<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of Chesapeake
Biological Laboratories, Inc. will be held on Thursday, July 9, 1998, at 10:00
AM at the Company's corporate offices located at 1111 South Paca Street,
Baltimore, Maryland 21230 for the following purposes:
1. To elect seven (7) directors to serve until the next Annual Meeting
of Stockholders and until their successors are duly elected and
qualified;
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on May 19, 1998, will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
By order of the Board of Directors,
[LOGO]
Thomas C. Mendelsohn
Secretary
Baltimore, Maryland
June 8, 1998
IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that if you are
unable to attend the Annual Meeting, your shares may be voted.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
1111 South Paca Street
Baltimore, Maryland 21230
<PAGE>
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Chesapeake Biological Laboratories, Inc. to be held on
Thursday, July 9, 1998, at the Company's corporate offices located at 1111 South
Paca Street, Baltimore, Maryland 21230.
At the Annual Meeting you will be asked to consider and vote upon the
election of seven directors of the Company. The enclosed Proxy Statement more
fully describes the details of the business to be conducted at the Annual
Meeting.
After careful consideration, the Company's Board of Directors recommends
that you vote "FOR ALL NOMINEES" nominated for election as directors of the
Company.
After reading the Proxy Statement, please mark, date, sign and return, by no
later than July 1, 1998, the enclosed proxy card in the accompanying reply
envelope. If you decide to attend the Annual Meeting, please notify the
Secretary of the Company that you wish to vote in person and, if you attend and
vote in person, your proxy will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS
YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING IN
PERSON.
A copy of the Chesapeake Biological Laboratories, Inc. 1998 Annual Report is
also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
[LOGO]
William P. Tew, Ph.D.
Chairman and Chief Executive Officer
Baltimore, Maryland
June 8, 1998
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
PROXY STATEMENT
GENERAL
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Chesapeake Biological Laboratories, Inc. ("CBL" or the
"Company") of proxies to be voted at the Annual Meeting of Stockholders to be
held on Thursday, July 9, 1998, at 10:00 AM at the Company's corporate office,
1111 S. Paca Street, Baltimore, Maryland 21230, or at any adjournment thereof.
The purpose for the meeting and the matters to be voted upon are set forth in
the accompanying Notice of Annual Meeting of Stockholders. This proxy statement
and the accompanying form of proxy are being sent or given to the stockholders
on or about June 8, 1998, together with an Annual Report to Stockholders.
By completing and returning the accompanying proxy, the stockholder
authorizes William P. Tew, Ph.D., and John C. Weiss, III, or either of them, to
act as proxies with full power of substitution. All returned proxies which are
properly signed will be voted as the stockholder directs. If no direction is
given, the executed proxies will be voted "FOR ALL NOMINEES" with respect to
Proposal No. 1 (Election of Directors). The affirmative vote of a plurality of
all votes cast at the meeting at which a quorum is present is necessary for the
election of a director. For purposes of Proposal No. 1 (Election of Directors),
abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although they will count toward the presence of a quorum. A
proxy may be revoked by a stockholder at any time before it is voted at the
Annual Meeting by giving notice of revocation to the Company in writing or by
attending and voting at the meeting.
The Company bears the cost of soliciting proxies. In addition to soliciting
proxies by use of mail, the officers and regular employees of the Company may
solicit proxies by telephone, telegraph or personal interview. Hill and
Knowlton, Inc. has been retained to assist in soliciting proxies at a fee of
approximately $3,000 plus expenses. The Company may reimburse custodians,
nominees and other fiduciaries for reasonable out-of-pocket and clerical
expenses in forwarding proxy materials to their principals.
Only holders of record of the Class A Common Stock, one cent ($0.01) par
value (the "Class A Common Stock"), of the Company at the close of business on
May 19, 1998, are entitled to notice of and to vote at the meeting or any
adjournment thereof. On May 19, 1998, there were 5,280,947 shares of the Class A
Common Stock outstanding; each such share is entitled to one vote on each matter
to be presented for a vote at the meeting. The presence in person or by proxy of
holders of a majority of the outstanding shares of Class A Common Stock is
necessary to constitute a quorum at the Annual Meeting of Stockholders.
