SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a - 11(c) or ss. 240.14a - 12
COMMONWEALTH BIOTECHNOLOGIES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
Commonwealth Biotechnologies, Inc.
601 Biotech Drive
Richmond, Virginia 23235
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders,
which is to be held on May 23, 2002, at 11:00 a.m. at 601 Biotech Drive,
Richmond, Virginia 23235. The following pages contain the formal notice of the
Annual Meeting and our Proxy Statement, which describe the specific business to
be considered and voted upon at the Annual Meeting.
It is important that your shares be represented at the meeting. Whether
or not you expect to attend in person, we would greatly appreciate your efforts
to return the enclosed proxy as soon as possible. If you decide to attend the
Annual Meeting, you may withdraw your proxy should you wish to vote in person.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Richard J. Freer
Richard J. Freer, Ph.D.,
Chairman of the Board of Directors
COMMONWEALTH BIOTECHNOLOGIES, INC.
601 Biotech Drive
Richmond, Virginia 23235
Notice of Annual Meeting of Shareholders
To Be Held
May 23, 2002
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Commonwealth Biotechnologies, Inc. (the "Company") will be held on
May 23, 2002, at 11:00 a.m. at 601 Biotech Drive, Richmond, Virginia 23235, for
the following purposes:
(1) To elect three nominees as Class II Directors of the Company;
(2) To approve the adoption of the Company's 2002 Stock Incentive Plan;
(3) To approve an amendment to the Company's Amended and Restated Articles
of Incorporation to authorize a new class of undesignated preferred
stock, without par value per share, consisting of 2,000,000 shares of
preferred stock;
(4) To ratify the appointment of McGladrey & Pullen, LLP as independent
public accountants to audit the financial statements of the Company
for the fiscal year ending December 31, 2002; and
(5) To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 15, 2002 will
be entitled to vote at the Annual Meeting.
The enclosed Proxy Statement contains more information pertaining to
matters to be voted on at the Annual Meeting. Please read the Proxy Statement
carefully.
Whether or not you plan to attend the Annual Meeting in person, to assure
the presence of a quorum, please complete, date, sign and return the
accompanying proxy in the enclosed, postage-paid envelope. If you attend the
meeting and wish to vote your shares personally, you may do so at any time
before the proxy is exercised.
By Order of the Board of Directors,
/s/ Thomas R. Reynolds
Thomas R. Reynolds,
Secretary
Richmond, Virginia
April _, 2002
COMMONWEALTH BIOTECHNOLOGIES, INC.
601 Biotech Drive
Richmond, Virginia 23235
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2002
This Proxy Statement is furnished to the holders of common stock,
without par value per share ("Common Stock"), of Commonwealth Biotechnologies,
Inc. (the "Company") in connection with the solicitation of proxies by the Board
of Directors of the Company (the "Board of Directors") to be voted at the annual
meeting of shareholders of the Company (the "Annual Meeting") to be held on May
23, 2002, at 11:00 a.m. at 601 Biotech Drive, Richmond, Virginia, and at any
adjournments or postponements thereof. This Proxy Statement and the accompanying
proxy are first being mailed on or about April _, 2002.
Only the holders of Common Stock of record at the close of business on
March 15, 2002 (the "Record Date") will be entitled to vote at the Annual
Meeting. On such date, 2,076,164 shares of Common Stock were outstanding. Each
shareholder is entitled to one vote per share held of record on the Record Date.
The Common Stock is the Company's only outstanding voting stock.
A majority of the shares of Common Stock entitled to vote, represented
in person or by proxy, is required to constitute a quorum. If a quorum is not
present at the time of the Annual Meeting, or if for any reason the Company
believes that additional time should be allowed for the solicitation of proxies,
the Company may adjourn or postpone the Annual Meeting with or without a vote of
the shareholders. If the Company proposes adjournment, the person named on the
enclosed proxy card will vote such shares for which they have voting authority
in favor of adjournment.
All shares of Common Stock represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
properly revoked will be voted at the Annual Meeting in accordance with the
instructions indicated thereon. If no specification is made, the proxies will be
voted in favor of the matters listed on the proxy card and for the
recommendation of the Board of Directors on any other proposal that may properly
come before the meeting. Directors must be elected by a plurality of votes cast
(in person or by proxy) by the holders of Common Stock entitled to vote at the
Annual Meeting if a quorum is present. All other matters shall be determined
based upon the vote of the majority of votes cast (in person or by proxy) by the
holders of Common Stock entitled to vote at the Annual Meeting if a quorum is
present. Abstentions and broker non-votes will be counted for purposes of
constituting a quorum, but, with the exception of Proposal 3, will not have the
effect of voting in opposition to a director or of a vote against the other
proposals. With respect to Proposal 3, abstentions and broker non-votes will
have the same effect as negative votes.
The Company will pay all expenses of the Annual Meeting, including the
cost of soliciting proxies. The Company may reimburse persons holding shares in
their names for others, or holding shares for others who have the right to give
voting instructions, such as brokers, banks, fiduciaries and nominees, for such
persons' reasonable expenses in forwarding the proxy materials to their
principals. Certain directors, officers and other employees of the Company, not
specially employed for this
purpose, may solicit proxies, without additional remuneration therefor, by
personal interview, mail, telephone, facsimile or other electronic means.
Any shareholder giving a proxy may revoke it by delivering a written
notice of such revocation to Thomas R. Reynolds, the Secretary of the Company,
at 601 Biotech Drive, Richmond, Virginia 23235 prior to the Annual Meeting, by
submitting to the Company a more recently dated proxy or by attending the Annual
Meeting and voting at any time before it is exercised.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Amended and Restated Articles of Incorporation provide
that the Board of Directors shall be divided into three classes of as nearly
equal size as possible. The Board of Directors has nominated the three
individuals named below under the caption "Class II Nominees" for election as
directors to serve until the annual meeting of shareholders in 2004 or until
their successors have been elected and qualified. All of the Class I Nominees
are currently serving on the Board of Directors of the Company with terms
expiring at this Annual Meeting.
The Company's Bylaws, as amended to date, provide that the Board of
Directors shall consist of not less than five nor more than nine directors as
established by the Board of Directors. The size of the Board of Directors
currently consists of eight directors.
Required Vote
Directors must be elected by a plurality of votes cast (in person or by
proxy) by the holders of Common Stock entitled to vote at the Annual Meeting if
a quorum is present.
Class II Nominees:
ROBERT B. HARRIS, PH.D. - President, Director and Founder
Age -- 49
Director since 1992
Since founding the Company in 1992, Dr. Harris has served as the
President and a director of the Company. Until 1997, Dr. Harris was employed in
the Department of Biochemistry and Molecular Biophysics at Virginia Commonwealth
University ("VCU"), first as an Assistant, then Associate and finally a full
Professor. Dr. Harris received a joint bachelor's degree in Chemistry and
Biology from the University of Rochester, and a master's degree and a doctorate
degree in Biochemistry/Biophysical Chemistry from New York University.
SAMUEL P. SEARS, JR. - Director
Age -- 58
Since March 1999, Mr. Sears has been in private practice as an
attorney and has been providing business consulting services. From December 1998
through February 1999, Mr. Sears served as Vice Chairman of American
Prescription Providers, Inc., a specialty pharmacy network offering
prescriptions and nutriceuticals to patients with chronic diseases. From 1995
through May 1998, Mr. Sears was Chief Executive Officer and Chairman of Star
Scientific, Inc., a tobacco company focusing on demonstrating the commercial
viability of potentially less harmful tobacco products. Mr. Sears is a graduate
of Harvard College and Boston College Law School.
2
L. McCARTHY DOWNS III - Director
Age -- 49
Director since 2000
Mr. Downs is Chairman of the Board of Anderson & Strudwick Investment
Corporation, the parent company of Anderson & Strudwick, Incorporated, a
registered broker-dealer ("A&S"). Mr. Downs is a Senior Vice President with A&S.
He has been the manager of A&S' Corporate Finance department since 1990 and has
been involved in several public and private financings for real estate
investment trusts and other companies including the Company. Prior to 1990, Mr.
Downs was employed by another investment banking and brokerage firm for seven
years. In addition, Mr. Downs is a director of Hersha Hospitality Trust, a real
estate investment trust. Mr. Downs received a Bachelor of Science degree in
Business Administration from The Citadel and obtained a master's degree in
Business Administration from The College of William and Mary.
Continuing Directors
The persons named below will continue to serve as directors until the
annual meeting of shareholders in the year indicated and until their successors
are elected and take office. Shareholders are NOT voting on the election of the
three Class III directors and the two Class I Directors noted below.
Class III Directors Serving Until the 2003 Annual Meeting:
RICHARD J. FREER, PH.D. - Chairman of the Board, Director and Founder
Age -- 59
Director since 1992
Since founding the Company in 1992, Dr. Freer has served as the
Chairman of the Board and a director of the Company. From 1975 until 1997, Dr.
Freer was employed in the Department of Pharmacology and Toxicology at VCU,
first as an Associate Professor and then a full Professor. In addition, from
1988 through 1995, Dr. Freer was first Director and then Chair of the Biomedical
Engineering Program. From 1996 through 1997, Dr. Freer served as Professor in
VCU's Department of Biochemistry and Molecular Biophysics. Dr. Freer received a
bachelor's degree in Biology from Marist College and a doctorate degree in
Pharmacology from Columbia University.
DONALD A. MCAFEE, PH.D. - Director
Age -- 60
Dr. McAfee is co-founder, Chief Technical Officer, and a director of
Aderis Pharmaceuticals, Inc. (formerly Discovery Therapeutics, Inc.), a
Richmond, Virginia-based clinical stage pharmaceutical company ("Aderis"). Dr.
McAfee has been a scientist and manager in academia and industry for more than
35 years. From May 1994 to September 2000, Dr. McAfee served as Chief Executive
Officer of Discovery Therapeutics. Before organizing Discovery Therapeutics in
1994, Dr. McAfee served for eight years as Vice President, Research, at Whitby
Research, Inc. (formerly Nelson Research and Development), managing the drug
discovery programs. Prior to entering industry, Dr. McAfee served as Chairman of
the Division of Neurosciences at the Beckman Research Institute (City of Hope)
and held faculty appointments at the Yale University School of Medicine and the
University of Miami School of Medicine. He has authored more than 100 articles
and book chapters in neuroscience and pharmacology. He is currently an adjunct
professor at the University of California, Irvine and at the Medical College of
Virginia, and is a frequent lecturer to the industry in drug discovery for the
Pharmaceutical Education and Research Institute. Dr. McAfee received his Ph.D.
in Physiology from the University of Oregon School of Medicine.
