PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") dated as of May
20, 1999 is by and among the investors named on Schedule I hereto (individually,
a "Purchaser" or collectively the "Purchasers") and CHESAPEAKE BIOLOGICAL
LABORATORIES, INC., a Maryland corporation (the "Company").
RECITALS
WHEREAS, the Company desires to issue and sell to the Purchasers and the
Purchasers have agreed to purchase from the Company 15,510 shares of the
Company's Series A Convertible Preferred Stock, par value $0.01 per share (the
"Preferred Shares"), and warrants to purchase an aggregate of 51,700 shares of
the Company's Common Stock, par value $0.01 per share (the "Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I
THE SECURITIES
SECTION 1.01. Issuance, Sale and Delivery of the Preferred Shares
and the Warrants.
(a) The Company shall adopt and file with the office of the Maryland State
Department of Assessments and Taxation, on or before the Closing Date (as
defined in Section 1.02 hereof), Articles Supplementary (the "Articles
Supplementary") to the Company's Articles of Incorporation (as amended to date
and as supplemented by the Articles Supplementary, the "Charter"), in
substantially the form attached hereto as Exhibit A, which Articles
Supplementary shall contain the designations, rights and preferences of the
Preferred Shares.
(b) Subject to the terms and conditions contained herein, on the Closing
Date the Company shall issue and sell to the Purchasers, and the Purchasers,
shall purchase from the Company, 15,510 Preferred Shares for an aggregate
purchase price of $1,551,000 (the "Purchase Price"), with each Purchaser
purchasing the number of shares of Preferred Stock set forth opposite its name
of Schedule I hereto.
(c) On the Closing Date, the Company shall issue to the Purchasers
warrants to purchase 51,700 shares of Common Stock at an exercise price of $1.50
per share (the "Initial Warrants"). On each anniversary of the Closing Date, at
the option of the Company, the
Company will either (i) pay a cash dividend of $6.00 per Preferred Share or (ii)
a warrant (in substantially the form of the Initial Warrants) to purchase a
number of shares of Common Stock calculated in accordance with the following
formula and exercisable at a price calculated by averaging the closing price of
the Common Stock as reported by Nasdaq for the 20 day period preceding the date
of issuance of such warrants (the "Dividend Warrants"):
WS = .05 x (PS x (OPP/CP)
where:
WS is the number of shares of Common Stock for which the Warrant may be
exercised;
PS is the number of shares of Preferred Shares held by the Purchaser on
the date the Warrant is issued;
OPP is the Original Purchase Price (as defined in the Charter); and
CP is the Conversion Price (as defined in the Charter).
(d) If the Company issues any Dividend Warrants, the Company and the
Purchasers shall simultaneously enter into a registration rights agreement
(substantially in the form of the Registration Rights Agreement) covering the
registrations of the shares of Common for which such Dividend Warrants are
exercisable.
SECTION 1.02. Closing.
(a) The purchase and sale of the Preferred Shares shall take place at the
offices of Piper & Marbury L.L.P., Baltimore, Maryland, on or before May 31,
1999, or at such other location, date and time as may be agreed upon between the
Purchasers and the Company (such event being called, the "Closing", and such
date and time being called, the "Closing Date"). At the Closing, the Company
shall deliver to Purchasers the Initial Warrants, together with one or more
certificates in each Purchaser's name representing an aggregate of 15,510
Preferred Shares, against payment of the Purchase Price to the Company by the
Purchasers.
(b) At the Closing, the Purchasers shall deliver to the Company an
executed copy of this Agreement and the Registration Rights Agreement (as
hereinafter defined), together with the Purchase Price by wire transfer (in
accordance with written wire transfer instructions provided by the Company) or
certified check payable to the Company.
(c) The obligation of the Purchasers to purchase the Preferred Shares is
contingent upon the fulfillment of each of the conditions set forth in Section
4.01.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers, intending
that each Purchaser rely upon such representations and warranties, as follows:
SECTION 2.01.
Organization, Good Standing, Qualifications and Corporate Power.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification. At all times since its formation, the Company has been engaged
exclusively in the business of scientific research, development, manufacturing,
marketing and distributing chemicals and biologics used in human and animal
therapeutics or having applications in the human and veterinary health care
products field generally (the "Business"). The Company has the requisite
corporate power and authority to (i) own and hold its properties and to carry on
the Business as currently conducted and as proposed to be conducted, (ii)
execute and deliver this Agreement and the Registration Rights Agreement of even
date herewith by and among the Company and the Purchaser (the "Registration
Rights Agreement"), (iii) issue, sell and deliver the Preferred Shares and all
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Initial Warrant (collectively, the "Conversion Shares"), and
(iv) carry out and perform the provisions of this Agreement and the Registration
Rights Agreement.
(b) Except for CBL Development Corporation (which is inactive), the
Company does not (i) own of record or beneficially, directly or indirectly, (A)
any shares of capital stock or securities convertible into capital stock of any
other corporation or (B) any participating or equity interest in any
partnership, joint venture or other non-corporate business enterprise or (ii)
control, directly or indirectly, any other entity.
SECTION 2.02. Authorization of Agreements, Etc.
(a) The (i) execution and delivery by the Company of this Agreement, the
Registration Rights Agreement and the Warrants, (ii) performance of all
obligations of the Company hereunder and thereunder, (iii) issuance, sale and
delivery of the Preferred Shares and the Warrants, and (iv) issuance and
delivery of the Conversion Shares upon conversion of the Preferred Shares and
exercise of the Warrants, have been duly authorized by all requisite corporate
action on the part of the Company, its officers, directors and stockholders, and
have not and will not violate any provision of applicable law, any order of any
court or other agency of government, the Charter or the By-Laws, or any
provision of any indenture, agreement or other instrument to which the Company
or any of its properties or assets is bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, which conflict, breach
or default could reasonably
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be expected to have a material adverse effect on the Business or the assets,
results of operations, condition (financial or otherwise) or prospects of the
Company (a "Material Adverse Effect") or result in the creation or imposition of
any lien, charge, restriction, claim or encumbrance of any nature whatsoever (a
"Lien") upon any of the tangible or intangible assets of the Company.