1
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
At the Annual Meeting, seven (7) directors (constituting the entire Board of
Directors of the Company) are to be elected. Unless otherwise specified, the
nominees named below will be elected to serve until the next Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified. Each nominee named below is now a director of the Company. In the
event any of these nominees shall be unable to serve as a director, the Board of
Directors may designate a replacement. All nominees have consented to be named
and have indicated their intent to serve if elected. The Board of Directors has
no reason to believe that any of the nominees will be unable to serve or that
any vacancy on the Board of Directors will occur.
INFORMATION WITH RESPECT TO NOMINEES
Set forth below is information regarding the nominees, including information
furnished by them as to their principal occupation at present and for the last
five years, certain other directorships held by them, the year in which each
became a director of the Company and their ages as of March 31, 1998:
WILLIAM P. TEW, PH.D., age 51, is a founder of the Company and has been a
Director and Chairman of the Board of the Company since operations began in
1980, and Chief Executive Officer since 1988. In addition to his full time
position with the Company, Dr. Tew also holds an appointment as Research
Associate in the Department of Biological Chemistry at The Johns Hopkins
University School of Medicine.
JOHN C. WEISS, III, age 49, has been a Director of the Company since 1986,
and was appointed President of the Company in May 1996. From 1994 to 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 and from 1984 to 1990,
Mr. Weiss was the Managing Director of the Baltimore office of Arete Ventures,
Inc., a venture capital firm. Mr. Weiss currently serves on the Board of
Visitors of the University of Maryland, Baltimore and for the past four years
has chaired the Investment Committee of the Foundation Board of St. Agnes
Hospital.
NARLIN B. BEATY, PH.D., age 48, joined the Company in 1983 and currently
serves as Chief Technical Officer. He served as President of the Company from
1991 until May 1996, and has been a Director of the Company since 1989. Dr.
Beaty also served as Acting President of the Company from 1989 to 1991 and as
Director of Development for the Company from 1985 to 1988.
THOMAS C. MENDELSOHN, age 53, 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. 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 Maryland. From 1979 to 1991, he served as
Senior Vice President of Sales and Marketing of Barre-National, Inc.
REGIS F. BURKE, age 50, was elected a Director of the Company in 1995. 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. Mr. Burke currently serves
as an outside director to several private companies located in Maryland and
Pennsylvania. Prior to 1988, Mr. Burke was a partner with Touche Ross & Co., an
international accounting firm.
HARVEY L. MILLER, age 58, was elected a Director in 1996. Since 1980, Mr.
Miller has been Chairman of GSI 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.
2
<PAGE>
THOMAS P. RICE, age 48, was elected a Director in 1997. Mr. Rice is 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-traded pharmaceutical firm. From 1991 to 1993, Mr. Rice was a principal
of Competitive Advantage, a Baltimore based management consulting firm. From
1985 to 1990, Mr. Rice was Vice President of Administration and Finance of
PharmaKinetics Laboratories, Inc., Baltimore, Maryland.
BOARD COMMITTEES AND MEETINGS
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 accountants. The Stock Option Committee administers and
grants stock options and awards pursuant to the Company's Incentive Stock Option
Plans.
The Audit Committee, which includes the outside directors, met with the
Company's independent public accountants, both before and after the year-end
audit.
During the fiscal year ended March 31, 1998, the Board of Directors held
five formal meetings. Dr. Beaty, and Messrs. Mendelsohn and Miller each missed
one meeting during the year.
COMPENSATION OF BOARD OF DIRECTORS
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 the Company receive annual
compensation of $9,600 per year for their service on the Board of Directors. In
addition, the Company grants to each director, upon that individual's initial
appointment or election to the Board of Directors, an option to purchase 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. During the 1998 fiscal year, Mr. Weiss exercised options
with respect to 4,000 shares. Each of these respective options is evidenced by a
Director's Agreement and a related Option Agreement by and between the Company
and the director and becomes exercisable based on a vesting schedule over a
four-year period measured from the date of grant.
