<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /x/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Chesapeake Biological Laboratories Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Merrill Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
CBL
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, Maryland 21117
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of Chesapeake
Biological Laboratories, Inc. will be held on Tuesday, October 29, 1996, at
10:00 AM at The Greater Baltimore Committee, Inc., Suite 1500, 111 South Calvert
Street, Baltimore, Maryland 21202, for the following purposes:
1. To elect six (6) directors to serve until the next annual meeting of
stockholders and until their successors shall have been duly elected
and shall qualify;
2. To approve the Chesapeake Biological Laboratories, Inc., Fourth
Incentive Stock Option Plan; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on September 12, 1996 will
be entitled to receive notice of and to vote at the meeting or any adjournment
thereof.
By Order of the Board of Directors
Thomas C. Mendelsohn
Secretary
Baltimore, Maryland
September 12, 1996
- ------------------------------------------------------------------------------
IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that if you
are unable to attend the Annual Meeting, your shares may be voted.
- ------------------------------------------------------------------------------
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
11412 Cronridge Drive
Owings Mills, MD 21117
<PAGE>
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Chesapeake Biological Laboratories, Inc. to be held on
Tuesday, October 29, 1996, at 10:00 AM at The Greater Baltimore Committee,
Inc., Suite 1500, 111 South Calvert Street, Baltimore, Maryland 21202.
At the Annual Meeting, you will be asked to consider and vote upon the
election of six directors of the Company, and to consider and approve the
Chesapeake Biological Laboratories, Inc., Fourth Incentive Stock Option Plan.
The enclosed Proxy Statement more fully describes the details of the business
to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors recommends
that you vote "FOR ALL NOMINEES" nominated for election as directors of the
Company, and that you vote "FOR" the approval of the Chesapeake Biological
Laboratories, Inc., Fourth Incentive Stock Option Plan.
After reading the Proxy Statement, please mark, date, sign and return, by
no later than October 22, 1996, the enclosed proxy card in the accompanying
reply envelope. If you decide to attend the Annual Meeting, please notify
the Secretary of the Company that you wish to vote in person and, if you
attend and vote in person, your proxy will not be voted. YOUR SHARES CANNOT
BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, OR ATTEND THE
ANNUAL MEETING IN PERSON.
A copy of the Chesapeake Biological Laboratories, Inc. 1996 Annual Report
is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
William P. Tew, Ph.D.
Chairman and Chief Executive Officer
Baltimore, Maryland
September 12, 1996
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
PROXY STATEMENT
GENERAL
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Chesapeake Biological Laboratories, Inc. ("CBL" or
the "Company") of proxies to be voted at the Annual Meeting of Stockholders
to be held on Tuesday, October 29,. 1996 at 10:00 AM at the offices of The
Greater Baltimore Committee, Inc., Suite 1500, 111 South Calvert Street,
Baltimore, Maryland 21202, or at any adjournment thereof. The purposes for
the meeting and the matters to be voted upon are set forth in the
accompanying Notice of Annual Meeting of Stockholders. This proxy statement
and the accompanying form of proxy are being sent or given to the
stockholders on or about September 25, 1996, together with an Annual Report
to Stockholders.
By completing and returning the accompanying proxy, the stockholder
authorizes William P. Tew and John C. Weiss, III, or either of them, to act
as proxies with full power of substitution. All returned proxies which are
properly signed will be voted as the stockholder directs. If no direction is
given, the executed proxies will be voted "FOR ALL NOMINEES" with respect to
Proposal No. 1 (Election of Directors) and "FOR" Proposal No. 2 (Approval of
Fourth Incentive Stock Option Plan). The affirmative vote of a plurality of
all votes cast at the meeting at which a quorum is present is necessary for
the election of a director, and the affirmative vote of a majority of the
votes cast at the meeting at which a quorum is present is necessary for the
approval of the Chesapeake Biological Laboratories, Inc., Fourth Incentive
Stock Option Plan (the "Plan"). For purposes of Proposal No. 1 (Election of
Directors), abstentions will not be counted as votes cast and will have no
effect on the result of the vote, although they will count toward the
presence of a quorum. For the purposes of the vote on Proposal No. 2
(Approval of Fourth Incentive Stock Option Plan), abstentions and broker
non-votes will not be counted as votes cast and will have no effect on the
result of the vote, although they will count toward the presence of a quorum.
A proxy may be revoked by a stockholder at any time before it is voted at
the annual meeting by giving notice of revocation to the Company in writing
or by attending and voting at the meeting.
The Company bears the cost of soliciting proxies. In addition to
soliciting proxies by use of the mails, officers and regular employees of the
Company may solicit proxies by telephone, telegraph or personal interview.
Hill and Knowlton has been retained to assist in soliciting proxies at a fee
of approximately $3,000, plus expenses. The Company may reimburse
custodians, nominees and other fiduciaries for reasonable out-of-pocket and
clerical expenses in forwarding proxy materials to their principals.
Only holders of record of the Class A Common Stock, one cent ($0.01) par
value (the "Class A Common Stock"), of the Company at the close of business
on September 12, 1996, are entitled to notice of and to vote at the meeting
or any adjournment thereof. On September 6, 1996 there were 3,986,188 shares
of the Class A Common Stock outstanding; each such share is entitled to one
vote on each of the matters to be presented for a vote at the meeting. The
holders of a majority of the outstanding shares of Class A Common Stock
present in person or by proxy will be entitled to vote, and will constitute a
quorum at the meeting.
1
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
At the Annual Meeting, six (6) directors (constituting the entire Board
of Directors of the Company) are to be elected. Unless otherwise specified,
the nominees named below will be elected to serve until the next annual
meeting of stockholders and until their successors shall have been duly
elected and shall qualify. Each nominee named below is now a director of the
Company. In the event any of these nominees shall be unable to serve as a
director, the Board of Directors may designate a replacement. All nominees
have consented to be named and have indicated their intent to serve if
elected. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve or that any vacancy on the board of
Directors will occur.
INFORMATION WITH RESPECT TO NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupation at present and
for the last five years, certain other directorships held by them, the year
in which each became a director of the Company, and their ages as of March
31, 1996:
WILLIAM P. TEW, PH.D., age 50, is a founder of the Company and has been a
Director and Chairman of the Board of Directors of the Company since
operations began in 1980. Dr. Tew served as Chief Technical Officer of the
Company from 1986 until 1988, and has since served as Chief Executive Officer
of the Company.
NARLIN B. BEATY, PH.D., age 46, who has been affiliated with the Company
since 1983, assumed the duties of Chief Technical Officer as of May 1996. He
served as President of the Company from 1991 until May 1996, and has been a
member of the Board of Directors of the Company since 1989. Dr. Beaty also
served as Acting President of the Company from 1989 to 1991, as Director of
Development for the Company from 1985 to 1988, and as Senior Research Chemist
for the Company from 1983 to 1984.
THOMAS C. MENDELSOHN, age 51, joined the Company in 1991, and serves as
Vice President of New Business Development, as Secretary, and, since August
1992, as a member of the Board of Directors of the Company. From 1966 to
1991, Mr. Mendelsohn served on the Board of Directors and was an officer of
Barre National, Inc., a pharmaceutical company located in Baltimore,
Maryland. For the last twelve of those years, he served as Senior Vice
President of Sales and Marketing.
