<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark one)
/X/ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
------------
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to ___________ .
Commission File Number: 1-12748
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1176514
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1111 S. PACA STREET, BALTIMORE, MARYLAND 21230 2834
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (SIC)
(410) 843-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of each of the Registrant's classes of common
stock, as of June 30, 1999:
Class A Common Stock, $.01 per share - 5,590,351 shares
Class B Common Stock, $.01 per share - none
This Form 10-Q consists of 12 pages.
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets
as of June 30, 1999 and March 31, 1999..................... 3
Consolidated Statements of Operations
for the three months ended June 30, 1999 and 1998 ......... 4
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended June 30, 1999 .................. 5
Consolidated Statements of Cash Flows
for the three months ended June 30, 1999 and 1998 ......... 6
Notes to Consolidated Financial Statements ................ 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations............... 9-10
Part II. Other Information
Item 1. Legal Proceedings.................................. 10
Item 5. Other Information.................................. 10
Item 6. Exhibits and Reports on Form 8-K................... 11
Signatures.......................................................... 12
</TABLE>
2
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,220,988 $ 410,595
Restricted cash 350,000 350,000
Accounts receivable, net of allowances of
$ 64,490 and $55,490 respectively 1,414,492 1,114,674
Inventories 638,962 491,177
Prepaid expenses 315,674 477,319
Deferred tax asset 124,084 124,084
------------ ------------
TOTAL CURRENT ASSETS 4,064,200 2,967,849
Property, plant and equipment, net 10,153,242 10,171,932
Deferred financing costs and other assets 102,673 101,375
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TOTAL ASSETS $ 14,320,115 $ 13,241,156
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 689,196 $ 799,089
Line of credit -- 644,445
Current portion of long term debt 702,457 717,369
Current portion of capital lease obligations 14,712 853
Current portion of accrued restructuring costs 417,778 523,094
Deferred revenue 431,642 382,208
------------ ------------
TOTAL CURRENT LIABILITIES 2,255,785 3,067,058
Long term debt, net of current portion 7,142,276 7,564,276
Capital lease obligations, net of current portion 78,355 --
Accrued restructuring costs, net of current portion 536,597 561,215
Other liabilities 30,000 30,000
Deferred tax liability 124,084 124,084
------------ ------------
TOTAL LIABILITIES 10,167,097 11,346,633
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A-1 convertible preferred stock, par value $.01 per share;
liquidation preference of $1,551,000, 6% cumulative dividends,
beginning May 31, 2001, 15,510 shares authorized,
issued and outstanding 155 --
Class A common stock, par value $.01 per share;
7,984,490 shares authorized; 5,590,351 and
5,365,101 shares issued and outstanding 55,904 53,651
Class B common stock, par value $.01 per share;
2,000,000 shares authorized; no shares issued
and outstanding -- --
Additional paid-in capital 9,335,154 7,613,014
Additional paid-in capital - warrants outstanding 422,170 --
Accumulated deficit (5,660,365) (5,772,142)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,153,018 1,894,523
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,320,115 $ 13,241,156
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED BALANCE SHEETS.
3
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
June 30,
---------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 2,449,193 $ 1,117,172
Cost of sales 1,763,765 1,208,044
----------- -----------
Gross profit (loss) 685,428 (90,872)
Operating expenses:
General and administrative 302,868 372,550
Selling 140,932 211,063
----------- -----------
Profit (loss) from operations 241,628 (674,485)
Interest expense (154,820) (38,070)
Interest income & other, net 24,969 59,831
----------- -----------
Earnings (loss) before taxes 111,777 (652,724)
Benefit from taxes -- 261,089
----------- -----------
Net earnings (loss) $ 111,777 $ (391,635)
----------- -----------
----------- -----------
Earnings (Loss) Per Common Share:
Basic
Net earnings (loss) $ 0.02 $ (0.07)
----------- -----------
----------- -----------
Diluted
Net earnings (loss) $ 0.02 $ (0.07)
----------- -----------
----------- -----------
Weighted average common shares outstanding:
Basic 5,570,365 5,282,487
----------- -----------
----------- -----------
Diluted 6,184,258 5,282,487
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED STATEMENTS.
4
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------------- PAID-IN
ADDITIONAL CAPITAL
PAR PAR PAID-IN WARRANTS ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL OUTSTANDING (DEFICIT) TOTAL
------ ----- --------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1999 -- $ -- 5,365,101 $53,651 $ 7,613,014 $ -- $(5,772,142) $ 1,894,523
Issuance of shares pursuant
to private placement 225,000 2,250 447,750 450,000
Issuance of convertible
preferred stock, net of
issuance costs of $137,409 15,510 155 1,413,436 1,413,591
Issuance of preferred stock
warrants (153,218) 153,218 --
Vesting of below market stock
option grants 13,800 13,800
Issuance of debt warrants 268,952 268,952
Issuance of shares pursuant
to exercise of stock options 250 3 372 375
Net income 111,777 111,777
------ ----- --------- ------- ----------- -------- ----------- -----------
BALANCE, JUNE 30, 1999 15,510 $ 155 5,590,351 $55,904 $ 9,335,154 $422,170 $(5,660,365) $ 4,153,018
------ ----- --------- ------- ----------- -------- ----------- -----------
------ ----- --------- ------- ----------- -------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS
5
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
June 30,
-----------------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 111,777 $ (391,635)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 161,790 81,885
Non-cash compensation expense 13,800 --
Deferred income taxes -- (261,089)
(Increase) decrease in accounts receivable (299,818) 512,509
Increase in inventories (147,785) (340,901)
Decrease in prepaid expenses and other assets 161,645 50,161
(Decrease) increase in accounts payable
and accrued expenses (109,894) 204,924
Decrease in accrued restructuring costs (129,934) --
Increase in deferred revenue 49,434 132,295
Decrease in other non-current liabilities -- (7,517)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (188,985) (19,368)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (143,099) (713,931)
Decrease in bond funds held by trustee -- 336,980
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (143,099) (376,951)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments of) proceeds from short term borrowings, net (644,445) 338,357
Repayments of long-term debt (167,960) (5,605)
Capital lease obligations 92,214 (7,516)
Net proceeds from sale of stock 1,863,966 208
Deferred financing costs (1,298) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,142,477 325,444
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 810,393 (70,875)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 410,595 3,041,705
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,220,988 $ 2,970,830
----------- -----------
----------- -----------
CASH PAID DURING THE PERIOD FOR:
Interest $ 154,820 $ 38,071
Income taxes $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
6
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Chesapeake Biological Laboratories, Inc. ("CBL" or the "Company") is a
provider of pharmaceutical and biopharmaceutical parenteral product
development and production services on a contract basis for a broad range
of customers, from major international pharmaceutical firms to emerging
biotechnology companies. Since 1990, CBL has provided its parenteral
product development services to more than 100 pharmaceutical and
biotechnology companies and has contributed to the development and
production of more than 100 therapeutic products intended for human
clinical trials. Customers contract with the Company to produce development
stage products for use in U.S. Food and Drug Administration ("FDA")
clinical trials and to produce and manufacture FDA approved parenteral
products for commercial sale. The Company's business depends in part on
strict government regulation of the drug development process, especially in
the United States. CBL's production facilities operate under the current
Good Manufacturing Practices ("cGMP") established and regulated by the FDA.
The Company's operations are treated as one operating segment,
pharmaceutical and biopharmaceutical product development and production
services, as it only reports profit and loss information on an aggregate
basis to operating management of the Company.
During the fiscal year ended March 31, 1999, the Company successfully
validated and completed the FDA initial inspection of the new Camden
production facility, and reorganized and expanded the sales and marketing
organization to utilize the additional capacity now available to the
Company. The Company also initiated a management reorganization, including
hiring a new President and Chief Executive Officer, implemented a workforce
reduction and began to consolidate all production into the Camden facility.
