<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13D-1(A)
AND AMENDMENTS THERETO FILED PURSUANT TO 13D-2(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __________)
CHRYSALIS INTERNATIONAL CORPORATION
-----------------------------------
(Name of Issuer)
Common Stock, $.01 par value
----------------------------
(Title of Class of Securities)
171188105
--------------------------------
(CUSIP Number)
Peter Brent, Vice President, Legal Affairs
MDS Inc.
100 International Boulevard
Etobicoke, Ontario, Canada M9W 6J6
(Name, Address and Telephone Number of Person Authorized to Receive Notes and
Communications)
March 16, 1998
--------------
(Date of Event which requires filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and
is filing this schedule because of Rule 13d-1(e), 13d-1(f) or
13d-1(g), check the following box [_] .
Page 1 of 5
<PAGE>
CUSIP NO. 171188105
_______________ Page 2 of 5 Pages
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Panlabs International, Inc.
MDS Washington, Inc.
MDS Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Panlabs International, Inc., Washington State
MDS Washington, Inc., Washington State
MDS Inc., Canada
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES - 0-
----------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
2,000,000/(1)/
OWNED BY
----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
- 0-
REPORTING
----------------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
2,000,000/(1)/
WITH
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,000,000/(1)/
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.9%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- --------------------------------------------------------------------------------
(1) The 2,000,000 shares of Common Stock, par value $.01 per share, of the
Issuer are issuable upon the exercise of a Warrant delivered to Panlabs
International, Inc. (the "Purchaser"). See Item 4 below.
Page 2 of 5
<PAGE>
ITEM 1(A). TITLE AND CLASS OF SECURITIES.
This Schedule relates to the Common Stock, par value $.01 per share, of
Chrysalis International Corporation (the "Issuer"). The address of the Issuer's
principal execute offices is:
575 Route 28
Raritan, New Jersey 08869
ITEM 2. IDENTITY AND BACKGROUND
This Schedule is being filed by Panlabs International, Inc., a Washington
corporation (Panlabs"), MDS Washington, Inc., a Washington corporation and the
owner of 100% of the capital stock of Panlabs ("MDS Washington") and MDS Inc., a
Canadian corporation and the owner of 100% of the capital stock of MDS
Washington. The principal business and office address of Panlabs is: 11804
North Creek Parkway South, Bothell, Washington 98011-8805. The principal
business and office address of MDS Washington is: 11804 North Creek Parkway
South, Bothell, Washington 98011-8805. The principal business and office address
of MDS Inc. is 100 International Boulevard, Etobicoke, Ontario, Canada M9W 6J6.
The names, business addresses and occupational information for: (a) each
executive officer and director of Panlabs, (b) each executive officer and
director of MDS Washington and (c) each executive officer and director of MDS
Inc. is set forth in Exhibit 7.1 attached hereto and incorporated herein by
reference.
MDS Washington and Panlabs, through Panlabs's subsidiaries, are engaged in
providing a variety of drug development services, primarily to pharmaceutical
clients. MDS Inc. is an international health and life science company based in
Canada providing technologies, services and products for the prevention,
diagnosis and management of disease.
Neither Panlabs, MDS Washington nor MDS Inc., nor, to the best of the knowledge
of Panlabs, MDS Washington and MDS Inc., any director or executive officer of
Panlabs, MDS Washington or MDS Inc., has been, during the last five years, (a)
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
This Schedule is being filed in connection with transactions associated with a
$5,000,000 loan (the "Loan") by Panlabs to the Issuer. As is described in
greater detail in Item 4 below, in connection with the Loan, Panlabs will
receive a warrant to purchase up to 2,000,000 shares of Common Stock of the
Issuer.
MDS Inc. transferred the funds to Panlabs to fund the Loan from MDS Inc.'s
working capital. Panlabs may use its working capital, funds transferred by MDS
Inc. to Panlabs from MDS Inc.'s working capital or, pursuant to the terms of the
Warrant Agreement (See Item 4 below), all or a portion of the principal and
accrued interest of the Note to purchase the shares of Common Stock of the
Issuer issuable upon exercise of the warrant (See Item 4 below).
ITEM 4. PURPOSE OF TRANSACTION.
On March 16, 1998 Panlabs entered into a Note and Warrant Purchase Agreement
(the "Purchase Agreement") with the Issuer. On that same date, Panlabs and MDS
Inc. also entered into a Standstill and Confidentiality Agreement (the
"Standstill Agreement") with the Issuer and a Warrant Agreement (the "Warrant
Agreement"). Under the Purchase Agreement, Panlabs has advanced $5,000,000 to
the Issuer and has received the Issuer's Subordinated Note in the principal
amount of $5,000,000.00 (the "Note"). The Note, which bears interest at the
annual rate of 6%, provides for semi-annual payments of interest and payment of
the principal sum on March 16, 2001. In connection with the issuance of its
Note, and pursuant to the Purchase Agreement and the Warrant Agreement, the
Issuer also issued to Panlabs a warrant which permits Panlabs to purchase up to
2,000,000 shares of the Issuer's common stock, par value $.01 per share, at an
exercise price of $2.50 per share (the "Warrant"). Pursuant to the Standstill
Agreement, Panlabs and MDS Inc. have agreed that neither of them nor their
affiliates will acquire any additional voting securities of the Issuer without
the consent of the Independent Directors (as defined below) of the Issuer.
Panlabs has also agreed that it will vote any securities acquired upon exercise
of the Warrant for the election of the slate of nominees for election to the
Board of Directors of the Issuer as selected by a majority of the members of the
Board of Directors of the Issuer and on all other matters to be voted on by the
holders of voting securities in accordance with the recommendation of a majority
of the directors of the Issuer that are not full-time
Page 3 of 5
<PAGE>
employees of the Issuer (the "Independent Directors"). Panlabs has also agreed
that it will only dispose of securities acquired upon exercise of the Warrant in
transactions approved by a majority of the Independent Directors or in other
transactions in which the securities are not sold, disposed of, or transferred
to any person or group who or which would immediately thereafter, to the
knowledge of Panlabs after reasonable inquiry, beneficially own 5% or more of
the voting securities of the Issuer.
Representatives of MDS Inc. and its affiliates and representatives of the Issuer
have had preliminary discussions concerning a variety of possible future
arrangements, including joint ventures, collaborative research projects, joint
marketing, and other collaborative business development initiatives or strategic
alliances. In addition, MDS Inc. and its affiliates will evaluate whether it
considers it appropriate at a future date to propose to the Board of Directors
of the Issuer other transactions between MDS Inc. and its affiliates and the
Issuer, including but not limited to mergers and other transactions which could
result in the acquisition by MDS Inc. or its affiliates of control of the
Issuer. Any such transaction, if proposed, would be subject to, among other
things, the approval of the Issuer's Board of Directors.