JOHN C. WEISS, III, age 47, was appointed President of the Company in May
1996, after having been a Director of the Company since 1986. Mr. Weiss had
been the Managing General Partner of Anthem Capital, L.P. since May 1994.
Mr. Weiss was the Managing Director of the Maryland Venture Capital Trust
since its creation in 1990 until May 1994, and from March 1984 to June 1990,
Mr. Weiss was the Managing Director of the Baltimore Office of Arete
Ventures, Inc., a venture capital firm.
REGIS F. BURKE, age 48, became a Director of the Company in April 1995.
Mr. Burke is a Certified Public Accountant who started his own practice
in 1988. Mr. Burke specializes in corporate transaction consulting,
business planning, business
2
<PAGE>
valuation and litigation support services. Prior to
1988, Mr. Burke was a partner with Touche Ross & Co., an international
accounting and management consulting firm.
HARVEY L. MILLER, age 56, was appointed a Director of the Company in May
1996. Since 1980 Mr. Miller has been Chairman of G.S.I. Corporation, a
manufacturer of high-tech wire assemblies and since 1986 has been President
of DM Realty Corporation, a developer of commercial real estate sites.
BOARD COMMITTEES AND MEETINGS
The Board of Directors of the Company has not established a Nominating
Committee. The Board of Directors of the Company has, however, established a
Compensation Committee, a Stock Option Committee and an Audit Committee.
The Compensation Committee at March 31, 1996 was comprised of Messrs.
Weiss and Burke, who were also the Company's only two outside directors.
During the fiscal year ended March 31, 1996, the Compensation Committee, met
once. A report of the Compensation Committee is included as part of this
Proxy Statement. Upon his appointment as President of the Company in May
1996, Mr. Weiss resigned from the Compensation Committee and has since been
replaced on the Compensation Committee by Mr. Miller.
The Stock Option Committee has been established to administer the
Company's Option Plans, including determination as to the employees to whom
stock options are to be granted under the plans and the number of shares
subject to, and the exercise price of, such options. The Stock Option
Committee is currently comprised of all of the members of the Board of
Directors of the Company and held one meeting during the last fiscal year.
The Audit Committee, which includes the outside directors, met with the
Company's outside accountants, both before and after the year-end audit.
During the fiscal year ended March 31, 1996, the Board of Directors held
seven meetings. Each Director attended all of the meetings of the Board of
Directors held during the period in which he served as a Director.
COMPENSATION OF BOARD OF DIRECTORS
The members of the Company's Board of Directors who are also officers or
otherwise employees of the Company do not receive compensation for service as
Directors. The annual compensation for outside directors was reduced from
$15,600 to $9,600 as of July 1, 1995. Compensation for each of the Company's
two outside Directors during fiscal year 1996 was $11,100. Each outside
Director was granted stock options for 8,000 shares of the Class A Common
Stock of the Company, exercisable at $1.50 per share, the market price on
November 30, 1996, the date of the grant.
EXECUTIVE OFFICERS OF THE COMPANY
In addition to those individuals identified above as nominees for
election to the Board of Directors of the Company and who are also Executive
Officers of the Company (Drs. Tew and Beaty and Messrs. Weiss and
Mendelsohn), John T. Janssen has served as Treasurer and Chief Financial
Officer of the Company since joining the Company in January 1993. Mr.
Janssen, age 57, a Certified Public Accountant, has over thirty-five (35)
years of diversified financial management experience and, during the twelve
(12) years prior to
3
<PAGE>
joining the Company, was a member of the Board of
Directors and was Chief Financial Officer of both Barre National, Inc. of
Baltimore, Maryland and Genesee Brewing Co. of Rochester, New York.
Robert J. Mello, Ph.D. rejoined the Company in February 1994 and serves
as Vice President of Quality and Regulatory Affairs. Dr. Mello holds a
bachelor of science degree in biology and a Ph.D. degree in Biochemistry from
The Johns Hopkins University School of Medicine. Dr. Mello had been with the
Company for ten (10) years before joining Lederle Laboratories in 1992 as
Manager, Validation Services. At Lederle he established, coordinated and
monitored validation programs at 4 sites. During his ten (10) years with the
Company Dr. Mello served originally as Director of Research and Development
and then as Director, Quality Assurance and Regulatory Affairs, and as
Corporate Secretary.
Officers of the Company are elected annually and serve at the discretion
of the Board of Directors.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 15, 1996, with
respect to the number of shares owned by each person who is known by the
Company to own beneficially 5% or more of its Class A Common Stock, each
director of the Company and all directors and officers of the Company as a
group.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Name and Address of Shares Beneficially Percentage Beneficially
Beneficial Owner Owned(1) Owned
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
William P. Tew, Ph.D. 437,038 11.0%
11412 Cronridge Drive
Owings Mills, MD 21117
- ------------------------------------------------------------------------------------------------
Joanne W. Tew 265,250 6.7%
911 Arran Road
Baltimore, MD 21239
- ------------------------------------------------------------------------------------------------
Regis F. Burke 6,800 0.2%
6 Kincaid Court
Baldwin, MD 21013
- ------------------------------------------------------------------------------------------------
Narlin B. Beaty, Ph.D. 171,405 4.3%
10706 West Castle Place
Cockeysville, MD 21030
- ------------------------------------------------------------------------------------------------
Thomas C. Mendelsohn 75,615(2) 1.9%
2117 Burdock Road
Baltimore, MD 21209
- ------------------------------------------------------------------------------------------------
John C. Weiss, III 15,770(3) 0.4%
5907 Charlesmead Ave.
Baltimore, MD 21212
- ------------------------------------------------------------------------------------------------
All directors and officers as a 812,715(4) 20.4%
group (7 persons)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
1 Unless otherwise noted, all shares indicated are held with sole voting and
sole investment power.
2 Includes 25,000 shares purchasable under option exercisable within 60 days of
May 15, 1996.
3 Includes 6,250 shares purchasable under option exercisable within 60 days of
May 15, 1996
4 Includes 56,250 shares purchasable under option exercisable within 60 days of
May 15, 1996.
Subsequent to May 15, 1996 Harvey L. Miller, who is the beneficial owner of
65,000 shares of the Company's Class A Common Stock, was appointed as a
Director of the Company. After consideration of Mr. Miller's appointment as
a Director and the shares held by him, all officers and directors of the
Company, as a group, hold 872,715 shares (inclusive of 56,250 shares
purchasable pursuant to options exercisable within sixty (60) days of May 15,
1996), for an aggregate percentage of shares beneficially owned equal to
21.9%.
5
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
As members of the Compensation Committee of the Chesapeake Biological
Laboratories Board of Directors, it is our duty to exercise the power and
authority of the Board of Directors with respect to the compensation of the
Company's executive officers.
GENERAL COMPENSATION POLICY
Under the supervision of the Compensation Committee, the Company has
developed a compensation policy which is designed to attract and retain
qualified key executives critical to the Company's success and to provide
such executives with performance-based incentives tied to the growth and
profitability of the Company. It is our objective to have a portion of each
officer's compensation contingent upon the Company's performance as well as
upon the individual's contribution to the success of the Company as measured
by personal performance. Accordingly, each executive officer's compensation
package is fundamentally comprised of three elements: (i) base salary which
reflects individual performance and expertise; (ii) an incentive compensation
tied to the Company's profit, payable as an adjustment to base salary, and
(iii) long-term stock-based incentive awards through the Company's Employee
Incentive Stock Option Program which strengthen the mutuality of interests
between the executive officers and the Company's stockholders.
