken by
the Company as a condition to the sale of the Shares to the purchasers thereof
has been taken. To the knowledge of such counsel, there are no preemptive or
other rights to subscribe for the Shares except such as have been waived.
(x) The Common Stock, including the Shares, has
been approved for quotation on The Nasdaq Small Cap Market.
(xi) The Registration Statement has become
effective under the 1933 Act and, to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or is pending or
contemplated under the 1933 Act. Other than financial statements and other
financial and operating data and schedules contained therein, as to which
counsel need express no opinion, the Registration Statement, when it became
effective, the Prospectus, as of its date and as of the date hereof, comply as
to form in all material respects with the requirements of the 1933 Act and the
Rules and Regulations.
<PAGE>
(xii) Nothing has come to such counsel's
attention that leads it to believe that the Registration Statement, or any
further amendment thereto made prior to the Closing Date, on its effective date,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
amendment or supplement thereto made prior to the Closing Date, as of its date
and as of the Closing Date, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and other financial
data contained in the Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
(xiii) The Company is not, and will not
become solely as a result of the consummation of the Transactions, an
"investment company," or an entity that controls or is "controlled by" an
"investment company," as such terms are defined under the 1940 Act.
In rendering the opinions set forth above, LeClair Ryan may rely as to
matters of fact upon certificates furnished to them by the Company and its
officers. Copies of all certificates so relied upon shall be delivered to you
and your counsel.
EXHIBIT 1.2
COMMONWEALTH BIOTECHNOLOGIES, INC.
$3,000,000 Convertible Subordinated Notes
SELECTED DEALER AGREEMENT
_____________, 1997
Dear Sirs:
1. We have agreed to sell, as placement agent for the issuer on a
best efforts all-or-none basis, 834,000 shares of Common Stock (the "Shares") of
Commonwealth Biotechnologies, Inc. (the "Company"). The Shares and the terms
under which they are to be offered for sale are more particularly described in
the Company's Prospectus for the Shares dated _________, 1997 (the
"Prospectus").
2. The Shares are to be offered by us, as placement agent for the
Company, in accordance with the terms of the offering (the "Offering") set forth
in the Prospectus. We have advised you of the price per Shares of the Common
Stock (the "Public Offering Price"). In consideration for assisting in the sale
of the Shares, you will be paid a selling commission of five percent (4%) of the
Public Offering Price for each Shares sold by you.
3. We are offering at the Public Offering Price, subject to the
terms and conditions hereof, a portion of the Shares for sale to the customers
of certain dealers (hereinafter called "Selected Dealers"), that are actually
engaged in the investment banking or securities business and that are either (i)
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") that are registered with the NASD and maintain net capital pursuant
to Rule 15c3-1 promulgated under the Securities Exchange Act of 1934 (the "1934
Act") of not less than $250,000 or (ii) dealers with their principal place of
business located outside the United States, its territories and its possessions
and not registered as brokers or dealers under the 1934 Act, who have agreed not
to make any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein. The Selected
Dealers have agreed to comply with the provisions of section 24 of Article III
of the Rules of Fair Practice of the NASD, and, if any such dealer is a foreign
dealer and not a member of the NASD, such Selected Dealer also has agreed to
comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though it were a member of the NASD, with the
provision of section 8 and 36 of Article III of such Rules of Fair Practice, and
to comply with section 25 of Article III thereof as that section applies to
nonmember foreign dealers.
1
<PAGE>
4. If you desire to purchase any of the Shares as agent for your
customers, your application should reach us promptly by telephone, telegraph or
telecopy at our office at Anderson & Strudwick, Incorporated, 1108 E. Main
Street, Richmond, Virginia 23219. We reserve the right to reject subscriptions
in whole or in part, to make allotments and to close the subscription books at
any time without notice. The Shares allocated to you will be confirmed, subject
to the terms and conditions of this Agreement.
5. Any Shares purchased through you shall be purchased for your
customers under the terms of this Agreement only upon orders already received
from subscribers for the Shares in accordance with the terms of the Offering set
forth in the Prospectus, subject to the securities or blue sky laws of the
various states or other jurisdictions. You acknowledge that because all of the
proceeds from the sale of the Shares must be received before the Offering may be
closed, Shares may not be sold to your customers whose accounts are on a
delivery versus payment ("DVP") basis.
6. You agree to advise us from time to time, upon request, of the
amount of Shares requested by you hereunder and remaining unsold at the time of
such request, and, if in our opinion such Shares shall be needed to make
delivery of the Shares sold, you will, forthwith upon our request, reduce the
number of Shares allocated to you to an amount equal to the number of Shares
actually subscribed for by your customers.
7. No expense shall be charged to you. A single transfer tax, if
payable, upon the sale of the Shares to you on behalf of your customers will be
paid when such Shares are delivered. However, you shall pay any transfer tax on
sales of Shares by you and you shall pay your proportionate share of any
transfer tax (other than the single transfer tax described above) in the event
that any such tax shall from time to time be assessed against you and other
Selected Dealers as a group or otherwise.
8. Neither you nor any other person is or has been authorized to
give any information or to make any representation in connection with the sale
of the Shares other than as contained in the final Prospectus.
9. On becoming a Selected Dealer, and in offering and selling the
Shares, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with (i) Rule 15c2-8 under the 1934 Act relating
to the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act), (ii) Rule 15c2-4 under the 1934 Act, (iii)
Rule 15c6-1 under the 1934 Act, and (iv) the NASD's interpretation with respect
to free-riding and withholding, and confirm that you have complied with and will
comply with said rules and interpretations. You confirm also that you are
familiar with Release No. 4968 of the Securities and Exchange Commission under
the 1933 Act and that you have complied and will
2
<PAGE>
comply with the requirements therein relating to the distribution of copies of
the Preliminary Prospectus relating to the Shares. You confirm that you are
registered with the NASD and maintain net capital pursuant to Rule 15c3-1
promulgated under the 1934 Act of not less than $250,000.
10. We hereby confirm that we will make available to you such
number of copies of the Prospectus (as amended or supplemented) as you may
reasonably request for the purposes contemplated by the 1933 Act or the 1934
Act, or the rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which, and limitations, if any, pursuant to which, we have been
advised that the Shares are qualified for sale under the respective securities
or blue sky laws of such states and other jurisdictions, but we do not assume
any obligation or responsibility as to the right of any Selected Dealer to sell
the Shares in any state or other jurisdiction or as to the eligibility of the
Shares for sale therein or to any particular prospective purchaser herein. You
agree that you will not sell the Shares in any state or jurisdiction or to any
purchaser in which or to whom the Shares are not eligible to be sold.
12. You agree that you will not, at any time prior to the completion
by us of distribution of the Shares acquired by you pursuant to this Agreement,
bid for, purchase, sell or attempt to induce others to purchase or sell,
directly or indirectly, any capital stock of the Company (the "Capital Stock")
other than (i) as provided for in this Agreement, or (ii) purchases or sales of
any Capital Stock as broker on unsolicited orders for the account of others.
13. No Selected Dealer is authorized to act as our agent or agent of
the Company or otherwise to act on our behalf or on behalf of the Company in
offering or selling the Shares or otherwise to furnish any information or make
any representation except as contained in the Prospectus.
14. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with us, or with each other, but you will be
responsible for your share of any liability or expense based on any claim to the
contrary. We shall not be under any liability for or in respect of value,
validity or form of the Shares, of the delivery of the Shares, or the
performance by anyone of any agreement on its part, or the qualification of the
Shares for sale under the laws of any jurisdiction, or for or in respect to any
other matter relating to this Agreement, except for the lack of good faith and
for obligations expressly assumed by us in this Agreement and no obligation on
our part shall be implied herefrom. The foregoing provisions shall not be deemed
a waiver of any liability imposed under the 1933 Act.
15. We will notify you of the exact date (the "Closing Date") on
which the sale of the Shares (the "Closing") will occur. Please provide
____________________________ (the
3
<PAGE>
"Escrow Agent") with the manner in which the Shares should be issued at least
three (3) business days prior to the Closing Date. Payment for Shares purchased
through you hereunder shall be made at the Public Offering Price (without any
deduction for the selling commission due to you) by wire transfer of IMMEDIATELY
AVAILABLE FED FUNDS no later than 11:00 a.m. on the business day prior to the
Closing Date to an escrow account (the "Escrow Account"), in accordance with the
following instructions:
- ------------------------------------------------------------------------------.
The Escrow Agent will deliver the certificates representing the Shares. Within
two (2) business days of the Closing, the Escrow Agent will send you a check for
your selling commission.
16. You understand that the Offering is being made on a best efforts
all-or-none basis, and that the Offering will not close unless at least 833,334
Shares are sold. Upon receipt of any and all checks, drafts and money orders
received from prospective purchasers of the Shares, you shall deliver the same
to the Escrow Agent for deposit in the Escrow Account by noon of the next
business day following the receipt, together with a written account of each
purchaser that sets 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. This information will
not be made available to us by the Escrow Agent except to the extent necessary
in connection with any claim relating to the sale of the Shares. Any checks that
are received that are made payable to any party other than the Escrow Agent
shall be returned to the purchaser that submitted the check and not accepted.
You agree that you are bound by the terms of the Escrow Agreement executed by us
and the Company.
17. Notices to us should be addressed to Mr. L. McCarthy Downs, III,
Senior Vice President, Anderson & Strudwick, Incorporated, 1108 E. Main Street,
Richmond, Virginia 23219. Notices to you shall be deemed to have been duly
given if telegraphed or mailed to you at the address to which this letter is
addressed.
18. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
choice of law or conflicts of law principles thereof.
4
<PAGE>
19. If you desire to reserve any Shares for purchase by your
customers, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of this letter enclosed herewith, even though
you may have previously advised us thereof, by telephone, telegraph or telecopy.
Very truly yours,
ANDERSON & STRUDWICK, INCORPORATED
By:
-----------------------------------
L. McCarthy Downs, III
Senior Vice President
5
<PAGE>
_____________, 1997
Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, VA 23219
Attention: Mr. L. McCarthy Downs, III
We hereby request an allocation of ________ Shares of Commonwealth
Biotechnologies, Inc. for purchase by our customers in accordance with the terms
and conditions stated in the foregoing letter. We hereby acknowledge receipt of
the Prospectus referred to in the first paragraph thereof relating to the
Shares. We further state that we have relied upon said Prospectus and upon no
other statement whatsoever, whether written or oral. We confirm that we are a
dealer actually engaged in the investment banking or securities business and
that we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") that is registered with the NASD and
maintain net capital pursuant to Rule 15c3-1 promulgated under the Securities
Exchange Act of 1934 (the "1934 Act") of not less than $250,000 or (ii) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934, as amended, who hereby agrees not to make
any sales within the United States, its territories or its possessions or to
persons who are nationals thereof or residents therein. We hereby agree to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and if we are a foreign dealer and not a member of the
NASD, we also agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the NASD,
and with the provisions of Section 8 and 36 of Article III of such Rules of Fair
Practice, and to comply with Section 25 of Article III thereof as that Section
applies to non-member foreign dealers. We also hereby confirm that we have
complied with and will comply with Rules 15c2-4, 15c2-8 and 15c6-1 promulgated
under the 1934 Act.
------------------------------------
(Name of Firm)
By:
---------------------------------
(Title)
Address:
----------------------------
----------------------------
----------------------------
6
EXHIBIT 1.3
ESCROW AGREEMENT
This Escrow Agreement is made and entered into as of the ____ day of
_________, 1997, by and among ANDERSON & STRUDWICK, INCORPORATED, a Virginia
corporation (the "Underwriter"), COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia
corporation (the "Company"), and _____________________________, a
___________________ (the "Escrow Agent").
R E C I T A L S:
A. The Company proposes to sell up to 834,000 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 "____________________ -
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 $5,004,000 (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 $5,004,000 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
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 -------------------------.
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 _________________
Dollars ($________), 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 __________________,
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 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 You:
Anderson & Strudwick, Incorporated
1108 E. Main Street
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:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Attention:
-----------------
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>
, as Escrow Agent
-------------------------
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
8
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COMMONWEALTH BIOTECHNOLOGIES, INC.
I.
The name of the Corporation is Commonwealth Biotechnologies, Inc.
II.
The purpose for which the Corporation is formed is to transact any or
all lawful business, not required to be specifically stated in these Articles,
for which corporations may be incorporated under the Virginia Stock Corporation
Act, as amended from time to time.
III.
The Corporation shall have authority to issue 10,000,000 shares of
common stock, no par value per share ("Common Stock"). The rights, preferences,
voting powers and the qualifications, limitations and restrictions of the Common
Stock shall be as follows:
1. Each share of Common Stock shall be entitled to one vote on
all matters submitted to a vote at any meeting of the Corporation's
shareholders.
2. Except as otherwise required in these Articles as they may
hereafter be amended:
(a) Any corporate action, except the election of
directors, an amendment or restatement of these Articles, a merger, a statutory
share exchange, the sale or other disposition of all or substantially all the
Corporation's assets otherwise than in the usual and regular course of business,
or dissolution shall be approved at a meeting at which a quorum of the
Corporation's shareholders is present if the votes cast in favor of the action
exceed the votes cast against the action;
<PAGE>
(b) Directors shall be elected by a plurality of the
votes cast by the holders of the Common Stock entitled to vote in the election
at a meeting at which a quorum is present;
(c) An amendment or restatement of these Articles other
than an amendment or restatement described, or involved in a transaction
described, in Subsection (d), (e) or (f) of this Section shall be approved by a
majority of the votes entitled to be cast by the holders of the Common Stock;
(d) Any transaction with the Corporation or any
subsidiary that constitutes or involves an affiliated transaction, as defined in
Section 13.1-725 of the Virginia Stock Corporation Act, as in effect on the
effective date of these Articles, shall be approved by at least two-thirds of
the votes entitled to be cast by the holders of the Common Stock;
(e) A merger, statutory share exchange, sale or other
disposition of all or substantially all the Corporation's assets otherwise than
in the usual and regular course of business, or dissolution shall be approved by
at least two-thirds of the votes entitled to be cast by the holders of the
Common Stock entitled to vote on such transactions; and
(f) An amendment to these Articles that amends or affects
the classification of the Board of Directors provided in Section 1 of Article IV
hereof shall be approved by at least two-thirds of the votes entitled to be cast
by the holders of the Common Stock.
