<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 14, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Chesapeake
Biological Laboratories, Inc., ("CBL" or the "Company"), will be held on
Thursday, October 14, 1999, at 10:00 a.m. at the Company's corporate offices
located at 1111 South Paca Street, Baltimore, Maryland 21230, for the following
purposes:
I. To elect four directors to hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified;
II. To approve the adoption of CBL's Fifth Stock Incentive Plan.
III. To approve an amendment to CBL's Charter to increase the number of
authorized shares of capital stock from 10,000,000 shares to 15,000,000
shares and to eliminate the unissued Class B Common Stock and Series A
Preferred Stock.
IV. To ratify the selection of Arthur Andersen L.L.P. as CBL's independent
auditors for the fiscal year ending March 31, 2000; and
V. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Accompanying this notice is a Proxy Card and Proxy Statement and a copy of CBL's
Annual Report for the year ended March 31, 1999. Whether or not you expect to be
present at the Annual Meeting, please sign and date the Proxy Card and return it
in the enclosed envelope provided for that purpose prior to the date of the
Annual Meeting. The Proxy may be revoked at any time prior to the time that it
is voted at the Annual Meeting. August 9, 1999 was fixed by the Board of
Directors as the record date for determination of stockholders entitled to
notice of and to vote at the Annual Meeting or any adjournment thereof. Only
stockholders of record at the close of business on August 9, 1999, will be
entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Robert J. Mello, Ph.D.
Secretary
Baltimore, Maryland
September 15, 1999
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.
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
1111 South Paca Street
Baltimore, MD 21230
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders ("Annual
Meeting") of Chesapeake Biological Laboratories, Inc., ("CBL" or the "Company"),
to be held on Thursday, October 14, 1999, 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 four directors of the Company, to consider and approve the Chesapeake
Biological Laboratories, Inc. Fifth Stock Incentive Plan, to approve the Charter
Amendment and to ratify the selection of Arthur Andersen L.L.P. as independent
auditors. The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
The Company's Board of Directors recommends that you vote "FOR ALL NOMINEES"
nominated for election as directors of the Company, "FOR" the adoption of CBL's
Fifth Stock Incentive Plan, "FOR" the approval of the Charter Amendment and
"FOR" the ratification of Arthur Andersen L.L.P. as independent auditors for the
fiscal year ended March 31, 2000.
After reading the Proxy Statement, please mark, date, sign and return, by no
later than October 6, 1999, 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 Company's 1999 Annual Report is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Thomas P. Rice
President and Chief Executive Officer
Baltimore, Maryland
September 15, 1999
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
1111 South Paca Street
Baltimore, MD 21230
PROXY STATEMENT / INTRODUCTION__________________________________________________
This Proxy Statement and accompanying Proxy are being furnished to stockholders
of Chesapeake Biological Laboratories, Inc. ("CBL" or the "Company") in
connection with the solicitation of proxies by CBL's Board of Directors to be
used at the Annual Meeting of Stockholders to be held on Thursday, October 14,
1999, at 10:00 a.m. at the Company's corporate offices, 1111 South 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 proxy are first being sent or given to stockholders on or about
September 15, 1999, together with an Annual Report to Stockholders.
Stockholders of record of the Class A Common Stock (the "Class A Common Stock")
and the Series A-I Convertible Preferred Stock (the "Series A-1 Preferred
Stock") of the Company at the close of business on August 9, 1999 (the "Record
Date"), are entitled to notice of and to vote at the meeting or any adjournments
thereof. On the Record Date, there were 5,590,351 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. In addition, each holder of Series A-1
Preferred Stock is entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Preferred Stock held on the
record date are convertible. As of August 9, 1999, the outstanding shares of
Series A-1 Preferred Stock were convertible into a total of 1,034,052 shares of
Class A Common Stock.
Quorum and Vote Required
The presence, in person or by proxy, of the holders of a majority of the total
issued and outstanding shares of Class A Common Stock and the Common Stock
equivalents of the Series A-1 Preferred Stock as of the Record Date are
necessary to constitute a quorum at the Annual Meeting. Directors to be elected
at the Annual Meeting will be elected by a plurality of the votes cast. This
means that each share may be voted for as many individuals as there are
directors to be elected, and the four individuals receiving the highest number
of votes "FOR" election to the Board of Directors will be duly elected.
Cumulative voting is not permitted in the election of directors. Under the
Company's Charter, as amended, the holders of Series A-1 Preferred Stock, voting
together as a single class, have the right to elect one director to the
Company's Board of Directors. The Series A-1 Preferred Stockholders elected one
director in September 1999.
For all matters except the election of directors, each share is entitled to one
vote. The affirmative vote of a majority of the shares of Class A Common Stock
and the Common Stock equivalents of the Series A-1 Preferred Stock (voting
together as a single class) outstanding as of the Record Date is required for
approval of the Charter Amendment. The affirmative vote of a majority of the
votes cast by the holders of the shares of Class A Common Stock and the Common
Stock equivalents of the Series A-1 Preferred Stock (voting together as a single
class) voting in person or by proxy at the Annual Meeting is required for
approval and/or ratification of all matters (other than the election of
directors and the Charter Amendment) being submitted to the stockholders for
their consideration. An automated system administered by CBL's transfer agent
will be used to tabulate votes. Abstentions and broker non-votes will be
included in determining the presence of a quorum at the Annual Meeting. In
electing directors and in respect of all other proposals, abstentions and broker
non-votes will not be considered votes cast.
The cost of soliciting proxies and preparing proxy materials will be borne by
the Company. 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.
<PAGE>
Voting By Proxy
The Board of Directors has selected Thomas P. Rice and Robert J. Mello, Ph.D.,
or either of them, to act as proxies with full power of substitution. Any
stockholder executing a proxy has the power to revoke the proxy at any time
before it is voted at the Annual Meeting. This right of revocation is not
limited or subject to compliance with any formal procedure. Any stockholder may
attend the meeting and vote in person, whether or not he has previously given a
proxy.
With respect to the proposal regarding election of directors, stockholders may
(a) vote in favor of all nominees, (b) withhold their votes as to all nominees
or (c) withhold their votes as to specific nominees by so indicating in the
appropriate space on the enclosed proxy card. With respect to the proposals to
approve the adoption of the Fifth Stock Incentive Plan and the Charter Amendment
and ratify the appointment of Arthur Andersen L.L.P. as CBL's independent
auditors for the fiscal year ending March 31, 2000, stockholders may (i) vote
"for", (ii) vote "against" or (iii) abstain from voting as to each such matter.
All properly executed proxy cards delivered by stockholders and not revoked will
be voted at the Annual Meeting in accordance with the directions given. If no
specific instructions are given with regard to the matters to be voted upon, the
shares represented by a properly executed proxy card will be voted "FOR" the
election of all nominated directors, the approval of the Fifth Stock Incentive
Plan, the approval of the Charter Amendment and ratification of the appointment
of Arthur Andersen L.L.P. as independent auditors. Management knows of no other
matters that may come before the Annual Meeting for consideration by the
stockholders. However, if any other matter properly comes before the Annual
Meeting, the persons named in the enclosed proxy card as proxies will vote upon
such matters in accordance with their judgment.
Stockholders who do not expect to attend the Annual Meeting in person are urged
to execute and return the enclosed proxy card promptly. Any stockholder
delivering a proxy has the power to revoke it at any time before it is voted by
giving written notice of revocation to the Secretary of the Company, by
executing and delivering to the Secretary a proxy card bearing a later date, or
by voting in person at the Annual Meeting. Any stockholder also may be
represented by another person at the Annual Meeting by executing a form of proxy
designating such person to act on the stockholders' behalf at the Annual
Meeting.
PROPOSAL 1 / ELECTION OF DIRECTORS______________________________________________
The By-laws of the Company, as amended, provide that the number of directors
constituting the Board of Directors is to be determined from time to time by the
Board. The Board has fixed the current number of directors at five.
At the Annual Meeting, four directors are to be elected. In addition, the
holders of the Series A-1 Preferred Stockholders elected Dr. Elliott F. Hahn as
a director on September 14, 1999. Thomas P. Rice, Dr. Narlin B. Beaty, Regis F.
Burke and Harvey L. Miller are currently directors. In the event any of the four
nominees is 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.
The Board of Directors recommends that stockholders vote FOR its nominees for
Directors. Proxies solicited by the Board of Directors will be so voted unless
stockholders specify otherwise on the accompanying proxy.
2
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Information Concerning Nominees for Director
The following table presents information about the persons (all of whom
currently are directors) by the Board of Directors for election at the Annual
Meeting to serve until the next Annual Meeting of Stockholders, and until their
successors are duly qualified and elected.
<TABLE>
<CAPTION>
DIRECTOR TERM PRINCIPAL OCCUPATION, DIRECTORSHIPS WITH PUBLIC
NAME AND AGE SINCE EXPIRES COMPANIES AND OTHER INFORMATION
<S> <C> <C> <C>
Thomas P. Rice (49)................ 1997 2000 THOMAS P. RICE was appointed CBL's President and Chief
Annual Executive Officer on January 11, 1999 and has been a director
Meeting since 1997. In 1996, Mr. Rice founded Columbia Investments,
LLC, which made 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
company. 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., a publicly-traded company located in
Baltimore, Maryland. Mr. Rice is a Certified Public
Accountant.
Narlin B. Beaty, Ph.D. (49)........ 1989 2000 NARLIN B. BEATY, PH.D. joined the Company in 1983 and
Annual currently serves as Chief Technical Officer. He served as
Meeting 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.
Regis F. Burke (51)................ 1995 2000 REGIS F. BURKE was elected a director of the Company in 1995.
Annual Mr. Burke is a Certified Public Accountant in private
Meeting practice 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 of several 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 (59).............. 1996 2000 HARVEY L. MILLER was elected a director in 1996. Since 1980,
Annual Mr. Miller has been Chairman of GSI Corporation, a
Meeting manufacturer of high-tech wire assemblies. Since 1986, Mr.
Miller has also been president of DM Realty Corporation, a
developer of commercial real estate. Mr. Miller was elected a
director of Maryland Midland Railway, Inc. in March 1997 and
was elected Chairman of its Board in May 1999.
</TABLE>
3
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Information Concerning Director Elected by the Preferred Stockholders
The following table presents information about the person elected by the holders
of the Series A-1 Preferred Stock on September 14, 1999.
<TABLE>
<CAPTION>
DIRECTOR TERM PRINCIPAL OCCUPATION, DIRECTORSHIPS WITH PUBLIC
NAME AND AGE SINCE EXPIRES COMPANIES AND OTHER INFORMATION
<S> <C> <C> <C>
Elliot F. Hahn, Ph.D. (55)......... 1999 2000 ELLIOT F. HAHN, PH. D. was elected as a director on September
Annual 14, 1999. He is president and a director of Andrx
Meeting Corporation, a publicly-traded company. He is also a director
of two privately-held corporations, I-Dent International
Corporation and Delta Pharmaceuticals, Inc. From June 1990 to
February 1993, Dr. Hahn was Vice President, Scientific
Affairs of IVAX, where he was involved in the evaluation and
international licensing of product opportunities and was
responsible for maintaining IVAX's intellectual property.
