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WARRANT AGREEMENT
by and between
PANLABS INTERNATIONAL, INC.
and
CHRYSALIS INTERNATIONAL CORPORATION
Dated as of March 16, 1998
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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY APPLICABLE STATE LAW AND
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE
WITH THIS AGREEMENT AND IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER
THE ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER OR SUCH STATE SECURITIES LAWS. THE
SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STANDSTILL
AND CONFIDENTIALITY AGREEMENT, DATED MARCH 16, 1998, AMONG CHRYSALIS
INTERNATIONAL CORPORATION, MDS INC. AND PANLABS INTERNATIONAL, INC., A COPY
OF WHICH IS ON FILE AT THE OFFICE OF THE SECRETARY OF CHRYSALIS
INTERNATIONAL CORPORATION.
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Warrant") is being entered into this
16th day of March 1998, by and between Chrysalis International Corporation, a
Delaware corporation (together with its successors and permitted assigns,
"Chrysalis") and Panlabs International, Inc., a Washington corporation and a
wholly owned subsidiary of MDS Washington, Inc., a wholly owned subsidiary of
MDS Inc. (the "Investor"). Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Standstill
Agreement (as defined below).
WHEREAS, Chrysalis and the Investor have entered into that Note and
Warrant Purchase Agreement (the "Note and Warrant Purchase Agreement"), dated as
of the date hereof, pursuant to which Chrysalis has agreed to issue to the
Investor the US$5,000,000 subordinated promissory note (the "Note") and
Chrysalis has agreed to grant to the Investor the right to purchase Two Million
(2,000,000) shares of Common Stock, par value $0.01 per share, of Chrysalis
("Common Stock"), at an exercise price of $2.50 per share pursuant to the terms
and conditions of this Warrant; and
WHEREAS, Chrysalis and the Investor have entered into a Standstill and
Confidentiality Agreement dated as of the date hereof (the "Standstill
Agreement"), pursuant to which Chrysalis and the Investor have agreed to certain
limitations on the ownership of Voting Securities and Convertible Securities,
which limitations shall also apply hereto.
NOW, THEREFORE, in consideration of the agreements, rights,
obligations and covenants contained herein, and other good and valuable
consideration, the sufficiency and receipt of which is hereby acknowledged,
Chrysalis and the Investor hereby agree as follows:
SECTION 1. GRANT OF WARRANT.
1.1 GRANT. Chrysalis hereby grants to the Investor this Warrant,
which, subject to the terms and conditions of the Standstill Agreement, is
exercisable as provided herein, in whole or in part as provided in Section 3.1
hereto, at any time and from time to time during the period commencing on the
date hereof (the "Closing Date") and ending on the later of (i) the third
anniversary of the Closing Date at 6:00 p.m., local time in New York, New York
and (ii) payment by Chrysalis of the full amount of the Note (the "Exercise
Period"), to purchase an aggregate of up to Two Million (2,000,000) shares of
Common Stock (the "Warrant Shares"), at an exercise price of two dollars and
fifty cents (US$2.50) per share (as it may be hereinafter adjusted, the
"Exercise Price").
1.2 SHARES TO BE ISSUED; RESERVATION OF SHARES. Chrysalis covenants
and agrees that all Warrant Shares will, upon issuance, be duly authorized,
validly issued and outstanding, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issuance thereof. Chrysalis
further covenants and agrees that it will from time to time take all actions
required to assure that the par value per share of the Common Stock is at all
times equal to or less than the effective Exercise Price. Chrysalis further
covenants and agrees that, during the Exercise Period, Chrysalis will at all
times have authorized and reserved sufficient shares of Common Stock to provide
for the exercise of this Warrant in full.
SECTION 2. ADJUSTMENTS TO WARRANT RIGHTS.
2.1 STOCK COMBINATIONS. In case Chrysalis shall combine all of the
outstanding Common Stock proportionately into a smaller number of shares, the
Exercise Price per Warrant Share hereunder in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
issuable to the Investor upon exercise of this Warrant shall be proportionately
decreased, as of the effective date of such combination, as follows: (a) the
number of Warrant Shares purchasable upon the exercise of the Warrant
immediately prior to the effective date of such combination, shall be adjusted
so that the holder of the Warrant exercised after that date shall be entitled to
receive the number and kind of Warrant Shares which the holder of the Warrant
would have owned and been entitled to receive as a result of the combination had
the Warrants been exercised immediately prior to that date and (b) the Exercise
Price in effect immediately prior to such adjustment shall be adjusted by
multiplying such Exercise Price by a fraction, the numerator of which is the
aggregate number of shares of Common Stock purchasable upon exercise of the
Warrants immediately prior to such adjustment, and the denominator of which is
the aggregate number of shares of Common Stock purchasable upon exercise of the
Warrants immediately thereafter.
