<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 52-1176514
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
</TABLE>
--------------------------
1111 SOUTH PACA STREET
BALTIMORE, MARYLAND 21230-2591
(410) 843-5000
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JOHN C. WEISS, III, PRESIDENT
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
1111 SOUTH PACA STREET
BALTIMORE, MARYLAND 21230-2591
(410) 843-5000
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
DOUGLAS M. FOX, ESQUIRE CHRISTOPHER D. OLANDER, ESQUIRE
Ballard Spahr Andrews & Ingersoll Shapiro and Olander
300 East Lombard Street, 19th Floor 36 South Charles Street, 20th Floor
Baltimore, Maryland 21202-3268 Baltimore, Maryland 21201-3147
(410) 528-5600 (410) 385-0202
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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 this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Class A Common Stock, par 1,150,000 $5.00 $5,750,000 $1,743
value $.01 per share shares
</TABLE>
(1) Includes 150,000 shares of Class A Common Stock that the Underwriter has the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K ITEMS OF FORM S-2 REQUIRED IN THE
PROSPECTUS
<TABLE>
<CAPTION>
ITEM
NUMBER LOCATION IN PROSPECTUS
- ----------- ---------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Cover of Registration Statement; Cross-Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Summary Financial Information;
Risk Factors
4. Use of Proceeds.................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................... Not Applicable
6. Dilution........................................... Not Applicable
7. Selling Security Holders........................... Not Applicable
8. Plan of Distribution............................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered......... Prospectus Summary; Capitalization, Description of
Capital Stock
10. Interests of Named Experts and Counsel............. Not Applicable
11. Information with Respect to the Registrant......... Inside Front and Outside Back Cover Pages of
Prospectus; Prospectus Summary; Risk Factors; Use
of Proceeds; Price Range of Common Stock; Dividend
Policy; Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Description of Capital Stock; Experts;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference.......................................... Incorporation of Certain Information by Reference
13. Disclosure of Commission's Position on
Indemnification of Securities Act Liabilities...... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 25, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
1,000,000 SHARES
[LOGO] CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
CLASS A COMMON STOCK
------------------
All of the 1,000,000 shares of Class A Common Stock, par value $.01 per
share (the "Common Stock" or "Class A Common Stock"), of Chesapeake Biological
Laboratories, Inc. ("CBL" or the "Company") offered hereby are being sold by the
Company. The Common Stock is currently listed on the American Stock Exchange
Emerging Company Marketplace (the "AMEX-EC") under the symbol "PHD.EC." On April
24, 1997, the last reported sale price of the Common Stock on the AMEX-EC was
$5.00 per share. The Company has applied for listing of the Common Stock for
quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market"). In the event that the Common Stock is approved for listing on the
Nasdaq National Market, the Company will then delist the Common Stock from the
AMEX-EC, and the Common Stock will be traded only on the Nasdaq National Market.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, which are estimated at
$300,000.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
150,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the Price to Public will total $ , the
Underwriting Discounts and Commissions will total $ , and the
Proceeds to Company will total $ . See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriter, subject to prior
sale, to withdrawal, cancellation or modification of the offer without notice,
to delivery and to acceptance by the Underwriter and to certain further
conditions. It is expected that delivery of the certificates representing such
shares will be made against payment therefor at the offices of Ferris, Baker
Watts, Incorporated, 1720 Eye Street, N.W., Washington, D.C. or through the
facilities of the Depository Trust Company, on or about , 1997.
------------------------
FERRIS, BAKER WATTS
Incorporated
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[Photo: man in white suit]
[Photo: high technology machinery]
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. THE OFFERING OF THE SHARES OF
COMMON STOCK PURSUANT TO THIS PROSPECTUS IS REFERRED TO HEREIN AS THE
"OFFERING." INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
THE HEADING "RISK FACTORS." THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "SPECIAL NOTE REGARDING FORWARD
LOOKING STATEMENTS."
------------------------
THE COMPANY
Chesapeake Biological Laboratories, Inc. ("CBL" or the "Company") is an
established provider of pharmaceutical and biopharmaceutical product development
and production services. The Company serves a broad range of customers, from
major international pharmaceutical firms to emerging biotechnology companies.
Since 1990, CBL has provided services on a contract basis to more than 80
pharmaceutical and biotechnology companies and has contributed to the
development and production of more than 100 therapeutic products. Customers
contract with the Company to produce development stage products for use in U.S.
Food and Drug Administration ("FDA") clinical trials and to produce and
manufacture FDA approved products for commercial sale.
The Company has particular experience and expertise in providing development
services and producing sterile, process-sensitive biopharmaceutical products.
The specialized development services provided by the Company include research
and development on sterile product formulations; test method development and
validation; process design and manufacturing validations; regulatory and
compliance consulting; preparation of clinical trial materials;
container-closure system design; and accelerated and ongoing stability studies.
In June 1996, the Company received ISO 9001 (International Organization for
Standardization) certification, demonstrating CBL's conformance with the
established international quality management standards for product design,
development, production, inspection and testing. CBL believes that ISO 9001
certification provides it with a competitive advantage for attracting domestic
and international customers.
The pharmaceutical and biotechnology industries have experienced substantial
growth in recent years. The biotechnology industry raised over $8 billion in
equity capital during the twelve months ended June 30, 1996, according to Ernst
& Young LLP. This influx in equity capital has provided pharmaceutical and
biotechnology companies with increased resources to fund expanded research and
development and to pursue additional FDA product approvals. The number of
products in FDA clinical trials increased approximately 38%, from 476 to 657 in
the twelve months ended June 30, 1995 and 1996, respectively, also according to
Ernst & Young LLP. As the pharmaceutical and biotechnology industries focus
their efforts on research and development of new products, certain development
and production functions are increasingly outsourced to companies such as CBL.
See "Business--Market Overview" and "--Factors Influencing Increased
Outsourcing."
CBL's objective is to accelerate its growth and profitability by expanding
its share of the market for product development and production services for the
pharmaceutical and biotechnology industries. The Company's primary strategy to
achieve this objective is to capitalize on outsourcing trends in those
industries by increasing its development and production capabilities. As part of
this strategy, in November 1996, the Company acquired a building in Baltimore,
Maryland, which is currently being improved and equipped as a laboratory and
pharmaceutical production facility. The Company anticipates that this additional
facility will be fully operational in early 1998, and will increase its
production capacity several-fold.
1
<PAGE>
CBL believes that its established experience and expertise, ISO 9001
certification, anticipated increase in capacity and ability to offer a broad
range of drug development and production services, will enable it to provide
competitive, cost-effective solutions to the pharmaceutical and
biopharmaceutical industries.
The Company was incorporated in Maryland in 1980. The Company's principal
executive offices are located at its new facility at 1111 South Paca Street,
Baltimore, Maryland 21230-2591. The Company's telephone number is (410)
843-5000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.... 1,000,000 shares
Common Stock to be Outstanding after
the Offering......................... 5,114,558 shares(1)
Use of Proceeds........................ For working capital and general corporate purposes,
and to finance further expansion. See "Use of
Proceeds."
American Stock Exchange Emerging
Company Marketplace Symbol........... "PHD.EC"
Nasdaq National Market Symbol.......... "CBLI" (Reserved pending listing approval)
</TABLE>
- ------------------------
(1) Excludes 571,900 shares of Common Stock issuable upon the exercise of
outstanding stock options as of March 31, 1997, of which options to purchase
105,000 shares were then exercisable. See Note 10 of the Notes to
Consolidated Financial Statements contained elsewhere in this Prospectus.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share amounts)
The following summary selected financial information should be read in
conjunction with, and is qualified in its entirety by, the more detailed
financial statements and notes thereto included elsewhere in this Prospectus.
The summary income statement data of the Company for the years ended March 31,
1993, 1994, 1995, 1996 and 1997 and the summary balance sheet data as of March
31, 1996 and 1997 have been derived from the Consolidated Financial Statements
of the Company which have been audited by Arthur Andersen LLP, independent
public accountants. This data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Operating revenue................................................ $ 3,453 $ 5,213 $ 6,982 $ 6,174 $ 8,654
Gross profit..................................................... 1,376 1,897 1,904 2,247 2,758
Income from operations........................................... 314 564 365 538 791
Provision (benefit) for income taxes............................. 13 8 (209) 206 296
Extraordinary item............................................... 41 1,055 -- -- --
Net income....................................................... $ 257 $ 1,563 $ 566 $ 309 $ 504
FULLY DILUTED PER SHARE DATA:
Net income before extraordinary item............................. $ 0.06 $ 0.13 $ 0.14 $ 0.08 $ 0.12
Extraordinary item............................................... 0.01 0.26 -- -- --
--------- --------- --------- --------- ---------
Net income....................................................... $ 0.07 $ 0.39 $ 0.14 $ 0.08 $ 0.12
Weighted average common and common equivalent shares
outstanding.................................................... 3,744 3,979 4,053 3,993 4,282
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
MARCH 31, AS ADJUSTED
1996 ACTUAL (1)
----------- --------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................................................... $ 241 $ 1,433 $ 5,808
Working capital............................................................ 2,161 2,794 7,169
Total assets............................................................... 4,320 13,444 17,819
Long-term debt and capital lease obligations............................... 105 8,554 8,554
Stockholders' equity....................................................... 3,384 4,043 8,418
</TABLE>
- ------------------------
(1) Adjusted to give effect to the Offering at an assumed price to the public of
$5.00 per share and after deducting estimated underwriting discounts,
offering expenses, and the applicable filing and registration fees.
3
<PAGE>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS OR IN DOCUMENTS INCORPORATED
HEREIN BY REFERENCE, INCLUDING WITHOUT LIMITATION STATEMENTS INCLUDING THE WORD
"BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS" OR WORDS OF SIMILAR IMPORT,
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS
CONDITIONS, CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, AND OTHER FACTORS
REFERENCED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION UNDER THE CAPTIONS
"RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," AND "BUSINESS." GIVEN THESE UNCERTAINTIES, PROSPECTIVE
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR
TO PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. THE FOLLOWING
RISK FACTORS, IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, SHOULD BE
CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
DEPENDENCE ON AND EFFECT OF GOVERNMENT REGULATION
The design, development, testing, manufacturing and marketing of
pharmaceutical and biopharmaceutical compounds, other biotechnology products,
diagnostic products and medical devices are subject to regulation by
governmental authorities, including the FDA and comparable regulatory
authorities in other countries. Because the Company derives a significant part
of its revenues from the production of pharmaceutical and biopharmaceutical
compounds for use in clinical trials required by the FDA, the Company's business
depends, in part, on strict government regulation of the drug development
process, especially in the United States. See "Business--Government
Regulations."
All facilities and production techniques used to produce products for
clinical use or sale in the United States must be operated in conformity with
the FDA's current Good Manufacturing Practices ("cGMP"), regulations and
guidelines governing the development and production of pharmaceutical products.
The Company's facilities are subject to periodic regulatory inspections to
ensure compliance with cGMP requirements. Failure on the part of the Company to
comply with applicable requirements could result in the termination of ongoing
research or the disqualification of data for submission to regulatory
authorities. A finding that the Company materially violated cGMP requirements
could result in additional regulatory sanctions and, in severe cases, could
result in a mandated closing of the Company's facilities which would materially
and adversely affect the Company. See "Business--Government Regulations."
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's largest customers account for a significant percentage of its
revenue. During the fiscal year ended March 31, 1997, revenues from the
Company's three largest customers accounted for approximately 49%, 8% and 6%,
respectively (or approximately 63% in the aggregate), of total revenues; during
the fiscal year ended March 31, 1996, revenues from the Company's three largest
customers accounted for approximately 41%, 14% and 8%, respectively (or
approximately 63% in the aggregate), of total revenues; and during the fiscal
year ended March 31, 1995, revenues from the Company's three largest customers
accounted for approximately 51%, 18% and 8%, respectively (or approximately 76%
in the aggregate), of total revenues. During each of these three fiscal years,
the largest customer was Allergan (Botox), Ltd. ("Allergan"), a subsidiary of
Allergan Pharmaceuticals, Inc. and the second and third largest customers
varied. The Company expects that revenues from Allergan will decrease
significantly for the Company's
4
<PAGE>
fiscal year ending March 31, 1998, and thereafter. The Company has been actively
seeking to increase and diversify its customer base and, during the fiscal year
ended March 31, 1997, revenues from customers other than Allergan increased to
$4,380,000, or by 20% and 27%, respectively, when compared to the fiscal years
ended March 31, 1996 and 1995. There can be no assurance that the Company's
business will not continue to be dependent on certain customers or that annual
results will not be dependent upon the performance of a few large projects for
specific customers.
Substantially all of the revenues derived by the Company from Allergan have
been for the manufacture and sale to Allergan of Vitrax-TM- ("Vitrax"), a
hyaluronic acid ("HA") based product developed by the Company for use in
opthalmic surgery and now owned by Allergan. The contract manufacturing
agreement for the manufacture of Vitrax for Allergan expired in February 1997.
In April 1997, however, the agreement was extended until December 1997, and
modified to provide for the production of Vitrax using active ingredient
supplied by Allergan, rather than active ingredient manufactured by CBL. In
addition, Allergan has been relieved of any obligation to purchase Vitrax
exclusively from the Company. To date, Allergan has not supplied active
ingredient of a quality sufficient to enable CBL to manufacture Vitrax under the
extended agreement and no assurances can be given that Allergan will be able to
do so in a timely manner, if at all. In addition, Allergan is seeking FDA
approval for the manufacture of Vitrax at its own facility in Ireland.
Due to the nature of the drug development process, significant customers in
any one period may not continue to be significant customers in subsequent
periods. Some customers may not seek the services of the Company for periods of
a year or more during which they concentrate on testing and clinical trials
related to the product produced by CBL. The Company continually seeks to
increase its customer base and obtain new business from existing customers,
whether or not significant contracts have expired or are expected to expire in
the near future. The loss of business from a significant customer or the failure
on the part of the Company to replace customers whose projects have been
completed (either with new projects for such customers or new customers) could
have a material adverse affect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Customers."
RISKS ASSOCIATED WITH THE COMPANY'S EXPANSION
In order to meet anticipated accelerating industry demand for its services,
the Company recently acquired a building that, when improved and equipped as
laboratory and pharmaceutical production facility (expected to occur in early
1998), will significantly expand the Company's pharmaceutical production
capabilities. The proceeds of the Offering may be used for additional expansion
by the Company of its facilities and operations. The Company is actively seeking
opportunities and customer contracts to utilize its anticipated expanded
capabilities. However, as of the date hereof, the Company has not entered into
definitive agreements to do so. If the Company is unable to enter into a
sufficient number of such agreements on favorable terms, the expenses relating
to this growth (including the costs associated with the acquisition of the new
building and the renovation, rehabilitation and equipping of the new building)
may strain operational, human and financial resources before significant revenue
is derived from this expansion. Failure to manage this expansion effectively
could have a material adverse effect on the Company's business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON CERTAIN INDUSTRIES
The Company's revenues are highly dependent on research and development
expenditures, production-related compliance testing expenditures and contract
manufacturing expenditures by the pharmaceutical, biotechnology and medical
device industries. The Company has benefited from the growing tendency of
pharmaceutical and biotechnology companies to engage independent organizations
to conduct development and testing projects and to produce the pharmaceuticals
necessary for such projects and for commercial sale. See "Business--Market
Overview" and "--Factors Influencing Increased Outsourcing." The Company's
business could be materially and adversely affected by a general economic
decline in these
5
<PAGE>
industries or by a reduction in the outsourcing of research, development,
testing and manufacturing or production activities.
RESTRICTIONS ON CAPITAL EXPENDITURES
The Company financed the acquisition and subsequent renovation,
rehabilitation and equipping of its new facility, located in the Carroll/Camden
Industrial Park, partially with the proceeds of certain tax-exempt economic
development revenue bonds issued by the Maryland Industrial Development
Financing Authority ("MIDFA"). The terms of the financing and the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
corresponding regulations, limit to $10,000,000 the aggregate amount of capital
expenditures attributable to facilities occupied by the Company within the City
of Baltimore during the six-year period from November 1993 to November 1999.
Because the Seton Business Park, at which the Company leases space, is also
located in the City of Baltimore, capital expenditures made at that facility
also accrue against this capital expenditure limit. The Code and corresponding
regulations are highly technical and provide that capital expenditures made by
others at the Seton Business Park facility, including the landlord and other
facility tenants, over which the Company has no control, may accrue against the
Company's capital expenditure limit. Accordingly, the Company may exceed the
capital expenditure limit inadvertently.
The Company believes that it is currently in compliance with this limitation
(as of April 1, 1997, the Company estimates that upon completion of the
renovation, rehabilitation and equipping of the new facility, it will have made
capital expenditures of approximately $9,240,000 in the City of Baltimore during
this period). The Company pays interest on the outstanding balance at a
tax-exempt rate which, at April 24, 1997, was equal to 5.105% per annum. In the
event that capital expenditures by the Company, or attributable to facilities
occupied by the Company, in the City of Baltimore during the relevant period
exceed $10,000,000 in the aggregate, an event of default would occur under the
bond financing arrangements, the bonds would automatically lose their tax-exempt
status, and the interest rate payable by the Company on the then outstanding
balance would increase approximately 4%, based on current market conditions, and
the Company would be required to refinance the existing indebtedness through
other means.
The ability of the Company to obtain alternate financing through a taxable
bond issue is subject to a number of factors which are beyond the control of the
Company and neither MIDFA nor First Union National Bank of North Carolina (the
issuer of the letter of credit which enhances the credit of the economic
development revenue bonds now outstanding) are required to cooperate in any such
refinancing. In addition, upon the occurrence of a default resulting from the
Company exceeding the capital expenditure limitation, MIDFA and the letter of
credit issuer would be entitled to exercise their respective rights and remedies
against the Company under the bonds and the security for the Company's
obligations under the letter of credit. Accordingly, there can be no assurance
that any such alternate financing arrangements will be available to the Company
on commercially favorable terms, if at all. The continued application of the
capital expenditure limitation may prevent the Company from undertaking
potentially profitable projects which would otherwise be in the best interest of
the Company until November 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
RISKS ASSOCIATED WITH NEW FACILITY CONSTRUCTION AND VALIDATION
Renovation, rehabilitation and equipping of the Company's new facility are
continuing and involve various and substantial risks, including risks created by
such factors as governmental regulation, changes in economic conditions (such as
fluctuations in interest rates and construction costs), acts of God, changes in
budgeted costs and the performance of various contractors and subcontractors
retained to renovate, construct and equip the new facility. Although the Company
has retained The Whiting-Turner Contracting Company, believed by the Company to
be among the more highly regarded construction and engineering firms in the
mid-Atlantic region, as construction manager for the new facility, no assurances
can be given
6
<PAGE>
that the facility will be renovated, constructed and equipped in a timely or in
a good and workmanlike manner, if at all. In addition, because the
pharmaceutical production suites which comprise portions of the new facility
must be operated in conformity with cGMP regulations, once the improvement and
equipping of the facility are completed, validation of the facility in
accordance with cGMP regulations is required prior to the commencement of
revenue-producing pharmaceutical production activities. Although the Company has
substantial experience in validating facilities in accordance with cGMP
regulations, no assurances can be given that, once the renovation,
rehabilitation and equipping of the facility is completed, validation will occur
in a timely manner, if at all. Substantial delay in the renovation,
rehabilitation, equipping or validation of the new facility could have a
material adverse effect on the Company's business.
The Company intends to enter into equipment leasing transactions with
respect to approximately $3,000,000 in pharmaceutical manufacturing equipment to
be installed at the new facility, in part to comply with the capital expenditure
limit imposed by the tax-exempt financing. To date, the Company has received
commitment letters from several equipment leasing companies affiliated with
major financial institutions to supply equipment for the new facility through
operating lease arrangements. Based on these commitment letters, the Company
expects to be able to enter into leasing arrangements on terms acceptable to the
Company for the required equipment; however, the commitments are subject to
conditions typical of like transactions, and no assurances can be given that the
Company will be successful in entering into final leases for the requisite
equipment. CBL's inability to enter into final leases for the requisite
equipment could have a material adverse effect on the Company's business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
VARIATION IN QUARTERLY OPERATING RESULTS
The Company's quarterly results have been, and are expected to continue to
be, subject to fluctuations which are not the result of seasonal or cyclical
factors. Quarterly results can fluctuate as a result of a number of factors,
including the commencement, completion or cancellation of large contracts,
timing of invoices for ongoing contracts, the timing of expenses for new
facilities or equipment and changes in the mix of services provided by the
Company. The Company believes that quarterly comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, fluctuations in quarterly results
could affect the market price of the Common Stock in a manner unrelated to the
longer term operating performance of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly
Results."
COMPETITION
The Company competes primarily with several pharmaceutical product
development organizations and contract manufacturers of biopharmaceutical
products, as well as the in-house research, development, quality control and
other support service departments of pharmaceutical and biotechnology companies
and with university research laboratories, some of which have substantially
greater resources than the Company. Competitive factors in the contract
development and manufacturing industry include reliability, turn-around time,
reputation for innovative and quality science, capacity to perform numerous
required services, financial strength and price. Although the Company believes
that it compares well against its direct competitors and its current and
potential customers' in-house capabilities on these factors, there can be no
assurance that the Company will be successful in the future in obtaining
customer contracts on commercially favorable terms, if at all. Increased
competition may lead to increased price and other forms of competition that may
adversely affect the Company. See "Business--Competition."
ENVIRONMENTAL RISKS AND HAZARDOUS MATERIALS
The production, manufacturing and research and development processes of the
Company involve the controlled use of hazardous materials. The Company is
subject to laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. In the event
of contamination or injury from hazardous materials, the Company could be held
liable for any damages that result and any such liability could exceed its
resources. In addition, there can be no assurance that the
7
<PAGE>
Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future. The Company may incur
significant costs in maintaining environmental programs acceptable to the
regulatory authorities. There can be no assurance that these programs will not
require significant ongoing capital expenditures in excess of the planned
levels, which could have a material adverse effect on the Company's results of
operations. See "Business--Government Regulations."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock, like that of the common
stock of many other similarly situated companies, may be highly volatile.
Factors such as developments in the Company's relationships with its customers,
changes in FDA and other governmental regulations, sales of large numbers of
shares of Common Stock by existing Company stockholders and general market
conditions may have a significant effect on the market price of the Common
Stock. In addition, U.S. stock markets have experienced extreme price and volume
fluctuations in the past. This volatility has significantly affected the market
prices of securities of many pharmaceutical and biotechnology companies, and
companies such as the Company in related industries, for reasons frequently
unrelated or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of the Common Stock.
DEPENDENCE ON KEY PERSONNEL
The Company's success is heavily dependent on the performance of its
executive officers. In addition, the Company's proposed plan of development will
require an increase in scientific, management and marketing personnel and the
development of additional expertise by existing employees and management.
Although the Company has been able to hire and retain qualified personnel, there
can be no assurance that it will be successful in obtaining or recruiting such
personnel in sufficient numbers to successfully implement its growth strategy.
See "Business--Employees" and "Management."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use the net proceeds of the Offering to finance
further expansion, for working capital and for general corporate purposes. Most
of the proceeds will be available for projects which are not yet identified and
the management of the Company will have broad discretion with respect to the
application of such proceeds. Pending such uses, the Company intends to invest
the net proceeds of the Offering in United States government securities,
securities issued or guaranteed by United States government agencies, deposits
in commercial banks which have a net worth of at least $100,000,000, or
commercial paper rated P-1 or better by Moody's Investor Service, Inc. or rated
comparably by another nationally recognized rating service or bureau. See "Use
of Proceeds."
POTENTIAL LIABILITY AND RISKS OF OPERATIONS
The Company develops, formulates, tests and produces pharmaceutical products
for others intended for use by the public. Such activities could expose the
Company to risk of liability for personal injury or death to persons using such
products, notwithstanding that the Company does not commercially market or sell
products of its own directly to the public. In contracts for the production of
FDA approved products for commercial sale, the Company seeks to reduce its
potential liability through measures such as contractual indemnification
provisions with customers (the scope of which may vary from customer to customer
and the performance of which are not assured) and by the insurance maintained by
the Company and its customers. Development services are typically undertaken
pursuant to purchase orders which do not include specific indemnification or
insurance provisions. Although the Company believes that this practice is
typical in the industry, CBL could be materially adversely affected if it were
required to pay damages or incur defense costs in connection with a claim for
which no indemnity agreement is applicable; that is outside the scope of any
applicable indemnity agreement; if the indemnity, although applicable, is not
performed in accordance with its terms; or if the Company's liability exceeds
the amount of applicable
8
<PAGE>
insurance or indemnity. The Company currently maintains product liability
insurance limited to $1,000,000 with respect to these risks. See
"Business--Potential Liability and Insurance."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock by the Company in this offering (at an assumed offering price of
$5.00 per share) are estimated to be approximately $4,375,000 ($5,068,750 if the
Underwriter's over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and offering expenses payable by the
Company.
The Company intends to use all of the net proceeds of the Offering for
working capital and other general corporate purposes to fund the Company's
continued growth, including investment to expand and improve CBL's existing
capabilities. Pending such uses, the proceeds from this Offering will be
invested in United States government securities, securities issued or guaranteed
by United States government agencies, deposits in commercial banks which have a
net worth of at least $100,000,000, or commercial paper rated P-1 or better by
Moody's Investor Service, Inc. or rated comparably by another nationally
recognized rating service or bureau. See "Risk Factors--Broad Discretion as to
Use of Proceeds" and "--Restrictions on Capital Expenditures."
PRICE RANGE OF COMMON STOCK
The Common Stock is currently listed on the American Stock Exchange Emerging
Company Marketplace under the symbol "PHD.EC." The Company has applied for
listing of the Common Stock for quotation on the Nasdaq National Market. In the
event that the Common Stock is approved for listing on the Nasdaq National
Market, the Company will then delist the Common Stock from the AMEX-EC, and the
Common Stock will be traded only on the Nasdaq National Market. The following
table sets forth for the periods indicated the high and low sales prices of the
Common Stock as reported by the AMEX-EC:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1996:
First Quarter.......................................................... $ 2.75 $ 1.875
Second Quarter......................................................... 2.00 1.50
Third Quarter.......................................................... 1.875 1.1875
Fourth Quarter......................................................... 1.75 1.375
FISCAL YEAR 1997:
First Quarter.......................................................... 2.50 1.25
Second Quarter......................................................... 3.50 1.375
Third Quarter.......................................................... 3.625 2.6875
Fourth Quarter......................................................... 6.75 3.00
FISCAL YEAR 1998:
First Quarter (through April 24, 1997)................................. 5.25 4.625
</TABLE>
On April 24, 1997, the last reported sale price of the Common Stock as
reported by the AMEX-EC was $5.00. As of April 10, 1997, there were
approximately 248 holders of record of the Common Stock, and the Company
believes that it had approximately 800 beneficial owners of the Company's Common
Stock.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and intends to retain its earnings, if any, for future growth and, therefore,
does not anticipate paying any cash dividends for the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
9
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1997 the actual capitalization
of the Company and the capitalization of the Company on an adjusted basis to
give effect to the sale by the Company of 1,000,000 shares of Class A Common
Stock in the Offering (at an assumed price to the public of $5.00 per share),
and the application of the estimated net proceeds therefrom, as if such
transactions had occurred as of March 31, 1997. This table should be read in
conjunction with the Company's financial statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------- -------------
Long-term debt and capital lease obligations, net of current portion............... $ 8,553,985 $ 8,553,985
-------------
Stockholders' equity:
Class A Common Stock, par value, $.01 per share 8,000,000 shares authorized,
4,114,558 shares issued and outstanding, actual; 5,114,558 shares issued and
outstanding, as adjusted (1)................................................... 41,145 51,145
Class B (non-voting) Common Stock, par value $0.01 per share, 2,000,000 shares
authorized, none issued........................................................ -- --
Additional paid-in capital......................................................... 3,980,836 8,345,836
-------------
Retained earnings.................................................................. 20,745 20,745
-------------
Total stockholders' equity......................................................... 4,042,726 8,417,726
------------- -------------
Total capitalization............................................................... $ 12,596,711 $ 16,971,711
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Excludes 571,900 shares of Class A Common Stock issuable upon the exercise
of certain stock options outstanding on March 31, 1997, of which options to
purchase 105,000 shares were then exercisable. See Note 10 to Consolidated
Financial Statements.
10
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following table contains certain selected consolidated financial data of
the Company and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The selected
financial data for the fiscal years ended and as of March 31, 1993, 1994, 1995,
1996 and 1997 have been derived from the Consolidated Financial Statements of
the Company which have been audited by Arthur Andersen LLP, independent public
accountants. This data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Operating revenue........................................................ $ 3,453 $ 5,213 $ 6,982 $ 6,174 $ 8,654
Cost of revenue.......................................................... 2,077 3,316 5,078 3,927 5,896
--------- --------- --------- --------- ---------
Gross profit........................................................... 1,376 1,897 1,904 2,247 2,758
Operating expenses:
General and administrative............................................. 862 1,052 1,230 1,210 1,431
Selling................................................................ 200 281 309 455 413
Research and development............................................... -- -- -- 44 123
--------- --------- --------- --------- ---------
Total operating expenses........................................... 1,062 1,333 1,539 1,709 1,967
--------- --------- --------- --------- ---------
Income from operations............................................. 314 564 365 538 791
Interest income (expense)................................................ (85) (48) (8) (23) 9
--------- --------- --------- --------- ---------
Income before provision (benefit) for income taxes and extraordinary
item................................................................... 229 516 357 515 800
Provision (benefit) for income taxes..................................... 13 8 (209) 206 296
--------- --------- --------- --------- ---------
Income before extraordinary item......................................... 216 508 566 309 504
Extraordinary item....................................................... 41 1,055 -- -- --
--------- --------- --------- --------- ---------
Net income............................................................... $ 257 $ 1,563 $ 566 $ 309 $ 504
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FULLY DILUTED PER SHARE DATA:
Net income before extraordinary item..................................... $ 0.06 $ 0.13 $ 0.14 $ 0.08 $ 0.12
Extraordinary item....................................................... 0.01 0.26 -- -- --
--------- --------- --------- --------- ---------
Net income............................................................... $ 0.07 $ 0.39 $ 0.14 $ 0.08 $ 0.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common and common equivalent shares outstanding......... 3,744 3,979 4,053 3,993 4,282
BALANCE SHEET DATA: (AT PERIOD END)
Cash..................................................................... $ 280 $ 634 $ 161 $ 241 $ 1,433
Working capital.......................................................... 1,139 1,493 1,822 2,161 2,794
Total assets............................................................. 2,264 3,587 4,138 4,320 13,444
Long-term debt and capital lease obligations............................. 827 83 154 105 8,554
Stockholders' equity..................................................... 875 2,493 3,075 3,384 4,043
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's operating revenues are derived from two principal
sources--product development services and commercial production. The Company
provides its customers in the pharmaceutical and biotechnology industries with
product development services, including producing experimental products for use
in clinical trials, and manufacturing services for FDA approved commercial drugs
and medical devices on a contractual basis. The Company has particular
experience and expertise in the development and production of sterile,
process-sensitive biopharmaceutical products.
The Company's scientific and engineering staff performs multiple product
development functions for CBL's customers, including research and development of
sterile product formulations; test method development and validation; process
design and manufacturing validations; regulatory and compliance consulting;
preparation of clinical trial materials; container-closure system design; and
accelerated and on-going product stability studies. Following final development
of a stable formulation of the pharmaceutical product and validation of the
manufacturing process, the Company's production expertise is typically called
upon to produce the development stage product for use in clinical trials or
investigations, as part of the FDA approval process.
CBL produces and manufactures FDA approved products for commercial sale by
others. These products have included Vitrax, an HA-based product developed by
the Company for use in human ophthalmic surgery, and manufactured by the Company
for Allergan, and Equron-TM- ("Equron"), an HA-based product for use in
treatment of equine joint disease, manufactured by the Company for Solvay
Veterinary, Inc., a subsidiary of Solvay & Cie, S.A., a major European chemical
company.
The contract manufacturing agreement for the manufacture of Vitrax for
Allergan expired in February 1997. In April 1997, however, the agreement was
extended until December 1997, and modified to provide for the production of
Vitrax using active ingredient supplied by Allergan, rather than active
ingredient manufactured by CBL. In addition, Allergan is seeking FDA approval
for the manufacture of Vitrax at its own facility in Ireland, and the extension
relieves Allergan of any obligation to purchase Vitrax exclusively from the
Company. See "Risk Factors--Dependence on Certain Customers."
Many of CBL's customers, particularly smaller biotechnology companies, have
raised funds primarily to support drug discovery and research with the
expectation of outsourcing the process development work associated with
commercial development, and, in some cases, the initial and long-term production
responsibilities. The Company believes that this, as well as other factors
affecting both small and large pharmaceutical and biotechnology companies, will
continue to increase demand for its services. See "Business--Factors Influencing
Increased Outsourcing."
Formerly called "GAC Equine Diagnostics, Inc.," the Company was incorporated
in Maryland in March 1980. Initially, the Company provided diagnostic services
and laboratory analysis in connection with the treatment of equine joint
disease. In 1982, the Company changed its name to "Chesapeake Biological
Laboratories, Inc.," and from 1983 until 1990, the Company focused its efforts
on developing and commercially exploiting a specialized process for
manufacturing HA and HA-based products for veterinary and human healthcare
applications. In 1991, the Company sold its Vitrax HA technology to Allergan.
The Company's business has expanded since 1990 into pharmaceutical product
development and production services for firms ranging from major pharmaceutical
firms to emerging biotechnology companies, with an emphasis on sterile,
process-sensitive biopharmaceutical products.
CBL's management has recognized several favorable trends in the markets
affecting its business and has instituted structural and operational changes to
position the Company for growth. In 1995, CBL initiated the process for ISO 9001
certification which it received in 1996. Also, in the fall of 1996, the Company
acquired a new building which, when renovated, will augment its current cGMP
production
12
<PAGE>
capability at its Seton Business Park facility. This phase of the Company's
expansion is expected to be completed in early 1998.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Revenues................................................................................. 100.0% 100.0% 100.0%
Cost of revenues......................................................................... 72.7 63.6 68.1
--------- --------- ---------
Gross margin............................................................................. 27.3 36.4 31.9
Operating expenses....................................................................... 22.1 27.7 22.8
Interest income (expense)................................................................ (0.1) (0.4) 0.1
--------- --------- ---------
Income before provision (benefit) for income taxes....................................... 5.1 8.3 9.2
Provision (benefit for) income taxes..................................................... (3.0) 3.3 3.4
--------- --------- ---------
Net income............................................................................... 8.1% 5.0% 5.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1996.
Revenues for the fiscal year ended March 31, 1997, were $8.7 million
compared to $6.2 million for fiscal year 1996, an increase of approximately 40%.
The strong growth in revenues for fiscal year 1997 was due to a 72% increase in
sales of Vitrax to Allergan and an 81% increase in sales of product development
services to new and existing customers. This increase in total revenues occurred
notwithstanding an 85% decrease in sales of Equron to Solvay, which sold the
related business unit to a third party. Sales of Vitrax to Allergan represented
47% of the Company's total revenue for fiscal year 1997 compared to 39% in
fiscal year 1996.
Gross margin for fiscal year 1997 was 32% of revenues compared to 36% in
fiscal year 1996. The decrease is due to expenses related to the expansion and
relocation of the Company's executive and administrative offices and warehouse
to the new facility and the increased proportion of sales of Vitrax, which
historically has a low margin.
Operating expenses for fiscal year 1997 were $2.0 million compared to $1.7
million in fiscal year 1996, an increase of approximately 15%. This increase is
due to a full year of research and development expenses in fiscal 1997 for a
program that had been initiated in the second half of fiscal year 1996, the
salary of an additional executive officer hired in the first quarter of fiscal
1997 and an increase in professional fees. As a percentage of revenues,
operating expenses decreased to 23% in fiscal year 1997 from 28% in fiscal year
1996.
Interest income was $9,000 in fiscal year 1997 compared to a $23,000
interest expense in fiscal year 1996. This improvement is due primarily to the
increase in cash flow from operations which eliminated the Company's need to
utilize available bank credit.
The effective tax rate in fiscal year 1997 was 37% compared to 40% in fiscal
year 1996 due to the utilization of tax credit carryforwards. During fiscal year
1997, the Company's net operating loss carryforward was fully utilized due to
earnings during the last five years.
Net income for fiscal year 1997 was $504,000 compared to $309,000 for fiscal
year 1996, an increase of approximately 63%. Earnings per share were $0.12 for
fiscal year 1997 compared to $0.08 in fiscal year 1996.
13
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1995
Revenues for the year ended March 31, 1996 were $6.2 million compared to
$7.0 million in fiscal year 1995, a decrease of approximately 12%. The decrease
is attributable to a 30% decline in sales of Vitrax to Allergan, which
instituted an inventory reduction program. In addition, a change in contract
terms reduced development services revenue from Cel-Sci Corporation by 60%.
However, this reduction in revenues was partially offset by sales of product
development services to new and existing customers, which increased by 43%.
Vitrax sales to Allergan and development services performed for Cel-Sci
Corporation represented 39% and 8% of total revenues in fiscal year 1996
compared to 49% and 17% in fiscal year 1995, respectively.
Gross margin for fiscal year 1996 was 36% of revenues compared to 27% in
fiscal year 1995. The increase is attributable to improved manufacturing
operations and a lower percentage of total sales of Vitrax, which historically
has a low margin. In addition, the change in contract terms related to Cel-Sci
Corporation had a positive effect on gross margin.
Operating expenses for fiscal year 1996 were $1.7 million compared to $1.5
million in fiscal year 1995, an increase of approximately 11%. The increase is
due to commissions paid to field representatives and the full year cost of a
manager hired in the fourth quarter of fiscal year 1995. In addition, the
Company initiated a new research and development program for one of its
customers' products in the third quarter of fiscal year 1996 resulting in
expenses of $44,000 in fiscal year 1996.
Interest expense was $23,000 in fiscal year 1996 compared to $8,000 in
fiscal year 1995. This increase is due to a longer duration of borrowing under
the Company's line of credit.
The effective tax rate for fiscal year 1996 was 40%. In fiscal year 1995,
the Company recorded a deferred tax asset, net of a deferred tax liability, of
$210,000 to recognize the future benefit of its remaining net operating loss
carryforwards for income tax purposes. Net operating loss carryforwards in an
aggregate amount of $2.8 million as of March 31, 1992, were reduced to $121,000
as of March 31, 1996, due to profitable operations.
Net income and earnings per share for fiscal year 1996 were $309,000 and
$0.08 compared to $566,000 and $0.14 for fiscal year 1995, respectively.
QUARTERLY RESULTS
The Company's quarterly results have been, and are expected to continue to
be, subject to fluctuations which are not the result of seasonal or cyclical
factors. Quarterly results can fluctuate as a result of a number of factors,
including the volume and identity of products supplied to customers during the
period, the volume and timing of development services performed by the Company,
and the relationship of product shipments to development services performed in
the period. Since a large percentage of the Company's costs are relatively
fixed, timing of shipments and services can have a significant positive or
negative impact on quarterly results. The Company believes that comparisons of
its quarterly financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance. See "Risk Factors--Variation
in Quarterly Operating Results."
14
<PAGE>
The following sets forth certain unaudited quarterly statement of income
data for the quarters indicated below:
STATEMENT OF INCOME FOR THE QUARTER ENDING:
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1996 1996 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue........................ $ 1,860 $ 1,677 $ 1,182 $ 1,454 $ 1,564 $ 3,015 $ 1,837
Cost of revenue.......................... 1,243 1,088 641 955 1,207 1,921 1,091
Operating expenses....................... 467 410 430 403 492 511 461
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income......................... 150 179 111 96 (135) 583 285
(Taxes) and interest income (expense).... (66) (80) (42) (38) 48 (219) (109)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share.............. $ 84 $ 99 $ 69 $ 58 $ (87) $ 364 $ 176
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share.............. $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ (0.02) $ 0.09 $ 0.04
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
Operating revenue........................ $ 2,237
Cost of revenue.......................... 1,677
Operating expenses....................... 501
-----------
Operating income......................... 59
(Taxes) and interest income (expense).... (9)
-----------
Net income (loss) per share.............. $ 50
-----------
-----------
Net income (loss) per share.............. $ 0.01
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In November 1996, the Company acquired an approximately 70,000 square foot
building, located on 3.48 acres of land in the Carroll/Camden Industrial Park,
Baltimore, Maryland, to renovate and equip as a pharmaceutical manufacturing
facility and to house its administrative offices and warehouse operations. The
Company paid $2,150,000 in cash and 125,000 shares of Common Stock for the land
and existing improvements.