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
Except as set forth below, neither Panlabs, MDS Washington, MDS Inc., nor, to
the best of the knowledge of Panlabs, MDS Washington and MDS Inc., any director
or executive officer of Panlabs, MDS Washington or MDS Inc. beneficially owns
any shares of Common Stock of the Issuer.
(a) Panlabs, MDS Washington and MDS Inc. beneficially own an aggregate of
2,000,000 shares of Common Stock, which constitutes approximately 14.9% of
the Issuer's total number of outstanding shares of Common Stock.
(b) Panlabs, MDS Washington and MDS Inc. share the power to vote and dispose of
the shares of Common Stock of the Issuer issuable upon exercise of the
Warrant, i.e., 2,000,000 shares of Common Stock of the Issuer.
(c) Except as described in this Schedule neither Panlabs, MDS Washington, MDS
Inc., nor, to the best of the knowledge of Panlabs, MDS Washington and MDS
Inc., any director or executive officer of Panlabs, MDS Washington or MDS
Inc. has engaged in a transactions with respect to the shares of Common
Stock of the Issuer during the past 60 days.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERTAKINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
Except for the contracts described in Item 4 above, to the best knowledge of
Panlabs, MDS Washington and MDS Inc., no contracts, arrangements, understandings
or relationships exist among the persons named in Item 2 above, or between such
persons and any other person with respect to any securities of the Issuer,
including by not limited to, transfer or voting of such securities, finders'
fees, joint ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss, or the giving or withholding of proxies.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 7.1 - Executive Officers and Directors of Panlabs
International, Inc., MDS Washington, Inc. and MDS Inc.
Exhibit 7.2 - Note and Warrant Purchase Agreement effective March 16,
1998, by and between Panlabs International, Inc. and
Chrysalis International Corporation.
Exhibit 7.3 - 6% Subordinated Note of Chrysalis International
Corporation dated March 16, 1998.
Exhibit 7.4 - Warrant Agreement effective March 16, 1998 by and
between Panlabs International, Inc. and Chrysalis
International Corporation.
Exhibit 7.5 - Standstill and Confidentiality Agreement effective March
16, 1998, by and among Panlabs International, Inc., MDS
Inc. and Chrysalis International Corporation.
Exhibit 7.6 - Security Agreement delivered by Chrysalis International
Corporation to Panlabs International, Inc., dated March
16, 1998.
Page 4 of 5
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of their knowledge and belief,
each of the undersigned corporations certifies that the information set forth in
this statement is true, complete and correct.
Dated March 18, 1998
PANLABS INTERNATIONAL, INC.
By: /s/ Peter E. Brent
----------------------------------------
(Signature)
Peter E. Brent
----------------------------------------
(Name)
Director and Assistant Secretary
----------------------------------------
(Title)
MDS WASHINGTON, INC.
By: /s/ Peter E. Brent
----------------------------------------
(Signature)
Peter E. Brent
----------------------------------------
(Name)
Vice President and Corporate Secretary
----------------------------------------
(Title)
MDS INC.
By: /s/ Peter E. Brent
----------------------------------------
(Signature)
Peter E. Brent
----------------------------------------
(Name)
Vice President Legal Affairs and
Corporate Secretary
----------------------------------------
(Title)
Page 5 of 5
<PAGE>
Exhibit 7.1
-----------
<TABLE>
<CAPTION>
PANLABS INTERNATIONAL, INC.
- -----------------------------
<S> <C> <C> <C>
Principal
Executive Officers: Business Address Occupation Citizenship
- ----------------------------- ----------------- ----------------- -------------
Christopher Ball, (1) President United States
President & & CEO of
CEO MDS Panlabs, Inc.
Nicholas Dykstra, (1) VP, Treasurer United States
VP, CFO & Secretary & Secretary of
MDS Panlabs, Inc.
Peter Brent (2) VP Legal Canadian
Assistant Secretary Affairs & Corp.
Secretary of
MDS Inc.
Principal
Directors Business Address: Occupation Citizenship
- ----------------------------- ----------------- ----------------- -------------
John Morrison (2) Chairman, Canadian
MDS Pharmaceutical
Services (2)
Dr. Henry Pan (1) President, United States
MDS Pharmaceutical
Services (2)
Peter Brent (2) VP Legal Canadian
- ------------------------ Affairs & Corp.
Secretary of
MDS Inc.
</TABLE>
(1) 1184 North Creek Parkway South, Bothell, Washington 98011-8805
(2) 100 International Boulevard, Etobicoke, Ontario, Canada M9W 6J6.
<TABLE>
<CAPTION>
MDS WASHINGTON, INC.
- ----------------------
Principal
Executive Officers: Business Address Occupation Citizenship
- ---------------------- ----------------- --------------------- -----------
<S> <C> <C> <C>
Wilfred Lewitt (1) Chairman, Canadian
President MDS Inc.
Edward Rygiel (1) Sr. VP, Corporate Canadian
VP Development
MDS Inc. Canadian
Peter Brent (1) VP Legal Canadian
VP & Corporate Affairs MDS Inc.
Secretary MDS Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MDS WASHINGTON, INC. (continued)
- ----------------------------------
Principal
Directors: Business Address Occupation Citizenship
- ---------------------------------- ----------------- ----------------- -----------
<S> <C> <C> <C>
Wilfred Lewitt (1) Chairman, Canadian
MDS Inc.
Edward Rygiel (1) Sr. VP, Corporate Canadian
Development
MDS Inc.
</TABLE>
________________________
(1) 100 International Boulevard, Etobicoke, Ontario, Canada M9W 6J6.
<TABLE>
<CAPTION>
MDS INC.
- ---------------------------
Principal
Executive Officers: Business Address Occupation Citizenship
- --------------------------- ------------------------- -------------------------------- -----------
<S> <C> <C> <C>
Wilfred Lewitt, (1) Canadian
Chairman
John Rogers (1) Canadian
President & CEO
Douglas Phillips, (1) Canadian
Sr. VP, Finance
& CFO
Edward Rygiel (1) Canadian
SR. VP, Corporate
Development
Peter Brent (1) Canadian
VP, Legal Affairs
& Corporate Secretary
Ronald Yamada (1) Canadian
Sr. VP, Information
Strategies & Corporate
Affairs
Anthony Businskas (1) Canadian
VP, Corporate Finance
Robert Breckon (1) Canadian
VP, New Technologies
John Gleason (1) Canadian
VP, Corporate
Strategic Initiatives
Brian Harling (1) Canadian
VP, Corporate Affairs
Wilma Jacobs (1) Canadian
VP, Corporate
Communications
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MDS INC., continued
- ---------------------------
Principal
Executive Officers: Business Address Occupation Citizenship
- --------------------------- ------------------------ -------------------------------- -----------
<S> <C> <C> <C> <C>
Beverley Morden (1) Canadian
VP, Strategic
Positioning
James Reid (1) Canadian
VP, Organization
Dynamics
Kerry Thomas (1) Canadian
VP, Information &
Information Technology
Principal
--------------------------------
Directors Business Address: Occupation Citizenship
- --------------------------- ------------------------ -------------------------------- -----------
Ruth Corbin 1235 Bay St., Suite 1000 President, Canadian
Toronto, Ontario Decision Resources, Inc.