(b) The Preferred Shares, when issued, sold and delivered in accordance
with the terms of this Agreement for the Purchase Price, will be duly and
validly issued, fully paid and nonassessable (assuming in the case of exercise
of the Initial Warrant, payment of the exercise price), with no personal
liability attaching to the ownership thereof, and will be free and clear of all
Liens imposed by or through the Company, except as set forth in the Articles
Supplementary and the Registration Rights Agreement. The Conversion Shares have
been duly and validly reserved for issuance upon conversion of the Preferred
Shares and exercise of the Initial Warrant, and upon such conversion or
exercise, will be duly authorized, validly issued, fully paid and nonassessable,
with no personal liability attaching to the ownership thereof and will be free
and clear of all Liens imposed by or through the Company, except as set forth in
the Charter and the Registration Rights Agreement. Neither the issuance, sale or
delivery of the Preferred Shares or the Warrants, nor the issuance or delivery
of the Conversion Shares, is subject to any preemptive right of any stockholder
of the Company or to any right of first refusal or other right in favor of any
person, except as herein provided or as provided in the Charter or in the
Registration Rights Agreement.
SECTION 2.03. Validity.
This Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Company and, assuming the execution and delivery
of them by the other parties thereto, constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except as limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
SECTION 2.04. Authorized Capital Stock.
(a) Upon the filing and acceptance by the office of the Maryland State
Department of Assessments and Taxation of the Articles Supplementary: (i) the
authorized capital stock of the Company will consist of 9,984,490 shares of
Common Stock, of which 7,984,490 shares are classified as Class A Common Stock,
par value $0.01 per share, of which 5,590,101 shares will be issued and
outstanding as of the date hereof, and 2,000,0000 shares of which are classified
as Class B Common Stock, par value $0.01 per share, none of which are issued and
outstanding as of the date hereof, and 15,510 shares of preferred stock, all of
which have been designated Series A Convertible Preferred Stock, par value $0.01
per share, none of which are issued and outstanding as of the date hereof and
(ii) the designations, powers, preferences, rights, qualifications, limitations
and restrictions in respect of each class and series of authorized capital
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stock of the Company as set forth in the Charter will be valid, binding and
enforceable and in accordance with all applicable laws. Except for this
Agreement, the Registration Rights Agreement, the Initial Warrant and as
described on Schedule 2.04 hereto, (i) there is no commitment by the Company to
issue any shares of capital stock, subscriptions, warrants, options, convertible
securities or other similar rights to purchase or receive Company securities or
to distribute to the holders of any of its equity securities any evidence of
indebtedness, cash or other assets, (ii) the Company is under no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity or debt securities or any interest therein or to pay any dividend or make
any other distribution in respect thereof, and (iii) there are no voting trusts
or similar agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company.
(b) All outstanding securities of the Company were issued in compliance
with applicable Federal and state securities laws.
SECTION 2.05. Financial Information.
(a) The Common Stock of the Company is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and the
Company has filed all 34 Act Filings required to be filed by it with the SEC
pursuant to the reporting requirement of the Exchange Act. The Company has not
provided the Purchaser with any information that, according to applicable law,
rule, or regulation, should have been disclosed publicly by the Company but has
not been so disclosed. As of their respective dates, the 34 Act Filings complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC and other Federal, state, and local laws applicable
to such 34 Act Filings, and none of the 34 Act Filings contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) The Company has filed with the Securities Exchange Commission (the
"SEC") audited financial statements at March 31, 1997 and 1998 and for the three
years ended March 31, 1998 and unaudited financial statements as at and for the
nine months ended December 31, 1998, (collectively, the "Financial Statements").
(c) Except as set forth on Schedule 2.05(b), the Company has no material
liabilities, contingent or otherwise, that have not been disclosed in the
Financial Statements, subsequent filings with the SEC or that arose after the
date of the Financial Statements or other such filings.
(d) The financial statements of the Company included in the 34 Act Filings
comply as to form in all respects with the applicable accounting requirements
and rules and regulations of the SEC or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of interim
unaudited financial
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statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
SECTION 2.06. Certain Events.
Other than (i) as disclosed in this Agreement (including the Schedules
hereto), the Registration Rights Agreement or the filings made by the Company
with the SEC under the Securities Exchange Act of 1934 (the "34 Act Filings"),
(ii) the sale of 225,000 shares of Common Stock to six investors as of April 8,
1999, (iii) Executive Employment Agreements and Stock Option Agreements with
Thomas P. Rice and John T. Botek (collectively, the "Executive Agreements"), and
(iv) in the ordinary course of business, since December 31, 1998. the Company
has not (a) issued any equity or debt securities, (b) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
(c) discharged or satisfied any Lien or incurred or paid any obligation or
liability (absolute, accrued or contingent), (d) declared or made any payment or
distribution to stockholders or purchased or redeemed any shares of its capital
stock or other security, (e) mortgaged, pledged or subjected to Lien any of its
assets, tangible or intangible, (f) entered into any commitment (contingent or
otherwise) to do any of the foregoing or (g) engaged in any transaction not in
the ordinary course of business with any Company director, officer, employee,
stockholder or any of their respective affiliates or relatives.