3
Class I Directors Serving Until the 2004 Annual Meeting:
THOMAS R. REYNOLDS - Senior Vice President, Secretary, Director and Founder
Age -- 39
Director since 1992
Mr. Reynolds currently serves the Company as a Senior Vice President
and a director. He assumed the role of the Company's Secretary in 1998. From the
founding of the Company in 1992 until 1997, Mr. Reynolds served as a Vice
President of the Company. From 1987 until 1997, Mr. Reynolds served as the
Manager of the Nucleic Acids Core Laboratory at The Massey Cancer Center at VCU.
Mr. Reynolds received a bachelor's degree in Biology from the Pennsylvania State
University.
EVERETTE G. ALLEN, JR. - Director
Age -- 61
Mr. Allen is the Chairman and senior partner of Allen & Allen, PC, a
Richmond, Virginia law firm. From 1970 to 2001, Mr. Allen served as the Chairman
of and a senior partner in the law firm of Hirschler, Fleischer, Weinberg, Cox &
Allen, P.C. in Richmond, Virginia. Mr. Allen concentrates his practice in
litigation, real estate development, commercial disputes law, finance and debt
restructuring. Mr. Allen was admitted to the Virginia State Bar in 1965. He
served as Executive Editor of the Virginia Law Review from 1964 to 1965 and
served as a Law Clerk to Fourth Circuit Judge Albert V. Bryan of the U.S. Court
of Appeals during 1965 and 1966. He was a member of the Board of Trustees of
Randolph-Macon College from 1988 to 1992 and a Trustee of the Virginia Student
Aid Foundation from 1996 to 1999. Mr. Allen currently is a member of the
American College of Trial Lawyers, a member of the Board of Directors of
Virginia Gas Company and a Trustee of the Metropolitan Richmond Sports
Authority. In addition, Mr. Allen is a director of Hersha Hospitality Trust, a
real estate investment trust. Mr. Allen is a Phi Beta Kappa graduate of Randolph
Macon College in 1962 and received his law degree from the University of
Virginia in 1965.
RAYMOND HAROLD CYPESS - Director
Age -- 62
Director since 1999
Since 1993, Dr. Cypess has been the President and Chief Executive
Officer of American Type Culture Collection ("ATCC"), a leading non-profit
repository for microbiologicals. Since 2000, Dr. Cypess has been Chairman of
Biodominion Corp., a wholly-owned subsidiary of ATCC, and he is currently a
director of Mid-Atlantic Medical Services, Inc. Dr. Cypess received a bachelor's
degree in Biology from Brooklyn College, a bachelor's degree in Agriculture from
the University of Illinois, Urbana, a doctorate degree in Veterinary Medicine
from the University of Illinois, Urbana and a doctorate degree in Parasitology
from the University of North Carolina, Chapel Hill.
4
In voting by proxy for the election of the three nominees as Class II directors
to serve until the annual meeting of shareholders in 2004, shareholders may vote
in favor of all nominees, withhold their votes as to all nominees, or withhold
their votes as to a specific nominee. If no instructions are indicated, such
proxies will be voted FOR the election of all nominees as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE ELECTION OF ALL OF THE PROPOSED CLASS II
NOMINEES TO THE BOARD OF DIRECTORS.
Information Regarding the Board of Directors
The Board of Directors held seven meetings during 2001, including
regular and special meetings. Each director attended at least 75% of the
meetings of the Board of Directors and the committees thereof on which the
director serves.
The Committees of the Board of Directors consist of an Audit Committee,
a Compensation Committee, a Nominating Committee, and a Strategic Planning
Committee. The Audit Committee is currently comprised of Mr. Allen, Mr. Sears,
and Dr. Cypess. The Compensation Committee is currently comprised of Dr. Cypess,
Dr. McAfee and Mr. Sears. The Nominating Committee is comprised of Mr. Reynolds,
Mr. Downs, and Dr. Harris. The Strategic Planning Committee is comprised of Dr.
Harris, Mr. Downs, Mr. Allen, Dr. McAfee, and Mr. Reynolds. During 2001, the
Audit Committee met four times, the Compensation Committee met six times, the
Nominating Committee did not meet, and the Strategic Planning Committee met
three times. The Audit Committee recommends the annual appointment of
independent auditors, with whom the Audit Committee reviews the scope of audit
and non-audit assignments and related fees, accounting principles used by the
Company in financial reporting, internal auditing procedures and the adequacy of
the internal control procedures of the Company. The Compensation Committee
administers the Company's 1997 Stock Incentive Plan and 2000 Stock Incentive
Plan (collectively, the "Incentive Plans") and makes recommendations to the
Board of Directors regarding compensation and benefits for the executive
officers. The Compensation Committee also has oversight responsibilities for all
broad-based compensation and benefit programs. The Nominating Committee
recommends to the Board of Directors candidates for election as director of the
Company and makes recommendations to the Board of Directors regarding director
compensation. The Strategic Planning Committee is responsible for developing,
modifying, and monitoring the implementation of the Company's long-term
strategic plan.
Compensation of Directors
All directors receive a fee of $2,500 for each regularly scheduled
quarterly Board meeting attended (the "Director's Fee"). In addition to the
Director's Fee, all directors receive reimbursement for travel and other related
expenses incurred in attending Board meetings and committee meetings. Since
November 2001, the Company's directors have opted to defer payment of all
Director's Fees and travel reimbursements.
In December 2001, the Board appointed Mr. Sears to serve as an
executive consultant to the Company for the purpose of analyzing the Company's
operational and financial positioning. The term of this arrangement ended on
February 28, 2002, but was extended for an indefinite term. For such services,
the Company shall pay Mr. Sears a flat fee of $40,000. In connection with this
arrangement, the Company has also agreed to reimburse Mr. Sears for all
reasonable travel, hotel and rental car expenses.
5
Report of the Audit Committee
In accordance with its written charter adopted by the Board of
Directors, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. Each of the members
of the Audit Committee is independent as defined by Rule 4200(a)(14) of the
National Association of Securities Dealers, Inc.'s listing standards.
In discharging its oversight responsibility as to the audit process,
the Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee also discussed with management and the independent auditors the
quality and adequacy of the Company's internal controls, organization,
responsibilities, budget and staffing.
The Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees," and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements.
The Audit Committee reviewed the audited financial statements of the
Company as of and for the year ended December 31, 2001, with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and
the independent auditors, the Audit Committee recommended to the Board of
Directors that the Company's audited financial statements be included in its
Annual Report on Form 10-KSB for the year ended December 31, 2001, for filing
with the Securities and Exchange Commission. The Audit Committee also
recommended the reappointment, subject to shareholder approval, of the
independent auditors and the Board of Directors concurred in such
recommendation.
Samuel P. Sears, Jr., Audit Committee Chairman
Everett G. Allen, Jr., Audit Committee Member
Raymond Harold Cypess, Audit Committee Member
6
Principal Accounting Firm Fees
The following table sets forth the aggregate fees billed to the Company
for the fiscal year ended December 31, 2001 by the Company's principal
accounting firm, McGladrey & Pullen, LLP:
Audit Fees (1) $39,750
Financial Information
Systems Design and
Implementation Fees $ -
All Other Fees (2) $29,637
$69,387
- ----------
(1) Includes fees for the annual audit of the financial statements and the
quarterly review of the financial statements.
(2) Includes fees for tax return preparation, post audit and due diligence
procedures related to registration statements, services in connection with a
proposed acquisition and consultation on various accounting matters. The Audit
Committee has considered whether the provision of these services is compatible
with maintaining the principal accountant's independence.
7
PROPOSAL 2: APPROVAL OF THE COMPANY'S 2002 STOCK INCENTIVE PLAN
The Company is asking its shareholders to approve the Commonwealth
Biotechnologies, Inc. 2002 Stock Incentive Plan that was adopted by the Board of
Directors on March 27, 2002. As adopted, the plan makes available up to 300,000
shares of Common Stock for grants of restricted stock awards and stock options
in the form of incentive stock options and non-statutory stock options to
employees, directors and consultants of the Company. The more significant
features of the plan are described below. A copy of the plan, as adopted by the
Board of Directors, is attached as Exhibit A hereto.
---------
Purpose
The purpose of the plan is to promote the success of the Company by
providing greater incentive to employees, directors and consultants to associate
their personal interests with the long-term financial success of the Company and
with growth in shareholder value. The plan is designed to provide flexibility to
the Company in its ability to motivate, attract, and retain the services of
employees, directors and consultants upon whose judgment, interest, and special
effort the successful conduct of the Company's operations largely depends. The
plan terminates on March 27, 2012, unless sooner terminated by the Board of
Directors.
Administration
The plan is administered by the Company's Compensation Committee. The
Committee has the power to select plan participants and to grant stock options
and stock awards on terms the Committee considers appropriate. In addition, the
Committee has the authority to interpret the plan, to adopt, amend or waive
rules or regulations for the plan's administration, and to make all other
determinations for administration of the plan.
Stock Options
Stock options granted under the plan may be incentive stock options or
non-statutory stock options. A stock option entitles the employee to purchase
shares of Common Stock at the option price. The Committee will fix the option
price at the time the stock option is granted, but in the case of an incentive
stock option the exercise price cannot be less than 100% of the shares' fair
market value on the date of grant (or, in the case of an incentive stock option
granted to a 10% shareholder of the company, 110% of the shares fair market
value on the date of grant). The value in incentive stock options, based on the
exercise price, that can be exercisable for the first time in any calendar year
under the plan or any other similar plan maintained by the Company is limited to
$100,000. The option price may be paid in cash or with shares of Common Stock,
or a combination of cash and Common Stock. Stock options may be exercised at
such times and subject to such conditions as may be prescribed by the Committee,
including the requirement that they will not be exercisable after ten years from
the grant date.
Restricted Stock Awards
The plan permits the grant of restricted stock awards (shares of Common
Stock) to plan participants. A restricted stock award may be, but is not
required to be, forfeitable or otherwise restricted until certain conditions are
satisfied. These conditions may include, for example, a requirement that the
plan participant complete a specified period of service or that certain
objectives be achieved. Any restriction imposed on a restricted stock award will
be determined by the Compensation Committee.