From 1988 to 1993, Dr. Hahn served as Vice President of
Research of Baker Norton Pharmaceuticals, a subsidiary of
IVAX. Prior to that, he was an Assistant Professor at Albert
Einstein College of Medicine and a member of the Institute of
Steroid Research at Montefiore Hospital in New York City.
Since 1988, he has been adjunct Associate Professor at the
University of Miami School of Medicine. Dr. Hahn holds a B.S.
from City College of New York and a Ph. D. in Chemistry from
Cornell University.
</TABLE>
Information Regarding the CBL Board, Committees and Remuneration
During the fiscal year ended March 31, 1999, there were six meetings of the
Board of Directors of CBL. Each director attended at least 80% of the aggregate
number of meetings of the Board and Board committees of which he was a member.
The CBL Board has three standing committees: an Audit Committee, a Compensation
Committee and a Stock Option Committee.
The Audit Committee meets with CBL's independent accountants to review whether
satisfactory accounting procedures are being followed by CBL, whether its
internal accounting controls are adequate to monitor nonaudit services performed
by the independent accountants and to review the fees charged by the independent
accountants. The Audit Committee also recommends to the Board of Directors the
selection of independent accountants. At the end of the 1999 fiscal year,
non-employee directors, Regis F. Burke and Harvey L. Miller, were the members of
the Audit Committee. The Audit Committee met twice with the CBL's independent
public accountants, once after the year-end audit for the 1998 fiscal year, and
once before the year-end audit for the 1999 fiscal year and each member was
present at each meeting.
The Compensation Committee establishes the compensation for executive officers
of CBL and generally reviews benefits and compensation for all officers,
employees and consultants. At the end of the 1999 fiscal year, non-employee
directors, Regis F. Burke and Harvey L. Miller, were the members of the
Compensation Committee, which met on three (3) occasions in the 1999 fiscal
year. Each member was present at each meeting. The report of the Compensation
Committee, required by the rules of the Securities and Exchange Commission (the
"SEC"), is included in this Proxy Statement.
4
<PAGE>
The Stock Option Committee administers and grants stock options and awards under
CBL's Stock Option Plans. At the end of the 1999 fiscal year, non-employee
directors, Regis F. Burke and Harvey L. Miller, were the members of the Stock
Option Committee. Three (3) meetings of the Stock Option Committee were held
during the 1999 fiscal year, and each member was present at each meeting.
Mr. Thomas P. Rice also served on each of these three committees until he became
the Company's President and Chief Executive Officer on January 11, 1999.
Compensation 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 for their service on the Board of Directors. In addition,
the Company grants each director, upon that individual's initial appointment or
election to the Board of Directors, an option to purchase 8,000 shares of Class
A Common Stock at the then current market price. Accordingly, Mr. Burke was
granted an option to purchase 8,000 shares of Class A Common Stock at $1.50 per
share in November 1995; Mr. Miller was granted an option to purchase 8,000
shares of Class A Common Stock at $3.125 per share in November 1996; and Mr.
Rice was granted an option to purchase 8,000 shares of Class A Common Stock at
an exercise price of $5.1875 per share in March 1997. Each of these options is
evidenced by a Director's Agreement and a related Option Agreement 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 qualified stock option to purchase 3,000 shares
of Class A Common Stock to each director who is not an officer and who is
serving as chairperson of any standing committee of the Board of Directors on
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 (each
being a chairperson on a Board committee on the date of grant), exercisable at
the then current market price of $6.00 per share. Options granted under the
Director's 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. In accordance with the 1997 Directors' Stock Option Plan on July 9,
1998, options to purchase 3,000 shares each were issued to Messrs. Burke, Miller
and Rice (each being a chairperson on a Board committee on the date of grant),
exercisable at $8.125, the then current market price.
In April 1999, Mr. Burke and Mr. Miller were each granted non-qualified options
for 10,000 shares at the then current market price of $2.31. These grants were
in recognition of their efforts and guidance related to CBL's management
reorganization.
Compensation and Stock Option Committee Interlocks and Insider Participation
in Compensation Decisions
None of the directors serving on the Compensation Committee or the Stock Option
Committee is an employee of CBL. The President and Chief Executive Officer, Mr.
Thomas P. Rice, served on the Compensation and Stock Option Committees prior to
his becoming an executive officer of the Company on January 11, 1999. No
director or executive officer of CBL is a director, executive officer or member
of the compensation or similar board committee of any other corporation that has
a director or executive officer who is also a director, Compensation Committee
or Stock Option Committee member of CBL.
5
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 and more than ten percent
holders of CBL's stock are required by SEC regulation to furnish the Company
with copies of all forms that they file. Based solely upon the Company's review
of Forms 3 and 4 received by it for the 1999 fiscal year, and representations
from certain reporting persons that no such reports were required to be filed by
them, the Company believes that during the 1999 fiscal year, all filing
requirements were complied with by those persons required to make these filings.
Compensation of Executive Directors
The following table shows for the past three fiscal years compensation paid by
CBL, including salary, bonuses, stock options, and other compensation to its
Chief Executive Officer and each of its four other most highly compensated
executive officers at March 31, 1999 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) SATION ($) SARS (#) SATION ($)
<S> <C> <C> <C> <C> <C> <C>
William P. Tew, Ph.D.(1)...................... 1999 $ 174,818 -- -- 154,089 $ 51,353(2)
Chairman 1998 194,428 -- -- 30,130 849(2)
1997 187,219 -- -- 75,000 270(2)
Thomas P. Rice................................ 1999 $ 34,134(3) -- -- 253,000(4) $ 8,271(5)
President and Chief Executive Officer 1998 -- -- 3,000(5) 9,600(5)
1997 8,000(5) 1,600(5)
Narlin B. Beaty, Ph.D......................... 1999 $ 143,601 -- -- -- --
Chief Technical Officer 1998 150,053 -- -- 13,786 --
1997 145,434 -- -- 30,000 --
John T. Janssen............................... 1999 $ 141,521 -- -- -- --
Chief Financial Officer and Treasurer 1998 147,880 $ 4,000 -- 13,786 --
1997 141,299 -- -- 20,000 --
Robert J. Mello, Ph.D......................... 1999 $ 138,566 -- -- -- --
Secretary and Vice President, Quality and 1998 144,792 -- -- 13,786 --
Regulatory Affairs 1997 138,698 -- -- 30,000 --
</TABLE>
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(1) Dr. Tew resigned as Chairman effective June 30, 1999. He will receive
$20,208 per month through June 2000.
(2) These payments represent amounts paid by the Company for life insurance
premiums on behalf of Dr. Tew. In addition, the 1999 fiscal year amount
includes $50,000 paid in January 1999 as part of the Company's management
realignment.
6
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(3) Mr. Rice was appointed President and Chief Executive Officer on January 11,
1999. The amount shown represents his compensation for the remainder of the
1999 fiscal year, including $17,067 of compensation that was deferred under
Mr. Rice's Employment Agreement.
(4) Consists of options to purchase 3,000 shares of Class A Common Stock granted
to Mr. Rice as a non-employee director and 250,000 shares granted upon his
becoming the President and Chief Executive Officer.
(5) Represents fees paid and options granted to Mr. Rice as a non-employee
director and includes life insurance premiums paid on behalf of Mr. Rice
between January 11, 1999 and March 31, 1999.
OPTION GRANTS IN THE LAST FISCAL YEAR. The following table sets forth
information regarding option to purchase shares of the Class A Common Stock
granted to the Named Executive Officers during the 1999 fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5%(1) 10%(1)
<S> <C> <C> <C> <C> <C> <C>
William P. Tew, Ph.D......................... 125,000(2) 24.9% $ 3.813 12-22-08 $ 313,800 $ 827,900
29,098(2) 5.8 7.750 07-09-08 145,900 384,900
Thomas P. Rice............................... 50,000(3) 10.0 3.750 01-11-09 121,300 320,062
200,000(4) 39.8 1.000 12-31-08 323,500 863,500
3,000(5) 0.6 8.125 07-09-08 15,800 41,600
Narlin B. Beaty, Ph.D........................ -- -- -- -- -- --
John T. Janssen.............................. -- -- -- -- -- --
Robert J. Mello, Ph.D........................ -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved on the
respective options through the end of the ten-year option term. The 5% and
10% assumed annual rates of stock price appreciation used to calculate
potential gains to optionees are mandated by the rules of the Securities and
Exchange Commission. The potential realizable value does not represent the
Company's prediction of its stock price performance. There can be no
assurance that the stock price will actually appreciate over the 10-year
option term at the assumed 5% and 10% levels or at any other level.
(2) Options were fully exercisable at the time of grant.
(3) 50% of these options vest on December 2, 2000 and will be fully vested on
January 1, 2001.
(4) Includes non-qualified options, of which 100,000 were vested upon grant and
were issued at $1.00 compared to the $2.50 market price on date of grant.
The balance of the shares vest over a five year period or upon a qualifying
event (as defined in Mr. Rice's Employment Agreement).
(5) These options were granted to Mr. Rice as an outside director prior to his
becoming an officer.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES. The table below sets forth information concerning the exercise of
options during the 1999 fiscal year and the number and value of unexercised
options at the end of the fiscal year by the Named Executive Officers. Value is
considered to be, in the case of exercised options, the positive difference, if
any, between exercise price and market price on the date of exercise, and, in
the case of unexercised options and exercisable options, the difference between
exercise price and market price on March 31, 1999 ($1.875).
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES (#)(1) ($)
ACQUIRED ON VALUE ---------------------- -------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
William P. Tew, Ph.D.(2)........................ -- $ -- 202,969(E) $ --
-- -- 56,250(U) --
Thomas P. Rice.................................. -- -- 107,000(E) 87,500(E)
-- -- 157,000(U) 87,500(U)
Narlin B. Beaty, Ph.D........................... -- -- 36,286(E) 5,625(E)
-- -- 27,500(U) 1,875(U)
John T. Janssen................................. -- -- 23,786(E) 1,875(E)
-- -- 25,000(U) 3,750(U)
Robert J. Mello, Ph.D.(3)....................... 5,000 28,125 26,286(E) 2,187(E)
-- -- 32,500(U) 4,687(U)
</TABLE>
- ------------------------
(1) (E) = Exercisable; (U) = Unexercisable.
(2) Dr. Tew resigned as Chairman effective June 30, 1999.
(3) Dr. Mello exercised options on April 21, 1998 to purchase 5,000 shares at
$1.50 that had been granted on November 30, 1995.