SECTION 2.07. Litigation; Compliance with Laws; Licenses.
Except as disclosed in the 34 Act Filings, there is no pending or, to the
knowledge of the Company, threatened (a) action, suit, claim, proceeding or
investigation against or affecting the Company, at law or in equity, or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign (each,
a "Governmental Body"), (b) arbitration proceeding against or affecting the
Company, (c) governmental inquiry against or affecting the Company, or (d) any
action or suit by or on behalf of the Company pending or threatened against
others. The Company is not in default with respect to any order, writ,
injunction or decree known to the Company issued by any court or Governmental
Body. The Company has complied in all material respects with all laws, rules,
regulations and orders applicable to the Business and the Company's operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorization, required to conduct the Business as
currently conducted or as proposed to be conducted. There is no existing or, to
the knowledge of the Company, any proposed law, rule, regulation or order,
whether Federal, state, or local, which reasonably could be expected to (a)
prohibit or restrict the Company from, (b) require the Company to obtain one or
more permits, licenses or other authorizations, or (c) otherwise materially
adversely affect the Company in, conducting the Business in any jurisdiction in
which it is now conducting business or in which it proposes to conduct business.
The Company has not received any legal opinion, memorandum or advice from
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or
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disadvantage which may be material to the Business or the Company's assets,
properties, liabilities, results of operations, financial condition or prospects
or that the Company is, or may be, required to obtain one or more permits,
licenses or other authorizations in order to conduct the Business as currently
conducted or as proposed to be conducted.
SECTION 2.08. Intellectual Property.
(a) Except as set forth on Schedule 2.08, (a) the Company has good, valid,
subsisting, unexpired and enforceable title to, or otherwise possesses adequate
rights to use, all the patents, trademarks, trade names, service marks,
copyrights and similar intangible assets or rights material to the Business
(collectively, the "Intellectual Property"); (b) the Company has no knowledge of
any adverse claim or facts which could give rise to a claim, which creates a
reasonable doubt as to the ownership or validity of the Intellectual Property;
(c) no Governmental Body has rendered any opinion, decision or judgment that
could limit, cancel, or question the validity of any of the Intellectual
Property; (d) to the Company's knowledge, no other intellectual property is
necessary to enable the Company to conduct the Business substantially as
currently conducted or as proposed to be conducted; (e) the Company is not
obligated or under any liability whatsoever to make any material payments in the
nature of royalties, license fees or otherwise to any owner of, licensee of or
other claimant to, any Intellectual Property; and (f) the Company has no
knowledge of intellectual property owned by others which is used by the Company
in the conduct of the Business as currently conducted or as proposed to be
conducted.
(b) To the knowledge of the Company, no assets, properties or rights used
in the Business infringe or, in the past have infringed, upon any patent,
trademark, trade name, copyright or other intellectual property, and the Company
has not misappropriated or misused any invention, trade secret or other
proprietary information entitled to legal protection. The continued use of the
Intellectual Property by the Company will not constitute an infringement,
misappropriation or misuse of any patent, trademark, trade name, copyright,
invention, trade secret, proprietary information, nondisclosure or other rights
of any third party. No person has asserted, or, to the knowledge of the Company,
threatened, any claim regarding the use of, or challenging or questioning the
Company's right or title in, any Intellectual Property, or challenging or
questioning the validity or effectiveness of the Intellectual Property or any
license, contract or commitment relating thereto, and the Company knows of no
valid basis for any such claim. To the Company's knowledge, all trade secrets,
know how and other proprietary information developed by or belonging to the
Company which has not been patented, trademarked or copyrighted has at all times
been kept confidential by the Company, its employees and agents so as to be
protectable under common law principles.
SECTION 2.09. Loans and Advances.
Except as set forth in the 34 Act Filings, the Company has no outstanding
loans or advances to any person and is not obligated to make any loans or
advances, except for routine
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advances to employees in respect of reimbursable business expenses incurred by
them in connection with their performance of services for the Company.
SECTION 2.10.
Assumptions, Guaranties, Etc., of Indebtedness of Other Persons.
Except as set forth in the 34 Act Filings, the Company has not assumed,
guaranteed, endorsed or otherwise become directly or contingently liable on any
indebtedness of any other person nor become obligated to purchase, provide funds
for payment, supply funds to or otherwise invest in a debtor or obligor or
otherwise to assure a creditor against loss.
SECTION 2.11. Governmental Approvals.
Assuming the accuracy of the representations and warranties of the
Purchaser set forth in Article III hereof, no registration or filing with, or
consent or approval of or other action by, any Governmental Body is or will be
necessary for (a) the valid execution, delivery and performance by the Company
of this Agreement or the Registration Rights Agreement, (b) the issuance, sale
and delivery of the Preferred Shares and the Initial Warrant or (c) upon
conversion of the Preferred Shares or exercise of the Initial Warrant, the
issuance and delivery of the Conversion Shares, other than (i) filings pursuant
to Federal and state securities laws (all of which filings have been, or with
respect to those filings which may be duly made after the Closing will be, made
by or on behalf of the Company) in connection with the offer, issuance and sale
of the Preferred Shares, the Initial Warrant and the Conversion Shares, (ii)
with respect to the Agreement, the registration of the shares covered thereby
with the SEC and (iii) the filing of the Articles Supplementary.
SECTION 2.12. Taxes.