2.2 REORGANIZATIONS. If any of the following transactions (each, a
"Special Transaction") shall become effective after the Closing Date: (i) a
capital reorganization or reclassification of the capital stock of Chrysalis,
(ii) a consolidation or merger of Chrysalis with and into another entity and
Chrysalis is not the surviving entity in such transaction, or (iii) a sale or
conveyance of all or substantially all of the assets of Chrysalis, then, as a
condition of any such Special Transaction, lawful and adequate provision shall
be made whereby the Investor shall thereafter have the right to purchase and
receive, at any time after the consummation of such
Special Transaction until the expiration of the Exercise Period, upon the basis
and upon the terms and conditions specified herein, and in lieu of the Warrant
Shares immediately theretofore issuable upon exercise of this Warrant for the
aggregate Exercise Price in effect immediately prior to such consummation, such
shares of stock, other securities, cash or other assets as may be issued or
payable in and pursuant to the terms of such Special Transaction with respect to
or in exchange for a number of outstanding shares of Common Stock equal to the
number of Warrant Shares immediately theretofore issuable upon exercise of this
Warrant had such Special Transaction not taken place (pro rated in the case of
any partial exercises). In connection with any Special Transaction, appropriate
provision shall be made with respect to the rights and interests of the Investor
to the end that the provisions of this Warrant (including without limitation
provisions for adjustment of the Exercise Price and the number of Warrant Shares
issuable upon the exercise of the Warrant), shall thereafter be applicable, as
nearly as may be, to any shares of stock, other securities, cash or other assets
thereafter deliverable upon the exercise of this Warrant.
2.3 ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any
change in the Common Stock by reason of stock dividends, stock splits,
recapitalizations or reclassifications, the type and number of Warrant Shares
issuable upon exercise of this Warrant, and the Exercise Price, as the case may
be, shall be adjusted as follows: (a) the number of Warrant Shares purchasable
upon the exercise of the Warrant immediately prior to the record date for such
dividend or distribution, or the effective date of such recapitalization or
reclassification shall be adjusted so that the holder of the Warrant exercised
after that date shall be entitled to receive the number and kind of Warrant
Shares which the holder of the Warrant would have owned and been entitled to
receive as a result of the dividend, distribution, recapitalization or
reclassification had the Warrants been exercised immediately prior to that date
and (b) the Exercise Price in effect immediately prior to such adjustment shall
be adjusted by multiplying such Exercise Price by a fraction, the numerator of
which is the aggregate number of shares of Common Stock purchasable upon
exercise of the Warrants immediately prior to such adjustment, and the
denominator of which is the aggregate number of shares of Common Stock
purchasable upon exercise of the Warrants immediately thereafter. No such
adjustment shall be made on account of any dividend payable other than in
securities of Chrysalis.
2.4 NOTICE. Whenever this Warrant or the number of Warrant Shares
issuable hereunder is to be adjusted as provided herein or a dividend or
distribution (in cash, stock or otherwise and including, without limitation, any
liquidating distributions) is to be declared by Chrysalis, Chrysalis shall
forthwith cause to be sent to the Investor at the last address of the Investor
shown on the books of Chrysalis, by first-class mail, postage prepaid, at least
10 days prior to the record date specified below, a notice stating in reasonable
detail the relevant facts and any resulting adjustments and the calculation
thereof, if applicable, and stating (if applicable): that the date to be used to
determine (i) which holders of Common Stock will be entitled to receive notice
of such dividend, distribution, subdivision or combination (the "Record Date")
and (ii) the date as of which such dividend distribution, subdivision or
combination shall be made; or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined (provided, that in
the event Chrysalis institutes a policy of declaring cash dividends on a
periodic basis, Chrysalis need only provide the relevant information called for
in this clause with respect to the
first cash dividend payment to be made pursuant to such policy and thereafter
provide only notice of any changes in the amount or the frequency of any
subsequent dividend payments).