FACTORS
Because the Company is in the growth stage, the use of traditional
standards (such as profit levels and return on equity) are not appropriate as
the sole factor in evaluating the performance of its executive officers.
Several of the more important factors which were considered in establishing
the components of each executive officer's compensation package for the 1996
fiscal year are summarized below. Additional factors were also taken into
account, and we may at our discretion apply entirely different factors,
particularly different measures of performance, in setting executive
compensation for future fiscal years, but all compensation decisions will be
designed to further the general compensation policy indicated above.
BASE SALARY
Base compensation is established through negotiation between the Company
and the executive at the time the executive is first hired, and then
subsequently when the executive's base compensation is subject to review or
reconsideration. When establishing or reviewing base compensation levels for
each executive officer, the Compensation Committee considers numerous
factors, including the qualifications of the executive and the amount of
relevant individual experience the officer brings to the Company, strategic
goals for which the executive has responsibility, compensation levels at
companies at a comparable stage of development who compete with the Company
for business and executive talent and the incentives which are necessary to
attract and retain qualified management.
INCENTIVE COMPENSATION
In addition to the base salary, the Board of Directors has adopted an
Incentive Compensation Program whereby the annual base salary of specified
Company executives may be increased based on the profit of the Company
at the end of each fiscal year. The base salaries of 7 executives
were increased during the year to reflect the adjustments
6
<PAGE>
specified under the Incentive Compensation Program. No cash bonuses were
granted to the Company's executive officers in the fiscal year ended March
31, 1996.
LONG-TERM COMPENSATION
Each executive officer of the Company is eligible for stock option awards
under the Company's Employee Incentive Stock Option Program which is designed
to give the recipient a significant equity stake in the Company and thereby
closely align their interests with those of the Company's stockholders.
Factors considered include the executive's or key employee's position in the
Company, his or her performance and responsibilities, and the extent to which
he or she already holds an equity stake in the Company. During the year,
grants of 20,000 shares each were issued to: N. Beaty, J. Janssen, R. Mello,
and T. Mendelsohn, at an option price of $1.50 per share, the market price on
the date of the grant.
CEO COMPENSATION
The annual base salary review of William P. Tew, Ph.D., the Company's
Founder and Chief Executive Officer was done as of July 1, 1995, when it was set
at $162,908. Dr. Tew's total cash compensation (base plus incentive) for the
fiscal year ended March 31, 1996 was $177,916. In setting Dr. Tew's base salary
we determined that he had made significant achievements over the past several
years which were important to the Company's future growth and could assist the
Company in enhancing stockholder value.
We conclude our report with the acknowledgement that no member of the
Compensation Committee is a former or current officer or employee of the
Company.
Compensation Committee, March 31, 1996
John C. Weiss, III
Regis F. Burke
SUBSEQUENT TO MARCH 31, 1996
Mr. John C. Weiss, III, a member of the Board of Directors of the Company
since 1986, and also previously a member of the Compensation Committee and
Stock Option Committee of the Board of Directors, was appointed President of
the Company in May 1996, subsequent to the preparation of the above
Compensation Committee Report. Upon his appointment as President of the
Company, Mr. Weiss resigned from the Compensation Committee and Stock Option
Committee of the Board of Directors, and Mr. Harvey L. Miller has since been
appointed to each of those committees in his stead.
7
<PAGE>
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on March 31, 1991, along with the composite prices of
companies listed on the NASDAQ Biotech Index and AMEX Value Index.
Comparison of Five-Year Cumulative
Total Return Among CBL, AMEX Value Index,
NASDAQ Biotech Index
[graph]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
3/31/91 3/31/92 3/31/93 3/31/94 3/31/95 3/31/96
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chesapeake $100.00 $200.00 $260.00 $560.00 $380.00 $240.00
Bio. Labs. Inc.
AMEX Value $100.00 $110.00 $117.88 $123.36 $129.29 $159.07
Index
NASDAQ $100.00 $136.58 $97.50 $96.67 $71.93 $126.67
Biotech Index
- -----------------------------------------------------------------------------
</TABLE>
The Company believes the NASDAQ Biotech Index is a reasonable peer group
comparison.
8
<PAGE>
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four other highest paid executive
officers for services rendered in all capacities to the Company for each of
the last three fiscal years.
Table I
Summary Compensation
ANNUAL COMPENSATION
<TABLE>
<CAPTION>>
Name Other Long-Term
and Annual Compensation
Principal Salary Compensation Stock
Position Year ($) ($) Options (#)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William P. Tew, Ph.D. 1996 177,916 1,232 (1) --
Chairman and 1995 166,357 1,910 (1) --
CEO 1994 155,717 694 (1) --
N. Bennet Beaty, Ph.D. 1996 141,106 20,000
President 1995 131,938 -- --
1994 123,409 -- --
John T. Janssen 1996 130,546 20,000
Chief Financial 1995 105,625 -- --
Officer 1994 91,931 -- --
Thomas C. Mendelsohn 1996 131,983 20,000
Vice President New 1995 123,907 -- --
Business Development 1994 115,982 -- --
Robert J. Mello (2) 1996 123,959 20,000
Vice President 1995 110,853 -- --
Quality 1994 18,000 -- 50,000
</TABLE>
1 Represents amounts paid to the Company for life insurance premiums on behalf
of Dr. Tew.
2 Dr. Mello rejoined the Company in February 1994, as Vice President of Quality
and Regulatory Affairs.
All employees of the Company are eligible to receive stock option awards
through the Company's Employee Incentive Stock Option Program. The granting
of such stock option awards is made at the sole discretion of the Stock
Option Committee of the Board of Directors. It is the Company's philosophy
to encourage equity ownership of the Company by its employees, thereby
aligning their interest with those of the Company's stockholders. Factors
considered in granting stock options include the employee's position in the
Company, his or her performance and responsibilities, and the extent the
employee already holds an equity stake in the Company.
9
<PAGE>
At present the Company does not award cash bonuses, nor offer any other
long-term incentive compensation. The Company established a 401K-Profit
Sharing Plan for all full-time CBL employees with six months service with the
Company. Employees may contribute up to 10% of their salary to the plan, and
the Company may match the first 3% of salary the employee contributes to the
plan. The original entry date for the 401K plan for all eligible employees
was October 1, 1993. The Company suspended the matching of employee
contributions as of July 31, 1994.
The Company may, at its option, contribute a variable percent of eligible
employee salaries to the employee's account in the plan. For the years ended
March 31, 1996 and 1995 the Company chose not to contribute to this plan.
STOCK OPTIONS
Pursuant to the Company's Employee Stock Option Program, options with
respect to an aggregate of 114,500 shares of the Class A Common Stock of the
Company, with an exercise price of $1.50 per share, the market price of the
Class A Common Stock on the date of the grant, were granted to an aggregate
of 39 employees (including officers) during fiscal year 1996.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the 1996 fiscal year and unexercised options held as of the end of the
fiscal year by the Company's Chief Executive Officer and the Company's three
other most highly paid executive officers.