Employee Incentive Stock Option Program
All employees of the Company are eligible to receive stock option grants under
the Company's Employee Incentive Stock Option Program. The granting of stock
option awards is made at the discretion of the Stock Option Committee of the
Board of Directors. It is the Company's philosophy to encourage equity ownership
in 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 with 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.
The Company does not have any long-term incentive compensation plans, 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 up to the first 3% of salary the employee contributes to the plan. The
original entry date for the 401(k) Profit Sharing Plan for eligible employees
was October 1, 1993. The Company suspended matching employee contributions as of
July 31, 1994, and, therefore, made no contributions to the plan in the past
three fiscal years.
Employment Agreements and Termination of Employment Agreements
EMPLOYMENT AGREEMENTS
Mr. Rice entered into an Employment Agreement when he joined the Company as
President and Chief Executive Officer on January 11, 1999. The Employment
Agreement continues through December 31,
8
<PAGE>
2000 and is thereafter automatically renewed annually each January 1 unless Mr.
Rice or the Company gives 90 day written notice of non-renewal. Mr. Rice
receives an annual salary of $150,000. During 1999, $75,000 of his salary is
deferred until January 3, 2000. Mr. Rice is also entitled to periodic bonuses at
the discretion of the Compensation Committee. Mr. Rice was granted qualified
stock options for 50,000 shares of Class A Common Stock, one-half of which vest
on December 2, 2000, and the remainder of which will vest on January 1, 2001.
These options have an exercise price of $3.75 per share, which was the market
price on the date of the grant. Mr. Rice also received non-qualified stock
options for 200,000 shares of Class A Common Stock at an exercise price of $1.00
per share, one-half of which vested on the date of grant and the remainder of
which vest 20% per year over the next five years or earlier upon the Company's
achievement of certain milestones. Mr. Rice's agreement contains clauses
prohibiting his competition with the Company and his solicitation of employees
or customers of the Company for one year from the end of his employment. These
clauses do not apply if Mr. Rice is terminated without cause or he resigns for
good reason after a change in control of the Company.
Mr. Botek entered into an Employment Agreement when he joined the Company as
Vice President and Chief Operating Officer on March 22, 1999. The initial term
of the Employment Agreement continues through December 31, 2000 and is
thereafter automatically renewed annually each January 1 unless Mr. Botek or the
Company gives 90 day written notice of non-renewal. Mr. Botek receives an annual
salary of $130,000. During 1999, $65,000 of his salary is deferred until January
3, 2000. Mr. Botek is also entitled to periodic bonuses at the discretion of the
Compensation Committee. Mr. Botek was granted qualified stock options for 50,000
shares of Class A Common Stock, one-half of which vest on December 2, 2000, and
the remainder of which will vest on January 1, 2001. These exercise price of
these options is $2.125 per share, the market price on the date of grant. Mr.
Botek also received non-qualified stock options for 125,000 shares of Class A
Common Stock at an exercise price of $1.00 per share, one-half of which vested
on the date of grant and the remainder of which vest 20% per year over the next
five years or earlier upon the Company's achievement of certain milestones.. Mr.
Botek's agreement contains clauses prohibiting his competition with the Company
and his solicitation of employees or customers of the Company for one year from
the end of his employment. These clauses do not apply if Mr. Botek is terminated
without cause or he resigns for good reason after a change in control of the
Company.
The Company has also entered into Employment Agreements with Dr. Beaty, Mr.
Janssen and Dr. Mello, effective July 1, 1995. These Employment Agreements
provide for payment of a base salary, together with incentive compensation in an
amount to be determined by the Board of Directors or the Compensation Committee
from time to time. Base salaries currently in effect under the Employment
Agreements for Dr. Beaty, Mr. Janssen and Dr. Mello are $131,200, $129,300, and
$126,000, respectively. Dr. Beaty's Employment Agreement provides for an initial
term of three years, with successive three-year renewal terms, unless either
party gives notice of non-renewal. Mr. Janssen's and Dr. Mello's Employment
Agreements provide for an initial term of two years, with successive two-year
renewal terms, unless either party gives notice of non-renewal. Each of these
Employment Agreements, contains clauses prohibiting his competition with the
Company and his solicitation of employees or customers of the Company for one
year from the end of his employment. These clauses do not apply if Dr. Beaty,
Mr. Janssen or Dr. Mello is terminated without cause or he resigns for good
reason after a change in control of the Company.
All five of these Employment Agreements provide for severance payments to the
executive officers in certain circumstances. Messrs. Rice and Botek are each
entitled to severance payments equal to their respective salary and benefits
through the end of their agreement's term and a bonus equal to the bonus
received in the prior year if the Company terminates his agreement without cause
or he resigns for a good reason. In addition, if Mr. Rice's or Mr. Botek's
employment is terminated by the Company without cause or by him for good reason
within six months after a change in control, the Company is obligated to pay him
either one or two times (depending on when the change in control occurs) his
salary and bonus for the previous year. If after a change in control, Mr. Rice
or Mr. Botek terminates his employment without good reason, the Company is
obligated to pay him one year's salary. Each of Drs. Beaty and Mello and Mr.
Janssen is entitled to a severance payment of approximately one-half of his
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annual compensation upon termination of his employment without cause or if he
resigns for good reason.
TERMINATION OF EMPLOYMENT AGREEMENT
On June 22, 1999, Dr. William Tew, the Company's founder, resigned as the
Company's Chairman and as a director effective June 30, 1999. The agreement
related to his resignation provides that Dr. Tew will receive $20,208 per month
through June 2000. Dr. Tew will receive an additional $65,000 if a qualifying
event (as defined in Mr. Tew's Resignation Agreement) occurs prior to December
31, 1999.
Compensation Committee Report
INTRODUCTION. The Compensation Committee is composed of Messrs. Regis F. Burke
and Harvey L. Miller (Chair), who are independent directors, having never been
officers or employees of the Company. The function of the Compensation Committee
is to advise the Board of Directors regarding overall compensation policies and
recommend specific compensation for 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 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 profits, 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 is intended to strengthen the mutuality of interests
between the executive officers and the Company's stockholders.
FACTORS. Because the Company is in a transition stage, from a pharmaceutical
development firm to a Company providing commercial scale manufacturing in
addition to development work, the Committee believes use of traditional
standards (such as profit levels and return on equity) are not the only factors
appropriate in evaluating the performance of the executive officers. Several of
the more important factors which were considered in establishing the components
of each executive officer's compensation package for the 1999 fiscal year are
summarized below. Additional factors were also taken into account, and the
Committee may at its discretion apply different or additional factors,
particularly measures of performance, in setting executive compensation for
future fiscal years, but all compensation decisions will be designed to further
the general compensation policy indicated above.
BASE SALARY. Base compensation is established through negotiation between the
Company and the executive at the time the executive is first hired, and then
subsequently when the executive's base compensation is subject to review or
reconsideration. When establishing or reviewing base compensation levels for
each executive officer, the Compensation Committee considers numerous factors,
including the qualifications of the executive and the amount of relevant
individual experience the officer has brought 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 the Committee believes to be
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 profits of the
Company at the end of each fiscal year. The incentive compensation supplements
given in prior periods were eliminated during the 1999 fiscal year for all
Company officers. There was no increase in compensation as a result of the 1999
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.
This program is designed to give the recipient a significant equity stake in the
Company and thereby closely align his or her interests with
10
<PAGE>
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 by various indices,
including increases in the market capitalization and pre-tax profit of the
Company over the preceding fiscal year. During the 1999 fiscal year, options to
purchase shares of Class A Common Stock were issued to: William P. Tew, Ph.D.--
29,098 shares at $7.75 per share and 125,000 shares at $3.812 per share related
to the cancellation of his Employment Agreement. Mr. Rice was granted 3,000
shares at $8.125 per share as an outside director and 50,000 shares at $3.75 per
share, plus 200,000 non-qualified option shares at $1.00 per share upon joining
the Company as President and Chief Executive Officer. All options, except the
non-qualified shares to Mr. Rice, were at the market price on the date of the
grant.
CEO COMPENSATION. Mr. Rice entered into an Employment Agreement when he joined
the Company on January 11, 1999. Mr. Rice receives an annual salary of $150,000,
of which $75,000 is deferred until January 2000. The agreement continues through
December 31, 2000 and is automatically renewed for one year periods unless Mr.
Rice or the Company gives 90 day written notice of non-renewal. Mr. Rice was
granted qualified stock options for 50,000 shares of which 50% vest December
2,2000 and are 100% vested January 1, 2001and had an exercise price of $3.75 per
share, which was the market at the day of the grant. Mr. Rice also received
non-qualified stock options for 200,000 shares at $1.00 per share, which was
below the then $2.50 market price. 100,000 of these shares vested upon grant.
The vesting of the remaining shares vest at 20,000 shares per year over the next
five years or based upon the achievement of certain milestones, which if
achieved would result in accelerated vesting. These options were intended to
provide strong incentives to Mr. Rice to improve the Company's performance and
return it to profitability.
Regis F. Burke
Harvey L. Miller--Chairman
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Stock Performance Table
CBL is required by the SEC to provide a five-year comparison of the cumulative
total stockholder return on CBL's Class A Common Stock compared with that of a
broad equity market index and either a published industry index or a
CBL-constructed peer group index.
The following chart compares the cumulative total stockholder return on CBL
Class A Common Stock from March 31, 1994, (the date of CBL's initial public
offering) to March 31, 1999, with the cumulative total return on the Nasdaq
Composite (U.S.) and Nasdaq Pharmaceutical Indices. The comparison assumes $100
was invested on March 31, 1994, in CBL Class A Common Stock and in each
foregoing indices. It also assumes reinvestment of any dividends.
CBL does not make, nor does it endorse, any predictions as to future stock
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Fiscal Year End CBL Nasdaq US Index Nasdaq Pharmaceutical Index
<S> <C> <C> <C>
1994 $100 $100 $100
1995 67.86 111.25 99.91
1996 42.86 151.06 176.1
1997 142.86 167.83 161.24
1998 221.43 254.42 192.71
1999 53.57 342.44 244.66
</TABLE>
CBL Management
EXECUTIVE OFFICERS AND DIRECTORS. The executive officers and directors of CBL
are:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Thomas P. Rice................................ 49 Chief Executive Officer; President; Director
John T. Botek................................. 43 Chief Operating Officer; Vice President
Narlin B. Beaty, Ph.D......................... 49 Chief Technical Officer; Director
John T. Janssen............................... 60 Chief Financial Officer; Treasurer
Robert J. Mello, Ph.D......................... 48 Vice President--Quality and Regulatory Affairs; Secretary
Regis F. Burke................................ 51 Director
Harvey L. Miller.............................. 59 Director
Elliot F. Hahn, Ph.D.......................... 55 Director
</TABLE>
Information relating to CBL's executive officers (who are also directors) is set
forth below. See "Information Concerning Nominees for Director" above for
information relating to executive officers (who are also directors).