These actions were taken to address the Company's recent significant
operating losses which resulted from costs associated with the start-up of
the new Camden facility and the related delay in the new sales and
marketing programs. The implementation of these plans have resulted in a
positive sales trend in the first quarter of the current fiscal year 2000
and the recent signing of new customer agreements. Additionally as
described in note 6, in first fiscal quarter of 2000, the Company raised
$1.9 million, net of related fees of approximately $137,000, in private
placements of common and convertible preferred stock. During June 1999, the
Company also negotiated revised loan covenants with its primary lender
allowing the Company to be in compliance at March 31, 1999 and for the
first quarter of the current fiscal year (see Note 3). The Company is
required to achieve substantial growth in revenues and improvement in
operating results over the prior year in order to meet these covenants and
its obligations through March 31, 2000. Management believes its plans will
generate sufficient cash resources to meet its covenants and cash needs
through at least April 2000. However, there can be no assurance that this
will occur.
2. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
June 30,1999 March 31,1999
------------ -------------
<S> <C> <C>
Raw materials $273,110 $273,506
Work-in-process 365,852 217,671
-------- --------
$638,962 $491,177
-------- --------
-------- --------
</TABLE>
3. LONG TERM DEBT
Under the documentation applicable to the bond financing, the Company is
obligated to maintain certain financial ratios and balances, including a
minimum tangible net worth, a liability to net worth ratio, an EBITDA ratio
and current ratio, all as defined and established in the applicable
documents. As of March 31, 1999, the Company was not in compliance on three
covenants due to the fiscal year operating loss. The EBITDA ratio covenant
had been waived as of March 31, 1998 through fiscal 1999. Subsequent to
March 31, 1999, the Bank modified the covenants as of March 31, 1999 and
for the fiscal year ending March 31, 2000. As of June 30,1999, the Company
was in compliance with modified covenants. In return for the covenant
modifications, the Company agreed to issue warrants for 75,000 shares of
Class A Common stock at $2.25 per share, which was the market price at the
date of the agreement. Using the Black-Scholes option pricing model, these
warrants have a fair value of $268,952 and are included as Additional
Paid-in Capital - Warrants Outstanding in the accompanying balance sheet at
June 30, 1999. As this amount represents debt issuance costs which are
being amortized as interest expense over the life of the related debt.
7
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board, (FASB), issued a
Statement of Financial Accounting Standards, ("SFAS"), No. 128, and
"Earnings per Share". SFAS 128 simplifies the standards for computing
earnings per share ("EPS") previously found in APB Opinion No. 15,
"Earnings per Share". It replaces the presentation of primary EPS with a
presentation of basic EPS and requires a reconciliation of the numerator
and denominator of the diluted EPS calculation. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS is computed similarly to primary EPS pursuant to APB Opinion
No. 15. The adoption of SFAS 128 did not have a significant impact on the
Company for the three months ended June 30, 1999. Earnings per share
information for prior quarters reflect the new requirements.
5. RESTRUCTURING CHARGES
In the fourth quarter of fiscal year 1999, the Company implemented a
realignment of management, a workforce reduction and decided to close its
Seton experimental facility during fiscal year 2000 and consolidate its
operation into the new Camden facility. The workforce reduction resulted in
the termination of full time and temporary employees. This action in
addition to other non-personnel cost reductions resulted in a restructuring
charge of $1.2 million in fiscal 1999. The realignment and the workforce
reduction resulted in a charge of $693,000 in fiscal year 1999 and $548,000
was provided for the closing of the Seton facility for a total
restructuring charge of $1.2 million of which $1.1 million remained as of
March 31, 1999.
Restructuring expenses totaling $129,000 were charged against the
accrual in current fiscal quarter. Of the remaining accrual balance of
$955,000, $418,000 is classified in current liabilities as accrued
restructuring cost and is expected to be paid over the next 12 months, with
the remaining balance of $537,000 recorded as a non-current liability.
6. STOCKHOLDER'S EQUITY
In April 1999, the Company raised $450,000 through the private placement
sale of 225,000 shares of its Common Stock to eight investors. The
investors include board members Thomas P. Rice, Harvey L. Miller, Regis F.
Burke, and Narlin B. Beaty. The proceeds from the sale will be used for
general corporate purposes.
In May 1999, the Company also raised $1.4 million, net of related costs of
approximately $137,000, through the sale of 15,510 shares of its Series A-1
convertible Preferred Stock (the "Preferred Stock") together with warrants
to purchase an aggregate of 51,700 shares of the Company's Common Stock at
an exercise price of $1.50 per share. Under the terms of the Preferred
Stock, the investors are permitted, as a separate class, to elect one
person to the Company's Board of Directors. The proceeds from the sale will
be used for general corporate purposes.
In connection with the issuance of the Series A-1 convertible Preferred
Stock, the Company issued warrants to purchase 51,700 shares of the
Company's Common Stock at an exercise price of $1.50 per share. Using the
Black-Scholes option pricing model, the fair value of these warrants is
$153,218 and have been included as Additional Paid-in Capital - Warrants
Outstanding in the accompanying balance sheet as of June 30, 1999.
8
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The management discussion below should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Operating revenues were $2,449,000 for the quarter ended June 30,1999 compared
to $1,117,000 for the comparable quarter in the previous fiscal year. Revenues
for the first quarter were primarily from non-commercial development and
production of FDA clinical trial supplies, which is representative of the
Company's historical business. CBL has experienced increasing demand for this
business. There was a 55% increase in number of customers serviced during the
first quarter of the fiscal year as compared to the same quarter of the prior
year.
Gross profit for the quarter was $685,000 compared to a loss of $91,000 for the
comparable period last year. The primary factors in the gross profit improvement
include the overall increase in the revenues for the Company as a whole and
production volume in the new Camden facility, which during the first quarter of
last fiscal year was being validated and therefore not operational.
General and administration expenses decreased $70,000 to $303,000 as a result
of the general management reorganization during the fourth quarter of the
fiscal year ended March 31,1999. General and administration expenses were 12%
of operating revenues for the quarter compared to 33% for the quarter in the
prior year. Selling expenses for the quarter were $70,000 below expenses for
the same period as the prior year. Selling expenses for this quarter in the
previous fiscal year included $71,000, related to a non-recurring sales
expense. As a percentage of operating revenues these expenses decreased to 6%
from 19% for the comparable quarter in the prior year.
As a result of the increased operating revenues and cost reductions, operating
income for the quarter was $242,000 or 10% of revenues as compared to a
quarterly operating loss of $675,000 for the quarter in the previous fiscal
year.
Interest expense for the quarter was $155,000 in the current year compared to
$38,000 for the quarter in the prior year. During the comparable quarter of the
prior year interest related to the construction of the new facility was being
capitalized. The current year includes interest expense applicable to the entire
facility which, is now fully operational.
Due to the net operating losses generated during the previous fiscal year ended
March 31,1999, there is no tax liability related to the current quarter income
resulting in $112,000 net income for the quarter. The pre-tax losses of
$653,000, incurred during the first quarter last year was reduced by a tax
benefit resulting in a net loss of $392,000.
FINANCIAL CONDITION AND LIQUIDITY
On June 30, 1999 CBL had cash and cash equivalents of $1,221,000 compared to
$411,000 March 31, 1999. These balances do not include $350,000 held as
collateral for the Company's obligation under the Letter of Credit and
Reimbursement Agreement with First Union National Bank of North Carolina,
pursuant to which, a letter of credit was issued as credit enhancement for bonds
issued by the Maryland Industrial Development Financing Authority. The proceeds
of these bonds were used by the Company to finance a portion of the purchase
price, renovation and equipping of the Camden production facility.