Canada, M5R 3K4
Wendy Dobson Joseph L. Rolmans Centre Professor & Director Canadian
for Management Centre for International
105 St. George St. Business
Toronto, Ontario Faculty of Management
Canada, M5S 3E6 University of Toronto
John Evans One Yonge St, 6th Floor Chairman of the Board Canadian
Toronto, Ontario Torstar Corporation
Canada, M5E 1P9 Allelix Biopharmaceuticals, Inc.
Wilfred Lewitt (1)
Robert Luba Suite 2525, Box 36 President, Canadian
121 King Street West Luba Financial, Inc.
Toronto, Ontario
Canada, M5H 3T9
John Rogers (1)
R. Michael Warren 1 First Canadian Place Chairman Canadian
Suite 5100 The Warren Group, Inc.
Toronto, Ontario
Canada, M5X 1K2
Roger Wilson P.O. Box 20, 42nd Floor Partner Canadian
Toronto Dominion Bank Fasken Campbell Godfrey
Tower
Toronto, Ontario
Canada, M5K 1C1
Ronald Yamada (1)
_________________
(1) 100 International Boulevard, Etobicoke, Ontario, Canada M9W 6J6.
</TABLE>
3
<PAGE>
EXHIBIT 7.1
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT dated March 16, 1998 is made and
entered into by and between CHRYSALIS INTERNATIONAL CORPORATION., a Delaware
corporation, having its principal office at 575 Route 28, Raritan, New Jersey
08869 (the "Company"), and PANLABS INTERNATIONAL, INC., a Washington
corporation, having its principal office at c/o MDS Inc., 100 International
Boulevard, Etobicoke, Ontario, Canada M9W 6J6 (the "Purchaser") (the Company and
the Purchaser are referred to herein as the "Parties"). Capitalized terms not
otherwise defined have the meanings given to them in Article 10 of this
Agreement.
RECITALS
Subject to the terms and conditions of this Agreement, the Company desires
to sell to the Purchaser and the Purchaser desires to purchase from the Company
the Company's 6% Subordinated Note in the principal amount of $5,000,000 due
March 16, 2001 (the "Note"), in the form of Exhibit A hereto, and a warrant, as
---------
evidenced by the Warrant Agreement (the "Warrant") (the Note and Warrant
collectively, the "Securities"), to purchase 2,000,000 shares of the Company's
common stock, par value $.01 per share ("Common Stock").
AGREEMENT
In consideration of the foregoing and the representations, warranties,
conditions and covenants contained herein, and subject to the terms and
conditions of this Agreement, the Company and the Purchaser hereby agree as
follows:
ARTICLE 1. ISSUANCE AND SALE OF THE NOTE AND WARRANT.
Section 1.1 Sale of Note and Warrant. The Company shall issue and sell to
----------- ------------------------
the Purchaser, and the Purchaser shall purchase from the Company, the Note and
the Warrant by paying the Company the purchase price for the Note and the
Warrant (the "Purchase Price"), which Purchase Price shall be $5,000,000 (the
shares of Common Stock issuable upon the exercise of the Warrant are referred to
herein as the "Warrant Shares" and the Note, the Warrant and the Warrant Shares,
together with any other securities issued in substitution of, or exchange for,
any of such securities are sometimes referred to herein, collectively, as the
"Purchased Securities.")
Section 1.2 Closing. The consummation of the sale and purchase (the
----------- -------
"Closing") of the Note and the Warrant under this Agreement shall take place at
such time, date, place and such manner as are mutually agreeable to the Company
and the Purchaser. At the Closing, the Company will deliver to the Purchaser the
Note against payment to the Company of the Purchase Price, by wire transfer in
immediately available funds. The date and time of the Closing is hereinafter
referred to as the "Closing Date."
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to, and covenants with, the
Purchaser that:
Section 2.1 Disclosure Documents; Commission and Stock Exchange Filings.
----------- -----------------------------------------------------------
Within the last twelve months of this Agreement, the Company has timely filed
all regular, periodic and special reports with the Commission required to be
filed by Section 13 or 15(d) of the Exchange Act (collectively, the "Exchange
Act Reports"), and all reports and notices with The Nasdaq Stock Market
("Nasdaq") required to be filed by the Nasdaq Marketplace Rules and the Exchange
Act (collectively, the "Nasdaq Reports"). Neither any Exchange Act Reports nor
any Nasdaq Reports at the time such documents were filed with the Commission or
submitted to Nasdaq, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
<PAGE>
or necessary to make the statements contained, in light of the circumstances
under which they were made, therein not misleading.
Section 2.2 Financial Statements.
----------- --------------------
The financial statements contained in the Exchange Act Reports (a) have
been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved; (b) present fairly the
consolidated financial condition and consolidated operating results of the
Company as of the dates and for the periods indicated; and (c) disclose all
known liabilities, contingent or otherwise of the Company as of the respective
dates thereof, which are required under generally accepted accounting principles
to be disclosed therein.
Section 2.3 Changes.
----------- -------
Since September 30, 1997, there has not been (a), except as disclosed on
Schedule 2.3(a) hereto, any material adverse change in the business, assets,
- ---------------
operation, condition (financial or otherwise) or prospects of the Company or any
Subsidiary; (b) any liability or obligation of any nature whatsoever (contingent
or otherwise) incurred by the Company or any Subsidiary, other than liabilities
and obligations under any contract, agreement, instrument or commitment (each of
the foregoing a "Contract") entered into in the ordinary course of the Company's
and the Subsidiaries' respective businesses, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company or any Subsidiary; (c) any disposition of any interest in any
material asset or property of the Company or any Subsidiary, or any material
asset or property of the Company or any Subsidiary made subject to any Lien of
any kind other than the Permitted Liens; (d) any waiver of any valuable right of
the Company or any Subsidiary, or any cancellation of any debt or claim held by
the Company or any Subsidiary; (e) any payment of dividends on, other
distributions with respect to, or any direct or indirect redemption, repurchase
or other acquisition of, any interest in any securities of the Company or any
Subsidiary, or any Contract with respect thereto; (f) any issuance of any
securities of the Company or any Subsidiary, or any Contract with respect
thereto; (g) any loan or other extension of credit by the Company to any Company
Affiliate or Associate, employee or consultant (or any other Person), to any
Subsidiary Affiliate or Associate, employee or consultant (or any other Person),
or any Contract therefor, other than routine travel advances; (h) any damage,
destruction or loss (whether or not covered by insurance) affecting the assets,
property, business or prospects of the Company or any Subsidiary; or (i) any
change in the accounting methods, practices or policies followed by the Company
or any Subsidiary, including any change in depreciation or amortization policies
or rates.