2.5 FRACTIONAL INTERESTS. Chrysalis shall not be required to issue
fractions of shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 2.5, be issuable upon the exercise of this Warrant, Chrysalis shall,
upon such issuance, purchase such fraction for an amount in cash equal to the
current value of such fraction, computed on the basis of the last, reported
close price of the Common Stock on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") on the last business day prior to
the date of exercise upon which such a sale shall have been effected, or, if the
Common Stock is not so quoted on Nasdaq, as the Board of Directors of Chrysalis
may in good faith determine.
2.6 EFFECT OF ALTERNATE SECURITIES. If at any time, as a result of
an adjustment made pursuant to this Section 2, the holder of the Warrants shall
thereafter become entitled to receive any securities of Chrysalis other than
shares of Common Stock, then the number of such other securities receivable upon
exercise of the Warrant shall be subject to adjustment from time to time on
terms as nearly equivalent as practicable to the provisions with respect to
shares of Common Stock contained in this Section 2.
SECTION 3. EXERCISE OF WARRANT.
3.1 EXERCISE OF WARRANT. (a) The Investor may exercise this Warrant
in whole or in part; provided, however, that if the Investor exercises this
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Warrant in part it must do so in increments of 500,000 Warrant Shares
subject to Section 2 hereof, by (i) surrendering this Warrant to Chrysalis,
with the form of exercise notice attached hereto as Exhibit A duly executed
by Investor and (ii) (A) making payment to Chrysalis of the aggregate
Exercise Price for the applicable Warrant Shares in cash, by certified
check or bank check or by wire transfer to an account designated by
Chrysalis or (B) surrendering the Note to Chrysalis; provided, however,
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that in the event the Investor exercises this Warrant in part, Chrysalis
will, upon surrender and cancellation of the Note, issue a Note to Investor
for the remaining outstanding balance after taking into account the payment
of the Exercise Price for such Warrant Shares issued thereby. In addition,
Schedule B attached hereto shall reflect the total number of Warrant Shares
that Investor may exercise and receive under this Warrant and such Schedule
shall be revised to reflect any partial exercise of this Warrant as
provided herein.
(b) Investor shall for all purposes be deemed to have become the
holder of record of the Warrant Shares and such Warrant Share certificate
shall be dated the later of (i) the date upon which the Warrant exercise
notice was duly surrendered and (ii) (A) the date payment of the Exercise
Price was received by Chrysalis or (B) the date the Note was surrendered to
Chrysalis.
3.2 ISSUANCE OF WARRANT SHARES. The Warrant Shares purchased shall
be issued to the Investor exercising this Warrant as of the close of business on
the date on which all actions and payments required to be taken or made by the
Investor pursuant to Section 3.1 shall have
been so taken or made. Certificates for the Warrant Shares so purchased shall be
delivered to the Investor within a reasonable time, not exceeding 10 days after
this Warrant is surrendered.
SECTION 4. RIGHTS OF THE INVESTOR. The Investor shall not, solely by
virtue of this Warrant and prior to the issuance of the Warrant Shares upon due
exercise of this Warrant, be entitled to any rights of a stockholder of
Chrysalis.
SECTION 5. NON-TRANSFERABILITY. The Investor hereby represents and
warrants that it is acquiring this Warrant and, upon the exercise thereof, the
Warrant Shares, for investment and not with a view to resale or distribution
thereof. The Investor may not sell, assign, transfer or otherwise dispose of
this Warrant or any Warrant Shares except in accordance with the Standstill
Agreement.
SECTION 6. LEGEND ON WARRANT SHARES. Certificates evidencing the Warrant
Shares shall bear the legend set forth on the first page of this Warrant.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
7.1 PURCHASE FOR OWN ACCOUNT. This Warrant and the Warrant Shares to
be issued by Chrysalis hereunder will be acquired by Investor for its own
account for investment purposes only, not as a nominee or agent and not with a
view to the public resale or distribution thereof within the meaning of the
Securities Act. If the Investor is an entity, the Investor was existing prior
to receiving any offer hereunder and has not been organized for the specific
purpose of acquiring this Warrant or the Warrant Shares.
7.2 INVESTMENT EXPERIENCE. Such Investor, alone or together with the
Investor's business, tax or legal advisors (the "Purchaser Representative"), has
experience as an investor in securities of companies such as Chrysalis and
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment in this Warrant and the Warrant Shares, and, alone or together
with such Purchaser Representative, has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of such investment. Further, such Investor is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act.