JOHN T. BOTEK, has served as Vice President and Chief Operating Officer of the
Company since April 1999. Most recently, Mr. Botek was Senior Vice President of
Operations of Circa Pharmaceuticals Inc., located in Copiague, New York. Prior
to that position he was Vice President of Information Services and Customer
Service for Fairlanes, Inc.
JOHN T. JANSSEN, has served as Chief Financial Officer and Treasurer of the
Company since January 1993. Mr. Janssen is a Certified Public Accountant and has
over 35 years of financial management experience. During the 12 years prior to
joining the CBL, he was a member of the Board of Directors and Chief
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<PAGE>
Financial Officer of both Barre-National, Inc. of Baltimore, Maryland, and
Genesee Brewing Co. of Rochester, New York.
ROBERT J. MELLO, PH.D. has been Vice-President of Quality and Regulatory Affairs
since rejoining CBL in 1994 and Secretary since 1998. From 1992 to 1994, Dr.
Mello was the Manager of Validation Services for Lederle Laboratories. Prior to
1992, Dr. Mello spent ten years with the Company.
There are no family relationships among any of the executive officers or
directors of CBL. Executive officers are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors.
Stock Ownership of Certain Beneficial Owners And Management
The following table sets forth information regarding the beneficial ownership of
CBL Class A Common Stock as of June 1, 1999 by (i) each person known to the
Company to own beneficially more than 5% of the Class A Common Stock, (ii) each
of the directors, (iii) the Chief Executive Officer and each of the Named
Executive Officers and (iv) all directors and executive officers as a group.
Unless otherwise indicated, the named persons exercise sole voting and
investment power over the shares that are shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY COMMON STOCK
NAME OF BENEFICIAL OWNER (1) OWNED(2) BENEFICALLY OWNED
<S> <C> <C>
William P. Tew, Ph.D.(3)......................................................... 571,568 7.9%
Thomas P. Rice(4)................................................................ 162,500 2.3
John T. Botek.................................................................... 62,500 .9
Narlin B. Beaty, Ph.D.(5)........................................................ 167,791 2.3
Regis F. Burke(6)................................................................ 73,200 1.0
Harvey L. Miller(7).............................................................. 102,500 1.4
Corporate Opportunities Fund (Institutional) L.P.(8)............................. 798,458 11.1
Corporate Opportunities Fund L.P.(8)............................................. 147,427 2.0
All directors and executive officers as a group (8 persons)...................... 1,319,792 18.3
</TABLE>
- ------------------------
(1) Unless otherwise specified, the address of each stockholder is c/o
Chesapeake Biological Industries, Inc., 1111 South Paca Street, Baltimore,
MD 21230-2591.
(2) The Company uses the SEC's definition of beneficial ownership. This means
that the persons named in this table may have sole or shared voting and/or
investment power over the shares shown. Beneficial ownership also includes
shares underlying options or warrants currently exercisable or exercisable
within 60 days from the date of the table.
(3) Includes 202,969 shares issuable under exercise of currently exercisable
options and does not include 10,000 shares owned by Ms. Pamela Maupin, Dr.
Williams Tew's wife, as to which Dr. William Tew disclaims beneficial
ownership.
(4) Includes 110,000 shares issuable under exercise of currently exercisable
options.
(5) Includes 36,286 shares issuable under exercise of currently exercisable
options.
(6) Includes 22,000 shares issuable under exercise of currently exercisable
options.
(7) Includes 20,000 shares issuable under exercise of currently exercisable
options.
(8) Consists of the Class A Common Stock equivalents of Series A-1 Preferred
Stock purchased from the Company on May 20, 1999. The address of Corporate
Opportunities Fund L.P. is 126 East 56(th)Street, New York, NY 10022.
Certain Relationships and Related Transactions
The Company was not a party to any transactions with any of its executive
officers or directors during the 1999 fiscal year, except those related to
compensation and stock option grants as described above.
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<PAGE>
PROPOSAL 2 / ADOPTION OF THE FIFTH STOCK INCENTIVE PLAN_________________________
The Board of Directors proposes that the holders of the Company's Class A Common
Stock and Series A-I Convertible Preferred Stock approve the Fifth Stock
Incentive Plan (the "Plan"). The following is a fair and complete summary of the
Plan as proposed to be adopted. It is qualified in its entirety by reference to
the full text of the Plan, which appears as Exhibit A to this Proxy Statement.
General
PURPOSE: The purpose of the Plan as proposed is to promote the long-term growth
and profitability of the Company by providing key people with incentives to
improve stockholder value and contribute to the growth and financial success of
the Company, and by enabling the Company to attract, retain and reward the
best-available persons.
SHARES AVAILABLE UNDER THE PLAN: The number of shares of Common Stock that may
be issued with respect to awards granted under the proposed Plan may not exceed
an aggregate of 750,000 shares of Class A Common Stock. The maximum number of
shares of Class A Common Stock subject to awards of any combination that may be
granted during any one fiscal year to any one individual is limited to 150,000
shares. These limits are subject to adjustment to reflect any stock dividends,
split-ups, recapitalizations, mergers, consolidations, business combinations or
exchanges of shares and the like. If any award, or portion of an award, under
the Plan expires or terminates unexercised, becomes unexercisable or is
forfeited or otherwise terminated, surrendered or canceled as to any shares, or
if any shares of Class A Common Stock are surrendered to the Company in
connection with any award (whether or not such surrendered shares were acquired
pursuant to any award), the shares subject to such award and the surrendered
shares will thereafter be available for further awards under the Plan.
ADMINISTRATION: The proposed Plan will be administered by the Board of
Directors or by such committee or committees as may be appointed by the Board of
Directors from time to time (the Board of Directors, committee or committees
hereinafter referred to as the "Administrator"). The Administrator has full
power and authority to take all actions necessary to carry out the purpose and
intent of the Plan, including, but not limited to, the authority to: (i)
determine the eligible persons to whom, and the time or times at which awards
are granted; (ii) determine the types of awards to be granted; (iii) determine
the number of shares to be covered by or used for reference purposes for each
award; (iv) impose such terms, limitations, restrictions and conditions upon any
such award as the Administrator deems appropriate; (v) modify, amend, extend or
renew outstanding awards, or accept the surrender of outstanding awards and
substitute new awards (provided however, that, except as noted below, any
modification that would materially adversely affect any outstanding award may
not be made without the consent of the holder); (vi) accelerate or otherwise
change the time in which an award may be exercised or becomes payable and to
waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
award following termination of any grantee's employment or consulting
relationship; and (vii) establish objectives and conditions, if any, for earning
awards and determining whether awards will be paid after the end of a
performance period.
In the event of changes in the Class A Common Stock by reason of any stock
dividend, split-up, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator shall, in its
discretion, make appropriate adjustments to the maximum number and kind of
shares reserved for issuance or with respect to which awards may be granted
under the Plan and to the number, kind and price of shares covered by
outstanding awards, and shall, in its discretion and without the consent of
holders of awards, make any other adjustments in outstanding awards, including
but not limited to reducing the number of shares subject to awards or providing
or mandating alternative settlement methods such as settlement of the awards in
cash or in shares of Class A Common Stock or other securities of the Company or
of any other entity, or in any other matters which relate to awards as the
Administrator, in its sole discretion, determines to be necessary or
appropriate.
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<PAGE>
Without the consent of holders of awards, the Administrator, in its sole
discretion, may make any modifications to any awards, including cancellation,
forfeiture, surrender or other termination of the awards in whole or in part
regardless of the vested status of the award, in order to facilitate any
business combination that is authorized by the Board of Directors to comply with
requirements for treatment as a pooling of interests transaction for accounting
purposes under generally accepted accounting principles.
Without the consent of holders of awards, the Administrator in its discretion is
authorized to make adjustments in the terms and conditions of, and the criteria
included in, awards in recognition of unusual or nonrecurring events affecting
the Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, whenever the
Administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
PARTICIPATION: Participation in the Plan will be open to all employees,
officers, directors and consultants of the Company or any of its affiliates, as
may be selected by the Administrator from time to time. As of July 30, 1999, all
three non-employee directors, and approximately 84 employees and consultants
would be eligible to participate in the Plan.
Type of Awards
The Plan as proposed would allow the Company to grant stock options, stock
appreciation rights, stock awards, phantom stock awards and performance awards.
These awards may be granted separately or in tandem with other awards. The
Administrator will determine the prices, expiration dates and other material
conditions upon which such awards may be exercised. The Company or its affiliate
may make or guarantee loans to assist grantees in exercising awards and
satisfying any withholding tax obligations arising from awards.
STOCK OPTIONS: The proposed Plan allows the Administrator to grant either
awards of incentive stock options as that term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") or nonqualified stock
options. However, awards of incentive stock options must be limited to employees
of the Company or any subsidiary. Options intended to qualify as incentive stock
options under Code Section 422 must have an exercise price at least equal to
fair market value on the date of grant, but nonqualified stock options may be
granted with an exercise price less than fair market value. The option exercise
price may be paid in cash, by tender of shares of Class A Common Stock, by a
combination of cash and shares or by any other means the Administrator approves.
STOCK APPRECIATION RIGHTS: The proposed Plan allows the Administrator to grant
awards of Stock Appreciation Rights ("SAR"). An SAR entitles the holder to
receive a payment in cash, in shares of Class A Common Stock, or in a
combination of both, having an aggregate value equal to the product of (i) the
excess of (A) the fair market value on the exercise date of one share of Class A
Common Stock over (B) the base price per share specified in the grant agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised.
STOCK AND PHANTOM STOCK AWARDS: The proposed Plan allows the Administrator to
grant restricted or unrestricted stock awards or awards denominated in
stock-equivalent units ("phantom stock") to eligible participants with or
without payment of consideration by the grantee. Stock awards and phantom stock
awards may be paid in cash, in shares of Class A Common Stock, or in a
combination of both.
PERFORMANCE AWARDS: The proposed Plan allows the Administrator to grant
performance awards which become payable in cash, in shares of Class A Common
Stock or in a combination of both, on account of attainment of one or more
performance goals established by the Administrator. Performance goals
established by the Administrator may be based on the Company's operating income
or one or more other business criteria selected by the Administrator that apply
to an individual or group of individuals, a business unit or the Company as a
whole, over such performance period as the Administrator may designate.
15
<PAGE>
OTHER STOCK-BASED AWARDS. The proposed Plan allows the Administrator from time
to time to grant other stock-based awards to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law, as it
shall determine. Other stock-based awards may be denominated in cash, in Common
Stock or other securities, in stock-equivalent units, in stock appreciation
units, in securities or debentures convertible into Common Stock, or in any
combination of the foregoing and may be paid in Common Stock or other
securities, in cash, or in a combination of Common Stock or other securities and
cash, all as determined in the sole discretion of the Administrator.