The Company has filed, or caused to be filed, on a timely basis, all tax
returns (including payroll, unemployment and other taxes related to its
employees and independent contractors) required to be filed with any
Governmental Body and has paid or caused to be paid all taxes, levies,
assessments, tariffs, duties or other fees imposed, assessed or collected by any
Governmental Body that may have become due and payable pursuant to those tax
returns or otherwise. No deficiency assessment with respect to or proposed
adjustment of any of the Company's Federal, state, municipal or local tax
returns has occurred or, to the Company's knowledge, is threatened. There has
been no tax lien imposed by any Governmental Body outstanding against the
Company's assets or properties, except the lien for current taxes not yet due.
SECTION 2.13. Bankruptcy or Convictions.
None of the Company's directors or officers has ever been arrested,
charged with or convicted of any crime (other than minor traffic violations) nor
have any of them ever filed for bankruptcy or had a bankruptcy petition filed
against them, and none of them has ever been a
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director or officer of an entity that filed for bankruptcy or had a bankruptcy
petition filed against it.
SECTION 2.14. Brokers or Finders.
The Company is not liable, contingently or otherwise, for the payment of
any brokerage or finders' fees or agents' commissions or other similar payments
in connection with this Agreement or the transactions contemplated hereby,
except to Gruntal & Co., L.L.C., in the amount of $75,000.
SECTION 2.15. Assets.
(a) Personal Property. The Company has good and valid title to all of its
assets. All of the Company's tangible personal property has been maintained in
accordance with generally accepted industry practice and is, in all material
respects, in good operating condition and repair, ordinary wear and tear
excepted. All leased personal property is, in all material respects, in the
condition required of such property by the terms of the lease applicable
thereto, and all such leases are in full force and effect and have not been
modified or amended, and no party thereto is in default in any material respect
thereunder.
(b) Title to Real Property.
The Company owns no real property or any interest in real property, other
than as described in the 34 Act filings and leasehold interests granted pursuant
to written leases; (ii) the Company has neither granted nor is subject to any
options to purchase or rights of first refusal with respect to any real
property; and (iii) all of the Company's leases of real property are in full
force and effect and have not been modified or amended, and no party thereto is
in default in any material respect thereunder.
SECTION 2.16. Absence of Certain Changes.
Except (i) for certain covenant defaults under the Company's Loan
Agreement with First Union National Bank, (ii) a non-recurring charge estimated
at $1,400,000 for executive severance and a write-down on the Seton facility,
(iii) the Executive Agreements, or (iv) as disclosed in the 34 Act Filings,
since December 31, 1998, the Business has been conducted only in the ordinary
course consistent with past practice, and there has been no Material Adverse
Effect on the Company.
SECTION 2.17. Absence of Defaults, Etc.
The Company is not in default or alleged to be in default under any
material contract, agreement, lease or document to which it or any of its
properties or assets is bound. The Company and its properties and assets are in
compliance in all material respects with all
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applicable statutes, laws, ordinances, rules and regulations of all Governmental
Bodies, and all filing requirements relating thereto.
SECTION 2.18. Material Agreements.
Except for the Executive Agreements or as described in the 34 Act Filings
and as contemplated by this Agreement and the Registration Rights Agreement, the
Company is not a party to or bound by any written or oral (a) contract not made
in the ordinary course of business; (b) collective bargaining agreement or other
contract with any labor union or other employee bargaining unit; (c) bonus,
deferred compensation, profit sharing, pension, retirement, stock option, stock
purchase, hospitalization, insurance or other plan or arrangement providing for
employee benefits to present or former officers, directors or employees; (d)
contract with any manufacturer, producer, warehouser, distributor, agent, broker
or seller, or any agreement whereby the Company is entitled to manufacture,
distribute, warehouse, deal in or sell any products; (e) contract requiring
capital expenditures in excess of $100,000 in any one year; (f) contract for the
purchase of supplies, materials or services for delivery over a period of more
than 30 days from the date of this Agreement; (g) contract with any of its
officers, directors or employees, or (h) any other agreement, contract, lease,
license, commitment or instrument to which the Company is a party or by or to
which it or any of its assets or the Business is bound or subject, which
individually has an expected aggregate future liability or obligation of
$500,000 or more.
SECTION 2.19. Environmental Matters.
The Company has not released, emitted, buried or otherwise disposed of any
Regulated Substances (as hereinafter defined) on any of the Company's Properties
(as hereinafter defined) in violation of any Environmental Law (as hereinafter
defined). To the knowledge of the Company, no other person or entity has
released, emitted, buried or otherwise disposed of Regulated Substances on any
of the Company's Properties. To the knowledge of the Company, no storage tanks,
underground or otherwise, are or have been located on any of the Company's
Properties. The Company has in all material respects complied with all
Environmental Laws relating to the Business or the Company's Properties. The
Company has not received any notice, demand, suit or information request
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") or any comparable state or local law, nor does it have knowledge
of any other party's receipt of same relating to any of the Company's
Properties. The Company has not received written notice that any of the
Company's Properties is listed on any regulatory list of contaminated
properties, including the National Priorities List promulgated pursuant to
CERCLA, or any state or local counterpart. To the knowledge of the Company, the
Company has no existing or potential liability under any Environmental Law. No
environmental approvals, clearances or consents are required under applicable
law from any governmental entity or authority in order for the Purchaser to
purchase the Preferred Shares hereunder or for the Company to continue the
Business after the Closing Date.