Section 2.4 Indebtedness.
----------- ------------
Neither the Company nor any Subsidiary has outstanding as of the date of
this Agreement, or will have outstanding on the Closing Date, any Indebtedness,
except for the Senior Indebtedness and other indebtedness incurred in the
ordinary course of the Company's business.
Section 2.5 Liens
----------- -----
Except for the Permitted Liens and the Liens otherwise disclosed in the
Exchange Act Reports, the Company or one or more of the Subsidiaries have good
and marketable fee simple title to all of the Company's real property and a
valid and indefeasible ownership interest in all of its assets reflected in the
Company's financial statements contained in the Exchange Act Reports or
subsequently acquired by the Company or any Subsidiary, other than those
subsequently sold or otherwise disposed of in the ordinary course of the
Company's business, free and clear of all Liens and security interests.
2
<PAGE>
Section 2.6 Organization, Good Standing and Qualification; Authority.
----------- --------------------------------------------------------
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as presently conducted and carry
out the transactions contemplated hereunder. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which it
conducts its business or where it is required to be so qualified except in such
jurisdictions in which the failure so to qualify would not have a material
adverse effect on its business, assets, operation, condition (financial or
otherwise) or prospects. The Company possesses all requisite corporate power
and authority to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted. The Company has the requisite
corporate power and authority to execute and deliver this Agreement, the Note
and the Warrant and to perform its obligations hereunder and thereunder and, to
the extent applicable, has taken all corporate or other actions with respect to
the execution and delivery of this Agreement, the Note and the Warrant and has
duly executed and delivered this Agreement, the Note and Warrant pursuant to all
necessary corporate action or other necessary actions. This Agreement, the Note
and the Warrant constitute legal, valid and binding obligations of, the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by bankruptcy or similar laws affecting the rights
of creditors generally and the availability of equitable remedies.
Section 2.7 Capitalization.
----------- --------------
As of September 30, 1997, the authorized capital stock of the Company
consisted of 20,000,000 shares of Common Stock, of which 11,404,575 shares were
issued and outstanding and 5,000,000 shares of preferred stock, par value $.01
per share ("Preferred Stock"), of which no shares were issued and outstanding.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
Section 2.8 Validity of Securities.
----------- ----------------------
The Note and the Warrant have each been duly and validly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued and outstanding. The Warrant Shares have been duly and validly authorized
and reserved, and upon issuance in accordance with the terms of the Warrant,
will be validly issued and outstanding, fully paid and nonassessable.
Section 2.9 Authority; No Conflicts
----------- -----------------------
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with (each of the foregoing an
"Approval"), any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated hereby or by the Note and Warrant, except for filings under
applicable federal and state securities laws. All such Approvals (if required)
will, in the case of qualification, be effective on the Closing Date and, in the
case of filings, be made within the time prescribed by applicable law.
Section 2.10 Burdensome and Conflicting Agreements; Violations of Charter
------------ ------------------------------------------------------------
Provisions.
-----------
Neither the authorization, execution and delivery of this Agreement, the
Note or the Warrant, the consummation of the transactions herein and therein
contemplated, nor the fulfillment of or compliance with the terms hereof and
thereof, will conflict with or result in a breach of any of the terms of the
charter, bylaws or other corporate restriction, or of any statute, law, rule or
regulation, or of any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental or regulatory
3
<PAGE>
authority, or of any Material Contract (as such term is defined in Section 2.10
hereof), which is applicable to the Company or any Subsidiary or by which the
Company or any Subsidiary is bound, or constitute, with or without the passage
of time and giving of notice, a default thereunder, or result in the creation or
imposition of any Lien (other than the Permitted Liens) upon any assets of the
Company or any Subsidiary.
Section 2.11 Material Contracts and Obligations.
------------ ----------------------------------
The Company's Exchange Act Reports describe or include as exhibits thereto
all material Contracts to which the Company or any Subsidiary is a party or by
which it or its property is bound which are required to be disclosed pursuant to
Item 601 of Regulation S-K (each of the foregoing, a "Material Contract").
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company that:
Section 3.1 Organization, Good Standing and Qualification; Authority. The
----------- --------------------------------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Washington and has all requisite corporate power
and authority to carry on its business as presently conducted and carry out the
transactions contemplated hereunder. The Purchaser is duly qualified to
transact business and is in good standing in each jurisdiction in which it
conducts its business or where it is required to be so qualified except in such
jurisdictions in which the failure so to qualify would not have a material
adverse effect on its business, assets, operation, condition (financial or
otherwise) or prospects. The Purchaser possesses all requisite corporate power
and authority to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted. The Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and the
Warrant and to perform its obligations hereunder and thereunder and, to the
extent applicable, has taken all corporate or other actions with respect to the
execution and delivery of this Agreement and the Warrant and has duly executed
and delivered this Agreement and Warrant pursuant to all necessary corporate
action or other necessary actions. This Agreement and the Warrant constitute
legal, valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their terms, except as such enforceability may be
limited by bankruptcy or similar laws affecting the rights of creditors
generally and by the availability of equitable remedies.
Section 3.2 No Consents. No consent, approval, order of authorization of,
----------- -----------
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority other than any state securities
authorities on the part of such Purchaser is required in connection with the
consummation of the transactions contemplated hereby or by the Note and the
Warrant.
Section 3.3 No Conflicts. Neither the authorization, execution and
----------- ------------
delivery of this Agreement or the Warrant, the consummation of the transactions
herein and therein contemplated, nor the fulfillment of or compliance with the
terms hereof and thereof, will conflict with or result in a breach of any of the
terms of the charter, bylaws or other corporate restriction, or of any statute,
law, rule or regulation, or of any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental or regulatory authority, or of
any Material Contract, which is applicable to the Purchaser or any subsidiary
thereof or by which the Purchaser or any subsidiary thereof is bound, or
constitute, with or without the passage of time and giving of notice, a default
thereunder, or result in the creation or imposition of any lien upon any assets
of the Purchaser or any subsidiary thereof.
4
<PAGE>
Section 3.4 Investment Representations.
----------- --------------------------
3.4.1 The Purchaser understands that, upon issuance of the Securities, the
Company will place a stop-transfer order in its stock books or direct its
transfer agent to place such an order in its books respecting transfer of such
securities and that the certificates representing such securities shall bear the
legends set forth in Section 3.5 hereof.
3.4.2 The Purchased Securities will be acquired by the Purchaser 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.
3.4.3 The Purchaser, together with its officers, tax or legal advisors
(the "Purchaser Representatives"), has experience as an investor in securities
of companies such as the Company and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment in the Purchased Securities
and, together which the Purchaser Representatives, has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of such investment. Further, the Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
3.4.4 The Purchaser understands that the Purchased Securities constitute
"restricted securities" under the Securities Act inasmuch as they are being
acquired from the Company in a transaction not involving a public offering
within the meaning of the Securities Act and are exempt from registration
thereunder, and that under the Securities Act may be resold without registration
under the Securities Act only in certain limited circumstances. In this
connection, the Purchaser represents that the Purchaser 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.