Awards Under the Plan
Because participation and the types of awards granted under the Plan as proposed
are subject to the discretion of the Administrator, the benefits or amounts that
will be received by any participant or groups of participants if the Plan is
approved are not currently determinable. No awards have been made under the
Plan.
Amendment and Termination
The Board of Directors may terminate, amend or modify the Plan or any portion
thereof at any time.
Federal Income Tax Consequences
The following is a general summary of the current federal income tax treatment
of stock options, which may be granted under the Plan as proposed, based upon
the current provisions of the Code and regulations thereunder.
INCENTIVE STOCK OPTIONS: Incentive stock options under the Plan are intended to
meet the requirements of Code Section 422. No tax consequences result from the
grant of the option. If an option holder acquires stock upon the exercise, no
income will be recognized by the option holder for ordinary income tax purposes
(although the difference between the option exercise price and the fair market
value of the stock subject to the option may result in alternative minimum tax
liability to the option holder) and the Company will be allowed no deduction as
a result of such exercise, provided that the following conditions are met: (a)
at all times during the period beginning with the date of the granting of the
option and ending on the day three months before the date of such exercise, the
option holder is an employee of the Company or of a subsidiary; and (b) the
option holder makes no disposition of the stock within two years from the date
the option is granted nor within one year after the stock is transferred to the
option holder. The three-month period is extended to one year in the event of
disability and is waived in the event of death of the employee. In the event of
a sale of such stock by the option holder after compliance with these
conditions, any gain realized over the price paid for the stock ordinarily will
be treated as capital gain, and any loss will be treated as capital loss, in the
year of the sale.
If the option holder fails to comply with the employment requirement discussed
above, the tax consequences will be the same as for a nonqualified option,
discussed below. If the option holder fails to comply with the holding period
requirements discussed above, the option holder will recognize ordinary income
in an amount equal to the lesser of (i) the excess of the fair market value of
the stock on the date the option was exercised over the exercise price or (ii)
the excess of the amount realized upon such disposition over the adjusted tax
basis of the stock. Any additional gain ordinarily will be recognized by the
option holder as capital gain, either long-term or short-term, depending on the
holding period of the shares. If the option holder is treated as having received
ordinary income because of his or her failure to comply with either condition
above, an equivalent deduction will be allowed to the Company in the same year.
NONQUALIFIED STOCK OPTIONS: No tax consequences result from the grant of the
option. An option holder who exercises a nonqualified stock option with cash
generally will realize compensation, taxable as ordinary income, in an amount
equal to the difference between the exercise price and the fair market value of
the shares on the date of exercise, and the Company will be entitled to a
deduction from income in the same amount in the fiscal year in which the
exercise occurred. The option holder's basis in such shares
16
<PAGE>
will be the fair market value on the date income is realized, and when the
holder disposes of the shares he or she will recognize capital gain or loss,
either long-term or short-term, depending on the holding period of the shares.
DISALLOWANCE OF DEDUCTIONS: The Code disallows deductions for publicly-held
corporations for compensation in excess of $1,000,000 paid to the corporation's
chief executive officer or any of its four other most highly compensated
officers. However, compensation payable solely on account of attainment of one
or more performance goals is not subject to this deduction limitation if the
performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside directors, the
material terms under which the compensation is to be paid are disclosed to the
stockholders and approved by a majority vote, and the compensation committee
certifies that the performance goals and other material terms were satisfied
before the compensation is paid. Under this exception, the deduction limitation
does not apply with respect to compensation otherwise deductible on account of
stock options and stock appreciation rights granted at fair market value under a
plan which limits the number of shares that may be issued to any individual and
which is approved by the corporation's stockholders.
The affirmative vote of a majority of the shares of CBL Class A Common Stock and
the Common Stock equivalents of the Series A-1 Preferred Stock (voting as a
single class) present in person or represented by proxy at the Annual Meeting is
required for the approval of the adoption of the Fifth Stock Incentive Plan.
Broker non-votes and abstentions are not treated as votes cast for this purpose.
The Board of Directors unanimously recommends that the stockholders vote FOR the
approval of the adoption of the Fifth Stock Incentive Plan.
PROPOSAL 3 / CHARTER AMENDMENT__________________________________________________
On August 10, 1999, the CBL Board unanimously approved resolutions to amend
CBL's Charter to increase the number of authorized shares of all classes of CBL
stock from 10,000,000 shares to 15,000,000 shares and to eliminate two classes
of stock that have no shares outstanding, Class B Common Stock and Series A
Convertible Preferred Stock (the "Charter Amendment"). Under the Charter
Amendment, the number of authorized shares of CBL's Class A Common Stock will
increase from 7,968,980 to 14,984,490 and the 2,000,000 shares of authorized and
unissued CBL's Class B Common Stock are eliminated. In addition, the number of
authorized shares of CBL's Series A-1 Preferred Stock remains at 15,510 shares,
while the 15,510 shares of CBL's Series A Preferred Stock will be eliminated.
Charter Amendment
Under the Charter Amendment the Article FIFTH of CBL's Charter is revised. The
first paragraph of the revised Article FIFTH of CBL's Charter reads as follows:
"FIFTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 15,000,000 divided into two (2)
classes, (i) the first class consisting of 14,984,490 shares of Common
Stock, $0.01 par value per share (the "COMMON STOCK"), or an aggregate par
value of $149,844.90 and (ii) the second class consisting of 15,510 shares
of preferred stock (the "PREFERRED STOCK"), all of which are designated
Series A-1 Convertible Preferred Stock, $0.01 par value per share."
The first paragraph of the revised Article FIFTH of CBL's Charter is qualified
in its entirety by reference to the full text of CBL's Articles of Amendment,
which appears as Exhibit B to the Proxy Statement.
The increase in number of authorized shares of CBL Common Stock will enable CBL
to raise equity funds when appropriate and to avoid being dependent on debt
financing in the future. The increase in the number of authorized shares also
will provide additional shares for issuance by the Board of Directors, without
the delay and expense of further stockholder approval at such time or times and
for such proper corporate purposes as the Board may in the future deem
advisable. Under the Company's Charter,
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the Board of Directors has the authority to reclassify any unissued shares of
Common Stock into one or more series of Preferred Stock, without further vote of
the holders of the outstanding shares of Common Stock. Shares may be issued if
and when the CBL Board determines it to be in the best interest of CBL to do so,
which may include issuances of Common or Preferred Stock (i) as part of an
acquisition transaction or strategic alliance; (ii) to obtain funds through the
sale of shares; (iii) to declare a stock split or stock dividend; (iv) in
respect of the Fifth Stock Incentive Plan, if the Plan is approved by the
stockholders at the Annual Meeting or other employee benefit or stock plans; or
(v) for working capital and other corporate purposes. The Company's increased
activity with new and larger customers requires the availability of funds to
purchase equipment, hire staff and increase working capital to support the
Company's planned growth.
Unless required by applicable law, the rules of the Nasdaq National Market, the
Charter or the By-laws, it is not anticipated that the future vote of
stockholders will be required prior to the issuance of CBL Common Stock for any
of the purposes described above.
The affirmative vote of a majority of the shares of CBL Class A Common Stock and
the Common Stock equivalent of the Series A-1 Preferred Stock (voting as a
single class) outstanding as of the Record Date is required for approval of the
Charter Amendment.
The Board of directors unanimously recommends that the stockholders vote FOR the
approval of the Charter Amendment.
PROPOSAL 4 / RATIFICATION OF AUDITORS___________________________________________
The Board of Directors, as a result of the recommendation of its Audit
Committee, has selected Arthur Andersen L.L.P., independent public accountants,
to examine and audit the financial statements of the CBL for the fiscal year
ending March 31, 2000. Arthur Andersen L.L.P. has served as independent auditors
of CBL since February 21, 1991. A representative of Arthur Andersen L.L.P. will
be present at the Annual Meeting and will be given the opportunity to make a
statement if he or she desires to do so and to respond to appropriate questions
from stockholders.
The affirmative vote of a majority of the shares of CBL Class A Common Stock and
the Common Stock equivalent of the Series A-1 Preferred Stock (voting as a
single class) present in person or represented by Proxy at the Annual Meeting is
required for ratification of the selection of Arthur Andersen L.L.P. as CBL's
independent auditors.
The Board of Directors unanimously recommends that the stockholders vote FOR the
ratification of the selection of Arthur Andersen as CBL's independent auditors.
OTHER MATTERS___________________________________________________________________
The Board of Directors knows of no other matters to be presented for action by
the stockholders at the Annual Meeting. However, if any other matters are
properly brought before the Annual Meeting, the persons named in the
accompanying proxies will vote on such matters in accordance with their judgment
as to the best interest of CBL and its stockholders.
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STOCKHOLDER PROPOSALS FOR 2000__________________________________________________
Any stockholder proposals intended to be presented at CBL's 2000 Annual Meeting
of Stockholders must be received by CBL's Secretary no later than February 8,
2000, and must otherwise comply with the rules of the SEC for inclusion in the
proxy materials relating to that meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Robert J. Mello, Ph.D.
Secretary
Baltimore, Maryland
September 15, 1999
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EXHIBIT A / CHESAPEAKE BIOLOGICAL LABORATORIES, INC.____________________________
FIFTH STOCK INCENTIVE PLAN
1. Establishment, Purpose and Types of Awards
CHESAPEAKE BIOLOGICAL LABORATORIES, INC., a Maryland corporation (the
"Company"), hereby establishes the CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
FIFTH STOCK INCENTIVE PLAN (the "Plan"). The purpose of the Plan is to promote
the long-term growth and profitability of the Company by (i) providing key
people with incentives to improve stockholder value and to contribute to the
growth and financial success of the Company, and (ii) enabling the Company to
attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, other stock-based awards, or any combination of the
foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the following
definitions apply:
(a) "AFFILIATE" shall mean any entity, whether now or hereafter existing, which
controls, is controlled by, or is under common control with, the Company
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "AWARD" shall mean any stock option, stock appreciation right, stock award,
phantom stock award, performance award, or other stock-based award.
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(e) "COMMON STOCK" shall mean shares of Class A common stock of the Company, par
value of one cent ($0.01) per share.
(f) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
(g) "FAIR MARKET VALUE" shall mean, with respect to a share of the Company's
Common Stock for any purpose on a particular date, the value determined by the
Administrator in good faith. However, if the Common Stock is registered under
Section 12(b) of the Exchange Act, "FAIR MARKET VALUE" shall mean, as
applicable, (i) the closing price on the relevant date, as determined in the
Administrator's discretion, quoted on the New York Stock Exchange, the American
Stock Exchange, or the Nasdaq National Market; (ii) the last sale price on the
relevant date quoted on the Nasdaq SmallCap Market; (iii) the average of the
high bid and low asked prices on the relevant date quoted on the Nasdaq OTC
Bulletin Board Service or by the National Quotation Bureau, Inc. or a comparable
service as determined in the Administrator's discretion; or (iv) if the Common
Stock is not quoted by any of the above, the average of the closing bid and
asked prices on the relevant date furnished by a professional market maker for
the Common Stock, or by such other source, selected by the Administrator. If no
public trading of the Common Stock occurs on the relevant date, then Fair Market
Value shall be determined as of the next preceding date on which trading of the
Common Stock does occur.