Table III
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Acquired Value Year-End (#) Year-End ($)1
on Exercise Realized Exercisable (E)/ Exercisable (E)/
Name (#) ($) Unexercisable (U) Unexercisable (U)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William P. Tew, Ph.D. -- -- $0 $0
N. Bennet Beaty, Ph.D. -- -- 20,000 (U) $0
John T. Janssen -- -- 25,000 (E) $0 (E)
45,000 (U) $0 (U)
Thomas C. Mendelsohn -- -- 25,000 (E) $0 (E)
45,000 (U) $0 (U)
</TABLE>
1 Assumes, for all unexercised in-the-money options, the difference between
fair market value and the exercise price. The fair market value on March 31,
1996 was $1.50/share.
10
<PAGE>
John C. Weiss, III, President and Director of the Company, exercised
after May 15, 1996 an option to purchase 6,250 shares of the Company's Class
A Common Stock at $.80 per share, pursuant to a 1986 Director's Agreement.
The Company has a right of first refusal to purchase the shares so acquired,
in the event Mr. Weiss wishes to sell the shares in the future.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
Effective as of July 1, 1995, the Company entered into employment
agreements with each of its executive officers. These agreements generally
provide for payment of a stated base salary, together with incentive
compensation in an amount to be determined by the Board of Directors or
Compensation Committee from time to time. The base salary established in the
employment agreements for each of the Company's executive officers is subject
to a pro rata downward adjustment in the event of a significant and sustained
downturn in the financial performance, condition or prospects of the Company.
In addition, the employment agreements provide for severance payments of
varying amounts to the executive officers of the Company in certain
circumstances. Drs. Tew and Beaty are entitled to receipt of severance
payments of approximately two times their aggregate annual compensation, in
the case of Dr. Tew, upon termination of his employment either following a
change of control of the Company or breach by the Company of the employment
agreement, or for good reason (generally defined as diminution of title or
responsibilities, termination of benefit plans, or Company relocation), and,
in the case of Dr. Beaty, upon termination of his employment either following
breach by the Company of his employment agreement or for good reason.
Messrs. Janssen and Mendelsohn, and Dr. Mello, are each entitled to receipt
of severance payments in an amount equal to approximately their annual
aggregate compensation upon termination of their employment following breach
by the Company of their respective employment agreements or for good reason.
The employment agreements are, in the case of Dr. Tew, for an initial term
of four years, with successive four-year renewal terms; in the case of Dr.
Beaty, for an initial term of four years, with successive three-year renewal
terms; and in the case of Messrs. Mendelsohn and Janssen, and Dr. Mello, for an
initial term of two years with successive two-year renewal terms.
The base salary established in the employment agreements for Dr. Tew and
Dr. Beaty is $162,900 and $129,200, respectively. The base salary applicable
to Messrs. Janssen and Mendelsohn, and Dr. Mello, is $121,300, $121,300, and
$118,700, respectively. The base salary applicable to any executive officer
may be increased through action of the Compensation Committee from time to
time. Pursuant to the employment agreements, each of the executive officers
is required to devote substantially all his business time to Company related
matters and has agreed not to solicit clients or customers of the Company for
a period following termination of employment.
In May 1996, the Company entered into an Employment Agreement with John
C. Weiss, III, the newly appointed President of the Company. The Employment
Agreement with Mr. Weiss is substantially similar to the Employment Agreement
entered into by the Company with the other executive officers. Mr. Weiss is
entitled to receive severance payments of approximately two times his
aggregate annual compensation upon termination of his employment following
breach by the Company of this Employment Agreement or for good reason,
and the Employment Agreement with Mr. Weiss is for an initial term of
two years, with successive three year renewal terms. The Corporation
has, however reserved
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a right of early termination upon the occurrence of certain events.
The base salary established in the Employment Agreement for Mr. Weiss is
$130,000, subject to increase through action of the Compensation Committee
from time to time.
COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file a
report of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, with respect to the
Company's fiscal years 1996 and 1995, all filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners were
complied with.
VOTE REQUIRED
The affirmative vote of the holders of a plurality of all outstanding
shares of the Class A Common Stock present in person or by proxy at a meeting
at which a quorum is present is required for the election of each nominee.
The presence in person or by proxy of stockholders entitled to cast a
majority of all the votes entitled to be cast at the meeting constitutes a
quorum.
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PROPOSAL 2:
APPROVAL OF FOURTH INCENTIVE STOCK OPTION PLAN
At the Annual Meeting, the holders of the Company's Class A Common Stock
will be asked to consider and vote upon a proposal to approve the Fourth
Incentive Stock Option Plan of Chesapeake Biological Laboratories, Inc. (the
"Plan"), as adopted by the Company's Board of Directors. The following is a
description of the material terms of the Plan and, as such, is qualified in
its entirety by the actual terms of the Plan, a copy of which is attached
hereto as Exhibit A.
The Plan was adopted by the Board of Directors in order to provide
incentives to, and to encourage stock ownership by, all employees of the
Company and any subsidiaries of the Company, in order that employees may
acquire or increase their proprietary interests in the success of the Company
and any subsidiary, and to provide to the Company an additional means of
attracting and retaining competent personnel.
The Board of Directors and stockholders of the Company had previously
adopted three prior incentive stock option plans; however, no options remain
available for issuance under those plans. The Plan now being submitted to
the stockholders for approval is substantially similar to those prior plans,
but reflects changes to the Internal Revenue Code subsequent to the adoption
of the prior plans and generally permits greater flexibility in the setting
of the various terms and provisions of options granted thereunder.
GENERAL.
The Plan authorizes the granting of "incentive stock options" (as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code")). Options may be granted under the Plan for a period of ten (10)
years unless the Plan is earlier terminated. The Plan may be wholly or
partially amended or otherwise modified, suspended or terminated at any time
by the Board of Directors, except that stockholder approval is required to
increase the number of shares that may be issued under the Plan or to modify
eligibility requirements for participants in the Plan. Proceeds received by
the Company from the sale of Class A Common Stock pursuant to the exercise of
options granted under the Plan will be used for general corporate purposes.
SECURITIES SUBJECT TO THE PLAN
Subject to approval by the holders of the Company's Class A Common Stock,
800,000 shares of the Company's Class A Common Stock may be issued upon
exercise of options granted under the Plan. If an option expires or is
canceled without having been fully exercised, the number of shares as to
which such option was not exercised prior to its expiration or cancellation
may again be optioned under the Plan. The Plan provides for appropriate
adjustments in the number and kind of shares subject to the Plan, and to
outstanding options, in the event of a stock split, stock dividend or other
similar changes in the Company's Class A Common Stock and in the event of a
merger, consolidation or certain other types of recapitalizations.
ADMINISTRATION OF THE PLAN
The Plan provides for administration by a Committee (the "Committee")
comprised of either the Board of Directors as a whole or a committee
of the Board consisting of at
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least two Directors, appointed from time to time (and removable) by the Board
of Directors. Options may be granted to any member of the Committee during
the term of such person's membership on the Committee, provided that that
member of the Committee is also an employee of the Company.
In addition to administering the Plan, the Committee is also authorized
to interpret the Plan and the Stock Option Agreements issued from time to
time pursuant thereto, to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith, and
to interpret, amend or revoke any such rules.