3.4.5 The Purchaser has made an independent evaluation of the risks and
merits of acquiring the Purchased Securities and the Purchaser, together with
the Purchaser Representatives, has been given the opportunity to ask questions,
and has asked such questions as the Purchaser has deemed necessary and
appropriate concerning the Company in connection with the Purchaser's
acquisition of the Purchased Securities and has had any such questions answered
to its satisfaction.
Section 3.5 Legends.
----------- -------
It is understood that the certificate(s) representing the Note and Warrant
may bear the following legend and any legend required by the laws of any state:
"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 [Note/Warrant] 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, PanLabs International, Inc. and MDS Inc., a copy
of which is on file at the Office of the Secretary of Chrysalis
International Corporation."
5
<PAGE>
ARTICLE 4. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT THE CLOSING.
Section 4.1 The obligations of the Purchaser to purchase the Note and the
-----------
Warrant pursuant to Article 1 of this Agreement are subject to the fulfillment
on or before the Closing Date of each of the following conditions:
4.1.1 The representations and warranties of the Company contained in
Article 2 of this Agreement shall be true on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date.
4.1.2 The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing Date.
4.1.3 The Company's chief executive officer shall have delivered to the
Purchaser at the Closing a certificate, dated the Closing Date, certifying that
the conditions specified in Sections 4.1.1 and 4.1.2 have been fulfilled.
4.1.4 The Company and the Purchaser shall have entered into a warrant
agreement in form and substance as set forth in Exhibit B attached hereto (the
---------
"Warrant Agreement") and the Warrant Agreement shall be in full force and effect
as of the Closing Date.
4.1.5 The Company and the Purchaser shall have entered into a standstill
and confidentiality agreement in form and substance as set forth in Exhibit C
---------
attached hereto (the "Standstill Agreement"), and the Standstill Agreement shall
be in full force and effect as of the Closing Date.
4.1.6 At the Closing, the Company shall execute and deliver to Purchaser a
security agreement in form and substance as set forth in Exhibit D attached
---------
hereto (the "Security Agreement"), and the Security Agreement shall be in full
force and effect as of the Closing Date.
4.1.7 The Company shall have delivered to the Purchaser:
(a) The Certificate of Incorporation of the Company, as amended and in
effect as of the Closing Date, certified by the Secretary of State of the State
of Delaware;
(b) By-laws of the Company, certified by its Secretary or Assistant
Secretary as of the Closing Date; and
(c) Resolutions of the Board of Directors of the Company, authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of the
Company as of the Closing Date.
4.1.8 At the Closing Date, the purchase of the Securities by the Purchaser
hereunder shall be legally permitted by all statutes, laws, rules and
regulations to which the Purchaser and the Company are subject.
4.1.9 All corporate and other proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident
thereto shall be satisfactory in form and substance to the Purchaser. The
Purchaser shall have received all such counterpart original and certified or
other copies of such documents as it may request.
6
<PAGE>
Section 4.2 Waiver of Conditions.
----------- --------------------
Any of the conditions specified in Section 4.1 may be waived by the
Purchaser in writing.
ARTICLE 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING.
Section 5.1 The obligations of the Company to sell the Note and Warrant to
-----------
the Purchaser pursuant to Article 1 of this Agreement are subject to the
fulfillment on or before the Closing Date of each of the following conditions:
5.1.1 The representations and warranties of the Purchaser contained in
Article 3 hereof shall be true on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date.
5.1.2 At the time of the Closing, the purchase of the Securities hereunder
by the Purchaser shall be legally permitted by all Laws to which the Purchaser
is subject.
5.1.3 The Company and the Purchaser shall have entered into the Warrant
Agreement, and the Warrant Agreement shall be in full force and effect as of the
Closing Date.
5.1.4 The Company and the Purchaser shall have entered into the Standstill
Agreement, and the Standstill Agreement shall be in full force and effect as of
the Closing Date.
Section 5.2 Waiver of Conditions.
----------- --------------------
Any of the conditions set forth in Section 5.1 may be waived by the Company
in writing.
ARTICLE 6. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company covenants and agrees that, so long as the Note shall remain
outstanding:
Section 6.1 Ranking of and Securitization of the Note. The Note is, and
----------- -----------------------------------------
shall remain, a secured obligation of the Company subordinate only to the Senior
Indebtedness and, in the case of Corestates Bank, N.A. ("Corestates"), the terms
and conditions of subordination of the Senior Indebtedness to Corestates are set
forth in the Subordination Agreement, dated March 16, 1998, by and among, the
Company, the Purchaser and Corestates. The Indebtedness of the Company under
the Note shall be secured by a valid, perfected, security interest in all the
Company's presently owned and after-acquired personal property (tangible and
intangible) and fixtures (the "Collateral"). The Purchaser's security interest
in the Collateral created in favor of the Purchaser (and evidenced by the
Security Agreement) shall be a second priority security interest, subordinate
only to the Permitted Liens. The Company shall execute such UCC-1 financing
statements and take such other steps as the Purchaser shall require to perfect
the Purchaser's second priority security interest in the Collateral.
Section 6.2 Public Information; Commission and Nasdaq Filings; Reports.
----------- ----------------------------------------------------------
6.2.1 The Company shall timely file all Exchange Act Reports and Nasdaq
Reports (or, if the Company is not required to file such reports, it will, upon
the request of the Purchaser, make publicly available such other information),
and it shall take such further action as the Purchaser may reasonably request,
all to the extent required from time to time to enable the Purchaser, subject to
any restrictions contained in the Standstill Agreement, to sell securities to
the public without restriction under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (b) any similar rule or regulation
7
<PAGE>
hereafter adopted by the Commission. Upon written request of the Purchaser, the
Company will deliver to the Purchaser a written statement as to whether it has
complied with such requirements.
6.2.2 The Company shall deliver to the Purchaser, (i) simultaneously with
its filing, all Exchange Act Reports and Nasdaq Reports filed with the
Commission and/or Nasdaq, and (ii) simultaneously with its mailing to its
stockholders, all reports, proxy statements, financial statements and other
communications delivered or sent by the Company to its stockholders in such
capacity or by any Subsidiary to its stockholders other than the Company.