The Company continues to maintain a $750,000 Revolving Line of Credit from First
Union National Bank of Maryland. There was no outstanding balance as of June
30,1999, as the Company used a portion of the proceeds from the May 1999 equity
placement to pay down the line of credit which had an outstanding balance of
$644,000 as of March 31,1999.
9
<PAGE>
In May 1999 the Company completed two private placements of equity securities
grossing $2.0 million, before expenses. The equity includes 225,000 shares of
common stock with proceeds of $450,000 purchased by a group led by Company
officers and Directors. An investment banking and management firm purchased
15,510 shares of convertible Preferred Stock for $1,551,000. The shares of
preferred stock may be converted into 1,034,000 shares of common stock using
the current conversion ratios. In addition, warrants to purchase 51,700
shares of the Company's common stock were issued with this placement.
The $810,000 increase in the cash position during the quarter was the result of
several factors, including the equity placements, operating profits and
depreciation. This was offset in part by the pay down of the March 31, 1999,
Revolving Credit balance, capital expenditures and the increase in the accounts
receivable and inventory balances required to support the operating revenue
increase. Management believes that based on the current financial position, its
operating plan will generate sufficient cash resources to meet its covenants and
cash needs through at least April 2000. However the can be no assurance this
will occur.
YEAR 2000 ISSUE
The year 2000 issue, (Y2K) refers to computer applications using only the last
two digits to refer to a year rather than all four digits. As a result, some
applications could fail or create incorrect results if they interpret "00" as
the year 1900 rather than 2000. The Company addressed the Y2K situation during
the construction of the Camden facility.
In conjunction with the Company's expansion of its commercial production
capabilities, the Company has upgraded both its computer hardware and software.
Management believes the upgrades will resolve the Y2K issue for the Company. The
equipment installed in the Company's new commercial production facility over the
past two years is certified by the suppliers as Y2K compliant.
Due to the nature of CBL's business, it is unlikely that a customer with a Y2K
problem would adversely effect CBL to any significant degree. CBL does not
expect to be dependent on one customer or a small group of customers, which
limits CBL's exposure if some customers have not resolved their Y2K problems.
The Company is working on contingency plans which include increasing inventory
levels and potential staff adjustments. There can be no assurance that these
contingency plans will be successful. There have been no material changes in
plans or costs since the Company's fiscal year-end on March 31, 1999.
STATEMENTS REGARDING FORWARD-LOOKING DISCLOSURE
Certain information contained in this Report includes forward-looking statements
which can be identified by the use of forward-looking terminology such as "may",
"will", "expect", "should", "believes", "anticipates", "intends", or words of
similar import. These statements may involve risks and uncertainties, as
outlined in Item 1 of the Company's March 31, 1999, Form 10-K that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) general economic and
business conditions, changes in business strategy or development plans, and
others. Given these uncertainties, the reader is cautioned not to place undo
reliance on such forward-looking statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 5. OTHER INFORMATION
None
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
10.22 Employment agreement dated as of March 22, 1999 by
and between the Registrant and John. T. Botek
10.23 Letter agreement dated as of June 22, 1999 by and
between the Registrant and William P. Tew, Ph.D.
27 -- Financial Data Schedule
b. REPORTS ON FORM 8-K:
An 8-K on the private placements of $2.0 million on the
convertible preferred and common stock was filed by the
Registrant during the quarter for which this report is
filed.
11
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
By: /s/ Thomas P. Rice By: /s/ John T. Janssen
------------------------ -------------------------
Thomas P. Rice John T. Janssen
President and Treasurer and
Chief Executive Officer Chief Financial Officer
12
<PAGE>
10.22
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made as of the March 22, 1999,
by and between CHESAPEAKE BIOLOGICAL LABORATORIES, INC., a Maryland corporation
(the "Corporation"), and JOHN T. BOTEK (the "Executive").
RECITALS
The Corporation has offered to employ Executive as its Vice President
and Chief Operating Officer, and Executive has accepted such offer of
employment. The Corporation and the Executive consider it in their mutual best
interests that the Executive enter into this Employment Agreement to define the
terms and conditions of the Executive's employment.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter contained, the Corporation and the
Executive hereby agree as follows:
1. FULL-TIME EMPLOYMENT OF EXECUTIVE.
1.1. DUTIES AND STATUS.
(a) Effective April 13, 1999, the Corporation
hereby engages the Executive as a full-time executive employee for the period
specified in Section 4 hereof (the "Employment Period"), and the Executive
accepts such employment, on the terms and conditions set forth in this
Agreement. At all times during the Employment Period, the Executive shall hold
the offices of Vice President and Chief Operating Officer. During the Employment
Period: (i) the Executive shall exercise such authority and perform such
executive duties as are commensurate with the duties of Vice President and Chief
Operating Officer of the Corporation. During the Employment Period, there shall
be no material decrease in the responsibilities and duties of the Executive,
unless otherwise agreed to in writing by the Corporation and the Executive.
(b) During the Employment Period, the Executive
shall (i) devote substantially all of his time and efforts to the business of
the Corporation and its subsidiaries; (ii) not engage in consulting work or any
trade or business for his own account or for or on behalf of any other person,
firm or corporation which competes or conflicts or interferes with the
performance of his duties hereunder in any way; and (iii) accept such additional
office or offices with the Corporation or its subsidiaries to which he may be
elected by the Board of Directors of the Corporation, provided that the
performance of the duties of such office or offices shall be consistent with the
scope and nature of the duties provided for in paragraph (a) of this Section
1.1. The foregoing shall not preclude the Executive from devoting a reasonable
amount of his time to (i) management of his personal business investments, (ii)
civic and charitable affairs, (iii) supervision of his personal investments and
(iv) serving on boards of directors of other corporations, provided, in each
case, that such activities do not interfere with the performance of the
Executive's duties under this Agreement.
(c) The Executive shall be required to perform the
services and duties provided for in paragraph (a) of this Section 1.1 only at
the location of the executive offices of the Corporation in the Baltimore
metropolitan area.
13
<PAGE>
(d) The Executive shall be entitled to
vacations, leaves of absence and leaves for illness or temporary disability in
accordance with the policies of the Corporation as in effect from time to time,
which policies shall not be less favorable than those in effect at the date of
this Agreement. Any leave on account of illness or temporary disability which is
less than total disability as defined in the Corporation's long-term disability
insurance plan ("Total Disability") and which continues for a continuous period
of less than 180 consecutive days shall not constitute a breach by the Executive
of his obligations hereunder.
1.2. COMPENSATION AND GENERAL BENEFITS. As compensation
for his services under this Agreement, the Executive shall be compensated as
follows:
(a) The Corporation shall initially pay the
Executive an annual base salary of $130,000, which shall be payable in periodic
equal installments no less frequent than the periodic installments in effect for
salaries of senior executives of the Corporation immediately prior to the
effective date of this Agreement. Such base salary shall be subject to normal
periodic review by the Compensation Committee of the Board of Directors of the
Corporation (the "Compensation Committee"), at least annually, for increases
based on the policies established by the Compensation Committee and based on the
Executive's contributions to the enterprise. Notwithstanding the foregoing,
until the earlier to occur of (i) such time as the Corporation receives at any
time or from time to time hereafter net proceeds from one or more equity
investments, whether through the sale of common or preferred stock of the
Corporation or otherwise, in an amount equal to or exceeding, in the aggregate,
$3,000,000, or (ii) January 3, 2000, the Executive agrees that one-half of his
base salary shall not be paid but shall accrue, with all such accrued amounts to
be paid immediately following the earlier to occur of the Corporation's receipt
of such net proceeds or January 3, 2000.