(h) "GRANT AGREEMENT" shall mean a written document memorializing the terms and
conditions of an Award granted pursuant to the Plan and shall incorporate the
terms of the Plan.
(i) "PARENT" shall mean a corporation, whether now or hereafter existing, within
the meaning of the definition of "parent corporation" provided in Code section
424(e), or any successor thereto.
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(j) "SUBSIDIARY" AND "SUBSIDIARIES" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Code section 424(f), or any
successor thereto.
3. Administration
(a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board or
by such committee or committees as may be appointed by the Board from time to
time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) POWERS OF THE ADMINISTRATOR. The Administrator shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Grant
Agreements evidencing such Awards and establish programs for granting Awards.
The Administrator shall have full power and authority to take all other actions
necessary to carry out the purpose and intent of the Plan, including, but not
limited to, the authority to: (i) determine the eligible persons to whom, and
the time or times at which Awards shall be granted; (ii) determine the types of
Awards to be granted; (iii) determine the number of shares to be covered by or
used for reference purposes for each Award; (iv) impose such terms, limitations,
restrictions and conditions upon any such Award as the Administrator shall deem
appropriate; (v) modify, amend, extend or renew outstanding Awards, or accept
the surrender of outstanding Awards and substitute new Awards (provided however,
that, except as provided in Section 7(d) of the Plan, any modification that
would materially adversely affect any outstanding Award shall not be made
without the consent of the holder); (vi) accelerate or otherwise change the time
in which an Award may be exercised or becomes payable and to waive or accelerate
the lapse, in whole or in part, of any restriction or condition with respect to
such Award, including, but not limited to, any restriction or condition with
respect to the vesting or exercisability of an Award following termination of
any grantee's employment or other relationship with the Company; and (vii)
establish objectives and conditions, if any, for earning Awards and determining
whether Awards will be paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and absolute
discretion, to administer and interpret the Plan and to adopt and interpret such
rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) NON-UNIFORM DETERMINATIONS. The Administrator's determinations under the
Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
(d) LIMITED LIABILITY. To the maximum extent permitted by law, no member of the
Administrator shall be liable for any action taken or decision made in good
faith relating to the Plan or any Award thereunder.
(e) INDEMNIFICATION. To the maximum extent permitted by law and by the Company's
charter and by-laws, the members of the Administrator shall be indemnified by
the Company in respect of all their activities under the Plan.
(f) EFFECT OF ADMINISTRATOR'S DECISION. All actions taken and decisions and
determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Company, its stockholders, any participants in the Plan
and any other employee, consultant, or director of the Company, and their
respective successors in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d) of the Plan, the shares of
Common Stock that may be issued with respect to Awards granted under the Plan
shall not exceed an aggregate of 750,000 shares of
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Common Stock. The Company shall reserve such number of shares for Awards under
the Plan, subject to adjustments as provided in Section 7(d) of the Plan. If any
Award, or portion of an Award, under the Plan expires or terminates unexercised,
becomes unexercisable or is forfeited or otherwise terminated, surrendered or
canceled as to any shares, or if any shares of Common Stock are surrendered to
the Company in connection with any Award (whether or not such surrendered shares
were acquired pursuant to any Award), the shares subject to such Award and the
surrendered shares shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are surrendered to the
Company in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
Subject to adjustments as provided in Section 7(d) of the Plan, the maximum
number of shares of Common Stock subject to Awards of any combination that may
be granted during any one fiscal year of the Company to any one individual under
this Plan shall be limited to 150,000. Such per-individual limit shall not be
adjusted to effect a restoration of shares of Common Stock with respect to which
the related Award is terminated, surrendered or canceled.
5. Participation
Participation in the Plan shall be open to all employees, officers, directors,
and consultants of the Company, or of any Affiliate of the Company, as may be
selected by the Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all Awards
granted under the Plan. Awards may be granted individually or in tandem with
other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) STOCK OPTIONS. The Administrator may from time to time grant to eligible
participants Awards of incentive stock options as that term is defined in Code
section 422 or nonqualified stock options; provided, however, that Awards of
incentive stock options shall be limited to employees of the Company or of any
Parent or Subsidiary of the Company. Options intended to qualify as incentive
stock options under Code section 422 must have an exercise price at least equal
to Fair Market Value on the date of grant, but nonqualified stock options may be
granted with an exercise price less than Fair Market Value. No stock option
shall be an incentive stock option unless so designated by the Administrator at
the time of grant or in the Grant Agreement evidencing such stock option.
(b) STOCK APPRECIATION RIGHTS. The Administrator may from time to time grant to
eligible participants Awards of Stock Appreciation Rights ("SAR"). An SAR
entitles the grantee to receive, subject to the provisions of the Plan and the
Grant Agreement, a payment having an aggregate value equal to the product of (i)
the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(c) STOCK AWARDS. The Administrator may from time to time grant restricted or
unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
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(d) PHANTOM STOCK. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit solely as a result of the grant of a phantom stock unit to the
grantee.
(e) PERFORMANCE AWARDS. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Company's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Company or an Affiliate as a whole, over such performance
period as the Administrator may designate.
(f) OTHER STOCK-BASED AWARDS. The Administrator may from time to time grant
other stock-based awards to eligible participants in such amounts, on such terms
and conditions, and for such consideration, including no consideration or such
minimum consideration as may be required by law, as it shall determine. Other
stock-based awards may be denominated in cash, in Common Stock or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination of
the foregoing and may be paid in Common Stock or other securities, in cash, or
in a combination of Common Stock or other securities and cash, all as determined
in the sole discretion of the Administrator.
7. Miscellaneous
(a) WITHHOLDING OF TAXES. Grantees and holders of Awards shall pay to the
Company or its Affiliate, or make provision satisfactory to the Administrator
for payment of, any taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax liability. The Company
or its Affiliate may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the grantee or holder
of an Award. In the event that payment to the Company or its Affiliate of such
tax obligations is made in shares of Common Stock, such shares shall be valued
at Fair Market Value on the applicable date for such purposes.
(b) LOANS. The Company or its Affiliate may make or guarantee loans to grantees
to assist grantees in exercising Awards and satisfying any withholding tax
obligations.
(c) TRANSFERABILITY. Except as otherwise determined by the Administrator, and in
any event in the case of an incentive stock option or a stock appreciation right
granted with respect to an incentive stock option, no Award granted under the
Plan shall be transferable by a grantee otherwise than by will or the laws of
descent and distribution. Unless otherwise determined by the Administrator in
accord with the provisions of the immediately preceding sentence, an Award may
be exercised during the lifetime of the grantee, only by the grantee or, during
the period the grantee is under a legal disability, by the grantee's guardian or
legal representative.
(d) ADJUSTMENTS; BUSINESS COMBINATIONS. In the event of changes in the Common
Stock of the Company by reason of any stock dividend, spin-off, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator may, in its discretion, make appropriate
adjustments to the maximum number and kind of shares reserved for issuance or
with respect to which Awards may be granted under the Plan as provided in
Section 4 of the Plan and to the number, kind and price of shares covered by
outstanding Awards, and shall, in its discretion and without the consent of
holders of Awards, make any other adjustments in outstanding Awards, including
but not limited to
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reducing the number of shares subject to Awards or providing or mandating
alternative settlement methods such as settlement of the Awards in cash or in
shares of Common Stock or other securities of the Company or of any other
entity, or in any other matters which relate to Awards as the Administrator
shall, in its sole discretion, determine to be necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the consent of
holders of Awards, the Administrator, in its sole discretion, may make any
modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may be granted
under the Plan from time to time in substitution for Awards held by employees,
officers, consultants or directors of entities who become or are about to become
employees, officers, consultants or directors of the Company or an Affiliate as
the result of a merger or consolidation of the employing entity with the Company
or an Affiliate, or the acquisition by the Company or an Affiliate of the assets
or stock of the employing entity. The terms and conditions of any substitute
Awards so granted may vary from the terms and conditions set forth herein to the
extent that the Administrator deems appropriate at the time of grant to conform
the substitute Awards to the provisions of the awards for which they are
substituted.
(f) TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) NON-GUARANTEE OF EMPLOYMENT OR SERVICE. Nothing in the Plan or in any Grant
Agreement thereunder shall confer any right on an individual to continue in the
service of the Company or shall interfere in any way with the right of the
Company to terminate such service at any time with or without cause or notice.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(i) GOVERNING LAW. The validity, construction and effect of the Plan, of Grant
Agreements entered into pursuant to the Plan, and of any rules, regulations,
determinations or decisions made by the Administrator relating to the Plan or
such Grant Agreements, and the rights of any and all persons having or claiming
to have any interest therein or thereunder, shall be determined exclusively in
accordance with applicable federal laws and the laws of the State of Maryland,
without regard to its conflict of laws principles.
(j) EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of the date on
which the Plan is adopted by the Board, subject to approval of the stockholders
within twelve months before or after such date. No Award shall be granted under
the Plan after the close of business on the day immediately preceding the tenth
anniversary of the effective date of the Plan. Subject to other applicable
provisions of the Plan, all Awards made under the Plan prior to such termination
of the Plan shall remain in effect until such Awards have been satisfied or
terminated in accordance with the Plan and the terms of such Awards.
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EXHIBIT B / CHESAPEAKE BIOLOGICAL LABORATORIES, INC.____________________________
ARTICLES OF AMENDMENT
FIRST: The Charter of the Corporation is hereby amended by deleting all of
ARTICLE FIFTH and replacing it with the following:
"FIFTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 15,000,000 divided into two (2)
classes, (i) the first class consisting of 14,984,490 shares of Common
Stock, $0.01 par value per share (the "COMMON STOCK"), or an aggregate par
value of $149,844.90 and (ii) the second class consisting of 15,510 shares
of preferred stock (the "PREFERRED STOCK"), all of which are designated
Series A-1 Convertible Preferred Stock, $0.01 par value per share.
A. COMMON STOCK.
l. GENERAL. The voting, dividend and liquidation rights of the holders of
shares of Common Stock are subject to, and qualified by, the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors.
2. VOTING. The holders of shares of Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting and at any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Common Stock then outstanding shall constitute a
quorum of the Common Stock for the purpose of electing directors by holders of
the Common Stock.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as, if and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock. Stock dividends payable on shares of Common Stock
may be paid only in shares of Common Stock.
4. LIQUIDATION. Upon the voluntary or involuntary liquidation, sale, merger,
consolidation, dissolution or winding up of the Corporation, holders of shares
of Common Stock will be entitled to receive all assets of the Corporation
available for distribution to its stockholders, subject to any and all
preferential rights of any then outstanding Preferred Stock.