Section 6.3 Notice of Certain Events. The Company will provide the
----------- ------------------------
Purchaser with written notification promptly, but in any event not later than
ten Business Days, after any officer of the Company becomes aware of the
occurrence of any of the following events:
6.3.1 The Company or any Subsidiary shall have become a party to one or
more suits, actions or proceedings which, if adversely determined, could have a
material adverse effect on the business, assets, operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries taken
as a whole;
6.3.2 Any condition or event which constitutes or which, with notice or
lapse of time, would constitute an Event of Default shall have occurred;
6.3.3 The Company or any Subsidiary has received notice of any default or
failure to perform any covenant or failure to maintain any representation or
warranty by the Company or such Subsidiary under any agreement relating to
Indebtedness for money borrowed to which the Company or such Subsidiary its a
party;
6.3.4 Any condition shall exist which has resulted in or which is likely,
in the reasonable judgment of the Company, to result in an material adverse
change in the business, assets, operations, condition (financial or otherwise)
or prospects of the Company and the Subsidiaries taken as a whole or the ability
of the Company to perform its obligations hereunder or under the Note or the
Warrant.
Section 6.4 Exchanges; Lost; Stolen or Mutilated Certificates.
----------- -------------------------------------------------
Upon surrender by the Purchaser to the Company of any certificate
representing any of the Purchased Securities, the Company at its expense will
issue in exchange therefor, and deliver to the Purchaser, a new certificate or
certificates representing such Purchased Securities, in such denomination or
denominations as may be requested by the Purchaser. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificate representing any of the Purchased Securities, and in case of any
such loss, theft or destruction, upon delivery of an indemnity agreement
satisfactory to the Company, or in case of any such mutilation, upon surrender
and cancellation of such certificate, the Company at its expense will issue and
deliver to the Purchaser a new certificate for such Purchased Securities, of
like tenor, in lieu of such lost, stolen or mutilated certificates.
ARTICLE 7. NEGATIVE COVENANTS OF THE COMPANY.
The Company covenants and agrees that, so long as the Note shall be
outstanding:
Section 7.1 The Company will not, and will not permit any Subsidiary to,
-----------
directly or indirectly, create, incur, issue, purchase, assume, guaranty or
become liable with respect to, contingently or otherwise, or extend the maturity
of, any Indebtedness, except: (a) the Indebtedness evidenced by the Note; (b)
the Senior Indebtedness; (c) Indebtedness which is junior in right of payment to
the
8
<PAGE>
Company's Indebtedness to the Purchaser; and (d) any amendment, extension,
renewal or refinancing of the Senior Indebtedness, provided that the aggregate
unpaid principal and accrued interest of such Senior Indebtedness, after such
amendment, extension, renewal or refinancing, does not exceed $10,000,000 in the
aggregate, and further provided, that, in the case of any refinancing of the
Senior Indebtedness, the proceeds or a portion of such proceeds of such
refinancing shall be used to pay-off and discharge in full the Company's
indebtedness to Corestates Bank, N.A. and, if such refinancing is obtained from
Persons other than the Current Lenders, such other Person(s) shall be a bank or
other financial institution regularly engaged in the business of lending money.
Section 7.2 Liens. The Company will not, and will not permit any of its
----------- -----
Subsidiaries to, create, incur, assume or permit to exist any Lien upon any of
the property or assets of any character now owned or hereafter acquired by it or
on any income or rights in respect of any thereof, except: (a) any Lien created
to secure the Senior Indebtedness hereto, and (b) any Lien originally created to
secure payment of a portion of the purchase price or construction costs, as the
case may be, relating to any real property or equipment or any interest therein,
may be created and suffered to exist upon such real property, equipment or
interest therein, which the Company or any Subsidiary acquired or the
improvements to which are completed not more than 60 days prior to the date of
the creation of the Lien, provided that such Lien does not spread to any other
asset at any time owned by the Company or any subsidiary ("Purchase Money
Indebtedness").
ARTICLE 8. MUTUAL COVENANTS.
It is the intention of the Parties to investigate and explore potential
additional business opportunities or agreements between them, including, but not
limited to strategic alliances, joint ventures, collaborative business efforts
and other arrangements. Each Party hereby covenants and agrees to cooperate in
discussions as between the Parties and their respective consultants and legal
counsel and, subject to the provisions of the Standstill Agreement, to provide
such information and documentation as may be reasonably required by the other
Party so as to foster such discussions and negotiations.
ARTICLE 9. DEFINITIONS.
Except as otherwise specified or as to the context may otherwise require,
the following terms shall have the respective meanings set forth below whenever
used in this Agreement:
"Affiliate" and "Associate" shall have the respective meanings ascribed to
--------- ---------
such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Business Day" shall mean any day other than a Saturday, Sunday or any
------------
other day on which commercial banks are authorized to closed in Delaware.
"Capitalized Leases" shall mean, with respect to any Person, any lease or
------------------
any other agreement for the use of property which, in accordance with generally
accepted accounting principles, should be capitalized on the lessee's or user's
balance sheet.
"Code" shall mean the Internal Revenue Code of 1986, as amended, as the
----
same shall be in effect from time to time.
"Commission" shall mean the Securities and Exchange Commission and any
----------
other similar or successor agency of the federal government administering the
Securities Act or the Exchange Act.
9
<PAGE>
"Current Lenders" shall mean (i) Corestates Bank, N.A., 370 Scotch Road,
---------------
West Trenton, New Jersey 08628, (ii) PNC Bank, National Association, P.O. Box
231, Scranton, Pennsylvania 18501, (iii) Pennsylvania Industrial Development
Authority, Department of Commerce, 480 Forum Building, Harrisburg, Pennsylvania
17120 and (iv) Luzerner Kantonalbank, Pilatusstrasse 12, Luzern, CH-6002,
Switzerland.
"Events of Default" shall have the meaning given to such term in the Note.
-----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, and any
------------
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Indebtedness" means, without duplication, with respect to any Person, as
------------
of any date, the principal of and any premium or interest on (a) all
indebtedness of such Person for borrowed money (including all indebtedness
evidenced by notes, bonds, debentures or other securities sold by such Person
for money) or in respect of letters of credit issued for its own account, (b)
all indebtedness incurred by such Person in the acquisition (whether by way of
purchase, merger, consolidation or otherwise and whether by such Person or
another Person) of any business, real property or other assets (except assets
acquired in the ordinary course of the conduct of the acquiror's usual
business), (c) all Capitalized Leases, (d) guarantees by such Person of
indebtedness described in clauses (a), (b) or (c), and (e) renewals, extensions
refundings, deferrals, restructurings, amendments and modifications of any such
indebtedness, obligation or guarantee.
"Lien" shall mean: (i) any interest in property (whether real, personal or
----
mixed and whether tangible or intangible) which secures an obligation owed to,
or a claim by, a Person other than the owner of such property, whether such
interest is based on the common law, statute or contract, including, without
limitation, any such interest arising from a Capitalized Lease, arising from a
mortgage, charge, pledge, security agreement, conditional sale, trust receipt or
deposit in trust, or arising from a consignment or bailment given for security
purposes (ii) any encumbrance upon such property which does not secure such an
obligation, and (iii) any exception to or defect in the title to or ownership
interest in such property, including, without limitation, reservations, rights
of entry, possibilities of reverter, encroachments, easements, rights of way,
restrictive covenants, licenses and profits a prendre. For purposes of this
------- - -------
Agreement, the Company or a Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a Capitalized Lease or
conditional sale agreement or other similar arrangement pursuant to which title
to the property has been retained by or vested in some other person for security
purposes.