8
Transferability
In general, stock options and restricted stock awards granted may not
be assigned, transferred, pledged or otherwise encumbered by a participant,
other than by will or the laws of descent and distribution.
Shares Subject to the Plan
Up to 300,000 shares of Common Stock may be issued to plan participants
under the plan. No stock options or restricted stock awards have been granted
under the plan. The maximum number of shares with respect to which stock options
or restricted stock may be granted under the plan in any calendar year to an
employee is 50,000 shares. In general, if any stock option or restricted stock
award granted terminates, expires or lapses for any reason other than as a
result of being exercised, or if shares issued pursuant to the plan are
forfeited, the Common Stock subject to the stock option or restricted stock
award will be available for further stock options and awards.
Certain Federal Income Tax Consequences
Generally, no federal income tax liability is incurred by a plan
participant at the time a stock option is granted. If the stock option is an
incentive stock option, no income will be recognized upon the participant's
exercise of the stock option. Income is recognized by participant when he or she
disposes of shares acquired under an incentive stock option. The exercise of a
non-statutory stock option generally is a taxable event that requires the
participant to recognize, as ordinary income, the difference between the shares'
fair market value and the option exercise price. For restricted stock awards,
income is recognized by a participant when the shares first become transferable
or are no longer subject to a substantial risk of forfeiture. At that time, the
participant recognizes income equal to the fair market of the Common Stock. The
Company will be entitled to claim a federal business expense tax deduction on
account of the exercise of a non-statutory stock option or the vesting of a
restricted stock award. The amount of the deduction is equal to the ordinary
income recognized by the participant. The Company generally will not be entitled
to a federal income tax deduction on account of the grant or exercise of an
incentive stock option, but may claim a federal income tax deduction on account
of certain disqualifying dispositions of stock acquired upon the exercise of an
incentive stock option. This summary of federal income tax consequences does not
purport to be complete. There may also be state and local income taxes
applicable to these items.
Changes in Capitalization and Similar Changes
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend, stock split, recapitalization or otherwise, the
aggregate number of shares of Common Stock reserved under the plan, and the
terms, exercise price and number of shares of any outstanding stock options or
restricted stock awards will be equitably adjusted by the Committee in its
discretion to preserve the benefits of the stock options and stock awards for
plan participants. For instance, a two-for-one stock split would double the
number of shares reserved under the plan. Similarly, for outstanding stock
options it would double the number of shares covered by each stock option and
reduce its exercise price by one-half.
Option Grants
The Company has not granted any options under the 2002 Stock Incentive
Plan.
9
Stock Price
On March 15, 2002, the closing price of the Company's Common Stock on
the Nasdaq SmallCap Market was $1.85 per share.
Vote Required
Approval of the plan requires that more shares of Common Stock vote in
favor of the plan than against it.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
10
PROPOSAL 3: APPROVAL OF THE CREATION OF BLANK CHECK PREFERRED STOCK
The Board of Directors of the Company adopted a resolution unanimously
approving and recommending to the Company's shareholders for their approval an
amendment to the Company's Amended and Restated Articles of Incorporation to
provide for the creation of a new class of 2,000,000 shares of what is commonly
known as "blank check" preferred stock. If this resolution is approved by the
shareholders, it will be effected by the filing of Articles of Amendment to the
Company's Amended and Restated Articles of Incorporation (the "Amendment"),
which will occur promptly after the Annual Meeting. The following discussion is
qualified in its entirety by reference to the text of the proposed Amendment
attached to this proxy statement as Exhibit B.
---------
The Board of Directors believes the creation of the preferred stock is
in the best interests of the Company and its shareholders and believes it
advisable to authorize such shares to have them available for, among other
things, possible issuance in connection with such activities as public or
private offerings of shares for cash, dividends payable in stock of the Company,
acquisitions of other companies, implementation of employee benefit plans,
pursuit of financing opportunities and otherwise. The term "blank check"
preferred stock refers to stock for which the designations, preferences,
conversion rights, and cumulative, relative, participating, optional or other
rights, including voting rights, qualifications, limitations or restrictions
thereof, are determined by the Board of Directors of a company.
As such, the Board of Directors of the Company will, in the event of
the approval of this proposal by the Company's shareholders, be entitled to
authorize the creation and issuance of 2,000,000 shares of preferred stock in
one or more series with such limitations and restrictions as may be determined
in the sole discretion of the Board of Directors, with no further authorization
by shareholders required for the creation and issuance of the preferred stock.
Any preferred stock issued would have priority over the Common Stock upon
liquidation and might have priority rights as to dividends, voting and other
features. Accordingly, the issuance of preferred stock could decrease the amount
of earnings and assets allocable to or available for distribution to holders of
Common Stock and adversely affect the rights and powers, including voting
rights, of the Common Stock.
Generally, except in connection with a shareholder rights or "poison
pill" plan, preferred stock would be issued to investors in connection with
raising additional equity capital, and would typically contain terms and
conditions intended to protect the interests of investors. Such terms and
conditions typically would include preference over the holders of Common Stock
in the proceeds of a sale or liquidation of the Company (including the
distribution of assets upon a sale of substantially all of its assets and
businesses) and priority dividend rights (which may include cumulative
dividends), and might include special voting rights, special conversion rights
and redemption rights. Such rights, either alone or in combination under
particular circumstances, can provide the holders of preferred stock with a
disproportionate share of current distribution of earnings by way of dividends,
or of the proceeds of a sale or liquidation, or disproportionate rights of
approval with respect to certain kinds of transactions, compared to those of the
holders of Common Stock.
The Board of Directors does not believe that the approval of this
proposal will have an anti-takeover effect, and, as noted below, has represented
that such preferred stock will not be issued for such purpose. The Board of
Directors and management believe that it is in the best interests of the Company
and its shareholders to have the flexibility to raise additional capital or to
pursue acquisitions to support the Company's business plan, including the
ability to authorize and issue preferred stock having terms and conditions
satisfactory to investors or to acquisition candidates, including preferred
stock which contains some features which could be viewed as having an
anti-takeover effect or a potentially adverse effect on the holders of Common
Stock. The Board of Directors and management of the Company represent that they
11
will not, without prior shareholder approval, issue any preferred stock (i) the
principal intent of which is any defensive or anti-takeover purpose or (ii) to
implement any shareholder rights plan. No preferred stock will be issued to any
individual or group for the purpose of creating a block of voting power to
support management on a controversial issue. While the Company may consider
issuing preferred stock in the future for purposes of raising additional capital
or in connection with acquisition transactions, the Company presently has no
agreements or understanding with any person to effect any such issuance, and the
Company may never issue any preferred stock. Therefore, the terms of any
preferred stock subject to this proposal cannot be stated or predicted with
respect to any or all of the securities authorized.
Vote required
Approval of this proposal requires the affirmative vote of a majority
of all of the outstanding shares of Common Stock present or represented and
entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL 3.
12
PROPOSAL 4: SELECTION OF AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors
of the Company has appointed, subject to the approval of the shareholders, the
firm McGladrey & Pullen, LLP as independent public accountants to audit the
Company's financial statements for the fiscal year ended December 31, 2002. If
the appointment of McGladrey & Pullen, LLP is not approved by the shareholders,
the matter will be referred to the Audit Committee for further review.
The Company appointed McGladrey & Pullen, LLP to serve as the Company's
independent public accountants on February 23, 1998. It is anticipated that
representatives of McGladrey & Pullen, LLP will attend the Annual Meeting and
will have an opportunity to make a statement, if they determine to do so, and
will be available to respond to appropriate questions at that time.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE SELECTION OF MCGLADREY & PULLEN, LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS TO AUDIT THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2002.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding beneficial
ownership as of the Record Date (unless otherwise indicated) by (i) each
director and nominee for director, (ii) each person known by the Company to be
the beneficial owner of more than 5% of the Common Stock of the Company, (iii)
the Named Executive Officers (as defined herein), and (iv) all directors and
officers as a group. Except as otherwise indicated, the beneficial owners listed
below have sole voting and investment power with respect to all shares owned by
them, except to the extent such power is shared by a spouse under applicable
law.
Percentage of
Name and Address of Beneficial Owner Shares Beneficially Owned (1) Class (1)
------------------------------------ ----------------------------- ---------
Richard J. Freer, Ph.D. (2) 165,279 7.5
Robert B. Harris, Ph.D. (3) 149,060 6.8
Thomas R. Reynolds (4) 105,744 4.9
James H. Brennan (5) 56,130 2.6
L. McCarthy Downs III (6) 25,375 1.2
Raymond Harold Cypess (7) 10,000 *
Everett G. Allen, Jr. (8) 30,000 1.4
Samuel P. Sears, Jr. (9) 10,500 *
Donald A. McAfee, Ph.D. (10) 10,000 *
James T. Martin (11) 719,500 34.7
Mills Value Adviser, Inc. (12) 514,369 24.8
Juniper Trading Services, Inc. (13) 719,500 34.7
All directors and executive officers as a group 562,088 22.0
(9 persons) (14)
13
- ------------------
* Less than 1%
(1) Applicable percentages are based on 2,076,164 shares outstanding on
March 15, 2002. Also includes shares of Common Stock subject to options and
warrants that may be exercised within 60 days of March 15, 2002. Such shares are
deemed to be outstanding for the purposes of computing the percentage ownership
of the individual holding such shares, but are not deemed outstanding for
purposes of computing the percentage of any other person shown in the table.
This table is based upon information supplied by officers, directors, and
principal shareholders and Schedule 13Gs filed with the SEC. Unless indicated in
the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the shareholders named in this
table has sole voting and investment power with respect to the shares indicated
as beneficially owned.
(2) Dr. Freer's address is 601 Biotech Drive, Richmond, Virginia 23235. The
number of shares deemed to be beneficially held by Dr. Freer includes currently
exercisable options to purchase an aggregate of 111,200 shares of Common Stock
and warrants to purchase an aggregate of 28,947 shares of Common Stock.
(3) Dr. Harris' address is 601 Biotech Drive, Richmond, Virginia 23235. The
number of shares deemed to be beneficially held by Dr. Harris includes currently
exercisable options to purchase an aggregate of 90,937 shares of Common Stock
and warrants to purchase an aggregate of 28,947 shares of Common Stock.