5. REDEMPTION. The Common Stock is not redeemable.
B. PREFERRED STOCK.
1. ISSUANCE; RANK. The issuance price of the Series A-1 Convertible Preferred
Stock (the "SERIES A-1 PREFERRED STOCK") shall be $100 per share (the "ORIGINAL
PURCHASE PRICE"). The Series A-1 Preferred Stock shall rank senior to the Common
Stock and any other class or series of capital stock of the Corporation ranking
junior to the Series A-1 Preferred Stock as to dividends and upon liquidation,
dissolution or winding up. The date on which any share of Series A-1 Preferred
Stock was issued shall hereinafter be referred to as the "ORIGINAL ISSUE DATE"
with respect to such share.
2. DIVIDENDS.
(a) Beginning on May 31, 2001, annually on May 31(st), the holders of record of
shares of Series A-1 Preferred Stock as of May 10(th) of such year (the
"DIVIDEND RECORD DATE") shall be entitled to receive, out of funds legally
available for that purpose, prior and in preference to any declaration or
payment of any dividends (payable other than in Common Stock or other securities
convertible into or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock) on the Common Stock, cumulative
dividends ("CUMULATIVE DIVIDENDS"), at an annual rate of 6% of the Original
Purchase Price per share, as adjusted for stock splits, stock dividends,
recapitalizations, combinations, reclassifications and similar events which
affect such shares of Series A-1 Preferred Stock (each an "ADJUSTMENT").
If the Board fails to declare a Cumulative Dividend, the Cumulative Dividend
shall cumulate and become part of the Liquidation Preference (as defined below)
and Cumulative Dividends shall be payable pro rata
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for partial year periods and shall not be payable upon conversion of the Series
A-1 Preferred Stock in accordance with the terms of Sections 5 or 6 or upon a
Redemption in accordance with the terms of Section 7.
(b) If the Corporation fails to redeem the Series A-1 Preferred Stock by May 31,
2004, then on and annually after May 31, 2004, the holders of record of shares
of Series A-1 Preferred Stock as of the Dividend Record Date of such year shall
be entitled to receive, out of funds legally available for that purpose, prior
and in preference to any declaration or payment of any dividends (payable other
than in Common Stock or other securities convertible into or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock) on the Common Stock and in addition to the dividends described in Section
2(a), an additional annual dividend, at a rate of 20% of the Original Purchase
Price per share, subject to an Adjustment (the "ADDITIONAL DIVIDENDS").
3. LIQUIDATION EVENTS.
(a) Upon the occurrence of any Liquidation Event (defined herein), the assets of
the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings (the "CORPORATE ASSETS") shall be distributed as
follows: before any distribution of assets shall be made to the holders of
Common Stock, the holder of each share of Series A-1 Preferred Stock then
outstanding shall be entitled to be paid out of the Corporate Assets an amount
per share equal to the Original Purchase Price (subject to any Adjustment) plus
all dividends, including any accrued and unpaid Cumulative Dividends on such
share up to the date of distribution of the assets of the Corporation (the
"LIQUIDATION PREFERENCE"). If upon the occurrence of a Liquidation Event, the
Corporate Assets shall be insufficient to pay the holders of shares of Series
A-1 Preferred Stock the Liquidation Preference, the holders of shares of Series
A-1 Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the shares of Series A-1 Preferred Stock shall share ratably in the
distribution of the entire remaining Corporate Assets in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if the full Liquidation Preference payable
on or with respect to such shares were paid in full.
(b) For purposes of this Section 3, the term "LIQUIDATION EVENT" shall mean (i)
any liquidation, dissolution or winding up of the Corporation or (ii) the merger
or consolidation of the Corporation into or with another corporation (except if
the Corporation is the surviving entity) or other similar transaction or series
of related transactions in which all or substantially all of the assets of the
Corporation are sold, transferred or otherwise disposed.
(c) The amount available for distribution for purposes of satisfying the
obligation to pay the Liquidation Preference and other amounts payable under
Section 3(a) to the holders of shares of Series A-1 Preferred Stock upon any
Liquidation Event described in Section 3(b)(ii) shall be the cash or the value
of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation.
(d) Written notice of such Liquidation Event, stating a payment date, the
Liquidation Preference and other amounts payable under Section 3(a), and the
place where said Liquidation Preference and other amounts shall be payable,
shall be delivered in person, mailed by certified or registered mail, return
receipt requested, or sent by telecopier or electronic mail, not less than 20
days prior to the payment date stated therein, to the holders of record of the
Series A-1 Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
4. Voting.
(a) Each holder of outstanding shares of Series A-1 Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series A-1 Preferred Stock held of record by such
holder are convertible (as adjusted from time to time pursuant to Section 5), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law and by the provisions of Sections 4(b), the
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<PAGE>
holders of shares of Series A-1 Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) So long as at least 1,551 shares of Series A-1 Preferred Stock (subject to
any Adjustment) are outstanding, the holders of the Series A-1 Preferred Stock
shall have the right, voting together as a single class, to elect one director
of the Corporation. Such right to vote separately as a class shall be in
addition to all other rights of the holders of Series A-1 Preferred Stock to
vote with other classes of stock in the election of members of the Corporation's
Board of Directors.
(c) So long as at least 1,551 shares of Series A-1 Preferred Stock (subject to
any Adjustment) are outstanding, if and whenever (i) the Corporation breaches
the terms and conditions contained herein, or (ii) an Event of Default (as
defined in the Preferred Stock Purchase Agreement between the Corporation and
the original purchasers of the Series A-1 Preferred Stock named therein) occurs
and is continuing, the holders of any outstanding shares of Series A-1 Preferred
Stock shall have the exclusive and special right, voting as a single class, to
elect by a plurality of the votes cast the largest whole number of directors of
the Corporation that, together with the director elected by the holders of the
Series A-1 Preferred Stock pursuant to Section 4(b), shall not constitute a
majority of the total number of directors of the Corporation (and if there are
not a sufficient number of resignations by the members of the Board of Directors
at the time of such default, the Board of Directors shall be expanded as is
necessary to give effect to the foregoing right). The right granted to the
holders of Series A-1 Preferred Stock in this Section 4(c) (the "DEFAULT RIGHT")
shall continue until the breach or Event of Default has been cured or waived
and, when so cured or waived the Default Right shall cease until such time as
the Corporation commits another breach or Event of Default. At any time the
Default Right becomes applicable, the Corporation may, upon receipt of a written
request from the holders in interest of at least 20% of the outstanding shares
of Series A-1 Preferred Stock, call a special meeting of shareholders for the
election of directors. Such meeting, if called, shall be held (i) no later than
45 days after the receipt of the request and (ii) at the place and upon the
notice required by law and the By-laws of the Corporation; PROVIDED, HOWEVER,
that the Corporation shall not call such a special meeting if such request is
received less than 60 days prior to the date fixed for any annual meeting of the
shareholders of the Corporation. Directors elected pursuant to this Section 4(c)
shall serve until the next annual meeting of the shareholders of the Corporation
or until their respective successors shall be elected and qualify.
(d) Any director elected by the holders of the Series A-1 Preferred Stock (each,
a "PREFERRED DIRECTOR") may be removed only by the vote of the holders of record
of a plurality of the outstanding shares of Series A-1 Preferred Stock, voting
together as a single class, at a meeting of the holders of shares of Series A-1
Preferred Stock called for such purpose. Any vacancy in the office of a
Preferred Director may be filled only in accordance with Section 4(b) or 4(c) as
the case may be.
(e) At any meeting held for the purpose of electing directors, the presence in
person or by proxy of the holders of a majority of the shares of Series A-1
Preferred Stock then outstanding shall constitute a quorum of the Series A-1
Preferred Stock for the purpose of electing any directors to be elected solely
by the holders of Series A-1 Preferred Stock and for all such other matters upon
which the holders of shares of Series A-1 Preferred Stock vote as a single
class, and the presence in person or by proxy of the holders of a majority of
the shares of Common Stock then outstanding shall constitute a quorum of the
Common Stock for the purpose of electing any directors to be elected solely by
the holders of the Common Stock.
(f) So long as 1,551 or more shares of Series A-1 Preferred Stock (subject to
any Adjustments) are outstanding, the Corporation shall not, without first
obtaining the written consent or affirmative vote of the holders of at least a
majority of the then outstanding shares of Series A-1 Preferred Stock, given in
writing or by vote at a meeting, consenting or voting, as the case may be,
separately as a class:
(i) authorize any series of preferred stock or other security of the
Corporation having (i) dividend rights or liquidation preference senior to
the Series A-1 Preferred Stock or (ii) voting rights entitling the holders
thereof to more than one vote per share of Common Stock on an as-converted
basis;
(ii) amend, alter or repeal any rights of the Series A-1 Preferred Stock; or
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<PAGE>
(iii) approve any liquidation, dissolution, merger or sale of the all or
substantially all of the assets of the Corporation if such event would
result in a payment to the holders of Series A-1 Preferred Stock of less
than the Liquidation Preference.
5. OPTIONAL CONVERSION. The holders of shares of Series A-1 Preferred Stock
shall have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Series A-1 Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the Original Purchase Price by the Conversion Price
(as defined herein) in effect at the time of conversion. The conversion price at
which shares of Common Stock shall be deliverable upon conversion of Series A-1
Preferred Stock without payment of additional consideration by the holder
thereof (the "CONVERSION PRICE") shall initially be $1.50. The Conversion Price
in effect from time to time, and the rate at which shares of Series A-1
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided herein. Upon a Liquidation Event or a Redemption, the
Conversion Rights shall terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable upon such
Liquidation Event or Redemption to the holders of shares of Series A-1 Preferred
Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued
upon conversion of the shares of Series A-1 Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Whether or not a holder would otherwise be entitled
to a fractional share shall be determined on the basis of the total number of
shares of Series A-1 Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder to convert shares of Series A-1 Preferred Stock
into shares of Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series A-1 Preferred Stock at the office of
the transfer agent for such shares (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together
with written notice that such holder elects to convert all or any number of
the shares of the Series A-1 Preferred Stock represented by such certificate
or certificates. Such notice shall state such holder's name or the names of
the nominees in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. If required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
a written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or his or its
attorney-in-fact duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
(the "CONVERSION DATE"). The Corporation shall, as soon as practicable after
the Conversion Date, issue and deliver at such office to such holder of
shares of Series A-1 Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of Series A-1 Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock as of such date. Other than as set forth in
Section 6, if the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, as amended
(the "SECURITIES ACT"), the conversion may, at the option of any holder
tendering shares of Series A-1 Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, in which event the person entitled to receive the Common Stock
issuable upon such conversion of the shares of Series A-1 Preferred Stock
shall not be deemed to have converted such shares of Series A-1 Preferred
Stock until immediately prior to the closing of such sale of securities.