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. Accordingly, on August 12,
1997, options to purchase 3,000 shares each were granted to Messrs. Burke,
Miller and Rice, exercisable at the then current market price of $6.00 per
share. Options granted under the Directors' Plan generally vest on the first
anniversary of the date of grant, provided that the director is deemed under the
Directors' Plan to have served as chairperson
3
<PAGE>
of a standing committee through that date. An aggregate of 25,000 shares of
Common Stock have been reserved for issuance pursuant to the Directors' Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that stockholders vote FOR
each of the nominees set forth above. Proxies solicited by the Board of
Directors will be so voted unless stockholders specify otherwise on the
accompanying proxy.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 19, 1998, with respect
to the number of shares owned by each person who is known by the Company to own
beneficially 5% or more of its Class A Common Stock, each director of the
Company and all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE BENEFICIALLY
BENEFICIAL OWNER OWNED(1) OWNED
- - ------------------------------------------------------------------------ ----------------- -----------------------
<S> <C> <C>
William P. Tew, Ph.D. 391,168(2) 7.2%
1111 South Paca Street
Baltimore, MD 21230
Regis F. Burke 12,700(3) 0.2%
6 Kincaid Court
Baldwin, MD 21013
Harvey L. Miller 42,000(5) 0.8%
200 Village Square
Cross Keys
Baltimore, MD 21210
Thomas P. Rice 12,000(5) 0.2%
4209 Buckskin Wood Drive
Ellicott City, MD 21042
Narlin B. Beaty, Ph.D. 137,791(6) 2.5%
13406 Blythenia Road
Phoenix, MD 21131
Thomas C. Mendelsohn 103,966(6) 1.9%
2117 Burdock Road
Baltimore, MD 21209
John C. Weiss, III 45,865(4) 0.9%
5907 Charlesmead Ave.
Baltimore, MD 21212
All directors and officers as a group 899,847(7) 16.6%
(9 persons)
</TABLE>
- - ------------------------
(1) Unless otherwise noted, all shares indicated are held with sole voting and
sole investment power.
(2) Includes 30,130 shares purchasable under option exercisable within 60 days
of May 19, 1998; does not include 14,000 shares owned by Pamela Maupin, wife
of Dr. Tew, with respect to which shares Dr. Tew disclaims beneficial
ownership.
(3) Includes 4,000 shares purchasable under option exercisable within 60 days of
May 19, 1998.
(4) Includes 35,015 shares purchasable under option exercisable within 60 days
of May 19, 1998.
(5) Includes 2,000 shares purchasable under option exercisable within 60 days of
May 19, 1998.
(6) Includes 18,786 shares purchasable under option exercisable within 60 days
of May 19, 1998.
(7) Includes 141,289 shares purchasable under option exercisable within 60 days
of May 19, 1998.
5
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
EXECUTIVE OFFICERS OF THE COMPANY
In addition to those individuals identified above as nominees for election
to the Board of Directors of the Company and who are also Executive Officers of
the Company (Drs. Tew and Beaty and Messrs. Weiss and Mendelsohn), John T.
Janssen has served as Treasurer and Chief Financial Officer of the Company since
joining the Company in January 1993, and Robert J. Mello, Ph.D. has served as
Vice President of Quality and Regulatory Affairs since rejoining the Company in
1994.
Mr. Janssen, age 59, a Certified Public Accountant, has over thirty-five
(35) years of diversified financial management experience and, during the twelve
(12) years prior to joining the Company, was a member of the Board of Directors
and was Chief Financial Officer of both Barre-National, Inc. of Baltimore,
Maryland, and Genesee Brewing Co. of Rochester, New York.
Dr. Mello, age 47, holds a Bachelor of Science degree in Biology and a Ph.D.
degree in Biochemistry from The Johns Hopkins University School of Medicine and
had been with the Company for ten (10) years before joining Lederle Laboratories
in 1992 as Manager, Validation Services. At Lederle, he established, coordinated
and monitored validation programs at four sites. During his ten (10) years with
the Company, Dr. Mello served originally as Director of Research and Development
and then as Director, Quality Assurance and Regulatory Affairs, and as Corporate
Secretary.