(4) Mr. Reynolds' address is 601 Biotech Drive, Richmond, Virginia 23235. The
number of shares deemed to be beneficially held by Mr. Reynolds includes
currently exercisable options to purchase an aggregate of 80,459 shares of
Common Stock and warrants to purchase an aggregate of 13,158 shares of Common
Stock.
(5) Mr. Brennan's address is 601 Biotech Drive, Richmond, Virginia 23235. The
number of shares deemed to be beneficially held by Mr. Brennan includes
currently exercisable options to purchase an aggregate of 54,680 shares of
Common Stock.
(6) Mr. Downs' address is 707 East Main Street, 20th Floor, Richmond, Virginia
23219. The number of shares deemed to be beneficially held by Mr. Downs
represents currently exercisable warrants to purchase an aggregate of 25,375
shares of Common Stock.
(7) Dr. Cypess' address is 10801 University Boulevard, Manassass, Virginia
20110-2209. The number of shares deemed to be beneficially held by Dr. Cypess
represents currently exercisable options to purchase an aggregate of 10,000
shares of Common Stock.
(8) Mr. Allen's address is c/o Allen & Allen, PC, The Federal Reserve Bank
Building, 701 East Byrd Street, P.O. Box 610, Richmond, Virginia 23218-0500. The
number of shares deemed to be beneficially held by Mr. Allen includes currently
exercisable option to purchase an aggregate of 10,000 shares of Common Stock.
(9) Mr. Sears' address is 35 Elm Street, Dennis, Massachusetts 02638. The
number of shares deemed to be beneficially held by Mr. Sears includes currently
exercisable options to purchase an aggregate of 10,000 shares of Common Stock.
(10) Dr. McAfee's address is 2028 Dabney Road, Suite E-17, Richmond, Virginia
23230. The number of shares deemed to be beneficially held by Dr. McAfee
represents currently exercisable options to purchase an aggregate of 10,000
shares of Common Stock.
(11) Mr. Martin's address is Agars Island c/o Mainsail 11 Lulworth Lane, Point
Shares, Pembroke Bermuda HM 05. Mr. Martin possesses total beneficial ownership
of Juniper Trading Services, Inc., and his shareholdings are also reflected in
its separate line item of this chart.
(12) Represents shares held by investment advisory clients of Mills Value
Adviser, Inc. ("MAI"), a registered investment adviser. Mr. Charles A. Mills,
III, a former director of the Company, serves as Chairman of MAI. MAI possesses
sole dispositive power over such shares. MAI's address is 707 East Main Street,
Richmond, Virginia 23219.
(13) Juniper Trading Services, Inc.'s address is Compass Point Building, 9
Bermudiana Road, Hamilton, HM 11 Bermuda.
(14) Includes currently exercisable options and warrants to purchase an
aggregate of 473,703 shares of Common Stock within 60 days of March 15, 2002.
14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than 10% of a registered
class of the Company's securities to file reports of ownership and changes in
ownership with the SEC. Based solely on a review of copies of reports filed with
the SEC and written representations from certain of the Company's directors and
executive officers that no other reports were required, the Company is not aware
of any executive officer or director of the Company who failed to file on a
timely basis, as disclosed on such forms, reports required by Section 16(a) of
the Securities Exchange Act of 1934, except that Mr. Brennan failed to timely
file one report reflecting three securities transactions. This deficiency was
subsequently remedied.
EXECUTIVE COMPENSATION
Executive Officers of the Company
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Richard J. Freer, Ph.D. 59 Chairman of the Board of Directors
Robert B. Harris, Ph.D. 49 President and Director
Thomas R. Reynolds 39 Senior Vice President, Secretary and Director
James H. Brennan 49 Controller
Set forth below is the biographical information for Mr. Brennan. See
"Proposal 1: Election of Directors" for information regarding the backgrounds of
Dr. Freer, Dr. Harris and Mr. Reynolds.
JAMES H. BRENNAN - Controller
Age -- 49
Mr. Brennan became the Company's Controller in December 1997. From
1996 to 1997, Mr. Brennan served as the Controller of Star Tobacco, a cigarette
manufacturer. From 1995 to 1996, he served as Controller of Delta Airport
Consultants, an engineering firm. From 1994 to 1995, Mr. Brennan was the
Controller for Herald Pharmacal, a manufacturer of skin care products. Mr.
Brennan received a bachelor's degree in Political Science from Mount St. Mary's
College and a master's degree in Business Administration from Averett College.
15
Summary Compensation
The following table sets forth summary information concerning
compensation paid or accrued by the Company in 2001 on behalf of (i) the
Company's Chairman of the Board and (ii) the three other executive officers of
the Company whose total annual salary and bonus exceeded $100,000 in 2001
(collectively, the "Named Executive Officers").
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary ($)(1) Bonus ($) Compensation ($) Options (#) Compensation ($)
-------- ---- ------------- --------- ------------- ----------- ----------------
Richard J. Freer, Ph.D.
Chairman of the Board 2001 170,047 -- -- 48,000 17,600 (2)
2000 182,500 -- -- 7,069 24,700 (2)
1999 150,000 -- -- -- 7,500 (2)
Robert B. Harris, Ph.D.
President 2001 167,380 -- -- 48,000 14,400 (2)
2000 183,846 -- -- 7,069 24,700 (2)
1999 150,000 -- -- -- 7,500 (2)
Thomas R. Reynolds
Senior Vice President
and Secretary 2001 152,942 -- -- 48,000 8,500 (2)
2000 131,742 -- -- 6,141 15,000 (3)
1999 118,352 -- -- -- 5,000 (3)
James H. Brennan
Controller 2001 100,613 11,300 -- 48,000 6,000 (4)
2000 86,447 -- -- 8,080 7,000 (4)
1999 68,283 -- -- -- 800 (4)
- ----------
(1) Does not include certain perquisites and other personal benefits, the
amounts of which are not shown because the aggregate amount of such compensation
during the year did not exceed the lesser of $50,000 or 10% of total salary and
bonus reported for such executive officer.
(2) Represents Director's Fees and travel expenses paid by the Company.
(3) Represents Director's Fees paid by the Company.
(4) Represents travel expenses paid by the Company.
Stock Option Exercises in 2001 and Year-End Option Values
No Named Executive Officer exercised any stock options in 2001.
16
Stock Option Grants in 2000
The following table sets forth certain information, with respect to the
Named Executive Officers, concerning the grant of options in 2001 pursuant to
the Company's Incentive Plans.
Number of Percent of total
securities options granted Exercise or
underlying options to employees in base price Expiration
Name granted (#) fiscal year (1) ($/Sh) (2) Date
---- ----------- --------------- ---------- ----
Richard J. Freer, Ph.D. 48,000 (3) 17.2 3.85 11/9/11
Robert B. Harris, Ph.D. 48,000 (3) 17.2 3.85 11/9/11
Thomas R. Reynolds 48,000 (4) 17.2 3.85 11/9/11
James H. Brennan 48,000 (5) 17.2 3.85 11/9/11
- ----------
(1) Based on options to purchase an aggregate of 278,759 of Common Stock granted
pursuant to the Company's Incentive Plans in the fiscal year ended December 31,
2001.
(2) The exercise price is equal to the market value of a share of Common
Stock at the time of the grant.
(3) Options to purchase 25,974 shares of Common
Stock vested on January 1, 2002, and options to purchase 22,026 shares of Common
Stock vest on January 1, 2003.
(4) Options to purchase 25,974 shares of Common Stock vested on November 9,
2001, and options to purchase 22,026 shares of Common Stock vested on January 1,
2002.
The Company has no long-term incentive, defined benefit or actuarial
plans, as those terms are defined in Securities and Exchange Commission
regulations, covering employees of the Company.
Employment Contracts and Termination and Change-In-Control Arrangements
On June 24, 1997, the Company entered into employment agreements with
each of Dr. Freer, Dr. Harris and Mr. Reynolds. Each of these agreements has a
term of five years and will be extended for successive one-year terms beginning
on the first anniversary of its commencement, unless either the executive
officer or the Company shall have given notice to the other of an election not
to extend the term of the employment agreement. The employment agreements
provide for base salaries of $165,000 for Dr. Freer and Dr. Harris and $120,000
for Mr. Reynolds, which are adjustable annually at the discretion of the
Compensation Committee. Since the execution of the executive officers'
employment agreements in 1997, the Board of Directors has raised the executives'
salaries as follows: Dr. Freer - $181,500 (2001); Dr. Harris - $181,500 (2001)
and Mr. Reynolds - $165,000 (2001). In November 2001, in an effort to conserve
capital, the Board of Directors opted to defer a portion of the executives'
salaries. Dr. Freer and Dr. Harris have deferred payment of $45,375 of future
annual salaries, and Mr. Reynolds has deferred payment of $41,250 of his future
annual salary. The Company may opt to terminate this deferral arrangement upon
the improvement of the Company's financial condition.
In addition, the employment agreements provide the Company's executive
officers with annual bonuses equal to, in the aggregate, 15% of the Company's
pre-tax net income for the preceding fiscal year. Such bonuses will be paid
within 30 days following the release of the Company's annual audited financial
statements. Under each of the employment agreements, the Company may terminate
the executive officer's employment at any time for "Cause" as such term is
defined in the employment agreement, without incurring any continuing
obligations to the executive officer. If the Company terminates an executive
officer's employment for any reason other than for "Cause" or if an executive
17
officer terminates his or her employment for "Good Reason," as such term is
defined in the employment agreement, the Company will remain obligated to
continue to provide the compensation and benefits specified in the executive
officer's employment agreement for the duration of what otherwise would have
been the term of the employment agreement. In addition, each employment
agreement contains non-competition provisions which prohibit each executive
officer from competing with the Company or soliciting its employees under
certain circumstances. A court may, however, determine that these
non-competition provisions are unenforceable or only partially enforceable.
The Company has entered into severance agreements with each of Dr.