The cash portion of the purchase price for the land and existing building,
as well as the cost of the proposed renovations and a portion of the
pharmaceutical manufacturing equipment and related pharmaceutical facility
build-out, was financed through the issuance of $7,000,000 variable rate
economic development demand revenue bonds by MIDFA, and a $1,500,000 loan from
the Mayor and City Council of Baltimore, acting through the Department of
Housing and Community Development c/o the City of Baltimore Development
Corporation. The Company also intends to equip the new facility with
approximately $2,900,000 of additional pharmaceutical manufacturing equipment to
be financed through equipment operating leases. To date, the Company has
received commitments from several equipment leasing companies, including leasing
companies affiliated with NationsBank, American Equipment Leasing (a unit of
European American Bank), BancBoston and CoreStates, to supply over $4,000,000 in
equipment through operating lease arrangements, for installation and validation
at the new facility. Although actual leases have not been executed, the Company
anticipates that it will be able to establish equipment lease financing
arrangements as necessary to enable the Company to complete the pharmaceutical
build-out of the newly acquired facility. See "Risk Factors--Risks Associated
with New Facility Construction and Validation."
The bonds issued by MIDFA are variable rate, tax-exempt, and are issued
pursuant to a Trust Indenture. The maximum annual interest rate provided for
under the terms of the bonds is 12% and, subject to certain conditions, the
bonds may be converted to fixed-rate at the option of the Company. However, the
Company has entered into an interest rate swap agreement and, as a result, the
interest rate applicable to the bonds through November 2003 is capped at 5.51%.
As of April 24, 1997, the interest rate was 5.105%. The principal portion of the
bonds, and the accrued interest thereon, is payable from monies drawn under a
direct pay Letter of Credit issued by First Union National Bank of North
Carolina (the "Bank"), in amounts up to $7,280,000. Interest is payable
quarterly, commencing February 1, 1997, and principal portions of the bonds are
subject to redemption, in part, commencing November 1998, in
15
<PAGE>
accordance with a schedule set forth in the bonds. The maturity date is August
1, 2018. The letter of credit is issued pursuant to a Letter of Credit and
Reimbursement Agreement containing various terms and covenants applicable to the
Company. The Company's obligations in respect of the letter of credit and the
bonds are secured by substantially all of the assets of the Company, including
the new facility. MIDFA has also provided the Bank with additional credit
support for the letter of credit, in the form of a $1,800,000 deficiency
guaranty.
The loan from the City of Baltimore Development Corporation accrues interest
at a fixed rate of 6 1/2% per annum, amortized over twenty (20) years with
monthly interest only payments due through November 1998, and monthly payments
of principal and interest due thereafter through November 2016.
On March 31, 1997, the Company had cash and cash equivalents of $1,783,000
compared to $241,000 at March 31, 1996. Cash available to fund operations was
$1,433,000 at March 31, 1997, and $350,000 was held as collateral for the
Company's obligations under the Letter of Credit and Reimbursement Agreement
with the Bank. In addition, and not included in the above sums, $4,683,000 was
held by the bond trustee under the Trust Indenture at March 31, 1997, for the
renovation and equipping of the new facility. The Company also maintains a
$750,000 Revolving Line of Credit with First Union National Bank of Maryland,
under which there was no outstanding balance at March 31, 1997.
The terms of the MIDFA bond financing and applicable provisions of the Code
and corresponding regulations limit to $10,000,000 the aggregate amount of
capital expenditures incurred by or attributable to the Company within the City
of Baltimore during the six year period from November 1993 to November 1999. The
Code and corresponding regulations provide that capital expenditures made by
others at the Seton Business Park facility, including the landlord and other
facility tenants, may accrue against the Company's capital expenditure limit.
The Company intends to manage its anticipated growth to avoid making capital
expenditures which would cause the Company to exceed the imposed limit. For
example, equipment obtained by the Company through operating leases, which are
not capital expenditures, would not accrue against the limit, nor would capital
expenditures by the Company on facilities outside of the jurisdictional limits
of the City of Baltimore. Nevertheless, the Company may exceed the capital
expenditure limit inadvertently or because it determines that to do so is in the
best interest of the Company. In the event that the capital expenditure limit is
exceeded, the Company would be required to refinance the existing indebtedness
through a taxable bond issue, conventional debt financing, or other means. See
"Risk Factors--Restrictions on Capital Expenditures."
Management of the Company believes that it has sufficient cash and borrowing
capacity to fund its current operations and capital needs.
IMPACT OF INFLATION
The Company believes that the effects of inflation generally do not have a
material adverse effect on its results of operation or financial condition.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
During fiscal year 1997, the Company was required to adopt Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement had no impact on the Company in the current year. Going forward, the
Company could be required in certain circumstances to write-down its long-lived
assets, such as property and equipment, to fair market value. During fiscal year
1998, all companies reporting earnings per share will be required to adopt SFAS
No. 128, "Earnings Per Share." This statement changes how earnings per share are
calculated and will require that previous years be restated when adopted in
fiscal year 1998.
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BUSINESS
CBL is an established provider of pharmaceutical and biopharmaceutical
product development and production services. The Company serves a broad range of
customers, from major international pharmaceutical firms to emerging
biotechnology companies. Since 1990, the Company has provided services on a
contract basis to more than 80 pharmaceutical and biotechnology companies and
has contributed to the development and production of more than 100 therapeutic
products. Customers contract with the Company to produce development stage
products for use in FDA clinical trials and to produce and manufacture FDA
approved products for commercial sale.
The Company has particular experience and expertise in providing development
services and producing sterile, process-sensitive biopharmaceutical products.
Biopharmaceutical products are derived from biological materials and typically
involve larger, more complex molecules than traditional pharmaceutical products,
which generally are based upon smaller, more stable, synthetic organic
molecules. The complexity, inherent instability and process-sensitivity of
biopharmaceutical products require the application of specialized technology and
expertise in their development, production and analysis.
The specialized development services provided by the Company include
research and development on sterile product formulations; test method
development and validation; process design and manufacturing validations;
regulatory and compliance consulting; preparation of clinical trial materials;
container-closure system design; and accelerated and ongoing stability studies.
In June 1996, the Company received ISO 9001 certification, demonstrating
CBL's conformance with the established international quality management
standards for product design, development, production, inspection and testing.
CBL believes that ISO 9001 certification gives it a competitive advantage in
attracting domestic and international customers.
The Company's objective is to accelerate its growth and profitability by
expanding its share of the market for product development and production
services for the pharmaceutical and biotechnology industries. CBL's strategy to
achieve this objective is to capitalize on outsourcing trends in those
industries by increasing its development and production capabilities. As part of
this strategy, in November 1996, CBL acquired a building in Baltimore, Maryland
that is currently being improved and equipped as a laboratory and pharmaceutical
production facility. The Company anticipates that this additional facility will
be fully operational in early 1998, and will increase its production capacity
severalfold.
CBL believes its established experience and expertise, ISO 9001
certification, anticipated increase in capacity, and ability to offer a broad
range of drug development and production services, will enable it to provide
competitive, cost-effective solutions to the pharmaceutical and
biopharmaceutical industries.
MARKET OVERVIEW
The Company believes that its business benefits from the financial resources
available to, and the competitive and regulatory environment in, the
pharmaceutical and biotechnology industries. Current trends in these industries
that are positively affecting CBL's business include increases in private and
public equity investments, an increase in the number of strategic alliances, an
increase in research and development expenditures, and increased FDA activity.
PRIVATE EQUITY. According to BIOTECH '97 ALIGNMENT, published by Ernst &
Young LLP (the "Ernst & Young Report"), venture capital and private placements
raised approximately $1.5 billion of private equity capital in 1996 for
biotechnology companies, an increase of approximately 19.7% over the $1.2
billion raised from these sources in 1995. The Ernst & Young Report also
indicates that private equity investments tended to fund biotechnology companies
focused on discovering multiple products, rather than companies investing in
full-scale manufacturing facilities.
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PUBLIC EQUITY. According to the Ernst & Young Report, capital raised by
biotechnology companies from initial and follow-on public stock offerings
increased over 800% from $537 million to $5.1 billion for the twelve months
ended June 30, 1995 and 1996, respectively, and, as a result, approximately 35%
of public biotechnology companies have available cash to fund over three years
of operations.
STRATEGIC ALLIANCES. In an ongoing effort to reduce costs and bring
products to market more rapidly, large pharmaceutical companies are forming
strategic alliances with biotechnology companies and others to research and
develop new drugs, according to the Pharmaceutical Research and Manufacturers of
America ("PhRMA"). These strategic alliances involve domestic and international
pharmaceutical companies, biotechnology firms, university research centers and
contract research organizations. According to PhRMA, the total number of
strategic alliances increased from 121 in 1986 to over 500 in 1996. In addition,
the Ernst & Young Report indicates that biotechnology companies raised
approximately $2.5 billion from strategic alliances during the two years ended
June 30, 1996.
RESEARCH AND DEVELOPMENT. Domestic drug manufacturers are expected to spend
an estimated $18.9 billion on research and development in 1997, a $2.0 billion
increase over 1996, according to PhRMA. The business of providing research and
development services for pharmaceutical companies on a contract basis is growing
significantly. Of the $18.9 billion estimated to be spent on research and
development this year, the Company estimates that approximately $6.2 billion
will be spent on activities where CBL provides service.
FDA ACTIVITY. The number of products in FDA clinical trials increased
approximately 38%, from 476 to 657, for the twelve months ended June 30, 1995
and 1996, respectively, according to the Ernst & Young Report. In 1996, the FDA
approved 139 new drugs and biological products, a record one-year jump of 63%.
The FDA attributes these results to the Prescription Drug User Fee Act of 1992
that now requires drug manufacturers to pay user fees, thereby allowing the FDA
to allocate more manpower to the approval process.
As an established provider of cGMP product development and production
services to the pharmaceutical and biotechnology industries, CBL believes that
it will benefit from each of these current market trends.
FACTORS INFLUENCING INCREASED OUTSOURCING
Pharmaceutical and biotechnology firms increasingly seek the expertise and
experience of specialists, such as CBL, in the development and production of
their products. The Company believes that factors contributing to this trend
include:
NEED FOR TECHNICAL EXPERTISE. The discovery of increasingly complex
biologically-derived therapeutic molecules presents challenges to the drug
development and production process, many of which arise from the sensitivity of
these molecules to more traditional pharmaceutical processing techniques. As a
result, firms with experience and expertise in providing biopharmaceutical
product development and production services are increasingly sought after for
innovative solutions to these challenges. The Company believes that firms with
proven technical expertise will play an important role in biopharmaceutical drug
development and production.
NEED FOR DATA MANAGEMENT EXPERTISE. Regulatory agencies are continually
increasing the volume of data required to support regulatory filings and new
drug approval applications, and also are requiring increased and easier access
to these data. Recognizing the growing importance of data management expertise,
the Company intends to devote a portion of the proceeds of the Offering to
enhancing its current data management capabilities.
BIOTECHNOLOGY INDUSTRY GROWTH. With the rapid growth of the biotechnology
industry, the number of new therapeutic molecules under investigation has
increased dramatically. Many biotechnology companies
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do not possess the necessary resources in-house to conduct the required product
development and testing, or to produce drugs once developed. The Company
believes that, with few notable exceptions, emerging biotechnology and
biopharmaceutical companies often prefer to focus their efforts on drug
discovery and product development through intensive research and early stage
product development efforts, and to limit their manufacturing to active
ingredients. Consequently, these firms often seek to outsource formulation, test
method development, process design and other product development tasks performed
by the Company, and to outsource the production of clinical trial materials and
finished product production following FDA approval.
CAPITAL EXPENDITURE INVESTMENT. The high cost of equipping and constructing
facilities to support pharmaceutical and biopharmaceutical product development
work and establishing sophisticated production facilities present significant
economic barriers which lead many companies to dedicate their financial
resources almost exclusively on drug discovery and research. Accordingly, CBL
believes that these factors will increase the outsourcing of the type of drug
development and production work performed by the Company.
CONSOLIDATION IN THE PHARMACEUTICAL INDUSTRY. The pharmaceutical industry
is consolidating as companies seek to reduce costs and increase revenues through
business combinations. The Company believes that, as the pharmaceutical industry
consolidates, the outsourcing of development services and production of clinical
trial materials will be more attractive to pharmaceutical companies. Similarly,
larger pharmaceutical companies often seek to outsource commercial production of
small quantity products that cannot be cost-effectively produced internally.
GLOBALIZATION IN THE MARKET PLACE. Foreign pharmaceutical companies,
particularly firms in Western Europe and Asia, are increasingly seeking to
obtain approval to market their products in the United States. Due to a lack of
familiarity with the complex United States regulatory system, and the difficulty
in bringing their operating facilities into FDA required cGMP compliance,
foreign firms are increasingly relying on independent product development firms
in the United States to provide development services and to assist in preparing
regulatory submissions. An increasing number of European firms are requiring ISO
certification of their contract development service providers. The Company
believes that its established expertise and experience, its ISO 9001
certification, and its ability to offer a broad range of drug development and
production services, enables the Company to provide competitive, cost-effective
solutions to both U.S. firms seeking to expand internationally and foreign firms
seeking to expand in the United States.
STRATEGY
CBL's objective is to accelerate its growth and profitability by expanding
its share of the market for product development and production services for the
pharmaceutical and biotechnology industries. CBL's strategies to achieve this
objective include the following:
EXPAND PRODUCTION AND DEVELOPMENT SERVICES CAPABILITIES. The Company is
implementing this strategy by improving and equipping its newly acquired
building as a state-of-the-art laboratory and pharmaceutical production
facility. This additional facility will significantly increase the Company's
production capacity when operational, which is expected to occur in early 1998.
This increase in production capacity will enable the Company to continue to meet
its customers' increasing volume requirements, pursue larger scale, long-term
commercial contracts and capture greater market share.
CAPITALIZING ON OUTSOURCING TREND. The Company is tailoring its
capabilities to effectively meet the increasing preference of pharmaceutical and
biotechnology companies to outsource development and production functions. As
part of this effort, the Company plans to expand its scientific and engineering
staff to meet the challenges of developing and producing increasingly complex
biologically-derived drug products. The Company also plans to enhance its data
management expertise to enable it to better support
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its customer's regulatory needs. CBL is increasing its marketing staff to better
communicate its capabilities to the pharmaceutical and biotechnology industries.
FOCUS ON DEVELOPMENT OF CUSTOMERS' PRODUCTS. The Company believes that many
pharmaceutical and biotechnology companies prefer to outsource development
services to companies that do not manufacture, market and distribute potentially
competitive proprietary products. CBL focuses all of its resources on product
development and production services and does not pursue research in competition
with its customers.
THE BIOPHARMACEUTICAL DRUG DEVELOPMENT PROCESS
Under the U.S. regulatory system, the development process for new
pharmaceutical products can be divided into three distinct phases. The
preclinical phase involves the discovery, characterization, product formulation
and animal testing necessary to prepare an Investigational New Drug ("IND")
exemption for submission to the FDA. The IND must be accepted by the FDA before
the drug can be tested in humans. The second, or clinical, phase of development
follows a successful IND submission and involves the activities necessary to
demonstrate the safety, tolerability, efficacy and dosage of the substance in
humans, as well as the ability to produce the substance in accordance with the
FDA's cGMP regulations. Data from these activities are compiled in a New Drug
Application ("NDA"), or for biotechnology products, a Product License
Application ("PLA"), for submission to the FDA requesting approval to market the
drug. The third phase, or post-approval phase, follows FDA approval of the NDA,
or PLA, and involves the production and continued analytical and clinical
monitoring of the drug. The post-approval phase also involves the development
and regulatory approval of product modifications and line extensions, including
improved dosage forms, of the approved product, as well as for generic versions
of the approved drug, as the product approaches expiration of patent or other
exclusivity protection.
The following chart illustrates the drug development process and the
component activities involved in each of the three phases. The chart also
illustrates the areas of CBL's service offerings. The process is described in
more detail below.[INSERT CHART AS DESCRIBED]
THE PRECLINICAL PHASE. The development of a new pharmaceutical agent begins
with the discovery or synthesis of a new molecule. These agents are screened for
pharmacological activity using various animal and tissue models, with the goal
of selecting a lead agent for further development. Additional studies are
conducted to confirm pharmacological activity, to generate safety data and to
evaluate prototype dosage forms for appropriate release and activity
characteristics. Protocols for these studies are designed in anticipation of
fulfilling regulatory requirements. Once the pharmaceutically active molecule is
fully characterized, an initial purity profile of the agent is established.
During this and subsequent stages of development, the agent is analyzed to
confirm the integrity and quality of material produced. In addition, development
and optimization of the initial dosage forms to be used in clinical trials are
completed, together with analytical models to determine product stability and
degradation. Upon successful completion of preclinical safety and efficacy
studies in animals, an IND submission is prepared and provided to the FDA for
review prior to human clinical trials. The IND submission consists of the
initial chemistry, analytical, formulation and animal testing data generated
during the preclinical phase. The review period for an IND submission is 30
days, after which, if no comments are made by the FDA, the product candidate can
be studied in Phase I clinical trials.
The process for the development of biotechnology products parallels the
process outlined above. Biotechnology products frequently are large proteins,
with activity that is different from the activity of small, organic molecules.
Proteins may be coupled with other biologically active molecules, such as lipids
or sugars, for enhanced or modified biological activity. Biotechnology products
may be composed of the building blocks of DNA. Because of the diversity of the
nature of biotechnology products and their substantial molecular size (usually
hundreds of times larger than small, organic molecules), special technology is
often required for their production, as well as subsequent analysis.
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Biotechnology products, especially proteins, may be produced with living
cells. Purity testing can be complex since living cells may harbor viruses and
other agents. The potential presence of these agents, and the requirement to
establish degradation profiles and identify impurities associated with
production and purification, further require establishing, validating and
conducting specialized tests and assays. Formulation development in this area is
often more complex than for small, organic drug substances. Generally, molecules
produced using recombinant DNA technology are inherently less stable than their
organic counterparts because structural integrity must be maintained through
administration and distribution of the product. Accordingly, certain aspects of
the development process for biotechnology products may be more challenging than
similar aspects encountered in the development of small, organic molecules.
THE CLINICAL PHASE. Following successful submission of an IND application,
the sponsor is permitted to conduct Phase I human clinical trials in a limited
number of healthy individuals to determine the drug's safety and tolerability
which analyses include bioanalytical assays to determine the availability and
metabolization of the active ingredient following administration. Prior to
conducting these early stage toxicology trials, the drug sponsor must secure
bulk supply of the active ingredient to support the necessary dosing of the
Phase I trials.
Phase II clinical trials involve administering the drug to individuals who
suffer from the target disease or condition to determine the drug's potential
effectiveness and ideal dose. These pharmacology trials require scale up for
manufacture of increasingly larger batches of bulk chemical. These batches
require validation analysis to confirm the consistent composition of the
product. When further safety (toxicology), tolerability and an ideal dosing
regimen have been established, Phase III clinical trials involving large numbers
of patients are conducted to verify the efficacy and long-term safety of the
drug. Throughout the clinical phase, samples of the product made in different
batches are tested for stability to establish shelf life constraints. In
addition, large-scale production protocols and written standard operating
procedures ("SOPs") for each aspect of commercial manufacture and testing must
be developed.
After the successful completion of Phase III clinical trials, the sponsor of
the new drug submits an NDA, or PLA, to the FDA requesting that the product be
approved for marketing. An NDA, or PLA, is a comprehensive, multi-volume
application that includes, among other things, the results of all preclinical
and clinical studies, information about the drug's composition and the sponsor's
plans for producing, packaging and labeling the drug. The length of the FDA's
review ranges from a few months, for drugs related to life-threatening
circumstances, to many years, with the average review lasting two and one-half
years. Prior to granting approval, the FDA generally conducts an inspection of
the facilities, including outsourced facilities, that will be involved in the
manufacture, production, packaging, testing and control of the drug product for
cGMP compliance. Drugs that successfully complete NDA or PLA review may be
marketed in the United States, subject to all conditions imposed by the FDA.
THE POST-APPROVAL PHASE. Following NDA or PLA approval, the producer of the
drug product must comply with quality assurance and quality control requirements
throughout production and must continue chemical analytical and stability
studies of the drug in commercial production to continue to validate production
processes and confirm product shelf life. Raw materials must be analyzed prior
to use in production, and samples from each production batch must be tested
prior to release of the batch for distribution to the public. Failure to comply
with FDA regulations in manufacturing, production or testing during this phase
could result in severe sanctions, including product recalls or closing of
facilities.
DEVELOPMENT SERVICES
The Company has particular experience and expertise in providing development
services for sterile, process-sensitive biopharmaceutical products. The
specialized development services provided by the Company include research and
development on sterile product formulation; test method development and
validation; process design and manufacturing validations; regulatory and
compliance consulting; preparation of clinical trial materials;
container-closure system design; and accelerated and ongoing product
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stability studies. Since 1990, the Company has worked with more than 80
different pharmaceutical and biotechnology companies and helped produce over 100
different therapeutics for human clinical trials. Of these, five have received
final FDA approval and another ten are in late stage clinical trials or awaiting
FDA approval.
STERILE PRODUCT FORMULATION. The Company provides formulation development
services to assist its customers in making the transition from preclinical
investigations to stable pharmaceutical formulation. In many instances the
active ingredient is not stable in aqueous solution and the Company develops the
necessary parameters to produce a sterile, lyophilized (or freeze-dried) dosage
form. The Company has developed significant expertise that enables it to more
efficiently solve the difficult problems that arise in developing complex
formulations with targeted characteristics.
TEST METHOD DEVELOPMENT AND VALIDATION. Throughout the biopharmaceutical
development process, the Company continuously develops and validates the
analytical methods used in the laboratory testing of the pharmaceutical dosage
forms. Such analytical tests demonstrate potency, purity, stability and other
physical attributes. These methods, used throughout the drug development process
and subsequent sterile production, are validated to ensure that the data
generated is accurate, precise, reproducible and reliable.
PROCESS DESIGN AND MANUFACTURING VALIDATIONS. Often the Company's customers
have only recently completed the preclinical testing and characterization of
their therapeutic molecule and have only formulated their product at laboratory
scale. These customers seek CBL's experience and expertise in the scale-up of
the production processes and to identify and resolve associated problems, with a
focus on developing larger scale formulations and sterile process designs
appropriate for clinical trials. In this effort, the Company works closely with
its customers to assure the scaled-up sterile production process does not
compromise the stability or therapeutic activity of their products. For
temperature sensitive biopharmaceuticals, the Company is often called upon to
design and validate a unique integrated sterile processing system which keeps
the product at low temperature throughout formulation and sterile filling of the
product.
REGULATORY AND COMPLIANCE CONSULTING. The Company utilizes its experience
and expertise to assist its customers in the management of the regulatory
approval process for their products. The Company identifies for its customers
the supporting data required as part of the filing of the NDA or PLA, and
assists in the preparation of the documentation to be submitted as part of the
filing. In addition, the Company assists its customers in management of the
regulatory process following FDA approval of their products by identifying the
requisite supporting data and by preparation of post-approval submissions to the
FDA.
PREPARATION OF CLINICAL TRIAL MATERIALS. The Company currently produces
clinical trial materials for use by its customers in Phase I through Phase III
clinical trials. The Company produces clinical trial materials for small
biotechnology companies as well as for large pharmaceutical companies that often
seek to outsource production of small-quantity products that cannot be
cost-effectively produced internally.
CONTAINER-CLOSURE SYSTEM DESIGN. Compatibility of pharmaceutical and
biopharmaceutical products with their container-closure systems is of critical
importance to the product development effort. Unanticipated interaction between
the active ingredient or other product components and the container-closure
system can quickly reduce product stability and shelf life. As a result of its
experience with a wide variety of product formulations and container-closure
systems, the Company is able to assist its customers with selection of proper
system design, to minimize unanticipated stability issues. Similarly, the
Company's pharmaceutical and biopharmaceutical product production experience
enables the Company to assist its customers in selecting the container-closure
system best suited for high-speed, high-volume commercial production.
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ACCELERATED AND ONGOING PRODUCT STABILITY STUDIES. The Company designs
stability studies and provides stability testing necessary to establish and
confirm shelf-life characteristics. Stability testing is required at all phases
of product development to confirm shelf life of each manufactured batch.
Accelerated stability studies are conducted on products in the earlier phases of
the development process in order to predict shelf life of the fully developed
product, and additional stability studies of the fully developed product are
conducted to demonstrate actual shelf life at anticipated storage conditions.
The Company maintains state-of-the-art climate controlled cGMP facilities to
determine the range of storage conditions the product can withstand. FDA
regulations require that representative samples of clinical and commercial
products be placed in environmentally controlled chambers and analyzed for
stability at predetermined intervals throughout the shelf life period.
COMMERCIAL PRODUCTION
As a product approaches FDA approval and commercialization, the Company and
its customer typically become increasingly focused on the process design and
validation necessary to permit larger scale production. This work often begins
with the initiation of Phase II clinical trials. By the time a determination has
been made to proceed with Phase III clinical trials, process development and
validation for commercial scale production is in process and typically is
completed during the Phase III trials. In many cases, the process design and
validation work undertaken in connection with the scale-up manufacture of
product for clinical trials is similarly applicable to the commercial production
of product following FDA approval.
The Company is ideally situated to produce commercial quantities of products
for those of its customers to which it provided product development services. As
a result of the Company's prior relationship with its customers and knowledge of
their products, commercial production of products following FDA approval is a
natural extension of the Company's activities. Currently, the Company is
producing five FDA approved products for customers to which the Company provided
developmental services prior to the FDA approval of that product.
The Company's existing cGMP pharmaceutical production facility consists of a
Class 100,000 manufacturing area, a Class 10,000 formulation suite, a Class 100
clean room and a Class 10,000 packaging area, all of which are currently
utilized for production of a broad variety of sterile biopharmaceutical and
pharmaceutical products. Most biologically derived products produced by the
Company cannot be sterilized by employing traditional pharmaceutical heat
sterilization techniques. Consequently, the application of cold sterilization
and aseptic filling technology is required. The Company's current production
capabilities include unit and multi-dose vials and prefilled syringes, in lots
of up to approximately 20,000 vials and 40,000 syringes.
To expand its commercial production capacity, the Company's new facility
will include a Class 10,000 formulation suite, two Class 100 clean rooms, and a
Class 10,000/100,000 packaging suite, all of which are state-of-the-art. Upon
completion of its new facility, expected to occur in early 1998, the Company
anticipates that its production capacity will increase several fold. See "Risk
Factors--Risks Associated with New Facility Construction and Validation."
CUSTOMERS
Since 1990, CBL has provided services to over 80 customers. These customers
range from major international pharmaceutical firms to emerging biotechnology
companies. The majority of the Company's customers are located in the United
States, but several of the Company's customers are located in other countries,
primarily in Europe and Asia.
For the fiscal years ended March 31, 1997 and 1996, sales to Allergan
represented approximately 49% and 41% of total revenues, respectively. During
the fiscal year ended March 31, 1997, the Company provided development and
production services to 35 customers, of which eight were new and 27 were
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repeat customers. Other than Allergan, no single customer accounted for more
than 10% of the Company's revenue in fiscal year 1997. The Company expects that
revenues from Allergan will decrease significantly for the Company's fiscal year
ending March 31, 1998, and thereafter. Due to the nature of the Company's
business, some customers may not seek the services of the Company for periods of
a year or more during which they concentrate on testing and clinical trials
related to the product produced by CBL. Customers typically return when they
require new products developed for testing, additional amounts of existing
products for expanded or further testing, or for commercial production of FDA
approved products. See "Risk Factors--Dependence on Certain Customers."
COMPETITION
The Company directly competes with several pharmaceutical product
development organizations, contract manufacturers of biopharmaceutical products
and university research laboratories, such as Ben Venue Laboratories, Inc., Cook
Imaging Corporation, Connaught Laboratories, Inc. and the University of Iowa.
Although many of these pharmaceutical product development organizations,
contract manufacturers and university research laboratories do not offer the
full range of services offered by the Company, they can and do compete
effectively against certain segments of the Company's business, including its
pharmaceutical production capabilities. The Company also competes with in-house
research, development and support service departments of pharmaceutical and
biotechnology companies. Certain of these competitors, particularly large
pharmaceutical and biotechnology companies, may have significantly greater
resources than the Company.
Competitive factors include reliability, turnaround time, reputation for
innovation and quality performance, capacity to perform numerous required
services, financial strength, and price. The Company believes that it competes
favorably in these areas. In addition, the Company's strategy is to complement
its customers by not pursuing research and development, or production, of
products of its own. The Company believes that its customers will prefer it to
others that offer the same services, but which also manufacture and sell their
own products in competition with those of the customer. See "Risk
Factors--Competition."
POTENTIAL LIABILITY AND INSURANCE
In contracts for the production of FDA approved products for commercial
sale, the Company typically seeks to reduce its potential liability by requiring
that the Company be indemnified by the customer or covered by the customer's
product liability insurance policies. These contractual arrangements regarding
liability allocation and insurance are negotiable, and the terms and scope of
such indemnification, liability limitation and insurance coverage vary from
customer to customer and from project to project. Development services are
typically undertaken pursuant to a purchase order, not including specific terms
regarding indemnity or insurance. The Company believes that this is typical in
the industry. Clinical trial materials are produced by the Company for its
customers for use in studies strictly regulated by the FDA. Even in those cases
where the Company is able to negotiate favorable terms in the allocation of risk
and liability, the financial performance by its customers in this regard is not
assumed. Therefore, CBL bears the risk that an indemnifying party may not have
the financial ability to fulfill its obligations or that liability would exceed
the amount of applicable insurance. The Company maintains product liability
coverage of $1 million on a claims-made basis. See "Risk Factors--Potential
Liability and Risks of Operations."
GOVERNMENT REGULATIONS
The services performed by the Company are subject to various regulatory
requirements designed to ensure the quality and integrity of pharmaceutical
products, primarily under the Federal Food, Drug and Cosmetic Act and FDA
administered cGMP regulations. Although the Company has successfully operated in
this stringent regulatory environment since the early 1980's and believes such
experience is an advantage over certain of its competitors, compliance with
these regulations is a continuous process. These regulations apply to all phases
of drug manufacturing, testing and record keeping, including personnel,
facilities,
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equipment, control of materials, processes and laboratories, packaging, labeling
and distribution. Noncompliance with cGMP by the Company could result in
disqualification of data collected by the Company. Material violation of cGMP
requirements could result in additional regulatory sanctions, and in severe
cases could result in a mandated closing of the Company's facilities which would
materially and adversely affect the Company's business.
To help assure compliance with applicable regulations, the Company has
established quality assurance controls at its facilities that monitor on-going
compliance by auditing test data and regularly inspecting facilities, procedures
and other cGMP compliance parameters. In addition, FDA regulations and
guidelines serve as a basis for the Company's standard operating procedures.
The Company's activities involve the controlled use of hazardous materials
and chemicals and are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of such materials and certain
waste products. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed by
federal, state and local laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, CBL could be held liable for any damages that
result which could materially and adversely affect the financial condition of
the Company. See "Risk Factors--Dependence on and Effect of Governmental
Regulation" and "--Environmental Risks and Hazardous Materials."
EMPLOYEES
At April 15, 1997, the Company had 59 full-time equivalent employees, of
which six hold Ph.D. degrees, five hold master's degrees and seven hold other
professional certifications. Thirty of CBL's employees perform scientific or
engineering functions. The Company believes that its relations with its
employees are good. No CBL employees are represented by a union.
The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. Although the level of
competition among employers for skilled personnel is high, the Company believes
that its location in the Baltimore-Washington region allows it to tap a large
base of highly-skilled potential employees. This region has a large number of
companies in the pharmaceutical and biotechnology industries and is home to,
among other institutions, the National Institutes of Health, the FDA, The Johns
Hopkins University and the University of Maryland, all of which have employees
with skills similar to those required by the Company. See "Risk
Factors--Dependence on Key Personnel."
CBL provides all personnel who are directly involved in the manufacture of
pharmaceutical products with extensive training as part of their continued
employment and employee development with the Company. This training includes
annual training in the following areas: cGMP and ISO 9001 Awareness Training, as
well as safety training. In addition, employees receive on-the-job training for
specific job related tasks, where completion of a written test is typically
required prior to the employee performing the task without supervision. Training
is also provided to ensure that employees remain fully advised of and conversant
with the Company's established Standard Operating Procedures.
FACILITIES
The Company's executive offices, pharmaceutical manufacturing facilities and
warehouse operations are located at two sites in Baltimore, Maryland. Since
1988, the Company has leased 15,000 square feet at the Seton Business Park which
the Company has operated as a multi-customer pharmaceutical production facility
in accordance with cGMP regulations. The current lease term for this facility
expires on December 31, 1998, with two, two-year renewal options thereafter.
25
<PAGE>
In November 1996, the Company acquired an approximately 70,000 square foot
building, located on 3.48 acres of land in the Carroll/Camden Industrial Park in
Baltimore, Maryland to improve and equip as a pharmaceutical production facility
and to house the Company's administrative offices and warehouse operations. The
Company has retained The Whiting-Turner Contracting Company, believed by the
Company to be among the more highly regarded construction and engineering firms
in the mid-Atlantic region, as construction manager for the new facility.
Substantial completion of the office and warehouse space renovations occurred in
February 1997, and completion of the pharmaceutical build-out is anticipated to
occur in early 1998. The Company believes that, upon completion of the new
facility, its facilities will be adequate for the Company's operations and that
suitable additional space will be available when needed. See "Risk
Factors--Risks Associated with New Facility Construction and Validation."
The Company also leases 19,200 square feet of space in Owings Mills,
Maryland, which previously housed the Company's corporate headquarters,
warehouse facilities and shipping and receiving operations prior to the
relocation of those operations to the Carroll/Camden Industrial Park facility in
February 1997. The Owings Mills facility lease expires December 31, 1998, and
the Company is responsible for annual rental payments of $134,400 and all
operating and maintenance costs under this lease through that date.
LEGAL PROCEEDINGS
The Company is not currently party to any legal proceedings of a material
nature.
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<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William P. Tew, Ph.D ................................ 51 Chief Executive Officer and Chairman of the Board
John C. Weiss, III................................... 48 President and Director
Narlin B. Beaty, Ph.D. .............................. 47 Chief Technical Officer and Director
Thomas C. Mendelsohn................................. 52 Vice President of New Business Development, Secretary
and Director
John T. Janssen...................................... 58 Chief Financial Officer, Treasurer
Robert J. Mello, Ph.D. .............................. 46 Vice President of Quality and Regulatory Affairs
Regis F. Burke....................................... 49 Director
Harvey L. Miller..................................... 57 Director
Thomas P. Rice....................................... 47 Director
</TABLE>
WILLIAM P. TEW, PH.D. is a founder of the Company and has been Chairman of
the Board of the Company since operations began in 1980 and Chief Executive
Officer since 1988. Dr. Tew holds a B.S. in chemistry and a M.S. in inorganic
chemistry from Lamar University and a Ph.D. in bio-inorganic chemistry from the
University of Idaho. From 1975 to 1977, Dr. Tew was a Post-doctoral Fellow in
the Department of Physiological Chemistry at The Johns Hopkins University School
of Medicine and worked under the late Dr. Albert Lehninger, a pioneer in the
field of biochemistry. From 1977 to 1978, Dr. Tew served as a Senior Research
Scientist with Foxboro Analytical, Inc., a major instrumentation company. From
1979 to 1982, Dr. Tew was an Instructor in the Department of Physiological
Chemistry and Medicine at The Johns Hopkins University School of Medicine and
from 1982 to 1983 he was an Assistant Professor in the Department of Medicine at
The Johns Hopkins University School of Medicine. Presently, Dr. Tew holds an
appointment as Research Associate in the Department of Biological Chemistry at
The Johns Hopkins University School of Medicine.
JOHN C. WEISS, III has been a director of the Company since 1986, and was
appointed President of the Company in May 1996. Mr. Weiss holds a B.S. from
Towson State University and an M.B.A. from Loyola College of Maryland. From 1994
to May 1996, Mr. Weiss was the Managing General Partner of Anthem Capital, L.P.,
a Baltimore-based venture capital firm. From 1990 to 1994, Mr. Weiss was the
Managing Director of The Maryland Venture Capital Trust, created by Maryland
statute to provide a vehicle for investment by Maryland state and local pension
funds and the State of Maryland and its political subdivisions in venture
capital investments. From 1984 to 1990, Mr. Weiss was the Managing Director of
the Baltimore office of Arete Ventures Inc., a venture capital firm, and from
1982 to 1984, he was a Senior Vice President with the Baltimore Economic
Development Corporation. Mr. Weiss currently serves on the Board of Visitors of
the University of Maryland at Baltimore and for the past three years has chaired
the Investment Committee of the Foundation Board of St. Agnes Hospital.
NARLIN B. BEATY, PH.D. joined the Company in 1983 and currently serves as
Chief Technical Officer. Dr. Beaty has been a director of the Company since
1989. Dr. Beaty holds a B.S. in biology and a M.A. in botany from the University
of Texas, and a Ph.D in biological chemistry from the University of Michigan at
Ann Arbor. His professional associations include the American Association for
the Advancement of Science, the American Chemical Society, and the Biophysical
Society. In 1974, Dr. Beaty was awarded a
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<PAGE>
scientific merit grant from the University of Texas and between 1975 and 1983 he
was the recipient of six fellowship awards from the National Institutes of
Health.
THOMAS C. MENDELSOHN joined the Company in 1991 and serves as Vice President
of New Business Development and Corporate Secretary. Mr. Mendelsohn has been a
director of the Company since 1991. Mr. Mendelsohn holds a B.A. in management
from the University of Baltimore. 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. From 1979 to 1991, he
served as Senior Vice President of Sales and Marketing of Barre-National, Inc.
JOHN T. JANSSEN joined the Company in January 1993 as Chief Financial
Officer. Mr. Janssen, a Certified Public Accountant, holds a B.S. in accounting
from Lehigh University and an M.B.A. from Central Michigan University. Mr.
Janssen has over thirty years of diversified financial management experience,
including pharmaceutical, food processing and consumer product companies. From
1981 to 1988, Mr. Janssen was on the board of directors and was the Chief
Financial Officer of Genesee Brewing Co. From 1988 to 1992, Mr. Janssen was on
the board of directors and was the Chief Financial Officer and Treasurer of
Barre-National, Inc.
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 B.S. in
biology and a Ph.D. in biochemistry from The Johns Hopkins University School of
Medicine. Dr. Mello had been with the Company for ten years before joining
Lederle Laboratories in 1992 as Manager, Validation Services. At Lederle he
established, coordinated and monitored validation programs at four sites. During
his earlier ten years with the Company, Dr. Mello served as Director of Research
and Development and later as Director of Quality Assurance and Regulatory
Affairs, and Secretary. From 1979 to 1982, Dr. Mello served as Instructor, then
Assistant Professor in the Department of Ophthalmology (Wilmer Eye Institute) of
The Johns Hopkins University School of Medicine.
REGIS F. BURKE was elected a director of the Company in 1995. Mr. Burke
holds a bachelor's degree in accounting from Mount St. Mary's College. Mr. Burke
is a Certified Public Accountant in practice on his own since 1988. Mr. Burke
specializes in corporate transaction consulting, business planning, business
valuation and litigation support services. Prior to 1988, Mr. Burke was a
partner with Touche Ross & Co., an international accounting firm.
HARVEY L. MILLER was elected a director in 1996. Since 1980, Mr. Miller has
been Chairman of G.S.I. Corporation, a manufacturer of high-tech wire
assemblies. Since 1986, Mr. Miller has been president of DM Realty Corporation,
a developer of commercial real estate sites. Mr. Miller was elected a director
of Maryland Midland Railway, Inc. in March 1997.
THOMAS P. RICE was elected a director in 1997. Mr. Rice holds a B.A. in
accounting from The Johns Hopkins University and an M.S. in finance from Loyola
College of Maryland. Mr. Rice is also a Certified Public Accountant. In 1996,
Mr. Rice founded Columbia Investments, LLC to make selective investments,
primarily in the health care industry. From 1993 to 1996, Mr. Rice was Executive
Vice President, Chief Operating and Financial Officer and a member of the Board
of Directors of Circa Pharmaceuticals, Inc., a publicly-held pharmaceutical
firm. From 1985 to 1990, Mr. Rice was Vice President of Administration and
Finance of PharmaKinetics Laboratories, Inc., Baltimore, Maryland. From 1991 to
1993, Mr. Rice was a principal of Competitive Advantage, a Baltimore-based
management consulting firm.
BOARD COMMITTEES AND COMPENSATION
The Board of Directors has three standing committees; a Compensation
Committee, an Audit Committee and a Stock Option Committee. The current members
of each committee are Messrs. Burke, Miller and Rice. The Compensation Committee
makes recommendations concerning salaries and incentive compensation for
employees of and consultants to the Company. The Audit Committee reviews the
results and scope of the audit and other services provided by the Company's
independent public
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<PAGE>
accountants. The Stock Option Committee administers and grants stock options and
awards pursuant to the Company's Incentive Stock Option Plans.