"Permitted Liens" shall mean the Liens permitted under Section 7.2 of this
---------------
Agreement, which includes the Liens created to secure the Senior Indebtedness
(Section 7.2(a)).
"Person" shall mean any natural person, corporation, limited liability
------
company, partnership (general or limited), association, joint venture, trust,
estate or other entity.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
--------------
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Senior Indebtedness" means: (i) all Indebtedness of the Company for money
-------------------
now borrowed from (a) Corestates Bank, N.A., 370 Scotch Road, West Trenton, New
Jersey,(b) PNC Bank, National Association,P.O. Box 231, Scranton, Pennsylvania
18501, (c) Pennsylvania Industrial Development Authority, Department of
Commerce, 480 Forum Building, Harrisburg, Pennsylvania 17120 and (c) Luzerner
Kantonalbank, Pilatusstrasse 12, Luzern, CH-6002, Switzerland, totaling as of
the date of this
10
<PAGE>
Agreement, inclusive of outstanding principal, accrued interest, penalties and
premiums, approximately $10,748,000 (US Dollars); (ii) any amendment, extension,
renewal or refinancing of the Indebtedness described in subsection (i) hereof,
provided that the aggregate principal and interest of such Indebtedness does not
exceed $10,000,000, and subject to the additional limitations of Section 7.1(d)
of this Agreement; and (iii) Purchase Money Indebtedness, but only the amount
----
equal to the lesser of (x) the principal amount borrowed and (y) the fair value
------ --
of the equipment acquired or the construction costs incurred, as the case maybe,
as of the date of the borrowing.
"Subsidiary" means any Person of which at the time of determination made
----------
under this Agreement at least a majority of capital stock having ordinary voting
power for the election of directors or other governing body of such person is
owned by the Company directly or through one or more Subsidiaries.
ARTICLE 10. MISCELLANEOUS.
Section 10.1 Survival of Warranties. The warranties, representations and
------------ ----------------------
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be effected by any investigation of the subject matter thereof made by
or on behalf of the Purchaser.
Section 10.2 Successors and Assigns. The terms and conditions of this
------------ ----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than the Parties or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
Section 10.3 Governing Law. This Agreement shall be shall be deemed to
------------ -------------
be a contract made under the laws of the State of Delaware and for all purposes
shall be construed in accordance with the laws of said State without giving
effect to the rules of said State governing the conflicts of laws.
Section 10.4 Counterparts. This Agreement 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.
Section 10.5 Titles and Subtitles. The titles and subtitles used in this
------------ --------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 10.6 Notices. All notices, requests, demands, claims, deliveries
------------ -------
and other communications hereunder shall be given 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 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 or (e) next day for
delivery by guaranteed overnight delivery, which deliver is confirmed:
11
<PAGE>
<TABLE>
<S> <C>
(1) If to the Company, to: With a copy to:
Chrysalis International Corporation Jones, Day, Reavis & Pogue
575 Route 28 North Point, 901 Lakeside Avenue
Raritan, New Jersey 08869 Cleveland, Ohio 44114
Fax: (908) 722-6677 Fax: (216) 579-0212
Attention: John Cooper Attention: Thomas C. Daniels, Esq.
(2) If to the Purchaser, to: With a copy to:
PanLabs International, Inc. Harris Beach & Wilcox, LLP
c/o MDS Inc. 130 East Main Street
100 International Boulevard Rochester, New York 14604
Etobicoke, Ontario, Canada M9W 6J6
Fax: (416) 675-4095 Fax: (716) 232-6925
Attention: Vice President, Legal Affairs Attention: Thomas E. Willett, Esq.
</TABLE>
Section 10.7 Expenses. The Company and the Purchaser shall bear their
------------ --------
own expenses incurred on their respective behalves with respect to the
negotiation, execution and delivery of this Agreement.
Section 10.8 Entire Agreement, Amendment.
------------ ---------------------------
10.8.1 This Agreement (including the Exhibits and Schedules hereto) and
the Note, the Warrant Agreement and the Standstill Agreement constitute the full
and entire understanding and agreement between the Parties with regard to the
subjects hereof and thereof.
10.8.2 Any term of this Agreement may be amended, waived or discharged
(either generally or in a particular instance and either retroactively or
prospectively), by a written instrument signed by the Company and the Purchaser.
Section 10.9 Brokers. Each of the Company and the Purchaser (a)
------------ -------
represents and warrants to each other that such Person has retained no finder or
broker in connection with the transactions contemplated by this Agreement, and
(b) will indemnify and save the other harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finders fees or
commissions, or consulting fees in connection with the transactions
contemplated by this Agreement asserted by any Person on the basis of any
statement or representation alleged to have been made by such indemnifying
Party.
Section 10.10 Severability. If one or more provisions of this Agreement
------------- ------------
are held to be unenforceable under applicable Law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its term.
Section 10.11 Publicity. Except to the extent any public disclosure is
------------- ---------
required by law, the Company and the Purchaser shall consult with, and obtain
the prior approval of (which approval shall not be unreasonably withheld) the
other Party with respect to any proposed press release announcing this Agreement
or with respect to any future press releases or public statements with respect
to the transactions contemplated hereby and in making any filings with the
Commission or Nasdaq prior to their release or filing.
12
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
PANLABS INTERNATIONAL, INC.
By: /s/ Peter E. Brent
_____________________________________
Name: Peter E. Brent
_____________________________________
Title: Director and Assistant Secretary
_____________________________________
CHRYSALIS INTERNATIONAL CORPORATION
By: /s/ John G. Cooper
_____________________________________
Name: John G. Cooper
_____________________________________
Title: Senior Vice President and Chief
Financial Officer
_____________________________________
13
<PAGE>
EXHIBIT 7.2
CHRYSALIS INTERNATIONAL CORPORATION
6% SUBORDINATED NOTE DUE MARCH 16, 2001
$5,000,000 DATED MARCH 16, 1998
THIS NOTE HAS 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 NOTE AND IN THE ABSENCE OF 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 LAW. THIS NOTE
IS SUBJECT TO THE PROVISIONS OF A SUBORDINATION AGREEMENT, DATED MARCH 16, 1998,
AMONG CHRYSALIS INTERNATIONAL CORPORATION, PANLABS INTERNATIONAL, INC. AND
CORESTATES BANK, N.A. (THE "SUBORDINATION AGREEMENT"), A COPY OF WHICH IS ON
FILE AT THE OFFICE OF THE SECRETARY OF CHRYSALIS INTERNATIONAL CORPORATION.