Freer, Dr. Harris and Mr. Reynolds. Each severance agreement (all of which are
substantially similar) has an initial term of five years and will be extended
for successive one-year periods beginning on the first anniversary of its
commencement, unless either the executive officer or the Company shall have
given notice to the other of an election not to extend the term of the severance
agreement. If the employment of any of these executive officers is terminated
(with certain exceptions) within 60 months following a "Change in Control," as
such term is defined in the severance agreement, the executive officer will be
entitled to receive a cash payment equal to two times the annual salary for the
most recent twelve-month period and three times the bonus paid with respect to
such period. To the extent the aggregate benefits available to an executive
officer, whether under his respective severance agreement or otherwise, exceed
the limit of three times the executive's average base compensation provided in
Section 280G of the Internal Revenue Code of 1986, as amended, resulting in the
executive officer incurring an excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, or any other taxes or penalties (other than
ordinary income or capital gains taxes), the severance agreements require the
Company to pay the executive officer an additional amount to cover any such
excise taxes or penalties incurred. The Company will not be entitled to a
deduction for the amount in excess of this limit.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Downs is an employee of Anderson & Strudwick, Incorporated ("A&S").
In September 2000, A&S served as the placement agent for the Company's issuance
of an aggregate of 348,000 shares of Common Stock and warrants to purchase an
aggregate of 348,000 shares of Common Stock to Juniper Trading Services, Inc.
("Juniper"), a British Virgin Islands corporation and a significant shareholder
of the Company. The total offering price was $2,599,908. Of the warrants so
issued, warrants to purchase an aggregate of 174,000 shares of Common Stock had
a five year term and an exercise price of $6.50 per share. The remaining
warrants to purchase an aggregate of 174,000 shares of Common Stock had an
eighteen month term and an exercise price of $6.50 per share.
For its services as placement agent in connection with this offering,
the Company paid A&S a fee of approximately $192,500. In addition, the Company
reissued a warrant to purchase an aggregate of 101,500 shares of Common Stock
that was previously issued to A&S as underwriter compensation in connection with
the Company's initial public offering in 1997. As originally issued, this
warrant was to expire on October 17, 2002 and had an exercise price of $9.90 per
share. In connection with the closing of the Company's initial public offering,
A&S assigned a portion of the warrant to purchase an aggregate of 25,375 shares
of Common Stock to Mr. Downs and a portion of the warrant to purchase an
aggregate of 50,750 shares of Common Stock to Charles A. Mills, a former
director of the Company. As reissued, Mr. Downs now holds (i) a warrant with a
five year term to purchase an aggregate of 12,688 shares of Common Stock at
$6.50 per share and (ii) a warrant with an eighteen month term to purchase an
aggregate of 12,687 shares of Common Stock. As reissued, A&S now holds (x) a
warrant with a five year term to purchase an aggregate of 12,688 shares of
Common Stock at $6.50 per share and (y) a warrant with an eighteen month term to
purchase an aggregate of 12,687 shares of Common Stock.
From September 1999 to September 2000, the Company borrowed an
aggregate of $300,000 from Juniper. The Company repaid the principal amount of
the loan in full on September 27, 2000. Upon principal repayment, the Company
also paid an aggregate of $16,232 in interest and issued an option to purchase
an aggregate of 31,250 shares of Common Stock to Juniper. The option has a term
of ten years and an exercise price of $5.13 per share.
In November 1998, the Company completed a $4,000,000 industrial revenue
bond financing primarily through the Virginia Small Business Financing
Authority. A&S served as the underwriter for such financing. In 2001, A&S
provided investment banking services to the Company that related to such bond
financing.
The Company believes that the transactions noted above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal shareholders will be approved in accordance
with Virginia law by a majority of the Board of Directors, including a majority
of the independent and disinterested directors of the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
19
SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal considered for inclusion in
the Company's proxy materials for the 2003 Annual Meeting of Shareholders, the
proposal must comply with the Securities and Exchange Commission's proxy rules,
be stated in writing and be submitted on or before _______, 2002. Any proposals
should be mailed to the Company at 601 Biotech Drive, Richmond, Virginia 23235,
Attention: Thomas R. Reynolds, Secretary.
In addition to any other applicable requirements, for business to be
properly brought before the annual meeting by a shareholder, even if a proposal
is not to be included in the Company's proxy statement, the Company's Bylaws
provide that the shareholder must give timely notice in writing to the Secretary
of the Company not later than 90 days prior to the annual meeting. As to each
matter, the notice must contain (i) a brief description of the business to be
brought before the annual meeting (including the specific proposal to be
presented) and the reasons for addressing it at the annual meeting, (ii) the
name of, record address of, and class and number of shares beneficially owned by
the shareholder proposing such business and (iii) any material interest of the
shareholder in such business. The 2002 Annual Meeting of Shareholders of the
Company will be held on May 22, 2003.
The Company's Bylaws provide that a shareholder of the Company entitled
to vote for the election of directors may nominate persons for election to the
Board of Directors by mailing written notice to the Secretary of the Company not
later than (i) with respect to an election to be held at an annual meeting of
shareholders, 90 days prior to such meeting, and (ii) with respect to an
election to be held at a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is given to shareholders. Any such shareholder's notice
shall include (a) the name and address of the shareholder and of each person to
be nominated, (b) a representation that the shareholder is a holder of record of
stock of the Company entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate each person specified, (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person (naming such person) pursuant to which the
nomination is to be made by the shareholder, (d) such other information
regarding each nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission, and
(e) the consent of each nominee to serve as a director of the Company if so
elected.
20
OTHER MATTERS
The Board of Directors is not aware of any other matters to be brought
before the Annual Meeting of Shareholders. If any other matters, however, are
properly brought before the Annual Meeting, the persons named in the enclosed
form of proxy will have discretionary authority to vote all proxies with respect
to such matters in accordance with their best judgment.
UPON THE WRITTEN REQUEST OF ANY HOLDER OF THE COMPANY'S COMMON STOCK
ENTITLED TO VOTE AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS, THE COMPANY WILL
FURNISH, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 2001, INCLUDING FINANCIAL STATEMENTS, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. REQUESTS SHOULD BE DIRECTED TO THE
COMPANY AT 601 BIOTECH DRIVE, RICHMOND, VIRGINIA 23235, ATTENTION: JAMES H.
BRENNAN, CONTROLLER.
By Order of the Board of Directors,
/s/ Thomas R. Reynolds
Thomas R. Reynolds
Secretary
21
Exhibit A
COMMONWEALTH BIOTECHNOLOGIES, INC.
2002 STOCK INCENTIVE PLAN
1. Purpose and Effective Date.
(a) The purpose of the Commonwealth Biotechnologies, Inc. 2002 Stock
Incentive Plan (the "Plan") is to further the long term stability and financial
success of Commonwealth Biotechnologies, Inc. (the "Company") by attracting and
retaining personnel, including employees, directors and consultants, through the
use of stock incentives. The Company believes that ownership of Company Stock
will stimulate the efforts of those persons upon whose judgment, interest and
efforts the Company is and will be largely dependent for the successful conduct
of its business and will further the identification of those persons' interests
with the interests of the Company's shareholders.
(b) The Plan was adopted by the Board of Directors of the Company on
March 27, 2002, and shall become effective as of March 27, 2002, subject to the
approval of the Plan by the Company's shareholders.
2. Definitions.
(a) Act. The Securities Exchange Act of 1934, as amended.
---
(b) Applicable Withholding Taxes. The aggregate amount of federal,
----------------------------
state and local income and payroll taxes that the Company is required to
withhold (based on the minimum applicable statutory withholding rates) in
connection with any exercise of an Option or the award, lapse of restrictions or
payment with respect to Restricted Stock.
(c) Award. The award of an Option or Restricted Stock under the Plan.
-----
(d) Board. The Board of Directors of the Company.
-----
(e) Cause. Dishonesty, fraud, misconduct, gross incompetence, gross
-----
negligence, breach of a material fiduciary duty, material breach of an agreement
with the Company, unauthorized use or disclosure of confidential information or
trade secrets, or conviction or confession of a crime punishable by law (except
minor violations), in each case as determined by the Committee, which
determination shall be binding.
(f) Change of Control.
-----------------
(i) The Acquisition by any Person (as defined below) of
beneficial ownership of 50% or more of the then outstanding shares of
common stock of the Company;
(ii) Individuals who constitute the Board on the effective
date of this Plan (the "Incumbent Board") cease to constitute a
majority of the Board, provided that any director whose nomination was
approved by a vote of at least two-thirds of the directors then
comprising the Incumbent Board will be considered a member of the
Incumbent Board, but excluding any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Company (as such terms are used in Rule 14a-11 promulgated under the
Act);
(iii) Approval by the shareholders of the Company of a
reorganization, merger, share exchange or consolidation (a
"Reorganization"), provided that shareholder approval of a
Reorganization will not constitute a Change of Control if, upon
consummation of the Reorganization, each of the following conditions is
satisfied:
(x) no Person beneficially owns 20% or more of either
(1) the then outstanding shares of common stock of the
corporation resulting from the transaction or (2) the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors; and
(y) at least a majority of the members of the board
of directors of the corporation resulting from the
Reorganization were members of the Incumbent Board at the time
of the execution of the initial agreement providing for the
Reorganization.
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company, or of the sale or
other disposition of all or substantially all of the assets of the
Company.
(v) For purposes of this Section 2(f), "Person" means any
individual, entity or group (within the meaning of Section 13(d)(3) of
the Act), other than any employee benefit plan (or related trust)
sponsored or maintained by the Company or any affiliated company, and
"beneficial ownership" has the meaning given the term in Rule 13d-3
under the Act.
(vi) Neither the sale of Company Stock in an initial
public offering nor any restructuring of the Company or its Board in
contemplation of or as a result of an initial public offering shall
constitute a Change of Control for purposes of this Plan.
(g) Code. The Internal Revenue Code of 1986, as amended.
----
(h) Committee. The Committee appointed to administer the Plan
---------
pursuant to Plan Section 15, or if no such Committee has been appointed, the
Board.
(i) Company. Commonwealth Biotechnologies, Inc., a Virginia
-------
corporation.
(j) Company Stock. The common stock, without par value per share,
-------------
of the Company. If the par value of the Company Stock is changed, or in the
event of a change in the capital structure of the Company (as provided in
Section 12 below), the shares resulting from such a change shall be deemed to be
Company Stock within the meaning of the Plan.
(k) Consultant. A person or entity rendering services to the
----------
Company who is not an "employee" for purposes of employment tax withholding
under the Code.
(l) Date of Grant. The effective date of an Award granted by the
-------------
Committee.