Executive Officers of the Company who also serve on the Board of Directors
receive no additional compensation for their service as such. Members of the
Board of Directors who are not also employed by or officers of the Company
receive annual compensation equal to $9,600 per year for their service on the
Board of Directors. In addition, the Company generally grants to each director,
upon that individual's initial appointment or election to the Board of
Directors, an option to purchase approximately 8,000 shares of Common Stock at
the then current market price. Accordingly, Mr. Burke was granted an option to
purchase 8,000 shares of Common Stock at $1.50 per share in November 1995; Mr.
Miller was granted an option to purchase 8,000 shares of Common Stock at $3.125
per share in November 1996; and Mr. Rice was granted an option to purchase 8,000
shares of Common Stock at an exercise price of $5.1875 per share in March 1997.
In addition, in recognition of his long service as a member of the Board of
Directors, in 1995, Mr. Weiss was granted an additional option to purchase 8,000
shares of Common Stock at an exercise price of $1.50 per share. Each of these
respective options is evidenced by a Director's Agreement and related Option
Agreement, by and between the Company and the director and becomes exercisable
on a pro-rata basis over a four-year period, measured from the date of grant.
The Board of Directors has also adopted the 1997 Directors' Stock Option
Plan, pursuant to which each director serving as chairman of any standing
committees of the Board is granted options annually on a formula basis. See
"Management--Stock Option Plans."
MANAGEMENT COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's five other highest paid executive
officers for services rendered in all capacities to the Company for the fiscal
years ended March 31, 1995, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- -------------
OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($) OPTIONS(#)
- -------------------------------------------------------------- --------- --------- ----------------- -------------
<S> <C> <C> <C> <C>
William P. Tew, Ph.D. ........................................ 1997 187,219 270(1) 75,000
Chairman and Chief Executive Officer 1996 177,916 1,232(1) --
1995 166,357 1,910(1) --
John C. Weiss, III(2)......................................... 1997 102,917 2,400(3) 70,000
President 1996 -- 11,100(3) 8,000(3)
1995 -- 15,600(3) --
Narlin B. Beaty, Ph.D. ....................................... 1997 145,434 -- 30,000
Chief Technical Officer 1996 141,106 -- 20,000
1995 131,938 -- --
John T. Janssen............................................... 1997 141,299 -- 20,000
Chief Financial Officer 1996 130,546 -- 20,000
1995 105,625 -- --
Thomas C. Mendelsohn.......................................... 1997 136,654 -- 20,000
Vice President New Business Development 1996 131,983 -- 20,000
1995 123,907 -- --
Robert J. Mello, Ph.D. ....................................... 1997 138,698 -- 30,000
Vice President Quality and Regulatory Affairs 1996 123,959 -- 20,000
1995 110,853 -- --
</TABLE>
29
<PAGE>
- ------------------------
(1) Represents amounts paid by the Company for life insurance premiums on behalf
of Dr. Tew.
(2) Mr. Weiss was appointed President of the Company in May 1996, after a ten
year tenure on the Board of Directors.
(3) Represents fees and options given to Mr. Weiss as a non-employee director.
STOCK OPTION PLANS
The Company has adopted four Incentive Stock Option Plans (the "Option
Plans"). The first three of the four Option Plans have expired, and no
additional options are subject to grant thereunder. Options granted prior to
expiration will remain in effect and subject to exercise in accordance with the
terms of the applicable plan. The Fourth Incentive Stock Option Plan provides
for the issuance of up to an aggregate of 800,000 shares of Common Stock and was
approved by the Company's stockholders in October 1996. The Option Plans provide
for the grant of "incentive stock options" within the meaning of Section 422(A)
of the Internal Revenue Code of 1986, as amended. The Option Plans are
administered by the Stock Option Committee of the Company's Board of Directors,
which determines the number of options granted, the exercise price, the number
of shares subject to the option, and the exercisability thereof.
At March 31, 1997, a total of 1,052,500 shares of the Company's Common Stock
were available for issuance under the Option Plans (after taking into effect the
expiration of the first three plans), including an aggregate of 539,400 shares
of Common Stock subject to outstanding and unexercised options granted to
employees of the Company and 517,600 shares of Common Stock reserved for
issuance upon the exercise of options not yet granted. These currently
outstanding but unexercised options are exercisable at prices ranging from $1.50
to $3.44 per share, and options for 105,000 shares were subject to immediate
exercise. Options granted under the Option Plans generally become exercisable
over the five (5) year period following the date of grant, unless otherwise
determined by the Stock Option Committee at the time of grant.
Of the shares subject to outstanding options under the Option Plans, an
aggregate of 425,000 are subject to options granted to executive officers of the
Company. The following table sets forth the number of options held at March 31,
1997, by each of the Chief Executive Officer and the five other highest paid
officers, the range of exercise prices applicable to each, and a break-down as
to the number of shares with respect to which options were exercisable or not
exercisable at March 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO RANGE OF EXERCISE EXERCISABLE/
NAME OPTIONS PRICE PER SHARE NOT EXERCISABLE
- ------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
William P. Tew, Ph.D. ................................. 75,000 $3.44 0/75,000
John C. Weiss, III..................................... 78,000 $1.50 to $3.125 2,000/76,000(1)
Narlin B. Beaty, Ph.D. ................................ 50,000 $1.50 to $3.125 0/50,000
John T. Janssen........................................ 90,000 $1.50 to $3.125 37,500/52,500
Thomas C. Mendelsohn................................... 90,000 $1.50 to $3.125 37,500/52,500
Robert J. Mello, Ph.D. ................................ 50,000 $1.50 to $3.125 0/50,000
</TABLE>
- ------------------------
(1) 8,000 of these options were granted to Mr. Weiss as an non-employee
director, other than pursuant to the Option Plans.
In addition, in March 1997, the Board of Directors approved the 1997
Directors' Stock Option Plan of the Company (the "Directors' Plan"). The
Directors' Plan provides for the issuance of a non-qualified stock option to
purchase 3,000 shares of Common Stock to each director of the Company who is not
an officer and who is serving as chairperson of any standing committee of the
Board of Directors at the date of grant. Options under the Directors' Plan are
automatically granted annually at the first meeting of the Board of Directors
following the Annual Meeting of the Stockholders at an exercise price equal to
the then current market price of the Common Stock. Options granted under the
Directors' Plan generally vest on
30
<PAGE>
the first anniversary of the date of grant, provided that the director is deemed
under the Directors' Plan to have served as chairperson of the standing
committee through that date. An aggregate of 25,000 shares of Common Stock have
been reserved for issuance pursuant to the Directors' Plan, but no options have
been granted to date under the Directors' Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its
executive officers. These agreements generally provide for payment of a 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
salaries established in the employment agreements for Dr. Tew, Mr. Weiss and Dr.
Beaty are $170,000, $130,000 and $131,200, respectively. The base salaries
established in the employment agreements for Messrs. Janssen and Mendelsohn, and
Dr. Mello, are $129,300, $123,300, and $126,600, respectively. The base salary
applicable to any executive officer may be increased through action of the
Compensation Committee or Board of Directors.
The employment agreements provide, in the case of Dr. Tew, for an initial
term of three years, with successive three-year renewal terms; in the case of
Dr. Beaty, for an initial term of three years, with successive three-year
renewal terms; and in the case of Messrs. Weiss, Mendelsohn and Janssen, and Dr.
Mello, for an initial term of two years, with successive two-year renewal terms.
The initial term of each employment agreement commenced July 1, 1995, except in
the case of Mr. Weiss whose term commenced in May 1996. Pursuant to the
employment agreements, each of the executive officers is required to devote
substantially all of 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.
The employment agreements also provide for severance payments to the
executive officers of the Company in certain circumstances. Dr. Tew and Mr.
Weiss 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 his employment agreement, or for good reason (generally defined
as diminution of title or responsibilities, termination of benefit plans, or
relocation of the Company), and in the case of Mr. Weiss, upon termination of
his employment either following a breach by the Company of his employment
agreement or for good reason. Drs. Beaty and Mello, and Messrs. Janssen and
Mendelsohn, are each entitled to receipt of severance payments in an amount
equal to approximately one-half of their respective annual compensation, upon
termination of their employment following a breach by the Company of their
respective employment agreements or for good reason.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized stock of the Company consists of 10,000,000 shares, divided
into 8,000,000 shares of Class A Common Stock, par value $0.01 per share
(hereinabove defined as, and hereinbelow referred to as, the "Common Stock"),
and 2,000,000 shares of non-voting Class B Common Stock, par value $.01 per
share ("Class B Common Stock"). As of March 31, 1997, 4,114,558 shares of Common
Stock and no shares of Class B Common Stock were outstanding. The rights of
holders of the Company's stock are defined by the Company's charter, as amended
from time to time (the "Charter"), as well as by the Company's Bylaws, as
amended from time to time (the "Bylaws"), and the Maryland General Corporation
Law, as amended from time to time (the "MGCL"). The following summary of certain
provisions of the stock of the Company does not purport to be complete and is
subject to, and qualified in its entirety by reference to the provisions of the
Charter and Bylaws, which are included as exhibits to the Registration Statement
of which this Prospectus forms a part, and by provisions of applicable law,
including the MGCL.
COMMON STOCK
Upon completion of the Offering, 5,114,558 shares of Common Stock will be
issued and outstanding and no shares of Class B Common Stock will be issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
corporation's obligations.
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders, including the election of directors and,
except as provided with respect to any other class or series of stock, the
holders of such shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors. Holders of shares of Common Stock have
no preference, conversion, exchange, sinking fund, redemption or appraisal
rights, and have no preemptive or subscriptive rights. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, duly authorized, fully paid and non-assessable.
There are no shares of Class B Common Stock issued and outstanding. The
Class B Common Stock is identical to the Common Stock in all respects except
that each share of Class B Common Stock is convertible under certain
circumstances into one share of Common Stock and that holders of Class B Common
Stock are not entitled to vote on any matter requiring stockholder action. The
Class B Common Stock was created and authorized as a separate class of stock of
the Company in connection with a financing transaction entered into by the
Company in 1987, which required that the Company have shares of non-voting
common stock available for issuance upon the exercise of certain warrants. The
Company's obligations in respect of the financing transaction have since been
satisfied and the warrants expired unexercised but 2,000,000 shares of Class B
Common Stock continue to remain authorized for issuance under the Charter.
Subject to the preferential rights of any other shares or series of stock,
holders of the shares of Common Stock and Class B Common Stock have equal rights
to receive dividends, if any, as and when authorized and declared by the Board
of Directors of the Company out of assets legally available therefor and to
share ratably in the assets of the Company legally available for distribution to
its stockholders in the event of its liquidation, dissolution or winding up
after payment of or adequate provision for all known debts and liabilities of
the Company.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of
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<PAGE>
all of the votes entitled to be cast on the matter) is set forth in the
corporation's charter. The Charter provides that the affirmative vote of a
majority of all the votes entitled to be cast on any matter or act requiring
stockholder approval shall be sufficient to approve such matter or act.
CERTAIN PROVISIONS OF MARYLAND LAW AND THE CHARTER
The business combination provisions and the control share acquisition
provisions of the MGCL and certain provisions of the Charter could delay, defer
or prevent a transaction or a change in control of the Company that might
involve a premium price for holders of Common Stock or otherwise be in their
best interest.
BUSINESS COMBINATIONS. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain circumstances,
an asset transfer or issuance or reclassification of equity securities) between
a Maryland corporation and any person who beneficially owns ten percent (10%) or
more of the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of ten percent or more of the voting power of
the then-outstanding voting stock of the corporation (an "Interested
Stockholder"), or an affiliate of such an Interested Stockholder, are prohibited
for five years after the most recent date on which the Interested Stockholder
becomes an Interested Stockholder. Thereafter, any such business combination
must be recommended by the board of directors of such corporation and approved
by the affirmative vote of at least (i) eighty percent (80%) of the votes
entitled to be cast by holders of outstanding shares of voting stock of the
corporation and (ii) two-thirds of the votes entitled to be cast by holders of
voting stock of the corporation other than shares held by the Interested
Stockholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other conditions, the corporation's common
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of the MGCL do
not apply, however, to business combinations that are approved or exempted by
the board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder, or, absent an election by
resolution of the board of directors, to business combinations involving certain
Maryland corporations, such as the Company, having an Interested Stockholder as
of July 1, 1983. Pursuant to the applicable provisions of the statute, the Board
of Directors of the Company adopted a resolution electing to be governed by the
business combination provisions of the MGCL, except in connection with any
business combination involving Dr. Tew or any of his affiliates, which the Board
of Directors exempted from such provisions.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation (including the Company) acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter, excluding shares of
stock owned by the acquiror, by officers or by directors who are employees of
the corporation. "Control Shares" are voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within fifty (50) days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
33
<PAGE>
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
CHARTER PROVISIONS. The Charter authorizes the Board of Directors to
reclassify any unissued shares of stock into other classes or series of classes
of stock and to establish the number of shares in each class or series and to
set the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock, or Class B Common
Stock, and to classify or reclassify unissued shares of stock and thereafter to
cause the Company to issue such classified or reclassified shares of stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs which might arise. The
additional classes or series, as well as the Common Stock and Class B Common
Stock, will be available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Directors has no
intention at the present time of doing so, it could authorize the Company to
issue a class or series that could, depending upon the terms of such class or
series, delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of shares of Common Stock
or otherwise be in their best interest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the form of which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part (the "Underwriting Agreement"), the Company has
agreed to sell the number of shares of Common Stock to Ferris, Baker Watts,
Incorporated (the "Underwriter"), and the Underwriter has agreed to purchase the
aggregate number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Ferris, Baker Watts, Incorporated.......................................... 1,000,000
-----------------
Total...................................................................... 1,000,000
</TABLE>
The nature of the Underwriter's obligations under the Underwriting Agreement
is such that all shares of Common Stock offered hereby, excluding shares covered
by the over-allotment option granted to the Underwriter, must be purchased if
any are purchased. The Underwriting Agreement provides that the obligations of
the Underwriter to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such public offering price less a selling concession not in excess of
$ per share. The Underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other Underwriters or
to certain other brokers or dealers.
The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 150,000
shares of Common Stock to cover over-allotments, at the same price per share to
be paid by the Underwriter for the other shares offered hereby. The Underwriter
may purchase such shares only to cover over-allotments, if any, in connection
with the Offering made hereby.
The executive officers, directors and certain stockholders of the Company
have agreed that they will not offer, sell, contract to sell or grant an option
to purchase or otherwise dispose of any shares of Common Stock, options to
acquire shares of Common Stock or any securities exercisable for or convertible
into Common Stock owned by them, in the open market, for a period of 180 days
from the date of this Prospectus, without the prior written consent of the
Underwriter. The Company has agreed not to offer, sell or issue any shares of
Common Stock, options to acquire Common Stock or securities exercisable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus, without the prior written consent of the Underwriter, except
that the Company may issue securities pursuant to the Company's stock option
plans and upon the exercise of all outstanding stock options.
The Company and the Underwriter have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act, which may
arise out of or be based upon any untrue statement or alleged untrue statement
of any material fact made by the indemnifying party and contained in this
Prospectus, the Registration Statement, any supplement or amendment thereto, or
any documents filed with state securities authorities, or any omission or
alleged omission of the indemnifying party to state a material fact required to
be stated in any such document or required to make the statements in any such
document, in light of the circumstances in which they are made, not misleading.
The Underwriter intends to make a market in the securities of the Company,
as permitted by applicable laws and regulations. The Underwriter, however, is
not obligated to make a market in such
35
<PAGE>
securities and any such market making may be discontinued at any time at the
sole discretion of the Underwriter.
The Underwriter has informed the Company that it does not intend to confirm
any sales to accounts over which they exercise discretionary authority.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to one percent of the gross offering proceeds.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Shapiro and Olander, Baltimore,
Maryland.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission"). This
Prospectus, which constitutes a part of a registration statement on Form S-2
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act, omits certain of the information set forth in the
Registration Statement and the exhibits thereto, as permitted by the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and the exhibits thereto for further information with respect to the
Company. Statements contained herein as to the content of any contract or other
document are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to a copy of the applicable document
filed with the Commission. The Registration Statement, including the exhibits
and schedules filed thereto, and the reports, proxy statements and other
information filed by the Company with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at its
principal office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
registration statements, reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
(such as the Company) through the Commission's Electric Data Gathering, Analysis
and Retrieval ("EDGAR") system are publicly available through the Commission's
site on the World Wide Web, located at http: //www.sec.gov. So long as the
Company's Common Stock is traded on the American Stock Exchange Emerging Company
Marketplace, 86 Trinity Place, New York, New York 10006, copies of certain
reports, proxy statements and other information filed by the Company can be
inspected at such location. If the Company is successful in having its Common
Stock listed on the Nasdaq National Market, 1735 K Street, N.W., Washington, DC
20006-1500, copies of certain reports, proxy statements and other information
filed by the Company can be inspected at such location.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE AND UPON REQUEST. REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO CHESAPEAKE
BIOLOGICAL LABORATORIES, INC., 1111 SOUTH PACA STREET, BALTIMORE, MARYLAND,
21230, ATTENTION: INVESTOR RELATIONS (TELEPHONE: (410) 843-5000).
36
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated by reference in this Prospectus:
1. The Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.
2. The Registrant's Current Report on Form 8-K filed on March 4, 1997.
3. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1996.
4. The Registrant's Current Report on Form 8-K filed on November 26, 1996.
5. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
6. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
37
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of March 31, 1997 and 1996............................ F-3
Consolidated Statements of Income for the years ended March 31, 1997, 1996 and
1995............................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended March
31, 1997, 1996 and 1995............................................................ F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and
1995............................................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Schedule II--Valuation and Qualifying Accounts....................................... F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Chesapeake Biological Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Chesapeake
Biological Laboratories, Inc. (a Maryland corporation) and subsidiary as of
March 31, 1997 and 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years ended March 31,
1997, 1996 and 1995. 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 Chesapeake Biological
Laboratories, Inc. and subsidiary as of March 31, 1997 and 1996, and the results
of their operations and their cash flows for the years ended March 31, 1997,
1996 and 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements, and, in our opinion, fairly states, in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
April 25, 1997
F-2
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)................................................. $ 1,432,944 $ 240,583
Restricted cash (Note 2)........................................................... 350,000 --
Accounts receivable, net (Note 2).................................................. 714,793 671,626
Inventories (Notes 2 and 4)........................................................ 760,075 1,687,616
Prepaid expenses................................................................... 140,160 43,637
Deferred tax asset (Note 11)....................................................... 50,540 134,639
Interest receivable................................................................ 32,616 --
------------- ------------
TOTAL CURRENT ASSETS............................................................. 3,481,128 2,778,101
PROPERTY AND EQUIPMENT, net (Notes 2 and 5).......................................... 4,857,664 1,514,167
BOND FUNDS HELD BY TRUSTEE (Notes 2 and 7)........................................... 4,682,998 --
DEFERRED FINANCING COSTS (Note 7).................................................... 395,138 --
OTHER ASSETS......................................................................... 27,690 27,690
------------- ------------
TOTAL ASSETS..................................................................... $ 13,444,618 $ 4,319,958
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............................................. $ 551,112 $ 351,742
Current portion of long term debt and capital lease obligations (Notes 7 and 8).... 49,769 49,769
Deferred revenue (Note 2).......................................................... 85,887 215,513
------------- ------------
TOTAL CURRENT LIABILITIES........................................................ 686,768 617,024
LONG TERM LIABILITIES:
Long term debt and capital lease obligations, net of current portion (Notes 7 and
8)............................................................................... 8,553,985 105,668
Deferred rent (Note 8)............................................................. 52,590 82,657
Deferred tax liability (Note 11)................................................... 108,549 130,598
------------- ------------
TOTAL LIABILITIES................................................................ 9,401,892 935,947
------------- ------------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 8, AND 9)
STOCKHOLDERS' EQUITY:
Class A Common Stock, par value $.01 per share; 8,000,000 shares authorized;
4,114,558 and 3,979,938 shares issued and outstanding............................ 41,145 39,799
Class B Common Stock, par value $.01 per share; 2,000,000 shares authorized; no
shares issued and outstanding.................................................... -- --
Additional paid-in capital......................................................... 3,980,836 3,827,182
Retained earnings (accumulated deficit)............................................ 20,745 (482,970)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY (NOTE 10)............................................. 4,042,726 3,384,011
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $ 13,444,618 $ 4,319,958
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUE (NOTE 2).............................................. $ 8,653,793 $ 6,174,148 $ 6,981,788
COST OF REVENUE......................................................... 5,895,479 3,927,331 5,077,688
------------ ------------ ------------
GROSS PROFIT............................................................ 2,758,314 2,246,817 1,904,100
OPERATING EXPENSES:
General and administrative............................................ 1,430,976 1,210,093 1,230,076
Selling............................................................... 413,136 454,934 308,612
Research and development.............................................. 123,482 44,313 --
------------ ------------ ------------
INCOME FROM OPERATIONS.............................................. 790,720 537,477 365,412
INTEREST INCOME (EXPENSE), NET (NOTES 6, 7 AND 8)....................... 8,828 (22,580) (8,473)
------------ ------------ ------------
INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES.................... 799,548 514,897 356,939
PROVISION (BENEFIT) FOR INCOME TAXES (NOTES 2 AND 11)................... 295,833 205,959 (208,955)
------------ ------------ ------------
NET INCOME.............................................................. $ 503,715 $ 308,938 $ 565,894
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Primary
Net Income........................................................ $ 0.12 $ 0.08 $ 0.14
------------ ------------ ------------
------------ ------------ ------------
Fully diluted
Net Income........................................................ $ 0.12 $ 0.08 $ 0.14
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (NOTE
2)
Primary............................................................... 4,190,767 3,993,064 4,051,950
------------ ------------ ------------
------------ ------------ ------------
Fully diluted......................................................... 4,281,723 3,993,064 4,052,551
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT) TOTAL
---------- ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994..................... 3,890,052 $ 38,900 $ 3,811,992 $ (1,357,802) $ 2,493,090
Issuance of shares pursuant to exercise of
stock options............................. 89,886 899 15,190 -- 16,089
Net income.................................. -- -- -- 565,894 565,894
---------- ----------- -------------- ------------- ------------
BALANCE, MARCH 31, 1995..................... 3,979,938 39,799 3,827,182 (791,908) 3,075,073
Net income.................................. -- -- -- 308,938 308,938
---------- ----------- -------------- ------------- ------------
BALANCE, MARCH 31, 1996..................... 3,979,938 39,799 3,827,182 (482,970) 3,384,011
Issuance of shares pursuant to purchase of
building.................................. 125,000 1,250 148,750 -- 150,000
Issuance of shares pursuant to exercise of
stock options............................. 9,620 96 4,904 -- 5,000
Net income.................................. -- -- -- 503,715 503,715
---------- ----------- -------------- ------------- ------------
BALANCE, MARCH 31, 1997..................... 4,114,558 $ 41,145 $ 3,980,836 $ 20,745 $ 4,042,726
---------- ----------- -------------- ------------- ------------
---------- ----------- -------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 503,715 $ 308,938 $ 565,894
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 360,922 319,827 274,115
Provision (benefit) for deferred income taxes............................ 62,050 205,959 (210,000)
(Increase) decrease in accounts receivable............................... (43,167) 19,780 (249,716)
Decrease (increase) in inventories....................................... 927,541 (236,896) (134,593)
(Increase) decrease in prepaid expenses.................................. (96,523) 5,069 (30,397)
Increase in interest receivable.......................................... (32,616) -- --
Decrease in inventory due Allergan....................................... -- -- (300,000)
Increase (decrease) in accounts payable and accruals..................... 199,370 (113,858) 96,728
(Decrease) increase in deferred revenue.................................. (129,626) 87,530 (60,225)
(Decrease) increase in deferred rent..................................... (30,067) (20,114) 9,744
------------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................... 1,721,599 576,235 (38,450)
------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................................... (3,554,419) (318,355) (578,493)
Increase in bond funds held by Trustee................................... (4,682,998) -- --
------------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES.................................. (8,237,417) (318,355) (578,493)
------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) of/proceeds from short term borrowings--net................. -- (127,991) 127,991
Proceeds from long-term debt............................................. 8,500,000 -- 70,297
Repayments of long-term debt............................................. (22,419) (21,231) (44,910)
Repayments of capital lease obligations.................................. (29,264) (28,867) (26,123)
Payment of debt issuance costs........................................... (395,138) -- --
Increase in restricted cash.............................................. (350,000) -- --
Net proceeds from sale of stock.......................................... 5,000 -- 16,089
------------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.................... 7,708,179 (178,089) 143,344
------------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 1,192,361 79,791 (473,599)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 240,583 160,792 634,391
------------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 1,432,944 $ 240,583 $ 160,792
------------- ---------- ----------
------------- ---------- ----------
CASH PAID DURING THE YEAR FOR:
Interest................................................................. $ 27,315 $ 27,180 $ 14,538
------------- ---------- ----------
------------- ---------- ----------
Income taxes............................................................. $ 7,733 $ 55,000 $ 12,593
------------- ---------- ----------
------------- ---------- ----------
NON-CASH TRANSACTIONS:
Acquisitions of property and equipment under capital lease obligations... $ -- $ -- $ 62,474
------------- ---------- ----------
------------- ---------- ----------
Issuance of stock pursuant to purchase of building....................... $ 150,000 $ -- $ --
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
1. ORGANIZATION:
Chesapeake Biological Laboratories, Inc. ("CBL" or "the Company") is an
established provider of pharmaceutical and biopharmaceutical product development
and production services on a contract basis for a broad range of customers, from
major international pharmaceutical firms to emerging biotechnology companies.
Since 1990, CBL has provided its product development services to more than 80
pharmaceutical and biotechnology companies and has contributed to the
development and production of more than 100 therapeutic products intended for
human clinical trials. Customers contract with the Company to produce
development stage products for use in Food and Drug Administration ("FDA")
clinical trials and to produce and manufacture FDA approved products for
commercial sale. The Company's business depends in part on strict government
regulation of the drug development process, especially in the United States.
CBL's production facility operates under the current Good Manufacturing
Practices ("cGMP") established and regulated by the FDA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
CBL and its wholly-owned subsidiary, CBL Development Corp.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$10,300 and $16,400 as of March 31, 1997 and 1996, respectively.
INVENTORIES
Inventories consist of raw materials, work-in-process and finished goods
which are stated at the lower of cost or market, determined under the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Equipment is depreciated using the straight-line method over estimated useful
lives of three to ten years. The building is depreciated over an estimated
useful life of thirty years. Leasehold improvements are amortized over the term
of the lease.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include amounts invested in accounts with a
maturity of three months or less which are readily convertible to known amounts
of cash. Included in restricted cash are Company funds of $350,000 which are
being held by the Bond Trustee as collateral for the Company's obligations under
the Letter of Credit and Reimbursement Agreement with First Union National Bank
of North Carolina (see Note 7).
F-7
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
The Company recognizes income when the product is shipped or the service has
been provided to the customer. Deferred revenues represent deposits normally
required of customers with development products.
INCOME TAXES
Deferred income taxes are computed using the liability method, which
provides that deferred tax assets and liabilities are recorded based on the
differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes (see Note 11).
STOCK OPTION PLANS
Prior to April 1, 1996, the Company accounted for its stock-option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
April 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net earnings and pro forma earnings per share disclosures for employee
stock option grants made in fiscal 1996 and future years as if the
fair-value-based method defined in SFAS 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS 123 (see Note 10).
PER SHARE INFORMATION
Per share information is based on the weighted average number of shares of
common and common equivalent shares outstanding. The Company uses the treasury
stock method to calculate the dilutive effect of outstanding options at period
end based on the Company's stock price on the AMEX Emerging Company Marketplace.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could significantly differ from those
estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with current
year presentation.
F-8
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. CONCENTRATIONS OF CREDIT RISK/SIGNIFICANT CUSTOMERS:
The Company's customers span the range of the pharmaceutical and medical
device industries. For most customers, the Company requires an up-front payment
on orders. There are some recurring customers, however, for which CBL has waived
that practice.
The contract manufacturing agreement between the Company and Allergan Botox,
Ltd. ("Allergan") for the production of Vitrax-TM- originally expired in
February 1997. Subsequent to year-end, an agreement was reached between CBL and
Allergan which calls for the production of Vitrax-TM- through December 31, 1997,
on modified terms providing for the production of Vitrax using active
ingredients supplied by Allergan, rather than active ingredients manufactured by
CBL. In addition, Allergan has been relieved of any obligation to purchase
Vitrax exclusively from the Company. During the years ended March 31, 1997, 1996
and 1995, approximately 49%, 41% and 51%, respectively, of CBL's sales were to
Allergan. During the years ended March 31, 1997, 1996 and 1995, sales to the
second largest customer, which was a different customer each year, were 8%, 14%
and 18% of CBL's sales, respectively. The Company has been actively seeking to
increase and diversify its customer base and has been successful in its
diversification efforts. However, there can be no assurance that the Company's
business will not continue to be dependent on certain customers or that annual
results will not be dependent upon the performance of a few large projects.
4. INVENTORIES:
Inventories consisted of the following at March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Raw materials....................................................... $ 324,417 $ 371,954
Work-in-process..................................................... 433,454 1,288,163
Finished goods...................................................... 2,204 27,499
---------- ------------
$ 760,075 $ 1,687,616
---------- ------------
---------- ------------
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at March 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Land............................................................ $ 245,000 $ --
Building........................................................ 2,137,265 --
Construction in progress........................................ 1,324,614 68,741
Laboratory equipment............................................ 2,189,512 2,133,800
Furniture and fixtures.......................................... 384,130 352,792
Leasehold improvements.......................................... 435,582 456,356
------------- -------------
6,716,103 3,011,689
Less: Accumulated depreciation.................................. (1,858,439) (1,497,522)
------------- -------------
$ 4,857,664 $ 1,514,167
------------- -------------
------------- -------------
</TABLE>
Depreciation and amortization expense for the years ended March 31, 1997,
1996 and 1995 was $360,917, $319,827, and $274,115, respectively.
F-9
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. BANK FINANCING ARRANGEMENTS:
During fiscal 1995, the Company obtained a $750,000 Revolving Line of Credit
Facility and a $2,000,000 Equipment Leasing/Financing Credit Facility, secured
by the Company's inventory and accounts receivable, and by the equipment
acquired by the Company. The Revolving Credit Facility, which is used to fund
operating requirements, provides for interest at 0.5% over the prime rate. The
aggregate outstanding balance on the Revolving Credit Facility was $128,000 as
of March 31, 1995, with no balances as of March 31, 1997 and 1996. The average
outstanding balance on the Revolving Credit Facility for fiscal years 1997, 1996
and 1995, was $21,000, $86,000 and $64,000, respectively. The average interest
rate on the Revolving Credit Facility for fiscal years 1997, 1996 and 1995, was
8.75%, 9.0% and 9.5%, respectively. In connection with the bond issuance
described below, no further funds are available under the Equipment
Leasing/Financing Credit Facility; however, the Revolving Line of Credit
Facility remains in effect, secured by inventory and accounts receivable.
7. LONG TERM DEBT:
In November 1996, the Company completed the acquisition of an approximately
70,000 square foot building on 3.48 acres in Baltimore, Maryland, which the
Company is now in the process of renovating to provide CBL with office,
warehouse and pharmaceutical manufacturing space. The Company is actively
seeking opportunities and customer contracts to utilize these expanded
capabilities. However, as of March 31, 1997, the Company has not entered into
any definitive customer contracts for the new facility. The purchase and
renovation costs were financed with a $7,000,000 Economic Development Bond
issued by the Maryland Industrial Development Financing Authority, and a
$1,500,000 loan from the Mayor and City Council of Baltimore City by and through
the Department of Housing and Community Development. The loan has an interest
rate which is fixed at 6.5%. The bonds are tax-exempt and variable rate and may
be converted to a fixed rate.
The Company has also entered into an interest rate agreement with First
Union National Bank of North Carolina to reduce the potential impact of the
variable interest rates on the bonds. This agreement results in a maximum
interest rate on the bonds of 5.51%, and relates to $6 million of the
outstanding bonds. The agreement became effective in November 1996 and will
expire in November 2003.
The principal portion of the Bonds, and the accrued interest thereon, is
payable from monies drawn under a direct pay letter of credit issued by First
Union National Bank of North Carolina (the "Bank"), in amounts up to $7,280,000.
Interest is payable quarterly, commencing February 1, 1997, and principal
portions of the bonds are subject to redemption, in part, commencing November
1998, in accordance with a schedule set forth in the bonds. The Maturity Date is
August 1, 2018. The loan from the City of Baltimore requires interest only
payments for the first two years, with monthly principal and interest payments
beginning November 1998 with the final payment due in November 2016.
There are certain covenants contained in the debt financing, which include
ratios and balances as to minimum tangible net worth, liability to net worth
ratio, EBITDA ratio, and current ratio (all as defined). Other covenants include
a ceiling on capital expenditures and on the incurrence of other indebtedness
(as defined). The Company was in compliance with all such covenants as of March
31, 1997.
In connection with the financing, the Company incurred costs of $395,000
which will be amortized over the term of the bonds. The Company has also
capitalized $58,000 of net construction period interest costs through March 31,
1997, which will be expensed over the useful life of the building.
F-10
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LONG TERM DEBT: (CONTINUED)
The Company's other long term debt as of March 31, 1997, consists of a truck
and an equipment loan. The truck loan bears interest at 6.9% and is repayable
through December 8, 1998, in equal monthly installments. The equipment loan
bears interest at 8.5% and is repayable through April 1, 1999 in variable
monthly installments.
The remaining principal payments on the Company's long term debt as of March
31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 20,960
1999............................................................................ 347,464
2000............................................................................ 667,869
2001............................................................................ 669,519
2002 and thereafter............................................................. 6,839,257
------------
$ 8,545,069
------------
------------
</TABLE>
Based on the borrowing rates currently available to the Company, the fair
value of long-term debt, exclusive of capital lease obligations, as of March 31,
1997, is approximately $8,522,000.
8. LEASES:
In December 1993, the Company entered into a non-cancelable operating lease
agreement for a second facility to house its corporate offices, warehousing,
shipping and receiving functions. The lease expires December 31, 1998, with two,
two-year renewal terms. The rent expense under the lease agreement was $143,948,
$147,002, and $139,186 for the years ended March 31, 1997, 1996 and 1995,
respectively. The Company is currently in the process of subletting the facility
for the remainder of the lease term and management believes sublease revenues
will approximate the future rental commitment obligation.
The Company's original facility will be primarily used for production and is
occupied under a non-cancelable operating lease agreement with an initial six
and one-half year term, expiring December 31, 1998, and two renewable terms of
two years each. Related rental payments for the years ended March 31, 1997, 1996
and 1995, were $234,784, $232,782, and $228,683, respectively. The operating
lease agreement contains terms which feature reduced rental payments in the
early years and accelerated payments toward the end of the lease term. For
financial reporting purposes, rental expense represents an average of the
minimum annual rental payments over the initial six and one-half year term. On
an annual basis, this expense is approximately $192,000.
During previous years, the Company entered into several non-cancelable
capital lease obligations for various pieces of laboratory equipment and
furniture that expire during fiscal year 1999. In addition, in fiscal year 1997
the Company entered into several operating leases that expire during fiscal year
2001.
F-11
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. LEASES: (CONTINUED)
At March 31, 1997, the aggregate minimum annual lease payments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
MARCH 31 LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
1998.................................................................. $ 38,909 $ 273,306
1999.................................................................. 36,245 217,768
2000.................................................................. 1,123 29,541
2001.................................................................. -- 15,904
---------- ----------
76,277 $ 536,519
----------
----------
Less interest......................................................... (17,592)
----------
Present value of future minimum lease payments........................ $ 58,685
----------
----------
</TABLE>
9. CONTINGENCIES:
In the ordinary course of business, the Company could be exposed to a risk
of liability as a result of the products that it has produced or developed for
others. The Company attempts to limit its exposure to liability through
contractual agreements with its customers and insurance coverage. Clinical trial
materials are produced by the Company for use by its customers in studies that
are strictly regulated by the FDA. During fiscal 1997, 1996 and 1995, there were
no legal proceedings to which the Company was a party.
10. STOCK OPTION PLANS:
The Company has adopted four incentive stock option plans for employees (the
"Option Plans") and a separate plan for Directors. The Option Plans provide for
the granting of incentive stock options within the meaning of Section 422A of
the Internal Revenue Code of 1986, as amended. The exercise price of all options
granted under the Option Plans must be at least equal to the fair market value
of such shares on the date of the grant (110% in the case of an optionee who is
an owner of more than 10% of the Company's Common Stock), and the maximum term
of the options range from five to ten years.
The Company applies APB Opinion 25 and related interpretations in accounting
for its plans, under which no compensation expense has been recognized. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
F-12
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTION PLANS: (CONTINUED)
those plans consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Net income:
As reported.................................................................... $ 503,715 $ 308,938
Pro forma...................................................................... 364,955 286,233
Primary earnings per share:
As reported.................................................................... 0.12 0.08
Pro forma...................................................................... 0.09 0.07
Fully diluted earnings per share:
As reported.................................................................... 0.12 0.08
Pro forma...................................................................... 0.09 0.07
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Expected volatility.............................................................. 82.2% 82.2%
Risk-free interest rates......................................................... 5.9--6.0% 6.5--6.7%
Expected lives................................................................... 4-5 years 4-5 years
</TABLE>
A summary of option transactions for the years ended March 31, 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- --------------- --------- --------------- --------- ---------------
Outstanding, beginning of year..... 366,750 $ 2.16 256,250 $ 2.43 386,250 $ 1.80
Granted............................ 300,000 2.98 130,500 1.50 -- --
Exercised.......................... (11,250) 1.28 -- -- (98,996) 0.54
Expired or cancelled............... (83,600) 3.80 (20,000) 1.25 (31,004) 0.62
--------- ----- --------- ----- --------- -----
Outstanding, end of year........... 571,900 $ 2.37 366,750 $ 2.16 256,250 $ 2.43
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Shares available for future
grant............................ 531,550 43,497 132,997
--------- --------- ---------
--------- --------- ---------
Options exercisable at end of
period........................... 105,000 108,750 45,000
--------- --------- ---------
--------- --------- ---------
Weighted average fair value of
options granted.................. $ 2.24 $ 1.03 --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted average remaining contractual life of options outstanding at
March 31, 1997, is 5.6 years.
F-13
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES:
The provision (benefit) for income taxes was comprised of the following for
the years ended March 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Federal:
Current............................................... $ 198,716 $ -- $ 1,045
Deferred.............................................. 52,743 175,065 (178,657)
State:
Current............................................... 35,067 -- --
Deferred.............................................. 9,307 30,894 (31,343)
---------- ---------- -----------
Provision (benefit) for income taxes.................... $ 295,833 $ 205,959 $ (208,955)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The following table reconciles income taxes at the federal statutory rate to
the provision for income taxes in the accompanying consolidated statements of
income for the years ended March 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Income tax at federal statutory rate........................................ $ 271,846 $ 175,065 $ 121,359
State tax, net of federal benefit......................................... 36,939 30,894 28,295
Alternative minimum tax................................................... -- -- 1,045
Utilization of net operating loss carryforwards........................... -- -- (149,654)
Recognition of cumulative benefit for deferred income tax................. -- -- (210,000)
Other..................................................................... (12,952) -- --
---------- ---------- -----------
Provision (benefit) for income taxes...................................... $ 295,833 $ 205,959 $ (208,955)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
As of March 31, 1997, CBL had no net operating loss carryforwards for income
tax purposes.
Total deferred tax liabilities and deferred tax assets as of March 31, 1997
and 1996, and the sources of the differences between financial accounting and
tax basis of the Company's assets and liabilities which give rise to the
deferred tax liabilities and deferred tax assets and the tax effects of each are
as follows.
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Inventory...................................................................... $ 32,251 $ 71,609
Accruals and reserves.......................................................... 18,289 15,845
Net operating loss and credit carryforwards.................................... -- 47,185
-------------- --------------
$ 50,540 $ 134,639
-------------- --------------
-------------- --------------
Deferred tax liability:
Property and equipment......................................................... $ 108,549 $ 130,598
-------------- --------------
-------------- --------------
</TABLE>
12. PROFIT SHARING PLAN:
During the year ended March 31, 1994, the Company established a 401K-Profit
Sharing Plan ("the Plan") for all full-time employees with at least six months
of service with the Company. Employees may
F-14
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. PROFIT SHARING PLAN: (CONTINUED)
contribute up to 10% of their salary to the Plan and the Company may match the
first 3% of salary that the employee contributes to the Plan. The original entry
date in the Plan for eligible employees was October 1, 1993. The Company
suspended the matching of employee contributions as of July 31, 1994. The
Company's cost to match employee contributions was $16,857 for the year ended
March 31, 1995.