(b) The Executive also shall be eligible for
periodic incentive compensation payments, commencing after the Corporation has
reported net earnings for two consecutive calendar quarters, in amounts the
Compensation Committee considers appropriate in its sole and absolute
discretion. Any such compensation, in the form of cash paid to the Executive as
a bonus or as part of a profit or incentive cash compensation program
established from time to time, shall be hereinafter referred to as "Incentive
Compensation." Promptly after the Corporation reports net earnings for two
consecutive calendar quarters, the Compensation Committee shall meet to
determine whether to pay Executive an incentive bonus. Thereafter, so long as
the Corporation remains profitable, the Compensation Committee shall consider,
at least annually, whether to cause the Corporation to pay incentive bonuses to
Executive; provided, however, that the Corporation shall have no obligation
hereunder to pay such incentive bonus to Executive.
(c) During the Employment Period, the Executive
shall be entitled to such fringe benefits as are now or hereafter made available
to the Corporation's executive officers generally and to participate in the
Corporation's 401(k) plan as well as such plans of the Corporation relating to
stock options, employee stock ownership, pension, thrift, profit-sharing, group
life insurance, medical coverage, education, or other retirement or employee
benefits as the Corporation has adopted or may hereafter adopt for the benefit
of its executive officers.
(d) The Corporation shall reimburse the
Executive for his reasonable out-of-pocket expenses incurred in connection with
performing his duties hereunder on behalf of the Corporation, subject to the
Executive's compliance with the Corporation's policies for expense reimbursement
as in effect from time to time.
(e) As an inducement essential for Executive to
accept the Corporation's offer of employment, the Corporation hereby grants the
Executive: (i) a non-qualified option to purchase 125,000 shares of the
Corporation's Class A Common Stock at an exercise price of $1.00 per share, in
accordance with the Stock Option Agreement attached hereto as Exhibit A, and
(ii) an incentive stock option under the Corporation's existing Incentive Stock
Option Plan to purchase 25,000 shares of the Corporation's Class A Common Stock
at an exercise price equal to the average of the closing "bid" and "asked"
prices of the Corporation's Class A Common Stock as
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quoted on the Nasdaq National Market as of the date hereof, with such options to
vest in two equal installments on December 2, 2000 and March 1, 2001.
(f) As promptly as possible following execution
of this Agreement, and provided that the Executive is insurable at standard
rates, the Corporation shall obtain a "split dollar" term insurance policy in
the face amount of $200,000 on the life of Executive, with the beneficiary
thereof to be such person, trust or entity as Executive shall designate from
time to time. During the Employment Period, the Corporation shall pay all
premiums as and when due on such policy, and upon termination or expiration of
the Employment Period, the Corporation shall assign such policy to Executive.
2. COMPETITION; CONFIDENTIAL INFORMATION.
The Executive and the Corporation recognize that due to the
nature of his position with the Corporation, the Executive has had access to and
has acquired, will have access to and will acquire, and will assist in
developing, confidential and proprietary information relating to the business
and operations of the Corporation and its subsidiaries and affiliates,
including, without limiting the generality of the foregoing, information with
respect to their present and prospective products, systems, customers, agents,
processes and sales and marketing methods. The Executive acknowledges that such
information has been and will continue to be of central importance to the
business of the Corporation and its affiliates and that disclosure of it to or
its use by others could cause substantial loss to the Corporation. The Executive
and the Corporation also recognize that an important part of the Executive's
duties will be to develop good will for the Corporation and its affiliates
through his personal contact with customers, agents and others having business
relationships with the Corporation and its subsidiaries and affiliates, and that
there is a danger that this good will, a proprietary asset of the Corporation
and its subsidiaries and affiliates, may follow the Executive if and when his
relationship with the Corporation is terminated. The Executive accordingly
agrees as follows:
2.1. NON-COMPETITION.
At all times during the Employment Period and for a period of
one (1) year after expiration or termination of the Employment Period, other
than as a result of (i) a termination by the Corporation without cause (pursuant
to Section 4.2) or (ii) by the Executive for Good Reason (as defined in Section
5.2(b) hereof):
(a) the Executive will not, directly or
indirectly, either individually or as owner, partner, agent, employee,
consultant or otherwise, except for the account of and on behalf of the
Corporation or its subsidiaries or affiliates, engage in any activity
competitive with the business of the Corporation or its subsidiaries or
affiliates;
(b) the Executive will not, directly or
indirectly, solicit or otherwise attempt to establish for himself or any person,
firm or entity, other than the Corporation or its subsidiaries or affiliates,
any business relationship with any person, firm or corporation which was, at the
time of termination of the Employment Period, a customer of the Corporation or
one of its subsidiaries or affiliates, but only to the extent such business
relationship would be competitive with the business of the Corporation or its
subsidiaries or affiliates; or
(c) the Executive will not, directly or
indirectly, either individually or as owner, agent, employee, consultant or
otherwise, except for the account of and on behalf of the Corporation or its
subsidiaries or affiliates, solicit or otherwise attempt to establish for
himself or any other person, firm or entity, any employment, agency, consulting
or other relationship with any person (except any person with whom the Executive
had a business relationship prior to his employment with the Corporation
hereunder, other than solely through his previous affiliation with the
Corporation as a director) who was an employee of the Corporation or its
subsidiaries or affiliates at any time within one year before termination or
expiration of the Employment Period.
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2.2. INVESTMENTS. Nothing in this Section 2 shall be construed
to prevent the Executive from owning, as an investment, not more than 2% of a
class of equity securities issued by any competitor of the Corporation or its
affiliates and publicly-traded and registered under Section 12 of the Securities
Exchange Act of 1934.
2.3. TRADE SECRETS. The Executive will keep confidential any
and all trade secrets and confidential or proprietary information of the
Corporation and its subsidiaries and affiliates which are now known to him or
which hereafter may become known to him as a result of his employment or
association with the Corporation and shall not at any time directly or
indirectly disclose any such information to any person, firm or corporation, or
use the same in any way other than in connection with the business of the
Corporation or its affiliates during and at all times after the expiration of
the Employment Period. For purposes of this Agreement, "trade secrets and
confidential or proprietary information" means information unique to the
Corporation or any of its subsidiaries or affiliates which has a significant
business purpose and is not known or generally available from sources outside
the Corporation or any of its affiliates or typical of industry practice.
2.4. COMPANY PROPERTY. All correspondence, records, documents,
software, promotional materials and other Corporation property, including all
copies, which come into Executive's possession by, through or in the course of
his employment, regardless of the source and whether created by Executive, are
the sole and exclusive property of the Corporation, and immediately upon the
termination of Executive's employment, Executive shall return to the Corporation
all such property of the Corporation.
3. CORPORATION'S REMEDIES FOR BREACH.
It is recognized that damages in the event of breach of
Section 2 by the Executive would be difficult, if not impossible, to ascertain,
and it is therefore agreed that the Corporation, in addition to and without
limiting any other remedy or right it may have, shall have the right to an
injunction or other equitable relief in any court of competent jurisdiction,
enjoining any such breach, and the Executive hereby waives any and all defenses
he may have on the ground of lack of jurisdiction or competence of the court to
grant such an injunction or other equitable relief. The existence of this right
shall not preclude any other rights and remedies at law or in equity which the
Corporation may have.