For purposes of Subsection (d) of this Section, a transaction shall not
constitute an affiliated transaction if it is with an interested shareholder, as
defined in Section 13.1-725 of the Virginia Stock Corporation Act as in effect
on the effective date of these Articles: (i) who has been an interested
shareholder continuously or who would have been such but for the unilateral
action of the Corporation since the later of (A) the date on which the
Corporation first had 300 shareholders of record or (B) the date such person
became an interested shareholder with the prior or contemporaneous approval of a
majority of the disinterested directors as defined in Section 13.1-725 of the
Virginia Stock Corporation Act, as in effect on the effective date of these
Articles; (ii) who became an interested shareholder as a result of acquiring
shares from a person specified in Subdivision (i) or Subdivision (ii) of this
Subsection by gift, testamentary bequest or the laws of descent and distribution
or in a transaction in which consideration was not exchanged and who continues
thereafter to be an interested shareholder, or who would have so continued but
for the unilateral action of the Corporation, (iii) who became an interested
shareholder inadvertently or as a result of the unilateral action of the
Corporation and who, as soon as practicable thereafter, divested beneficial
ownership of sufficient shares so that such person ceased to be an interested
shareholder, and who would not have been an interested shareholder but for such
inadvertence or the unilateral action of the Corporation; or (iv) whose
acquisition of shares making such person an interested shareholder was approved
by a majority of the disinterested directors.
<PAGE>
3. Subject to any other provisions of these Articles or any
amendment hereto, holders of Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the Corporation
as may be declared thereon by the Board of Directors from time to time.
4. No holder of shares of Common Stock shall have any preemptive
or preferential right to purchase or subscribe to (i) any shares of any class of
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such stock, or (iii) any obligations
convertible into any such stock or into warrants, rights or options to purchase
any such stock.
IV.
The initial registered office shall be located at 707 East Main Street,
Eleventh Floor, Richmond, Virginia 23219, and the initial registered agent shall
be Gary D. LeClair, who is a resident of Virginia and member of the Virginia
State Bar, and whose address is the same as the address of the initial
registered office.
V.
1. Unless otherwise fixed in the Bylaws, the number of directors
of the Corporation shall be at least five and no more than nine. Upon
effectiveness of these Amended and Restated Articles of Incorporation, the Board
of Directors shall be divided into three classes, Class I, Class II and Class
III, as nearly equal in number as possible. Directors of the first class (Class
I) shall be elected to hold office for a term expiring at the 1998 annual
meeting of shareholders; directors of the second class (Class II) shall be
elected to hold office for a term expiring at the 1999 annual meeting of
shareholders; and directors of the third class (Class III) shall be elected to
hold office for a term expiring at the 2000 annual meeting of shareholders. At
each annual meeting of shareholders, the successors to the class of directors
whose terms then shall expire shall be identified as being of the same class as
the directors they succeed and elected to hold office for a term expiring at the
third succeeding annual meeting of shareholders. When the number of directors is
changed, any newly-created directorships or any decrease in directorships shall
be apportioned among the classes by the Board of Directors as to make all
classes as nearly equal in number as possible.
<PAGE>
2. A director may be removed only for Cause. For the
purposes of these Articles, the term "Cause" shall mean:
(a) gross incompetence, gross negligence,
willful misconduct in office or breach of a material fiduciary duty owed to the
Corporation or any subsidiary or affiliate thereof;
(b) conviction of a felony, a crime of moral
turpitude or commission of an act of embezzlement or fraud against the
Corporation or any subsidiary or affiliate thereof;
(c) deliberate dishonesty of the director with
respect to the Corporation or any subsidiary or affiliate thereof; or
(d) material deriliction of duties owed to the
Corporation by a director.
VI.
1. In this Article:
"applicant" means the person seeking indemnification pursuant
to this Article.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment,
settlement, penalty, fine, including any excise tax assessed with respect to an
employee benefit plan, or reasonable expenses incurred with respect to a
proceeding.
"party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
2. In any proceeding brought by or in the right of the
Corporation or brought by or on behalf of shareholders of the Corporation, no
director or officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence or
course of conduct, whether prior or subsequent to the effective date of these
Articles, except for liability resulting from such persons having engaged in
willful misconduct or a knowing violation of the criminal law or any federal or
state securities law.
<PAGE>
3. 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 the 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 services 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.
4. The provisions of this Article shall be applicable to all
proceedings commenced after the adoption hereof by the shareholders of the
Corporation, arising from any act or omission, whether occurring before or after
such adoption. No amendment or repeal of this Article shall have any effect on
the rights provided under this Article with respect to any act or omission
occurring prior to such amendment or repeal. The Corporation shall promptly take
all such actions, and make all such determinations, as shall be necessary or
appropriate to comply with its obligation to make any indemnity under this
Article and shall promptly pay or reimburse all reasonable expenses, including
attorneys' fees, incurred by any such director, officer, employee or agent in
connection with such actions and determinations or proceedings of any kind
arising therefrom.
5. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the applicant did not meet the
standard of conduct described in Section 2 or 3 of this Article.
6. Any indemnification under Section 3 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the applicant is
proper in the circumstance because he has met the applicable standard of conduct
set forth in Section 3.
The determination shall be made:
(a) By the Board of Directors by a majority vote of a
quorum consisting of directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under Subsection (a)
of this Section, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding;
<PAGE>
(c) By special legal counsel:
(i) Selected by the Board of Directors or its
committee in the manner prescribed in Subsection (a) or (b) of this Section; or
(ii) If quorum of the Board of Directors cannot
be obtained under Subsection (a) of this Section and a committee cannot be
designated under Subsection (b) of this Section, selected by majority vote of
the full Board of Directors, in which selection directors who are parties may
participate; or
(d) By the shareholders of the Corporation, but shares
owned by or voted under the control of directors who are at the time parties to
the proceeding may not be voted on the determination.
Any evaluation as to reasonableness of expenses shall be made in the
same manner as the determination that indemnification is appropriate, except
that if the determination is made by special legal counsel, such evaluation as
to reasonableness of expenses shall be made by those entitled under Subsection
(c) of this Section 6 to select counsel.
Notwithstanding the foregoing, in the event there has been a change in
the composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect to
any claim for indemnification made pursuant to this Article shall be made by
special legal counsel agreed upon by the Board of Directors and the applicant.
If the Board of Directors and the applicant are unable to agree upon such
special legal counsel, the Board of Directors and the applicant each shall
select a nominee, and the nominees shall select such special legal counsel.
7. (a) The Corporation shall pay for or reimburse the
reasonable expenses incurred by any applicant who is a party to a proceeding in
advance of final disposition of the proceeding or the making of any
determination under Section 3 if the applicant furnishes the Corporation:
(i) a written statement of his good faith belief
that he has met the standard of conduct described in Section 3; and
(ii) a written undertaking, executed personally
or on his behalf, to repay the advance if it is ultimately determined that he
did not meet such standard of conduct.
<PAGE>
(b) The undertaking required by Subdivision (ii) of
Subsection (a) of this Section shall be an unlimited general obligation of the
applicant but need not be secured and may be accepted without reference to
financial ability to make repayment.
(c) Authorizations of payments under this Section shall
be made by the persons specified in Section 6.
8. The Board of Directors is hereby empowered, by majority vote
of a quorum consisting of disinterested directors, to cause the Corporation to
indemnify or contract to indemnify any person not specified in Section 2 or 3 of
this Article who was, is or may become a party to any proceeding, by reason of
the fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, to the same extent as if such person were
specified as one to whom indemnification is granted in Section 3. The provisions
of Sections 4 through 7 of this Article shall be applicable to any
indemnification provided hereafter pursuant to this Section 8.
9. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed by it in
accordance with this Article and may also procure insurance, in such amounts as
the Board of Directors may determine, on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against or incurred by him in
any such capacity or arising from his status as such, whether or not the
Corporation would have power to indemnify him against such liability under the
provisions of this Article.
10. Every reference herein to directors, officers, employees or
agents shall include former directors, officers, employees and agents and their
respective heirs, executors and administrators. The indemnification hereby
provided and provided hereafter pursuant to the power hereby conferred by this
Article on the Board of Directors shall not be exclusive of any other rights to
which any person may be entitled, including any right under policies of
insurance that may be purchased and maintained by the Corporation or others,
with respect to claims, issues or matters in relation to which the Corporation
would not have the power to indemnify such person under the provisions of this
Article. Such rights shall not prevent or restrict the power of the Corporation
to make or provide for any further indemnity, or provisions for determining
entitlement to indemnity, pursuant to one or more indemnification agreements,
bylaws, or other arrangements (including, without limitation, creation of trust
funds or security interests funded by letters of credit or other means) approved
by the Board of Directors (whether or not any of the directors of the
Corporation shall be a party to or beneficiary of any such agreements, bylaws or
arrangements); provided, however, that any provision of such agreements, bylaws
or other arrangements shall not be effective if and to the extent that it is
determined to be contrary to this Article or applicable laws of the Commonwealth
of Virginia.
11. Each provision of this Article shall be severable, and an
adverse determination as to any such provision shall in no way affect the
validity of any other provision.
EXHIBIT 3.2
COMMONWEALTH BIOTECHNOLOGIES, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
Meeting of Shareholders
Section 1. Places of Meetings. All meetings of the shareholders
shall be held at such place, either within or without the State of Virginia, as
may, from time to time, be fixed by the Board of Directors.
Section 2. Annual Meetings. The annual meeting of the
shareholders, for the election of directors and transaction of such other
business as may come before the meeting, shall be held in each year on the
second Thursday in March, or on such other date and at such other time as the
Board of Directors of the Corporation may designate from time to time.
Section 3. Special Meetings. Special meetings of shareholders for
any purpose or purposes may be called at any time by the Chairman of the Board,
by at least three (3) members of the Board of Directors or by the President. At
a special meeting no business shall be transacted and no corporate action shall
be taken other than that stated in the notice of the meeting.
Section 4. Notice of Meetings. Except as otherwise required by
law, written or printed notice stating the place, day and hour of every meeting
of the shareholders and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be mailed not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each shareholder of
record entitled to vote at such meeting, at his address which appears in the
share transfer books of the Corporation. Meetings may be held without notice if
all the shareholders entitled to vote at the meeting are present in person or by
proxy or if notice is waived in writing by those not present, either before or
after the meeting.
Section 5. Quorum. Except as otherwise required by the Articles of
Incorporation, any number of shareholders together holding at least a majority
of the outstanding shares of capital stock entitled to vote with respect to the
business to be transacted, who shall be present in person or represented by
proxy at any meeting duly called, shall constitute a quorum for the transaction
of business. If less than a quorum shall be in attendance at the time for which
a meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the shareholders present or represented by proxy without notice
other than by announcement at the meeting.
<PAGE>
Section 6. Voting. At any meeting of the shareholders, each
shareholder of a class entitled to vote on the matters coming before the meeting
shall have one vote, in person or by proxy, for each share of capital stock
standing in his or her name on the books of the Corporation at the time of such
meeting or on any date fixed by the Board of Directors not more than seventy
(70) days prior to the meeting. Every proxy shall be in writing, dated and
signed by the shareholder entitled to vote or his duly authorized
attorney-in-fact.
Section 7. Voting List. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number of shares held by each. Such list, for a period of ten (10) days
prior to such meeting, shall be kept on file at the registered office of the
Corporation or at its principal place of business or at the office of its
transfer agent or registrar and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. If the requirements of this Section 7 have not been
substantially complied with, the meeting shall, on the demand of any shareholder
in person or by proxy, be adjourned until the requirements are complied with.
Section 8. Shareholder Proposals. To be properly brought before an
annual meeting of shareholders, business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
given, either by personal delivery or by United States mail, postage prepaid, to
the Secretary of the Corporation not later than ninety (90) days in advance of
the annual meeting. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting (including the specific proposal to be presented) and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the shareholder proposing such business, (iii) the class and number of shares
of the Corporation that are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
<PAGE>
In the event that a shareholder attempts to bring business before an
annual meeting without complying with the provisions of this Section 8, the
Chairman of the meeting shall declare to the meeting that the business was not
properly brought before the meeting in accordance with the foregoing procedures,
and such business shall not be transacted.
No business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 8, provided, however,
that nothing in this Section 8 shall be deemed to preclude discussion by any
shareholder of any business properly brought before the annual meeting.
Section 9. Inspectors. An appropriate number of inspectors for any
meeting of shareholders may be appointed by the Chairman of such meeting.
Inspectors so appointed will (i) ascertain the number of shares outstanding and
the voting powers of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting and their count
of all votes and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of the duties of the
inspectors.
ARTICLE II
Directors
Section 1. General Powers. The property, affairs and business of
the Corporation shall be managed under the direction of the Board of Directors,
and except as otherwise expressly provided by law, the Articles of Incorporation
or these Bylaws, all of the powers of the Corporation shall be vested in such
Board.
Section 2. Number of Directors. The Board of Directors shall be at
least five and no more than nine in number. The number of directors of the
Corporation may be changed by (i) the affirmative vote of the Corporation's
shareholders or (ii) the affirmative vote of the Corporation's Board of
Directors taken at a meeting of which the directors received at least ten (10)
days advance notice (including a majority of the non-employee-directors and a
majority of the employee-directors). Notwithstanding the foregoing, however, any
vote to reduce the number of the Corporation's directors shall not result in the
removal of a director previously elected or appointed. Rather, such a vote will
simply reduce the number of directors to be elected at the next succeeding
election of directors by the Corporation's shareholders.
<PAGE>
Section 3. Election of Directors.
(a) Directors shall be elected at the annual meeting of
shareholders to succeed those directors whose terms have expired and to fill any
vacancies thus existing.
(b) Directors shall hold their offices for terms as set
forth in the Articles of Incorporation and until their successors are elected.
Any director may be removed from office only for Cause (as such term is defined
in the Corporation's Amended and Restated Articles of Incorporation).
(c) Any vacancy of a Board seat previously held by a
non-employee-director of the Corporation may be filled by the affirmative vote
of a majority of the remaining non-employee-directors of the Corporation. If
such vacancy is not filled by the remaining non-employee-directors within thirty
(30) days of the creation of the vacancy, the vacancy may be filled by the
affirmative vote of a majority of all remaining members of the Board of
Directors. Directors so appointed shall serve as directors of the Corporation
until the Corporation's next annual meeting of shareholders. At such meeting,
the Corporation's shareholders will elect a director to serve the remaining
portion of the vacating director's term.
(d) Any vacancy of a Board seat previously held by an
employee-director of the Corporation may be filled by the affirmative vote of a
majority of the remaining employee-directors of the Corporation. If such vacancy
is not filled by the remaining employee-directors within thirty (30) days of the
creation of the vacancy, the vacancy may be filled by the affirmative vote of a
majority of the remaining members of the Board of Directors. Directors so
appointed shall serve as directors of the Corporation until the Corporation's
next annual meeting of shareholders. At such meeting, the Corporation's
shareholders will elect a director to serve the remaining portion of the
vacating director's term.
(e) Provided that each director is afforded at least
three business days' notice of a meeting of the Board of Directors, a majority
of the number of directors in office immediately prior to the beginning of a
meeting of directors shall constitute a quorum for the transaction of business
at such meeting. If each director is only provided with notice of a meeting of
the Board of Directors in accordance with Section 4 hereof, the act of a
majority of the directors present at a meeting at which a quorum is present
(including a majority of the non-employee-directors) shall be the act of the
Board of Directors.