13. NEW ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"). SFAS 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
financial statements with fiscal years beginning after December 15, 1995. The
adoption of SFAS 121 as of April 1, 1996 had no impact on the Company's
financial position or results of operations.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 simplifies the standards for
computing earnings per share ("EPS") previously found in APB Opinion No. 15,
"Earnings per Share." It replaces the presentation of primary EPS with a
presentation of basic EPS and requires a reconciliation of the numerator and
denominator of the diluted EPS calculation. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. SFAS 128
is effective for fiscal years ending after December 15, 1997, and early adoption
is not permitted. When adopted, it will require restatement of prior years' EPS.
When adopted for the year ending March 31, 1998, the Company will report basic
EPS instead of primary EPS. Basic EPS for the years ended March 31, 1997, 1996
and 1995 is $0.13, $0.08 and $0.14, respectively.
14. SUBSEQUENT EVENT:
On April 25, 1997, the Company filed a Registration Statement on Form S-2
with the Securities and Exchange Commission for the purpose of issuing 1,000,000
shares of its Class A Common Stock. At the current market price, the net
proceeds to the Company from this offering are expected to be approximately
$4,375,000, if the offering is successfully completed.
F-15
<PAGE>
SCHEDULE II
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allowances for Doubtful Accounts:
For Fiscal Year Ended March 31, 1995:........................... $ 1,489 $ 17,520 $ 15,009 $ 4,000
For Fiscal Year Ended March 31, 1996:........................... 4,000 33,900 21,500 16,400
For Fiscal Year Ended March 31, 1997:........................... 16,400 15,000 21,100 10,300
</TABLE>
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF 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 AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Special Note Regarding Forward Looking
Information................................... 4
Risk Factors.................................... 4
Use of Proceeds................................. 9
Price Range of Common Stock..................... 9
Dividend Policy................................. 9
Capitalization.................................. 10
Selected Financial Data......................... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 12
Business........................................ 17
Management...................................... 27
Description of Capital Stock.................... 32
Underwriting.................................... 35
Legal Matters................................... 36
Experts......................................... 36
Available Information........................... 36
Incorporation of Certain Information by
Reference..................................... 37
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[1,000,000] SHARES
[LOGO]
CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
CLASS A COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1997
FERRIS, BAKER WATTS
Incorporated
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated amount of various expenses in
connection with the sale and distribution of the securities being registered:
<TABLE>
<S> <C>
SEC Registration fee.............................................. $ 1,743
NASD filing fee................................................... 1,075
Nasdaq National Market filing fee................................. 17,500
Printing and engraving expenses................................... 70,000
Legal fees and expenses
(including blue sky fees and expenses).......................... 135,000
Accounting fees and expenses...................................... 25,000
Transfer agent fees............................................... 7,000
Advisory Fee...................................................... 25,000
Miscellaneous..................................................... 17,682
---------
Total......................................................... $ 300,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Company contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
The charter of the Company provides that the Company shall, to the full
extent permitted by Maryland law, indemnify its directors and officers,
including the advance of related expenses. The charter of the Company also
authorizes it, upon authorization of the Board of Directors, to indemnify other
employees and/or agents of the Company to the same extent as directors and
officers of the Company. The Bylaws provide that, on the terms, to the extent,
and subject to the conditions prescribed by statute and by rule and regulations,
not inconsistent with statute, imposed by the Board of Directors in its
discretion in general or particular cases or classes of cases, the Company shall
indemnify any person who was or is a party, or is threatened to be made a party,
to the threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, against expenses including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, or any appeal therein. The
Bylaws also provide that the Company may pay, in advance of the final
disposition of the action, suit or proceeding, expenses incurred by the person
which may be indemnifiable as provided therein.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active
II-1
<PAGE>
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the Bylaws
and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the standard
of conduct was not met.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Articles of Restatement of the Registrant, filed with the State Department of Assessments and
Taxation on April 24, 1997.(1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding legality of securities being registered.(1)
10.1 Assignment and Agreement, dated March 8, 1980, between William P. Tew, Ph.D., and the Registrant.(2)
10.2 Incentive Stock Option Plan of the Registrant.(2)
10.3 Second Incentive Stock Option Plan of the Registrant.(2)
10.4 Third Incentive Stock Option Plan of the Registrant.(2)
10.5 Fourth Incentive Stock Option Plan of the Registrant.(7)
10.6 Director's Agreement dated May 5, 1986, between John C. Weiss, III and the Registrant.(2)
10.7 Director's Agreement dated November 30, 1995, between John C. Weiss, III and the Registrant.(1)
10.8 Director's Agreement dated November 30, 1995, between Regis F. Burke and the Registrant.(1)
10.9 Director's Agreement dated November 18, 1996, between Harvey L. Miller and the Registrant.(1)
10.10 Director's Agreement dated March 21, 1997, between Thomas P. Rice and the Registrant.(1)
10.11 1997 Directors' Stock Option Plan of the Registrant.(1)
10.12 Lease, dated December 26, 1986, between Centennial/Warren Technology Associates Limited Partnership,
as predecessor of Jiffy Lube International of Maryland, Inc., and the Registrant.(2)
10.13 Agreement, dated May 16, 1983 between E.R. Squibb & Sons, Inc. and the Registrant, and notice and
consent to assignment dated October 10, 1985, among Squibb, Solvay Veterinary, Inc. and the
Registrant.(2)
10.14 Agreement, dated December 7, 1987 between Solvay Veterinary, Inc., and the Registrant.(2)
10.15 Lease Agreement dated October 6, 1993 by and between the Company and Crondall Lane Limited
Partnership.(4)
10.16 Contract Manufacturing Agreement, dated January 1, 1991, by and between the Registrant and Allergan
Pharmaceuticals (Ireland), Ltd., Inc.(3)
10.17 Loan and Security Agreement, dated September 2, 1994, by and between the Registrant and the Bank of
Baltimore Bancorp Leasing and Financial, Inc., both now known as The First Union National Bank of
Maryland.(6)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
10.18 Employment Agreement dated as of July 1, 1995 by and between the Registrant and William P. Tew,
Ph.D.(7)
10.19 Employment Agreement dated as of July 1, 1995 by and between the Registrant and Narlin B. Beaty,
Ph.D.(7)
10.20 Employment Agreement dated as of July 1, 1995 by and between the Registrant and Thomas C.
Mendelsohn.(7)
10.21 Employment Agreement dated as of July 1, 1995 by and between the Registrant and John T. Janssen.(7)
10.22 Employment Agreement dated as of July 1, 1995 by and between the Registrant and Robert J. Mello,
Ph.D.(7)
10.23 Employment Agreement dated as of May 16, 1996 by and between the Registrant and John C. Weiss,
III.(8)
10.24 Loan Agreement dated as of November 1, 1996, by and between the Registrant and Maryland Industrial
Development Financing Authority.(9)
10.25 Letter of Credit and Reimbursement Agreement dated as of November 1, 1996, by and between the
Registrant and First Union National Bank of North Carolina.(9)
10.26 Collateral Pledge Agreement dated as of November 1, 1996, by and between the Registrant and First
Union National Bank of North Carolina.(9)
10.27 Promissory Note dated as of November 21, 1996 from the Registrant to the Mayor and City of Council of
Baltimore, in the original principal sum of $1,500,000.(9)
10.28 Promissory Note dated as of November 21, 1996 from the Registrant to the Maryland Industrial
Financing Authority, in the original principal sum of $7,000,000.(9)
10.29 Letter Agreement, dated November 21, 1996, by and between Registrant and William P. Tew, Ph.D.(1)
10.30 Letter Agreement, dated November 21, 1996, by and between Registrant and Narlin B. Beaty, Ph.D.(1)
10.31 Letter Agreement, dated November 21, 1996, by and between Registrant and John C. Weiss, III.(1)
10.32 Letter Agreement, dated November 21, 1996, by and between Registrant and Thomas C. Mendelsohn.(1)
10.33 Letter Agreement, dated November 21, 1996, by and between Registrant and John T. Janssen.(1)
10.34 Letter Agreement, dated November 21, 1996, by and between Registrant and Robert J. Mello, Ph.D.(1)
11 Statement re: computation of per share earnings.(1)
23.1 Consent of Arthur Andersen LLP.(1)
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5).(1)
27 Financial Data Schedule.(1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) Incorporated by reference to the Registration Statement on Form S-18 of the
Registrant (No. 33-17655).
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
Fiscal Year ended March 31, 1991.
(4) Incorporated by reference to the Registrant's Form 10-K/A, Amendment No. 1
to Annual Report on Form 10-K for Fiscal Year Ended March 31, 1994.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
Fiscal Year Ended March 31, 1994.
II-3
<PAGE>
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
Fiscal Year ended March 31, 1995.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for Fiscal Quarter Ended June 30, 1995.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the Fiscal Quarter Ended June 30, 1996.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the Fiscal Quarter Ended December 31, 1996.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, 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 the offering such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names required by the underwriter to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
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 Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant 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 Registrant 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 Act and will be governed by the final adjudication of
such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland, on April 25, 1997.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
BY: /S/ JOHN C. WEISS, III
-----------------------------------------
John C. Weiss, III
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints John C. Weiss, III and William P. Tew, and each of
them, his true and lawful attorney-in-fact, with full power of substitution, for
him in any and all capacities, to execute and cause to be filed with the
Securities and Exchange Commission any and all amendments and post-effective
amendments to this Registration Statement, with exhibits thereto and other
documents in connection therewith, and hereby ratifies and confirms all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ WILLIAM P. TEW, PH.D. Chief Executive Officer
- ------------------------------ Chairman of the Board April 25, 1997
William P. Tew, Ph.D. and Director
/s/ JOHN C. WEISS, III
- ------------------------------ President and Director April 25, 1997
John C. Weiss, III
/s/ JOHN T. JANSSEN
- ------------------------------ Chief Financial Officer April 25, 1997
John T. Janssen and Treasurer
/s/ NARLIN B. BEATY, PH.D.
- ------------------------------ Chief Technical Officer April 25, 1997
Narlin B. Beaty, Ph.D. and Director
/s/ REGIS F. BURKE
- ------------------------------ Director April 25, 1997
Regis F. Burke
/s/ HARVEY L. MILLER
- ------------------------------ Director April 25, 1997
Harvey L. Miller
/s/ THOMAS P. RICE
- ------------------------------ Director April 25, 1997
Thomas P. Rice
/s/ THOMAS C. MENDELSOHN
- ------------------------------ Vice President, Secretary April 25, 1997
Thomas C. Mendelsohn and Director
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<PAGE>
EXHIBIT 1.1
UNDERWRITING AGREEMENT
Ferris, Baker Watts, Incorporated __________________, 1997
1720 Eye Street, N.W.
Washington, DC 20006
Gentlemen:
SECTION 1. INTRODUCTION. Chesapeake Biological Laboratories, Inc., a
Maryland corporation (the "Company"), has authorized capital stock consisting of
10,000,000 shares of Common Stock divided into 8,000,000 shares of Class A
Common Stock (the "Common Stock") and 2,000,000 shares of non-voting Class B
Common Stock, all of which Common Stock and Class B Common Stock has a par value
of $.01 per share, of which [4,111,188] shares of Common Stock are issued and
outstanding and no shares of Class B Common Stock are issued or outstanding.
The Company proposes to sell an aggregate of 1,000,000 shares of Common Stock
(the "Firm Common Shares") to you as underwriters (the "Underwriters"). In
addition, the Company has agreed to grant to the Underwriters an option to
purchase up to 150,000 additional shares of Common Stock (the "Optional Common
Shares") as provided in Section 5 hereof. The Firm Common Shares and, to the
extent such option is exercised, the Optional Common Shares, are hereinafter
collectively referred to as the "Common Shares".
You have advised the Company that you propose to make a public offering of
the Common Shares on the effective date of the Registration Statement, as
defined in Section 2(f) hereof, or as soon thereafter as in your judgment is
advisable, and that the purchase price of the Common Shares will be the public
offering price of $_______ per share less underwriting discounts and commissions
of six and one-half percent (6.5%) or $______ per share.
The Company hereby confirms its agreements with you, as the Underwriters,
as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you that:
(a) The Company and each subsidiary ("Subsidiary") identified in
Exhibit 21 of the Registration Statement (hereinafter defined) is duly
incorporated and validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, with full corporate power
and authority to own and/or lease its properties and conduct its business
as described in the Prospectus (as defined in Section 2(f) hereof), each of
the Company and the Subsidiary is duly qualified to do business as a
foreign corporation under the corporate law of, and is in good standing as
such in, each jurisdiction in which it owns or leases properties, has an
office, or conducts business and in which such qualification is required,
and no proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power
and authority or qualification.
(b) The Company does not own or control any Subsidiary and does not
own any interest in any other corporation, joint venture, proprietorship or
other commercial entity or organization except as described in the
Registration Statement.
(c) The issued and outstanding shares of Common Stock as set forth in
the Prospectus have been duly authorized and validly issued and are fully
paid and nonassessable. There are no pre-emptive, preferential or other
rights to subscribe for or purchase any of the Common Shares to be sold by
the Company hereunder, and no shares of Common Stock have been issued in
violation of such rights of stockholders. Except as disclosed in the
Prospectus, there are no outstanding rights, warrants or options to acquire
or instruments convertible into or exchangeable for, any shares of Common
Stock or other equity interest in the Company. No holders of securities of
the Company have any rights to the registration of such securities under
the Registration Statement or such rights have been waived in writing by
such holders with respect to the Registration Statement. The statements
made in the Prospectus under the caption "Description of Securities" are
accurate
<PAGE>
in all material respects. The outstanding shares held by the Company of
capital stock of each Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable and are all owned beneficially by
the Company free and clear of all liens, encumbrances, equities and claims.
(d) The Common Shares to be sold by the Company have been duly
authorized, and when issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the Prospectus. Upon
consummation of the purchase of the Common Shares by the Underwriters under
this Agreement, the Underwriters will acquire good and marketable title
thereto, free and clear of any claim, security interest, community property
right, or other encumbrance or restriction on transfer.
(e) The Company has full corporate power and authority to enter into
and perform this Agreement, and the execution and delivery hereof, and the
performance of the Company's obligations hereunder have been duly
authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable in accordance with its terms, except
that rights to indemnity or contributions may be limited by applicable law
and enforceability of the Agreement may be limited by bankruptcy,
insolvency or similar laws generally affecting the rights of creditors and
by equitable principles limiting the right to specific performance or other
equitable relief. The execution and performance by the Company of this
Agreement, including application of the net proceeds of the offering, when
received, as described in the Prospectus under "Prospectus Summary,"
"Capitalization" and "Use of Proceeds," will not violate any provisions of
the Company's Articles of Incorporation or By-Laws or any law, rule or
regulation applicable to the Company or any Subsidiary of any government,
court, regulatory body, administrative agency or other governmental body
having jurisdiction over the Company or any Subsidiary or any of its
respective businesses or properties, and will not result in the breach, or
be in contravention, of any provision of any loan agreement, lease,
franchise, license, note, bond, other evidence of indebtedness, indenture,
mortgage, deed of trust, other instrument, permit or other contractual
obligation to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary or their respective property may be bound or
affected, or any order of any court or governmental agency or authority
entered in any proceeding to which the Company or any Subsidiary was or is
now a party or by which it is bound except those, if any, described in the
Prospectus or which are not material to the Company and do not materially
affect its business. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency, or other governmental
body is required for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
by this Agreement, except for compliance with the Securities Act of 1933,
as amended (the "Act") and the state securities laws (the "Blue Sky Laws")
applicable to the public offering of the Common Shares by the Underwriters,
and the clearance of such offering with the National Association of
Securities Dealers, Inc. (the "NASD").
(f) A registration statement on Form S-2 with respect to the Common
Shares, prepared by the Company in conformity with the requirements of the
Act and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, has been
filed with the Commission, and the Company has prepared and has filed prior
to the effective date of such registration statement an amendment or
amendments to such registration statement as may be required. There have
been delivered to you and your counsel two conformed copies of such
registration statement, as initially filed with the Commission and each
amendment thereto (but without exhibits) and of each related form of
prospectus included in the registration statement prior to the time it
becomes effective or filed with the Commission pursuant to Rule 424(a)
under the Act (each, a "Preliminary Prospectus").
Such registration statement, as finally amended and revised at the
time such registration statement becomes effective, which shall be deemed
to include all information omitted therefrom in reliance upon Rule 430A
under the Act and contained in the Prospectus, is herein referred to as the
"Registration Statement". The related form of prospectus and any term
sheet that may be provided pursuant to Rule 434 of the Act, including
information incorporated by reference therein, filed by the Company with
the Commission pursuant to Rules 424(b) and 430A under the Act is herein
referred to as the "Prospectus".
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<PAGE>
(g) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed fully in all material respects with the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they are made, not misleading. The
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contain all statements that are required to be stated
therein in accordance with the Act and the Rules and Regulations and in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, includes any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; provided, however,
that the Company makes no representation or warranty as to information
contained in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
you or on your behalf specifically for use in the preparation thereof.
There are no legal or governmental actions, suits or legal proceedings, and
there are no contracts or other documents, transactions or relationships of
or by the Company required to be described in the Registration Statement or
to be filed as exhibits to the Registration Statement by the Act or by the
Rules and Regulations which have not been described or filed as required.
(h) Arthur Andersen LLP, which has expressed its opinion with respect
to certain of the consolidated financial statements filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent certified public accountants as required by the
Act and the Rules and Regulations.
(i) The consolidated financial statements of the Company for the
respective periods covered thereby, and the related notes and schedules
thereto included in the Registration Statement and the Prospectus, present
fairly the financial position of the Company for the periods covered
thereby as of the respective dates of such financial statements, all in
conformity with generally accepted accounting principles consistently
applied throughout the periods involved and all adjustments necessary for a
fair presentation of results for such periods have been made. The
consolidated selected financial data included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis consistent with the consolidated financial statements presented
therein. No other financial statements are required by Form S-2 or
otherwise to be included in the Registration Statement.
(j) Neither the Company nor the Subsidiary is in violation of its
Articles of Incorporation or By-Laws, or in default under any court or
administrative order or decree, or in default with respect to any material
provision of any material loan agreement, lease, franchise, license, note,
bond, other evidence of indebtedness, indenture, mortgage, deed of trust,
other instrument, permit or other contractual obligation to which the
Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of their respective properties or businesses are bound,
and, to the knowledge of the Company, there does not exist any state of
facts which constitutes an event of default as defined in such documents or
which, upon notice or lapse of time or both, would constitute such an event
of default, except those, if any, described in the Prospectus or which are
not material to the Company and do not materially affect its business.
(k) There are no governmental actions, suits or legal proceedings
pending or, to the Company's knowledge, threatened to which the Company or
the Subsidiary is a party or to which the Company's or Subsidiary's
business or any material property owned or leased by the Company or the
Subsidiary is subject, or related to product liability, environmental or
discrimination matters which are not disclosed in the Registration
Statement and the Prospectus, or which question the validity of this
Agreement or any action taken or to be taken pursuant hereto except those,
if any, described in the Prospectus or which are not material to the
Company and do not materially affect its business.
3
<PAGE>
(l) The Company and each Subsidiary has good and marketable title to
all the properties and assets reflected as owned in the consolidated
financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of
any kind or nature whatsoever except those, if any, reflected in such
consolidated financial statements (or elsewhere in the Prospectus) or
which, in the aggregate, are not material to the Company and its business
and do not materially affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property; all material properties held or used by the Company and each
Subsidiary under leases, licenses or other agreements are held under valid,
subsisting and enforceable leases, franchises, or other agreements with
respect to which it is not in default, except to the extent that the
enforceability of the rights and remedies of the Company or a Subsidiary
under any such lease, franchise, license or other agreement may be limited
by bankruptcy, insolvency or similar laws generally affecting the rights of
creditors and by equitable principles limiting the right to specific
performance or other equitable relief.
(m) The Company will not take and has not taken, directly or
indirectly, any action (and does not know of any action by its directors,
officers or stockholders, or others) designed to or which has constituted
or which might reasonably be expected to cause or result, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise, in stabilization or manipulation of the price of the Common
Shares to facilitate the sale or resale of the Common Shares, except that
the Underwriters may engage in stabilization to the extent permitted by the
Exchange Act and rules promulgated thereunder.
(n) Except as reflected in or contemplated by the Registration
Statement or any amendment thereto, since the respective dates as of which
information is given in the Registration Statement:
(i) neither the Company nor the Subsidiary has incurred any
material liabilities or obligations, direct or contingent, nor entered
into any material transactions not in the ordinary course of business;
(ii) neither the Company nor the Subsidiary has paid or declared
any dividends or other distributions with respect to its capital stock
and the Company is not delinquent in the payment of principal or
interest on any outstanding debt obligations; and
(iii) there has not been any change in the capital stock or
long-term debt of the Company or the Subsidiary, or any material
adverse change in the business (resulting from litigation or
otherwise), business prospects, properties, condition (financial or
otherwise), net worth or results of operations of the Company.
(o) The Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due
thereon; and the Company has no knowledge of any tax deficiency which has
been asserted or threatened against the Company which would materially
adversely affect the business or operations or properties of the Company.
(p) The Company has an outstanding capitalization as set forth under
"Capitalization" in the Prospectus as of the date indicated therein and
there has been no material change therein except as disclosed in the
Prospectus. The financial and numerical information and data in the
Prospectus under "Prospectus Summary," "Use of Proceeds," "Price Range of
Common Stock," "Dividend Policy," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," and "Description of Capital Stock"
are fairly presented and prepared on a basis consistent with the audited
consolidated financial statements of the Company.
(q) The Company and each Subsidiary has obtained all material
licenses, permits, approvals and other governmental authorizations required
for the present and proposed conduct of its business as described in the
Prospectus. Such licenses, permits and other governmental authorizations
are in full force and effect, the Company and the Subsidiary are in all
material respects complying therewith, and neither the Company nor the
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such
4
<PAGE>
license, permit, approval or authorization. The Company and the Subsidiary
are complying in all material respects with all material laws, ordinances
and regulations applicable to the Company and the Subsidiary, their
respective properties and their business.
(r) The Company has maintained its books of account in accordance
with generally accepted accounting principles consistently applied in all
material respects, and such books and records are, and during periods
covered by the financial statements included in the Registration Statement
and the Prospectus are, correct and complete in all material respects, and
fairly and accurately reflect or reflected the income, expenses, assets and
liabilities of the Company and provide or provided a fair and materially
accurate basis for the preparation of such financial statements.
(s) The minute books of the Company are current and contain a
materially correct and substantially complete record of all corporate
action taken by the Board of Directors and the stockholders of the Company,
and all signatures contained therein are true signatures of the persons
whose signatures they purport to be.
(t) Except as described in the Prospectus, the Company is unaware of
any loss or threatened loss of any key customer, supplier, or account which
is material to the Company.
(u) The Company and each Subsidiary owns or possesses all patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks
and trade names used by them or reasonably believed by management necessary
in connection with the present conduct of its business as described in the
Prospectus, and neither the Company nor any Subsidiary has received any
notice of infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in any material adverse change in the condition, financial or
otherwise, or in the earnings, affairs or business prospects of the
Company.
(v) The Company and each Subsidiary is in substantial compliance with
all federal, state or local laws or ordinances, including orders, rules and
regulations thereunder, regulating or otherwise affecting employee health
and safety or the environment, non-compliance with which could have a
material adverse effect on the Company. To the Company's knowledge, it and
the Subsidiary have disposed of all wastes in substantial compliance with
applicable laws, and the Company is not aware of any existing condition
that may form the basis for any present or future claim, demand or action
seeking clean-up of any site, location, or body of water, surface or
subsurface.
(w) The employee benefit plans, including employee welfare benefit
plans, of the Company and each Subsidiary ("Employee Plans") have been
operated in compliance with the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal
Revenue Code of 1986, as amended (the "Code"), all regulations, rulings and
announcements promulgated or issued thereunder and all other applicable
governmental laws and regulations. No reportable event under Section
4043(b) of ERISA or any prohibited transaction under Section 406 of ERISA
has occurred with respect to any employee benefit plan maintained by the
Company or the Subsidiary. There are no pending or, to the Company's
knowledge, threatened claims by or on behalf of any employee benefit plan,
by any employee or beneficiary covered under any such plan or by any
governmental agency or otherwise involving such plans or any of their
respective fiduciaries (other than for routine claims for benefits). All
Employee Plans that are group health plans have been operated in compliance
with the group health plan continuation coverage requirements of Section
4980B of the Code in all material respects.
(x) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disputes by the
5
<PAGE>
employees of any of its principal suppliers, manufacturers or contractors
which might be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, affairs or business
prospects of the Company.
A certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation
and warranty of the Company to you as to the matters covered thereby.
SECTION 3. [INTENTIONALLY DELETED.]
SECTION 4. [INTENTIONALLY DELETED.]
SECTION 5. PURCHASE, SALE AND DELIVERY OF COMMON SHARES. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell
1,000,000 Firm Common Shares to the Underwriters, and the Underwriters agree to
purchase from the Company the number of Firm Common Shares as hereinafter set
forth at the price per share set forth in Section 1 hereof.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriters to purchase from the Company
up to 150,000 Optional Common Shares at the same purchase price per share to be
paid for the Firm Common Shares, for use solely in covering any overallotment
made by the Underwriters in the sale and distribution of the Firm Common Shares.
At 9:00 A.M., Baltimore time, on the third full business day after the
public offering, or at such other time not later than one week after such third
full business day as may be agreed upon by you and the Company, the Company will
deliver to you at your offices located at 1720 Eye Street, N.W., Washington,
D.C., or through the facilities of The Depository Trust Company, for the
accounts of the Underwriters, certificates representing the Firm Common Shares
to be sold, against payment in Washington, DC of the purchase price therefor in
next day funds payable, as appropriate, to the order of the Company in respect
of the Firm Common Shares being sold by the Company. Such time of delivery and
payment is referred to throughout this Agreement as the "First Closing Date."
The certificates for the Firm Common Shares to be so delivered will be in
denominations and registered in such names as you request by notice delivered to
the Company prior to 9:00 A.M., Baltimore time, no later than two business days
prior to the First Closing Date, and will be made available for checking and
packaging at such time and at such location to be designated by you.
The overallotment option granted hereunder may be exercised at any time
(but not more than once) within thirty (30) days after the date the Registration
Statement becomes effective upon written notice from you to the Company setting
forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date, as hereinafter defined), being herein
referred to as the "Second Closing Date," shall be determined by you, but if at
any time other than the First Closing Date, shall not be earlier than three (3)
nor later than five (5) full business days after delivery of such notice of
exercise to the Company. Certificates for the Optional Common Shares will be
made available for checking and packaging at such time and at such location to
be designated by you. The manner of payment for and delivery of (including the
denominations of and the names in which certificates are to be registered) the
Optional Common Shares shall be the same as for the Firm Common Shares purchased
from the Company. You may cancel the option at any time prior to its expiration
by giving written notice of such cancellation to the Company.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with you, as the Underwriters, as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective at the earliest possible time and upon
notification from the Commission that the Registration Statement has become
effective, will so advise you and your counsel promptly. Thereafter, the
Company will prepare and timely file with the Commission pursuant to Rule
424(b) under the Act the Prospectus containing
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<PAGE>
information previously omitted in reliance upon Rule 430A under the Act.
The Company will advise you and your counsel promptly of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the initiation or threatening of any
proceedings for that purpose, and will also advise you and your counsel
promptly of any request of the Commission for amendment or supplement of
the Registration Statement (either before or after it becomes effective),
of any Preliminary Prospectus or of the Prospectus, or for additional
information, and will not file or make any amendment or supplement to the
Registration Statement (either before or after it becomes effective), to
any Preliminary Prospectus or to the Prospectus of which you have not been
furnished with a copy prior to such filing or to which you object; and the
Company will file promptly and will furnish to you at or prior to the
filing thereof copies of all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission pursuant to Sections 13, 14 and 15 of the Exchange Act
subsequent to the date of the Prospectus, and for so long as the delivery
of a prospectus is required in connection with the offering or sale of the
Common Shares.
(b) If, at any time when a prospectus relating to the Common Shares
is required to be delivered under the Act, any event occurs as a result of
which the Prospectus, including any subsequent amendment or supplement,
would include an untrue statement of a material fact, or would omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendment or supplement thereto, to comply with
the Act or the Rules and Regulations, the Company promptly will advise you
and your counsel thereof and will promptly prepare and file with the
Commission an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance; and, in case
the Underwriters are required to deliver a prospectus nine months or more
after the effective date of the Registration Statement, the Company upon
request, but at the expense of the Underwriters, will prepare promptly such
prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act.
(c) Except as described in the Prospectus, the Company will not,
prior to the Second Closing Date, incur any liability or obligation, direct
or contingent, or enter into any material transaction, other than in the
ordinary course of business or, if there is no Second Closing Date, then
prior to the First Closing Date.
(d) The Company will not acquire any of the Company's capital stock
prior to the Second Closing Date nor will the Company declare or pay any
dividend or make any other distribution upon its capital stock payable to
its holders of record on a date prior to the Second Closing Date or, if
there is no Second Closing Date, then prior to the First Closing Date.
(e) Until the Underwriters have completed the offering referred to in
Section 1 above, the Company will not take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or
result, under the Exchange Act, or otherwise, in stabilization or
manipulation of the price of the Common Shares to facilitate the sale or
resale of the Common Shares.
(f) The Company will make generally available to you and to the
Company's security holders an earnings statement (which need not be
audited) as soon as practicable, but in no event later than 15 months after
the end of the Company's current fiscal quarter, covering a period of 12
consecutive calendar months beginning after the effective date of the
Registration Statement, which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act and Rule 158 promulgated thereunder.
(g) During such period as a prospectus is required by law to be
delivered in connection with sales by the Underwriters or a dealer, the
Company will furnish you, at the Company's expense, with copies of the
Registration Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as you may reasonably request, for the
purposes contemplated by the Act or Exchange Act.
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(h) The Company will cooperate with you and your counsel in
qualifying or registering the Common Shares for sale, or obtaining an
exemption therefrom, under the Blue Sky Laws of such jurisdictions as you
shall designate, and will continue such qualifications or registrations or
exemptions in effect so long as reasonably requested by you to effect the
distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any such jurisdiction where it is not presently qualified.
(i) During the period of five years after the date hereof, as soon as
practicable after the end of each fiscal year, the Company will furnish you
with two copies of the Annual Report of the Company containing the
consolidated statement of financial condition of the Company as of the
close of such fiscal year and corresponding consolidated statements of
operations, stockholders' equity and cash flows for the year then ended,
such consolidated financial statements to be under the certificate or
opinion of the Company's independent certified public accountants. During
such period the Company will also furnish you with one copy:
(i) as soon as practicable after the filing thereof, of
each report filed by the Company with the Commission; and
(ii) as soon as available, of each report of the Company
mailed to its stockholders.
(j) The Company will comply or cause to be complied with the
conditions to the obligations of the Underwriters set forth in Section 9
hereof.
(k) The Company shall take all necessary and appropriate action such
that the Common Shares are authorized for quotation on the NASDAQ National
Market as soon as practicable after the effectiveness of the Registration
Statement and the Common Shares shall remain so authorized for at least
thirty-six (36) months thereafter.
(l) The Company shall promptly prepare and file with the Commission,
from time to time, such reports as may be required to be filed by the Rules
and Regulations.
(m) The Company shall comply in all respects with the undertakings
given by the Company in connection with the qualification or registration
of the Common Shares for offering and sale under the Blue Sky Laws of one
or more jurisdictions.
(n) The Company shall apply the net proceeds from the sale of the
Common Shares to be sold by it hereunder for the purposes set forth in the
Prospectus.
(o) Except for the sale of Common Shares pursuant to this Agreement,
the Company shall not make any offering, sale or other disposition of any
of its Common Stock on the open market or otherwise within 180 days after
the effective date of the Registration Statement without your prior written
consent. The Company has obtained for the benefit of the Underwriters the
agreement of all present officers and directors of the Company and Louis V.
Manzo, that for the period indicated in the foregoing sentence, they will
not offer, sell or otherwise dispose of any Common Stock without your prior
written consent.
SECTION 7. [INTENTIONALLY DELETED.]
SECTION 8. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated for any reason, except as otherwise set forth below, the Company will
pay the costs and expenses incurred in connection with the public offering.
Costs, fees and expenses to be paid by the Company include:
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(a) All costs, fees and expenses incurred in connection with the
performance of the Company's obligations hereunder, including without
limiting the generality of the foregoing, all costs and expenses incurred
in connection with the preparation, printing, filing and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and the Preliminary and
any Supplemental Blue Sky Memoranda.
(b) All costs, fees and expenses, including legal fees and
disbursements of counsel for the Underwriters, incurred by the Underwriters
in connection with qualifying or registering all or any part of the Common
Shares for offer and sale under the Blue Sky Laws, or obtaining exemptions
from qualification or registration including the preparation of the
Preliminary and any Supplemental Blue Sky Memoranda relating to the Common
Shares.
(c) All fees and expenses of the Company's transfer agent, printing
of the certificates for the Common Shares, and all transfer taxes, if any,
with respect to the transfer, sale and delivery of the Common Shares to the
Underwriters and all fees of the NASD and NASDAQ.
(d) Expenses incurred by the Underwriters, as follows:
(i) Actual, accountable, out-of-pocket expenses not to exceed
$75,000 if this Agreement is terminated after the date on which the
Registration Statement is filed with the Commission but prior to the date
of closing of the Offering; or One percent (1%) of the gross proceeds
raised in the Offering upon the closing of the Offering;
(ii) All costs and expenses customarily incurred by the
Underwriters associated with settlement in same day funds (including, but
not limited to, interest or cost of funds expenses), if settlement in same
day funds is requested by the Company;
(iii) All costs and expenses of advertising the public
offering, including any "tombstone" advertisements;
provided, however, that the Underwriters shall not be entitled to such
payment if the Underwriters terminates this Agreement except as provided in
Section 15(b) hereof or the Company terminates this Agreement because of
the negligence or material breach on the part of the Underwriters which was
the cause of the failure of the offering to be completed.
SECTION 9. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase and pay for the Firm Common Shares
on the First Closing Date and the Optional Common Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company herein set forth as of the date hereof and as of the
First Closing Date or the Second Closing Date, as the case may be, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 3:00 P.M., Baltimore time, on the date of this Agreement; and prior to
each Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been instituted or shall be pending or,
to the knowledge of the Company, or your knowledge, shall be contemplated
by the Commission, and any request of the Commission for additional
information shall have been complied with to your reasonable satisfaction.
(b) The Common Shares shall have been qualified or registered for
sale, or exempted therefrom, under the Blue Sky Laws of such states as
shall have been specified by you prior to the date hereof.
(c) The legality and sufficiency of the authorization, issuance and
sale of the Common Shares hereunder, the validity and form of the
certificates representing the Common Shares, the execution and delivery of
this Underwriting Agreement, and all corporate proceedings and other legal
matters incident thereto, and the
9
<PAGE>
form of the Registration Statement and the Prospectus (except financial
statements and other financial data included therein) shall have been
approved by Shapiro and Olander, Baltimore, Maryland, counsel for the
Underwriters.
(d) You shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment or supplement thereto, contains
an untrue statement of fact, which, in the opinion of Shapiro and Olander,
counsel for the Underwriters, is material or omits to state a fact which,
in the written opinion of such counsel, is material and is required to be
stated therein or necessary to make the statements therein not misleading.
(e) Since the dates as of which information is given in the
Registration Statement:
(i) the Company shall not have sustained any material loss or
interference with its business from any labor dispute, strike, fire,
explosion, flood or other calamity (whether or not insured), or from
any court or governmental action, order or decree; and
(ii) there shall not have been any change in the capital stock,
short-term debt or long-term debt of the Company or a change or a
development involving a prospective change in or affecting the ability
of the Company to conduct its business (whether by reason of any
court, legislative, other governmental action, order, decree, or
otherwise), or in the general affairs, management, financial position,
stockholders' equity or results of the operations of the Company,
whether or not arising from transactions in the ordinary course of
business, in each case other than as set forth in or contemplated by
the Registration Statement and Prospectus, the effect of which on the
Company, in any such case described in clause (i) or (ii), above, is
in your opinion sufficiently material and adverse as to make it
impracticable or inadvisable to proceed with the initial public
offering or the delivery of the Common Shares on the terms and in the
manner contemplated in the Registration Statement and the Prospectus.
(f) All formal and informal voting agreements, understandings and
arrangements with respect to the voting of Common Stock shall have been
terminated and shall be of no further force or effect except as disclosed
in the Prospectus.
(g) There shall have been furnished to you on each Closing Date:
(i) An opinion of Ballard Spahr Andrews & Ingersoll, counsel for
the Company, addressed to you and dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) each of the Company and the Subsidiary is duly
incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation with full corporate
power and authority to own and/or lease its properties and
conduct its business as described in the Prospectus; and each of
the Company and the Subsidiary is duly qualified to do business
as a foreign corporation under the corporation law of, and is in
good standing as such in each state where such qualification is
required and does not own or lease any property or have any
employees situated in any other state.
(2) the Company does not own or control any subsidiary and
does not own any interest in any other corporation, joint
venture, proprietorship or other commercial entity or
organization except as described in the Registration Statement.
(3) the authorized capital stock of the Company consists of
8,000,000 shares of Class A Common Stock, $0.01 par value,
2,000,000 shares of Class B Common Stock, $0.01 par value and all
such capital stock conforms as to legal matters to the
description thereof in the Registration Statement and Prospectus;
the issued and outstanding shares of
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<PAGE>
Class A Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable and were issued in
compliance with exemptions from the registration provisions of
Section 5 of the Act and comparable provisions of applicable Blue
Sky Laws; there are no preemptive, preferential or other rights
to subscribe for or purchase any of the Common Shares to be sold
by the Company hereunder and no shares of Common Stock have been
issued in violation of such rights of stockholders; and, to such
counsel's knowledge, there are no outstanding rights, warrants or
options to acquire, or instruments convertible into or
exchangeable for, any shares of Common Stock or other equity
interest in the Company, except as described in the Prospectus.
Except as otherwise stated in the Registration Statement, no
holders of securities of the Company have rights to the
registration of such securities in the Registration Statement.
The statements made in the Prospectus under the section entitled
"Description of Securities" are accurate in all material
respects.
(4) the certificates for Common Shares to be delivered
hereunder are in due and proper form and, when duly countersigned
by the Company's transfer agent and delivered to you or upon your
order against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the Common
Shares represented thereby will be duly authorized and validly
issued, fully paid and nonassessable and, upon consummation of
the purchase by the Underwriters, and assuming they have no
knowledge of any liens, claims or encumbrances affecting the
Common Shares, the Underwriters will acquire good and marketable
title thereto, free and clear of any claim, security interest,
community property right, or other encumbrance or restriction on
transfer (except for restrictions under the Act and under the
Blue Sky Laws).
(5) the Company has full corporate power and authority to
enter into and perform this Agreement, and this Agreement, the
execution and delivery hereof, and the performance of the
Company's obligations hereunder have been duly authorized by all
necessary corporate action. This Agreement has been duly
executed and delivered by and on behalf of the Company, and is a
legal, valid, and binding agreement of the Company, enforceable
in accordance with its terms, except that rights to indemnity or
contribution may be limited by applicable law and enforceability
of the Agreement may be limited by bankruptcy, insolvency or
similar laws affecting the rights of creditors and by equitable
principles limiting the right to specific performance or other
equitable relief.
(6) the execution and performance by the Company of this
Agreement, including application of the net proceeds of the
offering, if and when received, as described in the Prospectus
under "Prospectus Summary," "Capitalization" and "Use of
Proceeds," will not violate any provisions of the Company's
Articles of Incorporation or By-Laws or, to such counsel's
knowledge, any law, rule or regulation applicable to the Company
or the Subsidiary of any government, court, regulatory body,
administrative agency or other governmental body having
jurisdiction over the Company or any Subsidiary or any of their
respective properties or businesses, and will not, to such
counsel's knowledge, result in the breach, or be in
contravention, of any provision of any loan agreement, lease,
franchise, license, note, bond, other evidence of indebtedness,
indenture, mortgage, deed of trust, other instrument, permit or
other contractual obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary
or their respective property is bound, or any order of any court
or governmental agency or authority entered in any proceeding to
which the Company or any Subsidiary was or is now a party or by
which it is bound.