Members of the Committee will not receive compensation for their
services, but all expenses and liabilities that they incur in connection with
the administration of the Plan will be borne by the Company. The Board may
at any time suspend or terminate the Plan, subject to rights under options
previously granted.
ELIGIBILITY AND PARTICIPATION
Any executive or other employee of the Company or of any corporation
which is then a subsidiary of the Company (as such terms are defined in the
Plan) will be eligible to be granted options under the Plan. Directors of
the Company are eligible to be granted options if they are also employees.
More than one option may be granted to an individual.
The Committee is authorized to select from among the Company's employees
the individuals to whom options are to be granted, to determine the number of
shares to be subject to such options, and to establish the terms and
conditions of the options, consistent with the Plan.
TERMS OF OPTIONS
EXERCISABILITY OF OPTIONS. Options are exercisable at such times and in
such installments (which may be cumulative) as the Committee may provide in
the terms of each individual option. If the option does not otherwise
provide, options granted under the Plan generally become fully exercisable
over a period of approximately five (5) years. No portion of an option which
is unexercisable at termination of employment may thereafter become
exercisable, except to the extent which an option may provide that it becomes
fully exercisable upon termination of employment of the optionee for stated
reasons. Consistent with the terms of the Plan, the Committee may provide in
an option, as the Committee deems appropriate, terms and conditions which
provide for acceleration of the time at which an option or any portion
thereof may be exercised, including terms which provide for acceleration of
the exercisability of the Option upon the occurrence of certain events, such
as change in control or a change in substantial ownership of the Company. No
options may be issued under the Plan to the extent that the aggregate fair
market value of stock with respect to which such option (determined without
regard to the vesting limitations contained in Section 422(d) of the Code)
are exercisable for the first time by an optionee during any calendar year
(under the Plan and all other incentive stock options plans of the Company,
any subsidiary and any parent corporation) exceeds $100,000. For this
purpose, the fair market value of stock shall be determined as of the time
the option with respect to such stock is granted.
Options are exercisable in whole or in part by written notice to the
Company, specifying the number of shares being purchased and accompanied by
payment of the
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purchase price for such shares. The option price must be paid in cash or by
check or by delivery of shares of the Company's Class A Common Stock owned by
the optionee, or by any combination of cash or shares. The Committee may, as
a condition to the exercise of any option, require that the optionee deliver
such representations and documents as it deems necessary to effect compliance
with applicable federal and state securities laws and regulations. The
Committee may also take whatever additional action it deems appropriate to
effect such compliance.
Nothing in the Plan or in any Stock Option Agreement will confer upon any
optionee any right to continue in the employ of the Company, or any
subsidiary of the Company, or will interfere with or restrict in any way the
rights of the Company, or a subsidiary of the Company, to discharge any
optionee at any time for any reason whatsoever, with or without cause.
However, the Committee may include in options granted under the Plan terms
which provide for acceleration of the exercisability of options upon
termination of the employment of an optionee for stated reasons, such as a
breach by the Company of an employment agreement with such optionee.
PURCHASE PRICE OF SHARES SUBJECT TO OPTIONS. The price of the shares of
Class A Common Stock subject to each option shall be set by the Committee;
provided, however, that the price per share of an option shall be not less
than 100% of the fair market value of such shares on the date of such option,
except in the case of any option delivered under the Plan to any employee of
the Company who is also the holder of an interest in the Company greater than
10%, in which case not less than 110% of the fair market value of such shares
as the date of such option.
For purposes of the Plan, the fair market value of a share of the
Company's Class A Common Stock as of a given date will be: (i) the closing
price of a share of the Company's Class A Common Stock on the principal
exchange on which such shares are then trading, on the date of the option,
or, if shares are not traded on such date, then on the next preceding trading
date during which a sale occurred; or (ii) if such stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the last
sales price or, if the last sales price is unavailable or not readily
determinable, the mean between the closing representative bid and asked
prices for the stock, on the date of the grant of the option as reported by
NASDAQ or such successor quotation system (or if not available for that date,
the immediately preceding trading date); or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
stock on the date of the grant (or, if such prices are not available for that
date, the immediately preceding trading date); or (iv) if the Company's Class
A Common Stock is not publicly traded, the fair market value established by
the Committee, acting in good faith.
NON-ASSIGNABILITY. Options may be transferred only by will or by the
laws of descent and distribution. During a participant's lifetime, options
are exercisable only by the participant. No option or interest or right
therein or part thereof will be liable for the debts, contracts or
engagements of the optionee or the optionee's successors in interest, or will
be subject to disposition by transfer, alienation, pledge, encumbrance,
assignment or any other means, whether voluntary, involuntary or by operation
of law.
EXPIRATION OF OPTIONS. Options may not be exercised to any extent by
anyone after the first to occur of the following events: (i) the expiration
of ten (10) years (five (5) years in the case of an optionee who is also the
holder of an interest in the Company greater than ten percent (10%)) from the
date the option was granted (whether or not the Plan has expired or been
terminated); (ii) termination of employment of the optionee when for
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dishonesty or commission of a felony, or for the intentional commission of an
act which constitutes a breach of any obligation of the optionee to the
Company or any subsidiary and which has a material adverse effect on the
Company or any subsidiary, including without limitation misappropriation of
trade secrets or other confidential information; (iii) upon the occurrence of
any of the events described in (ii) above at any time following the
termination of employment of the optionee; (iv) the expiration of fourteen
(14) days (unless extended by the Committee in any particular option
agreement to not more than three (3) months) after the date of the employee's
termination of employment by reason of retirement or other termination (but
excluding termination of employment by reason of death or permanent
disability); (vi) the expiration of fourteen (14) days (unless extended by
the Committee in any particular option agreement to not more than one year)
after the date of the employee's termination of employment in the case of an
employee subject to a permanent disability (within the meaning of Section
22(e)(3) of the Code), unless the optionee dies within such period; or (vii)
the expiration of six (6) months (unless extended by the Committee in any
particular option to not more than one year) after the date of the employee's
death.
Subject to the foregoing, the Committee may provide, in the terms of each
individual option, when such option expires and becomes unexercisable.
ADJUSTMENTS UPON CHANGE IN CAPITALIZATION. If the outstanding shares of
Class A Common Stock subject to options are changed into or exchanged for a
different number or kind of shares of the Company, or other securities of the
Company, by reason of merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares,
the Committee will make an appropriate and equitable adjustment in the number
and kind of shares as to which all outstanding options, or portions thereof
then unexercised, will be exercisable, to the end that after such event the
optionee's proportionate interest will be maintained as before the occurrence
of such event.
NO RIGHTS AS A STOCKHOLDER. The holders of options will not be, nor have
any of the rights or privileges of, a stockholder of the Company as to shares
covered by an option until such shares are issued by the Company and
delivered to such holders.
CONFORMITY TO SECURITIES LAWS. The Plan is intended to conform to the
extent necessary with all provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934, any and all regulations and rules
promulgated by the United States Securities and Exchange Commission
thereunder. The Plan will be administered, and options will be granted and
may be exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan and options
granted thereunder shall be deemed amended to the extent necessary to conform
to such laws, rules and regulations.
FEDERAL INCOME TAX ASPECTS OF THE PLAN
The following discussion is a general summary of the material federal
income tax consequences to participants in the Plan. The discussion is based
on the Code, regulations thereunder, rulings and decisions now in effect, all
of which are subject to change. The summary does not discuss all aspects of
federal income taxation that may be relevant to a particular participant in
light of such participant's personal investment circumstances. Also, state
and local income taxes are not discussed and may vary from locality to
locality.