4. EMPLOYMENT PERIOD.
4.1. DURATION. The Employment Period shall commence on March
22, 1999, and shall continue through December 31, 2000; PROVIDED, HOWEVER, the
Employment Period shall automatically be renewed for one year periods beginning
on each January 1, commencing on January 1, 2001, unless either the Corporation
or the Executive gives the other at least 90 days advance written notice of
non-renewal. Notwithstanding the preceding sentence, the Employment Period shall
automatically terminate upon the Executive's death, retirement or Total
Disability, or upon a termination by the Corporation for cause under Section 4.2
hereof. In the event that the Employment Period shall terminate upon the
Executive's death, retirement or Total Disability, or for cause under Section
4.2 hereof, the Corporation shall pay the Executive his base salary and
Incentive Compensation to the extent as accrued through the date of such
termination, at the rate or rates then in effect, and the Corporation shall have
no further obligation to the Executive under this Agreement. Any reference
herein to "termination" of the Executive's employment shall not be deemed to
mean or include the cessation of the Executive's employment with the Corporation
as a result of expiration of the Employment Period on December 31, 2000 or on or
as of December 31 of any subsequent calendar year upon non-renewal of the
Employment Period by the Corporation.
4.2. TERMINATION FOR CAUSE. The Executive's employment under
this Agreement may be terminated by the Board of Directors of the Corporation
for cause. As used in this Agreement, termination for cause shall mean the
Executive's termination for gross negligence, commission of a felony,
incompetence, fraud or dishonesty involving the Corporation's assets,
intentional failure to perform his duties hereunder or any other material breach
by the Executive of this Agreement (including, without limitation, Section 2
hereof). The Corporation shall notify
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the Executive in writing at least 15 days in advance of any proposed
termination for cause, indicating in detail the specific reasons for such
termination and shall extend to the Executive the opportunity during such 15
days to cure the breach or misconduct if the same is capable of being cured.
In the event that the Executive's employment under this Agreement is
terminated for cause, the Corporation shall pay the Executive his base salary
and Incentive Compensation to the extent accrued through the date of such
termination, at the rate or rates then in effect, and the Corporation shall
have no further obligation to the Executive under this Agreement.
4.3. TERMINATION WITHOUT CAUSE.
(a) In the event the Executive's employment
hereunder is terminated without cause other than a termination as a result of,
or in connection with or following, a Change in Control pursuant to Section 5,
the Executive shall be entitled to receive (i) the greater of (x) the
compensation described in Section 1.2(a) of this Agreement for the unexpired
remainder of the Employment Period and the benefits described in Section 1.2(c)
of this Agreement (other than those benefits, E.G. stock option plan, profit
sharing plan and education benefits, which are available only to employees of
the Corporation to which the Executive will not be entitled, except that, in the
case of health, life, disability and other insurance plans or programs in which
the Executive participated immediately prior to the termination, such benefits
shall continue, provided that the Executive's continued participation is
permissible under the general terms and provisions of such plans or programs, or
in the event that such continued participation is barred or not otherwise
permissible or available, the Corporation shall arrange to provide the
Executive, at the expense of the Corporation, with benefits substantially
similar to those which the Executive had been receiving under such plans health,
life, disability and other insurance and programs immediately prior to the time
of termination of the Executive's employment for the unexpired remainder of the
Employment Period), or (y) one year's annual salary as in effect on the date of
such termination, in either case together with (ii) an amount equal to the
Incentive Compensation, if any, the Executive received during the twelve-months'
period immediately preceding such termination. All payments under this Section
4.3(a) shall be made in three substantially equal monthly installments,
commencing on the first day of the first calendar month immediately following
the month during which the date of termination occurred and continuing on the
first day of each of the two immediately succeeding consecutive calendar months,
without present value discount, except that if the Corporation is to continue to
provide benefits pursuant to clause (x) above, it shall do so for the longer of
the unexpired remainder of the Employment Period or one year from the date of
such termination.
(b) The Executive shall not be required to
mitigate the amount of any payment or benefit to which he may be entitled under
this Agreement by seeking other employment, nor shall any such amount be reduced
by remuneration earned from other sources if his employment is terminated
without cause.
(c) The Executive agrees that the compensation
and benefits to which he shall be entitled in the event of termination of his
employment hereunder without cause shall be in lieu of all other claims which
the Executive may make against the Corporation by reason of such termination of
employment. Reference herein to termination of the Executive's employment
hereunder "without cause" shall not mean or include, but shall specifically
exclude, termination upon death, retirement or Total Disability of the
Executive.
(d) The Executive and the Corporation recognize
that, due to the relationship of the Executive and the Corporation and such
relationship's susceptibility to public comment which may be injurious to the
Executive or the Corporation, or both, it is necessary for the protection of
both parties that neither party make any disparaging public statements
concerning the termination of this Agreement and the arrangements made pursuant
thereto. The Executive and the Corporation, accordingly, agree that neither the
Executive nor the Corporation will make any public comments about the other at
any time following the termination of this Agreement without the express prior
approval of the other party, which approval shall not be unreasonably withheld,
conditioned or delayed, and subject in any event to any obligation on the part
of the Corporation under applicable law, including federal securities laws, to
issue a press release or otherwise to make public comment regarding such
matters.
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5. CHANGE IN CONTROL.
5.1 TERMINATION IN CONNECTION WITH CHANGE IN CONTROL.
(a) If, during the term of this Agreement, there
is a "Change in Control" of the Corporation and the Executive terminates his
employment under this Agreement voluntarily for "Good Reason" (as defined in
Section 5.2 hereof) within six months after the Change in Control of the
Corporation or such employment is terminated by the Corporation without cause in
connection with or within six months after the Change in Control of the
Corporation (unless such termination occurs by virtue of Executive's normal
retirement, Total Disability or death, or the Employment Period expires or is
not renewed), as consideration for services previously rendered to the
Corporation and in lieu of any future payments to the Executive under Section
1.2(a) hereof, the Executive will be entitled to receive a lump sum cash payment
as provided for herein (an "Involuntary Severance Payment"), and the Corporation
shall have no further obligation to the Executive under this Agreement. The
amount of the Involuntary Severance Payment shall equal the applicable multiple
(I.E., one times or two times) of (or if the Change in Control occurs on or
after January 1, 2001, one times) the Executive's annual compensation (including
both salary and any Incentive Compensation) paid by the Corporation to or
accrued for the benefit of the Executive for the most recently completed taxable
year of the Corporation ending prior to such termination of employment;
PROVIDED, HOWEVER, if the Executive has been employed by the Corporation for
less than one year as of the Change in Control, the Involuntary Severance
Payment shall equal two times the Executive's then current annual base salary
plus the applicable multiple of any Incentive Compensation payment paid to the
Executive since his employment by the Corporation commenced. The amount of the
Involuntary Severance Payment shall not be reduced by any compensation which the
Executive may receive from other employment with another employer after
termination of his employment with the Corporation.
(b) If during the term of this Agreement there
is a "Change in Control" of the Corporation and the Executive voluntarily
terminates his employment hereunder without "Good Reason" within six months
after the Change in Control but prior to expiration of the Employment Period, as
consideration for services previously rendered to the Corporation, the Executive
shall be entitled to receive a lump sum cash payment (a "Voluntary Severance
Payment") equal to the then annual salary payable to the Executive under Section
1.2(a) hereof, and the Corporation shall have no further obligation to the
Executive under this Agreement.
(c) The Corporation agrees to cause the
Compensation Committee of the Board of Directors to cause all stock options
granted to the Executive whether pursuant to the Corporation's Stock Option
Plans or otherwise to provide that all options granted under those agreements
(including the options granted under Section 1(e) hereof) shall automatically
become completely vested no later than immediately prior to any Change in
Control.