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As used in this Section 2.19, (i) "Environmental Law" means any statute,
regulation, rule, code, common law, order or judgment of any applicable Federal,
state, local or foreign jurisdiction relating to pollution, hazardous
substances, hazardous wastes, petroleum or otherwise relating to protection of
the environment, natural resources or human health, including the Clean Air Act,
the Clean Water Act, the Resource Conservation Recovery Act ("RCRA"), CERCLA,
the Toxic Substances Control Act ("TSCA"), and the Emergency Planning and
Community Right-to-Know Act, all as currently amended; (ii) "Regulated
Substances" means any substance regulated under any Environmental Law, including
hazardous waste, as defined in RCRA, hazardous substances, as defined in CERCLA,
toxic substances as defined in TSCA, hazardous materials, as defined under the
Hazardous Materials Transportation Act, petroleum and its fractions, ACM's and
PCB's; (iii) the "Company" includes any predecessors or affiliates; and (iv) the
"Company's Properties" means any real property or facility currently owned,
leased, operated or used by the Company or previously owned, leased, operated or
used by the Company or any predecessor of the Company.
SECTION 2.20 Certain Payments.
Neither the Company nor any of its directors, officers, agents or
employees or any other person or entity associated with or acting for or on
behalf of the Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback or other payment to any
person or entity, private or public, regardless of form, in money, property or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, or (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of the Company,
or (b) established or maintained any fund or asset that has not been recorded on
the books and records of the Company.
SECTION 2.21. Insurance.
The Company maintains policies of fire and casualty, extended coverage,
business interruption, public and product liability and other forms of insurance
in such amounts, with such deductibles and against such risks and losses as are
reasonable to protect the Business and the assets of the Company.
SECTION 2.22. Disclosure.
The representations and warranties contained in this Article II and the
information set forth in the Schedules hereto, are true, complete and correct in
all material respects, and none of the same contains any untrue statement of
material fact or omits to state any material fact necessary to make the
statements made therein not misleading. To the Company's knowledge, there is no
fact that the Company has not disclosed to the Purchaser which has had or could
reasonably be expected to have a Material Adverse Effect.
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SECTION 2.23. Agreements.
Except as set forth in this Agreement (including the Schedules) or the 34
Act Filings, the Company is not a party to or otherwise bound by any written or
oral contract or instrument or, to the knowledge of the Company, other
restriction which individually or in the aggregate could reasonably be expected
to have a Material Adverse Effect. The Company and each other party to such
contracts or instruments have performed all obligations required to be performed
by them to date, have received no notice of default or alleged default and are
not in default, in any material respect (with due notice or lapse of time or
both) under any of the same. The Company is not in violation of any provision of
its Charter or Bylaws. The Company has no present expectation or intention of
not fully performing all its obligations under each such contract or instrument
in all material respects.
SECTION 2.24. Company
When used in this Article II, "Company" shall mean, with respect to the
receipt of notice or knowledge, the Company's directors, executive officers,
counsel and advisors.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Each Purchaser, severally and not jointly, represents and warrants to the
Company as of the Closing Date that it:
(a) is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act of 1933, as amended (the "Securities Act")
and the rules and regulations promulgated thereunder and was not organized for
the specific purpose of acquiring the Preferred Shares;
(b) has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company and is able financially to bear the risks of such
investment;
(c) has had an opportunity to discuss the Business and the Company's
management, prospects and financial affairs with the Company's management;
(d) is acquiring the Preferred Shares and the Initial Warrants for its own
account for the purpose of investment and not with a view to or for resale in
connection with any distribution thereof;
(e) understands that (i) the Preferred Shares, the Conversion Shares and
the Initial Warrants have not been registered under the Securities Act by reason
of their issuance in a transaction exempt from the registration requirements of
the Securities Act, (ii) the Preferred Shares, the Conversion Shares and the
Initial Warrants must be held indefinitely unless a
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subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares, the Conversion Shares
and the Initial Warrants will bear a legend to such effect, (iv) the Preferred
Shares, the Conversion Shares and the Initial Warrants are subject to the
restrictions set forth in the Registration Rights Agreement, and (v) the Company
will make a notation on its transfer books to such effect; and
(f) has the full right, power and authority to enter into and perform this
Agreement and the Registration Rights Agreement, and each of this Agreement and
the Registration Rights Agreement, constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other laws affecting the enforcement of creditors' rights generally, or by
general equitable principles.
ARTICLE IV
CONDITIONS TO THE CLOSING
SECTION 4.01. Conditions to the Obligations of the Purchasers.
The obligations of the Purchasers to consummate the transactions
contemplated by this Agreement are subject to the fulfillment or the written
waiver of the Purchasers, at their sole discretion, on or before the Closing
Date, of each of the following conditions:
(a) Performance. The Company shall have performed and complied, in all
material respects, with all agreements, obligations and conditions contained
herein that are required by it to be performed or complied with on or before the
Closing Date, and the Purchasers shall have received a certificate to such
effect from the President of the Company.
(b) All Proceedings to be Satisfactory. All corporate proceedings required
to be taken by the Company in connection with the transactions contemplated
hereby and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such evidence of such proceedings and
counterpart originals or certified or other copies of such documents as they
have reasonably requested.
(c) Supporting Documents. The Purchasers and their counsel shall have
received copies of the following documents:
(i) (A) the Articles Supplementary, certified by the Maryland
State Department of Assessments & Taxation and (B) a certificate of the Maryland
State Department of Assessments & Taxation, dated as of a recent date, as to the
due incorporation and good standing of the Company;
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(ii) a certificate of the Secretary of the Company, dated the
Closing Date and certifying: (A) that attached thereto is a true and complete
copy of the By-Laws of the Company as in effect on the date of such
certification; (B) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors (the "Board") the Company
authorizing the execution, delivery and performance of this Agreement, the
Articles Supplementary and the Registration Rights Agreement, the filing of the
Articles Supplementary with the Maryland State Department of Assessments &
Taxation, the issuance and delivery of the Preferred Shares and Initial Warrant
and the reservation of the applicable Conversion Shares, and that all such
resolutions are in full force and effect and that the same are all resolutions
adopted in connection with the transactions contemplated by this Agreement and
the Registration Rights Agreement; and (C) to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the Articles
Supplementary, the Registration Rights Agreement, the certificates representing
the Preferred Shares, the Initial Warrants and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of the Company
as to the incumbency of the officer signing the certificate referred to in this
clause (c); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company as the
Purchasers or their counsel reasonably may request.