Section 4. Meetings of Directors. Meetings of the Board of
Directors shall be held at places within or without the Commonwealth of Virginia
and at times fixed by resolution of the Board, or upon call of (i) the Chairman
of the Board, (ii) the President or (iii) two directors, and the Secretary or
officer performing the Secretary's duties shall give not less than twenty-four
(24) hours' notice by letter, telegraph or telephone (or in person) of all
meetings of the directors, provided that notice need not be given of regular
meetings held at times and places fixed by resolution of the Board. An annual
meeting of the Board of Directors shall be held as soon as practicable after the
adjournment of the annual meeting of shareholders. Meetings may be held at any
time without notice if all of the directors are present, or if those not present
waive notice in writing either before or after the meeting. Commencing July
1997, all directors will receive a fee of $2,500 for each regularly scheduled
quarterly Board meeting attended (the "Directors' Fee"). In the event of an
initial public offering of the Corporation's common stock, the Directors' 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 Corporation'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 the initial public offering price of the Corporation's common stock. In
addition to the Directors' Fee, all directors receive reimbursement for travel
and other related expenses incurred in attending Board meetings and committee
meetings.
<PAGE>
Section 5. Nominations. Nominations for the election of
directors shall be made by the Board of Directors or a committee appointed by
the Board of Directors or by any shareholder entitled to vote in the election of
directors; provided, however, that all nominations must be made at least
ninety-five (95) days prior to the next meeting at which directors of the
Corporation shall be elected. However, any shareholder entitled to vote in the
election of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders, ninety (90) days in advance of such meeting, and (ii) with
respect to an election to be held at a special meeting of shareholders for the
election of directors, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders. Each notice
shall set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the Corporation,
if so elected. The Chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
<PAGE>
ARTICLE III
Committees
Section 1. Compensation Committee. The Board of Directors, at its
regular annual meeting, shall designate a Compensation Committee which shall
consist of two or more directors who shall not be employees of the Corporation.
In addition, the Board at any time may designate one or more alternate members
of the Compensation Committee who shall be directors who are not employees of
the Corporation and who may act in place of any absent regular member upon
invitation by the Chairman or Secretary of the Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board, to determine bonus
awards to executive officers and to exercise such further powers with respect to
bonuses as may from time to time be conferred by the Board of Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
While the Compensation Committee possesses the authority to determine
the salaries and bonuses of the Corporation's executive officers, the
Compensation Committee shall recognize that the Corporation was founded on a
"team-oriented" philosophy. Consequently, during the first five (5) years
following the adoption of these Bylaws, the salaries of Drs. Freer, Harris and
Buck, as three of the Corporation's founders, should not materially differ
(assuming equal contribution to the Corporation).
The Compensation Committee shall administer the Corporation's Stock
Incentive Plan (the "Plan") and from time to time may grant, consistent with the
Plan, stock options, shares of restricted stock and/or tax offset rights.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members shall be subject to removal by the Board at any time.
The Compensation Committee shall fix its own rules of procedure. A
majority of the number of regular members then serving shall constitute a
quorum; and regular and alternate members present shall be counted to determine
whether there is a quorum. The Compensation Committee shall keep minutes of its
meetings, and all action taken by it shall be reported to the Board of
Directors.
<PAGE>
Section 2. Audit Committee. The Board of Directors at its regular
annual meeting shall designate an Audit Committee which shall consist of two or
more directors who shall not be employees of the Corporation. Vacancies in the
Audit Committee shall be filled by the Board of Directors with directors meeting
the requirements set forth above, giving consideration to continuity of the
Audit Committee, and members shall be subject to removal by the Board at any
time. The Audit Committee shall fix its own rules of procedures and a majority
of the members serving shall constitute a quorum. The Audit Committee shall meet
at least twice a year with both the internal and the Corporation's outside
auditors present at each meeting and shall keep minutes of its meetings and all
action taken shall be reported to the Board of Directors. The Audit Committee
shall review the reports and minutes of any audit committees of the
Corporation's subsidiaries, if any. The Audit Committee shall review the
Corporation's financial reporting process, including accounting policies and
procedures. The Audit Committee shall examine the report of the Corporation's
outside auditors, consult with them with respect to their report and the
standards and procedures employed by them in their audit, report to the Board
the results of its study and recommend the selection of auditors for each fiscal
year.
Section 3. Nominating Committee. The Board of Directors shall
designate a Nominating Committee which shall consist of two or more directors,
including at least one non-employee-director. The Committee shall make
recommendations to the Board regarding nominees for election as directors by the
shareholders at each annual meeting of shareholders and make such other
recommendations regarding tenure, classification and compensation of directors
as the Nominating Committee may deem advisable from time to time. The Nominating
Committee shall fix its own rules of procedure and a majority of the members
serving shall constitute a quorum.
Section 4. Other Committees of Board. The Board of Directors, by
resolution duly adopted, may establish such other committees of the Board having
limited authority in the management of the affairs of the Corporation as it may
deem advisable and the members, terms and authority of such committees shall be
as set forth in the resolutions establishing the same.
Section 5. Advisory Committees to President. After consultation
with the Board of Directors, the President may establish such advisory
committees as he may deem advisable to assist him in the administration and
management of the business of the Corporation; such committees shall consist of
officers, employees or consultants to be appointed by the President who shall
serve for such terms and have such authority as may be designated by the
President.
<PAGE>
ARTICLE IV
Officers
Section 1. Election. The officers of the Corporation shall consist
of a Chairman of the Board, a President, one or more Vice Presidents (any one or
more of whom may be designated as Executive Vice Presidents or Senior Vice
Presidents) and a Secretary. In addition, such other officers as are provided in
Section 3 of this Article may from time to time be elected by the Board of
Directors. All officers shall hold office until the next annual meeting of the
Board of Directors or until their successors are elected. The Chairman of the
Board shall be chosen from among the directors. Any two officers may be combined
in the same person as the Board of Directors may determine.
Section 2. Removal of Officers; Vacancies. Any officer of the
Corporation may be removed summarily with or without cause, at any time by a
resolution passed at any meeting by affirmative vote of a majority of the
members of the Board of Directors. Vacancies may be filled at any meeting of the
Board of Directors.
Section 3. Other Officers. Other officers may from time to time
be elected by the Board, including, without limitation, one or more Assistant
Secretaries.
Section 4. Duties. The officers of the Corporation shall have such
duties as generally pertain to their offices, respectively, as well as such
powers and duties as are hereinafter provided and as from time to time shall be
conferred by the Board of Directors. The Board of Directors may require any
officer to give such bond for the faithful performance of his duties as the
Board may see fit.
Section 5. Duties of the Chairman of the Board. The Chairman of
the Board, while he is a full-time employee of the Corporation, shall serve as
the Chairman of the Executive Committee, if any. Except as otherwise provided in
these Bylaws or the resolutions establishing such committees, he shall be ex
officio a member of all committees of the Board (with the exception that if the
Chairman is also an employee of the Corporation, then he shall not be ex officio
a member of the Audit Committee and the Compensation Committee) with the power
to vote. He shall preside at all meetings of shareholders and the Board of
Directors. In the incapacity or absence of the President, the Chairman of the
Board shall perform the duties and have the authority of the President. The
Chairman of the Board may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments, except in cases where the
signing and the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law otherwise to be signed or executed. In addition, he
shall perform all duties incident to the office of the Chairman of the Board and
such other duties as from time to time may be assigned to him by the Board of
Directors.
<PAGE>
Section 6. Duties of the President. The President shall have
direct supervision over the business of the Corporation, subject to the Board of
Directors and the Chairman of the Board, and shall consult with and report to
the aforementioned officer. Except as otherwise provided in these Bylaws or the
resolutions establishing such committees, he shall be ex officio a member of all
committees of the Board (with the exception that the President shall not be ex
officio a member of the Audit Committee and the Compensation Committee), with
power to vote, and in the incapacity of the Chairman of the Board, the President
shall perform the duties of the Chairman of the Board and in the incapacity of
the Chairman of the Board or, in the absence of the Chairman of the Board and
upon his designation, the President shall preside at all meetings of
shareholders, the Board of Directors and all committees of the Board of
Directors of which he is a member. The President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments,
except in cases where the signing and the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law otherwise to be signed or
executed. He may appoint advisory committees as provided in Section 6 of Article
III. In addition, he shall perform all duties incident to the office of the
President and such other duties as from time to time may be assigned to him by
the Board of Directors or the Chairman of the Board.
Section 7. Duties of the Vice Presidents. Each Vice President of
the Corporation (including any Executive Vice President and Senior Vice
President) shall have powers and duties as may from time to time be assigned to
him by the Board of Directors. When there shall be more than one Vice President
of the Corporation, the Board of Directors may from time to time designate one
of them to perform the duties of the President in the absence of the President.
Any Vice President of the Corporation may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts and other instruments, except in
cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law otherwise to be signed or executed.
Section 8. Duties of the Secretary. The Secretary shall act as
secretary of all meetings of the Board of Directors and all other Committees of
the Board, and the shareholders of the Corporation, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose. He shall
see that all notices required to be given by the Corporation are duly given and
served; shall have custody of the seal of the Corporation and shall affix the
seal or cause it to be affixed to all certificates for stock of the Corporation
and to all documents the execution of which on behalf of the Corporation under
its corporate seal is duly authorized in accordance with the provisions of these
Bylaws; shall have custody of all deeds, leases, contracts and other important
corporate documents; shall have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation; shall
see that the reports, statements and other documents required by law (except tax
returns) are properly filed; and shall, in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors, the Chairman of the Board or
the President.
<PAGE>
Section 9. Other Duties of Officers. Any officer of the
Corporation shall have, in addition to the duties prescribed herein or by law,
such other duties as from time to time shall be prescribed by the Board of
Directors, the Chairman of the Board or the President.
ARTICLE V
Capital Stock
Section 1. Certificates. The shares of capital stock of the
Corporation shall be evidenced by certificates in forms prescribed by the Board
of Directors and executed in any manner permitted by law and stating thereon the
information required by law. Transfer agents and/or registrars for one or more
classes of the stock of the Corporation may be appointed by the Board of
Directors and may be required to countersign certificates representing stock of
such class or classes. In the event that any officer whose signature or
facsimile thereof shall have been used on a stock certificate shall for any
reason cease to be an officer of the Corporation and such certificate shall not
then have been delivered by the Corporation, the Board of Directors may
nevertheless adopt such certificate and it may then be issued and delivered as
though such person had not ceased to be an officer of the Corporation.
Section 2. Lost, Destroyed and Mutilated Certificates. Holders of
the stock of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause one or more new certificates for the
same number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
Section 3. Transfer of Stock. The stock of the Corporation shall
be transferable or assignable only on the books of the Corporation by the
holders in person or by attorney on surrender of the certificate for such shares
duly endorsed and, if sought to be transferred by attorney, accompanied by a
written power of attorney to have the same transferred on the books of the
Corporation. The Corporation will recognize the exclusive right of the person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
<PAGE>
Section 4. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of the shareholders
or any adjournment thereof, or entitled to receive payment for any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section such determination shall
apply to any adjournment thereof.
ARTICLE VI
Miscellaneous Provisions
Section 1. Seal. The seal of the Corporation shall consist of a
flat-face circular die, of which there may be any number of counterparts, on
which there shall be engraved in the center the words "Commonwealth
Biotechnologies, Inc."
Section 2. Fiscal Year. The fiscal year of the Corporation
shall end on December 31st of each year, and shall consist of such accounting
periods as may be recommended by the Treasurer and approved by the Board of
Directors.
Section 3. Books and Records. The Corporation shall keep correct
and complete books and records of accounts and shall keep minutes of the
proceedings of its shareholders and Board of Directors; and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar a record of its shareholders, giving the names and
addresses of all shareholders, and the number, class and series of the shares
being held.
The Board of Directors shall, subject to the provisions of the
foregoing paragraph of this section, to the provisions of Section 7 of Article I
and to the laws of the Commonwealth of Virginia, have the power to determine
from time to time whether and to what extent and under what conditions and
limitations the accounts, records and books of the Corporation, or any of them,
shall be open to the inspection of the shareholders.
Section 4. Checks, Notes and Drafts. Checks, notes, drafts and
other orders for the payment of money shall be signed by such persons as the
Board of Directors from time to time may authorize. When the Board of Directors
so authorizes, however, the signature of any such person may be a facsimile.
<PAGE>
Section 5. Amendment of Bylaws. These Bylaws may be amended, in
whole or in part, by at least a two thirds (2/3) vote of the Board of Directors
including a majority of the non-employee-directors, or by the holders of at
least two-thirds (2/3) of all shares entitled to vote. Bylaws made or amended by
the Board of Directors may be altered or repealed by the shareholders, but shall
remain in effect unless and until such action be taken by the shareholders.
Section 6. Voting of Stock Held. Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board, the President
or any Vice President shall from time to time appoint an attorney or attorneys
or agent or agents of this Corporation, in the name and on behalf of this
Corporation, to cast the vote which this Corporation may be entitled to cast as
a shareholder or otherwise in any other corporation, any of whose stock or
securities may be held in this Corporation, at meetings of the holders of the
stock or other securities of such other corporation, or to consent in writing to
any action by any of such other corporation, and shall instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent and may execute or cause to be executed on behalf of this Corporation
and under its corporate seal or otherwise, such written proxies, consents,
waivers or other instruments as may be necessary or proper in the premises; or,
in lieu of such appointments, the Chairman of the Board, the President or any
Vice President may attend in person any meetings off the holders of stock or
other securities of any such other corporation and there vote or exercise any or
all power of this Corporation as the holder of such stock or other securities of
such other corporation.
Section 7. Control Share Acquisition Statute. To the full extent
permitted by Article 14.1 of the Virginia Stock Corporation Act, as amended,
("Control Share Acquisition Act"), the Corporation is authorized to redeem
shares acquired in a control share acquisition, as that term is defined under
the Control Share Acquisition Act.
Section 8. Implied Amendments. Any action taken or authorized by
the shareholders or by the Board of Directors which would be inconsistent with
the Bylaws then in effect, but which is taken or authorized by the affirmative
vote of not less than that number of shares or the number of directors that
would be required to amend these Bylaws so that the Bylaws would be consistent
with such action, shall be given the same effect as if these Bylaws had been
temporarily amended or suspended to the extent necessary to permit the specific
action so taken or authorized.