5.2 DEFINITIONS.
(a) For purposes of this Agreement, a "Change in
Control" of the Corporation shall be deemed to have occurred if (i) any person,
entity or group of persons or entities acting in concert (collectively, a
"Person") becomes or become the beneficial owners of 50% or more of the then
outstanding shares of Common Stock of the Corporation, (ii) any Person holds
revocable or irrevocable proxies entitling them to vote 50% or more of the then
outstanding shares of the Corporation's Common Stock (other than the persons
named as proxies in any Proxy Statement prepared by management of the
Corporation in connection with an annual or special meeting of stockholders
called by an officer or the Board of Directors of the Corporation), (iii) a
merger, sale of substantially all the assets of the Corporation, share exchange,
consolidation or other business combination (as defined in the Maryland General
Corporation Law) of the Corporation and any other Person, as a result of which
the Corporation's Common Stock becomes exchangeable for other securities or
property or cash, or (iv) if a majority of the members of the Board of Directors
is replaced during any 12 month period during the Employment Period but only if
the
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directors who replace such majority have not been elected either by the
remaining members of the Board of Directors or by the stockholders of the
Corporation.
(b) For purposes of this Agreement, "Good
Reason" shall include a material reduction in the position, authority, duties or
responsibilities of the Executive from those which existed prior to the Change
in Control or a reduction in the Executive's job stature as reflected in his
title. For example, Good Reason would exist if (i) the Executive's duties and
responsibilities were changed so that he was no longer the Chief Executive
Officer of the Corporation (including, if the Corporation becomes a division of
another entity in a merger and the Executive were designated Chief Executive
Officer of the division instead of the entire entity), or (ii) the Executive
were required to report to persons other than the Board of Directors of the
Corporation or, if the Corporation becomes a subsidiary of another corporation,
to the Board of Directors of the parent corporation. If the Executive notifies
the Board of Directors of the Corporation that he intends to resign voluntarily
for Good Reason, he shall state in his notice the reasons why he believes that
Good Reason exists for such resignation. Unless the Corporation, within 15 days
of the date of the Corporation's notice of resignation, rejects the Executive's
statement that Good Reason exists, the Executive's entitlement to the
Involuntary Severance Payment shall be conclusive. If the Board of Directors
rejects the Executive's statement of Good Reason within such 15-day period, the
dispute shall be resolved by arbitration as provided in Section 10 hereof.
6. CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION.
6.1 EXCISE TAX PROTECTION. In the event it shall be
determined that any payment or distribution by the Corporation to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or
any successor provision) of the Internal Revenue Code of 1986, as amended, or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Corporation
shall pay to the Executive an additional amount (a "Gross-Up Payment") such
that, after payment by the Executive of all income and employment taxes and any
Excise Tax imposed upon the Gross-Up Payment, the Executive will retain an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
6.2 DETERMINATIONS. Subject to the provisions of Section 6.3
below, all determinations required to be made under this Section 6.2, including
whether and when a Gross-Up Payment is required, the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the Corporation's then independent auditors (the
"Accountants"), who shall provide detailed supporting calculations both to the
Corporation and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as may be
requested by the Corporation. The Accountants may employ and rely upon the
opinion of legal counsel to the extent it deems necessary or advisable. All fees
and expenses of the Accountants shall be borne solely by the Corporation. Any
Gross-Up Payment determined pursuant to this Section 6 shall be paid by the
Corporation to the Executive within five business days of the Corporation's
receipt of the Accountants' determinations. If the Accountants determine that no
Excise Tax is payable by the Executive, the Accountants shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. Any determination by the
Accountants shall be binding upon the Corporation and the Executive. If no
Gross-Up Payment is made by the Corporation or any Gross-Up Payment which is
made by the Corporation is determined by the Internal Revenue Service to be
insufficient to satisfy the Excise Taxes and/or all applicable income taxes
incurred by the Executive on the Gross-Up Payment (in either case, an
"Underpayment"), and the Executive thereafter is required to make a payment of
any Excise Tax, the Accountants shall determine the amount of the Underpayment
that has occurred, and any such Underpayment shall be promptly paid by the
Corporation to or for the benefit of the Executive. The Executive shall promptly
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notify the Corporation in writing of any claim by the Internal Revenue Service
that, if successful, would result in the assessment or collection of any
Underpayment, and shall permit the Corporation to participate in any proceedings
relating to such claim if the Corporation wishes to contest the Internal Revenue
Service's claim. The Corporation shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with any such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.
6.3. REFUNDS. If, after the receipt by the Executive of any
amount paid or advanced by the Corporation in connection with a contest
undertaken pursuant to Section 6.2, the Executive becomes entitled to receive
any refund or credit with respect thereto, the Executive shall (subject to the
Corporation's complying with Section 6.2) promptly pay to the Corporation the
amount of such refund or credit (together with any interest paid or credited
thereon after taxes applicable thereto).
7. LEGAL COSTS; INTEREST ON OVERDUE PAYMENTS.
(a) The Executive shall be entitled to consult
with counsel with respect to negotiation and execution of this Agreement, and
the Corporation agrees to pay the fees of counsel for the Executive in so
advising him or in the negotiation of the terms hereof, not to exceed $2,000,
plus reasonable disbursements.
(b) The Executive shall be entitled to receive
interest (at the prime rate of interest as then announced by the Corporation's
then bank lenders) on any payment due to Executive hereunder which is not paid
when due (other than payments deferred with the consent of Executive).
8. NOTICES.
Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Corporation or, in the case of the Corporation, at its
principal executive offices.
9. BINDING AGREEMENT.
This Agreement shall be effective as of the date hereof and
shall be binding upon and inure to the benefit of the Executive, his executors,
administrators and personal representatives. The rights and obligations of the
Corporation under this Agreement shall inure to the benefit of and shall be
binding upon the Corporation and any successor of the Corporation as defined in
the Maryland General Corporation Law as now in effect; provided that (i) this
Agreement shall be binding upon any successor of the Corporation who is a vendee
or other transferee of substantially all of the assets of the Corporation only
insofar as the obligations of the Corporation hereunder shall have been
expressly assumed by such vendee or transferee in connection with or pursuant to
such transfer; (ii) this Agreement may not be assigned by the Corporation
without the consent of the Executive, and (iii) in the case of a successor by
sale or transfer of all or substantially all of the assets of the Corporation,
or any other successor in which the Corporation does not cease to exist by
operation of the transaction in question as a matter of law, the Corporation or
such successor shall not be relieved of its obligations hereunder. All
references herein to the Corporation shall be deemed to include any such
successor who shall become obligated to the Executive hereunder.
10. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY.
(a) This Agreement constitutes the entire
understanding of the Executive and the Corporation with respect to the subject
matter hereof and supersedes any and all prior understandings written or oral.
This Agreement may not be changed, modified or discharged orally, but only by an
instrument in writing signed by the parties. The Executive's or Corporation's
failure to insist upon strict compliance with any provision hereof shall not be
deemed to be a waiver of such provision or any other provision hereof.
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(b) This Agreement shall be governed by the laws
of the State of Maryland, and the invalidity or unenforceability of any
provisions hereof shall in no way affect the validity or enforceability of any
other provision.
(c) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be deemed severable from the remainder of this Agreement, and the remaining
provisions contained in this Agreement shall be construed to preserve to the
maximum permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction where it is not
prohibited or unenforceable.
11. ARBITRATION.
Any disputes hereunder which cannot be resolved by negotiations between
the Corporation and the Executive shall be submitted to, and determined by,
arbitration in accordance with the arbitration rules of Jams/Endispute, Inc.,
and the parties agree that arbitration shall be the exclusive method of
resolution of any dispute under this Agreement and agree to be bound by the
final award of the arbitrator in any such proceeding. The arbitrator shall apply
the laws of the State of Maryland. Arbitration may be held in Baltimore,
Maryland or such other place as the parties hereto may mutually agree. Judgment
upon the award by the arbitrator may be entered in any court having jurisdiction
thereof. In reaching its decision, the arbitrator shall have no authority to
change or modify any provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ATTEST: CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
/s/ JOHN T. JANSSEN
- -----------------------------
By: /s/ THOMAS P. RICE
----------------------------------------
Title: President & Chief Executive Officer
WITNESS: EXECUTIVE:
/s/ JOHN T. JANSSEN /s/ JOHN T. BOTEK
- ----------------------------- -------------------------------------------
John T. Botek
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10.23
June 22, 1999
William P. Tew, Ph.D.
c/o Chesapeake Biological Laboratories, Inc.