(d) The Registration Rights Agreement. The Company and the Purchasers
shall have executed and delivered the Registration Rights Agreement.
(e) The Preferred Shares and Initial Warrants. The Company shall have
delivered to the Purchasers stock certificates representing the Preferred Shares
and the Initial Warrants.
(f) Articles Supplementary. The Company's Board of Directors shall have
approved the Articles Supplementary as required by the laws of Maryland, and the
Company shall have filed the same with the Maryland Department of Assessments
and Taxation.
(g) Fees and Expenses. The Company, at or prior to the Closing, shall have
paid the fees and expenses set forth in Section 7.01 hereof.
(h) Due Diligence. No fact shall have been discovered by the Purchasers
during their due diligence investigation of the Company, the Business, its
prospects and the Company's management that causes them to conclude, in their
sole discretion, that an investment in the Company is not appropriate.
(i) Governmental and Other Authorization. All authorizations, approvals or
permits, if any, of any Governmental Body or any other person or entity that are
required in connection with the lawful issuance and sale of the Preferred
Shares, the Initial Warrants and the Conversion Shares pursuant to this
Agreement shall have been duly obtained, except for filings pursuant to Federal
or state securities laws which are legally permitted to be made on or after the
Closing Date.
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(j) Additional Agreements. The Company shall have delivered such other
agreements and instruments as the Purchasers shall have reasonably requested.
(k) Opinions of Counsel. Piper & Marbury L.L.P., counsel to the Company,
shall have delivered to the Purchasers an opinion, dated the Closing Date, in
form and substance reasonably acceptable to the Purchasers and their counsel.
(l) Absence of Legal Proceedings. No action or proceedings shall have been
instituted or threatened before a court or Governmental Body to restrict or
prohibit the transactions contemplated hereby or the operation by the Company of
the Business.
SECTION 4.02. Conditions to the Obligations of the Company.
The obligations of the Company under this Agreement are subject to the
fulfillment or its written waiver, at its sole discretion, on or before the
Closing Date, of each of the following conditions:
(a) Registration Rights Agreement. Each Purchaser shall have executed and
delivered the Registration Rights Agreement.
(b) Purchase by Purchaser. The Purchasers shall have paid the Purchase
Price.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchasers that so long as any
Preferred Shares are outstanding:
SECTION 5.01. Inspection and Information Rights.
The Company shall:
(a) permit the Purchasers, or any authorized representative thereof, upon
reasonable prior notice, to visit and inspect the properties of the Company and
its corporate and financial books and records and to discuss the Business and
its finances with its officers, all at such reasonable times during normal
business hours as may be requested by the Purchasers. The Purchasers or their
representatives shall maintain the confidentiality of all information acquired
by them in exercising such rights and shall execute a written non-disclosure
agreement if requested by the Company in form reasonably acceptable to the
Company and the Purchasers;
(b) furnish to the Purchasers within five business days after receipt
thereof, any notification relating to the Company's default or alleged default
under any loan agreement, lease or material contract to which the Company is a
party; and
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(c) furnish to the Purchasers promptly upon sending, making available or
filing the same, all reports, financial statements or other documents that the
Company sends or makes available to its Common Stockholders or files with the
SEC.
SECTION 5.02. Reserve for Conversion Shares.
The Company shall, at all times, reserve and keep available out of its
authorized but unissued shares of Common Stock such number of shares as shall be
sufficient to permit the conversion of all of the Preferred Shares and exercise
of the Initial Warrants. If at any time, the number of authorized but unissued
shares of the Common Stock shall not be sufficient to permit conversion of all
of the Preferred Shares and exercise of the Initial Warrants or otherwise to
comply with the terms of this Agreement, the Company will immediately take such
corporate action as may be necessary to increase its authorized but unissued
shares of the Common Stock to such number of shares as shall be sufficient for
such purposes. The Company will obtain any authorization, consent, approval or
other action by or make any filing with any court or administrative body that
may be required under applicable Federal or state securities laws in connection
with the issuance of shares of the Common Stock upon conversion of the Preferred
Shares or exercise of the Initial Warrants.
SECTION 5.03. Corporate Existence; Business.
Except as contemplated hereunder, the Company shall maintain its corporate
existence, rights and franchises in full force and effect. The Company will not
engage in any business other than the Business.
SECTION 5.04. Properties, Business, Insurance.
The Company shall maintain, as to its properties and the Business, with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies similarly situated.
SECTION 5.05. Expenses of Directors.
The Company shall promptly reimburse each director of the Company who is
not an employee of the Company for all reasonable out-of-pocket expenses
incurred in attending meetings of the Board or any committee thereof.
SECTION 5.06. Board of Directors.
The Company shall use its best efforts to ensure that meetings of the
Board are held at least once every three months, and, in any event, that the
Board shall meet not less than four times per year.
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SECTION 5.07. Compliance with Laws.
The Company shall comply with all applicable laws, rules, regulations and
orders, noncompliance with which could reasonably be expected to have a Material
Adverse Effect.
SECTION 5.08. Maintain Records and Books of Account.
The Company shall maintain complete and accurate records and books of
account, in which entries will be made in accordance with GAAP, reflecting all
financial transactions of the Company and which will include, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other items in connection with the Business.
SECTION 5.09. Subsidiaries.