Section 9. Future Issuances of Capital Stock. Notwithstanding the
Corporation's general ability to issue additional capital stock or other
securities convertible into capital stock of the Corporation ("Convertible
Securities") at any time upon the affirmative vote of the Board of Directors, if
the Corporation shall desire to issue (i) shares of its capital stock for less
than Fair Market Value (as defined below) or (ii) Convertible Securities with
exercise or conversion prices less than Fair Market Value, such issuance must be
approved by the majority of the Corporation's non-employee-directors. For the
purpose of these Bylaws, the term "Fair Market Value" shall mean (i) the average
closing price of the capital stock over the twenty (20)-day period prior to the
vote of the Board of Directors if the capital stock is traded on an exchange or
an inter-dealer quotation system or (ii) that price per share mutually agreeable
to the Corporation's non-employee-directors (as a group) and the Corporation's
employee- directors. If the two groups of directors are unable to agree, then
each group of directors shall choose an appraiser and the Fair Market Value of
the Corporation's capital stock shall be the arithmetic mean of the values
determined by each appraiser. The cost of the appraisers, if any, shall be borne
solely by the Corporation. Notwithstanding the foregoing, however, until the
date upon which the Corporation's convertible, subordinated notes, issued to
investors on or about June 25, 1997, convert into shares of the Corporation's
common stock, Fair Market Value shall mean $6.00 per share.
EXHIBIT 4.2
NEITHER THIS SECURITY NOR ANY SECURITY INTO WHICH IT MAY BE CONVERTED 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 INTO
WHICH IT MAY BE CONVERTED 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. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (B) IN COMPLIANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (C) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7), OF REGULATION D UNDER THE SECURITIES
ACT THAT IS ACQUIRING THE SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT), (D) TO THE COMPANY OR
ANDERSON & STRUDWICK, INCORPORATED, THE PLACEMENT AGENT, (E) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT OR (F) PURSUANT TO AN EXEMPTION FROM REGISTRATION AS CONFIRMED IN
DOCUMENTATION (WHICH AT THE COMPANY'S DISCRETION SHALL INCLUDE AN OPINION OF
COUNSEL) IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY (PROVIDED,
HOWEVER, THAT IN THE CASE OF CLAUSES (B) AND (C), EITHER THE TRANSFEREE OR A
U.S. REGISTERED BROKER-DEALER ON ITS BEHALF HAS DELIVERED TO THE COMPANY A
TRANSFEREE CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY). WITH RESPECT TO
TRANSFERS PURSUANT TO CLAUSES (A), (B) AND (C) ABOVE, THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY,
THAT IT IS (i) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (ii) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT THAT IS
HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION (WITHIN
THE MEANING OF THE SECURITIES ACT) OR (iii) A NON-U.S. PERSON THAT IS OUTSIDE
THE U.S. WITHIN THE MEANING OF (OR ACCOUNTS SATISFYING THE REQUIREMENTS OF
PARAGRAPH (O)(ii) OF RULE 902 UNDER) REGULATION S.
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
a Virginia corporation
SUBORDINATED CONVERTIBLE NOTE
No. ____________ Richmond, Virginia
$ ______________ June ___, 1997
FOR VALUE RECEIVED, COMMONWEALTH BIOTECHNOLOGIES, INC., a Virginia
corporation (the "Company"), hereby promises to pay to ___________________
___________________________________________, (hereinafter referred to as the
"Holder"), or registered assigns, subject to conversion as described below, the
principal sum of _____________________________________ Dollars ($___________),
with interest at a rate of twenty percent (20%) per annum, subject to adjustment
as provided in paragraph 2 below.
1. The Note.
(a) Related Transaction. This Note is issued pursuant to and is
entitled to the benefits and subject to the conditions of that certain Placement
Agreement dated June __, 1997, among the Company, Holder and Anderson &
Strudwick, Incorporated (the "Placement Agent"), as the same may be amended from
time to time. The Company is issuing Notes in an aggregate principal amount of
Three Million Dollars ($3,000,000).
(b) Place of Payment. Interest and principal on this Note shall be
payable at the principal office of Anderson & Strudwick, Incorporated (the
"Agent") or such other principal office as the Holder may from time-to-time
designate in writing to the Company solely by conversion into shares of Common
Stock as provided in Section 3, regardless of whether payment becomes due on the
Maturity Date (as defined below) or upon the occurrence of an Event of Default
(as defined below). If the Agent has been designated as Holder's
attorney-in-fact to engage directly with the Company in dealings that are
necessary or appropriate in connection with this Note, the Company shall ensure
that all notices or deliveries required to be given or made to the Holder are
made to the Agent as required by the Placement Agreement.
2. Payment of Interest. Interest shall be payable upon the conversion
of this Note into shares of the Company's common stock ("Common Stock") as
provided in paragraph 3 below. Interest will be paid through the date of
<PAGE>
conversion in the form of additional shares of Common Stock, which shall be
issued based on the Conversion Price (as defined below). The Company shall have
no right to prepay all or any portion of this Note.
3. Conversion.
(a) Conversion Into Common Stock. This Note shall be automatically
converted into shares of the Company's Common Stock ("Conversion Shares") upon
the earlier to occur of (i) the closing of an IPO (as defined below) of the
Company's Common Stock or (ii) __________, 1998 (the "Maturity Date"). For
purposes of this Note, an "IPO" shall be an initial public offering of the
Company's Common Stock under the Securities Act of 1933, as amended, made
pursuant to a registration statement on Form SB-2 (or any similar form) that has
been declared effective by the Securities and Exchange Commission (the "SEC").
If the IPO is not effected by the Maturity Date, the principal amount and
accrued interest due under this Note shall nevertheless be converted into
Conversion Shares. Upon conversion, the number of Conversion Shares into which
this Note shall be converted shall equal the principal amount plus accrued
interest due under this Note divided by $6.00 (the "Conversion Price").
(b) Adjustment of Conversion Price. The Conversion Price has been
determined as $6.00 for each share of Common Stock. In the event the Company
shall be validly authorized to effect any one or more of the following (each, a
"Adjustment Event"): (i) payments of a dividend in shares of its Common Stock,
(ii) subdividing of its outstanding shares of Common Stock, (iii) combination of
its outstanding shares of Common Stock into a smaller number of shares, or (iv)
reorganization, merger or consolidation with another corporation or entity, the
Holder shall be entitled thereafter to elect that upon the conversion of this
Note he, she or it will receive the number of shares of Common Stock (or the
number and kind of applicable securities or property) as the Holder would have
been entitled to receive upon such Adjustment Event, if he, she or it had been a
holder of the number of shares of Common Stock of the Company deliverable upon
the conversion of this Note immediately prior to the time of such Adjustment
Event. In addition, if the Company shall be validly authorized to issue shares
of Common Stock, or options, warrants or other rights convertible into Common
Stock, for a per share price, exercise price or consideration of or valued at
less than $6.00 per share, then unless such issuance is an "Exempted Event," as
defined below, the Conversion Price shall be reduced to a price equal to the
lower price, exercise price or consideration. For the purposes of this Note, the
following shall be deemed to be Exempted Events if approved by a majority of the
Company's Board of Directors (or with respect to (C) below, a majority of the
members of the Compensation Committee of the Board of Directors), including a
majority of the directors of the Company who are not employees of the Company:
(A) the acquisition of another corporation or entity
by the Company by merger, purchase of substantially all the assets or other
reorganization as a result of which the Company or its shareholders prior to the
transaction own more than 50% of the voting power of the resulting corporation
or other entity;
<PAGE>
(B) equipment leases or borrowings, direct or
indirect, from financial or other institutions regularly engaged in such
business;
(C) the issuance of shares of Common Stock, and
options, warrants or rights convertible into Common Stock, to employees,
consultants or directors of the Company pursuant to any incentive agreement or
arrangement;
(D) a transaction in which the Company licenses any
intellectual property to be used in the business of the Company; or
(E) a strategic joint venture or alliance between
the Company and another party to which the securities are issued, or an
affiliate thereof.
(c) Mechanics of Conversion. Upon conversion, the Holder shall
surrender the certificate or certificates for this Note, duly endorsed, at the
Company's principal corporate office, and shall state therein the name or names
in which the certificate or certificates for Conversion Shares are to be issued.
The Company shall, as soon as practicable thereafter, issue and deliver to the
Holder a certificate or certificates for the number of Conversion Shares to
which the Holder shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date such
Notes are delivered, and the person or persons entitled to receive the
Conversion Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Conversion Shares as of such
date.
(d) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company but will at all times in good faith assist in the carrying out of all
the provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Notes against impairment.
(e) Taxes on Conversion. The issue of share certificates on
conversion of this Note shall be made without charge to the converting Holder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in any name other than that of the Holder,
and the Company shall not be required to issue or deliver any certificate in
respect of Conversion Shares unless and until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.
<PAGE>
(f) Reservation of Conversion Securities. The Company agrees that
the Company will at all times have authorized and reserved, and will keep
available, solely for issuance or delivery upon the conversion of this Note, the
shares of Common Stock and other securities and properties as from time to time
shall be receivable upon the conversion of this Note.
(g) No Rights as Stockholders. Prior to the conversion of this Note,
the Holder of this Note shall not be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein or as otherwise agreed.
4. Merger, Consolidation.
(a) Acceleration on Merger, Consolidation. In the event of (i) any
consolidation or merger of the Company with or into any other corporation or
other entity or person, or any other corporate reorganization in which the
Company shall not be the continuing or surviving entity, or any transaction or
series of related transactions by the Company in which in excess of 50% of the
Company's voting power is issued for the purpose of combining with or
acquisition by one or more corporations or other entities or persons; or (ii) a
sale, conveyance or disposition of all or substantially all of the assets of the
Company (the events described in clauses (i) and (ii) being collectively
referred to herein as an "Event of Default"), then at the election of the
Holder, the Holder may cause the principal and accrued interest on this Note to
become immediately due and payable at the closing of any such transaction,
whereupon the principal and accrued interest under this Note shall be converted
into the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, reorganization, or disposition of
assets by the holders of the Company's Common Stock.
(b) Notices. The Company shall give the Holder written notice of
such impending transaction not later than twenty (20) days prior to the
stockholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 4 and the Company shall
thereafter give the Holder prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Company has given the first notice provided for herein or sooner than ten (10)
days after the Company has given the notice provided for herein of any material
changes, provided, however, that such periods may be shortened upon the written
consent of the holders of the majority of the principal amount of Notes then
outstanding.
<PAGE>
5. Registration Rights. The Holder shall be entitled to the
registration rights with respect to the Conversion Shares that are described on
Exhibit A to this Note.
6. Transfer. Upon surrender of this Note for transfer or exchange, a
new Note or new Notes of the same tenor, dated the date to which interest has
been paid on the surrendered Note and in an aggregate principal amount equal to
the unpaid principal amount of the Note so surrendered, will be issued to and
registered in the name of the transferee or transferees. The Company may treat
the person in whose name this Note is registered as the owner hereof for the
purpose of receiving payments and for all other purposes.
7. Note Register. This Note is transferable only upon the books of the
Company which it shall cause to be maintained for such purpose. Subject to
Section 1(b) above, the Company may treat the registered holder of this Note as
the Holder appears on the Company's books at any time as the Holder for all
purposes.
8. Defaults and Remedies. In case an Event of Default shall happen and
be continuing, the principal and accrued, but unpaid, interest may be declared
due and payable by the Holder.
9. Parity of Notes. In the event any other holder of Notes issued
contemporaneously with this Note elects to accelerate the Notes held by such
holder as a result of an Event of Default, the Company shall notify the Holder
of this Note of such event and all holders of Notes issued contemporaneously
with this Note shall be deemed to have equal parity.
10. Loss, Etc., of Note. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note, and of
indemnity reasonably satisfactory to the Company if lost, stolen or destroyed,
and upon surrender and cancellation of this Note if mutilated, and upon
reimbursement of the Company's reasonable incidental expenses, the Company shall
execute and deliver to the Holder a new Note of like date, tenor and
denomination.
11. Amendment, Waiver Etc., By Holders. The terms of this Note may be
amended or waived upon the written consent of the Company and the Holder.
This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
The Company hereby waives presentment, demand, notice of nonpayment,
protest and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note. If an action is brought for
collection under this Note, the Holder shall be entitled to receive all costs of
collection, including, but not limited to, its reasonable attorneys' fees.
<PAGE>
WITNESS the following signature and seal:
COMMONWEALTH BIOTECHNOLOGIES, INC.
a Virginia corporation
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[Corporate Seal]
<PAGE>
EXHIBIT A
Registration Rights
For the purposes of this Exhibit, the following terms shall have the following
meanings. All capitalized terms used in this Exhibit and not otherwise defined
in this Exhibit shall have the meanings given them in this Note.
"1933 Act" shall mean the Securities Act of 1933, as amended
prior to or after the date of this Agreement, or any federal statute or statutes
which shall be enacted to take the place of such act, together with all rules
and regulations promulgated thereunder.
"Conversion Shares" shall mean at any time, the then
outstanding Conversion Shares owned by the Holders.
"Demand Notice" shall have the meaning given in Section 2(a).
"Holder" shall mean any of the investors in the Notes, and any
donee, executor, administrator, personal representative, testate or intestate
successor or other lawful assignee of any of the investors in the Notes, that
from time to time owns Notes or Conversion Shares.
"Initiating Holders" shall mean any Holder or Holders of not
less than two-thirds of the Conversion Shares.
"Notes" shall mean the $3,000,000 in Subordinated Convertible
Notes issued by the Company.
"Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, or other entity, or a government or any agency, authority or
political subdivision thereof.
"Prospectus" shall mean any prospectus that is a part of a
Registration Statement, together with all amendments or supplements thereto.
"Public Offering" shall mean any public offering of Common
Stock by means of a Registration Statement that has become effective, including
an IPO.
"Registration" shall mean (a) a registration effected by
preparing and filing a Registration Statement, and the declaration or ordering
of the effectiveness of such Registration Statement, and (b) any contemporaneous
registration or qualification of Conversion Shares under any state securities or
blue sky laws.
<PAGE>
"Registration Statement" shall mean any registration statement
filed with the SEC in accordance with the Securities Act, together with all
amendments or supplements thereto.
"SEC" shall mean the United States Securities and Exchange
Commission or any successor to the functions of such agency.
1. Demand Registration.
(a) All of the Conversion Shares will be included at the Company's
sole expense (in a manner consistent with Section 3) in the Registration
Statement for the Company's initial public offering, which the Company shall use
its best efforts to cause to become effective not later than [12 months after
closing date]. In any event, the Initiating Holders may give the Company written
notice (a "Demand Notice") at any time after [12 months after closing date] that
they desire the Company to cause all or a portion of the Conversion Shares to be
registered under the 1933 Act and any applicable state securities or blue sky
laws. If a registration of the Conversion Shares takes place pursuant to a
Demand Notice, then the remainder of this Exhibit D shall be applicable.