THE PLAN PROVIDES FOR THE ISSUANCE OF INCENTIVE STOCK OPTIONS UNDER
SECTION 422(A) OF THE CODE. Holders of incentive stock options will not be
considered to have received
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taxable income upon either the grant of the option or its exercise. Upon the
sale or other taxable disposition of the shares of the Class A Common Stock,
long-term capital gain will normally be recognized in the full amount of the
difference between the amount realized and the option exercise price if no
disposition of the shares has taken place within either (a) two years from
the date of grant of the incentive stock option or (b) one year from the date
of transfer of the shares of the Class A Common Stock to the optionee upon
exercise. If the shares of the Class A Common Stock are sold or otherwise
disposed of before the end of the one-year period or the two-year period, the
difference between the option exercise price and the fair market value of the
shares of the Class A Common Stock on the date of the option's exercise will
be taxed as ordinary income; the balance of the gain, if any, will be taxed
as capital gain. If the shares of the Class A Common Stock are disposed of
before the expiration of the one-year period or the two-year period and the
amount realized is less than the fair market value of the shares at the date
of exercise, the optionee's ordinary income is limited to the amount realized
less the option exercise price paid. The Company will be entitled to a tax
deduction in regard to an incentive stock option only to the extent the
optionee has ordinary income upon sale or other disposition of the shares of
the Class A Common Stock.
The difference between the fair market value of the shares of Class A
Common Stock on the exercise date and the exercise price of an incentive
stock option is generally deemed to be a "tax preference" under the
alternative minimum tax rules of the Code. Since the consequences of the
application of these provisions to individual optionees may vary depending on
their particular circumstances, optionees should consult their personal tax
advisors with respect to these provisions of the Code.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR approval of the Plan. The
affirmative vote of a majority of the votes cast at the Annual Meeting of
Stockholders is required to approve the adoption of the Plan.
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RELATIONSHIP WITH INDEPENDENT ACCOUNTANT
The Board of Directors has selected Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the Company for the
1997 fiscal year.
Arthur Andersen LLP has served as independent accountants for the Company
since February 21, 1991. A representative of Arthur Andersen LLP will be
present at the meeting, to have an opportunity to make a statement if he
desires to do so, and to respond to appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors knows of no other matters to be acted upon at the
meeting. However, other matters properly brought before the meeting by
stockholders will be considered.
STOCKHOLDER PROPOSALS FOR 1997
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company no later than April
9, 1997 and must otherwise comply with the rules of the Securities and
Exchange Commission for inclusion in the proxy materials relating to that
meeting.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS,
SCHEDULES AND A LIST OF EXHIBITS. REQUEST SHOULD BE SENT TO CHESAPEAKE
BIOLOGICAL LABORATORIES, INC., 6000 METRO DRIVE, BALTIMORE, MARYLAND 21215,
ATTENTION: INVESTOR RELATIONS.
By Order of the Board of Directors
Thomas C. Mendelsohn
Secretary
September 12, 1996
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EXHIBIT A
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
FOURTH INCENTIVE STOCK OPTION PLAN
1. DEFINITIONS. -- As used herein, the following terms shall have the
indicated meanings:
a. "Board" -- The Board of Directors of the Company.
b. "Code" -- The Internal Revenue Code of 1986, as amended.
c. "Committee" -- The Chesapeake Biological Laboratories, Inc. Fourth
Incentive Stock Option Committee, constituted from time to time as
provided in Section 3 hereinbelow.
d. "Common Stock" -- The Class A Common Stock of the Company with a par
value of One Cent ($0.01) per share.
e. "Company" -- Chesapeake Biological Laboratories, Inc.
f. "Optionee" -- Employees of the Company or of any Subsidiary who hold
outstanding Options granted under the Plan.
g. "Options" -- Fourth Incentive Stock Options granted under the Plan.
h. "Plan" -- The Chesapeake Biological Laboratories, Inc., Fourth
Incentive Stock Option Plan as set forth herein and as hereafter
amended.
i. "Subsidiary" -- Any "subsidiary corporation" (as that term is defined
in Section 425(f) of the Code) of the Company.
2. PURPOSE. -- The purpose of the Plan is to provide incentives to, and to
encourage stock ownership by, all employees of the Company and the
Subsidiaries in order that the employees may acquire or increase their
proprietary interests in the success of the Company and the Subsidiaries, and
to provide additional means of attracting and retaining competent personnel.
It is intended that the options issued pursuant to the Plan shall constitute
"incentive stock options" within the meaning of Section 422(a) of the Code.
3. ADMINISTRATION. -- The Plan shall be administered by the Committee.
The Committee shall consist of the full Board or such lesser number of the
Board (but not less than two (2) persons) as is designated by the Board. The
Board may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however created, shall be filled by
the Board. The Committee may be the same, and/or a committee acting, as the
Compensation Committee of the Board as established from time to time. The
Committee may select one (1) of its members as Chairman, and the Committee
shall hold meetings at such times and places as it, or if a Chairman is
appointed, when its Chairman, may determine. The presence at a meeting of a
majority of the Committee shall constitute a quorum, and acts of a majority
of the Committee present at a meeting at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. Members of the
Committee who otherwise are eligible to receive Options shall not be
disqualified from being granted such Options by reason of their membership on
the Committee or their participation in the approval by the Committee of the
grant of the
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Options to themselves. Subject to the provisions of the Plan and applicable
law, the Committee is authorized to interpret the Plan and to prescribe,
amend or rescind rules and regulations relating to the Plan and to any
Options granted thereunder, and to make any determinations necessary or
advisable for the administration of the Plan. The interpretation and
construction by the Committee of any provisions of the Plan shall be final
unless otherwise determined by the Board. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it.
4. ELIGIBILITY. -- All employees (including officers, whether or not
directors) of the Company or any Subsidiary shall be eligible to be granted
Options. An employee of the Company or any Subsidiary may hold more than one
Option at any time, but only on the terms and subject to the restrictions
herein set forth.
5. GRANT OF OPTIONS. -- The Committee shall from time to time determine
and designate those employees of the Company and the Subsidiaries to whom
Options are to be granted. The Committee shall grant the Options for such
amounts of shares subject to the terms of the Plan and such further terms and
restrictions as the Committee shall from time to time determine; provided,
however, that the aggregate fair market value (determined on the date on
which the Option is granted) of Common Stock with respect to which an option
can be exercised for the first time in any calendar year shall not exceed
$100,000.00.
6. STOCK SUBJECT TO THE PLAN. -- The stock subject to Options shall be
authorized but unissued shares of Common Stock. The aggregate number of
shares which may be issued under Options shall not exceed eight hundred
thousand (800,000) shares. If an Option shall terminate or expire
unexercised, in whole or in part, the shares so released from the Option may
be made subject to additional Options. The Company shall reserve and keep
available for issuance upon the exercise of Options that number of shares of
Common Stock as will satisfy the requirements of all Options which are
outstanding from time to time. In the event there is any change in the
Company's shares of Common Stock, by stock splits, reverse stock splits,
stock dividends, recapitalizations, or otherwise, the number of shares
available for Options and the number of shares subject to any Option shall be
appropriately adjusted by the Committee.