(m) Disability or Disabled. As to an Incentive Stock Option a
----------------------
Disability within the meaning of Code Section 22(e)(3). As to all other
Incentive Awards, the Committee shall determine whether a Disability exists and
such determination shall be conclusive.
A-2
(n) Fair Market Value.
-----------------
(i) If the Company Stock is listed on any established stock
exchange or quoted on the NASDAQ stock market system, its Fair Market
Value shall be the closing price for such Stock on the Date of Grant as
reported by such exchange or the NASDAQ stock market system, or, if
there are no trades on such date, the value shall be determined as of
the last preceding day on which the Company Stock was traded.
(ii) If the Company Stock is not publicly traded, the Fair
Market Value shall be determined by the Committee using any reasonable
method in good faith.
(iii) Fair Market Value shall be determined as of the Date of
Grant specified in the Award.
(o) Incentive Stock Option. An Option intended to meet the
----------------------
requirements of, and qualify for favorable federal income tax treatment under,
Code Section 422.
(p) Nonstatutory Stock Option. An Option that does not meet the
-------------------------
requirements of Code Section 422, or that is otherwise not intended to be an
Incentive Stock Option and is so designated.
(q) Option. A right to purchase Company Stock granted under the
------
Plan, at a price determined in accordance with the Plan.
(r) Participant. Any individual who is granted an Award under the
-----------
Plan.
(s) Restricted Stock. Company Stock awarded upon the terms and
----------------
subject to the restrictions set forth in Section 8 below.
(t) Rule 16b-3. Rule 16b-3 promulgated under the Act, including
----------
any corresponding subsequent rule or any amendments to Rule 16b-3 enacted after
the effective date of the Plan.
(u) 10% Shareholder. A person who owns, directly or indirectly,
---------------
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any parent or subsidiary of the Company. Indirect
ownership of stock shall be determined in accordance with Code Section 424(d).
3. General. Awards of Options or Restricted Stock may be granted under
the Plan. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options.
4. Stock. Subject to Section 12 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 300,000 shares of Company Stock, which
may include authorized, but unissued, shares. Shares allocable to Options
granted under the Plan that expire or otherwise terminate unexercised and shares
that are forfeited pursuant to restrictions on Restricted Stock awarded under
the Plan may again be subjected to an Award under this Plan. For purposes of
determining the number of shares that are available for Awards under the Plan,
such number shall include the number of shares surrendered by a Participant or
retained by the Company (a) in connection with the exercise of an Option or (b)
in payment of Applicable Withholding Taxes.
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5. Eligibility.
(a) Any employee of, director of, or Consultant to the Company
(including an employee of, director of, or consultant to an affiliate of the
Company) who, in the judgment of the Committee, has contributed or can be
expected to contribute to the profits or growth of the Company is eligible to
become a Participant. The Committee shall have the power and complete
discretion, as provided in Section 14, to select eligible Participants and to
determine for each Participant the terms, conditions and nature of the Award and
the number of shares to be allocated as part of the Award; provided, however,
that any Award made to a member of the Committee must be approved by the Board.
The Committee is expressly authorized to make an Award to a Participant
conditioned on the surrender for cancellation of an existing Award.
(b) The grant of an Award shall not obligate the Company to pay an
employee any particular amount of remuneration, to continue the employment of
the employee after the grant or to make further grants to the employee at any
time thereafter.
(c) Non-employee directors and Consultants shall not be eligible to
receive the Award of an Incentive Stock Option.
(d) The maximum number of shares with respect to which an Award may be
granted in any calendar year to any employee during such calendar year shall be
50,000 shares.
6. Stock Options.
(a) Whenever the Committee deems it appropriate to grant Options,
notice shall be given to the Participant stating the number of shares for which
Options are granted, the exercise price per share, whether the options are
Incentive Stock Options or Nonstatutory Stock Options, and the conditions to
which the grant and exercise of the Options are subject. This notice, when duly
accepted in writing by the Participant, shall become a stock option agreement
between the Company and the Participant.
(b) The Committee shall establish the exercise price of Options. The
exercise price of an Incentive Stock Option shall be not less than 100% of the
Fair Market Value of such shares on the Date of Grant, provided that if the
Participant is a 10% Shareholder, the exercise price of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of such shares on
the Date of Grant. The exercise price of Nonstatutory Stock Option Awards
intended to be performance-based for purposes of Code Section 162(m) shall not
be less than 100% of the Fair Market Value of such shares on the Date of Grant.
(c) Subject to subsection (d) below, Options may be exercised in whole
or in part at such times as may be specified by the Committee in the
Participant's stock option agreement. The Committee may impose such vesting
conditions and other requirements as the Committee deems appropriate, and the
Committee may include such provisions regarding a Change of Control as the
Committee deems appropriate.
(d) The Committee shall establish the term of each Option in the
Participant's stock option agreement. The term of an Incentive Stock Option
shall not be longer than ten years from the Date of Grant, except that an
Incentive Stock Option granted to a 10% Shareholder shall not have a term in
excess of five years. No Option may be exercised after the expiration of its
term or, except as set forth in the Participant's stock option agreement, after
the termination of the Participant's employment. The Committee shall set forth
in the Participant's stock option agreement when, and under what circumstances,
an Option may be exercised after termination of the Participant's employment or
period
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of service; provided that no Incentive Stock Option may be exercised after (i)
three months from the Participant's termination of employment with the Company
for reasons other than Disability or death, or (ii) one year from the
Participant's termination of employment on account of Disability or death. The
Committee may, in its sole discretion, amend a previously granted Incentive
Stock Option to provide for more liberal exercise provisions, provided however
that if the Incentive Stock Option as amended no longer meets the requirements
of Code Section 422, and, as a result the Option no longer qualifies for
favorable federal income tax treatment under Code Section 422, the amendment
shall not become effective without the written consent of the Participant.
(e) An Incentive Stock Option, by its terms, shall be exercisable in
any calendar year only to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the Company Stock with respect to which
Incentive Stock Options are exercisable by the Participant for the first time
during the calendar year does not exceed $100,000 (the "Limitation Amount").
Incentive Stock Options granted under the Plan and all other plans of the
Company and any parent or subsidiary of the Company shall be aggregated for
purposes of determining whether the Limitation Amount has been exceeded. The
Board may impose such conditions as it deems appropriate on an Incentive Stock
Option to ensure that the foregoing requirement is met. If Incentive Stock
Options that first become exercisable in a calendar year exceed the Limitation
Amount, the excess Options will be treated as Nonstatutory Stock Options to the
extent permitted by law.
(f) If a Participant dies and if the Participant's stock option
agreement provides that part or all of the Option may be exercised after the
Participant's death, then such portion may be exercised by the personal
representative of the Participant's estate during the time period specified in
the stock option agreement.
(g) If a Participant's employment or services is terminated by the
Company for Cause, the Participant's Options shall terminate as of the date of
the misconduct.
7. Method of Exercise of Options.
(a) Options may be exercised by giving written notice of the exercise
to the Company, stating the number of shares the Participant has elected to
purchase under the Option. Such notice shall be effective only if accompanied by
the exercise price in full in cash; provided that, if the terms of an Option so
permit, the Participant may (i) deliver Company Stock that the Participant has
previously acquired and owned (valued at Fair Market Value on the date of
exercise), or (ii) deliver a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company, from
the sale or loan proceeds with respect to the sale of Company Stock or a loan
secured by Company Stock, the amount necessary to pay the exercise price and, if
required by the Committee, Applicable Withholding Taxes. Unless otherwise
specifically provided in the Option, any payment of the exercise price paid by
delivery of Company Stock acquired directly or indirectly from the Company shall
be paid only with shares of Company Stock that have been held by the Participant
for more than six months (or such longer or shorter period of time required to
avoid a charge to earnings for financial accounting purposes).
(b) The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with federal or state securities laws. The Company
may require of the Participant a customary indication of his or her investment
intent. A Participant shall not possess shareholder rights with respect to
shares acquired upon the exercise of an Option until the Participant has made
any required payment, including payment of Applicable Withholding Taxes, and the
Company has issued a certificate for the shares of Company Stock acquired.
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(c) Notwithstanding anything herein to the contrary, Awards shall
always be granted and exercised in such a manner as to conform to the provisions
of Rule 16b-3.
8. Restricted Stock Awards.
(a) Whenever the Committee deems it appropriate to grant a Restricted
Stock Award, notice shall be given to the Participant stating the number of
shares of Restricted Stock for which the Award is granted, the Date of Grant,
and the terms and conditions to which the Award is subject. Certificates
representing the shares shall be issued in the name of the Participant, subject
to the restrictions imposed by the Plan and the Committee. A Restricted Stock
Award may be made by the Committee in its discretion without cash consideration.
(b) The Committee may place such restrictions on the transferability
and vesting of Restricted Stock as the Committee deems appropriate, including
restrictions relating to continued employment and financial performance goals.
Without limiting the foregoing, the Committee may provide performance or Change
of Control acceleration parameters under which all, or a portion, of the
Restricted Stock will vest on the Company's achievement of established
performance objectives. Restricted Stock may not be sold, assigned, transferred,
disposed of, pledged, hypothecated or otherwise encumbered until the
restrictions on such shares shall have lapsed or shall have been removed
pursuant to subsection (c) below.
(c) The Committee shall establish as to each Restricted Stock Award the
terms and conditions upon which the restrictions on transferability set forth in
paragraph (b) above shall lapse. Such terms and conditions may include, without
limitation, the passage of time, the meeting of performance goals, the lapsing
of such restrictions as a result of the Disability, death or retirement of the
Participant, or the occurrence of a Change of Control.
(d) A Participant shall hold shares of Restricted Stock subject to the
restrictions set forth in the Award agreement and in the Plan. In other
respects, the Participant shall have all the rights of a shareholder with
respect to the shares of Restricted Stock, including, but not limited to, the
right to vote such shares and the right to receive all cash dividends and other
distributions paid thereon. Certificates representing Restricted Stock shall
bear a legend referring to the restrictions set forth in the Plan and the
Participant's Award agreement. If stock dividends are declared on Restricted
Stock, such stock dividends or other distributions shall be subject to the same
restrictions as the underlying shares of Restricted Stock.