(b) Upon receipt of a Demand Notice, the Company shall send a notice
to all Holders who are not parties to the Demand Notice and to the Agent, and
the recipients of such notice shall be entitled to have their Conversion Shares
included in the registration made pursuant to the Demand Notice if they shall
notify the Company of their intent to do so within 15 days of their receipt of
the Company notice, and if they shall fail to so notify the Company, the Company
shall have no further obligation to register their Conversion Shares. The
Company shall prepare and file a Registration Statement with the SEC under the
1933 Act covering the Conversion Shares requested to be registered as soon as
practical, but in any event within ninety (90) days after receipt of the Demand
Notice, and use its best efforts to cause such Registration Statement to become
effective. However, if the Company furnishes to the Initiating Holders a
certificate signed by the president of the Company stating that in the good
faith judgment of the board of directors of the Company (including a majority of
the non-employee directors) it would be detrimental to the Company and its
shareholders for such Registration Statement to be filed when the filing would
otherwise be required by the preceding sentences and that it is therefore
essential to defer the filing of such Registration Statement, the Company shall
have an additional period of not more than ninety (90) days within which to file
such Registration Statement.
(c) The Initiating Holders shall have the right to select the
investment banker or bankers who shall serve as the manager and/or co-managers
for the registration of the Conversion Shares under this Section 1.
<PAGE>
(d) If at least two-thirds (2/3) of the Holders of the Conversion
Shares determine for any reason not to proceed with such Registration at any
time before a Registration Statement has been declared effective by the SEC,
then such Holders shall promptly give written notice to the Company of their
decision, and such Registration Statement, if theretofore filed with the SEC,
shall be withdrawn with respect to the Conversion Shares covered thereby.
2. Registration Procedures. Whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the Registration
of any Conversion Shares under the 1933 Act, the Company will:
(a) prepare and file with the SEC a Registration Statement under the
1933 Act with respect to the Conversion Shares requested to be registered, and
use its best efforts to cause such Registration Statement to become effective,
provided that before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will furnish to the Holders and
their counsel copies of all such documents proposed to be filed and give such
Holders and their counsel an opportunity to review and comment upon such
documents;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and to comply
with the provisions of the 1933 Act with respect to the sale or other
disposition of all Conversion Shares included in such Registration Statement;
(c) furnish to each Holder such number of copies of such
Registration Statement, each amendment and supplement thereto, the Prospectus
included in the Registration Statement (including each preliminary Prospectus),
and such other documents, as such Holder may reasonably request in order to
enable such Holder to consummate the public sale or other disposition of the
Conversion Shares owned by such Holder included in such Registration Statement;
(d) use its best efforts to register or qualify all of the
Conversion Shares under such other securities or blue sky laws of such
jurisdictions as each Holder shall reasonably request, and do any and all other
acts and things that may be necessary under such securities or blue sky laws to
enable such Holder to consummate the public sale or other disposition in such
jurisdiction of the Conversion Shares owned by such Holder; provided, however,
that the Company shall not be required to (i) qualify to do business as a
foreign corporation in any jurisdiction wherein it would not otherwise be
required to qualify but for this subparagraph, (ii) subject itself to taxation
in any such jurisdiction, (iii) consent to general service of process in any
such jurisdiction (provided that the Company shall, if required by any such
jurisdiction, consent to service of process with respect to matters arising out
of the offering of Conversion Shares then being made) or (iv) qualify as a
dealer in securities in any such jurisdiction;
<PAGE>
(e) notify each Holder at any time when a Prospectus relating to the
Conversion Shares owned by such Holder is required to be delivered under the
Securities Act, of the happening of any event known to the Company as a result
of which the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and at the request of any such Holder and
subject to subsection (b) above, prepare a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of the Conversion
Shares, such Prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein not
misleading;
(f) cause all the Conversion Shares to be listed on each securities
exchange or national market or quotation system on which the equity securities
of the Company of the same type or class as the Conversion Shares are then
listed, if any, or such exchange or quotation system as shall reasonably be
requested by the Initiating Holders;
(g) provide a transfer agent and registrar for the Conversion Shares
not later than the effective date of such Registration Statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders of
at least a majority of the Conversion Shares or underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of the Conversion
Shares;
(i) make available for inspection by any Holder, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by any such Holder of at least
5% of the Conversion Shares, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such Holder, underwriter, attorney, accountant or agent and reasonably
necessary for the purposes of such Registration Statement;
(j) as of (i) the effective date of the Registration Statement and
(ii) the date the Conversion Shares are delivered to the underwriters, if any,
for sale pursuant to such Registration Statement, obtain a cold comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by cold comfort letters as the
Holders of at least a majority of the Conversion Shares reasonably request; and
<PAGE>
(k) furnish, at the request of any Holder of Conversion Shares
requested to be registered on the date the Conversion Shares are delivered to
the underwriters for sale pursuant to the Registration Statement or, if the
Conversion Shares are not being sold through underwriters, on the date the
Registration Statement with respect to the Conversion Shares becomes effective,
an opinion, dated such date, of counsel representing the Company for the
purposes of such Registration, addressed to the underwriters, if any, and to the
Holder making such request, covering such legal matters with respect to the
Registration in respect of which such opinion is being given as the Holders of
such securities may reasonably request and are customarily included in such
opinions.
3. Expenses. To the fullest extent allowable under applicable state
securities and blue sky laws, all expenses incurred in effecting the
Registration provided for in Section 2(a), including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, underwriting expenses other than discounts or
commissions, expenses of any audits incident to or required by any such
Registration and expenses of complying with the securities or blue sky laws of
any jurisdictions pursuant to Section 2(d), shall be borne and paid by the
Company.
4. Indemnification.
(a) In the event of any Registration of the Conversion Shares under
the 1933 Act pursuant to this Agreement, the Company, to the extent permitted by
law, shall indemnify and hold harmless each Holder, each underwriter (as defined
in the 1933 Act), each other Person who participates in the offering of such
Conversion Shares, and each other Person, if any, who controls (within the
meaning of the 1933 Act) each such Holder, underwriter or participating Person,
against any losses, claims, damages or liabilities, joint or several, to which
each such Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any untrue
statement, or alleged untrue statement, of any material fact contained, on the
effective date thereof, in any Registration Statement under which the Conversion
Shares were registered under the 1933 Act, any preliminary Prospectus or final
Prospectus contained therein, or any summary Prospectus issued in connection
with any Conversion Shares being registered, or any amendment or supplement
thereto, or (ii) any omission or alleged omission to state in any such document
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse each such Holder, or any
such underwriter, participating Person or controlling Person for any legal or
other expenses reasonably incurred by such Person in connection with
investigating or defending any such loss, damage, liability or action; provided,
however, that the Company shall not be liable to any Holder, or any such
underwriter, participating Person, or controlling Person in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission (x) that was made in such Registration
Statement, preliminary Prospectus, summary Prospectus, Prospectus, or amendment
<PAGE>
or supplement thereto in reliance upon and in conformity with information
furnished to the Company by such Person specifically for use therein, or (y)
that was corrected in an amendment or supplement to the Registration Statement
or any preliminary Prospectus, summary Prospectus or Prospectus that the Company
made available to the Holders prior to the date of the transaction giving rise
to a claim of liability and that the Holder seeking indemnification failed to
deliver to the person asserting the claim prior to the consummation of the
transaction.
(b) Each Holder shall indemnify and hold harmless each other Holder,
the Company, their directors and officers, each underwriter (as defined in the
1933 Act), and each other Person, if any, who controls (within the meaning of
the 1933 Act) each such Holder, the Company, or any underwriter, against any
losses, claims, damages or liabilities, joint or several, to which any such
other Holder, the Company, any such director or officer, any such underwriter,
or any such Person may become subject under the 1933 Act or any other statute or
at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any Registration Statement under which Conversion
Shares were registered under the Securities Act at the request of the Holders,
any preliminary Prospectus or final Prospectus contained therein, or any summary
Prospectus issued in connection with the Conversion Shares, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state in any
such document a material fact required to be stated therein or necessary to make
the statements therein not misleading, in either case to the extent, and only to
the extent, that such untrue statement or omission (x) was made in such
Registration Statement, preliminary Prospectus, final Prospectus, summary
Prospectus, amendment or supplement in reliance upon and in conformity with
information furnished by such Holder specifically for use therein, or (y) such
untrue statement or omission was corrected in an amendment or supplement to the
Registration Statement or any preliminary Prospectus, summary Prospectus or
Prospectus that the Company made available to the Holders prior to the date of
the transaction giving rise to a claim of liability and that the Holder selling
Conversion Shares in such transaction failed to deliver to the person asserting
the claim prior to the consummation of the transaction, and shall reimburse such
Person for any legal or other expenses reasonably incurred by such Person in
connection with investigating or defending any such loss, claim, damage or
liability.
(c) Indemnification similar to that specified in subsections (a) and
(b) of this Section 4 (with such modifications as shall be appropriate) shall be
given by the Company or the Holder, as the case may be, under any federal or
state securities or blue sky law or regulation other than the Securities Act.
(d) Any Person that proposes to assert the right to be indemnified
under subsections (a), (b) or (c) of this Section 4 shall, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
Person in respect of which a claim is to be made against an indemnifying Person
<PAGE>
under such subsections (a), (b) or (c), notify each such indemnifying Person of
the commencement of such action, suit or proceeding, enclosing a copy of all
papers served. The indemnifying Person shall have the right to investigate and
defend any such loss, claim, damage, liability or action and to employ separate
counsel in any such action and to control the defense thereof. The Person
seeking indemnification shall have the right to employ separate counsel in any
such action and to control the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the Person against whom
indemnification is sought; provided, however, that notwithstanding the
foregoing, in any case when indemnification is sought from a Person and (i) the
Person seeking indemnification has been advised by counsel that representation
of such Person and the indemnifying Person by the same counsel would be
inappropriate under applicable standards of professional conduct, or (ii) the
indemnifying Person has not proceeded in a timely manner to effect such defense,
then the reasonable fees and expenses of counsel for such Person shall be paid
by the Indemnifying Person and the Person seeking indemnification shall have the
right to control the defense of such action, suit or proceeding. In no event
shall a Person against whom indemnification is sought be obligated to indemnify
any Person for any settlement of any claim or action effected without the
indemnifying Person's consent. No indemnifying Person will consent to the entry
of any judgment or enter into any settlement (without the consent of the
indemnified Person) that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified Person of a release from
all liability in respect of the applicable claim or litigation.
(e) The indemnification provided for under this Section 4 will
remain in full force and effect regardless of any investigation made by or on
behalf of the Person seeking indemnification or any officer, director or
controlling Person of such Person seeking indemnification and will survive the
transfer of Conversion Shares.
(f) If the indemnification provided for in this Section 4 is
unavailable or insufficient to hold harmless an indemnified Person in respect of
any losses, claims, damages or liabilities in respect thereof referred to
herein, then each indemnifying Person shall, in lieu of indemnifying such
indemnified Person, contribute to the amount paid or payable by such indemnified
Person as a result of such losses, claims, damages or liabilities, in such
proportion as is appropriate to reflect the relative fault of the Company, on
the one hand, and the Holders, on the other, in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations, including the failure to
give the notice required hereunder. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company, on the one
hand, or the Holders, on the other hand, and the Persons' relevant 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 4 were determined by
pro rata allocation or by any other method of allocation that did not take
<PAGE>
account of the equitable considerations referred to above. The amount paid or
payable by an indemnified Person as a result of the losses, claims, damages or
liabilities in respect thereof referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified Person in
connection with investigation or defending any such action or claim.
Notwithstanding the contribution provisions of this Section 4, in no event shall
the amount contributed by any Holder of Conversion Shares exceed the aggregate
gross offering proceeds received by such Holder from the sale of Conversion
Shares to which such contribution claim relates. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who is not guilty of such fraudulent
misrepresentation.
5. Participation in Underwritten Registration. No Holder may
participate in any underwritten Registration hereunder unless (i) such Holder
agrees to sell such Holder's Conversion Shares on the basis provided in any
underwriting arrangements approved by the Company, (ii) such Holder completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) the Holders of a majority of the Conversion
Shares shall have designated a single agent to act for them in connection with
the Registration.
6. Assignability of Registration Rights. The registration rights set
forth in this Agreement shall accrue to each subsequent Holder of Conversion
Shares that consents in writing to be bound by the terms and conditions of this
Agreement.
EXHIBIT 4.3
No. _________
_______ 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, 83,400 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 ANDERSON & STRUDWICK, INCORPORATED or its
assigns as permitted in that certain Warrant Agreement (the "Warrant Agreement")
dated June 25, 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 June 25, 1998 until 5:00 p.m., Richmond, Virginia time on June 25,
2002, __________ 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 JUNE 25, 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
<PAGE>
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 4.5
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 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 10.1
COMMONWEALTH BIOTECHNOLOGIES, INC.
(a Virginia corporation)
$3,000,000 Subordinated Convertible Notes
(Minimum purchase of $50,000)
PLACEMENT AGREEMENT
June 17, 1997
Anderson & Strudwick, Incorporated
1108 E. Main Street
Richmond, Virginia 23219
Ladies and Gentlemen:
The undersigned, Commonwealth Biotechnologies, Inc., a Virginia
corporation (the "Company"), hereby confirms its agreement with you as follows:
1. Introduction. This Agreement sets forth the understandings and
agreements between the Company and you whereby, subject to the terms and
conditions herein contained, you will offer to sell, on a best efforts basis on
behalf of the Company as provided in Section 4.(a) (the "Offering"), a total of
$3,000,000 in principal amount of Subordinated Convertible Notes to be made by
the Company (the "Notes"). Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Private Placement
Memorandum prepared by the Company and dated June 17, 1997 (the "PPM").
2. Representations and Warranties of the Company. The Company makes
the following representations and warranties to you. Certain exceptions to the
representations and warranties are set forth in the Disclosure Schedule attached
hereto as Exhibit A, and no matter set forth in the Disclosure Schedule shall
constitute a breach of the representations and warranties for any purpose of
this Agreement.
(a) PPM. The Company has prepared the PPM. The PPM, as of
its date, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. On the Closing Date (as hereinafter defined), the PPM will not
contain any untrue statement of a material fact or omit to state a material fact
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<PAGE>
required to be stated therein or necessary in order to make the statements
therein not misleading.