If at any time the Company has any subsidiaries, it will not permit any
such subsidiary to take any action that would violate any of the covenants
contained herein. The Company shall not sell or otherwise transfer any shares of
capital stock of any of its subsidiaries, except to the Company or another
subsidiary, or permit any of its subsidiaries to issue, sell or otherwise
transfer any shares of its capital stock or the capital stock of any of its
subsidiaries, except to the Company or another Company subsidiary.
SECTION 5.10. Restrictive Agreements Prohibited.
The Company shall not become a party to, or bound by, any agreement that
by its terms restricts the Company's performance of this Agreement, its Charter
or the Registration Rights Agreement.
SECTION 5.11. Use of Proceeds.
The Company shall use the proceeds from the sale of the Preferred Shares
to fund capital expenditures and for working capital.
SECTION 5.12. Registration and Listing.
Until the later of (i) such time as no Series A Preferred Shares are
outstanding, (ii) May 20, 2004, or (iii) such time as the Company is not a
reporting company under the Exchange Act, the Company will cause shares of
Common Stock to continue to be registered under Section 12(g) of the Exchange
Act, will comply in all respects, with its reporting and filing obligations
under the Exchange Act, and will not take any action or file any document
(whether or not permitted by the Exchange Act or the rules thereunder) to
terminate or suspend such reporting and filing obligations. Until the later of
(i) such time as no Series A Preferred Shares are outstanding or (ii) May 20,
2004, the Company shall, unless the Board of Directors of the Company determines
in good faith that such continuation is not beneficial to the Company, (i)
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continue listing or trading the Common Stock on Nasdaq, or another national
exchange and (ii) comply in all respects with the Company's reporting, filing
and other obligations under the By-Laws or rules of Nasdaq and any other
exchange or market on which shares of the Common Stock are then traded.
SECTION 5.13. Board Observation Rights.
So long as any Purchaser holds any Series A Preferred Shares, the
Purchasers shall have the right to collectively designate an observer to receive
notice of and attend meetings of the Company's Board of Directors. Such observer
shall have no right to vote on or with respect to any matter considered by the
Board of Directors. Such observer shall agree to maintain as confidential any
non-public information it obtains as a result of the provisions of this Section
5.13. The Company agrees to reimburse the observer for the reasonable travel and
other expenses incurred by such observe in connection with his or her attendance
at meetings of the Company's Board of Directors.
SECTION 5.14. Number of Directors.
Without the consent of the holders of a majority of the shares of Series A
Preferred Stock, the Company shall not have a board of directors with more than
six members.
ARTICLE VI
EVENTS OF NONCOMPLIANCE; EVENTS OF DEFAULT
SECTION 6.01. Events of Noncompliance.
For so long as any Preferred Shares remain outstanding, each of following
events shall constitute an "Event of Noncompliance":
(a) The Company shall fail to effect the redemption of the Preferred
Shares within 60 days of the date upon which redemption is required by the
Articles Supplementary;
(b) The Company shall default in the performance of any covenant or other
provision of this Agreement, the Articles Supplementary or the Registration
Rights Agreement, or any other agreement which is material to the Business, and
such default continues uncured for a period of thirty days after receipt by the
Company of written notice thereof from the Purchaser;
(c) Any representation or warranty made by the Company in this Agreement
or the Registration Rights Agreement or in any certificate or other document
contemplated by, delivered pursuant to, or in connection with, this Agreement or
the Closing hereunder shall prove to have been incorrect when made in any
material respect;
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(d) The Company reports an operating loss for any two consecutive fiscal
quarters ending on or after December 31, 1999.
(e) The Company shall fail to repay the principal of, or interest or
premium on, any indebtedness when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether such
indebtedness shall become due by scheduled maturity, by required prepayment, by
demand or otherwise, or shall fail to perform any term, covenant or agreement on
its part to be performed under any agreement or instrument evidencing or
securing or relating to such indebtedness when required to be performed (or, if
permitted by the terms of the relevant document, within any applicable grace
period), if the effect of such failure to pay or perform is to accelerate, or to
permit the holders thereof to accelerate, the maturity of such indebtedness;
(f) The Company shall (i) admit in writing its inability to pay its debts
generally as they become due; (ii) commence a voluntary case under Title 11 of
the United States Bankruptcy Code or comparable state statute (collectively, a
"Bankruptcy Statute"), or authorize, through its Board of Directors, the
commencement of such a voluntary case; (iii) file an answer or other pleading
admitting or failing to deny the material allegations of a petition filed
against it in an involuntary case under a Bankruptcy Statute, or seeking,
consenting to or acquiescing in the relief therein provided, or by its failing
to controvert timely the material allegations of any such petition; (iv) have an
order for relief entered against it in any involuntary case commenced under a
Bankruptcy Statute, which order is not dismissed within 60 days; (v) seek relief
as a debtor under any other law relating to the liquidation or reorganization of
debtors or to the modification or alteration of the rights of creditors or
consent to or acquiesce in such relief; (vi) have an order entered against it by
a court of competent jurisdiction (A) finding it to be bankrupt or insolvent,
(B) ordering or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (C) assuming custody of, or
appointing a receiver or other custodian for, all or a substantial part of its
property, which order is not dismissed within 60 days; or (vii) make an
assignment for the benefit of, or enter into a composition with, its creditors
or consent to the appointment of a receiver or other custodian for all or a
substantial part of its property; or
(g) A final judgment is rendered against the Company or its properties in
an amount in excess of ten percent of the then value of the Company's net assets
and such judgment remains unsatisfied for a period of 30 days after all appeals
have been exhausted or the time for appeal has expired.