(7) no consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of
this Agreement by the Company or the consummation by the Company
of the transactions contemplated by this Agreement, except for
compliance with the Act and Blue
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Sky Laws applicable to the initial public offering of the Common
Shares by the Underwriters, and the clearance of the underwriting
arrangements for such offering with the NASD.
(8) the Registration Statement has become effective under
the Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated
under the Act, and the Registration Statement, the Prospectus and
each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act and the Rules
and Regulations (except that such counsel need express no opinion
as to the financial statements and other financial data included
therein). Such counsel shall confirm that it has no reason to
believe that either the Registration Statement or the Prospectus
or any such amendment or supplement thereto, or any document
incorporated by reference therein, contains any untrue statement
of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading
(except that such counsel need express no opinion as to the
financial statements and other financial data included therein).
Such counsel does not know of any legal or governmental
proceedings or of any contracts or other documents, transactions
or relationships of or by the Company or any Subsidiary required
to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement by the Act or the Rules
and Regulations which are not described or filed, as required.
(9) except as described in the Prospectus, there are no
legal or governmental actions, suits or legal proceedings pending
or threatened to which the Company or any Subsidiary is a party
or to which the Company's or Subsidiary's business or material
property owned or leased by the Company or the Subsidiary is
subject, or which question the validity of this Agreement or any
action taken or to be taken pursuant hereto.
(10) to the knowledge of such counsel, the Company or a
Subsidiary, as the case may be, has good and marketable title
except as otherwise stated in the Prospectus, to all the real
property owned by the Company or a Subsidiary as set forth in the
Prospectus, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind or nature whatsoever except those, if
any, referred to in the Prospectus (or reflected in the financial
statements included therein) or which, in the aggregate, are not
material to the Company and its business and do not materially
affect the value of such property; and the real properties held
or used by the Company or a Subsidiary under leases or other
agreements as set forth in the Prospectus are held by it under
valid, subsisting and enforceable leases or other agreements with
respect to which neither the Company nor any Subsidiary is in
default, except to the extent that the enforceability of the
rights and remedies of the Company or a Subsidiary under any such
lease or other agreement may be limited by bankruptcy,
insolvency, or similar laws generally affecting the rights of
creditors and by equitable principles limiting the right to
specific performance or other equitable relief.
(11) (i) the Company and the Subsidiary possesses all
licenses, permits, approvals and other governmental
authorizations required for the conduct of its business, as
described in the Prospectus; (ii) such licenses, permits and
other governmental authorizations are in full force and effect
and the Company and the Subsidiary is in all material respects
complying therewith; and (iii) the Company and each Subsidiary is
complying in all material respects with all laws, ordinances and
regulations applicable to the Company and each Subsidiary, and
their respective properties and business, the noncompliance or
violation of which would have a material adverse effect on the
Company.
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It is understood that the opinion of such counsel may state that such
counsel is relying as to factual matters on certificates of officers of the
Company and of state officials and, as to legal matters in jurisdictions other
than in which they are domiciled, on opinions of local counsel or of other
counsel retained or having rendered legal services with respect to specific
matters, in which case their opinion is to state that they are so doing and they
believe such reliance is reasonable, and copies of said certificates and/or
opinions are to be attached to the opinion. The opinion of such counsel shall
state that Shapiro and Olander, Counsel for the Underwriters, shall be entitled
to rely on such opinion.
(ii) An opinion of Shapiro and Olander, counsel for the Underwriters,
addressed to you and dated the First Closing Date or the Second Closing
Date, as the case may be, with respect to the validity of the Common
Shares, the Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company shall have furnished
to such counsel such documents and shall have exhibited to them such papers
and records as they request for the purpose of enabling them to pass upon
such matters.
(iii) A certificate of the chief executive officer and the
principal financial officer of the Company, dated the First Closing Date or
the Second Closing Date, as the case may be, to the effect that:
(1) the representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement and as of the First Closing Date or the Second Closing
Date, as the case may be, as if again made on and as of such Closing
Date, and the Company has complied with all the agreements and
satisfied all the conditions to be performed or satisfied by it at or
prior to such Closing Date.
(2) the Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Act.
(3) each of the respective signatories of the certificate has
carefully examined the Registration Statement and the Prospectus, and
any amendment or supplement thereto, and, in the opinion of such
signatory and to his knowledge, the Registration Statement and the
Prospectus and any amendment or supplement thereto contain all
statements that are required to be stated therein, and neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, includes any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading, and, since the
date on which the Registration Statement was first filed with the
Commission, there has occurred no event required to be set forth in an
amended or supplemented prospectus or in an amendment to the
Registration Statement which has not been so set forth.
(4) since the date on which said Registration Statement was
initially filed, there has not been any material adverse change or a
development involving a prospective material adverse change in the
business, properties, financial condition or earnings of the Company,
whether or not arising from transactions in the ordinary course of
business, except as disclosed in said Registration Statement as
heretofore amended including the proposed amendment thereto delivered
to you prior to or contemporaneously with the execution of this
Agreement or (but only if you expressly consent thereto in writing)
delivered to you thereafter; since such date and except as so
disclosed or in the ordinary course of business, the Company has not
incurred any liability or obligation, direct or indirect, or entered
into any material transaction; since such date and except as so
disclosed there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company and the Company has
not acquired any of the Common Shares nor has the Company declared or
paid any dividend, or made any other distribution, upon its
outstanding shares of Common Stock payable to stockholders of record
on a date prior to the First Closing Date or Second Closing Date, as
the case may be; since such date and except as so disclosed, the
Company has not incurred any material
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contingent obligations, and no material litigation is pending or
threatened against the Company; and, since such date and except as so
disclosed the Company has not sustained a material loss or
interference by strike, labor dispute, fire, explosion, flood,
windstorm, accident or other calamity (whether or not insured) or from
any court or governmental action, order or decree.
The delivery of the certificate provided for in this subparagraph (iii)
shall be and constitute a representation and warranty of the Company as to the
facts required in the immediately foregoing clauses (1), (2), (3) and (4) of
this subparagraph (iii) to be set forth in said certificate.
(iv) A written agreement or agreements signed by each director
and officer of the Company to the effect that such persons will not
make any offering, sale or other disposition of any Common Stock in
the open market or otherwise for a period of 180 days after the
commencement of the public offering of the Common Shares by the
Underwriters, except with your prior written consent.
(v) At the time this Agreement is executed and also on the First
Closing Date and the Second Closing Date, there shall be delivered to
you a letter addressed to you, from Arthur Andersen LLP, independent
certified public accountants, the first letter to be dated the date of
this Agreement, the second letter to be dated the First Closing Date
and the third letter (in the event of a Second Closing) to be dated
the Second Closing Date, to the effect set forth in Schedule A annexed
hereto and containing the information set forth therein and such other
information as may be requested by you as of a date within five days
of the date of such letter. There shall not have been any change or
decrease specified in any of the letters referred to in this
subparagraph (v) which makes it impractical or inadvisable in your
judgment to proceed with the public offering or the purchase of the
Common Shares as contemplated hereby.
(vi) Such further certificates and documents as you may
reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you
and to Shapiro and Olander, counsel for the Underwriters. The Company
shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you may reasonably
request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at either Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the Company
without liability on the part of the Underwriters or the Company, except
for the expenses to be paid by the Company pursuant to Section 8 hereof and
except to the extent provided in Section 12 hereof.
SECTION 10. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale to the
Underwriters of the Common Shares at the First Closing Date is not consummated
because any condition to the Underwriters' obligations hereunder is not
satisfied, because the Company terminates this Agreement pursuant to Section 15
or because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof, the Company
shall pay the Representative $75,000 [verify] as provided in Section 8 hereof.
Any such termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 8 and Section 12 shall at
all times be effective and shall apply.
SECTION 11. EFFECTIVENESS OF REGISTRATION STATEMENT. The Company will
use its best efforts to cause the Registration Statement to become effective, to
prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement, and, if such stop order is issued, to obtain as soon as
possible the lifting thereof.
SECTION 12. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within
the meaning of the Act or the Exchange Act against any losses,
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claims, damages, or liabilities, joint or several, to which the
Underwriters or each such controlling person may become subject under the
Act, the Exchange Act, Blue Sky Laws or other federal or state securities
laws or regulations, at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent of
the Company), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any application filed under any Blue
Sky Law or other document executed by the Company specifically for that
purpose or filed in any state or other jurisdiction in order to qualify any
or all of the Common Shares under the securities laws thereof (any such
application or document being hereinafter referred to as a "Blue Sky
Application") 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, in light of the circumstances in
which they are made, not misleading; the Company agrees to reimburse the
Underwriters and each such controlling person for any legal or other
expenses reasonably incurred by the Underwriters or any such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that:
(i) 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 the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or in any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by you or
on your behalf specifically for use therein; or
(ii) if such statement or omission was contained or made in any
Preliminary Prospectus and corrected in the Prospectus and (1) any
such loss, claim, damage or liability suffered or incurred by the
Underwriters (or any person who controls the Underwriters) resulted
from an action, claim or suit by any person who purchased Common
Shares which are the subject thereof from the Underwriters in the
offering, and (2) the Underwriters failed to deliver or provide a copy
of the Prospectus to such person at or prior to the confirmation of
the sale of such Common Shares in any case where such delivery is
required by the Act unless such failure was due to failure by the
Company to provide copies of the Prospectus to the Underwriters as
required by this Agreement.
The indemnification obligations of the Company as provided above are in
addition to any liabilities the Company may otherwise have under other
agreements, under common law or otherwise.
(b) The Underwriters will indemnify and hold harmless the Company,
each of its directors and each of its officers who sign the Registration
Statement, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act, against any losses, claims, damages
or liabilities to which the Company or any such director, officer or
controlling person may become subject under the Act, the Exchange Act, Blue
Sky Laws or other federal or state statutory laws or regulations, at common
law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter, which
shall not be unreasonably withheld), insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, 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
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, in
reliance upon and in conformity with any written information furnished to
the Company by the Underwriters specifically for use in the preparation
thereof; the Underwriters will severally reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action. The indemnification
obligations of the Underwriters as provided above are in addition to any
liabilities any the Underwriters may otherwise have under other agreements,
under common law or otherwise. Notwithstanding
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the provisions of this Section, the Underwriters shall not be required to
indemnify the Company or any officer, director or controlling person of the
Company in any amount in excess of the total price at which the Common
Shares purchased by any the Underwriters hereunder were offered to the
public, plus reimbursement for reasonable legal fees and other reasonable
expenses incurred. For all purposes of this Agreement, the name of the
Underwriters and the amounts of the selling concession and reallowance set
forth in the Prospectus constitute the only information furnished in
writing by or on behalf of the Underwriters expressly for inclusion in any
Preliminary Prospectus, the Registration Statement, the Prospectus (as from
time to time amended or supplemented) or Blue Sky Application.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the
commencement thereof, but the omission to so notify the indemnifying party
will not relieve any indemnifying party from any liability which it or he
may have to any indemnified party otherwise than under this Section. In
case any such action is brought against any indemnified party and such
indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to
the extent that it or he may wish, jointly with all other indemnifying
parties, similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, provided, however, if
the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it or he and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election to assume the defense of
such action and upon approval by the indemnified party of counsel to the
indemnifying party, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, unless:
(i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with
the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, approved by you in the
event that one or more of the directors, officers or controlling
persons are the indemnified parties);
(ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action; or
(iii) the indemnifying party has authorized the employment of
counsel at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section is
unavailable to an indemnified party under subparagraphs (a) or (b) hereof
in respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall, subject to the limitations hereinafter set forth,
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities:
(i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Underwriters from the
offering of the Common Shares; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Company and the Underwriters
in connection with the statements or
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omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The respective relative benefits received by the Company and the
Underwriters shall be deemed to be in such proportion so that the
Underwriters are responsible for the portion of the losses, claims, damages
or liabilities represented by the percentage that the underwriting discount
per share appearing on the cover page of the Prospectus bears to the
initial public offering price per share appearing thereon, and the Company
is responsible for the remaining portion. The relative fault of the
Company and the Underwriters 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 the information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (c) of this Section, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
or per capita allocation or by any other method or allocation which does not
take into account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section, the
Underwriters shall not be required to contribute any amount in excess of the
amount by which the total price at which the Common Shares underwritten by them
and distributed to the public exceeds the amount of any damages which the
Underwriters have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. 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.
SECTION 13. DEFAULT OF UNDERWRITERS. It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, that, except as hereinafter in this paragraph provided, you
shall purchase and pay for all of the Common Shares agreed to be purchased by
you hereunder upon tender to you of all such Common Shares in accordance with
the terms hereof. If you default in your obligations to purchase Common Shares
hereunder on either the First or Second Closing Date and the aggregate number of
Common Shares which you agreed but failed to purchase does not exceed ten
percent (10%) of the total number of Common Shares which you are obligated to
purchase on such Closing Date, you may make arrangements satisfactory to the
Company for the purchase of such Common Shares by other persons, but if no such
arrangements are made by such Closing Date you shall be obligated to purchase
the Common Shares which you agreed but failed to purchase on such Closing Date.
If you so default and the aggregate number of Common Shares with respect to
which such default or defaults occur is greater than the above percentage and
arrangements satisfactory to you and the Company for the purchase of such Common
Shares by other persons are not made with 36 hours after such default, this
Agreement will terminate without liability on the part of the Company, except
for the expenses to be paid by the Company pursuant to Section 8 hereof and
except to the extent provided in Section 12 hereof.
In the event that Common Shares to which a default relates are to be
purchased by another party or parties, you or the Company shall have the right
to postpone the First or Second Closing Date, as the case may be, for not more
than seven business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. Nothing herein will relieve you from liability
for your default.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section.
SECTION 14. EFFECTIVE DATE. If the date of execution of this Agreement
is subsequent to the effective date of the Registration Statement, this
Agreement shall become effective immediately in all respects. If the date of
execution of this Agreement precedes the effective date of the Registration
Statement, this Agreement shall become effective immediately as to Sections 8,
12 and 15 and, as to all other provisions, at 9:00 A.M., Baltimore time, on the
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day following the date upon which the Registration Statement becomes effective,
unless such a day is a Saturday, Sunday or holiday (in which event this
Agreement shall become effective at such hour on the business day next
succeeding such Saturday, Sunday or holiday); notwithstanding the foregoing,
this Agreement shall nevertheless become effective (a) at such earlier time
after the Registration Statement becomes effective as you may determine on and
by notice to the Company or (b) by release of any of the Common Shares for sale
to the public. For the purposes of this Section, the Common Shares shall be
deemed to have been released upon the release for publication of any newspaper
advertisement relating to the Common Shares or upon the release by you of
written communications:
(a) advising that the Common Shares are released for public offering;
or
(b) offering the Common Shares for sale to securities dealers,
whichever may occur first.
SECTION 15. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provisions hereof:
(a) This Agreement may be terminated by the Company by notice to you
or by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to you
(except for the expenses to be paid by the Company pursuant to Section 8
hereof and except to the extent provided in Section 12 hereof) or of you to
the Company.
(b) This Agreement may also be terminated by you prior to the First
Closing Date, and the option from the Company referred to in Section 5
hereof, if exercised, may be canceled at any time prior to the Second
Closing Date, if in your judgment payment for and delivery of the Common
Shares is rendered impracticable or inadvisable because:
(i) additional material governmental restrictions, not in force
and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been
generally established on the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market or over-the-counter market,
or trading in securities generally shall have been suspended on either
such exchange or over-the-counter market or a general banking
moratorium shall have been established by federal, or New York or
Maryland authorities; or
(ii) any event shall have occurred or shall exist which makes
untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or which is not
reflected in the Registration Statement but should be reflected
therein in order to make the statements or information contained
therein, in light of the circumstances in which they are made, not
misleading in any material respect; or
(iii) an outbreak or escalation of major hostilities or other
national or international emergency or calamity or any substantial
change in political, financial or economic conditions shall have
occurred or shall have accelerated to such extent, as in your
judgment, to have a material adverse effect on the general securities
market or make it impractical or inadvisable to proceed with
completion of the sale of and payment for the Common Shares; or
(iv) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, a material adverse
change has occurred in the business, financial condition, results of
operations, properties or business prospects of the Company, whether
or not in the ordinary course of business; or
(v) trading in any of the securities of the Company shall have
been suspended by the NASDAQ National Market.
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Any termination pursuant to this subsection (b) shall be without
liability on your part to the Company or on the part of the Company to you
(except for expenses to be paid by the Company pursuant to Section 8 hereof
and except as to indemnification to the extent provided in Section 12
hereof).
SECTION 16. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company, of its officers or directors, and of the Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Underwriters
or the Company or any of its or their partners, officers, directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder.
SECTION 17. NOTICES. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered or transmitted by
facsimile transmission and confirmed to you c/o Ferris, Baker Watts,
Incorporated, 100 Light Street, 8th Floor, Baltimore, Maryland 21202,
Attention: Steven L. Shea, Senior Vice President,
With a copy to:
Shapiro and Olander
36 S. Charles Street, 20th Floor
Baltimore, Maryland 21201
Attention: Christopher Dean Olander
If sent to the Company, communications will be mailed, delivered or
transmitted by facsimile transmission and confirmed to the Company at:
Chesapeake Biological Laboratories, Inc.
Camden Industrial Park
1111 South Paca Street
Baltimore, Maryland 21230-2591
Attention: John C. Weiss, III, President
And to:
Ballard Spahr Andrews & Ingersoll
300 East Lombard Street - 19th Floor
Baltimore, Maryland 21202-3268
Attention: Douglas M. Fox, Esquire
SECTION 18. SUCCESSORS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors, personal
representatives and assigns, and to the benefit of the officers and directors
and controlling persons referred to in Section 12, and no other person will have
any right or obligations hereunder. The term "successors" shall not include any
purchaser of the Common Shares as such from the Underwriters merely by reason of
such purchase.
SECTION 19. PARTIAL UNENFORCEABILITY. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 20. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland.
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SECTION 21. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon this
Agreement will become a binding agreement among the Company and you, as the
Underwriters, all in accordance with its terms.
Very truly yours,
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
By:
----------------------------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
FERRIS, BAKER WATTS, INCORPORATED
By:
--------------------------------------
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Exhibit 3.1
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
ARTICLES OF RESTATEMENT
CHESAPEAKE BIOLOGICAL LABORATORIES, INC., a Maryland corporation, having
its principal office at 1111 S. Paca Street, Baltimore, Maryland 21230-2951
(hereinafter referred to as the "Corporation") hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to restate its Charter as currently in
effect as hereinafter provided. The provisions set forth in these Articles of
Restatement are all of the provisions of the Charter of the Corporation as
currently in effect.
SECOND: The Charter of the Corporation is hereby restated as follows:
FIRST: The name of the Corporation is Chesapeake Biological
Laboratories, Inc.
SECOND: The purposes for which the Corporation is formed and the
businesses to be carried on and promoted by it are as follows:
(1) To establish and operate laboratories for testing
equine and diagnosing their illnesses and ailments, to conduct
research related thereto and, for a fee, to perform laboratory tests
on equine and render diagnostic services related to equine illnesses
and ailments.
(2) To engage in the business of medical diagnostics and
the research, development, manufacturing, marketing and distribution
of chemicals, pharmaceuticals and biologics used in human and animal
therapeutics and/or having applications in the human and veterinary
healthcare products field generally.
<PAGE>
(3) To purchase, sell, use, hold, own, convey, exchange,
transfer, lease, rent, mortgage, encumber, improve, develop, manage,
take options on, grant options on or otherwise acquire, operate, deal
in and with, and dispose of fee simple property, leasehold property,
ground rents and personal property of every kind, nature and
description whatsoever and to do anything necessary, expedient and/or
convenient in connection therewith.
(4) To enter into partnerships, joint ventures, syndicates
and other business associations for any lawful purpose.
(5) To engage in and perform any activities or functions
which may lawfully be performed by a business corporation organized
under the laws of the State of Maryland.
The foregoing enumerated purposes and objects shall be in no way
limited by reference to, or inference from, the terms of any other clause of
this or any other Articles of the Charter of the Corporation, and each shall be
regarded as independent; and they are intended to be and shall be construed as
powers as well as purposes and objects of the Corporation and shall be in
addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.
THIRD: The present address of the principal office of the Corporation
in this State is 1111 S. Paca Street, Baltimore, Maryland 21230-2951.
FOURTH: The name and address of the resident agent of the Corporation
in this State is William P. Tew, 1111 S. Paca Street, Baltimore, Maryland
21230-2951.
FIFTH: The total number of shares of stock which the Corporation has
authority to issue is Ten Million (10,000,000) shares, consisting of:
(1) Eight Million (8,000,000) shares of Class A Common Stock, par
value $.01 per share (the "Class A Common"); and
(2) Two Million (2,000,000) shares of Class B Common Stock, par
value $.01 per share (the "Class B Common").
The Class A Common and the Class B Common are hereafter collectively
referred to as the "Common Stock." The aggregate par value of the Common Stock
equals One Hundred Thousand ($100,000.00).
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Each share of the Corporation's common stock as existing prior to
the authorization by the Corporation of the Class A Common and Class B Common
shall, without further action by the Corporation or the holder thereof,
evidence one share of Class A Common, and any contract right, option or
warrant with respect to one share of common stock as existing prior to the
authorization by the Corporation of the Class A Common and Class B Common
shall, without further action by the Corporation or the holder thereof,
evidence a contract right, option or warrant with respect to one share of
Class A Common.
A. COMMON STOCK
Except as otherwise provided herein, all shares of Class A Common and
Class B Common will be identical and will entitle the holders thereof to the
same rights and privileges.
1. Voting Rights. Except as otherwise required by the Corporations
and Associations Article of the Annotated Code of Maryland, the holders of
Class A Common will be entitled to one vote per share on all matters to be
voted on by the Corporation's stockholders, and holders of Class B Common, as
such, shall have no voting rights or powers whatsoever with respect to any
action taken by the Corporation or the stockholders thereof.
2. Dividends. When and as dividends are declared thereon, whether
payable in cash, property or securities of the Corporation, the holders of
Class A Common and the holders of Class B Common will be entitled to share
equally, share for share, in such dividends; provided that if dividends are
declared which are payable in shares of Class A Common or Class B Common,
dividends will be declared which are payable at the same rate on both classes
of stock, and the dividends payable in shares of Class A Common will be
payable to holders of Class A Common and the dividends payable in shares of
Class B Common will be payable to holders of Class B Common.
3. Conversion.
3A. Conversion of Class B Common. Each share of Class B Common
shall become convertible into one (1) share of Class A Common in connection
with any public offering or public sale (including a registered offering
pursuant to a registration statement declared effective under the Securities
Act of 1933, as amended (the "Securities Act"), and a sale pursuant to Rule
144 promulgated under the Securities Act by the Securities and Exchange
Commission or any similar rule then in force) of such share of Class B Common
or the share of Class A Common into which it is converted, provided that such
share of Class B Common or such share of Class A Common is being actually
distributed to the public or
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sold to an underwriter, broker-dealer or market-maker for actual sale to the
public.
3B. Conversion Procedure.
(i) Each conversion of shares of Class B Common into shares of
Class A Common permitted under paragraph 3A of this ARTICLE FIFTH will be
effected by the surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Corporation at any time
during normal business hours, together with a written notice by the holder of
such Class B Common stating that the requirements under paragraph 3A have
been satisfied and that such holder desires to convert the shares, or a
stated number of the shares, of Class B Common represented by such
certificate or certificates into Class A Common. Such conversion will be
deemed to have been effected as of the close of business on the date on which
such certificate or certificates have been surrendered and such notice has
been received, and at such time the rights of the holder of the converted
Class B Common as such holder will cease, and the person or persons in whose
name or names the certificate or certificates for shares of Class A Common
are to be issued upon such conversion will be deemed to have become the
holder or holders of record of the shares of Class A Common represented
thereby.
(ii) Promptly after such surrender and the receipt of such written
notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate or certificates for
the Class A Common issuable upon such conversion and (b) a certificate
representing any Class B Common which was represented by the certificate or
certificates delivered to the Corporation in connection with such conversion
but which was not converted.
(iii) If the Corporation in any manner subdivides or combines the
outstanding shares of one class of Common Stock, the outstanding shares of
the other class of Common Stock will be proportionately subdivided or
combined.
(iv) The issuance of certificates for Class A Common upon
conversion of Class B Common will be made without charge to the holders of
such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related issuance
of Class A Common.
(v) The Corporation will not close its books against the transfer
of Class B Common or of Class A Common issued or issuable upon conversion of
Common in any manner which would interfere with the timely conversion of
Class B Common.
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SIXTH: The Board of Directors shall manage the business and affairs
of the Corporation and may exercise all of the powers of the Corporation
except those conferred on, or reserved to, the stockholders by law. The
number of Directors of the Corporation shall be seven (7) which number may be
increased or decreased pursuant to the By-Laws of the Corporation but shall
never be less than three (3) unless there are less than three (3)
stockholders in which case the number of Directors may be less than three (3)
but not less than the number of stockholders. The names of the current
Directors who shall act until their successors are duly elected and qualified
are as follows:
William P. Tew
Narlin B. Beaty
Regis F. Burke
John C. Weiss, III
Thomas C. Mendelsohn
Harvey L. Miller
Thomas P. Rice
SEVENTH: The following provisions are hereby adopted for the
purposes of defining, limiting and regulating the powers of the Corporation
and of the Directors and stockholders:
(1) The Board of Directors shall have the power from time to
time and in its sole discretion (a) to determine in accordance with
sound accounting practice, what constitutes annual or other net
profits, earnings, surplus or net assets in excess of capital; (b) to
fix and vary from time to time the amount to be reserved as working
capital, or determine that retained earnings or surplus shall remain
in the hands of the Corporation; (c) to set apart out of any funds of
the Corporation such reserve or reserves in such amount or amounts and
for such proper purposes as it shall determine and to abolish or
redesignate any such reserve or any part thereof; (d) to distribute
and pay distributions or dividends in stock, cash or other securities
or property, out of surplus or any other funds or amounts legally
available therefor, at such times and to the stockholders of record on
such dates as it may, from time to time, determine; and (e) to
determine whether and to what extent and at what times and places and
under what conditions and regulations the books, accounts and
documents of the Corporation, or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by statute or
by the By-Laws of the Corporation, and, except as so provided, no
stockholder shall have the right to inspect any book, account or
document of the Corporation unless authorized so to do by resolution
of the Board of Directors.
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(2) A contract or other transaction between the Corporation
and any of its Directors or between the Corporation and any other
corporation, firm, or other entity of which any of its Directors is a
director or has a material financial interest is not void solely
because of any one or more of the following: (a) the common
directorship or interest; (b) the presence of the Director at the
meeting of the Board or a committee of the Board which authorizes,
approves or ratifies the contract or transaction; or (c) the counting
of the vote of the Director for the authorization, approval, or
ratification of the contract or transaction; provided that (i) the
fact of the common directorship or interest is disclosed or known to
the Board of Directors or its committee, and the Board or committee
authorizes, approves or ratifies the contract or transaction by the
affirmative vote of a majority of disinterested Directors, even if the
disinterested Directors constitute less than a quorum; or (ii) the
fact of the common directorship or interest is disclosed or known to
the stockholders entitled to vote, and the contract or transaction is
authorized, approved, or ratified by a majority of the votes cast by
the stockholders entitled to vote, other than the votes of shares
owned of record or beneficially by the interested Director or
corporation, firm, or other entity; or (iii) the contract or
transaction is fair and reasonable to the Corporation. Common or
interested Directors or the stock owned by them or by an interested
corporation, firm, or other entity may be counted in determining the
presence of a quorum at the meeting of the Board of Directors or a
committee of the Board or at a meeting of the Stockholders, as the
case may be, at which the contract or transaction is authorized,
approved, or ratified. If a contract or transaction is not
authorized, approved or ratified in one of the ways provided for in
this paragraph, the person asserting the validity of the contract or
transaction bears the burden of proving that the contract or
transaction was fair and reasonable to the Corporation at the time it
was authorized, approved or ratified.
(3) The Corporation shall indemnify its Directors and
Officers to the full extent permitted by the General Laws of the State
of Maryland now or hereafter in force, including the advance of
related expenses. Upon authorization by the Board of Directors, the
Corporation may indemnify other employees and/or agents to the same
extent provided herein for Directors and Officers.
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(4) No holders of stock of the Corporation of whatever
class shall have any preemptive rights or preferential right of
subscription to any shares of any class, or to any securities
convertible into shares, of stock of the Corporation, nor any right of
subscription to any thereof other than such rights, if any, as the
Board of Directors in its discretion may determine, and at such price
as the Board of Directors in its discretion may fix; and any stock or
other securities which the Board of Directors may determine to offer
for subscription may, as the Board of Directors in its sole discretion
shall determine, be offered to the holders of any class or classes of
stock at the time existing to the exclusion of holders of any or all
other classes at the time existing.
(5) The Board of Directors of the Corporation shall have
the power in its sole discretion and without limitation, subject only
to any restrictions imposed by law, to authorize the issuance from
time to time of shares of the Corporation's stock, with or without par
value, of any class, and of securities convertible into shares of the
Corporation's stock, with or without par value, of any class, for such
consideration (irrespective of the value or amount of such
consideration) and in such manner and by such means as said Board of
Directors may deem advisable.
(6) The Board of Directors shall have the power in its sole
discretion and without limitation, subject only to any restrictions
imposed by law, to classify or reclassify any unissued shares of
stock, whether now or hereafter authorized, by setting, altering or
eliminating in any one or more respects, from time to time before the
issuance of such shares, any feature of such shares, including but not
limited to the designation, par value, preferences, conversion or
other rights, voting powers, qualifications, and terms and conditions
of redemption of, and limitations as to dividends and any restrictions
on, such shares.
(7) The Corporation reserves the right from time to time to
make any amendments of its Charter which may now or hereafter be
authorized by law, including any amendments changing the terms of
contract rights, as expressly set forth in its Charter, of any of its
outstanding stock by classification, reclassification or otherwise.
(8) Notwithstanding any provision of law to the contrary,
the affirmative vote of a majority of all
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votes entitled to be cast on any matter or act requiring approval of the
stockholders of the Corporation, including but not limited to, any
amendment of the Charter of the Corporation, and any consolidation, merger,
share exchange, transfer of assets or dissolution, shall be sufficient,
valid and effective, after due authorization, approval or advice by the
Board of Directors, to approve and authorize such matter or act.
(9) The liability of the directors and officers of the Corporation
for money damages shall be limited to the fullest extent permitted under
the statutory or decisional laws of the State of Maryland, as now or
hereafter in force or interpreted, including, without limitation, Section
2-405.2(A) of the Maryland General Corporation Law, or any successor
provision of law of similar import. Any amendment, modification or repeal
of the immediately preceding sentence shall be prospective in operation and
effect only and shall not affect the right or protection of a director or
officer of the Corporation in respect of any act or omission occurring
prior to the time of such amendment, modification or repeal.
The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be
limited or restricted by reference to or inference from the terms of
any other clause of this or any other Article of the Charter of the
Corporation, or construed as or deemed by inference or otherwise in
any manner to exclude or limit any powers conferred upon the Board of
Directors under the General Laws of the State of Maryland now or
hereafter in force.
EIGHTH: The duration of the Corporation shall be perpetual.
THIRD: These Articles of Restatement were approved by the Board of
Directors of the Corporation at a meeting duly called and held on April 23,
1997, pursuant to and in accordance with the applicable provisions of the
Maryland General Corporation Law.
-8-
<PAGE>
FOURTH: The Charter of this Corporation is not modified or amended by
these Articles of Restatement.
FIFTH: The current address of the principal office of the Corporation is
1111 S. Paca Street, Baltimore, Maryland 21230-2951.
SIXTH: The name and address of the Corporation's current resident agent
is William P. Tew, 1111 S. Paca Street, Baltimore, Maryland 21230-2951.
SEVENTH: The number of directors of the Corporation is currently seven (7)
and the names of those currently in office are as follows:
William P. Tew
Narlin B. Beaty
Regis F. Burke
John C. Weiss, III
Thomas C. Mendelsohn
Harvey L. Miller
Thomas P. Rice
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and its corporate seal
to be hereunder affixed and attested to by its Treasurer on this 24th day of
April, 1997, and its President acknowledges that these Articles of
Restatement are the act and deed of the Corporation and, under the penalties
of perjury, that the matters and facts set forth herein with respect to
-9-
<PAGE>
authorization and approval are true in all material respects to the best of
his knowledge, information and belief.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
/s/ John T. Janssen /s/ John C. Weiss, III
John T. Janssen John C. Weiss, III
Treasurer President
-10-
<PAGE>
Exhibit 5.1
FILE NUMBER
845310
April 25, 1997
Chesapeake Biological Laboratories
1111 South Paca Street
Baltimore, Maryland 21230
Re: Chesapeake Biological Laboratories
Registration Statement on Form S-2
dated April 25, 1997
Ladies and Gentlemen:
We have served as counsel to Chesapeake Biological
Laboratories, Inc., a Maryland corporation (the "Company"), in
connection with certain matters of Maryland law arising out of
the registration of up to 1,150,000 shares (the "Shares") of
Class A Common Stock, $.01 par value per share (the "Common
Stock"), of the Company (including 150,000 shares of Common Stock
which the Underwriters have the option to purchase solely to
cover over-allotments, if any), covered by the above-referenced
Registration Statement (the "Registration Statement"), filed by
the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the
"1933 Act"). Unless otherwise defined herein, capitalized terms
used herein shall have the meanings assigned to them in the
Registration Statement.
In connection with our representation of the Company, and as
a basis for the opinion hereinafter set forth, we have examined
originals, or copies certified or otherwise identified to our
satisfaction, of the following documents (hereinafter
collectively referred to as the "Documents"):
<PAGE>
Chesapeake Biological Laboratories
April 25, 1997
Page 2
1. The Registration Statement and the related form of
prospectus included therein in the form in which it was
transmitted to the Commission under the 1933 Act;
2. The charter of the Company (the "Charter"), certified
as of a recent date by the State Department of Assessments and
Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of a recent
date by its President;
4. Resolutions adopted by the Board of Directors of the
Company (the "Board") relating to the sale, issuance and
registration of the Shares and the creation of, and delegation of
authority to, a pricing committee thereof (the "Pricing
Committee"), certified as of a recent date by the President of
the Company (the "Resolutions");
5. The form of certificate representing a share of Common
Stock, certified as of a recent date by the President of the Company;
6. A certificate of the SDAT as to the good standing of
the Company, dated as of a recent date;
7. A certificate executed by the President of the Company,
dated as of a recent date; and
8. Such other documents and matters as we have deemed
necessary or appropriate to express the opinion set forth in this
letter, subject to the assumptions, limitations and
qualifications stated herein.
In expressing the opinion set forth below, we have assumed,
and so far as is known to us there are no facts inconsistent
with, the following:
1. Each of the parties (other than the Company) executing
any of the Documents has duly and validly executed and delivered
each of the Documents to which such party is a signatory, and
such party's obligations set forth therein are legal, valid and
binding.
<PAGE>
Chesapeake Biological Laboratories
April 25, 1997
Page 3
2. Each individual executing any of the Documents on
behalf of a party (other than the Company) is duly authorized to
do so.
3. Each individual executing any of the Documents, whether
on behalf of such individual or another person, is legally
competent to do so.
4. All Documents submitted to us as originals are
authentic. All Documents submitted to us as certified or
photostatic copies conform to the original documents. All
signatures on all such Documents are genuine. All public records
reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the
Documents are true and complete. There are no modifications of
or amendments to the Documents, and there has been no waiver of
any of the provisions of the Documents, by actions or omission of
the parties or otherwise.
5. In accordance with the Resolutions, the Board, or the
Pricing Committee or another duly authorized committee of the
Board, will duly adopt resolutions (the "Pricing Resolutions")
including all terms and conditions required by the Maryland
General Corporation Law, as amended, prior to the issuance of the
Shares.
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have
performed legal services in connection with the issuance of this
opinion.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion
that:
1. The Company is a corporation duly incorporated and
existing under and by virtue of the laws of the State of Maryland
and is in good standing with the SDAT.
2. The Shares have been duly authorized and, when and if
delivered against payment therefor in accordance with the
Resolutions and the Pricing Resolutions, the Shares will be duly
and validly issued, fully paid and nonassessable.
<PAGE>
Chesapeake Biological Laboratories
April 25, 1997
Page 4
The foregoing opinion is limited to the laws of the State of
Maryland and we do not express any opinion herein concerning any
other law. The opinion expressed herein is subject to the effect
of judicial decisions which may permit the introduction of parol
evidence to modify the terms or the interpretation of agreements.
We express no opinion as to compliance with the securities (or
"blue sky") laws of the State of Maryland.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become
aware of any fact that might change the opinion expressed herein
after the date hereof.
This opinion is being furnished to you solely for submission
to the Commission as an exhibit to the Registration Statement
and, accordingly, may not be relied upon by, quoted in any manner
to, or delivered to any other person or entity without, in each
instance, our prior written consent.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of the name
of our firm therein. In giving this consent, we do not admit
that we are within the category of persons whose consent is
required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE>
Exhibit 10.7
DIRECTOR'S AGREEMENT
THIS DIRECTOR'S AGREEMENT, is made this 30th day of November 1995, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and John C. Weiss, III
(hereinafter referred to as the "Director").
RECITALS
WHEREAS the Corporation is a Maryland corporation engaged in the business
of medical diagnostics and the development and manufacture of chemicals used in
human and animal therapeutics; and
WHEREAS the Corporation seeks to ensure the continued performance by the
Director of service to the Corporation and to promote the expansion and future
prosperity of the Corporation by providing a means by which the Director may
acquire a proprietary interest in the Corporation; and
WHEREAS the Corporation desires to enter into this Director's Agreement
containing the terms and conditions hereinafter set forth and, in exchange for
the Director's service to the Corporation, to provide compensation to the
Director in the form of an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I - SERVICE
The Director agrees to continue to serve as a member of the Board of
Directors of the Corporation for up to four (4) years from the date hereof, or
until such time as the shareholders of the Corporation remove or replace him in
accordance with the By-Laws of the Corporation or he resigns. The Director
further agrees to use his best efforts while performing in his capacity as a
director and to do all those things reasonably necessary and expected of a
director to ensure the
<PAGE>
expansion and future property of the Corporation.
ARTICLE II - GRANT AND EXERCISE OF OPTIONS
A. In consideration of the Director's service to the Corporation, the
Corporation desires to compensate the Director with the right and option to
purchase up to, but not exceeding, Eight Thousand (8,000) shares of the Common
Stock of the Corporation, one cent ($.01) par value, subject to the provisions
of this Director's Agreement (hereinafter referred to as the "Option"), said
Option exercisable in accordance with the following schedule:
1. Upon completion of one year of service to the Corporation, said year
beginning on the date of this Director's Agreement and ending one year
thereafter, the Director shall, from and after that time and until the
Expiration Date (as hereinafter defined) be entitled to exercise his
right and option to purchase up to Two Thousand (2,000) shares of the
Corporation's Common Stock at an exercise price of One Dollar and
Fifty Cents ($1.50) per share.
2. Upon completion of the second year of the Director's service to the
Corporation, said year beginning one year from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of One Dollar and Fifty Cents ($1.50) per share.
3. Upon completion of the third year of the Director's service to the
Corporation, said year beginning two years from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of One Dollar and Fifty Cents ($1.50) per share.
4. Upon completion of the fourth year of the Director's service to the
Corporation, said
<PAGE>
year beginning three years from the date of this Director's Agreement
and ending one year thereafter, the Director shall, from and after
that time and until the Expiration Date, be entitled to exercise his
right and option to purchase an additional and final Two Thousand
(2,000) shares of the Corporation's Common Stock at an exercise price
of One Dollar and Fifty Cents ($1.50) per share.
Subject to the provisions of Article III, upon the resignation,
removal or death of the Director, or the failure of the Director to be
re-elected to the Board of Directors of the Corporation, at any time period to
the fourth anniversary of the date of this Director's Agreement, all option
rights of the Director (or his personal representative) which, as of the date of
such resignation, removal, death or failure to be re-elected to the Board of
Directors, he has not become entitled to exercise, shall immediately terminate
and be of no further force and effect.
B. The Option to be granted to the Director pursuant to this Director's
Agreement shall be evidenced by an Option Agreement between the Corporation and
the Director, substantially in the form attached hereto as Exhibit A
(hereinafter referred to as the "Option Agreement"). The Option provided for in
this Director's Agreement will not be considered granted until an Option
Agreement evidencing such Option has been executed and delivered by the
Corporation and the Director.