1111 South Paca Street
Baltimore, Maryland 21230
Dear Bill:
This letter contains the agreement between William P. Tew
("Tew") and Chesapeake Biological Laboratories, Inc. ("CBL") relative to
Tew's resignation as an employee and director of CBL. Tew and CBL
hereby agree as follows:
1. RESIGNATION AS EMPLOYEE, DIRECTOR AND CHAIRMAN OF THE BOARD. Tew
hereby resigns as an employee, director and Chairman of the Board of CBL, which
resignation shall be effective on June 30, 1999.
2. CONSULTING PAYMENT. Tew agrees to provide consulting services to CBL
from July 1, 1999, through June 30, 2000. As consideration for these services,
CBL shall pay Tew $122,500, payable in 12 equal monthly installments of $10,208,
beginning on July 1, 1999, and continuing on the first day of each month
thereafter through June 1, 2000, regardless of the death or disability of Tew.
Tew shall make himself available to consult with CBL, as reasonably requested by
CBL, during normal business hours during this period, provided that Tew shall
not be required to provide more than 10 hours of consulting services per month
and, in any event, not more than a total of 120 hours during such 12 month
period.
3. PAYMENT OF AMOUNT DUE UNDER FEBRUARY 10, 1999 LETTER. By letter
dated February 10, 1999, CBL agreed to pay Tew $120,000 following occurrence of
a "Qualifying Event," as defined therein. CBL agrees to pay Tew such $120,000
even though a Qualifying Event has not occurred. Such amount shall be paid in 12
equal installments of $10,000, beginning on July 1, 1999, and continuing on the
first day of each month thereafter through June 1, 2000, regardless of the death
or disability of Tew. In the event that a Qualifying Event does occur on or
before December 31, 1999, CBL agrees to pay Tew an additional $65,000 no later
than 30 days after such occurrence.
4. ACCELERATION UPON NON-PAYMENT. In the event any payments referred to
in paragraphs 2 and 3 of this letter are more than 15 business days late on two
occasions, all amounts referred to in paragraphs 2 and 3 of this letter shall
become immediately due and payable.
5. EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control in
CBL, as defined in Section 1(d) of the Employment Agreement, dated July 1, 1995,
as amended by agreements dated November 21, 1996 and February 10, 1999, between
CBL and Tew (collectively, the "Tew Employment Agreement"), all amounts referred
to in paragraphs 2 and 3 of this letter shall become immediately due and
payable.
6. INSURANCE BENEFITS. CBL agrees to continue to provide those
insurance benefits to Tew that CBL agreed to provide under Section 7(d) of the
Tew Employment Agreement through June 30, 2001, or earlier if Tew so elects in
writing. CBL will provide Tew proof of such continuation of benefits upon Tew's
written request. If Tew elects to discontinue receiving such insurance benefits
from CBL, CBL shall pay Tew, within 10 days after the end of each full month
thereafter through June 30, 2001, an amount equal to 25% of what CBL's cost of
providing benefits to Tew would have been if Tew continued to receive them
during such month. CBL shall provide to Tew evidence of such costs upon Tew's
request. CBL agrees to use reasonable efforts (i) to assign ownership of any
life insurance policy owned by CBL and pursuant to which Tew is the beneficiary
to Tew and (ii) to convert any policy relating to disability benefits payable to
Tew to an individual policy owned by Tew.
7. OPTIONS. CBL agrees that all unexpired stock options previously
granted to Tew shall become fully vested on June 22, 1999, and shall remain
exercisable thereafter in accordance with the applicable option agreements until
the expiration dates stated in such option agreements notwithstanding the fact
Tew will no longer be an employee of CBL. Tew acknowledges that the foregoing
will cause all such options to be disqualified for incentive stock option
treatment. All such qualified options shall be converted to non-qualified stock
options. All such options
22
<PAGE>
are described on Schedule A hereto. In the event and to the extent such
amendments to Tew's options described in this paragraph 7 and attached hereto as
Schedule B are not permitted or possible for any reason or such option
agreements, as amended, are for any reason deemed invalid, CBL will grant to Tew
as soon as practicable one or more non-qualified stock options, consistent with
the terms of the April 8, 1999 letter agreement between CBL and Tew (the related
terms of which letter agreement shall specifically survive the execution of this
letter agreement).
8. COMPUTER. Tew shall be entitled to retain the laptop computer
provided to him by CBL. Tew agrees to purge all CBL files from the computer,
without retaining any copies thereof, prior to June 30, 1999. Tew agrees that,
except for the laptop computer, he will return to CBL any and all CBL property
or documents in his possession on or before June 30, 1999.
9. PERSONAL PROPERTY. Tew shall be entitled to remove his personal
property from CBL within a reasonable period of time, but in any event prior to
July 15, 1999.
10. LEGAL EXPENSES. Promptly after Tew's signing of this letter, CBL
shall pay Tew $1,000.00 to cover his legal expenses in connection with this
letter.
11. AMERICAN EXPRESS. CBL shall use commercially reasonable efforts to
cause Tew to be released from any obligations as guarantor of CBL's corporate
American Express charge account.
12. CONFIDENTIALITY. Since as part of his employment, Tew has had
access to information of a nature not generally disclosed to the public. Tew
agrees to keep confidential and not disclose to anyone, all business,
proprietary and trade secret information about CBL in his possession. This
letter, its contents and all information pertaining to its negotiations are to
remain confidential. Each party agrees not to communicate any derogatory or
disparaging information concerning the other.
13. WHOLE AGREEMENT. Each party acknowledges that this agreement is a
full and accurate embodiment of the understanding between the parties and that
it supersedes any prior agreements or understandings made by the parties. The
terms of this agreement may not be modified, except by mutual consent of the
parties. Any and all modifications must be reduced to writing and signed by the
parties to be effective.
14. AUTHORIZATION. CBL has the corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and the performance by CBL of this
Agreement and the consummation by CBL of the transactions contemplated hereby,
including the grant of options pursuant to paragraph 7 above, have been duly and
validly authorized by all necessary corporate action on the part of CBL,
including but not limited to approval by the CBL Board of Directors.
15. NO OTHER AGREEMENTS. CBL and Tew each acknowledge that (i) the Tew
Employment Agreement, is hereby terminated in its entirety and that there are no
other agreements, written or oral, between them, except the option agreements
referred to in paragraph 7 above and those set forth in this letter, each of
which shall remain in effect in accordance with its terms and (ii) Tew is
entitled to no other or further compensation, remuneration or benefits except as
described in this letter.
16. FULL RELEASE. In keeping with the mutual intent of the parties for
an amicable separation, and as part of the parties' accord, each party releases
the other party of and from any and all claims, causes of action, demands,
obligations, agreements, promises, liability, damages, costs and/or fees arising
out of or relating to Tew's employment by CBL, including his separation from
employment and his resignation as a director of CBL. By this paragraph, each
party is waiving any claims which may exist against the other, including CBL,
its directors, officers, employees and agents, and all related or affiliated
persons, firms or entities of either party. This includes all rights and
obligations under any federal, state or local laws pertaining to employment.