Officers of the Company are elected annually and serve at the discretion of
the Board of Directors.
COMPENSATION COMMITTEE REPORT
As members of the Compensation Committee of the Chesapeake Biological
Laboratories, Inc. Board of Directors, it is our duty to exercise the power and
authority of the Board of Directors with respect to the compensation of the
Company's executive officers.
GENERAL COMPENSATION POLICY
Under the supervision of the Compensation Committee, the Company has
developed a compensation policy which is designed to attract and retain
qualified key executives critical to the Company's success and to provide such
executives with performance-based incentives tied to the growth and
profitability of the Company. It is our objective to have a portion of each
officer's compensation contingent upon the Company's performance as well as upon
the individual's contribution to the success of the Company as measured by
personal performance. Accordingly, each executive officer's compensation package
is fundamentally comprised of three elements: (i) base salary which reflects
individual performance and expertise; (ii) an incentive compensation tied to the
Company's profit, payable as an adjustment to base salary; and (iii) long-term
stock-based incentive awards through the Company's Employee Incentive Stock
Option Program which strengthen the mutuality of interests between the executive
officers and the Company's stockholders.
FACTORS
Because the Company is in the growth stage, the use of traditional standards
(such as profit levels and return on equity) are not appropriate as the only
factors in evaluating the performance of its executive officers. Several of the
more important factors which were considered in establishing the components of
each executive officer's compensation package for the 1998 fiscal year are
summarized below. Additional factors were also taken into account, and we may at
our discretion apply entirely different factors, particularly different measures
of performance, in setting executive compensation for future fiscal years, but
all compensation decisions will be designed to further the general compensation
policy indicated above.
6
<PAGE>
BASE SALARY
Base compensation is established through negotiation between the Company and
the executive at the time the executive is first hired, and then subsequently
when the executive's base compensation is subject to review or reconsideration.
When establishing or reviewing base compensation levels for each executive
officer, the Compensation Committee considers numerous factors, including the
qualifications of the executive and the amount of relevant individual experience
the officer brings to the Company, strategic goals for which the executive has
responsibility, compensation levels at companies at a comparable stage of
development who compete with the Company for business and executive talent and
the incentives which are necessary to attract and retain qualified management.
INCENTIVE COMPENSATION
In addition to the base salary, the Board of Directors has adopted an
Incentive Compensation Program whereby the annual base salary of specified
Company executives may be increased based on the profit of the Company at the
end of each fiscal year. The base salaries of nine executives were supplemented
during the 1998 fiscal year to reflect the adjustments specified under the
Incentive Compensation Program for the financial performance of the 1997 fiscal
year. In addition, Mr. Weiss and Mr. Janssen were each granted a $4,000 bonus
for their extra effort in connection with the completion in June 1997 of the
Company's follow-on public offering of 1,037,000 shares of Class A Common Stock.
There was no increase in compensation as a result of the 1998 fiscal year
results.
LONG-TERM COMPENSATION
Each executive officer of the Company is eligible for stock option awards
under the Company's Employee Incentive Stock Option Program which is designed to
give the recipient a significant equity stake in the Company and thereby closely
align their interests with those of the Company's stockholders. Factors
considered include the executive's or key employee's position in the Company,
his or her performance and responsibilities, and the extent to which he or she
already holds an equity stake in the Company. In addition, consideration is
given to the success of the Company over the preceding fiscal year as measured
on the basis of various indexes, including increases in the market
capitalization and pre-tax profit of the Company over the preceding fiscal year.
During the fiscal year ended March 31, 1998, options to purchase the number of
shares of Class A Common Stock set forth beside their respective names,
exercisable at the stated price, were issued to: William P. Tew, Ph.D.--30,130
shares at $3.75 per share; John C. Weiss, III-- 25,015 shares at $3.75 per
share; and Narlin B. Beaty, Ph.D., John T. Janssen, Thomas C. Mendelsohn and
Robert J. Mello, Ph.D.--13,786 shares each at $3.75 per share. In each instance,
the exercise price reflects the market price of the Class A Common Stock on the
date of the grant.