C. The Option to be granted pursuant to this Director's Agreement may not
be transferred, other than by will or the laws of descent and distribution, may
not be assigned, pledged or hypothecated in any way, shall not be subject to
attachment or similar process, and may be exercised, during the lifetime of the
Director, only by him. Upon any attempt to transfer the Option granted pursuant
hereto, other than by will or by the laws of descent and distribution, or to
assign, pledge, hypothecate, or otherwise dispose of the same contrary to the
provisions hereof, or upon the levy of any execution, attachment, or similar
process upon such Option, the Option shall immediately become null and void
without effect.
<PAGE>
D. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised from time to time, but for not
less than Two Thousand (2,000) shares of the Common Stock of the Corporation at
any one time (unless a lesser number of shares be the maximum number subject to
exercise at that time and, if such is the case, the Director must exercise in
toto, and not in part, all such shares subject to exercise at that time). The
Option to be granted pursuant to this Director's Agreement must be exercised
before the close of business on November 30, 2005 (the "Expiration Date") and
shall expire and become null and void at that time.
E. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised in accordance with the terms of
this Director's Agreement by delivering to the Secretary of the Corporation
written notice of exercise, together with payment in the form of cash, certified
check, bank draft, or money order payable to the order of Corporation for an
amount equal to the total exercise price of that number of shares to be
purchased pursuant to the exercise of the Option and a written statement that
the shares are being purchased for the Director's own account, for investment
only, and not with a view to distribution. This statement will not be required
in the event that the offering of securities pursuant to this Director's
Agreement is registered under the Securities Act of 1933 and any applicable
state securities law. Within thirty (30) days after delivery of notice of
exercise as required hereinabove, the Corporation shall cause certificates for
the number of shares of the Common Stock of the Corporation with respect to
which such Option is exercised to be issued in the name of the Director.
F. The shares issued upon the exercise of the Option to be granted
pursuant to this Director's Agreement shall be authorized but unissued or
reacquired shares of the Common Stock, one cent ($.01) par value, of the
Corporation as constituted on the date of this Director's Agreement. In the
event that there is any change in the Corporation's shares of Common Stock by
way of a stock split, reverse stock split, stock dividend or reclassification of
outstanding shares,
<PAGE>
then the Option to be granted pursuant hereto shall be deemed to cover such
shares to the extent that the same would have been issued to the Director had
the Option been exercised in its entirety prior to the time of the change, and
there shall be a corresponding proportionate adjustment of the exercise price
per share set forth herein, so that in the aggregate the exercise price for all
shares then covered shall be the same as the aggregate exercise price for the
shares remaining subject to such Option immediately prior to the change.
G. If and whenever the Director proposes to transfer, sell or dispose of
any or all of the shares of Common Stock issued upon the exercise of the Option,
or part thereof, to be granted pursuant thereto, he will first offer to sell
such shares to the Corporation at fair market value. If the Corporation's
Common Stock is publicly traded at that time, its fair market value shall equal
the current bid price. If the Corporation's Common Stock is not publicly traded
at that time, the fair market value shall be determined by mutual agreement of
the Director and the Corporation. In the event that the Director and
Corporation are unable to mutually agree upon the fair market value of the
Common Stock of the Corporation, they hereby agree to submit that determination
to arbitration in accordance with the rules then pertaining of the American
Arbitration Association. The Director's offer to the Corporation shall be in
writing and unless sooner rejected shall remain open for thirty (30) days from
the date of its receipt by the Corporation. If the offer is not accepted by the
Corporation as to all of the shares so offered, the Director shall be free
otherwise to dispose of the shares not purchased by the Corporation, provided
that such disposition is otherwise permitted under the provisions of this
Director's Agreement.
H. The Director shall not be deemed for any purpose to be a stockholder
of the Corporation with respect to any shares as to which the Option to be
granted has not been exercised with payment and issue made as provided herein.
ARTICLE III - RESIGNATION, REMOVAL, RE-ELECTION AND DEATH
A. Should the Director choose to resign from the Board of Directors of
the Corporation for any reason, he may do so at any time by giving notice to
that effect in accordance with the By-
<PAGE>
Laws of the Corporation. Resignation by the Director shall in no way affect his
interest in any part of the Option which has already been exercised or which has
become exercisable in accordance with the schedule set forth in Paragraph A of
Article II, as of the date of the Director's resignation; but any part of the
Option which, as of the date of the Director's resignation, he has not become
entitled to exercise in accordance with the schedule set forth in Paragraph A of
Article II, shall immediately terminate and be of no further force and effect,
and the Corporation shall be relieved of all obligations herein, with the
exception of its obligation to issue shares of Common Stock upon the Director's
exercise of any part of the Option which the Director has become entitled to
exercise as of the date of the Director's resignation.
B. In the event of the death of the Director prior to the termination of
his association with the Corporation through either resignation, removal, or
otherwise, the Director's heirs or personal representatives shall be entitled to
exercise the Option at any time within six (6) months of the death of the
Director, but only to the extent which the Option has become exercisable in
accordance with the schedule set forth in Paragraph A of Article II as of the
date of the Director's death and had not been previously exercised. Any part of
the Option which, as of the date of the Director's death, the Director has not
become entitled to exercise in accordance with the schedule set forth in
Paragraph A of Article II shall immediately terminate and be of no further force
and effect. If not exercised within said six (6) month period, the Option (to
the extent it had become exercisable) shall expire. Nothing in this Paragraph B
shall be construed so as to permit exercise of the Option, or part thereof,
after the Expiration Date of the Option as set forth in this Director's
Agreement.
C. The Director may fail to be re-elected or may be removed from the
Board of Directors in accordance with the By-Laws of the Corporation at any
time. The failure of the Director to be re-elected or the removal of the
Director from the Board of Directors shall in no way affect the Director's
interest in any part of the Option which has already been exercised or which has
become exercisable in accordance with the schedule set forth in Paragraph A of
Article II, as of
<PAGE>
the date of such failure to be re-elected or removal; but any part of the Option
which, as of the date of the Director's failure to be re-elected or removal, the
Director has not become entitled to exercise in accordance with the schedule set
forth in Paragraph A of Article III, or in accordance with Paragraph D of
Article III, shall immediately terminate and be of no further force and effect,
and the Corporation shall be relieved of all obligations herein, with the
exception of its obligation to issue shares of Common Stock upon the Director's
exercise of any part of the Option which the Director had become entitled to
exercise pursuant to the terms of this Director's Agreement as of the date of
the Director's failure to be re-elected or removal.
D. In the event that the Director fails to be re-elected to the Board of
Directors or is removed from the Board of Directors pursuant to the By-Laws of
the Corporation, the Director shall thereupon be entitled to exercise the Option
with respect to that number of shares of the Common Stock of the Corporation
which would have otherwise been exercisable by him had he remained as a Director
until the next anniversary of this Director's Agreement following the date of
his failure to be re-elected or the date of his removal.
ARTICLE IV - SECURITIES LAWS AND RESTRICTIVE LEGENDS
A. The Director acknowledges that the securities to be acquired pursuant
to this Director's Agreement, as of this date, have not been registered under
the Securities Act of 1933 (hereinafter referred to as the "Act") or any state
securities law (hereinafter referred to as the "State Acts"). The Director
represents and warrants that the Option to be granted and any Common Stock
acquired pursuant hereto will be acquired for his own account and without a view
to, the offer, offer for sale, or sale in connection with, the distribution of
such option or Common Stock. The Director further represents and warrants that
he will hold such shares of Common Stock indefinitely unless subsequently
registered under the Act and the State Acts or unless exemption from such
registration is available and an opinion of counsel for the Corporation, in form
and substance satisfactory to the Corporation, is obtained to that effect. All
certificates representing shares of Common Stock issued upon the exercise of the
Option, or part thereof, shall bear a conspicuous
<PAGE>
legend in substantially the following form:
"The securities represented by this stock certificate have not been
registered under the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
considered) by the holder except upon the issuance to the Corporation of a
favorable opinion of its counsel and/or the submission to the Corporation
of such other evidence as may be satisfactory to counsel for the
corporation, to the effect that any such transfer shall not be in violation
of the Act and the State Acts."
B. All certificates representing shares of Common Stock issued pursuant
to this Director's Agreement shall be further conspicuously legened as follows:
"The shares of stock represented by this Certificate are restricted as to
transfer by the terms, conditions the covenants of a Director's Agreement
with respect thereto dated the 30th day of November 1995, a copy of which
is on file with the Corporation. The Corporation will gratuitously furnish
a coy of said Director's Agreement to any party having a valid interest
therein. Any transfer of stock other than in accordance with said
Director's Agreement shall be absolutely null and void."
C. The Director recognizes that the securities to be acquired pursuant to
this Director's Agreement are highly speculative and involve a high degree of
risk. The Director further recognizes that the Option to be granted pursuant
hereto is not transferable and that the transferability of shares of the
Corporation's Common Stock is restricted. The Director further recognizes that
no market for shares of the Corporation's Common Stock currently exists and
there is no assurance that such market will develop. The Director acknowledges
that he has sufficient financial means to be able to sustain, not only the loss
of any services performed by him on behalf of the Corporation, but also the
amount necessary to exercise, should he so elect to do so, the Option, or part
thereof, which may be exercisable pursuant hereto.
D. If the Corporation shall be advised by its legal counsel that the
issuance of securities, including either options, common stock, or oath,
pursuant to this Director's Agreement, is required to be registered under the
Act or State Act, the Corporation may effect registration, and delivery of any
securities to the Director by the Corporation may be deferred until such
registration or registrations are effective.
<PAGE>
E. The Director hereby acknowledges that the Corporation has provided him
with a balance sheet, a profit and loss statement, and a statement of changes in
capital of the Corporation for the proceeding year, all prepared by an
independent certified public accountant engaged by the Corporation, and further
acknowledges that the Corporation has provided him with an opportunity to ask
questions of an to receive answers from a person authorized to act on behalf of
the Corporation concerning any aspect of the Corporation's financial or business
status. At the time of the grant of the Option to the Director pursuant hereto,
and at reasonable times prior to the exercise of the Option, or part thereof,
the Director may request and the Corporation shall thereafter again provide the
Director with a balance sheet, a profit and loss statement, and a statement of
changes in capital of the Corporation for the preceding year, all prepared by an
independent certified public accountant engaged by the Corporation, and
furthermore, shall again provide the Director with an opportunity to ask
questions of and to receive answers from any person authorized to act on behalf
of the Corporation concerning any aspect of the Corporation's financial or
business status.
IN WITNESS WHEREOF, the Corporation has caused this Director's Agreement to
be executed by its duly authorized officer, and the Director has hereunto set
his hand an seal, on the day and first year above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John T. Janssen By: /s/ William P. Tew, Ph.D.
------------------- ----------------------------
Title: CFO Title: Chairman
------------------ ------------------------
WITNESS: DIRECTOR:
- ------------------------- -------------------------------(SEAL)
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT, is made this 30th day of November 1995, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and John C. Weiss, III
(hereinafter referred to as the "Director").
RECITALS
WHEREAS the Director and the Corporation entered into a Director's
Agreement on the 30th day of November 1995 whereby, in exchange for the
continued best efforts of the Director in his capacity as a director of the
Corporation, the Corporation agreed to compensate the Director by providing the
Director with an Option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Grant of Option - The Corporation hereby grants to the Director the
right, privilege and option (hereinafter referred to as the "Option") to
purchase from the Corporation not more than 8,000 shares of the Common Stock of
the Corporation, one cent ($.01) par value, at an exercise price of One Dollar
and Fifty Cents ($1.50) per share, in the manner and subject to the conditions
hereinafter provided.
2. Incorporation of Director's Agreement by Reference - This Option is
granted pursuant to a Director's Agreement executed between the Corporation and
the Director on the 30th day of November 1995, (hereinafter referred to as the
"Director's Agreement"). All of the terms and conditions of the Director's
Agreement are incorporated into this Option Agreement by reference. In the
event of any inconsistency or conflict between the terms of the Director's
Agreement and the terms of this Option Agreement, the terms of the Director's
Agreement shall prevail.
<PAGE>
3. Exercise - Provided that the Director has satisfactorily performed the
conditions precedent to exercise as set forth in the Director's Agreement, this
Option may be exercised from time to time, but for not less than Two Thousand
(2,000) shares of the Common Stock of the Corporation at an one time (unless a
lesser number of shares be the maximum number subject to exercise at that time
and, if such is the case, the Director must exercise in toto, and not in part,
all such shares subject to exercise at that time) in accordance with the terms,
conditions and methods provided in the Director's Agreement, before the close of
business on November 30, 2005 (the "Expiration Date"), at which time this Option
shall expire and become null and void. This Option will be exercisable subject
to the terms and conditions of the Director's Agreement in accordance with the
following schedule:
Cumulative Number of Shares
Time Subject to Exercise
- ---- -------------------
After the first anniversary of the Two Thousand (2,000)
date of the Director's Agreement
After the second anniversary of the Four Thousand (4,000)
date of the Director's Agreement
After the third anniversary of the Six Thousand (6,000)
date of the Director's Agreement
After the fourth anniversary of the Eight Thousand (8,000)
date of the Director's Agreement
The above stated schedule is included herein for convenience only and is in no
way intended to (or should it be construed to) alter the terms and conditions of
the Director's Agreement, including, but not by way of limitation, those terms
and conditions therein respecting the Director's entitlement and ability to
exercise his Option, or part thereof.
Subject to the provisions of the Director's Agreement, upon resignation,
removal, failure to be re-elected or death of the Director at any time prior to
the fourth anniversary of the date of the Director's Agreement, all option
rights of the Director (or his personal representative) hereunder which, as of
the date of such resignation, removal, failure to be re-elected or death, have
not
<PAGE>
become subject to exercise, shall immediately terminate and be of no further
force and effect.
4. Transfer Restrictions - This Option may not be transferred, other than
by will or the laws of descent and distribution, may not be assigned, pledged or
hypothecated in any way, shall not be subject to attachment or similar process,
and may be exercised, during the lifetime of the Director only by him. Upon any
attempt to transfer this Option, other than by will or by the laws of descent
and distribution, or to assign, pledge, hypothecate or otherwise dispose of this
Option contrary to the provisions hereof, or upon the levy of any execution,
attachment, or similar process upon this Option, this Option shall immediately
become null and void and without effect.
5. Option Not Registered - The Director acknowledges that this Option has
not been registered under the Securities Act of 1933 (hereinafter referred to as
the "Act") or any state securities law (hereinafter referred to as the "State
Acts") and that its transferability is further restricted by the operation and
effect of the Act and State Acts.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be
executed by its duly authorized officer, and the Director has hereunto set his
hand and seal, on the day and year first above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John T. Janssen By: /s/ William P. Tew, Ph.D.
------------------- --------------------------
Title: CFO Title: Chairman
------------------ ------------------------
WITNESS: DIRECTOR
- ------------------------- ------------------(SEAL)
<PAGE>
Exhibit 10.8
DIRECTOR'S AGREEMENT
THIS DIRECTOR'S AGREEMENT, is made this 30th day of November 1995, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and Regis F. Burke (hereinafter
referred to as the "Director").
RECITALS
WHEREAS the Corporation is a Maryland corporation engaged in the business
of medical diagnostics and the development and manufacture of chemicals used in
human and animal therapeutics; and
WHEREAS the Corporation seeks to ensure the continued performance by the
Director of service to the Corporation and to promote the expansion and future
prosperity of the Corporation by providing a means by which the Director may
acquire a proprietary interest in the Corporation; and
WHEREAS the Corporation desires to enter into this Director's Agreement
containing the terms and conditions hereinafter set forth and, in exchange for
the Director's service to the Corporation, to provide compensation to the
Director in the form of an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I - SERVICE
The Director agrees to continue to serve as a member of the Board of
Directors of the Corporation for up to four (4) years from the date hereof,
or until such time as the shareholders of the Corporation remove or replace
him in accordance with the By-Laws of the Corporation or he resigns. The
Director further agrees to use his best efforts while performing in his
capacity as a director and to do all those things reasonably necessary and
expected of a director to ensure the
<PAGE>
expansion and future property of the Corporation.
ARTICLE II - GRANT AND EXERCISE OF OPTIONS
A. In consideration of the Director's service to the Corporation, the
Corporation desires to compensate the Director with the right and option to
purchase up to, but not exceeding, Eight Thousand (8,000) shares of the Common
Stock of the Corporation, one cent ($.01) par value, subject to the provisions
of this Director's Agreement (hereinafter referred to as the "Option"), said
Option exercisable in accordance with the following schedule:
1. Upon completion of one year of service to the Corporation, said year
beginning on the date of this Director's Agreement and ending one year
thereafter, the Director shall, from and after that time and until the
Expiration Date (as hereinafter defined) be entitled to exercise his
right and option to purchase up to Two Thousand (2,000) shares of the
Corporation's Common Stock at an exercise price of One Dollar and
Fifty Cents ($1.50) per share.
2. Upon completion of the second year of the Director's service to the
Corporation, said year beginning one year from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of One Dollar and Fifty Cents ($1.50) per share.
3. Upon completion of the third year of the Director's service to the
Corporation, said year beginning two years from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of One Dollar and Fifty Cents ($1.50) per share.
4. Upon completion of the fourth year of the Director's service to the
Corporation, said
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<PAGE>
year beginning three years from the date of this Director's Agreement
and ending one year thereafter, the Director shall, from and after
that time and until the Expiration Date, be entitled to exercise his
right and option to purchase an additional and final Two Thousand
(2,000) shares of the Corporation's Common Stock at an exercise price
of One Dollar and Fifty Cents ($1.50) per share.
Subject to the provisions of Article III, upon the resignation, removal or
death of the Director, or the failure of the Director to be re-elected to the
Board of Directors of the Corporation, at any time period to the fourth
anniversary of the date of this Director's Agreement, all option rights of the
Director (or his personal representative) which, as of the date of such
resignation, removal, death or failure to be re-elected to the Board of
Directors, he has not become entitled to exercise, shall immediately terminate
and be of no further force and effect.
B. The Option to be granted to the Director pursuant to this Director's
Agreement shall be evidenced by an Option Agreement between the Corporation and
the Director, substantially in the form attached hereto as Exhibit A
(hereinafter referred to as the "Option Agreement"). The Option provided for in
this Director's Agreement will not be considered granted until an Option
Agreement evidencing such Option has been executed and delivered by the
Corporation and the Director.
C. The Option to be granted pursuant to this Director's Agreement may not
be transferred, other than by will or the laws of descent and distribution, may
not be assigned, pledged or hypothecated in any way, shall not be subject to
attachment or similar process, and may be exercised, during the lifetime of the
Director, only by him. Upon any attempt to transfer the Option granted pursuant
hereto, other than by will or by the laws of descent and distribution, or to
assign, pledge, hypothecate, or otherwise dispose of the same contrary to the
provisions hereof, or upon the levy of any execution, attachment, or similar
process upon such Option, the Option shall immediately become null and void
without effect.
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<PAGE>
D. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised from time to time, but for not
less than Two Thousand (2,000) shares of the Common Stock of the Corporation at
any one time (unless a lesser number of shares be the maximum number subject to
exercise at that time and, if such is the case, the Director must exercise in
toto, and not in part, all such shares subject to exercise at that time). The
Option to be granted pursuant to this Director's Agreement must be exercised
before the close of business on November 30, 2005 (the "Expiration Date") and
shall expire and become null and void at that time.
E. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised in accordance with the terms of
this Director's Agreement by delivering to the Secretary of the Corporation
written notice of exercise, together with payment in the form of cash, certified
check, bank draft, or money order payable to the order of Corporation for an
amount equal to the total exercise price of that number of shares to be
purchased pursuant to the exercise of the Option and a written statement that
the shares are being purchased for the Director's own account, for investment
only, and not with a view to distribution. This statement will not be required
in the event that the offering of securities pursuant to this Director's
Agreement is registered under the Securities Act of 1933 and any applicable
state securities law. Within thirty (30) days after delivery of notice of
exercise as required hereinabove, the Corporation shall cause certificates for
the number of shares of the Common Stock of the Corporation with respect to
which such Option is exercised to be issued in the name of the Director.
F. The shares issued upon the exercise of the Option to be granted
pursuant to this Director's Agreement shall be authorized but unissued or
reacquired shares of the Common Stock, one cent ($.01) par value, of the
Corporation as constituted on the date of this Director's Agreement. In the
event that there is any change in the Corporation's shares of Common Stock by
way of a stock split, reverse stock split, stock dividend or reclassification of
outstanding shares,
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<PAGE>
then the Option to be granted pursuant hereto shall be deemed to cover such
shares to the extent that the same would have been issued to the Director had
the Option been exercised in its entirety prior to the time of the change, and
there shall be a corresponding proportionate adjustment of the exercise price
per share set forth herein, so that in the aggregate the exercise price for all
shares then covered shall be the same as the aggregate exercise price for the
shares remaining subject to such Option immediately prior to the change.
G. If and whenever the Director proposes to transfer, sell or dispose of
any or all of the shares of Common Stock issued upon the exercise of the Option,
or part thereof, to be granted pursuant thereto, he will first offer to sell
such shares to the Corporation at fair market value. If the Corporation's
Common Stock is publicly traded at that time, its fair market value shall equal
the current bid price. If the Corporation's Common Stock is not publicly traded
at that time, the fair market value shall be determined by mutual agreement of
the Director and the Corporation. In the event that the Director and
Corporation are unable to mutually agree upon the fair market value of the
Common Stock of the Corporation, they hereby agree to submit that determination
to arbitration in accordance with the rules then pertaining of the American
Arbitration Association. The Director's offer to the Corporation shall be in
writing and unless sooner rejected shall remain open for thirty (30) days from
the date of its receipt by the Corporation. If the offer is not accepted by the
Corporation as to all of the shares so offered, the Director shall be free
otherwise to dispose of the shares not purchased by the Corporation, provided
that such disposition is otherwise permitted under the provisions of this
Director's Agreement.
H. The Director shall not be deemed for any purpose to be a stockholder
of the Corporation with respect to any shares as to which the Option to be
granted has not been exercised with payment and issue made as provided herein.
ARTICLE III - RESIGNATION, REMOVAL, RE-ELECTION AND DEATH
A. Should the Director choose to resign from the Board of Directors of
the Corporation for any reason, he may do so at any time by giving notice to
that effect in accordance with the By-
5
<PAGE>
Laws of the Corporation. Resignation by the Director shall in no way affect his
interest in any part of the Option which has already been exercised or which has
become exercisable in accordance with the schedule set forth in Paragraph A of
Article II, as of the date of the Director's resignation; but any part of the
Option which, as of the date of the Director's resignation, he has not become
entitled to exercise in accordance with the schedule set forth in Paragraph A of
Article II, shall immediately terminate and be of no further force and effect,
and the Corporation shall be relieved of all obligations herein, with the
exception of its obligation to issue shares of Common Stock upon the Director's
exercise of any part of the Option which the Director has become entitled to
exercise as of the date of the Director's resignation.
B. In the event of the death of the Director prior to the termination of
his association with the Corporation through either resignation, removal, or
otherwise, the Director's heirs or personal representatives shall be entitled to
exercise the Option at any time within six (6) months of the death of the
Director, but only to the extent which the Option has become exercisable in
accordance with the schedule set forth in Paragraph A of Article II as of the
date of the Director's death and had not been previously exercised. Any part of
the Option which, as of the date of the Director's death, the Director has not
become entitled to exercise in accordance with the schedule set forth in
Paragraph A of Article II shall immediately terminate and be of no further force
and effect. If not exercised within said six (6) month period, the Option (to
the extent it had become exercisable) shall expire. Nothing in this Paragraph B
shall be construed so as to permit exercise of the Option, or part thereof,
after the Expiration Date of the Option as set forth in this Director's
Agreement.
C. The Director may fail to be re-elected or may be removed from the
Board of Directors in accordance with the By-Laws of the Corporation at any
time. The failure of the Director to be re-elected or the removal of the
Director from the Board of Directors shall in no way affect the Director's
interest in any part of the Option which has already been exercised or which has
become exercisable in accordance with the schedule set forth in Paragraph A of
Article II, as of
6
<PAGE>
the date of such failure to be re-elected or removal; but any part of the Option
which, as of the date of the Director's failure to be re-elected or removal, the
Director has not become entitled to exercise in accordance with the schedule set
forth in Paragraph A of Article III, or in accordance with Paragraph D of
Article III, shall immediately terminate and be of no further force and effect,
and the Corporation shall be relieved of all obligations herein, with the
exception of its obligation to issue shares of Common Stock upon the Director's
exercise of any part of the Option which the Director had become entitled to
exercise pursuant to the terms of this Director's Agreement as of the date of
the Director's failure to be re-elected or removal.
D. In the event that the Director fails to be re-elected to the Board of
Directors or is removed from the Board of Directors pursuant to the By-Laws of
the Corporation, the Director shall thereupon be entitled to exercise the Option
with respect to that number of shares of the Common Stock of the Corporation
which would have otherwise been exercisable by him had he remained as a Director
until the next anniversary of this Director's Agreement following the date of
his failure to be re-elected or the date of his removal.
ARTICLE IV - SECURITIES LAWS AND RESTRICTIVE LEGENDS
A. The Director acknowledges that the securities to be acquired pursuant
to this Director's Agreement, as of this date, have not been registered under
the Securities Act of 1933 (hereinafter referred to as the "Act") or any state
securities law (hereinafter referred to as the "State Acts"). The Director
represents and warrants that the Option to be granted and any Common Stock
acquired pursuant hereto will be acquired for his own account and without a view
to, the offer, offer for sale, or sale in connection with, the distribution of
such option or Common Stock. The Director further represents and warrants that
he will hold such shares of Common Stock indefinitely unless subsequently
registered under the Act and the State Acts or unless exemption from such
registration is available and an opinion of counsel for the Corporation, in form
and substance satisfactory to the Corporation, is obtained to that effect. All
certificates representing shares of Common Stock issued upon the exercise of the
Option, or part thereof, shall bear a conspicuous
7
<PAGE>
legend in substantially the following form:
"The securities represented by this stock certificate have not been
registered under the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
considered) by the holder except upon the issuance to the Corporation of a
favorable opinion of its counsel and/or the submission to the Corporation
of such other evidence as may be satisfactory to counsel for the
corporation, to the effect that any such transfer shall not be in violation
of the Act and the State Acts."
B. All certificates representing shares of Common Stock issued pursuant
to this Director's Agreement shall be further conspicuously legened as follows:
"The shares of stock represented by this Certificate are restricted as to
transfer by the terms, conditions the covenants of a Director's Agreement
with respect thereto dated the 30th day of November 1995, a copy of which
is on file with the Corporation. The Corporation will gratuitously furnish
a coy of said Director's Agreement to any party having a valid interest
therein. Any transfer of stock other than in accordance with said
Director's Agreement shall be absolutely null and void."
C. The Director recognizes that the securities to be acquired pursuant to
this Director's Agreement are highly speculative and involve a high degree of
risk. The Director further recognizes that the Option to be granted pursuant
hereto is not transferable and that the transferability of shares of the
Corporation's Common Stock is restricted. The Director further recognizes that
no market for shares of the Corporation's Common Stock currently exists and
there is no assurance that such market will develop. The Director acknowledges
that he has sufficient financial means to be able to sustain, not only the loss
of any services performed by him on behalf of the Corporation, but also the
amount necessary to exercise, should he so elect to do so, the Option, or part
thereof, which may be exercisable pursuant hereto.
D. If the Corporation shall be advised by its legal counsel that the
issuance of securities, including either options, common stock, or oath,
pursuant to this Director's Agreement, is required to be registered under the
Act or State Act, the Corporation may effect registration, and delivery of any
securities to the Director by the Corporation may be deferred until such
registration or registrations are effective.
8
<PAGE>
E. The Director hereby acknowledges that the Corporation has provided him
with a balance sheet, a profit and loss statement, and a statement of changes in
capital of the Corporation for the proceeding year, all prepared by an
independent certified public accountant engaged by the Corporation, and further
acknowledges that the Corporation has provided him with an opportunity to ask
questions of an to receive answers from a person authorized to act on behalf of
the Corporation concerning any aspect of the Corporation's financial or business
status. At the time of the grant of the Option to the Director pursuant hereto,
and at reasonable times prior to the exercise of the Option, or part thereof,
the Director may request and the Corporation shall thereafter again provide the
Director with a balance sheet, a profit and loss statement, and a statement of
changes in capital of the Corporation for the preceding year, all prepared by an
independent certified public accountant engaged by the Corporation, and
furthermore, shall again provide the Director with an opportunity to ask
questions of and to receive answers from any person authorized to act on behalf
of the Corporation concerning any aspect of the Corporation's financial or
business status.
IN WITNESS WHEREOF, the Corporation has caused this Director's Agreement to
be executed by its duly authorized officer, and the Director has hereunto set
his hand an seal, on the day and first year above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John T. Janssen By: /s/ William P. Tew, Ph.D.
------------------- ----------------------------
Title: Chief Financial Officer Title: Chairman
----------------------- --------
WITNESS: DIRECTOR:
___________________________________ _____________________________(SEAL)
9
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT, is made this 30th day of November 1995, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and Regis F. Burke (hereinafter
referred to as the "Director").
RECITALS
WHEREAS the Director and the Corporation entered into a Director's
Agreement on the 30th day of November 1995 whereby, in exchange for the
continued best efforts of the Director in his capacity as a director of the
Corporation, the Corporation agreed to compensate the Director by providing the
Director with an Option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Grant of Option - The Corporation hereby grants to the Director the
right, privilege and option (hereinafter referred to as the "Option") to
purchase from the Corporation not more than 8,000 shares of the Common Stock of
the Corporation, one cent ($.01) par value, at an exercise price of One Dollar
and Fifty Cents ($1.50) per share, in the manner and subject to the conditions
hereinafter provided.
2. Incorporation of Director's Agreement by Reference - This Option is
granted pursuant to a Director's Agreement executed between the Corporation and
the Director on the 30th day of November 1995, (hereinafter referred to as the
"Director's Agreement"). All of the terms and conditions of the Director's
Agreement are incorporated into this Option Agreement by reference. In the
event of any inconsistency or conflict between the terms of the Director's
Agreement and the terms of this Option Agreement, the terms of the Director's
Agreement shall prevail.
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<PAGE>
3. Exercise - Provided that the Director has satisfactorily performed the
conditions precedent to exercise as set forth in the Director's Agreement, this
Option may be exercised from time to time, but for not less than Two Thousand
(2,000) shares of the Common Stock of the Corporation at an one time (unless a
lesser number of shares be the maximum number subject to exercise at that time
and, if such is the case, the Director must exercise in toto, and not in part,
all such shares subject to exercise at that time) in accordance with the terms,
conditions and methods provided in the Director's Agreement, before the close of
business on November 30, 2005 (the "Expiration Date"), at which time this Option
shall expire and become null and void. This Option will be exercisable subject
to the terms and conditions of the Director's Agreement in accordance with the
following schedule:
Cumulative Number of Shares
Time Subject to Exercise
- ---- -------------------
After the first anniversary of the Two Thousand (2,000) shares
date of the Director's Agreement
After the second anniversary of the FourThousand (4,000) shares
date of the Director's Agreement
After the third anniversary of the Six Thousand (6,000) shares
date of the Director's Agreement
After the fourth anniversary of the Eight Thousand (8,000) shares
date of the Director's Agreement
The above stated schedule is included herein for convenience only and is in no
way intended to (or should it be construed to) alter the terms and conditions of
the Director's Agreement, including, but not by way of limitation, those terms
and conditions therein respecting the Director's entitlement and ability to
exercise his Option, or part thereof.
Subject to the provisions of the Director's Agreement, upon resignation,
removal, failure to be re-elected or death of the Director at any time prior to
the fourth anniversary of the date of the Director's Agreement, all option
rights of the Director (or his personal representative) hereunder which, as of
the date of such resignation, removal, failure to be re-elected or death, have
not
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<PAGE>
become subject to exercise, shall immediately terminate and be of no further
force and effect.
4. Transfer Restrictions - This Option may not be transferred, other than
by will or the laws of descent and distribution, may not be assigned, pledged or
hypothecated in any way, shall not be subject to attachment or similar process,
and may be exercised, during the lifetime of the Director only by him. Upon any
attempt to transfer this Option, other than by will or by the laws of descent
and distribution, or to assign, pledge, hypothecate or otherwise dispose of this
Option contrary to the provisions hereof, or upon the levy of any execution,
attachment, or similar process upon this Option, this Option shall immediately
become null and void and without effect.
5. Option Not Registered - The Director acknowledges that this Option has
not been registered under the Securities Act of 1933 (hereinafter referred to as
the "Act") or any state securities law (hereinafter referred to as the "State
Acts") and that its transferability is further restricted by the operation and
effect of the Act and State Acts.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be
executed by its duly authorized officer, and the Director has hereunto set his
hand and seal, on the day and year first above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John T. Janssen By: /s/ William P. Tew, Ph.D.
Title: CFO Title: Chairman
WITNESS: DIRECTOR
_____________________________ _____________________________(SEAL)
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<PAGE>
Exhibit 10.9
DIRECTOR'S AGREEMENT
THIS DIRECTOR'S AGREEMENT, is made this 18th day of November 1996, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and Harvey L. Miller
(hereinafter referred to as the "Director").
RECITALS
WHEREAS the Corporation is a Maryland corporation engaged in the business
of medical diagnostics and the development and manufacture of chemicals used in
human and animal therapeutics; and
WHEREAS the Corporation seeks to ensure the continued performance by the
Director of service to the Corporation and to promote the expansion and future
prosperity of the Corporation by providing a means by which the Director may
acquire a proprietary interest in the Corporation; and
WHEREAS the Corporation desires to enter into this Director's Agreement
containing the terms and conditions hereinafter set forth and, in exchange for
the Director's service to the Corporation, to provide compensation to the
Director in the form of an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I - SERVICE
The Director agrees to continue to serve as a member of the Board of
Directors of the Corporation for up to four (4) years from the date hereof, or
until such time as the shareholders of the Corporation remove or replace him in
accordance with the By-Laws of the Corporation or he resigns. The Director
further agrees to use his best efforts while performing in his capacity as a
director and to do all those things reasonably necessary and expected of a
director to ensure the expansion and future property of the Corporation.
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<PAGE>
ARTICLE II - GRANT AND EXERCISE OF OPTIONS
A. In consideration of the Director's service to the Corporation, the
Corporation desires to compensate the Director with the right and option to
purchase up to, but not exceeding, Eight Thousand (8,000) shares of the Common
Stock of the Corporation, one cent ($.01) par value, subject to the provisions
of this Director's Agreement (hereinafter referred to as the "Option"), said
Option exercisable in accordance with the following schedule:
1. Upon completion of one year of service to the Corporation, said year
beginning on the date of this Director's Agreement and ending one year
thereafter, the Director shall, from and after that time and until the
Expiration Date (as hereinafter defined) be entitled to exercise his
right and option to purchase up to Two Thousand (2,000) shares of the
Corporation's Common Stock at an exercise price of Three Dollars and
Twelve and One-Half Cents ($3.125) per share.
2. Upon completion of the second year of the Director's service to the
Corporation, said year beginning one year from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of Three Dollars and Twelve and One-Half Cents ($3.125)
per share.
3. Upon completion of the third year of the Director's service to the
Corporation, said year beginning two years from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of Three Dollars and Twelve and One-Half Cents ($3.125)
per share.
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<PAGE>
4. Upon completion of the fourth year of the Director's service to the
Corporation, said year beginning three years from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
and final Two Thousand (2,000) shares of the Corporation's Common
Stock at an exercise price of Three Dollars and Twelve and One-Half
Cents ($3.125) per share.
Subject to the provisions of Article III, upon the resignation, removal or
death of the Director, or the failure of the Director to be re-elected to the
Board of Directors of the Corporation, at any time period to the fourth
anniversary of the date of this Director's Agreement, all option rights of the
Director (or his personal representative) which, as of the date of such
resignation, removal, death or failure to be re-elected to the Board of
Directors, he has not become entitled to exercise, shall immediately terminate
and be of no further force and effect.
B. The Option to be granted to the Director pursuant to this Director's
Agreement shall be evidenced by an Option Agreement between the Corporation and
the Director, substantially in the form attached hereto as Exhibit A
(hereinafter referred to as the "Option Agreement"). The Option provided for in
this Director's Agreement will not be considered granted until an Option
Agreement evidencing such Option has been executed and delivered by the
Corporation and the Director.
C. The Option to be granted pursuant to this Director's Agreement may not
be transferred, other than by will or the laws of descent and distribution, may
not be assigned, pledged or hypothecated in any way, shall not be subject to
attachment or similar process, and may be exercised, during the lifetime of the
Director, only by him. Upon any attempt to transfer the Option granted pursuant
hereto, other than by will or by the laws of descent and distribution, or to
assign, pledge, hypothecate, or otherwise dispose of the same contrary to the
provisions hereof, or upon the levy of any execution, attachment, or similar
process upon such Option, the Option shall
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<PAGE>
immediately become null and void without effect.
D. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised from time to time, but for not
less than Two Thousand (2,000) shares of the Common Stock of the Corporation at
any one time (unless a lesser number of shares be the maximum number subject to
exercise at that time and, if such is the case, the Director must exercise in
toto, and not in part, all such shares subject to exercise at that time). The
Option to be granted pursuant to this Director's Agreement must be exercised
before the close of business on November 18, 2006 (the "Expiration Date") and
shall expire and become null and void at that time.
E. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised in accordance with the terms of
this Director's Agreement by delivering to the Secretary of the Corporation
written notice of exercise, together with payment in the form of cash, certified
check, bank draft, or money order payable to the order of Corporation for an
amount equal to the total exercise price of that number of shares to be
purchased pursuant to the exercise of the Option and a written statement that
the shares are being purchased for the Director's own account, for investment
only, and not with a view to distribution. This statement will not be required
in the event that the offering of securities pursuant to this Director's
Agreement is registered under the Securities Act of 1933 and any applicable
state securities law. Within thirty (30) days after delivery of notice of
exercise as required hereinabove, the Corporation shall cause certificates for
the number of shares of the Common Stock of the Corporation with respect to
which such Option is exercised to be issued in the name of the Director.
F. The shares issued upon the exercise of the Option to be granted
pursuant to this Director's Agreement shall be authorized but unissued or
reacquired shares of the Common Stock, one cent ($.01) par value, of the
Corporation as constituted on the date of this Director's
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<PAGE>
Agreement. In the event that there is any change in the Corporation's shares of
Common Stock by way of a stock split, reverse stock split, stock dividend or
reclassification of outstanding shares, then the Option to be granted pursuant
hereto shall be deemed to cover such shares to the extent that the same would
have been issued to the Director had the Option been exercised in its entirety
prior to the time of the change, and there shall be a corresponding
proportionate adjustment of the exercise price per share set forth herein, so
that in the aggregate the exercise price for all shares then covered shall be
the same as the aggregate exercise price for the shares remaining subject to
such Option immediately prior to the change.
G. If and whenever the Director proposes to transfer, sell or dispose of
any or all of the shares of Common Stock issued upon the exercise of the Option,
or part thereof, to be granted pursuant thereto, he will first offer to sell
such shares to the Corporation at fair market value. If the Corporation's
Common Stock is publicly traded at that time, its fair market value shall equal
the current bid price. If the Corporation's Common Stock is not publicly traded
at that time, the fair market value shall be determined by mutual agreement of
the Director and the Corporation. In the event that the Director and
Corporation are unable to mutually agree upon the fair market value of the
Common Stock of the Corporation, they hereby agree to submit that determination
to arbitration in accordance with the rules then pertaining of the American
Arbitration Association. The Director's offer to the Corporation shall be in
writing and unless sooner rejected shall remain open for thirty (30) days from
the date of its receipt by the Corporation. If the offer is not accepted by the
Corporation as to all of the shares so offered, the Director shall be free
otherwise to dispose of the shares not purchased by the Corporation, provided
that such disposition is otherwise permitted under the provisions of this
Director's Agreement.
H. The Director shall not be deemed for any purpose to be a stockholder
of the Corporation with respect to any shares as to which the Option to be
granted has not been exercised with payment and issue made as provided herein.
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ARTICLE III - RESIGNATION, REMOVAL, RE-ELECTION AND DEATH
A. Should the Director choose to resign from the Board of Directors of
the Corporation for any reason, he may do so at any time by giving notice to
that effect in accordance with the By-Laws of the Corporation. Resignation by
the Director shall in no way affect his interest in any part of the Option which
has already been exercised or which has become exercisable in accordance with
the schedule set forth in Paragraph A of Article II, as of the date of the
Director's resignation; but any part of the Option which, as of the date of the
Director's resignation, he has not become entitled to exercise in accordance
with the schedule set forth in Paragraph A of Article II, shall immediately
terminate and be of no further force and effect, and the Corporation shall be
relieved of all obligations herein, with the exception of its obligation to
issue shares of Common Stock upon the Director's exercise of any part of the
Option which the Director has become entitled to exercise as of the date of the
Director's resignation.