(b) Company: Organization and Qualification. The Company has
been duly incorporated and is validly existing in good standing as a corporation
under the laws of the Commonwealth of Virginia with all requisite corporate
power and authority to enter into this Agreement, to conduct its business as now
conducted and as proposed to be conducted, and to own and operate its
properties, investments and assets, as described in the PPM, and is qualified to
do business and in good standing as a foreign corporation in each other
jurisdiction in which the failure so to qualify could reasonably be expected to
have a material adverse effect on the Company. Except as set forth on the
disclosure schedule attached as Exhibit A (the "Disclosure Schedule"), the
Company is not in violation of any provision of its articles of incorporation,
bylaws or other governing documents and is not in default under or in breach of,
and does not know of the occurrence of any event that with the giving of notice
or the lapse of time or both would constitute a default under or breach of, any
term or condition of any material agreement or instrument to which it is a party
or by which any of its properties, investments or assets is bound, except as
disclosed in the PPM. The Company does not own or control, directly or
indirectly, any other corporation, association, or other entity. The Company has
furnished to you copies of its articles of incorporation and bylaws, as amended,
and all such copies are true, correct and complete and contain all amendments
thereto through the Closing Date.
(c) Validity of Notes. The Company has authorized the making
of the Notes as described in the PPM. All action required to be taken by the
Company as a condition to the offering and sale of the Notes to qualified
accredited investors (as such term is defined in Rule 501 under the Securities
Act of 1933, as amended) in the jurisdictions listed in the Disclosure Schedule
has been, or prior to the Closing Date will have been taken. The Notes conform
to the description thereof contained in the PPM. The rights and limitations of
the holders of the Notes are set forth in the PPM under the caption "Description
of the Notes."
(d) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the PPM under the caption
"Executive Summary--Summary of Principal Terms for Private Placement of the
Notes--Capitalization." All of the issued and outstanding shares of Common Stock
of the Company have been duly authorized, validly issued, fully paid and are
non-assessable, and no holder of such shares has any preemptive rights except
such as have been waived. Except as disclosed in the PPM or as set forth on the
Disclosure Schedule, there is no outstanding option, warrant or other right
calling for the issuance of, and no commitment, plan or arrangement to issue,
any shares of capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company. Upon the conversion of the Notes
to common shares of the Company (the "Conversion Shares") as provided for in the
Notes and described in the PPM, the Conversion Shares will be validly issued,
fully paid and non-assessable. Except as described in the PPM,
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<PAGE>
no person holds the right to participate in any registration of any of the
Company's capital stock under the Securities Act of 1933 (the "1933 Act").
(e) Full Power: Company. The Company has full legal right,
power, and authority to enter into this Agreement and to issue and deliver the
Notes and the Conversion Shares as provided herein and in the PPM and to
consummate the transactions contemplated herein and in the PPM. This Agreement
has been duly authorized, executed, and delivered by the Company and constitutes
a valid and binding agreement of the Company, enforceable in accordance with its
terms, except to the extent that enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws
affecting creditors' rights generally, regardless of whether such enforceability
is considered in equity or at law, (ii) general equity principles, and (iii)
limitations imposed by federal and state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.
(f) Disclosed Agreements. All agreements between or among
the Company and third parties expressly referenced in the PPM are legal, valid,
and binding obligations of the Company, enforceable in accordance with their
respective terms, except to the extent enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar laws
affecting creditors' rights generally, regardless of whether such enforceability
is considered in equity or at law, (ii) general equity principles and (iii)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.
(g) Enforceability of Notes. Upon issuance, each of the
Notes will have been duly and validly authorized, executed and delivered on
behalf of the Company, and will constitute a legal, valid and binding obligation
of the Company enforceable in accordance with its terms, except to the extent
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
liquidation, reorganization, or similar laws affecting creditors' rights
generally, regardless of whether such enforceability is considered in equity or
at law, and (ii) general equity principles.
(h) Consents. Except as disclosed in the PPM or as set forth
on the Disclosure Schedule, each consent, approval, authorization, order,
license, certificate, permit, registration, designation or filing by or with any
governmental agency or body or any other third party necessary for the valid
authorization, issuance, sale and delivery of the Notes or the Conversion
Shares, the execution, delivery and performance of this Agreement and the
consummation by the Company of the transactions contemplated hereby and by the
PPM has been made or obtained and is in full force and effect, except for
filings required to be made after the Closing Date.
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<PAGE>
(i) Litigation. There is not pending or, to the knowledge of
the Company, threatened or contemplated, any action, suit, proceeding, inquiry,
or investigation before or by any court or any federal, state, or local
governmental authority or agency to which the Company may be a party, or to
which any of the properties or rights of the Company may be subject, that is not
described in the PPM and (i) that might result in any material adverse change in
the condition (financial or otherwise) or business of the Company; or (ii) that
might materially adversely affect any of the material properties of the Company;
or (iii) that might adversely affect the consummation of the transactions
contemplated by this Agreement, nor, to the knowledge of the Company, is there
any meritorious basis therefor.
j) Financial Statements. The financial statements of the
Company together with related schedules and notes included in the PPM present
fairly the financial position of the Company as of the dates indicated and the
results of operations and cash flows for the periods specified. Such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved.
(k) Disclosed Liabilities. The Company has not sustained,
since December 31, 1996, any material loss or interference with its business
from fire, explosion, flood, hurricane, accident, or other calamity, whether or
not covered by insurance, or from any labor dispute or arbitrators' or court or
governmental action, order, or decree, otherwise than as set forth or
contemplated in the PPM; and, since the respective dates as of which information
is given in the PPM, and except as otherwise stated in the PPM or as set forth
on the Disclosure Schedule, there has not been (i) any material change in the
capital stock, long-term debt, obligations under capital leases, or short-term
borrowings of the Company, (ii) any material adverse change, or any development
that could be reasonably be seen as involving a prospective material adverse
change in or affecting the business, prospects, properties, assets, results of
operations or condition (financial or other) of the Company, (iii) any liability
or obligation, direct or contingent, incurred or undertaken by the Company that
is material to the business or condition (financial or other) of the Company,
except for liabilities or obligations incurred in the ordinary course of
business, (iv) any declaration or payment of any dividend or distribution of any
kind on or with respect to the capital stock of the Company, or (v) any
transaction that is material to the Company, except transactions in the ordinary
course of business.
(l) Required Licenses and Permits. Except as disclosed in
the PPM, the Company owns, possesses, has obtained or in the ordinary course of
business will obtain, and has made available for your review, all material
permits, licenses, franchises, certificates, consents, orders, approvals, and
other authorizations of governmental or regulatory authorities as are necessary
to own or lease, as the case may be, and to operate its properties and to carry
on its business as presently conducted, or as contemplated in the PPM to be
conducted (the "Permits"), and the Company has not received any notice of
proceedings relating to revocation or modification of any such Permits.
4
<PAGE>
(m) Internal Accounting Measures. To the knowledge of the
Company, the Company's system of internal accounting controls taken as a whole
is sufficient to meet the broad objectives of internal accounting control
insofar as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to the Company's
financial statements; and, to the knowledge of the Company, none of the Company
or any employee or agent thereof, has made any payment of funds of the Company,
or received or retained any funds of the Company, and no funds of the Company
have been set aside to be used for any payment, in each case in violation of any
law, rule, or regulation.
(n) Taxes. The Company has timely filed all required federal
and state tax returns, and has paid all taxes that have become due and have no
tax deficiency asserted against the Company, and the Company does not know of
any tax deficiency that is likely to be asserted against the Company that if
determined adversely to the Company, would, either individually or in the
aggregate, have a material adverse effect on the business, prospects,
properties, assets, results of operations, or condition (financial or otherwise)
of the Company. All tax liabilities are adequately provided for on the books of
the Company.
(o) Compliance with Instruments. Except as set forth on the
Disclosure Schedule, the execution, delivery and performance of this Agreement,
the compliance with the terms and provisions hereof and the consummation of the
transactions contemplated herein, and in the PPM by the Company, do not and will
not violate or constitute a breach of, or default under (i) the articles of
incorporation or bylaws of the Company; (ii) any of the material terms,
provisions, or conditions of any material instrument, agreement, or indenture to
which the Company is a party or by which it is bound or by which its business,
assets, investments or properties may be affected; or (iii) any order, statute,
rule, or regulation applicable to the Company, or any of its business,
investments, assets or properties, of any court or any federal, state or local
(to the knowledge of the Company) governmental authority or agency having
jurisdiction over the Company, or any of its business, investments, properties
or assets; and to the knowledge of the Company do not and will not result in the
creation or imposition of any lien, charge, claim, or encumbrance upon any
property or asset of the Company.
(p) Insurance. The Company maintains insurance (issued by
insurers of recognized financial responsibility) of the types and in the amounts
generally deemed adequate for its business and, to the knowledge of the Company,
consistent with insurance coverage maintained by similar companies and similar
businesses, all of which insurance is in full force and effect.
(q) Work Force. To the knowledge of the Company, no general
labor problem exists or is imminent with the employees of the Company.
5
<PAGE>
(r) Environment. To the Company's knowledge, after due
inquiry, the Company has duly complied with, and its business, operations,
assets, equipment, property, leaseholds or other facilities are in compliance
with, the provisions of all federal, state and local environmental, health,
nuclear regulatory and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder. To the Company's knowledge, after due
inquiry, the Company has been issued, or in the ordinary course of business is
in the process of obtaining, and will maintain all required federal, state and
local permits, licenses, certificates and approvals relating to (1) air
emissions, (2) discharges to surface water or groundwater, (3) noise emissions,
(4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation or disposal of radioactive or otherwise toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and regulations
promulgated thereunder as hazardous or potentially hazardous), or (6) other
environmental, health, nuclear regulatory or safety matters. The Company has not
received notice of, and does not know of or suspect facts which might constitute
violations of any federal, state or local environmental, health, nuclear
regulatory or safety laws, codes or ordinances, or any rules or regulations
promulgated thereunder with respect to its business, operations, assets,
equipment, property, leaseholds, or other facilities, which could reasonably be
expected to have a material adverse effect on the Company. Except in accordance
with a valid governmental permit, license, certificate or approval, the Company
has made no emission, spill, release or discharge into or upon (1) the air, (2)
soils, or any improvements located thereon, (3) surface water or groundwater, or
(4) the sewer, septic system or waste treatment, storage or disposal system
servicing the premises, of any radioactive or otherwise toxic or hazardous
substances or wastes at or from the premises of the Company. To the knowledge of
the Company, there has been no complaint, order, directive, claim, citation or
notice by any governmental authority or any person or entity with respect to (1)
air emissions, (2) spills, releases or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises, (3) noise
emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation or disposal of radioactive or otherwise toxic or hazardous
substances or waste, or (6) other environmental, health or safety matters
affecting the Company or its business, operations, assets, equipment, property,
leaseholds or other facilities. To the knowledge of the Company, the Company
does not have any indebtedness, obligation or liability (absolute or contingent,
matured or not matured), with respect to the storage, treatment, cleanup or
disposal of any solid wastes, hazardous wastes or other radioactive or otherwise
toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup or disposal).
(s) Investment Company Act. The Company is not an
"investment company" or an entity which that "controls" or is "controlled by" an
"investment company," as such terms are defined under the Investment Company Act
of 1940, as amended (the "1940 Act").
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<PAGE>
3. Representations and Warranties of Placement Agent. You, as
Placement Agent, represent and warrant to the Company that:
(a) You are a member, in good standing, of the National
Association of Securities Dealers, Inc. ("NASD"), and are duly registered as a
broker-dealer under the Securities Exchange Act of 1934, and under the laws of
each state in which you propose to offer the Notes, except where such
registration would not be required by law.
(b) Each purchaser of Notes will execute a Note Purchase
Agreement substantially in the form attached as Appendix B to the PPM. You will
have sufficient reason to believe that the persons executing the Note Purchase
Agreement have the qualifications set forth therein.
(c) This Agreement when accepted and approved will be duly
authorized, executed and delivered by you and is a valid and binding agreement
of the Placement Agent, enforceable in accordance with its terms, except to the
extent that enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, liquidation, reorganization, or similar laws affecting creditors'
rights generally, regardless of whether such enforceability is considered in
equity or at law, (ii) general equity principles, and (iii) limitations imposed
by federal and state securities laws or the public policy underlying such laws
regarding the enforceability of indemnification or contribution provisions.
(d) The consummation of the transactions contemplated by the
PPM relating to the Offering will not violate or constitute a breach of, or
default under, your articles of incorporation or bylaws, or any material
instrument, agreement, or indenture to which you are a party, or violate any
order applicable to you of any federal or state regulatory body or
administrative agency having jurisdiction over you or your property.
(e) Until the termination of this Agreement, if any event
affecting the PPM, the Company or you shall occur which, in the opinion of
counsel to the Company, should be set forth in a supplement to the PPM, you
agree to distribute each supplement of the PPM to each person who has previously
received a copy of the PPM from you and you further agree to include such
supplement in all future deliveries of the PPM.
(f) You represent that in recommending to an investor the
purchase of the Notes, you shall:
(i) have reasonable grounds to believe, on the basis
of information obtained from the investor concerning his investment objectives,
other investments, financial situation and needs, sophistication and experience
in making similar investments and any other information known by you, that:
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(A) the investor is or will be in a
financial position appropriate to invest in the Notes as described in the PPM;
(B) the investor has a fair market net worth
sufficient to sustain the risks inherent in the investment in the Notes,
including loss of investment and lack of liquidity; and
(C) the investor meets all suitability
requirements contained in the Note Purchase Agreement; and
(D) the investment is otherwise suitable for
the investor; and
(ii) maintain in your files for a period of four
years following the Closing, documents that confirm the basis upon which the
determination of suitability was reached as to each investor.
(g) Notwithstanding the provisions of subsection 3.(f)
above, you shall not execute any transaction relating to an investment in the
Notes from a discretionary account without prior written approval of the
transaction by the customer.
(h) You represent that you will not engage in general
advertising or general solicitation within the meaning of Rule 502(c) under the
1933 Act, or otherwise engage in any activities which would render unavailable
to the company an exemption from (i) the registration requirements of the 1933
Act, pursuant to Section 3(b) or 4(c) thereof or Regulation D thereunder and
(ii) the securities laws of any state or other jurisdiction in which the Notes
and the Conversion Shares are offered or sold.
4. Sale of Notes.
(a) Exclusive Agency. The Company hereby appoints you as its
exclusive agent to offer for sale, and hereby agrees to sell during the Offering
Period (as defined in Section 4.(c)), $3,000,000 in aggregate principal amount
of the Notes, and on the basis of the representations and warranties herein
contained but subject to the terms and conditions herein set forth, you accept
such appointment and agree to use your best efforts as agent to offer the Notes
for sale for the account of the Company, on a cash basis only, in the aggregate
principal amount of $3,000,000, with the minimum subscription amount being
$50,000. During the Offering Period, the Company will not sell or agree to sell
any debt or equity securities otherwise than through you. Nothing contained
herein shall be construed in any way as precluding or restricting your right to
sell or offer for sale securities issued by any other person, including
securities similar to, or competing with, the Notes. It is understood between
the parties that there is no firm commitment by you to purchase any or all of
the Notes.