9. Applicable Withholding Taxes. Each Participant shall agree, as a
condition of receiving an Award, to pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, all Applicable Withholding
Taxes with respect to the Award. Until the Applicable Withholding Taxes have
been paid or arrangements satisfactory to the Company have been made, no stock
certificates (or, in the case of Restricted Stock, no stock certificates free of
a restrictive legend) shall be issued to the Participant. As an alternative to
making a cash payment to the Company to satisfy Applicable Withholding Tax
obligations, the Committee may establish procedures permitting the Participant
to elect to (a) deliver shares of already owned Company Stock or (b) have the
Company retain that number of shares of Company Stock that would satisfy all or
a specified portion of the Applicable Withholding Taxes. Any such election shall
be made only in accordance with procedures established by the Committee to avoid
a charge to earnings for financial accounting purposes and in accordance with
Rule 16b-3.
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10. Nontransferability of Awards.
(a) In general, Awards, by their terms, shall not be transferable by
the Participant except by will or by the laws of descent and distribution or
except as described below. Options shall be exercisable, during the
Participant's lifetime, only by the Participant or by his guardian or legal
representative.
(b) Notwithstanding the provisions of (a) and subject to federal and
state securities laws, the Committee may grant or amend Nonstatutory Stock
Options that permit a Participant to transfer the Options to one or more
immediate family members, to a trust for the benefit of immediate family
members, or to a partnership, limited liability company, or other entity the
only partners, members, or interest-holders of which are among the Participant's
immediate family members. Consideration may not be paid for the transfer of
Options. The transferee of an Option shall be subject to all conditions
applicable to the Option prior to its transfer. The agreement granting the
Option shall set forth the transfer conditions and restrictions. The Committee
may impose on any transferable Option and on stock issued upon the exercise of
an Option such limitations and conditions as the Committee deems appropriate.
11. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on March 27, 2012. No
Awards shall be made under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided, that, unless authorized by the Company's shareholders, no
change shall be made that (a) increases the total number of shares of Company
Stock reserved for issuance pursuant to Awards granted under the Plan (except
pursuant to Section 12), (b) expands the class of persons eligible to receive
Awards, (c) materially increases the benefits accruing to Participants under the
Plan, or (d) otherwise requires shareholder approval under the Code, Rule 16b-3,
or the rules of a domestic exchange on which Company Stock is traded.
Notwithstanding the foregoing, the Board may unilaterally amend the Plan and
Awards as it deems appropriate to ensure compliance with Rule 16b-3 and to cause
Incentive Stock Options to meet the requirements of the Code and regulations
thereunder. Except as provided in the preceding sentence, a termination or
amendment of the Plan shall not, without the consent of the Participant,
adversely affect a Participant's rights under an Award previously granted to
him.
12. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of
shares, spin-off, recapitalization or merger in which the Company is the
surviving corporation, or other change in the Company's capital stock
(including, but not limited to, the creation or issuance to shareholders
generally of rights, options or warrants for the purchase of common stock or
preferred stock of the Company), the number and kind of shares of stock or
securities of the Company to be issued under the Plan (under outstanding Awards
and Awards to be granted in the future), the exercise price of options, and
other relevant provisions shall be appropriately adjusted by the Committee,
whose determination shall be binding on all persons. If the adjustment would
produce fractional shares with respect to any Award, the Committee may adjust
appropriately the number of shares covered by the Award so as to eliminate the
fractional shares.
(b) In the event the Company distributes to its shareholders a
dividend, or sells or causes to be sold to a person other than the Company or a
subsidiary shares of stock in any corporation (a "Spinoff Company") which,
immediately before the distribution or sale, was a majority owned Subsidiary of
the Company, the Committee shall have the power, in its sole discretion, to make
such adjustments as the Committee deems appropriate. The Committee may make
adjustments in the number and kind of shares
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or other securities to be issued under the Plan (under outstanding Awards and
Awards to be granted in the future), the exercise price of Options, and other
relevant provisions, and, without limiting the foregoing, may substitute
securities of a Spinoff Company for securities of the Company. The Committee
shall make such adjustments as it determines to be appropriate, considering the
economic effect of the distribution or sale on the interests of the Company's
shareholders and the Participants in the businesses operated by the Spinoff
Company. The Committee's determination shall be binding on all persons. If the
adjustment would produce fractional shares with respect to any Award, the
Committee may adjust appropriately the number of shares covered by the Award so
as to eliminate the fractional shares.
(c) Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes. The Committee shall make its determinations consistent with Rule 16b-3
and the applicable provisions of the Code.
(d) To the extent required to avoid a charge to earnings for financial
accounting purposes, adjustments made by the Committee pursuant to this Section
13 to outstanding Awards shall be made so that both (i) the aggregate intrinsic
value of an Award immediately after the adjustment is not less than the Award's
aggregate intrinsic value before the Award and (ii) the ratio of the exercise
price per share to the market value per share is not reduced.
13. Change of Control. In the event of a Change of Control of the Company,
the Committee may take such actions with respect to Awards as the Committee
deems appropriate. These actions may include, but shall not be limited to the
following:
(a) At the time the Award is made, provide for the acceleration of the
vesting schedule relating to the exercise or realization of the Award so that
the Award may be exercised or realized in full on or before a date initially
fixed by the Committee.
(b) Provide for the purchase or settlement of any such Award by the
Company for any amount of cash equal to the amount which could have been
obtained upon the exercise of such Award or realization of a Participant's
rights had such Award been currently exercisable or payable.
(c) Make adjustments to Awards then outstanding as the Committee deems
appropriate to reflect such Change of Control provided, however, that to the
extent required to avoid a charge to earnings for financial accounting purposes,
such adjustments shall be made so that both (i) the aggregate intrinsic value of
an Award immediately after the adjustment is not less than the Award's aggregate
intrinsic value before the Award and (ii) the ratio of the exercise price per
share to the market value per share is not reduced; or
(d) Cause any such Award then outstanding to be assumed, or new rights
substituted therefore by the acquiring or surviving corporation in such Change
of Control.
14. Administration of the Plan.
(a) The Plan shall be administered by the Committee, who shall be
appointed by the Board. If no Committee is appointed, the Plan shall be
administered by the Board. To the extent required by Rule 16b-3, all Awards
shall be made by members of the Committee who are "Non-Employee Directors" as
that term is defined in Rule 16b-3, or by the Board. Awards that are intended to
be performance-based for purposes of Code section 162(m) shall be made by a
Committee, or
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subcommittee of the Committee, comprised solely of two or more "outside
directors" as that term is defined for purposes of Code section 162(m).
(b) The Committee shall have the authority to impose such limitations
or conditions upon an Award as the Committee deems appropriate to achieve the
objectives of the Award and the Plan. Without limiting the foregoing and in
addition to the powers set forth elsewhere in the Plan, the Committee shall have
the power and complete discretion to determine (i) which eligible persons shall
receive an Award and the nature of the Award, (ii) the number of shares of
Company Stock to be covered by each Award, (iii) whether Options shall be
Incentive Stock Options or Nonstatutory Stock Options, (iv) the Fair Market
Value of Company Stock, (v) the time or times when an Award shall be granted,
(vi) whether an Award shall become vested over a period of time, according to a
performance-based vesting schedule or otherwise, and when it shall be fully
vested, (vii) the terms and conditions under which restrictions imposed upon an
Award shall lapse, (viii) whether a Change of Control exists, (ix) factors
relevant to the lapse of restrictions on Restricted Stock or Options, (x) when
Options may be exercised, (xi) whether to approve a Participant's election with
respect to Applicable Withholding Taxes, (xii) conditions relating to the length
of time before disposition of Company Stock received in connection with an Award
is permitted, (xiii) notice provisions relating to the sale of Company Stock
acquired under the Plan, and (xiv) any additional requirements relating to
Awards that the Committee deems appropriate. Notwithstanding the foregoing, no
"tandem stock options" (where two stock options are issued together and the
exercise of one option affects the right to exercise the other option) may be
issued in connection with Incentive Stock Options.
(c) The Committee shall have the power to amend the terms of previously
granted Awards so long as the terms as amended are consistent with the terms of
the Plan and, where applicable, consistent with the qualification of an Option
as an Incentive Stock Option. The consent of the Participant must be obtained
with respect to any amendment that would adversely affect the Participant's
rights under the Award, except that such consent shall not be required if such
amendment is for the purpose of complying with Rule 16b-3 or any requirement of
the Code applicable to the Award.
(d) The Committee may adopt rules and regulations for carrying out the
Plan. The Committee shall have the express discretionary authority to construe
and interpret the Plan and the Award agreements, to resolve any ambiguities, to
define any terms, and to make any other determinations required by the Plan or
an Award agreement. The interpretation and construction of any provisions of the
Plan or an Award agreement by the Committee shall be final and conclusive. The
Committee may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for any action taken in good faith in reliance upon the
advice of counsel.
(e) A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by all
of the members, and any action so taken shall be fully effective as if it had
been taken at a meeting.
15. Notice. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally, electronically, or mailed first class,
postage prepaid, as follows: (a) if to the Company - at its principal business
address to the attention of the Secretary; (b) if to any Participant - at the
last address of the Participant known to the sender at the time the notice or
other communication is sent.
16. Interpretation and Governing Law. The terms of this Plan and Awards
granted pursuant to the Plan shall be governed, construed and administered in
accordance with the laws of the State of Virginia. The Plan and Awards are
subject to all present and future applicable provisions of the Code and, to the
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extent applicable, they are subject to all present and future rulings of the
Securities and Exchange Commission with respect to Rule 16b-3. If any provision
of the Plan or an Award conflicts with any such Code provision or ruling, the
Committee shall cause the Plan to be amended, and shall modify the Award, so as
to comply, or if for any reason amendments cannot be made, that provision of the
Plan or the Award shall be void and of no effect.
IN WITNESS WHEREOF, our Company has caused this Plan to be adopted
this 27th day of March, 2002.
Commonwealth Biotechnologies, Inc.
By: /s/ Richard J. Freer, Ph.D.
Title: Chairman
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Exhibit B
Proposed Amendment to the Company's Amended and Restated Articles of
Incorporation
Article III will be replaced in its entirety with the following:
III.
1. The Corporation shall have authority to issue up to 10,000,000 shares
of common stock, without par value per share ("Common Stock"). The rights,
preferences, voting powers, qualifications, limitations and restrictions of the
Common Stock shall be as follows:
(a) Each share of Common Stock shall be entitled to one vote on all
matters submitted to a vote at any meeting of the Corporation's shareholders.