B. In the event of the death of the Director prior to the termination of
his association with the Corporation through either resignation, removal, or
otherwise, the Director's heirs or personal representatives shall be entitled to
exercise the Option at any time within six (6) months of the death of the
Director, but only to the extent which the Option has become exercisable in
accordance with the schedule set forth in Paragraph A of Article II as of the
date of the Director's death and had not been previously exercised. Any part of
the Option which, as of the date of the Director's death, the Director has not
become entitled to exercise in accordance with the schedule set forth in
Paragraph A of Article II shall immediately terminate and be of no further force
and effect. If not exercised within said six (6) month period, the Option (to
the extent it had become exercisable) shall expire. Nothing in this Paragraph B
shall be construed so as to permit exercise of the Option, or part thereof,
after the Expiration Date of the Option as set forth in this Director's
Agreement.
C. The Director may fail to be re-elected or may be removed from the
Board of
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Directors in accordance with the By-Laws of the Corporation at any time. The
failure of the Director to be re-elected or the removal of the Director from the
Board of Directors shall in no way affect the Director's interest in any part of
the Option which has already been exercised or which has become exercisable in
accordance with the schedule set forth in Paragraph A of Article II, as of the
date of such failure to be re-elected or removal; but any part of the Option
which, as of the date of the Director's failure to be re-elected or removal, the
Director has not become entitled to exercise in accordance with the schedule set
forth in Paragraph A of Article III, or in accordance with Paragraph D of
Article III, shall immediately terminate and be of no further force and effect,
and the Corporation shall be relieved of all obligations herein, with the
exception of its obligation to issue shares of Common Stock upon the Director's
exercise of any part of the Option which the Director had become entitled to
exercise pursuant to the terms of this Director's Agreement as of the date of
the Director's failure to be re-elected or removal.
D. In the event that the Director fails to be re-elected to the Board of
Directors or is removed from the Board of Directors pursuant to the By-Laws of
the Corporation, the Director shall thereupon be entitled to exercise the Option
with respect to that number of shares of the Common Stock of the Corporation
which would have otherwise been exercisable by him had he remained as a Director
until the next anniversary of this Director's Agreement following the date of
his failure to be re-elected or the date of his removal.
ARTICLE IV - SECURITIES LAWS AND RESTRICTIVE LEGENDS
A. The Director acknowledges that the securities to be acquired pursuant
to this Director's Agreement, as of this date, have not been registered under
the Securities Act of 1933 (hereinafter referred to as the "Act") or any state
securities law (hereinafter referred to as the "State Acts"). The Director
represents and warrants that the Option to be granted and any Common Stock
acquired pursuant hereto will be acquired for his own account and without a view
to, the offer, offer for sale, or sale in connection with, the distribution of
such option or Common Stock. The
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Director further represents and warrants that he will hold such shares of Common
Stock indefinitely unless subsequently registered under the Act and the State
Acts or unless exemption from such registration is available and an opinion of
counsel for the Corporation, in form and substance satisfactory to the
Corporation, is obtained to that effect. All certificates representing shares
of Common Stock issued upon the exercise of the Option, or part thereof, shall
bear a conspicuous legend in substantially the following form:
"The securities represented by this stock certificate have not been
registered under the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
considered) by the holder except upon the issuance to the Corporation of a
favorable opinion of its counsel and/or the submission to the Corporation
of such other evidence as may be satisfactory to counsel for the
corporation, to the effect that any such transfer shall not be in violation
of the Act and the State Acts."
B. All certificates representing shares of Common Stock issued pursuant
to this Director's Agreement shall be further conspicuously legened as follows:
"The shares of stock represented by this Certificate are restricted as to
transfer by the terms, conditions the covenants of a Director's Agreement
with respect thereto dated the 18th day of November 1996, a copy of which
is on file with the Corporation. The Corporation will gratuitously furnish
a coy of said Director's Agreement to any party having a valid interest
therein. Any transfer of stock other than in accordance with said
Director's Agreement shall be absolutely null and void."
C. The Director recognizes that the securities to be acquired pursuant to
this Director's Agreement are highly speculative and involve a high degree of
risk. The Director further recognizes that the Option to be granted pursuant
hereto is not transferable and that the transferability of shares of the
Corporation's Common Stock is restricted. The Director further recognizes that
no market for shares of the Corporation's Common Stock currently exists and
there is no assurance that such market will develop. The Director acknowledges
that he has sufficient financial means to be able to sustain, not only the loss
of any services performed by him on behalf of the Corporation, but also the
amount necessary to exercise, should he so elect to do so, the
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<PAGE>
Option, or part thereof, which may be exercisable pursuant hereto.
D. If the Corporation shall be advised by its legal counsel that the
issuance of securities, including either options, common stock, or oath,
pursuant to this Director's Agreement, is required to be registered under the
Act or State Act, the Corporation may effect registration, and delivery of any
securities to the Director by the Corporation may be deferred until such
registration or registrations are effective.
E. The Director hereby acknowledges that the Corporation has provided him
with a balance sheet, a profit and loss statement, and a statement of changes in
capital of the Corporation for the proceeding year, all prepared by an
independent certified public accountant engaged by the Corporation, and further
acknowledges that the Corporation has provided him with an opportunity to ask
questions of an to receive answers from a person authorized to act on behalf of
the Corporation concerning any aspect of the Corporation's financial or business
status. At the time of the grant of the Option to the Director pursuant hereto,
and at reasonable times prior to the exercise of the Option, or part thereof,
the Director may request and the Corporation shall thereafter again provide the
Director with a balance sheet, a profit and loss statement, and a statement of
changes in capital of the Corporation for the preceding year, all prepared by an
independent certified public accountant engaged by the Corporation, and
furthermore, shall again provide the Director with an opportunity to ask
questions of and to receive answers from any person authorized to act on behalf
of the Corporation concerning any aspect of the Corporation's financial or
business status.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Director's Agreement to
be executed by its duly authorized officer, and the Director has hereunto set
his hand an seal, on the day and first year above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John C. Weiss, III By: /s/ William P. Tew, Ph.D.
---------------------- --------------------------
Title: President Title: Chairman & CEO
---------------------- --------------------------
WITNESS: DIRECTOR:
/s/ /s/ (SEAL)
- ---------------------------- --------------------------
10
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT, is made this 18th day of November 1996, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and Harvey L. Miller
(hereinafter referred to as the "Director").
RECITALS
WHEREAS the Director and the Corporation entered into a Director's
Agreement on the 18th day of November 1996 whereby, in exchange for the
continued best efforts of the Director in his capacity as a director of the
Corporation, the Corporation agreed to compensate the Director by providing the
Director with an Option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Grant of Option - The Corporation hereby grants to the Director the
right, privilege and option (hereinafter referred to as the "Option") to
purchase from the Corporation not more than 8,000 shares of the Common Stock of
the Corporation, one cent ($.01) par value, at an exercise price of Three
Dollars and Twelve and One-Half Cents ($3.125) per share, in the manner and
subject to the conditions hereinafter provided.
2. Incorporation of Director's Agreement by Reference - This Option is
granted pursuant to a Director's Agreement executed between the Corporation and
the Director on the 18th day of November 1996, (hereinafter referred to as the
"Director's Agreement"). All of the terms and conditions of the Director's
Agreement are incorporated into this Option Agreement by reference. In the
event of any inconsistency or conflict between the terms of the Director's
Agreement and the terms of this Option Agreement, the terms of the Director's
Agreement shall prevail.
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3. Exercise - Provided that the Director has satisfactorily performed the
conditions precedent to exercise as set forth in the Director's Agreement, this
Option may be exercised from time to time, but for not less than Two Thousand
(2,000) shares of the Common Stock of the Corporation at an one time (unless a
lesser number of shares be the maximum number subject to exercise at that time
and, if such is the case, the Director must exercise in toto, and not in part,
all such shares subject to exercise at that time) in accordance with the terms,
conditions and methods provided in the Director's Agreement, before the close of
business on November 18, 2006 (the "Expiration Date"), at which time this Option
shall expire and become null and void. This Option will be exercisable subject
to the terms and conditions of the Director's Agreement in accordance with the
following schedule:
Cumulative Number of Shares
Time Subject to Exercise
- ---- -------------------
After the first anniversary of the Two Thousand (2,000)
date of the Director's Agreement
After the second anniversary of the Four Thousand (4,000)
date of the Director's Agreement
After the third anniversary of the Six Thousand (6,000)
date of the Director's Agreement
After the fourth anniversary of the Eight Thousand (8,000)
date of the Director's Agreement
The above stated schedule is included herein for convenience only and is in no
way intended to (or should it be construed to) alter the terms and conditions of
the Director's Agreement, including, but not by way of limitation, those terms
and conditions therein respecting the Director's entitlement and ability to
exercise his Option, or part thereof.
Subject to the provisions of the Director's Agreement, upon resignation,
removal, failure to be re-elected or death of the Director at any time prior to
the fourth anniversary of the date of the Director's Agreement, all option
rights of the Director (or his personal representative) hereunder
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<PAGE>
which, as of the date of such resignation, removal, failure to be re-elected or
death, have not become subject to exercise, shall immediately terminate and be
of no further force and effect.
4. Transfer Restrictions - This Option may not be transferred, other than
by will or the laws of descent and distribution, may not be assigned, pledged or
hypothecated in any way, shall not be subject to attachment or similar process,
and may be exercised, during the lifetime of the Director only by him. Upon any
attempt to transfer this Option, other than by will or by the laws of descent
and distribution, or to assign, pledge, hypothecate or otherwise dispose of this
Option contrary to the provisions hereof, or upon the levy of any execution,
attachment, or similar process upon this Option, this Option shall immediately
become null and void and without effect.
5. Option Not Registered - The Director acknowledges that this Option has
not been registered under the Securities Act of 1933 (hereinafter referred to as
the "Act") or any state securities law (hereinafter referred to as the "State
Acts") and that its transferability is further restricted by the operation and
effect of the Act and State Acts.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be
executed by its duly authorized officer, and the Director has hereunto set his
hand and seal, on the day and year first above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John C. Weiss, III By: /s/ William P. Tew, Ph.D.
---------------------- -------------------------
Title: President Title: Chairman & CEO
---------------------- -------------------------
WITNESS: DIRECTOR:
/s/ /s/ (SEAL)
- ---------------------------- -----------------------------------
3
<PAGE>
Exhibit 10.10
DIRECTOR'S AGREEMENT
THIS DIRECTOR'S AGREEMENT, is made this 21 day of March 1997, by and
between Chesapeake Biological Laboratories, Inc., a Maryland Corporation
(hereinafter referred to as the "Corporation"), and Thomas P. Rice (hereinafter
referred to as the "Director").
RECITALS
WHEREAS the Corporation is a Maryland corporation engaged in the business
of medical diagnostics and the development and manufacture of chemicals used in
human and animal therapeutics; and
WHEREAS the Corporation seeks to ensure the continued performance by the
Director of service to the Corporation and to promote the expansion and future
prosperity of the Corporation by providing a means by which the Director may
acquire a proprietary interest in the Corporation; and
WHEREAS the Corporation desires to enter into this Director's Agreement
containing the terms and conditions hereinafter set forth and, in exchange for
the Director's service to the Corporation, to provide compensation to the
Director in the form of an option to purchase shares of the Common Stock of the
Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I - SERVICE
The Director agrees to continue to serve as a member of the Board of
Directors of the Corporation for up to four (4) years from the date hereof, or
until such time as the shareholders of the Corporation remove or replace him in
accordance with the By-Laws of the Corporation or he resigns. The Director
further agrees to use his best efforts while performing in his capacity as a
director and to
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<PAGE>
do all those things reasonably necessary and expected of a director to ensure
the expansion and future property of the Corporation.
ARTICLE II - GRANT AND EXERCISE OF OPTIONS
A. In consideration of the Director's service to the Corporation, the
Corporation desires to compensate the Director with the right and option to
purchase up to, but not exceeding, Eight Thousand (8,000) shares of the Common
Stock of the Corporation, one cent ($.01) par value, subject to the provisions
of this Director's Agreement (hereinafter referred to as the "Option"), said
Option exercisable in accordance with the following schedule:
1. Upon completion of one year of service to the Corporation, said year
beginning on the date of this Director's Agreement and ending one year
thereafter, the Director shall, from and after that time and until the
Expiration Date (as hereinafter defined) be entitled to exercise his
right and option to purchase up to Two Thousand (2,000) shares of the
Corporation's Common Stock at an exercise price of Five dollars and
Eighteen and Three Quarters cents ($5.1875) per share.
2. Upon completion of the second year of the Director's service to the
Corporation, said year beginning one year from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000) shares of the Corporation's Common Stock at an
exercise price of Five dollars and Eighteen and Three Quarters cents
($5.1875) per share.
3. Upon completion of the third year of the Director's service to the
Corporation, said year beginning two years from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
Two Thousand (2,000)
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<PAGE>
shares of the Corporation's Common Stock at an exercise price of Five
dollars and Eighteen and Three Quarters cents ($5.1875) per share.
4. Upon completion of the fourth year of the Director's service to the
Corporation, said year beginning three years from the date of this
Director's Agreement and ending one year thereafter, the Director
shall, from and after that time and until the Expiration Date, be
entitled to exercise his right and option to purchase an additional
and final Two Thousand (2,000) shares of the Corporation's Common
Stock at an exercise price of Five dollars and Eighteen and Three
Quarters cents ($5.1875) per share.
Subject to the provisions of Article III, upon the resignation,
removal or death of the Director, or the failure of the Director to be
re-elected to the Board of Directors of the Corporation, at any time period to
the fourth anniversary of the date of this Director's Agreement, all option
rights of the Director (or his personal representative) which, as of the date of
such resignation, removal, death or failure to be re-elected to the Board of
Directors, he has not become entitled to exercise, shall immediately terminate
and be of no further force and effect.
B. The Option to be granted to the Director pursuant to this Director's
Agreement shall be evidenced by an Option Agreement between the Corporation and
the Director, substantially in the form attached hereto as Exhibit A
(hereinafter referred to as the "Option Agreement"). The Option provided for in
this Director's Agreement will not be considered granted until an Option
Agreement evidencing such Option has been executed and delivered by the
Corporation and the Director.
C. The Option to be granted pursuant to this Director's Agreement may not
be transferred, other than by will or the laws of descent and distribution, may
not be assigned, pledged or hypothecated in any way, shall not be subject to
attachment or similar process, and may be exercised, during the lifetime of the
Director, only by him. Upon any attempt to transfer the Option granted pursuant
hereto, other than by will or by the laws of descent and distribution, or to
assign, pledge, hypothecate, or
3
<PAGE>
otherwise dispose of the same contrary to the provisions hereof, or upon the
levy of any execution, attachment, or similar process upon such Option, the
Option shall immediately become null and void without effect.
D. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised from time to time, but for not
less than Two Thousand (2,000) shares of the Common Stock of the Corporation at
any one time (unless a lesser number of shares be the maximum number subject to
exercise at that time and, if such is the case, the Director must exercise in
toto, and not in part, all such shares subject to exercise at that time). The
Option to be granted pursuant to this Director's Agreement must be exercised
before the close of business on March 21 2007 (the "Expiration Date") and shall
expire and become null and void at that time.
E. The Option to be granted pursuant to this Director's Agreement, to the
extent it becomes exercisable in accordance with the schedule set forth in
Paragraph A of this Article II, may be exercised in accordance with the terms of
this Director's Agreement by delivering to the Secretary of the Corporation
written notice of exercise, together with payment in the form of cash, certified
check, bank draft, or money order payable to the order of Corporation for an
amount equal to the total exercise price of that number of shares to be
purchased pursuant to the exercise of the Option and a written statement that
the shares are being purchased for the Director's own account, for investment
only, and not with a view to distribution. This statement will not be required
in the event that the offering of securities pursuant to this Director's
Agreement is registered under the Securities Act of 1933 and any applicable
state securities law. Within thirty (30) days after delivery of notice of
exercise as required hereinabove, the Corporation shall cause certificates for
the number of shares of the Common Stock of the Corporation with respect to
which such Option is exercised to be issued in the name of the Director.
F. The shares issued upon the exercise of the Option to be granted
pursuant to this
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<PAGE>
Director's Agreement shall be authorized but unissued or reacquired shares of
the Common Stock, one cent ($.01) par value, of the Corporation as constituted
on the date of this Director's Agreement. In the event that there is any change
in the Corporation's shares of Common Stock by way of a stock split, reverse
stock split, stock dividend or reclassification of outstanding shares, then the
Option to be granted pursuant hereto shall be deemed to cover such shares to the
extent that the same would have been issued to the Director had the Option been
exercised in its entirety prior to the time of the change, and there shall be a
corresponding proportionate adjustment of the exercise price per share set forth
herein, so that in the aggregate the exercise price for all shares then covered
shall be the same as the aggregate exercise price for the shares remaining
subject to such Option immediately prior to the change.
G. If and whenever the Director proposes to transfer, sell or dispose of
any or all of the shares of Common Stock issued upon the exercise of the Option,
or part thereof, to be granted pursuant thereto, he will first offer to sell
such shares to the Corporation at fair market value. If the Corporation's
Common Stock is publicly traded at that time, its fair market value shall equal
the current bid price. If the Corporation's Common Stock is not publicly traded
at that time, the fair market value shall be determined by mutual agreement of
the Director and the Corporation. In the event that the Director and
Corporation are unable to mutually agree upon the fair market value of the
Common Stock of the Corporation, they hereby agree to submit that determination
to arbitration in accordance with the rules then pertaining of the American
Arbitration Association. The Director's offer to the Corporation shall be in
writing and unless sooner rejected shall remain open for thirty (30) days from
the date of its receipt by the Corporation. If the offer is not accepted by the
Corporation as to all of the shares so offered, the Director shall be free
otherwise to dispose of the shares not purchased by the Corporation, provided
that such disposition is otherwise permitted under the provisions of this
Director's Agreement.
H. The Director shall not be deemed for any purpose to be a stockholder
of the Corporation
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<PAGE>
with respect to any shares as to which the Option to be granted has not been
exercised with payment and issue made as provided herein.
ARTICLE III - RESIGNATION, REMOVAL, RE-ELECTION AND DEATH
A. Should the Director choose to resign from the Board of Directors of
the Corporation for any reason, he may do so at any time by giving notice to
that effect in accordance with the By-Laws of the Corporation. Resignation by
the Director shall in no way affect his interest in any part of the Option which
has already been exercised or which has become exercisable in accordance with
the schedule set forth in Paragraph A of Article II, as of the date of the
Director's resignation; but any part of the Option which, as of the date of the
Director's resignation, he has not become entitled to exercise in accordance
with the schedule set forth in Paragraph A of Article II, shall immediately
terminate and be of no further force and effect, and the Corporation shall be
relieved of all obligations herein, with the exception of its obligation to
issue shares of Common Stock upon the Director's exercise of any part of the
Option which the Director has become entitled to exercise as of the date of the
Director's resignation.
B. In the event of the death of the Director prior to the termination of
his association with the Corporation through either resignation, removal, or
otherwise, the Director's heirs or personal representatives shall be entitled to
exercise the Option at any time within six (6) months of the death of the
Director, but only to the extent which the Option has become exercisable in
accordance with the schedule set forth in Paragraph A of Article II as of the
date of the Director's death and had not been previously exercised. Any part of
the Option which, as of the date of the Director's death, the Director has not
become entitled to exercise in accordance with the schedule set forth in
Paragraph A of Article II shall immediately terminate and be of no further force
and effect. If not exercised within said six (6) month period, the Option (to
the extent it had become exercisable) shall expire. Nothing in this Paragraph B
shall be construed so as to permit exercise of the Option, or part thereof,
after the Expiration Date of the Option as set forth in this Director's
Agreement.
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<PAGE>
C. The Director may fail to be re-elected or may be removed from the
Board of Directors in accordance with the By-Laws of the Corporation at any
time. The failure of the Director to be re-elected or the removal of the
Director from the Board of Directors shall in no way affect the Director's
interest in any part of the Option which has already been exercised or which has
become exercisable in accordance with the schedule set forth in Paragraph A of
Article II, as of the date of such failure to be re-elected or removal; but any
part of the Option which, as of the date of the Director's failure to be
re-elected or removal, the Director has not become entitled to exercise in
accordance with the schedule set forth in Paragraph A of Article III, or in
accordance with Paragraph D of Article III, shall immediately terminate and be
of no further force and effect, and the Corporation shall be relieved of all
obligations herein, with the exception of its obligation to issue shares of
Common Stock upon the Director's exercise of any part of the Option which the
Director had become entitled to exercise pursuant to the terms of this
Director's Agreement as of the date of the Director's failure to be re-elected
or removal.
D. In the event that the Director fails to be re-elected to the Board of
Directors or is removed from the Board of Directors pursuant to the By-Laws of
the Corporation, the Director shall thereupon be entitled to exercise the Option
with respect to that number of shares of the Common Stock of the Corporation
which would have otherwise been exercisable by him had he remained as a Director
until the next anniversary of this Director's Agreement following the date of
his failure to be re-elected or the date of his removal.
ARTICLE IV - SECURITIES LAWS AND RESTRICTIVE LEGENDS
A. The Director acknowledges that the securities to be acquired pursuant
to this Director's Agreement, as of this date, have not been registered under
the Securities Act of 1933 (hereinafter referred to as the "Act") or any state
securities law (hereinafter referred to as the "State Acts"). The Director
represents and warrants that the Option to be granted and any Common Stock
acquired pursuant hereto will be acquired for his own account and without a view
to, the offer, offer for sale, or
7
<PAGE>
sale in connection with, the distribution of such option or Common Stock. The
Director further represents and warrants that he will hold such shares of Common
Stock indefinitely unless subsequently registered under the Act and the State
Acts or unless exemption from such registration is available and an opinion of
counsel for the Corporation, in form and substance satisfactory to the
Corporation, is obtained to that effect. All certificates representing shares
of Common Stock issued upon the exercise of the Option, or part thereof, shall
bear a conspicuous legend in substantially the following form:
"The securities represented by this stock certificate have not been
registered under the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
considered) by the holder except upon the issuance to the Corporation of a
favorable opinion of its counsel and/or the submission to the Corporation
of such other evidence as may be satisfactory to counsel for the
corporation, to the effect that any such transfer shall not be in violation
of the Act and the State Acts."
B. All certificates representing shares of Common Stock issued pursuant
to this Director's Agreement shall be further conspicuously legened as follows:
"The shares of stock represented by this Certificate are restricted as to
transfer by the terms, conditions the covenants of a Director's Agreement
with respect thereto dated the 21 day of March 1997, a copy of which is on
file with the Corporation. The Corporation will gratuitously furnish a coy
of said Director's Agreement to any party having a valid interest therein.
Any transfer of stock other than in accordance with said Director's
Agreement shall be absolutely null and void."
C. The Director recognizes that the securities to be acquired pursuant to
this Director's Agreement are highly speculative and involve a high degree of
risk. The Director further recognizes that the Option to be granted pursuant
hereto is not transferable and that the transferability of shares of the
Corporation's Common Stock is restricted. The Director further recognizes that
no market for shares of the Corporation's Common Stock currently exists and
there is no assurance that such market will develop. The Director acknowledges
that he has sufficient financial means to be able to sustain, not only the loss
of any services performed by him on behalf of the Corporation, but also the
amount necessary to exercise, should he so elect to do so, the Option, or part
thereof, which may be exercisable
8
<PAGE>
pursuant hereto.
D. If the Corporation shall be advised by its legal counsel that the
issuance of securities, including either options, common stock, or oath,
pursuant to this Director's Agreement, is required to be registered under the
Act or State Act, the Corporation may effect registration, and delivery of any
securities to the Director by the Corporation may be deferred until such
registration or registrations are effective.
E. The Director hereby acknowledges that the Corporation has provided him
with a balance sheet, a profit and loss statement, and a statement of changes in
capital of the Corporation for the proceeding year, all prepared by an
independent certified public accountant engaged by the Corporation, and further
acknowledges that the Corporation has provided him with an opportunity to ask
questions of an to receive answers from a person authorized to act on behalf of
the Corporation concerning any aspect of the Corporation's financial or business
status. At the time of the grant of the Option to the Director pursuant hereto,
and at reasonable times prior to the exercise of the Option, or part thereof,
the Director may request and the Corporation shall thereafter again provide the
Director with a balance sheet, a profit and loss statement, and a statement of
changes in capital of the Corporation for the preceding year, all prepared by an
independent certified public accountant engaged by the Corporation, and
furthermore, shall again provide the Director with an opportunity to ask
questions of and to receive answers from any person authorized to act on behalf
of the Corporation concerning any aspect of the Corporation's financial or
business status.
9
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Director's Agreement to
be executed by its duly authorized officer, and the Director has hereunto set
his hand an seal, on the day and first year above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John C. Weiss, III By: /s/ William P. Tew, Ph.D.
-------------------------- ---------------------------
Title: President Title: Chairman & CEO
----------------------- ------------------------
WITNESS: DIRECTOR:
/s/ /s/
- ---------------------------- ---------------------------(SEAL)
10
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT, is made this 21 day of March 1997, by and between
Chesapeake Biological Laboratories, Inc., a Maryland Corporation (hereinafter
referred to as the "Corporation"), and Thomas P. Rice (hereinafter referred to
as the "Director").
RECITALS
WHEREAS the Director and the Corporation entered into a Director's
Agreement on the 21day of March 1997 whereby, in exchange for the continued best
efforts of the Director in his capacity as a director of the Corporation, the
Corporation agreed to compensate the Director by providing the Director with an
Option to purchase shares of the Common Stock of the Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Grant of Option - The Corporation hereby grants to the Director the
right, privilege and option (hereinafter referred to as the "Option") to
purchase from the Corporation not more than 8,000 shares of the Common Stock of
the Corporation, one cent ($.01) par value, at an exercise price of Five dollars
and Eighteen and Three Quarters cents ($5.1875) per share, in the manner and
subject to the conditions hereinafter provided.
2. Incorporation of Director's Agreement by Reference - This Option is
granted pursuant to a Director's Agreement executed between the Corporation and
the Director on the 21 day of March 1997, (hereinafter referred to as the
"Director's Agreement"). All of the terms and conditions of the Director's
Agreement are incorporated into this Option Agreement by reference. In the
event of any inconsistency or conflict between the terms of the Director's
Agreement and the terms of this Option Agreement, the terms of the Director's
Agreement shall prevail.
1
<PAGE>
3. Exercise - Provided that the Director has satisfactorily performed the
conditions precedent to exercise as set forth in the Director's Agreement, this
Option may be exercised from time to time, but for not less than Two Thousand
(2,000) shares of the Common Stock of the Corporation at an one time (unless a
lesser number of shares be the maximum number subject to exercise at that time
and, if such is the case, the Director must exercise in toto, and not in part,
all such shares subject to exercise at that time) in accordance with the terms,
conditions and methods provided in the Director's Agreement, before the close of
business on March 21, 2007 (the "Expiration Date"), at which time this Option
shall expire and become null and void. This Option will be exercisable subject
to the terms and conditions of the Director's Agreement in accordance with the
following schedule:
Cumulative Number of Shares
Time Subject to Exercise
After the first anniversary of the Two Thousand (2,000)
date of the Director's Agreement
After the second anniversary of the FourThousand (4,000)
date of the Director's Agreement
After the third anniversary of the Six Thousand (6,000)
date of the Director's Agreement
After the fourth anniversary of the Eight Thousand (8,000)
date of the Director's Agreement
The above stated schedule is included herein for convenience only and is in no
way intended to (or should it be construed to) alter the terms and conditions of
the Director's Agreement, including, but not by way of limitation, those terms
and conditions therein respecting the Director's entitlement and ability to
exercise his Option, or part thereof.
Subject to the provisions of the Director's Agreement, upon resignation,
removal, failure to be re-elected or death of the Director at any time prior to
the fourth anniversary of the date of the Director's Agreement, all option
rights of the Director (or his personal representative) hereunder which,
2
<PAGE>
as of the date of such resignation, removal, failure to be re-elected or death,
have not become subject to exercise, shall immediately terminate and be of no
further force and effect.
4. Transfer Restrictions - This Option may not be transferred, other than
by will or the laws of descent and distribution, may not be assigned, pledged or
hypothecated in any way, shall not be subject to attachment or similar process,
and may be exercised, during the lifetime of the Director only by him. Upon any
attempt to transfer this Option, other than by will or by the laws of descent
and distribution, or to assign, pledge, hypothecate or otherwise dispose of this
Option contrary to the provisions hereof, or upon the levy of any execution,
attachment, or similar process upon this Option, this Option shall immediately
become null and void and without effect.
5. Option Not Registered - The Director acknowledges that this Option has
not been registered under the Securities Act of 1933 (hereinafter referred to as
the "Act") or any state securities law (hereinafter referred to as the "State
Acts") and that its transferability is further restricted by the operation and
effect of the Act and State Acts.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be
executed by its duly authorized officer, and the Director has hereunto set his
hand and seal, on the day and year first above written.
ATTEST: CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
By: /s/ John C. Weiss, III By: /s/ William P. Tew, Ph.D.
--------------------------- -------------------------------
Title: President Title: Chairman & CEO
------------------------ -----------------------
WITNESS: DIRECTOR
/s/ /s/
- ------------------------------ -------------------------------(SEAL)
3
<PAGE>
Exhibit 10.11
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
1997 DIRECTORS' STOCK OPTION PLAN
1. Establishment, Purpose, and Definitions.
(a) There is hereby adopted the 1997 Directors' Stock
Option Plan (the "Plan") of Chesapeake Biological Laboratories,
Inc. (the "Company").
(b) The purpose of the Plan is to enable the Company
to attract the best available individuals to serve as members of
the Board of Directors of the Company (the "Board"), to provide
additional performance incentives to such individuals while
serving as directors and as chair of certain committees of the
Board, and to encourage their continued service on the Board and
as chair of one or more committees thereof.
2. Administration of the Plan.
The Plan shall be administered by the Board. The Board
may delegate the responsibility for administering the Plan to a
committee, under such terms and conditions as the Board shall
determine (the "Plan Committee"). Any such Plan Committee shall
consist of two or more members of the Board. Members of the Plan
Committee shall serve at the pleasure of the Board. The Plan
Committee shall select one of its members as chairman, and shall
hold meetings at such times and places as it may determine. A
majority of the Plan Committee shall constitute a quorum and acts
of the Plan Committee at which a quorum is present, or acts
reduced to or approved in writing by all the members of the Plan
Committee, shall be the valid acts of the Plan Committee. If the
Board does not delegate administration of the Plan to the Plan
Committee, then each reference in this Plan to the "Plan
Committee" shall be construed to refer to the Board.
3. Stock Subject to the Plan.
(a) The aggregate number of shares of Class A Common
Stock of the Company (the "Stock") available for grant of options
under the Plan shall be 25,000 shares. If an option is
surrendered (except surrender for shares of Stock) or for any
other reason ceases to be exercisable in whole or in part, the
shares which were subject to such option but as to which the
option had not been exercised shall continue to be available
under the Plan.
(b) If there is any change in the Stock subject to any
option granted under the Plan, through merger, consolidation,
reorganization, reincorporation, stock split, stock dividend (in
excess of two percent), or other change in the capital structure
of
<PAGE>
the Company, appropriate adjustments shall be made by the Plan
Committee in order to preserve but not to increase the benefits
to the individual, including adjustments to the number and kind
of shares and the price per share subject to outstanding options.
4. Stock Options for Committee Chair Directors.
(a) All grants of options pursuant to this Plan shall
be automatic and nondiscretionary and shall be made in accordance
with the provisions of this Plan. All options shall be granted
in the manner and with the term herein provided and shall be on
the form of Stock Option Agreement attached hereto as Exhibit A.
(b) An option to purchase 3,000 shares of Stock shall
be granted to each director who is not an officer of the Company
and who is serving as the chairperson of an Eligible Committee
(as hereinafter defined) of the Board (a "Committee Chair
Director") as of the date of grant, such option to be granted on
the earlier to occur of (i) the first meeting of the Board
following the Annual Meeting of Stockholders of the Company held
each year, and (ii) December 31 of each year, commencing with
calendar year 1997 and continuing year-to-year thereafter until
all shares available hereunder shall be subject to issued and
outstanding options. In no event will any grant be made to any
one Committee Chair Director on more than one occasion in any one
calendar year and any individual serving as Chair of more than
one Eligible Committee shall be entitled to only one such grant
per calendar year and not on a "Per Eligible Committee" basis.
Each option shall be for a term of ten (10) years and, unless
exercised or sooner terminated or expired hereunder, shall expire
and terminate on the 10th anniversary of the date of grant. All
options granted to Committee Chair Directors shall be
non-qualified stock options. For purposes hereof, an "Eligible
Committee" shall mean the Stock Option Committee, the Audit
Committee and the Compensation Committee as established from
time-to-time by the Board as committees of the Board; and the
Chairperson of such committee shall be as determined by the
Board, or in the absence of such determination and in all events
subject to a determination otherwise by the Board, by the
affirmative vote of the members of that committee. If any option
ceases to be exercisable in whole or in part, the shares which
were subject to such option, but as to which the option has not
been exercised, shall continue to be available under the Plan.
(c) The exercise price per share of Stock covered by
each option shall be the fair market value of each such share
which, for purposes of the Plan, shall be (i) the closing price
of the Stock on the principal exchange on which the Stock is
trading, on the date on which the option is granted or, if the
Stock is not traded on such date, then the next preceding trading
date on which a sale occurred; or (ii) is the stock is not traded
on an exchange but is quoted on NASDAQ or a successor quotation
system, the last
2
<PAGE>
sales price (or if the last sales price is not
readily determinable, the mean between the closing representative
bid and 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 the
Stock is not then publicly-traded, the fair market value thereof
on the date on which the option is granted as established by the
Plan Committee acting in good faith.
(d) Each option granted hereunder shall not vest and
become exercisable, in whole or in part, until the date which is
the first anniversary of the date on which the option is granted;
provided, however, that as a condition to such option becoming
vested and exercisable on such date, the Committee Chair Director
to whom such option had been issued shall have continued to serve
as a Committee Chair Director from the date of grant until the
first anniversary of the date thereof, except that in the event
that such director does so serve for all of such period except
not more than thirty (30) days thereof, such director shall be
deemed to have served for the entire period and the option so
granted shall become fully vested, notwithstanding.
(e) For as long as the offering of securities pursuant
to the Plan has not been registered with the Securities and
Exchange Commission and applicable state securities commissions
and regulatory agencies, certificates representing shares of
Stock issued upon the exercise of options granted pursuant to the
Plan 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 ACTS AND LAWS OR IF, IN
THE OPINION OF LEGAL COUNSEL TO THE COMPANY,
MAY BE MADE WITHOUT VIOLATING SUCH ACTS AND
LAWS.
5. Use of Proceeds. Cash proceeds realized from the sale
of Stock under the Plan or pursuant to options granted under the
Plan shall constitute general funds of the Company.
6. Amendment, Suspension, or Termination of the Plan.
(a) The Board may at any time amend, suspend or
terminate the Plan as it deems advisable; provided that such
amendment, suspension or termination complies with all applicable
requirements of state and federal law, and further provided that
insofar as required to maintain the effectiveness of any then
3
<PAGE>
outstanding options at the time of such termination, as respects
only those options then outstanding, the terms of the Plan will
survive as respects those options so long as they remain
outstanding.
(b) No option may be granted under the Plan during any
suspension or after the termination of the Plan, and no
amendment, suspension or termination of the Plan shall, without
the affected individual's consent, alter or impair any rights or
obligations under any option previously granted under the Plan.
Any option outstanding at the time of termination of the Plan
shall remain outstanding notwithstanding such termination, unless
and until such option otherwise expires or terminates pursuant to
the terms of the Plan or such option.
7. Non-Assignability of Options. No option granted
pursuant to this Plan shall be transferable by the holder except
by operation of law or by will or the laws of the 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, incumbrance, assignment or any
other means, whether voluntary, involuntary, or by operation of
law.
8. Payment Upon Exercise of Options. Payment of the
purchase price upon exercise of any option granted under this
Plan shall be made (i) in cash, by optionee's personal check, a
certified check, bank draft, or postal or express money order
payable to the order of the Company in lawful money of the United
States (collectively, "Cash Consideration"); (ii) with shares of
Stock owned by the optionee or with shares of Stock withheld from
the shares otherwise deliverable to the optionee upon exercise of
the option; (iii) by delivery on a form prescribed by the Plan
Committee of an irrevocable direction to a securities broker
approved by the Plan Committee to sell shares of Stock and
deliver all or a portion of the proceeds to the Company in
payment for the Stock; or (iv) in any combination of the
foregoing. Any Stock used to exercise options shall be valued at
its fair market value on the date of the exercise of the option
and the ability to use Stock as payment for the exercise of any
option shall be subject to applicable law and restrictions on
transferability applicable thereto.
9. Withholding Taxes. No Stock shall be delivered
under the Plan to any participant until the participant has made
arrangements acceptable to the Plan Committee for the
satisfaction of federal, state, and local income and social
security tax withholding obligations, including, without
limitation, obligations incident to the receipt of Stock under
the Plan. Upon exercise of
4
<PAGE>
a stock option the Company shall withhold from the optionee an amount
sufficient to satisfy federal, state and local income and social security tax
withholding obligations.
10. Rule 16b-3 Compliance. Transactions under the
Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Board or the
Plan Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Board or the Plan Committee.
11. Applicable Law. The law of the State of Maryland
will govern all matters relating to this Plan except to the
extent it is superseded by the laws of the United States.
5
<PAGE>
Exhibit 10.29
LETTERHEAD OF CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
November 21, 1996
William P. Tew, Ph.D.
Chief Executive Officer
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, MD 21117
Dear Bill:
As you know, CBL's Executive Compensation Committee has been discussing
changes to the Company's executive employment agreements in an effort to best
position the Company for future growth. An agreement on revisions to the Chief
Executive Officer and President employment agreements was reached between you
and the Executive Compensation Committee on November 18, 1996.
Accordingly this letter will confirm your agreement to the following
modifications to your employment agreement, dated July 1, 1995.
1. Paragraph 3, page 3, Term is replaced in its entirety with -
"Unless further extended or sooner terminated as herein provided, the
employment of the Employee as provided herein will be for an initial
term (the "Initial Term") commencing on the date hereof and ending on
the third anniversary of the date hereof. The term of the Employee's
employment shall be automatically extended beyond the Initial Term for
an indefinite number of successive three (3) year renewal terms (each
a "Renewal Term" and together the "Renewal Terms") thereafter unless
and until, not less than one year (1) year prior to the last day of
the Initial Term or the Renewal Term, as the case may be, then in
effect, the Corporation shall have delivered to the Employee, or the
Employee shall have delivered to the Corporation, written notice that
the term of the Employee's employment hereunder will not be so
extended. The Initial Term, together with all Renewal Terms, is
hereinafter referred to as the "Employment Term."
2. Paragraph 5, page 3, Base Salary is replaced in its entirety with -
"During the Employment Term, the Corporation shall pay to the Employee
a base salary (the "Base Salary") for services rendered under this
Agreement at an Initial rate of One Hundred Seventy Thousand
($170,000) per year in accordance with the Corporation's normal
payroll policies and subject to required withholding. Compensation of
the Employee by payment of the Base Salary shall not be deemed
exclusive and shall not in any way limit or reduce any other
obligation of the Corporation hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the
obligation of the Corporation to pay the Base Salary to the Employee
hereunder.
<PAGE>
November 21, 1996
Page 2
In exchange for your agreement to the above two revisions to your
employment agreement, the Company's Executive Compensation Committee has agreed
to:
1. Raise the cap on the performance adjustment to your Base Salary from
40% to 100% (A Proposal for Senior Management Compensation paragraph
2, adopted by the Board, November 12, 1992).
2. Grant you an incentive stock option for seventy five thousand (75,000)
shares of CBL's class A common stock from the Company's 4th Incentive
Stock Option Plan.
3. File an SEC Form S-8 registration statement for all stock (issued and
unissued) in the Company's 1st, 2nd, 3rd and 4th Incentive Stock
Option Plans.
Please note that the agreements set forth in this letter are not to become
effective until the Board of Directors of CBL takes action in reliance upon the
terms of this letter and adopts the resolutions necessary to effectuate the
matters described.
Please execute the enclosed copy of this letter in the space provided below
to indicate your consent and agreement to the foregoing.
Sincerely,
Chesapeake Biological Laboratories, Inc.
BY: /s/ Harvey Miller /s/ Regis Burke
----------------- ---------------
Harvey Miller Regis Burke
Executive Compensation Committee
Agreed this 9 day of December, 1996.
/s/ William P. Tew, Ph.D.
--------------------------
William P. Tew, Ph.D.