CEO COMPENSATION
The annual base salary review of William P. Tew, Ph.D., the Company's
Co-Founder and Chief Executive Officer was completed as of July 1, 1997. Dr.
Tew's base salary was not changed from that set as of July 1, 1996, $170,000.
Dr. Tew's total cash compensation (base plus incentive) for the fiscal year
ended March 31, 1998, was $194,428. In setting Dr. Tew's base salary, we
determined that he had made significant achievements over the past several years
which were important to the Company's future growth and assisted the Company in
enhancing stockholder value.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current officer or employee of the
Company.
Compensation Committee, March 31, 1998
Thomas P. Rice, Committee Chairman
Regis F. Burke
Harvey L. Miller
7
<PAGE>
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on March 31, 1993, along with the composite prices of
companies listed on the Nasdaq US Index and Nasdaq Pharmaceutical Index.
Comparison of Five-Year Cumulative
Total Return Among CBL, Nasdaq US Index,
Nasdaq Pharmaceutical Index
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
<S> <C> <C> <C> <C> <C> <C>
Chesapeake Biological Labs., Inc. $ 100.00 $ 215.38 $ 146.15 $ 92.50 $ 307.69 $ 476.92
Nasdaq US Index $ 100.00 $ 107.94 $ 120.08 $ 163.03 $ 181.20 $ 275.22
Nasdaq Pharmaceutical Index $ 100.00 $ 100.99 $ 100.61 $ 177.38 $ 162.38 $ 194.22
</TABLE>
The Company believes the Nasdaq Pharmaceutical Index is a reasonable peer group
comparison.
8
<PAGE>
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's five other highest compensated
executive officers for services rendered in all capacities to the Company for
the fiscal years ended March 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION
-------------------------------------------------------------------
ANNUAL COMPENSATION
-----------------------------------
SALARY AND INCENTIVE LONG TERM COMPENSATION
COMPENSATION ------------------------------
NAME AND ----------------------------------- OTHER ANNUAL STOCK
PRINCIPAL POSITION YEAR ($) BONUS($) COMPENSATION($) OPTIONS(#)
- - ------------------------------------------------- --------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
William P. Tew, Ph.D............................. 1998 1997 194,428 849(1) 30,130
Chairman and Chief Executive Officer 1996 187,219 270(1) 75,000
177,916 1,232(1) --
John C. Weiss, III............................... 1998 145,945 4,000 -- 25,015
President 1997 102,917(2) 2,400(3) 70,000
1996 -- 11,100(3) 8,000(3)
Narlin B. Beaty, Ph.D............................ 1998 150,053 -- 13,786
Chief Technical Officer 1997 145,434 -- 30,000
1996 141,106 -- 20,000
John T. Janssen.................................. 1998 147,880 4,000 -- 13,786
Treasurer and Chief Financial Officer 1997 141,299 -- 20,000
1996 130,546 -- 20,000
Thomas C. Mendelsohn............................. 1998 141,018 -- 13,786
Secretary and Vice President 1997 136,654 -- 20,000
New Business Development 1996 131,983 -- 20,000
Robert J. Mello, Ph.D............................ 1998 144,792 -- 13,786
Vice President Quality 1997 138,698 -- 30,000
and Regulatory Affairs 1996 123,959 -- 20,000
</TABLE>
- - ------------------------
(1) Represents amounts paid by the Company for life insurance premiums on behalf
of Dr. Tew.
(2) Represents a partial fiscal year as 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.
All employees of the Company are eligible to receive stock option awards
through the Company's Employee Incentive Stock Option Program. The granting of
such stock option awards is made at the sole discretion of the Stock Option
Committee of the Board of Directors. It is the Company's philosophy to encourage
equity ownership of the Company by its employees, thereby aligning their
interests with those of the Company's stockholders. Factors considered in
granting stock options include the employee's position in the Company, his or
her performance and responsibilities, the success of the Company, and the extent
to which the employee already holds an equity stake in the Company.