However, nothing in this paragraph will affect the right of either party to
enforce rights or entitlements specifically provided for under this letter as
set forth above. Tew and CBL agree that this release shall not apply to (a) the
obligation of CBL to indemnify Tew as
23
<PAGE>
required by (i) law, (ii) the Articles of Incorporation of CBL, as amended, or
(iii) the By-laws of CBL, as amended or (b) the obligation of CBL's director and
officer liability insurance carrier to perform under such policy with respect to
Tew.
17. ARBITRATION. CBL and Tew agree that any controversy or claim
arising out of or relating to this Agreement or breach thereof shall be settled
by arbitration in Baltimore City, Maryland in accordance with the National Rules
of the American Arbitration Association (the "AAA"). Each Party shall appoint an
arbitrator who has expertise in the interpretation of this type of agreement and
these two arbitrators shall select a third neutral arbitrator from the AAA's
panel who also shall have expertise in the interpretation of this type of
agreements. In reaching their decision, the arbitrators shall have no authority
to change or modify any provision of this Agreement. Such arbitrators shall act
as the administrators and exclusive arbitrators with respect to all claims. The
non-prevailing party shall be responsible for all costs including reasonable
legal fees of the prevailing party. The decision of the arbitrators as to the
validity of the claim and amount of damages in respect to such claim shall be
binding and conclusive upon the Parties and may be entered in any court having
jurisdiction.
If the above terms are acceptable, kindly so indicate by countersigning
this letter in duplicate and returning one fully signed copy of the undersigned,
whereupon this letter will constitute the legally binding agreement between CBL
and Tew, executed under seal.
Very truly yours,
Chesapeake Biological Laboratories, Inc.
By: /S/ THOMAS P. RICE (SEAL)
----------------------------
Thomas P. Rice
President
Accepted and agreed this 22nd
day of June, 1999
/S/ WILLIAM P. TEW, PH.D. (SEAL)
- --------------------------
William P. Tew, Ph.D.
24
<PAGE>
SCHEDULE A
QUALIFIED OPTIONS
<TABLE>
<CAPTION>
DATE OF GRANT # OF SHARES OPTION PRICE OUTSTANDING VESTED EXPIR. DATE
------------- ----------- ------------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
11/18/96 75,000 $3.44 75,000 18,750 11/18/01
7/2/97 30,130 $3.75 30,130 30,130 7/2/07
12/23/98 100,000 $3.8125 100,000 100,000 12/13/08
2/11/99 25,000 $3.8125 25,000 25,000 2/11/09
</TABLE>
25
<PAGE>
SCHEDULE B
AMENDMENT NO. 1 TO QUALIFIED OPTIONS
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
AMENDMENT NO. 1 TO INCENTIVE STOCK OPTION AGREEMENTS
THIS AMENDMENT NO. 1 TO INCENTIVE STOCK OPTION AGREEMENTS
(this "Amendment No. 1") is made as of this 22nd day of June, 1999
(the "EFFECTIVE DATE"), by and between Chesapeake Biological Laboratories,
Inc., a Maryland corporation (the "COMPANY"), and William P. Tew
(the "OPTIONEE").
WHEREAS, pursuant to the terms and conditions of those certain
Incentive Stock Option Agreements dated November 18, 1996, July 2, 1997,
December 22, 1998, and February 11, 1999 (the "INCENTIVE STOCK OPTION
AGREEMENTS"), the Company previously granted the Optionee options to purchase
shares (75,000 shares, 30,130 shares, 100,000 shares, and 25,000 shares,
respectively) of the Company's Common Stock to provide incentives for the
Optionee and to promote the success of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Optionee and the Company agree to all of the terms and
conditions of the Incentive Stock Option Agreements as amended hereby.
2. The following sentences shall be inserted at the end of
Section 2 of the Incentive Stock Option Agreements:
"Notwithstanding anything to the contrary contained herein; (a) if the
Optionee's employment terminates, the 90-day limitation on exercise set forth in
Internal Revenue Code Section 422 shall not apply and the options shall remain
exercisable until 5 p.m. Baltimore time on the dates set forth below in Section
3, and (b) to the extent the options are not exercised prior to Optionee's
termination of employment, the options will survive as fully vested and fully
exercisable non-qualified stock option agreements."
3. Section 3 of each of the Incentive Stock Option Agreements
shall be deleted in their entirety and the following Section 3 shall be inserted
in lieu thereof:
"3. OPTION. The options are fully vested and will be
exercisable as to the covered shares in accordance with the following
schedule:
<TABLE>
<CAPTION>
DATE OF INCENTIVE PERCENTAGE OF OPTIONED
STOCK OPTION AGREEMENT PERIOD SHARES SUBJECT TO EXERCISE
<S> <C> <C>
November 18, 1996 The date hereof and until the fifth (5)
Anniversary of November 18, 1996. 100%
July 2, 1997 The date hereof and until the tenth (10)
Anniversary of July 2, 1997. 100%
26
<PAGE>
December 22, 1998 The date hereof and until the tenth (10)
Anniversary of December 22, 1998. 100%
February 11, 1999 The date hereof and until the tenth (10)
Anniversary of February 11, 1999. 100%
</TABLE>
4. The Option may be exercised by tender (via actual delivery or
attestation) to the Company of other shares of Stock of the Company which have a
Fair Market Value on the date of tender equal to the Exercise Price, provided
that such shares have been owned by the Optionee for a period of at least six
months or were purchased on the open market without assistance, direct or
indirect, from the Company;
5. If the Optionee dies prior to the Expiration Date, the Option
shall be exercisable during the 12-month period following the date of death of
the Optionee with respect to all vested shares, but in no event after the
Expiration Date, by the Optionee's executor, personal representative, or the
person(s) to whom this Option is transferred by will or the laws of descent and
distribution. Unless sooner terminated, this Option shall terminate in its
entirety upon the expiration of such 12-month period.
6. This Amendment No. 1 shall in all respects be governed by,
and construed and enforced in accordance with, the laws of the State of
Maryland.
7. General.
(a) Any party's failure to enforce any provision or
provisions of this Amendment No. 1 or the Incentive Stock Option Agreements
shall not in any way be construed as a waiver of any such provision or
provisions, nor shall such failure to enforce prevent that party thereafter from
enforcing each and every other provision of this Amendment No. 1 or the
Incentive Stock Option Agreements. The rights granted to the parties herein are
cumulative and shall not constitute a waiver of any party's right to assert all
other legal remedies available to it under the circumstances.
(b) This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
(c) The Optionee and the Company agree to execute upon
request any further documents or instruments necessary or desirable to carry out
the purposes or intent of this Amendment No. 1 or the Incentive Stock Option
Agreements.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals as of the day and year first above written.
COMPANY
27
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
By: /s/ HARVEY L. MILLER (SEAL)
----------------------------
Harvey L. Miller, Option Committee Chairman
OPTIONEE
By: /s/ WILLIAM P.TEW, PH. D. (SEAL)
--------------------------------
William P. Tew, Ph.D.
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,571
<SECURITIES> 0
<RECEIVABLES> 1,479
<ALLOWANCES> 64
<INVENTORY> 639
<CURRENT-ASSETS> 4,064
<PP&E> 12,953
<DEPRECIATION> 2,799
<TOTAL-ASSETS> 14,320
<CURRENT-LIABILITIES> 2,256
<BONDS> 7,142
0
1,414
<COMMON> 8,398
<OTHER-SE> (5,660)
<TOTAL-LIABILITY-AND-EQUITY> 14,320
<SALES> 2,449
<TOTAL-REVENUES> 2,449
<CGS> 1,764
<TOTAL-COSTS> 2,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 112
<INCOME-TAX> 0
<INCOME-CONTINUING> 112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