7. OPTION PRICE. -- Each Option shall state the option price, which
shall not be less than one hundred percent (100%) of the fair market value of
the shares of Common Stock on the date of the granting of the Option, except
that if the Option is granted to an Optionee who, at the time the Option is
granted, owns stock possessing more then ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any of the
Subsidiaries, the option price shall be at least one hundred ten percent
(110%) of the fair market value of the shares of Common Stock at the time the
Option is granted. In the event there is any change in the shares of Common
Stock by stock splits, reverse stock splits, stock dividends,
recapitalizations or otherwise, the option price of the shares subject to
Option shall be appropriately adjusted by the Committee. The fair market
value of the Common Stock for purposes of the Plan shall be (i) the closing
price of the shares of Common Stock on the principal exchange on which such
shares are then trading, on the date on which the Option is granted or, if
such shares are not traded on such date, then on the next preceding trading
date on which a sale occurred; or (ii) if such stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the last
sales price (or if the last sales price is not readily determinable, the mean
between the closing representative bid and
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asked prices) on the date on which the Option is granted or, if such price or
prices are not available for that date, the trading day immediately previous
to such date; or (iii) if such stock is not publicly-traded on an exchange
and is not quoted on NASDAQ or a successor quotation system, the mean between
the closing bid and asked prices for the stock, on the date on which the
Option is granted or, if such prices are not available for that date, the
trading day immediately previous to such date; or (iv) if the Company's
Common Stock is not publicly-traded, the fair market value thereof on the
date on which the Option is granted, as established by the Committee acting
in good faith.
8. TERM OF OPTIONS. -- Options shall be exercisable for a period as
determined by the Committee at the time of grant, but in any event for a
period of no more than ten (10) years from the date of grant; provided,
however, that any Option granted to an Optionee who at the time of the grant
owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any of the
Subsidiaries, the Option shall be exercisable for no more than five (5) years
from the date of grant. Except as otherwise determined by the Committee in
connection with the grant of any Option and provided for in the Option
Agreement evidencing such Option, during the first (1st) and second (2nd)
years an Option is outstanding, it may not be exercised with respect to any
shares covered thereby; on the second (2nd) anniversary of the grant of an
Option and during the following year, the Option may be exercised with
respect to twenty-five percent (25%) of the shares covered thereby; on the
third (3rd) anniversary and during the following year, it may be exercised
with respect to fifty percent (50%) of the shares covered thereby; on the
fourth (4th) anniversary and during the following eleven (11) months, it may
be exercised with respect to seventy-five percent (75%) of the shares covered
thereby; and during the twelfth (12th) month following the fourth (4th)
anniversary thereof and prior to the expiration of the Option, an Option may
be exercised with respect to one hundred percent (100%) of the shares covered
thereby, the foregoing percentage figures in all cases being cumulative as to
percentages of shares purchased upon the exercise of the Option in the
current period and all prior periods. Notwithstanding the foregoing, the
Committee may, in its discretion, provide for and include in any Option such
terms and conditions as the Committee shall determine from time to time, not
inconsistent with Section 422(a) of the Code, including but not limited to
provisions which provide for different time periods during which an Option is
to be exercisable, and/or for different numbers or percentages of covered
shares which any Option may be exercised during the different time periods;
and without limiting the generality of the foregoing, the Committee may
include provisions in any Option which provide for that Option becoming
exercisable in full upon the occurrence of certain events, including a change
in control or substantial ownership of the Company.
9. EXERCISE OF OPTIONS. -- To exercise an Option, the Optionee or his
successor shall give written notice of exercise to the Committee at the
principal office of the Company accompanied by payment of the option
price in full and a written statement that the shares are being purchased
for investment only and not with a view to distribution. However, the
statement will not be required in the event the offering of securities
under the Plan is
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registered with the Securities and Exchange Commission and applicable
State Securities commissions or regulatory agencies. Payment of the option
price shall be in cash or by check or by tender of certificates evidencing
shares of Common Stock, duly endorsed in blank, or any combination of the
foregoing modes of payment. Shares of Common Stock tendered as payment shall
be valued at their fair market value on the exercise date as determined by
the Committee, which determination shall be final and binding. To the extent
the fair market value of the tendered shares exceeds the option price, the
excess shares shall be reissued to the Optionee. If the Option is exercised
by the successor of the Optionee, following the death of the Optionee, proof
of the right of the successor to exercise the Option in form satisfactory to
the Committee shall be submitted. Options may be exercised, in accordance
with their terms, as to less than all of the shares optioned thereunder from
time to time, but not less than one hundred (100) shares may be purchased
upon the exercise of the Option at any one time unless the number purchased
is the total number of shares remaining subject to the Option at the time of
exercise. For as long as the offering of securities pursuant to the Plan has
not been registered with the Securities Exchange Commission and applicable
State securities commissions and regulatory agencies, certificates
representing shares of Common Stock issued upon the exercise of Options shall
bear the following legend and transfers of such shares shall be subject to
the restrictions set forth in the legend:
The offering of the shares represented by this certificate was not
registered under the Securities Act of 1933, as amended, and
applicable State securities laws, and the shares may be transferred by
the holder only if the transfer is registered under the provisions of
such act and laws or if, in the opinion of legal counsel to the
Company, the transfer may be made without violating such act and laws.
10. TERMINATION OF EMPLOYMENT EXCEPT BY REASON OF DEATH.
(a) All unexercised Options will terminate, be forfeit and lapse
immediately if (i) the Optionee's employment with the Company or any
Subsidiary is terminated because the Optionee is discharged for dishonesty or
commission of a felony, or upon the intentional commission of an act which
constitutes a breach of any obligation of the Optionee to the Company and
which has a material adverse effect or impact upon the Company or any
Subsidiary, including, but not limited to, his disclosure to unauthorized
persons of confidential information or trade secrets of the Company or any
Subsidiary; or (ii) the Optionee at any time following the termination of
Optionee's employment with the Company, either intentionally commits an act
which constitutes a breach of any obligation of the Optionee to the Company
and which has a material adverse effect or impact on the Company, or
discloses to unauthorized persons confidential information or trade secrets
of the Company or any Subsidiary.
(b) If the Optionee's employment with the Company or any Subsidiary
is terminated for any reason other then the Optionee's death or any reason
set forth in Section 10 (a) above, such Optionee shall have the right to
exercise all Options held by him, in accordance with their terms, at any time
within fourteen (14) days after the termination of employment or such longer
period (up to three (3) months or, in the case of disability of the Optionee
within the meaning of Section 22(e)(3) of the Code, up to one (1) year), as
may be provided for in the Option, but only to the extent that the Optionee's
right to exercise such Option has accrued at the time of, or upon or by
reason of, termination of employment and had not been previously exercised;
provided that no Option may be exercised under any circumstances after the
expiration of the term of the Option. Whether authorized leave or absence or
absence for military or governmental service shall constitute termination of
employment for the purposes of the Plan shall be determined by the Committee,
which determinations shall be final and conclusive unless overruled by the
Board.