7.3 RESTRICTED SECURITIES. Such Investor understands that this
Warrant and the Warrant Shares will constitute "restricted securities" under the
Securities Act inasmuch as they are being acquired from Chrysalis in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder, may be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
such Investor represents that the Investor is familiar with Rule 144 promulgated
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
7.4 ACCESS TO INFORMATION AND INVESTIGATION. (i) Such Investor has
made an independent evaluation of the risks and merits of acquiring this Warrant
and the Warrant Shares and (ii) such Investor, alone or together with its
Purchaser Representative, has been given the
opportunity to ask questions, and has asked such questions as such Investor has
deemed necessary and appropriate, concerning Chrysalis, and has had any such
questions answered to its satisfaction.
SECTION 8. MISCELLANEOUS.
8.1 AMENDMENTS. The parties may, from time to time, enter into
written amendments, supplements or modifications hereto for the purpose of
adding any provisions to this Warrant or changing in any manner the rights of
either of the parties hereunder. No amendment, supplement or modification shall
be binding on either party unless made in writing and signed by a duly
authorized representative of each party.
8.2 NOTICES. All notices, requests, demands, claims, deliveries and
other communications hereunder shall be in writing and shall be deemed
effectively given upon (a) personal delivery to the person to be notified, (b)
seven days after deposit with a domestic Post Office, by registered mail,
postage prepaid and addressed to the person to be notified at the address
indicated for such person below, or at such other address as such person may
designate by advance written notice to the other party, (c) confirmed
transmission by electronic facsimile to the fax number specified for such person
below or such other number as such person may designate by advance written
notice to the other party, (d) two business days after sent by certified mail
(first class postage pre-paid) and (e) next day for delivery by guaranteed
overnight delivery, which delivery is confirmed:
(a) if to Chrysalis to:
Chrysalis International Corporation
000 Xxxxx 00
Xxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
Telecopy: (000) 000-0000
with a copy to:
Xxxxx, Day, Xxxxxx & Xxxxx
North Point
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telecopy: (000) 000-0000
(b) if to the Investor to:
Panlabs International, Inc.
c/o MDS Inc.
000 Xxxxxxxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0
Attention: Vice-President - Legal Affairs
Telecopy: (000) 000-0000
with a copy to:
Xxxxxx Beach & Xxxxxx, LLP
The Granite Building
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Telecopy: (000) 000-0000
8.3 WAIVER BY CONSENT. The Investor may execute and deliver to
Chrysalis a written instrument waiving, on such terms and conditions as the
Investor may specify in such instrument, any of the requirements of this
Warrant.
8.4 NO IMPLIED WAIVER; RIGHTS ARE CUMULATIVE. The failure to
exercise or the delay in exercising by either party of any right, remedy, power
or privilege under this Warrant, shall not operate as a waiver thereof. The
single or partial exercise of any right, remedy, power or privilege under this
Warrant shall not preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The rights, remedies, powers
and privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
8.5 GOVERNING LAW. This Warrant and rights and obligations of the
parties hereunder shall be governed by, construed and interpreted in accordance
with the laws of the State of Delaware applicable to agreements executed by
residents of that state, and fully to be performed, in that state.
8.6 SEVERABILITY. If any provision of this Warrant is found to be
unenforceable for any reason whatsoever, such provision shall be deemed null and
void to the extent of such unenforceability but shall be deemed separable from
and shall not invalidate any other provision of this Warrant.
8.7 CAPTIONS. Captions to the various paragraphs of this Warrant are
provided for convenience only and shall not be used to construe the provisions
of this Warrant.
8.8 ENTIRE AGREEMENT. This Warrant, the Note, the Note and Warrant
Purchase Agreement and the Standstill Agreement constitute the entire
understanding of the parties with respect to the subject matter of the Warrant
and supersedes all prior discussions, agreements and representations, whether
oral or written, concerning the subject matter hereof and whether or not
executed by the Investor and Chrysalis.
8.9 TITLES AND SUBTITLES. The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in construing
or interpreting this Warrant.
8.10 COUNTERPARTS. This Warrant may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
duly executed and delivered by the proper and duly authorized officers as of the
day and year first above written.
CHRYSALIS INTERNATIONAL
CORPORATION
By: /s/ Xxxx X. Xxxxxx
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Name: Xxxx X. Xxxxxx
Title: Senior Vice President & Chief
Financial Officer
PANLABS INTERNATIONAL, INC.
By: /s/ Xxxxx Xxxxx
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Name: Xxxxx X. Xxxxx
Title: Director & Assistant Secretary