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<PAGE>
(ii) The Corporation shall, at all times when the Series A-1 Preferred Stock
shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the shares of
Series A-1 Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A-1 Preferred Stock. Before
taking any action that would cause an adjustment reducing the Conversion
Price below the then par value of the shares of Common Stock issuable upon
conversion of the shares of Series A-1 Preferred Stock, the Corporation will
take any corporate action that may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock at such adjusted Conversion
Price. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A-1 Preferred Stock, in addition to such other
remedies as shall be available to the holder of such shares of Series A-1
Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(iii) Upon any such conversion, no adjustment to the Conversion Price shall
be made for, nor shall any payment be made of, any declared and unpaid
dividends on the shares of Series A-1 Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A-1 Preferred Stock that shall have been
surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor. Any shares
of Series A-1 Preferred Stock so converted shall be retired and canceled and
shall not be reissued, and the Corporation may from time to time take such
appropriate action as may be necessary to eliminate the authorized Series
A-1 Preferred Stock or reduce the authorized number thereof as may be
appropriate accordingly.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Section 5(d), the "FIRST
ORIGINAL ISSUE DATE" means the Original Issue Date of the first issued share
of Series A-1 Preferred Stock.
(ii) ADJUSTMENT FOR COMBINATIONS OR CONSOLIDATION OF COMMON STOCK. If,at
any time after the First Original Issue Date the number of shares of Common
Stock outstanding are decreased by a combination of the outstanding shares
of Common Stock, then following the record date fixed for such combination
(or the date of such combination, if no record date is fixed), the
applicable Conversion Price shall be increased so that the number of shares
of Common Stock issuable on conversion of each share of Series A-1 Preferred
Stock shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
(iii) ADJUSTMENT FOR STOCK DIVIDENDS, SPLITS, ETC. If the Corporation shall
at any time after the applicable First Original Issue Date fix a record date
for the subdivision, split-up or stock dividend of shares of Common Stock,
then, following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no
record date is fixed), the Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of each
share of Series A-1 Preferred Stock shall be increased in proportion to such
increase in outstanding shares; provided, however, that the Conversion Price
shall not be decreased at such time if the amount of such reduction would be
an amount less than $.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction that, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.01 or more.
(iv) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation, recapitalization or merger of the Corporation with or into
another corporation or the sale of all or substantially all of
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<PAGE>
the assets of the Corporation to another corporation (other than a
subdivision or combination provided for elsewhere in this Section 5 and
other than a consolidation, merger or sale that is treated as a Liquidation
Event pursuant to Section 3), each share of Series A-1 Preferred Stock shall
thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon conversion of such shares
of Series A-1 Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 5 set forth with respect to
the rights and interest thereafter of the holders of the shares of Series
A-1 Preferred Stock, to the end that the provisions set forth in this
Section 5 (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the shares of Series
A-1 Preferred Stock.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the shares of Series A-1
Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 5, the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of shares of Series
A-1 Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A-1 Preferred Stock, furnish or cause to be furnished to such holder a
similar certificate setting forth (i) such adjustments and readjustments, (ii)
the Conversion Price then in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property that then would be received upon
the conversion of the shares of Series A-1 Preferred Stock.
(g) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation takes a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or any other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to
receive any other right;
(ii) that the Corporation subdivides or combines its outstanding shares of
Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation (other
than a subdivision or combination of its outstanding shares of Common Stock
or a stock dividend or stock distribution thereon), or of any consolidation
or merger of the Corporation into or with another corporation, or of the
sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or winding up
of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A-1 Preferred Stock, and shall cause
to be mailed to the holders of the Series A-1 Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the record date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
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<PAGE>
(B) the date on which such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up is expected to become effective,
and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
6. AUTOMATIC CONVERSION.
(a) TRIGGERING EVENT. All outstanding shares of Series A-1 Preferred Stock
shall automatically convert to shares of Common Stock, at the then effective
Conversion Price pursuant to Section 5, if, at any time after the first
anniversary of the First Original Issue Date, (i) the average closing bid price
of the Common Stock for twenty (20) consecutive trading days is greater than
four times the then current Conversion Price and the average daily trading
volume (as reported by Nasdaq) for the same twenty day period is not less than
35,000 shares or (ii) upon the date of the consummation of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act, resulting in at least $20,000,000 of gross proceeds to the
Corporation, at a per share price of at least four times the then current
Conversion Price.
(b) NO FURTHER ACTION. In the case of an automatic conversion pursuant to this
Section 6, the outstanding shares of Series A-1 Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, that the Corporation shall not
be obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Series A-1 Preferred Stock are delivered either to the Corporation or any
transfer agent of the Corporation.
(c) SURRENDER OF CERTIFICATES; RETIREMENT AND CANCELLATION OF CONVERTED
SHARES. All certificates evidencing shares of Series A-1 Preferred Stock that
are required to be promptly surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Series A-1 Preferred Stock represented thereby converted into Common
Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Corporation
may thereafter take such appropriate action as may be necessary to reduce the
authorized Series A-1 Preferred Stock accordingly.
7. REDEMPTION.
(a) The Corporation may, at its option redeem any or all of the then outstanding
shares of Series A-1 Preferred Stock, out of funds legally available for such
purpose, on or after April 1, 2004, by providing notice to the holders of
outstanding shares of Series A-1 Preferred Stock (a "REDEMPTION NOTICE"). The
Redemption Notice shall specify the Redemption Date, the Redemption Price, the
aggregate number of shares to be redeemed, and with expect to each holder of
record, the number of shares to be redeemed; shall state that payment of the
Redemption Price will be made at the principal office of the Corporation or if
an agent for redemption if appointed, the office of the agent for redemption,
upon presentation and surrender of certificates for such shares; that dividends
accrued to the Redemption Date will be paid as specified in the Redemption
Notice and that on and after the Redemption Date dividends will cease to accrue;
shall state that the right to convert the shares to be redeemed into shares of
Common Stock in accordance with the provisions hereof will terminate on the last
business day prior to the redemption Date which date shall be specified in the
Redemption Notice; and shall state the then current Conversion Price. In case of
the redemption of a part only of the Series A-1 Preferred Stock at the time
outstanding, the shares to be redeemed shall be selected by lot or in such other
manner as the Board of Directors may determine to be equitable;
(b) The date of any Redemption Notice shall be the "REDEMPTION NOTICE DATE." The
Corporation shall, no later than 30 days after the applicable Redemption Notice
Date (the "REDEMPTION DATE"), redeem the shares of Series A-1 Preferred Stock
set forth in the notice (such redeemed shares being referred to as the
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<PAGE>
"REDEMPTION SHARES"), by paying in cash, out of funds legally available
therefor, a sum per share equal to the Liquidation Preference (the "Redemption
Price");
(c) If the Corporation delivers a Redemption Notice to the holders of Series A-1
Preferred Stock, each such holder shall, no later than the close of business on
the last business day before the Redemption Date, surrender his or its
certificate or certificates representing the applicable Redemption Shares to the
Corporation. From and after the Redemption Date and the holders' receipt of the
Redemption Price, all rights of each holder with respect to such applicable
Redemption Shares shall cease and such shares shall not be deemed to be
outstanding for any purpose whatsoever. Such Redemption Shares shall not be
reissued, and the Corporation may from time to time take such appropriate action
as may be necessary to reduce the authorized Series A-1 Preferred Stock
accordingly."
SECOND: (a) Immediately prior to the amendment, the Corporation had authority to
issue 10,000,000 shares of stock of all classes, of which number: (i) 7,968,980
shares were designated Class A Common Stock, having par value of $0.01 per share
and $79,689.80 in the aggregate; (ii) 2,000,000 shares were designated Class B
Common Stock, having par value of $0.01 per share and $20,000.00 in the
aggregate; (iii) 15,510 shares were designated Series A Preferred Stock, having
par value of $0.01 per share and $155.10 in the aggregate and (iv) 15,510 shares
were designated Series A-1 Preferred Stock, having par value of $0.01 per share
and $155.10 in the aggregate. The aggregate par value of all shares of stock of
all classes was $100,000.00.
(b) Immediately following the amendment, the Corporation has authority to issue
15,000,000 shares of stock of all classes, of which number: (i) 14,984,490
shares are designated Common Stock, having par value of $0.01 per share and
$149,844.90 in the aggregate; and (ii) 15,510 shares were designated Preferred
Stock, having par value of $0.01 per share and $155.10 in the aggregate. The
aggregate par value of all shares of stock of all classes is $150,000.00
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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 Thomas P. Rice and
Robert J. Mello, Ph.D. 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 and Series
A-1 Preferred Stock of Chesapeake Biological Laboratories, Inc. held of record
by the undersigned as of the close of business on August 9, 1999, at the Annual
Meeting of Stockholders to be held on October 14, 1999, or any adjournment
thereof.
The Board of Directors recommends a vote "FOR ALL NOMINEES" in Proposal No. 1,
"FOR THE APPROVAL" of Proposal No. 2 and Proposal No. 3 and "FOR RATIFICATION"
of Proposal No. 4.
Please mark your choice in blue or black ink.
<TABLE>
<S> <C> <C> <C>
1. Proposal No. 1--ELECTION OF DIRECTORS:
/ / FOR ALL NOMINEES listed below
(except marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for
all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee(s), strike a line through the
name of the nominee(s) in the list below.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
NOMINEES: T.P. Rice N.B. Beaty, Ph.D.
H.L. Miller R.F. Burke
</TABLE>
<TABLE>
<S> <C> <C> <C>
2. Proposal No. 2--FIFTH STOCK INCENTIVE PLAN.
/ / FOR APPROVAL of the Fifth Stock Incentive Plan
/ / WITHHOLD APPROVAL of the Fifth Stock Incentive Plan
3. Proposal No. 3--CHARTER AMENDMENT
/ / FOR APPROVAL of the Charter Amendment
/ / WITHHOLD APPROVAL of the Charter Amendment
4. Proposal No. 4--RATIFICATION OF AUDITORS
/ / FOR RATIFICATION of Arthur Andersen L.L.P. as independent auditors
/ / WITHHOLD RATIFICATION of Arthur Andersen L.L.P. as independent auditors
5. The Proxies named herein are hereby authorized to vote in their discretion upon such other matters
as may properly come before the meeting.
</TABLE>
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<PAGE>
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, FOR
APPROVAL OF THE FIFTH STOCK INCENTIVE PLAN in Proposal No. 2 and FOR APPROVAL OF
THE CHARTER AMENDMENT in Proposal No.3 and FOR RATIFICATION OF ARTHUR ANDERSEN
L.L.P. AS INDEPENDENT AUDITORS. 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>
Dated: ---------------------------------, 1999 ----------------------------------------------
Signature
Please mark, sign, date and ----------------------------------------------
return this proxy letter promptly Signature (if held jointly)
using the enclosed envelope.
</TABLE>
34