SECTION 6.02. Declaration of Event of Default; Special Board Rights.
(a) So long as any of the Preferred Shares remain outstanding, in addition
to and without limiting any of the rights and remedies otherwise available to
the Purchasers and any subsequent holder of any Preferred Shares, upon the
occurrence of an Event of Non-Compliance, a majority in interest of the
Purchasers may declare an Event of Default.
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(b) Until the Event of Noncompliance which caused the Event of Default is
either (i) cured, or (ii) waived by a majority in interest of the Purchasers,
the Purchasers shall be entitled to elect the largest number of directors of the
Company that, together with the director elected by the holders of the Preferred
Shares shall not constitute a majority of the Board of Directors (the "Default
Directors"). The Default Directors shall serve until the Event of Noncompliance
is cured or waived, after which time the directors removed or other persons may
be reelected to the Board by the holders of Common Stock.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Fees and Expenses.
(a) Upon Closing, the Company shall pay the reasonable fees and
disbursements of one counsel to the Purchasers, in connection with the review of
this Agreement, the Articles Supplementary, the Registration Rights Agreement
and the transactions contemplated hereby and thereby, and the costs and
out-of-pocket expenses of the Purchasers in connection with its due diligence
investigation of the Company; provided that the total amount payable to the
Purchasers or their counsel and representatives hereunder shall not exceed
$15,000.
SECTION 7.02. Survival of Agreements.
The representations and warranties, covenants and other agreements made
herein and in the Registration Rights Agreement, as well as in each certificate
delivered to the Purchasers pursuant hereto, shall survive the Closing and
remain in effect so long as any of the Preferred Shares remain outstanding. The
Company agrees to indemnify and hold each of the Purchasers harmless from and
against and will pay to the Purchasers the full amount of any loss, damage,
liability, cost or expense (including amounts paid in settlement and reasonable
attorneys' fees and expenses) to each of the Purchasers resulting either
directly or indirectly from any breach of the representations and warranties,
covenants or agreements of the Company contained in this Agreement or the
Registration Rights Agreement or in any certificate delivered to the Purchasers
pursuant hereto or thereto or in connection herewith or therewith. Each of the
Purchasers agrees to indemnify and hold the Company harmless from and against
and will pay to the Company the full amount of any loss, damage, liability, cost
or expense (including amounts paid in settlement and reasonable attorneys' fees
and expenses) to the Company or such person resulting either directly or
indirectly from any breach of the representations, warranties, covenants or
agreements of the Purchaser contained in this Agreement or the Registration
Rights Agreement or in any certificate delivered to the Company pursuant hereto
or thereto in connection herewith or therewith.
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SECTION 7.03. Parties in Interest; Action by Purchasers.
(a) All representations, warranties, covenants and agreements contained in
this Agreement, and the Registration Rights Agreement, by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not;
provided, however, that the foregoing shall not in and of itself permit the
assignment by the Company and its successors of the Company's obligations
hereunder.
(b) Whenever this Agreement calls for action by the Purchasers, any such
action shall be taken by, and be effective if taken by, those Purchasers holding
a majority of the then outstanding Preferred Shares. Any such action shall
thereafter be binding upon all the Purchasers.
SECTION 7.04. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be delivered in person, by overnight express mail, or
mailed by certified or registered mail, return receipt requested, addressed as
follows:
(a) If to the Company:
Chesapeake Biological Laboratories, Inc.
111 South Paca Street
Baltimore, MD 21230
Attn: President
Facsimile: (410) 843-4414
with a copy to:
Richard C. Tilghman, Jr., Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Facsimile: (410) 576-1763
(b) If to a Purchaser:
at the address set forth opposite such Purchaser's name on
Schedule I hereto
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With a copy to:
John T. Unger
c/o Snell & Smith P.C.
1000 Louisiana, Suite 1200
Houston, Texas 77002
Facsimile: 713-651-8010
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 7.05. Governing Law.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Maryland, without giving effect to its conflicts
of laws provisions.
SECTION 7.06. Entire Agreement.
This Agreement, including the Schedules and Exhibits hereto, together with
the Charter and the Registration Rights Agreement, constitute the sole and
entire agreements of the parties hereto and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof. All Schedules and Exhibits hereto are incorporated herein
by reference. To the extent an item is disclosed or set forth in a Schedule or
exhibit, its inclusion anywhere in the Schedules or Exhibits shall be deemed to
be an automatic cross-reference to, and inclusion in, all Schedules and Exhibits
as may be appropriate throughout the Agreement and any and all applicable
sections or paragraphs thereof, whether or not a specific cross-reference is
noted.
SECTION 7.07. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument.
SECTION 7.08. Amendments.
This Agreement may not be amended or modified, and no provisions hereof
may be waived, without the written consent of the Company and the Purchasers.
SECTION 7.09. Severability.
Each provision of this Agreement shall be treated as a separate and
independent clause, and the unenforceability of any one clause shall in no way
impair the enforceability of any of the other clauses herein. If one or more of
the provisions contained in this Agreement shall for any
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reason be held to be unenforceable, such provision or provisions shall be
construed by the appropriate judicial body by limiting or reducing it or them,
so as to be enforceable to the maximum extent compatible with applicable law,
and no other provision hereof shall be affected by such holding, limitation or
reduction.
SECTION 7.10. Titles and Subtitles.
The titles and subtitles used in this Agreement are for convenience only
and are not to be considered in construing or interpreting any term or provision
of this Agreement.
SECTION 7.11. Recitals.
The Recitals hereto are specifically made a part of this Agreement.
SECTION 7.12. Pronouns.
All pronouns used herein shall be deemed to refer to the masculine,
feminine or neuter gender as the context requires.
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