8
<PAGE>
(b) Obligation to Offer Notes. Your obligation to offer the
Notes is subject to receipt by you, is subject to the absence of any prohibitory
action by any governmental body, agency, or official, and is subject to the
terms and conditions contained in this Agreement and in the PPM.
(c) Offering Termination Date. The "Offering Period" shall
commence on the day that the PPM is first made available to prospective
investors in connection with the offering for sale of the Notes and shall
continue until the "Offering Termination Date," which shall be the earlier of
(i) the date $3,000,000 in aggregate principal amount of the Notes have been
sold, (ii) July 31, 1997, or (iii) an earlier termination date as determined by
you as permitted herein. The Company and you agree that unless at least
$3,000,000 in aggregate principal amount of the Notes are sold on or before the
Offering Termination Date, the agency between the Company and you will
terminate, and the full proceeds that have been paid for the Notes will be
returned to the purchasers. In the event that you are unable to complete the
sale of the Notes within thirty (30) days of the date of delivery of the PPM to
you, you will reimburse the Company for its reasonable expenses incurred in
connection with the Offering.
(d) Closing Date. As and when the closing of the Offering is
effected, which shall be on or before the Offering Termination Date, and
proceeds from the Notes sold are received and accepted, on such date (the
"Closing Date") and at such time and place as determined by you (which
determination shall be subject to the satisfaction on such date of the
conditions contained herein), the funds received from purchasers will be
delivered by LeClair Ryan, a Professional Corporation (the "Escrow Agent") to
the Company, by wire transfer of immediately available funds, except for the
placement fees payable to you pursuant to the provisions of Section 4.(e) of
this Agreement and your reasonable out-of-pocket expenses (including those of
your counsel), which shall be paid to you by the Escrow Agent on the Closing
Date.
(e) Placement Fee. In consideration for your execution of
this Agreement and for the performance of your obligations hereunder, the
Company agrees to pay you, as provided in Section 4.(d) of this Agreement, a
placement fee computed at the rate of eight percent (8.0%) of the aggregate
principal amount of the Notes sold by you. In addition, on the Closing Date, we
will issue to you a warrant for the purchase of 50,000 shares of the common
stock of the Company, substantially in the form of Exhibit B attached to this
Agreement.
(f) Finder's Fees. Except as set forth in the PPM, neither
you nor the Company, directly or indirectly, shall pay or award any finder's
fee, commission, or other compensation to any person engaged by a potential
purchaser for investment advice as an inducement to such advisor to advise the
purchase of the Notes or for any other purpose.
9
<PAGE>
(g) Delivery of Notes. Delivery of the Notes shall be made
at such place as shall be agreed upon by the Company and you, on the Closing
Date. The Notes shall be in such denominations and registered in such names as
you may request in writing at least three full business days before the Closing
Date.
(h) Additional Agreements. The Company is a party to a
letter agreement with you dated May 6, 1997 (as amended by letters dated June 2,
1997 and June 17, 1997, the "Engagement Letter"), a copy of which is attached
hereto as Exhibit C. The Engagement Letter contemplates an additional offering
of securities by the Company in which you will serve as underwriter, including
an initial public offering of common stock of the Company (the "IPO"). We each
hereby confirm the agreements contained in the Engagement Letter, and those
agreements shall be deemed incorporated in this Agreement.
5. Covenants.
(a) Covenants of the Company. The Company covenants with
you as follows:
(i) Notices. The Company immediately will notify
you, and confirm such notice in writing, (A) of any fact that would make
inaccurate any representation or warranty by the Company, and (B) of any change
in facts on which your obligation to perform under this Agreement is dependent.
(ii) Delivery of PPM. The Company will deliver to
you at its expense, from time to time, such number of copies of the PPM and
supplements and amendments thereto, if any, as you may reasonably request; it
being agreed that you will not provide the PPM to any third party after the
Closing Date, except as required by law.
(iii) Financial and Other Information.
(A) Reports. Until the completion of the
IPO, the Company will furnish to you (i) within one hundred twenty (120) days
after the end of each fiscal year of the Company, an audited balance sheet of
the Company as of the close of such fiscal year and audited statements of income
and retained earnings and cash flows of the Company for such fiscal year,
accompanied by an audit report prepared by the Company's independent certified
public accountants; (ii) within forty-five (45) days after the end of each
calendar quarter, an unaudited balance sheet of the Company as of the close of
such quarter, all in reasonable detail, and prepared substantially in accordance
with generally accepting accounting principles consistently applied (except for
the absence of footnotes and subject to year-end adjustments); (iii) within
twenty (20) days after the end of each calendar month, a status report
indicating the financial performance of the Company during such month and the
financial position of the Company as of the end of such month and (iv) such
other financial or Company data or
10
<PAGE>
information as a purchaser of the Notes may reasonably request. You agree to
provide such information to purchasers of the Notes upon their requests from
time to time.
(B) Press Releases. Until completion of the
IPO, the Company will furnish to you, concurrently with the release thereof, one
copy of every press release to be issued and every material news item and
article in respect of the Company or its affairs to be released by the Company;
and promptly, such additional documents and information with respect to the
Company and its affairs as you from time to time may reasonably request.
(C) Notice of Major Events. Until
completion of the IPO, the Company will notify you in writing promptly, but in
any event not later than two (2) business days after any officer of the Company
becomes aware of the occurrence of any of the following events:
(1) Material Litigation. The
Company shall have become a party to one or more suits, actions or proceedings
which, if adversely determined, could have a material adverse effect on the
business, properties, operations or condition, financial or otherwise, of the
Company taken as a whole;
(2) Defaults. The Company has
received notice of any default or failure to perform any covenant or failure to
maintain any representation or warranty by the Company under any agreement
relating to indebtedness for money borrowed to which the Company is a party;
(3) Material Adverse Change. Any
condition shall exist (i) which would cause the representations and warranties
set forth herein to not be true and correct in all material respects or (ii)
which has resulted in or which is likely, in the reasonable judgment of the
Company, to result in a material adverse change in the business, properties,
operations or condition, financial or otherwise, of the Company taken as a
whole.
(D) Other Information. Until completion of
the IPO, the Company will furnish to you any additional information of a public
nature concerning the Company or its business that you may reasonably request in
writing.
(iv) Application of Net Proceeds. The Company will
apply the net proceeds received from the sale of the Notes in all material
respects as set forth in the PPM under the caption "Use of Proceeds."
11
<PAGE>
(v) Solicitation of Purchasers; Right of First
Refusal.
(A) Except as hereinafter specified, the
Company will not, and will not permit any of its affiliates or agents to, (1)
engage in any offering or placement of any debt or equity security or long-term
debt other than in a commercial lending transaction, or pursuant to a stock
incentive plan, or in a transaction that would result in a change in control as
defined in the Incentive Plan for a period of three (3) years from the Closing
Date for which you are not acting as the underwriter or sales or placement
agent, unless you shall have exercised a right of first refusal to act as the
underwriter or sales agent for the proposed offering within fifteen (15) days of
a notice from the Company of the proposed terms of the offering, (2) solicit the
purchasers of Notes in connection with any other offering of any security other
than Conversion Shares for a period of three (3) years from the Closing Date,
unless you shall have been given a right of first refusal to conduct such
solicitation or you are notified and compensated therefor in an amount equal to
8.0% of the purchase price of any securities purchased by any such purchaser, or
(3) furnish the names of such purchasers or of other potential investors
obtained through you to any person other than as may be required in connection
with the normal and usual conduct by the Company of its business or required by
court order or law.
(B) The Company agrees and understands that
a violation of the provisions of Section 5.(a)(v)(A)(2) or (3) of this Agreement
will cause you irreparable harm and injury and that any money damages you
receive will not compensate you for any breach thereof. Accordingly, the Company
agrees that, in addition to monetary damages, you will be entitled to all such
equitable relief including, without limitation, injunctive relief, as a court of
equity or proper jurisdiction shall deem appropriate in the circumstances. Such
relief shall not be exclusive of any rights you may have at law or in equity.
All of the rights and remedies you have hereunder shall be cumulative and not
alternative. The provisions of this Section shall not limit your remedies upon
the breach by the Company of any other section of this Agreement.
(vi) Cooperation with Your Due Diligence. At all
times prior to the Closing Date, the Company will cooperate with you in such
investigation as you may make or cause to be made of all the business and
operations of the Company in connection with the sale of the Notes, and will
make available to you in connection therewith such information in its possession
as you may reasonably request, all of which you agree to safeguard as the
confidential information of the Company and to refrain from using for any
purpose adverse to the interests of the Company.
(vii) Transactions with Affiliates. The Company will
not, and will not permit any wholly-owned subsidiary to, sell or transfer any
assets or services to, or purchase or acquire any assets or services of, or
otherwise engage in any transaction with, any of their respective affiliates,
except in the ordinary course of business and upon fair and reasonable
12
<PAGE>
terms no less favorable than the Company or such wholly-owned subsidiary could
obtain or could become entitled to in an arm's-length transaction with a person
which was not any such affiliate.
(viii) Blue Sky Qualification. The Company, in good
faith and in cooperation with you, will use its best efforts to establish an
exemption of the Notes from registration or qualification for offering in sale
under the "blue sky" or securities laws in such jurisdictions as you from time
to time may reasonably designate.
(ix) Registration Rights. Following the Closing, the
Company will afford to each of the purchasers of the Notes the benefits of the
registration rights described in the Notes.
(xi) Power of Attorney. In its dealings with you and
the purchasers of the Notes, the Company will give effect to the powers of
attorney granted to you in each of the Note Purchase Agreements executed by the
purchasers of the Notes.
(b) Your Covenants. You covenant with the Company that you
have not provided and will not provide to the purchasers of Notes any written or
oral information regarding the business of the Company, including any
representations regarding the Company's financial condition or financial
prospects, other than such information as is contained in the PPM.
6. Conditions of Your Obligations. Your obligations hereunder
shall be subject to, in your discretion, the following terms and conditions:
(a) Closing Date Matters. On the Closing Date, (i) the
Company shall have complied in all material respects with all agreements and
satisfied all conditions on its part to be performed or satisfied on or prior to
the Closing Date and (ii) the representations and warranties of the Company set
forth in Section 2 of this Agreement shall be accurate in all material respects
as though expressly made at and as of the Closing Date. On the Closing Date, you
shall have received a certificate executed by each of the Chairman and the
President of the Company, dated as of the Closing Date, to such effect.
(b) Opinions of LeClair Ryan. At the Closing Date, you shall
receive the opinion of LeClair Ryan, a Professional Corporation, counsel for the
Company, in form and substance reasonably satisfactory to you, to the effect of
Exhibit D.
(c) Employment Agreements. On or prior to the Closing Date,
the Company shall have entered into employment and severance agreements, in form
and substance reasonably satisfactory to you, with each of Richard J. Freer,
Robert B. Harris, Gregory A. Buck, Thomas R. Reynolds and Chester N. Trazaski.
13
<PAGE>
(d) Corporate Documents. On or prior to the Closing Date,
the Company shall have amended its articles of incorporation and bylaws (i) to
increase its number of authorized shares of common stock to 10,000,000, and (ii)
as may otherwise be appropriate in order to carry out the intent of this
Agreement and the Engagement Letter, in form and substance reasonably
satisfactory to you and your counsel.
(e) Additional Information. On the Closing Date, you shall
have been furnished with all such documents, certificates and opinions as you
may reasonably request for the purpose of enabling you to adequately represent
the interests of the purchaser(s) of the Notes, and in order to evidence the
accuracy and completeness of, any of the representations, warranties or
statements of the Company, the performance of any of the covenants of the
Company, or the fulfillment of any of the conditions herein contained; and all
proceedings taken by the Company at or prior to the Closing Date in connection
with the authorization, issuance and sale of the Notes as contemplated in this
Agreement, shall be satisfactory in form and substance to you and to your
counsel. The Company will furnish you with such number of conformed copies of
such opinions, certificates, letters and documents as you shall reasonably
request. Any certificate signed by any officer, partner, or other official of
the Company and delivered to you or your counsel shall be deemed a
representation and warranty by the Company to you as to the statements made
therein.
If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by you on notice to the Company at any time at or
prior to the Closing Date, and such termination shall be without liability of
any party to any other party, except as provided in Sections 5 and 9.
Notwithstanding any such termination, the provisions of Section 7 shall remain
in effect.
7. Indemnification and Contribution.
(a) Indemnification by the Company. The Company will
indemnify and hold you harmless against any losses, claims, damages, or
liabilities, joint or several, to which you may become subject under the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any breach of any
representation, warranty or covenant of the Company herein contained or any
untrue statement or alleged untrue statement of a material fact contained in the
PPM, 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, and
will reimburse you for any legal or other expenses reasonably incurred by you in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue
14
<PAGE>
statement or alleged untrue statement or omission or alleged omission made in
the PPM, or any such amendment or supplement, (i) in reliance upon and in
conformity with written information furnished to the Company by you expressly
for use therein or (ii) was corrected in an amendment or supplement to the PPM
that the Company made available to you prior to the Closing Date and that you
failed to deliver to the person asserting a claim giving rise to such liability.
In addition to its other obligations under this Section 7.(a), the Company
agrees that, as an interim measure during the pendency of any such claim,
action, investigation, inquiry, or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 7.(a), they will reimburse you on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry, or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse you for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. Any such interim reimbursement payments
that are not made to you within thirty (30) days of a request for reimbursement
shall bear interest at the prime rate (or reference rate or other commercial
lending rate for borrowers of the highest credit standing) published from time
to time by The Wall Street Journal (the "Prime Rate") from the date of such
request. This indemnity agreement shall be in addition to any liabilities that
the Company may otherwise have. The Company will not, without your prior written
consent, settle or compromise or consent to the entry of any judgment in any
pending or threatened action or claim or related cause of action or portion of
such cause of action in respect of which indemnification may be sought hereunder
(whether or not you are a party to such action or claim), unless such
settlement, compromise, or consent includes an unconditional release of you from
all liability arising out of such action or claim (or related cause of action or
portion thereof).
The indemnity agreement in this Section 7.(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls you within the meaning of the 1933 Act or the 1934
Act to the same extent as such agreement applies to you.
(b) Indemnification by You. You will indemnify and hold
harmless the Company against any losses, claims, damages, or liabilities to
which the Company may become subject, under the 1933 Act, the 1934 Act, or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any breach of any warranty or
covenant by you herein contained or any untrue statement or alleged untrue
statement of a material fact contained in the PPM, 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 such untrue statement or alleged untrue
statement or omission or alleged omission was made in the PPM or any such
amendment or supplement thereto in reliance upon and in conformity with written
information
15
<PAGE>
furnished to the Company by you expressly for use therein, or any failure on
your part to deliver an amendment or supplement to the PPM that the Company made
available to you prior to the Closing Date and that corrected any statement or
omission in the PPM which forms the basis for a claim against the Company; and
will reimburse the Company for any legal or other expenses reasonably incurred
by the Company in connection with investigating or defending any such loss,
claim, damage, liability, or action. In addition to its other obligations under
this Section 7.(b), you agree that, as an interim measure during the pendency of
any such claim, action, investigation, inquiry, or other proceeding arising out
of or based upon any statement or omission, or any alleged statement or
omission, described in this Section 7.(b), they will reimburse the Company on a
monthly basis for all reasonable legal and other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry,
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of their obligation to reimburse the Company
for such expenses and the possibility that such payments might later been held
to have been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement shall be in addition to any
liabilities that you may otherwise have.