11. DEATH OF OPTIONEE. -- If an Optionee shall die while in the employ of
the Company or a Subsidiary or the employee shall die prior to expiration of
the Option following termination of his employment with the Company and
Subsidiaries (and such Optionee shall not have been dismissed from his
employment or the option shall not have been terminated for any of the
reasons set forth in Section 10 (a) above), an Option may be exercised at any
time within six (6) months after the Optionee's death, or such longer period
(up to one (1) year) as may be set forth in the Option, by the executors or
administrators of the Optionee's estate or by any person or persons who shall
have acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that the Optionee's right to exercise
such Option had accrued at the time of his death and had not been previously
exercised; provided that nothing in this Section 11 shall permit an Option to
be exercised after the expiration of the term of the Option.
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<PAGE>
12. PROHIBITION ON TRANSFERS OF OPTIONS. -- No Option shall be
transferable by the Optionee other than by will or the laws of descent and
distribution, and each Option shall be exercisable during the Optionee's
lifetime only by the Optionee. No Option or interest or right therein, or
part thereof, will be liable for the debts, contracts or engagements of the
Optionee or the Optionee's successors in interest or will be subject to
disposition by transfer, alienation, pledge, encumbrance, assignment or any
other means, whether voluntary, involuntary or by operation of law.
13. MERGERS AND CONSOLIDATIONS. -- If the Company should be a participant
in any merger or consolidation, each outstanding Option shall pertain to and
apply to the securities to which a holder of the number of shares of Common
Stock subject to the Option would have been entitled in such transaction, and
the option exercise price shall be appropriately adjusted. In the event of
the dissolution of the Company, all unexercised outstanding Options shall
terminate and expire, as of the effective date of the dissolution. The grant
of an Option shall not afford the Optionee any right to object to or in any
way limit the right or power of the Company to make any adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
14. RIGHTS OF OPTIONEES. -- An Optionee or permitted transferee of an
Option shall have no rights as a stockholder with respect to any shares
covered by his Option until the date of the issuance of a stock certificate
to him for such shares. No adjustment shall be made for dividends (whether
ordinary or extraordinary, in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
a stock certificate is issued, except as provided in Section 13 hereof.
Nothing in this Plan or in any Option Agreement hereunder shall confer upon
any Optionee any right to continue in the employ of or in a business
relationship with the Company or any Subsidiary, or shall interfere with or
restrict in any way the rights of the Company and its subsidiaries, which are
hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without cause.
15. OPTION AGREEMENTS. -- The granting of an Option shall take place upon
the approval thereof by the Committee and shall be evidenced by a written
Option Agreement, stating the number of shares of Common Stock subject to the
Option evidenced thereby, such other terms and conditions as shall be
determined by the Committee, and in such form the Committee may from time to
time determine.
16. TERM OF PLAN. -- Options may be granted at any time within a period
of ten (10) years from the date the Plan is adopted by the Board or the date
the Plan was approved by the Stockholders of the Company, whichever is
earlier.
17. REGISTRATION OF THE OFFERING OF SECURITIES UNDER THE PLAN. -- If the
Company shall be advised by its legal counsel that the offering of Options
and of shares of the Common Stock upon the exercise of Options is required to
be registered under the Securities Act of 1933, as amended, or applicable
State's securities laws, the Company may effect registration, and delivery of
shares of the Common Stock by the Company may be deferred until such
registration or registrations are effective.
18. INDEMNIFICATION OF COMMITTEE. -- In addition to other rights of
indemnification they may have as members of the Board, the members of the
Committee shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any Option, and against all amounts paid by them in
settlement thereof (provided such
23
<PAGE>
settlement is approved by independent legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it is judged in such
action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his duties; provided that
within sixty (60) days after the institution of any such action, suit or
proceeding, the Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
19. AMENDMENT OF THE PLAN. -- From time to time, the Board may, insofar
as permitted by law, with respect to any shares at the time not subject to
options, suspend or discontinue the Plan; and the Board may, insofar as
permitted by law, revise or amend the Plan in any respect whatsoever, except
that, without approval of the Stockholders of the Company, no such revision
or amendment shall increase the number of shares subject to the Plan or
change the designation of the class of employees eligible to receive Options;
and except for any modification or amendment contemplated by the sentence
immediately following, no such amendment or modification shall, without the
consent of the Optionee, affect his or her rights under an Option previously
granted to the Optionee. Without limiting the generality of the foregoing,
the Board may, without further approval by the Stockholders and without
securing further consideration from the Optionee, amend this Plan or
condition or modify the grant of Options hereunder in response to securities,
tax or other laws, rules or regulations, or regulatory interpretations
thereof, applicable to the Plan. The Plan may not, without the approval of
the Stockholders of the Company, be amended in any manner that would cause
Options to fail to meet the requirements of "incentive stock options" as that
term is defined in Section 422(a) of the Code.
20. APPLICATION OF FUNDS. -- The proceeds received by the Company from
the sale of shares of Common Stock pursuant to the exercise of Options shall
be used for general corporate purposes.
21. NO OBLIGATION TO EXERCISE OPTION. -- The granting of an Option shall
impose no obligation upon the Optionee to exercise such option.
22. APPROVAL OF STOCKHOLDERS. -- The Plan shall be submitted for the
approval of the holders of the Company's Common Stock within twelve (12)
months after the initial approval of the Plan by the Board. Options may be
granted prior to such shareholder approval.
24
<PAGE>
CBL
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
PROXY
This proxy is solicited On Behalf of the Board of Directors of Chesapeake
Biological Laboratories, Inc. The undersigned hereby appoints William P. Tew
and John C. Weiss, III, or either of them acting singly, as Proxies, each
with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Class A Common
Stock of Chesapeake Biological Laboratories, Inc. held of record by the
undersigned as of the close of business on September 12, 1996 , at the Annual
Meeting of Stockholders to be held on October 29, 1996, or any adjournment
thereof.
The Board of Directors recommends a vote "FOR ALL NOMINEES" in Proposal No. 1
- -Election of Directors and "FOR" Proposal No. 2 -- Approval of Fourth
Incentive Stock Option Plan.
Please Mark Your Choice in Blue or Black Ink.
1. PROPOSAL No. 1 -- ELECTION OF DIRECTORS:
/ / FOR ALL NOMINEES listed below / / WITHHOLD AUTHORITY to vote
(except marked to the contrary below) for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
strike a line through the name of the nominee(s) in the list below.)
NOMINEES: W.P. Tew, J.C. Weiss, III, N.B. Beaty, T.C. Mendelsohn,
R.F. Burke, H.L. Miller
2. PROPOSAL No. 2 -- APPROVAL OF FOURTH INCENTIVE STOCK OPTION PLAN
/ / "FOR" Approval
/ / "AGAINST" Approval
/ / ABSTAIN
<PAGE>
3. In their discretion, the Proxies are hereby authorized to vote upon such
other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given with respect to any
matter or matters, this proxy will be voted "FOR ALL NOMINEES" in Proposal
No. 1 Election of Directors and "FOR APPROVAL" in Proposal No. 2 -- Approval
of Fourth Incentive Stock Option Plan. If with respect to Proposal No. 1 --
Election of Directors, you withhold authority to vote for any named
nominee(s) as a director, the shares represented by this proxy will be voted
for the election of the remaining nominees as directors.
Please sign exactly as name appears on the label above. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Date:___________________________, 1996
______________________________________
Signature
______________________________________
Signature if held jointly
Please Mark, Sign, Date and Return this Proxy Letter Promptly
Using the Enclosed Envelope.