At present, the Company does not offer any long-term incentive compensation
other than the Stock Option Program. The Company established a 401(k) Profit
Sharing Plan for all full-time CBL employees with six months service with the
Company. Employees may contribute up to 10% of their salary to the plan, and the
Company may match the first 3% of salary the employee contributes to the plan.
The original entry date for the 401(k) Profit Sharing Plan for all eligible
employees was October 1, 1993. The Company suspended the matching of employee
contributions as of July 31, 1994.
9
<PAGE>
The Company may, at its option, contribute a variable percentage of eligible
employee salaries to the employee's account in the plan. For the years ended
March 31, 1998 and 1997, the Company chose not to contribute to this plan.
STOCK OPTION GRANTS
Stock options were granted during the fiscal year to the officers listed
below:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
% OF TOTAL APPRECIATION
OPTIONS EXERCISE FOR OPTION TERM
SHARES GRANTED PRICE EXPIRATION ---------------------
GRANTED(1) IN FISCAL 98 PER SHARE DATE 5%($) 10%($)
----------- ------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William P. Tew, Ph.D..................... 30,130 14.9% $ 3.75 7/2/07 $ 73,100 $ 192,900
John C. Weiss, III....................... 25,015 12.4% $ 3.75 7/2/07 $ 60,700 $ 160,100
Narlin B. Beaty, Ph.D.................... 13,786 6.8% $ 3.75 7/2/07 $ 33,400 $ 88,200
John T. Janssen.......................... 13,786 6.8% $ 3.75 7/2/07 $ 33,400 $ 88,200
Robert J. Mello, Ph.D.................... 13,786 6.8% $ 3.75 7/2/07 $ 33,400 $ 88,200
Thomas C. Mendelsohn..................... 13,786 6.8% $ 3.75 7/2/07 $ 33,400 $ 88,200
</TABLE>
- - ------------------------
(1) All options above were fully exercisable when granted.
10
<PAGE>
STOCK OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the 1998 fiscal year and unexercised options held as of the end of the
fiscal year by the Company's Chief Executive Officer and the Company's five
other most highly compensated executive officers.
AGGREGATED OPTION EXERCISES IN THE 1998 FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)1
ACQUIRED VALUE EXERCISABLE (E)/ EXERCISABLE (E)/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (U) (U)
- - --------------------------------------------------- ----------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
William P. Tew, Ph.D............................... 30,130(E) $ 120,520(E)
-- -- 75,000(U) $ 323,250(U)
John C. Weiss, III................................. 35,015(E) $ 161,310(E)
4,000 $ 20,500 64,000(U) $ 347,500(U)
Narlin B. Beaty, Ph.D.............................. 18,786(E) $ 86,394(E)
-- -- 45,000(U) $ 232,500(U)
John T. Janssen.................................... 13,786(E) $ 55,143(E)
55,000 $ 262,881 35,000(U) $ 186,250(U)
Robert J. Mello, Ph.D.............................. 18,786(E) $ 85,143(E)
-- -- 40,000(U) $ 216,250(U)
Thomas C. Mendelsohn............................... 18,786(E) $ 86,394(E)
50,000 $ 210,937 35,000(U) $ 186,250(U)
</TABLE>
- - ------------------------
(1) Assumes, for all unexercised in-the-money options, the difference between
fair market value and the exercise price. The fair market value on March 31,
1998 was $7.75 per share.
John C. Weiss, III, President and Director of the Company, exercised an
option to purchase 4,000 shares of the Company's Class A Common Stock, at $1.50
per share, on February 10, 1998. This option had been granted in November 1995.
John T. Janssen, Treasurer and Chief Financial Officer, of the Company,
exercised options to purchase 50,000 shares at $1.875 per share and 5,000 shares
at $1.50 per share on August 11, 1997, and February 10, 1998. These options had
been granted in January, 1993, and in November, 1995, respectively.