The holders of the Common Stock shall, to the exclusion of the holders of the
Preferred Stock (as defined below), have the sole and full power to vote for the
election of directors and for all other purposes without limitation except (i)
as otherwise recited or provided in these Articles of Incorporation applicable
to the Preferred Stock, (ii) with respect to a class or series of Preferred
Stock, as shall be determined by the Board of Directors pursuant these Articles
and (iii) with respect to any voting rights provided by law.
(b) Except as otherwise provided in these Articles applicable to the
Preferred Stock, or otherwise, as they may hereafter be amended:
(i) Any corporate action, except the election of directors, an
amendment or restatement of these Articles, a merger, a statutory share
exchange, the sale or other disposition of all or substantially all the
Corporation's assets otherwise than in the usual and regular course of business,
or dissolution shall be approved at a meeting at which a quorum of the
Corporation's shareholders is present if the votes cast in favor of the action
exceed the votes cast against the action;
(ii) Directors shall be elected by a plurality of the votes
cast by the holders of the Common Stock entitled to vote in the election at a
meeting at which a quorum is present;
(iii) An amendment or restatement of these Articles other than
an amendment or restatement described, or involved in a transaction described in
Subsection (iv), (v) or (vi) of this Section shall be approved by a majority of
the votes entitled to be cast by the holders of the Common Stock;
(iv) Any transaction with the Corporation or any subsidiary
that constitutes or involves an affiliated transaction, as defined in Section
13.1- 725 of the Virginia Stock Corporation Act, as in effect on the effective
date of these Articles, shall be approved by at least two-thirds of the votes
entitled to be cast by the holders of the Common Stock;
(v) A merger, statutory share exchange, sale or other
disposition of all or substantially all the Corporation's assets otherwise than
in the usual and regular course of business, or dissolution shall be approved by
at least two-thirds of the votes entitled to be cast by the holders of the
Common Stock entitled to vote on such transactions;
(vi) An amendment to these Articles that amends or affects the
classification of the Board of Directors provided in Section 1 of Article V
hereof shall be approved by at least two-thirds of the votes entitled to be cast
by the holders of the Common Stock;
For the purposes of Subsection (iv) of this Section, a transaction shall not
constitute an affiliated transaction if it is with an interested shareholder, as
defined in Section 13.1-725 of the Virginia Stock Corporation Act, as in effect
on the effective date of these Articles: (i) who has been an interested
shareholder continuously or who would have been such but for the unilateral
action of the Corporation since the later of (A) the date on which the
Corporation first had 300 shareholders of record or (B) the date such person
became an interested shareholder with the prior or contemporaneous approval of a
majority of the disinterested directors as defined in Section 13.1-725 of the
Virginia Stock Corporation Act, as in effect on the effective date of these
Articles; (ii) who became an interested shareholder as a result of acquiring
shares from a person specified in Subdivision (i) or Subdivision (ii) of this
Subsection by gift, testamentary bequest or the laws of descent and distribution
or in a transaction in which consideration was not exchanged and who continues
thereafter to be an interested shareholder, or who would have so continued but
for the unilateral action of the Corporation, (iii) who became an interested
shareholder inadvertently or as a result of the unilateral action of the
Corporation and who, as soon as practicable thereafter, divested beneficial
ownership of sufficient shares so that such person ceased to be an interested
shareholder, and who would not have been an interested shareholder but for such
inadvertence or the unilateral action of the Corporation; or (iv) whose
acquisition of shares making such person an interested shareholder was approved
by a majority of the disinterested directors.
(c) Dividends may be paid upon the Common Stock out of any assets of
the Corporation available for dividends remaining after full dividends on the
outstanding Preferred Stock (as defined below) at the dividend rate or rates
therefor, together with the full additional amount required by any participation
right, with respect to all past dividend periods and the current dividend period
shall have been paid or declared and set apart for payment and all mandatory
sinking funds payment that shall have become due in respect of any series of the
Preferred Stock shall have been made.
2. The number of shares of preferred stock which the Corporation shall have the
authority to issue shall be 2,000,000 shares, without par value per share
("Preferred Stock").
(a) The Board of Directors is hereby empowered to cause any class of
the Preferred Stock of the Corporation to be issued in series with such of the
variations permitted by Subdivisions (i) - (xi) of this Section below, as shall
be determined by the Board of Directors. The shares of Preferred Stock of
different classes or series may vary as to:
(i) the designation of such class or series, the number of shares
to constitute such class or series and the stated value thereof;
(ii) whether the shares of such class or series shall have
voting rights in addition to any voting rights provided by law, and if so, the
terms of such voting rights, which (x) may be general or limited, and (y) may
permit more than one vote per share;
(iii) the rate or rates (which may be fixed or variable) at
which dividends, if any, are payable on such class or series, whether any such
dividends shall be cumulative, and if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of such class;
(iv) whether the shares of such class or series shall be subject
to redemption by the Corporation, and if so, the times, prices and other
conditions of such redemption;
(v) the amount or amounts payable upon shares of such class or
series upon, and the rights of the holders of such class or series in, the
voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets of, the Corporation;
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(vi) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund, and if so, the extent
to and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(vii) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or any other
series of such class or any other securities (including Common Stock) and, if
so, the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
(viii) the limitations and restrictions, if any, to be
effective while any shares of such class or series are outstanding upon the
payment of dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the Common
Stock or shares of stock of any other class or any other series of such class;
(ix) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the issue of any
additional stock, including additional shares of such class or series
or of any other series of such class or of any other class;
(x) the ranking (be it pari passu, junior or senior) of
each class or series as to the payment of dividends, the distribution of assets
and all other matters; and
(xi) any other powers, preferences and relative,
participating, optional and other special rights, and any qualifications,
limitations and restrictions thereof, insofar as they are not inconsistent with
the provisions of these Articles of Incorporation, to the full extent permitted
in accordance with the laws of the Commonwealth of Virginia.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
the Preferred Stock the full preferential amounts to which they are respectively
entitled under the provisions of these Articles of Incorporation applicable to
the Preferred Stock, the holders of the Preferred Stock shall have no claim to
any of the remaining assets of the Corporation.
(c) The powers, preferences and relative, participating, option and
other special rights of each class or series of Preferred Stock and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other classes and series at any time outstanding. All
shares of Preferred Stock of each series shall be equal in all respects.
3. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, if the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay in full all
amounts to which the holders of Preferred Stock and any other stock of any class
ranking on a parity as to liquidation preference are entitled, the amount
available for distribution to shareholders shall be shared by the holders of all
such classes and any series thereof pro rata according to the preferential
amounts to which the shares of each such series or class are entitled. For the
purposes of this Section 3, a consolidation or merger of the Corporation with
any other corporation, or the sale, transfer or lease of all or substantially
all its assets shall not constitute or be deemed a liquidation, dissolution, or
winding up of the Corporation.
4. Any and all shares of Preferred Stock and Common Stock of the Corporation, at
the time authorized but not issued and outstanding, may be issued and disposed
of by the Board of Directors of the Corporation in any lawful manner,
consistently, in the case of shares of Preferred Stock, with the requirements
set forth
B-3
in the provisions of these Articles of Incorporation applicable to the Preferred
Stock, at any time and from time to time, for such considerations as may be
fixed by the Board of Directors of the Corporation.
5. No holder of shares of any class of stock of the Corporation shall have any
preemptive or preferential right to purchase or subscribe to (i) any shares of
any class of the Corporation, whether now or hereafter authorized; (ii) any
warrants, rights, or options to purchase any such shares; or (iii) any
securities or obligations convertible into any such shares or into warrants,
rights or options to purchase any such shares, except as may be provided for in
any written agreement entered into by the Corporation with any such holder or
holders of shares.
6. Any class of stock of the Corporation shall be deemed to rank --
(a) prior to another class either as to dividends or upon liquidation, if the
holders of such class shall be entitled to the receipt of dividends or of
amounts distributable on liquidation, dissolution or winding up, as the case may
be, in preference or priority to holders of such other class;
(b) on a parity with another class either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof are different from those of
such others, if the holders of such class of stock shall be entitled to receipt
of dividends or amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to their respective dividend rates or
prices, without preference or priority one over the other with respect to the
holders of such other class; and
(c) junior to another class either as to dividends or upon liquidation,
if the rights of the holders of such class shall be subject or subordinate to
the rights of the holders of such other class in respect of the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be.
B-4
COMMONWEALTH BIOTECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
May 23, 2002
The undersigned hereby appoints Richard J. Freer, Ph.D. and Robert B.
Harris, Ph.D., or either of them, with power of substitution, as proxies to vote
all stock of Commonwealth Biotechnologies, Inc. (the "Company") owned by the
undersigned at the Annual Meeting of Shareholders to be held on May 23, 2002, at
11:00 a.m. at 601 Biotech Drive, Richmond, Virginia, and any adjournment
thereof, on the following matters as indicated below and such other business as
may properly come before the meeting.
1. [_] FOR the election as director of all of: Robert B. Harris,
Ph.D., Samuel P. Sears, Jr., and L. McCarthy Downs III (except as marked to
the contrary below).
[_] WITHHOLD AUTHORITY to vote for all of: Robert B. Harris,
Ph.D., Samuel P. Sears, Jr., and L. McCarthy Downs III (except as marked to the
contrary below).
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR INDIVIDUAL NOMINEES, WRITE THE
APPLICABLE NAME(S) IN THE SPACE PROVIDED BELOW:
- --------------------------------------------------------------------------------
2. Proposal to approve the Company's 2002 Stock Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to an amendment to the Company's Amended and Restated Articles of
Incorporation to authorize a new class of undesignated preferred stock, without
par value per share, consisting of 2,000,000 shares of preferred stock.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Proposal to ratify the appointment of McGladrey & Pullen, LLP as the
independent public accountants of the Company for the fiscal year ending
December 31, 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
IN THEIR DISCRETION, THE PROXIES NAMED ABOVE MAY VOTE UPON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. THIS PROXY MUST
BE DATED AND SIGNED. THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF
DIRECTORS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3
AND 4, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
Please sign exactly as your name appears on this Proxy Card. 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 or limited liability
entity, please sign in full name such entity by authorized person.
Dated: ______________________, 2002
____________________________________________________
Signature of Shareholder
____________________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.