The indemnity agreement in this Section 7.(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer and director of the Company and each person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act to the same extent as
such agreement applies to the Company.
(c) Notices of Claims; Employment of Counsel. Any party that
proposes to assert the right to be indemnified under this Section 7 promptly
shall notify in writing each party against which a claim is to be made under
this Section 7 of the institution of such action but the omission so to notify
such indemnifying party of any such action shall not relieve it from any
liability it may have to any indemnified party except (i) to the extent that the
omission to notify shall have caused or increased the indemnifying party's
liability, and (ii) that the indemnifying party shall be relieved of its
indemnity obligation for expenses of the indemnified party incurred before the
indemnifying party is notified. Such indemnifying party or parties shall assume
the defense of such action, including the employment of counsel (satisfactory to
the indemnified party) and payment of fees and expenses. An indemnified party
shall have the right to employ its own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless the employment of such counsel shall have been authorized in writing by
the indemnifying party or parties in connection with the defense of such action
or the indemnifying party or parties shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties
reasonably shall have concluded that there may be defenses available to it or
them that are different from or additional to those available to such
indemnifying party or parties (in which case such indemnifying party or parties
shall not have
16
<PAGE>
the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses shall be borne
by such indemnifying party or parties. Anything in this paragraph to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any such claim or action effected without its written consent.
(d) Arbitration. It is agreed that any controversy arising
out of the operation of the interim reimbursement arrangements set forth in
Sections 7.(a) and 7.(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the indemnifying parties, shall be
settled by arbitration conducted pursuant to the Code of Arbitration Procedure
of the NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding arbitration
does not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to do
so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 7.(a) and 7.(b) hereof and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses that is created by the provisions of Sections 7.(a) and
7.(b).
(e) Contribution. If the indemnification provided for in
Section 7.(a) or 7.(b) is unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, or liabilities (or
actions in respect thereof) referred to therein, then the Company on the one
hand and you on the other shall contribute to the amount paid or payable 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 on the one hand and you on the other from the offering
of the Notes. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then the Company and you shall
contribute to such amount paid or payable in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and you on the other in connection with the statements
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 benefits received by the Company on the one hand
and you on the other shall be deemed to be in the same proportion as the total
net proceeds from the Offering (before deducting expenses) received by the
Company bear to the total placement fees received by you in each case as set
forth in the table on the cover page of the PPM. The relative fault shall be
determined by reference to, among other things, whether the untrue or allegedly
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or to information with respect to you and furnished by you respectively, in
writing specifically for inclusion in the PPM on the other and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission. The Company
17
<PAGE>
and you agree that it would not be just and equitable if contribution pursuant
to this Section 7.(e) were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations
referred to above in this Section 7.(e). The amount paid or payable as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 7.(e) shall be deemed to include any legal or
other expenses reasonably incurred by any such party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) with respect to the transactions giving rise to the right of
contribution provided in this Section 7.(e) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
obligations in this Section 7.(e) for you to contribute are several in
proportion to your respective underwriting obligations and not joint. For
purposes of this Section 7.(e), each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as you, and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as the
Company.
8. Representations and Agreements to Survive. Except as the context
otherwise requires, all representations, warranties, covenants and agreements
contained in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by you, or on your behalf, or by any
controlling person, or by or on behalf of the Company, and shall survive until
the fifth anniversary of the Offering Termination Date and the termination of
this Agreement pursuant to Section 9 hereof.
9. Termination of Agreement. You shall have the right to terminate
this Agreement at any time prior to the Closing Date (i) if any representation
or warranty of the Company hereunder shall be found to have been incorrect or
misleading in any material respect when made or the Company shall fail, refuse,
or be unable to perform any of its agreements hereunder or to fulfill any
condition of your obligations hereunder, or (ii) if there shall have been since
the respective dates as of which information is given in the PPM, a material
adverse change, or any development which could reasonably be expected to result
in a material adverse change, in or affecting the business, prospects,
management, properties, assets, results of operations, or condition (financial
or otherwise) of the Company, whether or not arising in the ordinary course of
business. You shall have no liability to the Company pursuant to this Agreement
or otherwise as a result of any such termination.
10. Notices.
(a) Method and Location of Notices. All communications
hereunder, except as herein otherwise specifically provided, shall be in writing
and shall be sent by overnight courier, hand-delivered or telecopied and
confirmed as follows:
18
<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 23210
Attention: J. Benjamin English, Esquire
Telecopier No.: (804) 783-2294
To You:
Anderson & Strudwick, Incorporated
1108 E. Main Street
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
(b) Time of Notices. Notice shall be deemed to be given by
you to the Company or by the Company to you when it is sent by overnight
courier, hand-delivered or telecopied as provided in Section 10.(a).
11. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon you, the Company and the controlling persons referred to
in Section 7, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have a legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained.
19
<PAGE>
12. Governing Law, Construction, and Time. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia. Specified time of day refers to United States Eastern Time. Time
shall be of the essence of this Agreement.
13. Description Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
14. Counterparts. 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.
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
COMMONWEALTH BIOTECHNOLOGIES, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
Confirmed and accepted as of
the date first above written:
ANDERSON & STRUDWICK, INCORPORATED
By:
-------------------------------
L. McCarthy Downs, III
Senior Vice President
20
<PAGE>
EXHIBIT A
Disclosure Schedule
None.
<PAGE>
EXHIBIT B
Form of Warrant
See attached.
PAGE>
EXHIBIT C
Engagement Letter
See attached.
<PAGE>
EXHIBIT D
Company's Legal Opinion
(i) The Company has been duly incorporated and is
validly existing in good standing as a corporation under the laws of the
Commonwealth of Virginia with all requisite corporate power and authority to
enter into this Agreement, to conduct its business and to own and operate its
properties, investments and assets as described in the PPM. To the actual
knowledge of such counsel, the Company is not in violation of any provision of
its articles of incorporation or bylaws, and is not in material default under or
in breach of any term or condition of any material agreement or instrument of
which such counsel has actual knowledge to which the Company is a party or by
which any of its properties, investments or assets is bound, except as disclosed
in the PPM.
(ii) To their actual knowledge, there is not pending
or threatened, any action, suit or proceeding before or by any federal, state
or local court or government authority or agency to which the Company is or may
be a party, or to which any of the investments, properties or assets of the
Company is or may be subject which is not disclosed in the PPM that, if
adversely determined, would materially affect the ability of the Company to
carry out and implement the business of the Company as described in the PPM.
(iii) The Notes conform in all material respects to
the descriptions thereof contained in the PPM.
(iv) The information in the PPM under the captions
"Risk Factors," "Description of the Notes," and "Description of Capital Stock,"
has been reviewed by such counsel and, insofar as they contain statements of law
or describe legal documents, such statements are correct in all material
respects.
(v) This Agreement has been duly and validly
authorized, executed and delivered by or on behalf of the Company and assuming
due execution and delivery by the other parties thereto constitutes a valid and
binding agreement of the Company enforceable in accordance with its terms,
except to the extent enforceability may be limited by (A) bankruptcy,
insolvency, moratorium, liquidation, reorganization, or similar laws affecting
creditors' rights generally, regardless of whether such enforceability is
considered in equity or at law, (B) general equity principles and (C)
limitations imposed by federal or state securities laws or the public policy
underlying such laws regarding the enforceability of indemnification or
contribution provisions.
<PAGE>
(vi) Upon issuance, each of the Notes will have been
duly and validly authorized, executed and delivered on behalf of the Company,
and will constitute a valid and binding obligation of the Company enforceable in
accordance with its terms, except to the extent enforceability may be limited by
(A) bankruptcy, insolvency, moratorium, liquidation, reorganization, or similar
laws affecting creditors' rights generally, regardless of whether such
enforceability is considered in equity or at law, and (B) general equity
principles.
(vii) The execution and delivery of this Agreement,
the incurrence of the obligations herein set forth, the compliance with the
terms and provisions hereof and the consummation of the transactions
contemplated herein and in the PPM do not and will not conflict with or
constitute a breach of, or default under, the articles of incorporation or
bylaws of the Company, or a material breach of or material default under the
terms, provisions or conditions of any other material instrument, agreement or
indenture of which such counsel has actual knowledge to which the Company is a
party or by which it is bound or by which its properties, assets, business or
investments are affected or any statute, order, rule or regulation applicable to
the Company or any of the investments, properties or assets of the Company of
any court or any federal, state or local governmental authority or agency having
jurisdiction over the Company or any of the investments, properties, assets or
business of the Company.
(viii) To their actual knowledge, other than with
respect to the securities or blue sky laws of any jurisdiction, no
authorization, approval or consent of any federal, state or local court or
governmental authority or agency is necessary in connection with the execution
and delivery by the Company of this Agreement, the consummation of the
transactions contemplated herein and in the PPM or the issuance and sale of the
Notes.
(ix) The offer and sale of the Notes in accordance
with the terms of this Agreement is exempt from the registration provisions of
the Securities Act of 1933 and the Virginia Securities Act. In rendering this
opinion, such counsel may rely upon your certificate regarding the conduct of
the offering.
(x) All corporate action required to be taken by the
Company as a condition to the sale of the Notes to the subscribers therefor has
been taken. Upon the conversion of the Notes in accordance with the provisions
of the Notes, the Conversion Shares will be validly issued, fully paid and
non-assessable. To the knowledge of such counsel, there are no preemptive or
other rights to subscribe for the Conversion Shares except such as have been
waived.
In rendering the opinions set forth above, LeClair Ryan may rely as to
matters of fact upon certificates furnished to them by the Company and its
officers. Copies of all certificates so relied upon shall be delivered to you
and your counsel.
EXHIBIT 10.2
COMMONWEALTH BIOTECHNOLOGIES, INC.
WARRANT AGREEMENT
June 25, 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 50,000 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $495,000 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
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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
June 25, 1998 and expiring on June 25, 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 delivered to the
2
<PAGE>
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 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. Registration Rights. Each Warrant holder shall be entitled to
the registration rights with respect to the Warrants and the Common Stock that
are described on Exhibit C.
5
<PAGE>
7. Representations and Warranties. You hereby acknowledge,
represent and warrant to, and agree with, the Company as follows:
(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.
8. 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>
9. 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.
10. 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.
11. 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.
12. Assignment; Replacement of Warrants. The Warrants may be sold,
transferred, assigned, pledged or hypothecated by you prior to June 25, 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.
13. Rights of Stockholders. Until exercised, the Warrants shall not
entitle the holders thereof to any of the rights of a stockholder of the
Company.
14. 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.
15. 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>
16. 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.
ANDERSON & STRUDWICK, INCORPORATED
By:
------------------------------
L. McCarthy Downs, III
Senior Vice President
8
<PAGE>
EXHIBIT A
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 ANDERSON & STRUDWICK, INCORPORATED or its
assigns as permitted in that certain Warrant Agreement (the "Warrant Agreement")
dated June 25, 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 June 25, 1998 until 5:00 p.m., Richmond, Virginia time on June 25,
2002, 50,000 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 JUNE 25, 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.
<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, 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:
------------
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS
EXHIBIT 10.3
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 84,000 shares of Common Stock for an exercise
price equal to $9.90 per share (the "Exercise Price") or $831,600 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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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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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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(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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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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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. _________
_______ 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, 84,000 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 10.4
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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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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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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<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.
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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.
________________________________________
Richard J. Freer
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<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: __________________________
EXHIBIT 10.5
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
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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.
- -----------------------------------------
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:
-------------
EXHIBIT 10.6
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
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.
________________________________
Gregory A. Buck
8
<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: _______________________
EXHIBIT 10.7
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
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
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: ______________
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 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 10.9
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 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 10.10
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 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 10.11
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
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Robert B. Harris, 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 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:
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Date: June 25, 1997
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Richard J. Freer, Ph.D.
Date: June 25, 1997
Address:
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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 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 10.14
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of June 25, 1997
between Commonwealth Biotechnologies, Inc., a Virginia corporation (the
"Company"), and 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:
--------------------------------
--------------------------------
--------------------------------
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EXHIBIT 10.15
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:
--------------------------------------
Title:
----------------------------------
Date: June 25, 1997
----------------------------------
Robert B. Harris, Ph.D.
Date: June 25, 1997
Address:
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EXHIBIT 11
STATEMENT REGARDING COMPUTATION PER SHARE EARNINGS 12/31/97
EARNINGS PER COMMON AND EQUIVALENT SHARE
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES (1) 571,123
NET EFFECT OF DILUTIVE STOCK OPTIONS
IN ACCORDANCE WITH TREASURY STOCK METHOD (1) (97,500)
------------
TOTAL SHARES OUTSTANDING 473,773
------------
PROFORMA NET INCOME AFTER PROFORMA INCOME TAXES $ 129,495
------------
PER SHARE AMOUNTS: NET INCOME $ 0.27
------------
(1) FOR ASSUMPTIONS USED IN THIS EXHIBIT PLEASE SEE NOTE 2 TO THE
FINANCIAL STATEMENTS.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of this Form SB-2 Registration Statement of our
auditors' report dated June 10, 1997 (except for Notes 2, 11, 12 and 13, as to
which the date is June 25, 1997), with respect to the financial statements of
Commonwealth Biotechnologies, Inc., for the years ended December 31, 1996 and
1995.
/s/ Goodman & Company L.L.P.
7301 Forest Avenue
Richmond, Virginia
July 18, 1997
EXHIBIT 99.1
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: ________________________________
Its: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S BALANCE SHEET AND STATEEMENT OF OPERATIONS FOR 1995 AND 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 260,357
<SECURITIES> 0
<RECEIVABLES> 116,437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 377,874
<PP&E> 378,384
<DEPRECIATION> 134,773
<TOTAL-ASSETS> 634,193
<CURRENT-LIABILITIES> 286,237
<BONDS> 0
0
0
<COMMON> 760
<OTHER-SE> 161,509
<TOTAL-LIABILITY-AND-EQUITY> 634,193
<SALES> 989,925
<TOTAL-REVENUES> 989,925
<CGS> 0
<TOTAL-COSTS> 800,972
<OTHER-EXPENSES> 9,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,102
<INCOME-PRETAX> 179,146
<INCOME-TAX> 0
<INCOME-CONTINUING> 179,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,146
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