Thomas C. Mendelsohn, Secretary, Vice President and Director, of the
Company, exercised an option to purchase 50,000 shares at $1.875 per share on
February 10, 1998. This option had been granted in January 1993.
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, Mendelsohn and Dr.
Mello are $129,300, $123,300, and $126,600, respectively. The base salary
applicable to any executive officer may be changed through action of the
Compensation Committee or Board of Directors.
11
<PAGE>
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.
COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and beneficial owners of more than ten percent
of CBL's stock are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms that they file. Based solely upon the Company's
review of Forms 3 and 4 received by it for the year ended March 31, 1998, or
written representations from certain reporting persons that no such reports were
required to be filed by such persons, the Company believes that during fiscal
year ended March 31, 1998, all filing requirements were complied with by its
officers, directors and beneficial owners of more than ten percent of the
Company's stock and other persons subject to Section 16 of the Exchange Act.
12
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANT
The Board of Directors has selected Arthur Andersen LLP, independent public
accountants, to audit the financial statements of the Company for the 1999
fiscal year.
Arthur Andersen LLP has served as independent accountants for the Company
since February 21, 1991. A representative of Arthur Andersen LLP will be present
at the meeting to have an opportunity to make a statement if he desires to do
so, and to respond to appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors knows of no other matters to be acted upon at the
meeting. However, other matters properly brought before the meeting by
stockholders will be considered.
STOCKHOLDER PROPOSALS FOR 1999
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company no later than February
8, 1999, and must otherwise comply with the rules of the Securities and Exchange
Commission for inclusion in the proxy materials relating to that meeting.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS, SCHEDULES
AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO CHESAPEAKE BIOLOGICAL
LABORATORIES, INC., 1111 SOUTH PACA STREET, BALTIMORE, MARYLAND 21230,
ATTENTION: INVESTOR RELATIONS.
By order of the Board of Directors,
[LOGO]
Thomas C. Mendelsohn
Secretary
June 8, 1998
13
<PAGE>
CBL
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
PROXY
This proxy is solicited ON BEHALF OF THE BOARD OF DIRECTORS OF CHESAPEAKE
BIOLOGICAL LABORATORIES, INC. The undersigned hereby appoints William P. Tew ,
Ph.D., and John C. Weiss, III, or either of them acting singly, as Proxies, each
with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Class A Common
Stock of Chesapeake Biological Laboratories, Inc. held of record by the
undersigned as of the close of business on May 19, 1998, at the Annual Meeting
of Stockholders to be held on July 9, 1998, or any adjournment thereof.
The Board of Directors recommends a vote "FOR ALL NOMINEES" in Proposal No.
1--Election of Directors.
PLEASE MARK YOU CHOICE IN BLUE OR BLACK INK.
<TABLE>
<S> <C> <C> <C>
1. PROPOSAL No. 1--ELECTION OF DIRECTORS: FOR ALL NOMINEES listed below WITHHOLD
(EXCEPT MARKED TO THE CONTRARY BELOW)/ / AUTHORITY
to vote for
all nominees
listed below
/ /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
strike a line through the name of the nominee(s) in the list below.)
NOMINEES: W.P. Tew, Ph.D., J.C. Weiss, III, N.B. Beaty, Ph.D., T.C. Mendelsohn,
R.F. Burke, H.L. Miller, T.P. Rice
<PAGE>
<TABLE>
<S> <C> <C> <C>
In their discretion, the Proxies are hereby authorized to vote upon such other business as may properly
2. come before the meeting.
</TABLE>
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given with respect to
any matter or matters, this proxy will be voted "FOR ALL NOMINEES" in Proposal
No. 1- Election of Directors. If with respect to Proposal No. 1- Election of
Directors, you withhold authority to vote for any named nominee(s) as a
director, the shares represented by this proxy will be voted for the election of
the remaining nominees as directors.
Please sign exactly as name appears on the label above. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
<TABLE>
<S> <C>
Date: --------------------------------,
1998
------------------------------------------
Signature
------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY LETTER PROMPTLY USING THE ENCLOSED
ENVELOPE.
</TABLE>