<PAGE>
EXHIBIT 10.30
LETTERHEAD OF CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
October 4, 1996
N. Bennet Beaty, Ph.D.
Chief Technical Officer
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, MD 21117
Dear Narlin:
As you know, CBL's Executive Compensation Committee has been discussing
changes to the Company's executive employment agreements in an effort to best
position the Company for future growth. An agreement on revisions to the Vice
President and Director level employment agreements was reached between
management and the Executive Compensation Committee on September 17, 1996.
Accordingly this letter will confirm your agreement to the following
modifications to your employment agreement, dated July 1, 1995.
1. Paragraph 5, page 3, Base Salary is replaced in its entirety with -
"During the Employment Term, the Corporation shall pay to the Employee
a base salary (the "Base Salary") for services rendered under this
Agreement at an initial rate of One Hundred Thirty One Thousand Two
Hundred Dollars ($131,200) per year in accordance with the
Corporation's normal payroll policies and subject to required
withholding. The Corporation may, through the action of its Board of
Directors or the Compensation Committee of the Board of Directors if
responsible for such matters, at any time and from time to time,
increase the amount of Base Salary payable to Employee. Compensation
of the Employee by payment of the Base Salary shall not be deemed
exclusive and shall not in any way limit or reduce any other
obligation of the Corporation hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the
obligation of the Corporation to pay the Base Salary to the employee
hereunder.
2. Paragraph 12d(x), page 7. Compensation Upon Termination or During
Disability, Breach/Good Reason is replaced in its entirety with:
"in lieu of any further salary payments to the Employee for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to the Employee an amount equal to one half (1/2) the
Employees annual cash
<PAGE>
October 4, 1996
Page 2
compensation including (Base Salary plus Incentive Compensation
(inclusive of Defined Incentive Compensation)), such payment to be
made in three (3) substantially equal consecutive monthly
installments, commencing on the first day of the calendar month
immediately following the month during which the Date of Termination
Occurred and continuing on the first day of each of the two calendar
months thereafter; and"
In exchange for your agreement to the above two revisions to your
employment agreement, the Company's Board of Directors, at its next meeting
scheduled for October 29, 1996, agrees to:
1. Raise the cap on the performance adjustment to your Base Salary from
40% to 100% (A Proposal for Senior Management Compensation paragraph
2, adopted by the Board, November 12, 1992).
2. Grant you an incentive stock option for thirty thousand (30,000)
shares of CBL's class A common stock from the Company's 4th Incentive
Stock Option Plan, upon approval of this plan by the shareholders of
the Corporation at the next annual meeting scheduled for October 29,
1996.
3. File an SEC Form S-8 registration statement for all stock (issued and
unissued) in the Company's 1st, 2nd, 3rd and 4th Incentive Stock
Option Plans.
Please note that the agreements set forth in this letter are not to become
effective until the Board of Directors of CBL takes action in reliance upon the
terms of this letter and adopts the resolutions necessary to effectuate the
matters described.
Please execute the enclosed copy of this letter in the space provided below
to indicate your consent and agreement to the foregoing.
Sincerely,
Chesapeake Biological Laboratories, Inc.
BY: /s/ Harvey Miller /s/ Regis Burke
----------------------------- ---------------------------
Harvey Miller Regis Burke
Executive Compensation Committee
Agreed this 23rd day of October , 1996.
-------------- ------------------
/s/ N. Bennet Beaty, Ph.D.
----------------------------------------
N. Bennet Beaty, Ph.D.
<PAGE>
LETTERHEAD OF CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
November 21, 1996
John C. Weiss, III
President
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, MD 21117
Dear J.C.:
As you know, CBL's Executive Compensation Committee has been discussing
changes to the Company's executive employment agreements in an effort to best
position the Company for future growth. An agreement on revisions to the Chief
Executive Officer and President employment agreements was reached between you
and the Executive Compensation Committee on November 18, 1996.
Accordingly this letter will confirm your agreement to the following
modifications to your employment agreement, dated May 16, 1996.
1. Paragraph 3, page 2, Term is replaced in its entirety with -
"Unless further extended or sooner terminated or as expiring as
provided herein, the employment of the Employee as herein provided
will be for an initial term (the "Initial Term") commencing on the
date hereof and ending on the date which (the "Initial Term Expiration
Date") is the second (2nd) yearly anniversary of the date hereof;
provided, however, that the Corporation shall have the full right,
power and option to elect (the "Early Expiration Option") that the
Initial Term Expiration Date be changed from the date which is the
second (2nd) yearly anniversary of the date hereof to March 31, 1997,
in the event either (i) the Expansion Plan Hurdle (as hereinafter
defined) has not been met and satisfied on or before December 31, 1996
and the Corporation shall have delivered to the Employee a notice to
that effect prior to January 31, 1997; or (ii) on or prior to March
31, 1997, the Corporation, through its Board of Directors (meeting
without the Employee if then a member of the Board of Directors) shall
have determined, based on its reasonable business judgement, that
significant and sustained downturn in the financial performance or
condition of the Corporation has occurred, or that events or
circumstances have occurred or arisen which render a significant and
sustained downturn in the financial performance or condition of the
Corporation probable; and the Corporation shall have delivered notice
of such determination to the Employee. In the event that the
Corporation does not elect to exercise the Early Expiration Option as
hereinabove provided, the term of the Employee's employment hereunder
will continue beyond March 31, 1997, for the balance of the Initial
Term, and shall be automatically extended beyond the Initial Term for
indefinite successive two (2) year renewal terms (each a "Renewal
Term" and together the "Renewal Terms") thereafter unless and until
not less than one\
<PAGE>
November 21, 1996
Page 2
hundred eighty (180) days prior to the last day of any Renewal Term
then in effect, the Corporation shall have delivered to the Employee,
or the Employee shall have delivered to the Corporation, written
notice that the term of the Employee's employment hereunder will not
be so extended, in which case the Employee's employment hereunder will
expire as of the last day of the Initial Term or the Renewal Term, as
the case may be, then in effect. The Initial Term, together with all
Renewal Terms, is hereinafter referred to as the "Employment Term."
For purposes hereof, "Expansion Plan Hurdle" shall mean that the
Corporation shall have in place arrangements on terms and conditions
satisfactory to the Board of Directors of the Corporation for
expansion of the Corporation's manufacturing facilities located at the
Camden Industrial Park, Baltimore, Maryland, together with all third
party debt and/or equity financing required in connection therewith or
attendant thereto, as such plans for expansion are contemplated by the
Application dated March 22, 1996, submitted by the Corporation to the
Maryland Industrial Financing Authority, and the Board of Directors
shall have adopted a resolution to that effect. Determination as to
whether the Expansion Plan Hurdle has been met shall be made by the
Board of Directors (meeting without the Employee if then a member of
the Board of Directors) in its reasonable business judgement.
2. Paragraph 5, page 3, Base Salary is replaced in its entirety with -
"During the Employment Term, the Corporation shall pay to the Employee
a base salary (the "Base Salary") for services rendered under this
Agreement at an Initial rate of One Hundred Thirty Thousand Dollars
($130,000) per year in accordance with the Corporation's normal
payroll policies and subject to required withholding. Compensation of
the Employee by payment of the Base Salary shall not be deemed
exclusive and shall not in any way limit or reduce any other
obligation of the Corporation hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the
obligation of the Corporation to pay the Base Salary to the Employee
hereunder.
In exchange for your agreement to the above two revisions to your
employment agreement, the Company's Executive Compensation Committee has agreed
to:
1. Raise the cap on the performance adjustment to your Base Salary from
40% to 100% (A Proposal for Senior Management Compensation paragraph
2, adopted by the Board, November 12, 1992).
2. Grant you an incentive stock option for thirty thousand (30,000)
shares of CBL's class A common stock from the Company's 4th Incentive
Stock Option Plan.
3. File an SEC Form S-8 registration statement for all stock (issued and
unissued) in the Company's 1st, 2nd, 3rd and 4th Incentive Stock
Option Plans.
<PAGE>
November 21, 1996
Page 3
Please note that the agreements set forth in this letter are not to become
effective until the Board of Directors of CBL takes action in reliance upon the
terms of this letter and adopts the resolutions necessary to effectuate the
matters described.
Please execute the enclosed copy of this letter in the space provided below
to indicate your consent and agreement to the foregoing.
Sincerely,
Chesapeake Biological Laboratories, Inc.
BY: /s/ Harvey Miller /s/ Regis Burke
---------------------- ----------------------
Harvey Miller Regis Burke
Executive Compensation Committee
Agreed this 9th day of December, 1996.
/s/ John C. Weiss, III
------------------------
John C. Weiss, III
<PAGE>
Exhibit 10.32
LETTERHEAD OF CHESAPEAKE LABORATORIES, INC.
October 4, 1996
Mr. Thomas C. Mendelsohn
Vice President of New Business Development
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, MD 21117
Dear Tom:
As you know, CBL's Executive Compensation Committee has been discussing
changes to the Company's executive employment agreements in an effort to best
position the Company for future growth. An agreement on revisions to the Vice
President and Director level employment agreements was reached between
management and the Executive Compensation Committee on September 17, 1996.
Accordingly this letter will confirm your agreement to the following
modifications to your employment agreement, dated July 1, 1995.
1. Paragraph 5, page 3, Base Salary is replaced in its entirety with -
"During the Employment Term, the Corporation shall pay to the Employee
a base salary (the "Base Salary") for services rendered under this
Agreement at an initial rate of One Hundred Twenty Three Thousand
Three Hundred Dollars ($123,300) per year in accordance with the
Corporation's normal payroll policies and subject to required
withholding. The Corporation may, through the action of its Board of
Directors or the Compensation Committee of the Board of Directors if
responsible for such matters, at any time and from time to time,
increase the amount of Base Salary payable to Employee. Compensation
of the Employee by payment of the Base Salary shall not be deemed
exclusive and shall not in any way limit or reduce any other
obligation of the Corporation hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the
obligation of the Corporation to pay the Base Salary to the employee
hereunder.
2. Paragraph 12d(x), page 7. Compensation Upon Termination or During
Disability, Breach/Good Reason is replaced in its entirety with:
"in lieu of any further salary payments to the Employee for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to the Employee an amount equal to one half (1/2) the
Employees annual cash
<PAGE>
October 4, 1996
Page 2
compensation including (Base Salary plus Incentive Compensation
(inclusive of Defined Incentive Compensation)), such payment to be
made in three (3) substantially equal consecutive monthly
installments, commencing on the first day of the calendar month
immediately following the month during which the Date of Termination
Occurred and continuing on the first day of each of the two calendar
months thereafter; and"
In exchange for your agreement to the above two revisions to your
employment agreement, the Company's Board of Directors, at its next meeting
scheduled for October 29, 1996, agrees to:
1. Raise the cap on the performance adjustment to your Base Salary from
40% to 100% (A Proposal for Senior Management Compensation paragraph
2, adopted by the Board, November 12, 1992).
2. Grant you an incentive stock option for twenty thousand (20,000)
shares of CBL's class A common stock from the Company's 4th Incentive
Stock Option Plan, upon approval of this plan by the shareholders of
the Corporation at the next annual meeting scheduled for October 29,
1996.
3. File an SEC Form S-8 registration statement for all stock (issued and
unissued) in the Company's 1st, 2nd, 3rd and 4th Incentive Stock
Option Plans.
Please note that the agreements set forth in this letter are not to become
effective until the Board of Directors of CBL takes action in reliance upon the
terms of this letter and adopts the resolutions necessary to effectuate the
matters described.
Please execute the enclosed copy of this letter in the space provided below
to indicate your consent and agreement to the foregoing.
Sincerely,
Chesapeake Biological Laboratories, Inc.
BY: /s/ Harvey Miller /s/ Regis Burke
-------------------------- ------------------------
Harvey Miller Regis Burke
Executive Compensation Committee
Agreed this 23rd day of October , 1996.
----------- -----------------
/s/ Thomas C. Mendelsohn
---------------------------
Thomas C. Mendelsohn
<PAGE>
Exhibit 10.33
LETTERHEAD OF CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
October 4, 1996
Mr. John T. Janssen
Chief Financial Officer
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, MD 21117
Dear Jack:
As you know, CBL's Executive Compensation Committee has been discussing
changes to the Company's executive employment agreements in an effort to best
position the Company for future growth. An agreement on revisions to the Vice
President and Director level employment agreements was reached between
management and the Executive Compensation Committee on September 17, 1996.
Accordingly this letter will confirm your agreement to the following
modifications to your employment agreement, dated July 1, 1995.
1. Paragraph 5, page 3, Base Salary is replaced in its entirety with -
"During the Employment Term, the Corporation shall pay to the Employee
a base salary (the "Base Salary") for services rendered under this
Agreement at an initial rate of One Hundred Twenty Nine Thousand Three
Hundred Dollars ($129,300) per year in accordance with the
Corporation's normal payroll policies and subject to required
withholding. The Corporation may, through the action of its Board of
Directors or the Compensation Committee of the Board of Directors if
responsible for such matters, at any time and from time to time,
increase the amount of Base Salary payable to Employee. Compensation
of the Employee by payment of the Base Salary shall not be deemed
exclusive and shall not in any way limit or reduce any other
obligation of the Corporation hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the
obligation of the Corporation to pay the Base Salary to the employee
hereunder.
2. Paragraph 12d(x), page 7. Compensation Upon Termination or During
Disability, Breach/Good Reason is replaced in its entirety with:
"in lieu of any further salary payments to the Employee for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to the Employee an amount equal to one half (1/2) the
Employees annual cash
<PAGE>
October 4, 1996
Page 2
compensation including (Base Salary plus Incentive Compensation
(inclusive of Defined Incentive Compensation)), such payment to be
made in three (3) substantially equal consecutive monthly
installments, commencing on the first day of the calendar month
immediately following the month during which the Date of Termination
Occurred and continuing on the first day of each of the two calendar
months thereafter; and"
In exchange for your agreement to the above two revisions to your
employment agreement, the Company's Board of Directors, at its next meeting
scheduled for October 29, 1996, agrees to:
1. Raise the cap on the performance adjustment to your Base Salary from
40% to 100% (A Proposal for Senior Management Compensation paragraph
2, adopted by the Board, November 12, 1992).
2. Grant you an incentive stock option for twenty thousand (20,000)
shares of CBL's class A common stock from the Company's 4th Incentive
Stock Option Plan, upon approval of this plan by the shareholders of
the Corporation at the next annual meeting scheduled for October 29,
1996.
3. File an SEC Form S-8 registration statement for all stock (issued and
unissued) in the Company's 1st, 2nd, 3rd and 4th Incentive Stock
Option Plans.
Please note that the agreements set forth in this letter are not to become
effective until the Board of Directors of CBL takes action in reliance upon the
terms of this letter and adopts the resolutions necessary to effectuate the
matters described.
Please execute the enclosed copy of this letter in the space provided below
to indicate your consent and agreement to the foregoing.
Sincerely,
Chesapeake Biological Laboratories, Inc.
BY: /s/ Harvey Miller /s/ Regis Burke
-------------------- ----------------------
Harvey Miller Regis Burke
Executive Compensation Committee
Agreed this 22nd day of October, 1996.
/s/ John T. Janssen
------------------------
John T. Janssen
<PAGE>
Exhibit 10.34
LETTERHEAD OF CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
October 4, 1996
Robert J. Mello, Ph.D.
Vice President of Regulatory Affairs and
Quality Assurance
Chesapeake Biological Laboratories, Inc.
11412 Cronridge Drive
Owings Mills, MD 21117
Dear Bob:
As you know, CBL's Executive Compensation Committee has been discussing
changes to the Company's executive employment agreements in an effort to best
position the Company for future growth. An agreement on revisions to the Vice
President and Director level employment agreements was reached between
management and the Executive Compensation Committee on September 17, 1996.
Accordingly this letter will confirm your agreement to the following
modifications to your employment agreement, dated July 1, 1995.
1. Paragraph 5, page 3, Base Salary is replaced in its entirety with -
"During the Employment Term, the Corporation shall pay to the Employee
a base salary (the "Base Salary") for services rendered under this
Agreement at an initial rate of One Hundred Twenty Six Thousand Six
Hundred Dollars ($126,600) per year in accordance with the
Corporation's normal payroll policies and subject to required
withholding. The Corporation may, through the action of its Board of
Directors or the Compensation Committee of the Board of Directors if
responsible for such matters, at any time and from time to time,
increase the amount of Base Salary payable to Employee. Compensation
of the Employee by payment of the Base Salary shall not be deemed
exclusive and shall not in any way limit or reduce any other
obligation of the Corporation hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the
obligation of the Corporation to pay the Base Salary to the employee
hereunder.
2. Paragraph 12d(x), page 7. Compensation Upon Termination or During
Disability, Breach/Good Reason is replaced in its entirety with:
"in lieu of any further salary payments to the Employee for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to the Employee an amount equal to one half (1/2) the
Employees annual cash
<PAGE>
October 4, 1996
Page 2
compensation including (Base Salary plus Incentive Compensation
(inclusive of Defined Incentive Compensation)), such payment to be
made in three (3) substantially equal consecutive monthly
installments, commencing on the first day of the calendar month
immediately following the month during which the Date of Termination
Occurred and continuing on the first day of each of the two calendar
months thereafter; and"
In exchange for your agreement to the above two revisions to your
employment agreement, the Company's Board of Directors, at its next meeting
scheduled for October 29, 1996, agrees to:
1. Raise the cap on the performance adjustment to your Base Salary from
40% to 100% (A Proposal for Senior Management Compensation paragraph
2, adopted by the Board, November 12, 1992).
2. Grant you an incentive stock option for twenty thousand (20,000)
shares of CBL's class A common stock from the Company's 4th Incentive
Stock Option Plan, upon approval of this plan by the shareholders of
the Corporation at the next annual meeting scheduled for October 29,
1996.
3. File an SEC Form S-8 registration statement for all stock (issued and
unissued) in the Company's 1st, 2nd, 3rd and 4th Incentive Stock
Option Plans.
Please note that the agreements set forth in this letter are not to become
effective until the Board of Directors of CBL takes action in reliance upon the
terms of this letter and adopts the resolutions necessary to effectuate the
matters described.
Please execute the enclosed copy of this letter in the space provided below
to indicate your consent and agreement to the foregoing.
Sincerely,
Chesapeake Biological Laboratories, Inc.
BY: /s/ Harvey Miller /s/ Regis Burke
------------------------ -------------------------
Harvey Miller Regis Burke
Executive Compensation Committee
Agreed this 23rd day of October, 1996.
/s/ Robert J. Mello, Ph.D.
----------------------------
Robert J. Mello, Ph.D.
<PAGE>
EXHIBIT 11
EPS CALCULATION--YEAR ENDED 3/31/97
STOCK OPTIONS OUTSTANDING ALL YEAR
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE NUMBER PRICE GRANTED PROCEEDS PRICE PRICE DAYS
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weiss................................... 8,000 1.50 12,000 2.88 5.00 360
Burke................................... 8,000 1.50 12,000 2.88 5.00 360
Clark................................... 500 1.50 750 2.88 5.00 360
Dinerman................................ 500 1.50 750 2.88 5.00 360
Eisenbeis............................... 500 1.50 750 2.88 5.00 360
Hare.................................... 500 1.50 750 2.88 5.00 360
Janssen................................. 50,000 1.88 93,750 2.88 5.00 360
Johnson................................. 500 1.50 750 2.88 5.00 360
Kraft................................... 10,000 1.88 18,750 2.88 5.00 360
Kraft................................... 500 1.50 750 2.88 5.00 360
Logan................................... 500 1.50 750 2.88 5.00 360
Mendelsohn.............................. 50,000 1.88 93,750 2.88 5.00 360
Patel................................... 500 1.50 750 2.88 5.00 360
Pavuk................................... 500 1.50 750 2.88 5.00 360
Stoedter................................ 2,500 1.88 4,688 2.88 5.00 360
Baum.................................... 500 1.50 750 2.88 5.00 360
Clark................................... 5,000 1.50 7,500 2.88 5.00 360
Eisenbeis............................... 10,000 1.88 18,750 2.88 5.00 360
Farland................................. 5,000 1.88 9,375 2.88 5.00 360
Hunsinger............................... 4,000 1.50 6,000 2.88 5.00 360
Janssen................................. 20,000 1.50 30,000 2.88 5.00 360
Johnson................................. 10,000 1.88 18,750 2.88 5.00 360
Logan................................... 5,000 1.88 9,375 2.88 5.00 360
Mello................................... 20,000 1.50 30,000 2.88 5.00 360
Mintz................................... 500 1.50 750 2.88 5.00 360
Rush.................................... 6,500 1.50 9,750 2.88 5.00 360
Stoedter................................ 4,000 1.50 6,000 2.88 5.00 360
Tracy................................... 500 1.50 750 2.88 5.00 360
Warren.................................. 500 1.50 750 2.88 5.00 360
Varner.................................. 4,000 1.50 6,000 2.88 5.00 360
Andino.................................. 200 1.50 300 2.88 5.00 360
Beaty................................... 20,000 1.50 30,000 2.88 5.00 360
Crist................................... 200 1.50 300 2.88 5.00 360
Farland................................. 200 1.50 300 2.88 5.00 360
Houck................................... 200 1.50 300 2.88 5.00 360
Kelly................................... 200 1.50 300 2.88 5.00 360
McDavid................................. 200 1.50 300 2.88 5.00 360
Mendelsohn.............................. 20,000 1.50 30,000 2.88 5.00 360
Miller.................................. 200 1.50 300 2.88 5.00 360
Newman.................................. 200 1.50 300 2.88 5.00 360
O'Bradovich............................. 200 1.50 300 2.88 5.00 360
Owsianny................................ 200 1.50 300 2.88 5.00 360
Samelko................................. 500 1.50 750 2.88 5.00 360
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- ---------------------------------------- ---------- ----------
<S> <C>
Weiss................................... 3,833.33 5,600.00
Burke................................... 3,833.33 5,600.00
Clark................................... 239.58 350.00
Dinerman................................ 239.58 350.00
Eisenbeis............................... 239.58 350.00
Hare.................................... 239.58 350.00
Janssen................................. 17,447.92 31,250.00
Johnson................................. 239.58 350.00
Kraft................................... 3,489.58 6,250.00
Kraft................................... 239.58 350.00
Logan................................... 239.58 350.00
Mendelsohn.............................. 17,447.92 31,250.00
Patel................................... 239.58 350.00
Pavuk................................... 239.58 350.00
Stoedter................................ 872.40 1,562.50
Baum.................................... 239.58 350.00
Clark................................... 2,395.83 3,500.00
Eisenbeis............................... 3,489.58 6,250.00
Farland................................. 1,744.79 3,125.00
Hunsinger............................... 1,916.67 2,800.00
Janssen................................. 9,583.33 14,000.00
Johnson................................. 3,489.58 6,250.00
Logan................................... 1,744.79 3,125.00
Mello................................... 9,583.33 14,000.00
Mintz................................... 239.58 350.00
Rush.................................... 3,114.58 4,550.00
Stoedter................................ 1,916.67 2,800.00
Tracy................................... 239.58 350.00
Warren.................................. 239.58 350.00
Varner.................................. 1,916.67 2,800.00
Andino.................................. 95.83 140.00
Beaty................................... 9,583.33 14,000.00
Crist................................... 95.83 140.00
Farland................................. 95.83 140.00
Houck................................... 95.83 140.00
Kelly................................... 95.83 140.00
McDavid................................. 95.83 140.00
Mendelsohn.............................. 9,583.33 14,000.00
Miller.................................. 95.83 140.00
Newman.................................. 95.83 140.00
O'Bradovich............................. 95.83 140.00
Owsianny................................ 95.83 140.00
Samelko................................. 239.58 350.00
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE NUMBER PRICE GRANTED PROCEEDS PRICE PRICE DAYS
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Smith................................... 200 1.50 300 2.88 5.00 360
Wilson.................................. 200 1.50 300 2.88 5.00 360
Wolff-Long.............................. 500 1.50 750 2.88 5.00 360
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- ---------------------------------------- ---------- ----------
<S> <C>
Smith................................... 95.83 140.00
Wilson.................................. 95.83 140.00
Wolff-Long.............................. 239.58 350.00
</TABLE>
OPTIONS GRANTED DURING THE YEAR ENDED 3/31/97
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING PRIMARY
OPTIONEE SHARES PRICE GRANTED PROCEEDS PRICE PRICE DAYS DILUTION
- --------------------------------- --------- ----------- --------- --------- ----------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Miller........................... 8,000 3.13 11/18/96 25,000 4.15 5.00 133 729.99
Rice............................. 8,000 5.19 3/21/97 41,500 5.05 5.00 10
Touchard......................... 5,000 5.19 3/25/97 25,938 5.05 5.00 6
Weiss............................ 40,000 1.63 5/15/96 65,000 3.12 5.00 320 17,037.04
Beaty............................ 30,000 3.13 11/18/96 93,750 4.15 5.00 133 2,737.45
Friedman......................... 10,000 1.75 6/25/96 17,500 3.30 5.00 279 3,640.15
Hunsinger........................ 4,000 1.75 6/25/96 7,000 3.30 5.00 279 1,456.06
Hunsinger........................ 10,000 3.13 11/18/96 31,250 4.15 5.00 133 912.48
Janssen.......................... 20,000 3.13 11/18/96 62,500 4.15 5.00 133 1,824.97
Mello............................ 10,000 1.75 6/25/96 17,500 3.30 5.00 279 3,640.15
Mello............................ 20,000 3.13 11/18/96 62,500 4.15 5.00 133 1,824.97
Mendelsohn....................... 20,000 3.13 11/18/96 62,500 4.15 5.00 133 1,824.97
Stoedter......................... 10,000 3.13 11/18/96 31,250 4.15 5.00 133 912.48
Tew.............................. 75,000 3.44 11/18/96 258,000 4.15 5.00 133 4,740.46
Weiss............................ 30,000 3.13 11/18/96 93,750 4.15 5.00 133 2,737.45
<CAPTION>
FULL
OPTIONEE DILUTION
- --------------------------------- ----------
<S> <C>
Miller........................... 1,108.33
Rice.............................
Touchard.........................
Weiss............................ 24,000.00
Beaty............................ 4,156.25
Friedman......................... 5,037.50
Hunsinger........................ 2,015.00
Hunsinger........................ 1,385.42
Janssen.......................... 2,770.83
Mello............................ 5,037.50
Mello............................ 2,770.83
Mendelsohn....................... 2,770.83
Stoedter......................... 1,385.42
Tew.............................. 8,645.00
Weiss............................ 4,156.25
</TABLE>
OPTIONS EXERCISED / EXPIRED DURING THE YEAR
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE SHARES PRICE EXPIRED PROCEEDS PRICE PRICE DAYS
- ---------------------------------- --------- ----------- --------- --------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Hungerford........................ 6,250 0.80 7/15/96 5,000 1.74 1.74 106
Barrett........................... 6,250 0.80 7/15/96 5,000 1.74 1.74 106
Weiss............................. 6,250 0.80 6/30/96 5,000 1.50 1.75 91
Anderson.......................... 200 1.50 4/1/96 300 1.50 1.50 1
Drummond.......................... 200 1.50 7/22/96 300 1.74 1.74 113
Pinkert........................... 200 1.50 7/3/96 300 1.75 1.75 94
Stoedter.......................... 5,000 1.88 2/21/97 9,375 2.59 5.00 326
Barclay........................... 500 1.50 2/21/97 750 2.59 5.00 326
Hunsinger......................... 20,000 4.38 6/1/96 87,500 1.67 2.38 61
Mello............................. 50,000 4.38 6/1/96 218,750 1.67 2.38 61
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- ---------------------------------- ---------- ----------
<S> <C> <C>
Hungerford........................ 994.17 994.17
Barrett........................... 994.17 994.17
Weiss............................. 737.27 857.64
Anderson..........................
Drummond.......................... 8.66 8.66
Pinkert........................... 7.47 7.46
Stoedter.......................... 1,253.24 2,829.86
Barclay........................... 190.81 316.94
Hunsinger.........................
Mello.............................
--------- ---------
TOTAL DILUTIVE EFFECTS:........... 159,935 250,891
WEIGHTED AVG. SHARES O/S:......... 4,030,832
DILUTED COMMON SHARES O/S:........ 4,190,767 4,281,723
</TABLE>
<PAGE>
EXHIBIT 11
EPS CALCULATION--YEAR ENDED 3/31/96
STOCK OPTIONS OUTSTANDING ALL YEAR
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE NUMBER PRICE GRANTED PROCEEDS PRICE PRICE DAYS
- ------------------------------------------ ----------- ----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Weiss..................................... 6250 0.80 5000 1.79 1.79 360
Hungerford................................ 6250 0.80 5000 1.79 1.79 360
Barrett................................... 6250 0.80 5000 1.79 1.79 360
Eisenbeis................................. 10000 1.88 18750 1.79 1.79 360
Johnson................................... 10000 1.88 18750 1.79 1.79 360
Janssen................................... 50000 1.88 93750 1.79 1.79 360
Kraft..................................... 10000 1.88 18750 1.79 1.79 360
Mendelsohn................................ 50000 1.88 93750 1.79 1.79 360
Stoedter.................................. 7500 1.88 14062.5 1.79 1.79 360
Farland................................... 5000 1.88 9375 1.79 1.79 360
Hunsinger................................. 20000 4.38 87600 1.79 1.79 360
Logan..................................... 5000 1.88 9375 1.79 1.79 360
Mello..................................... 50000 4.38 218750 1.79 1.79 360
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- ------------------------------------------ --------- ---------
<S> <C>
Weiss..................................... 3,456.70 3,456.70
Hungerford................................ 3,456.70 3,456.70
Barrett................................... 3,456.70 3,456.70
Eisenbeis.................................
Johnson...................................
Janssen...................................
Kraft.....................................
Mendelsohn................................
Stoedter..................................
Farland...................................
Hunsinger.................................
Logan.....................................
Mello.....................................
</TABLE>
OPTIONS GRANTED DURING THE YEAR ENDED 3/31/96
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE SHARES PRICE GRANTED PROCEEDS PRICE PRICE DAYS
- --------------------------------------- --------- ----------- --------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Weiss.................................. 8000 1.50 11/30/95 12000 1.51 1.51 121
Burke.................................. 8000 1.50 11/30/95 12000 1.51 1.51 121
Anderson............................... 200 1.50 11/30/95 300 1.51 1.51 121
Andino................................. 200 1.50 11/30/95 300 1.51 1.51 121
Barclay................................ 500 1.50 11/30/95 750 1.51 1.51 121
Baum................................... 500 1.50 11/30/95 750 1.51 1.51 121
Beaty.................................. 20,000 1.50 11/30/95 30000 1.51 1.51 121
Clark.................................. 5000 1.50 9/6/95 7500 1.57 1.57 206
Crist.................................. 200 1.50 11/30/95 300 1.51 1.51 121
Drummond............................... 200 1.50 11/30/95 300 1.51 1.51 121
Farland................................ 200 1.50 11/30/95 300 1.51 1.51 121
Houck.................................. 200 1.50 11/30/95 300 1.51 1.51 121
Kelly.................................. 200 1.50 11/30/95 300 1.51 1.51 121
McDavid................................ 200 1.50 11/30/95 300 1.51 1.51 121
Mendelsohn............................. 20000 1.50 11/30/95 30000 1.51 1.51 121
Miller................................. 200 1.50 11/30/95 300 1.51 1.51 121
Mintz.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Newman................................. 200 1.50 11/30/95 300 1.51 1.51 121
Obradovich............................. 200 1.50 11/30/95 300 1.51 1.51 121
Owsianny............................... 200 1.50 11/30/95 300 1.51 1.51 121
Pinkert................................ 200 1.50 11/30/95 300 1.51 1.51 121
Rush................................... 6000 1.50 9/6/95 9000 1.57 1.57 206
Rush................................... 500 1.50 11/30/95 750 1.51 1.51 121
Samelko................................ 500 1.50 11/30/95 750 1.51 1.51 121
Smith.................................. 200 1.50 11/30/95 300 1.51 1.51 121
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- --------------------------------------- ----------- -----------
<S> <C> <C>
Weiss.................................. 17.81 17.81
Burke.................................. 17.81 17.81
Anderson............................... 0.45 0.45
Andino................................. 0.45 0.45
Barclay................................ 1.11 1.11
Baum................................... 1.11 1.11
Beaty.................................. 44.52 44.52
Clark.................................. 127.57 127.57
Crist.................................. 0.45 0.45
Drummond............................... 0.45 0.45
Farland................................ 0.45 0.45
Houck.................................. 0.45 0.45
Kelly.................................. 0.45 0.45
McDavid................................ 0.45 0.45
Mendelsohn............................. 44.52 44.52
Miller................................. 0.45 0.45
Mintz.................................. 1.11 1.11
Newman................................. 0.45 0.45
Obradovich............................. 0.45 0.45
Owsianny............................... 0.45 0.45
Pinkert................................ 0.45 0.45
Rush................................... 153.08 153.08
Rush................................... 1.11 1.11
Samelko................................ 1.11 1.11
Smith.................................. 0.45 0.45
</TABLE>
<PAGE>
<TABLE>
Tracy.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Warren................................. 500 1.50 11/30/95 750 1.51 1.51 121
Wilson................................. 200 1.50 11/30/95 300 1.51 1.51 121
Wolff-Long............................. 500 1.50 11/30/95 750 1.51 1.51 121
Clark.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Dinerman............................... 500 1.50 11/30/95 750 1.51 1.51 121
Eisenbeis.............................. 500 1.50 11/30/95 750 1.51 1.51 121
Hare................................... 500 1.50 11/30/95 750 1.51 1.51 121
Johnson................................ 500 1.50 11/30/95 750 1.51 1.51 121
Kraft.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Logan.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Patel.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Pavuk.................................. 500 1.50 11/30/95 750 1.51 1.51 121
Hunsinger.............................. 4000 1.50 11/30/95 6000 1.51 1.51 121
Janssen................................ 20000 1.50 11/30/95 30000 1.51 1.51 121
Mello.................................. 20000 1.50 11/30/95 30000 1.51 1.51 121
Stoedter............................... 4000 1.50 11/30/95 6000 1.51 1.51 121
Varner................................. 4000 1.50 11/30/95 6000 1.51 1.51 121
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- --------------------------------------- ----------- -----------
<S> <C> <C>
Tracy.................................. 1.11 1.11
Warren................................. 1.11 1.11
Wilson................................. 0.45 0.45
Wolff-Long............................. 1.11 1.11
Clark.................................. 1.11 1.11
Dinerman............................... 1.11 1.11
Eisenbeis.............................. 1.11 1.11
Hare................................... 1.11 1.11
Johnson................................ 1.11 1.11
Kraft.................................. 1.11 1.11
Logan.................................. 1.11 1.11
Patel.................................. 1.11 1.11
Pavuk.................................. 1.11 1.11
Hunsinger.............................. 8.90 8.90
Janssen................................ 44.52 44.52
Mello.................................. 44.52 44.52
Stoedter............................... 8.90 8.90
Varner................................. 8.90 8.90
</TABLE>
OPTIONS EXPIRED DURING THE YEAR
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE SHARES PRICE EXPIRED PROCEEDS PRICE PRICE DAYS
- ----------------------------------- --------- ----------- --------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Fenselau........................... 20000 1.25 6/30/95 25000 2.22 2.22 91
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- ----------------------------------- ---------- ----------
<S> <C> <C>
Fenselau........................... 2,208.96 2,208.96
---------- ----------
TOTAL DILUTIVE EFFECTS:............ 13,126 13,126
WEIGHTED AVG. SHARES O/S:.......... 3,979,938
DILUTED COMMON SHARES O/S:......... 3,993,064 3,993,064
</TABLE>
<PAGE>
EPS CALCULATION--YEAR ENDED 3/31/95
STOCK OPTIONS OUTSTANDING ALL YEAR
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE NUMBER PRICE GRANTED PROCEEDS PRICE PRICE DAYS
- --------------------------------------- ----------- ----------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weiss.................................. 6250 0.80 5,000 2.57 2.57 360
Hungerford............................. 6250 0.80 5,000 2.57 2.57 360
Barrett................................ 6250 0.80 5,000 2.57 2.57 360
Eisenbeis.............................. 10000 1.88 18,750 2.57 2.57 360
Fenselau............................... 20000 1.25 25,000 2.57 2.57 360
Johnson................................ 10000 1.88 18,750 2.57 2.57 360
Janssen................................ 50000 1.88 93,750 2.57 2.57 360
Kraft.................................. 10000 1.88 18,750 2.57 2.57 360
Mendelsohn............................. 50000 1.88 93,750 2.57 2.57 360
Stoedter............................... 7500 1.88 14,063 2.57 2.57 360
Farland................................ 5000 1.88 9,375 2.57 2.57 360
Hunsinger.............................. 20000 4.38 87,500 2.57 2.57 360
Logan.................................. 5000 1.88 9,375 2.57 2.57 360
Mello.................................. 50000 4.38 218,750 2.57 2.57 360
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- --------------------------------------- ---------- ---------
<S> <C>
Weiss.................................. 4,304.47 4,304.47
Hungerford............................. 4,304.47 4,304.47
Barrett................................ 4,304.47 4,304.47
Eisenbeis.............................. 2,704.28 2,704.28
Fenselau............................... 10,272.37 10,272.37
Johnson................................ 2,704.28 2,704.28
Janssen................................ 13,521.40 13,521.40
Kraft.................................. 2,704.28 2,704.28
Mendelsohn............................. 13,521.40 13,521.40
Stoedter............................... 2,028.21 2,028.21
Farland................................ 1,352.14 1,352.14
Hunsinger..............................
Logan.................................. 1,352.14 1,352.14
Mello..................................
</TABLE>
OPTIONS EXERCISED / EXPIRED DURING THE YEAR
<TABLE>
<CAPTION>
EXERCISE DATE AVERAGE ENDING
OPTIONEE SHARES PRICE EXPIRED PROCEEDS PRICE PRICE DAYS
- ---------------------------------- --------- ----------- --------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Tew............................... 37500 0.41 10/19/94 15,469 2.61 2.816 202
Beaty............................. 25000 0.38 10/24/94 9,375 2.61 2.816 207
Samelko........................... 5400 0.38 10/25/94 12,987 2.61 2.75 208
Newman............................ 20000 0.38 10/25/94 7,500 2.61 2.75 208
Hare.............................. 5000 0.38 10/25/94 1,875 2.61 2.75 208
McDavid........................... 3596 0.38 10/25/94 1,349 2.61 2.75 208
Stoedter.......................... 2500 1.88 2/1/95 4,688 2.61 2.375 302
McDavid........................... 16404 0.38 11/24/94 6,152 2.62 2.63 237
Samelko........................... 4600 0.38 11/24/94 1,725 2.62 2.63 237
Smith............................. 5000 0.38 11/24/94 1,875 2.62 2.63 237
T. Johnson........................ 5000 1.88 12/31/94 9,375 2.62 2.7 270
<CAPTION>
PRIMARY FULL
OPTIONEE DILUTION DILUTION
- ---------------------------------- ---------- ----------
<S> <C> <C>
Tew............................... 17,716.12 17,959.39
Beaty............................. 12,309.63 12,460.72
Samelko........................... 245.06 391.42
Newman............................ 9,895.27 9,979.80
Hare.............................. 2,473.82 2,494.95
McDavid........................... 1,779.17 1,794.37
Stoedter.......................... 590.60 441.52
McDavid........................... 9,253.60 9,259.48
Samelko........................... 2,594.89 2,596.54
Smith............................. 2,820.53 2,822.32
T. Johnson........................ 1,066.32 1,145.83
---------- ---------
TOTAL DILUTIVE EFFECTS:........... 123,819 124,420
WEIGHTED AVG. SHARES O/S:......... 3,928,131
DILUTED COMMON SHARES O/S:........ 4,051,950 4,052,551
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Baltimore, Maryland,
April 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,782,944
<SECURITIES> 4,682,998
<RECEIVABLES> 725,093
<ALLOWANCES> 10,300
<INVENTORY> 760,075
<CURRENT-ASSETS> 3,481,128
<PP&E> 6,716,103
<DEPRECIATION> 1,858,439
<TOTAL-ASSETS> 13,444,618
<CURRENT-LIABILITIES> 686,768
<BONDS> 8,603,754
0
0
<COMMON> 41,145
<OTHER-SE> 4,001,581
<TOTAL-LIABILITY-AND-EQUITY> 13,444,618
<SALES> 8,653,793
<TOTAL-REVENUES> 8,653,793
<CGS> 5,895,479
<TOTAL-COSTS> 5,895,479
<OTHER-EXPENSES> 1,967,594
<LOSS-PROVISION> 14,212
<INTEREST-EXPENSE> 27,315
<INCOME-PRETAX> 799,548
<INCOME-TAX> 295,833
<INCOME-CONTINUING> 503,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503,715
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