FOR VALUE RECEIVED, CHRYSALIS INTERNATIONAL CORPORATION, a New Jersey
corporation (the "Company"), with offices at 575 Route 28, Raritan, New Jersey
08869, hereby promises to pay, at the time and in the manner set forth below,
with interest at the rate of six percent (6%) per annum, payable semi-annually,
in arrears, on September 16 and March 16 of each year, beginning on September
16, 1998 to the order of PANLABS INTERNATIONAL, INC. ( the "Payee"), at c/o MDS
INC., 100 International Boulevard, Etobicoke, Ontario, Canada M9W 6J6 or at such
other office as the Payee designates in writing to the Company, the principal
amount of Five Million Dollars ($5,000,000). All payments under this Note shall
be made in such coin or currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts. The
aforesaid principal amount shall be due, together with all accrued and unpaid
interest, on March 16, 2001 or on such earlier date (in either case, the
"Maturity Date") on which the principal amount shall become due in accordance
with the terms of this Note.
This Note is issued under and pursuant to a Note and Warrant Purchase
Agreement (the "Purchase Agreement") dated this date, to which reference is
herewith made, between the Company and the Payee. "Note" as used herein means
the note issued under the Purchase Agreement and all other terms, when
capitalized in this Note, unless otherwise expressly defined herein, shall have
the same meaning and effect as set forth in the Purchase Agreement.
ARTICLE I
PREPAYMENT
The Company may at any time, without penalty, prepay in whole or in
part, the principal outstanding under this Note or any accrued and unpaid
interest thereon; provided the Company shall provide the Payee with written
notice of its intention to make such a prepayment 60 calendar days prior to the
date of such prepayment.
ARTICLE II
SUBORDINATION
The Company agrees, and the Payee by its acceptance of this Note
likewise agrees, that the payment of the principal of and interest on this Note
is subordinated and junior in right of payment, with respect to the
subordination of the Senior Indebtedness of Corestates Bank, N.A.
("Corestates"), to the extent and in the manner provided in the Subordination
Agreement and, with respect to the subordination of the holders of all other
Senior Indebtedness, to the extent and in the manner provided in this Article,
to the prior payment in full of all Senior Indebtedness.
2.1 Company Not to Make Payments with Respect to Note in Certain
------------------------------------------------------------
Circumstances. No payment shall be made by the Company on account of principal
- -------------
of or interest on this Note if there shall have occurred
<PAGE>
and be continuing a default with respect to the payment of any Senior
Indebtedness and (a) such default is the subject of a judicial proceeding or (b)
notice of such default in writing has been given to the Company by any holder or
holders of any Senior Indebtedness unless and until such default or event of
default shall have been cured or waived or shall have ceased to exist.
Upon any acceleration of the principal of this Note or any payment by
the Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full, or payment thereof provided for, before any payment is made on
account of the principal of or interest on this Note; and (subject to the power
of a court of competent jurisdiction to make other equitable provision, which
shall have been determined by such court to give effect to the rights conferred
in this Article upon the Senior Indebtedness and the holders thereof with
respect to this Note or the Payee, by a lawful plan of reorganization or
readjustment under applicable law) upon any such dissolution or winding up or
liquidation or reorganization, any payment by the Company, or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Payee would be entitled except for the provisions of
this Article II, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment of distribution to or for
the holders of Senior Indebtedness, before any payment of distribution is made
to the Payee.
The consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of the Company
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes of this
Article.
2.2. Subrogation of Note. Subject to the payment in full of all
-------------------
amounts then due (whether by acceleration of the maturity thereof or otherwise)
on account of the principal of and interest on all Senior Indebtedness at the
time outstanding, the Payee shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on this Note shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the holders of Senior Indebtedness of any cash, property or securities to which
the Payee would be entitled except for the provisions of this Article, and no
payments over to the holders of Senior Indebtedness by the Payee, shall, as
between the Company, its creditors other than holders of Senior Indebtedness,
and the Payee, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness. It is understood that the provisions of this Article are
and are intended solely for the purpose of defining the relative rights of the
Payee, on the one hand, and the holders of Senior Indebtedness, on the other
hand. Contrary provisions herein notwithstanding, as between the Payee and
Corestates, the subrogation rights of Payee shall not entitle the Payee to any
priority over Corestates as to payments or distributions of cash, property or
securities of the Company distributed to Corestates which Corestates is
subsequently required to disgorge, return or otherwise pay-over pursuant to
applicable fraudulent conveyance laws.
Nothing contained in this Article or elsewhere in this Note is
intended to or shall impair, as among the Company, its creditors other than the
holders of Senior Indebtedness, and the Payee, the obligation of the Company,
which is absolute and unconditional, to pay to the Payee the principal of and
interest on this Note as and when the same shall become due and payable in
accordance with its terms, or is intended to or shall affect the relative rights
of the Payee and creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or therein prevent the Payee from
exercising all remedies otherwise permitted by applicable law upon default under
this Note, subject to the rights, if any, under this Article of the
2
<PAGE>
holders of Senior Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article, the Payee shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending, or certificate of the
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Payee for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of Senior indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article.
2.3 Undertaking. By its acceptance of this Note, the Payee agrees to
-----------
execute and deliver such documents as may be reasonably requested from time to
time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Article II.
2.4. Article Not To Prevent Events of Default. The failure to make a
----------------------------------------
payment on account of principal of or interest on this Note by reason of any
provision in this Article II shall not be construed as preventing the occurrence
of an Event of Default.
ARTICLE III
EVENTS OF DEFAULT
At the option of the Payee and without prejudice to any other rights
the Payee may have at law or in equity, all sums of principal and interest then
remaining unpaid hereon shall immediately and automatically become due and
payable without demand, presentment or notice, all of which hereby are expressly
waived, or any other action on the part of the Payee, if any of the following
occurs ("Events of Default"):
3.1. Breach of Covenants. The Company breaches any covenant or other
-------------------
term of this Note, or Article 6 or Article 7 of the Purchase Agreement; provided
that a breach of a covenant set forth in Article 6 shall not become an Event of
Default until five days after written notice thereof to the Company from the
Payee.
3.2 Breach of Representations and Warranties. Any of the
----------------------------------------
representations or warranties of the Company or any Subsidiary made to the Payee
in the Purchase Agreement is or becomes false or misleading in any material
respect as if such representations and warranties were made as of the date
hereof.
3.3. Insolvency; Appointments of Receiver or Trustee. The Company
-----------------------------------------------
becomes insolvent or admits in writing its inability to pay its debts as they
mature; makes an assignment for the benefit of creditors; applies for or
consents to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee otherwise is
appointed and any such receivership or trusteeship shall remain undischarged for
a period of 60 days.
3.4. Judgments. Any final judgment or judgments for an amount or
---------
amounts in excess of $500,000 in the aggregate is entered against the Company or
any of its property or other assets and remains un-vacated, unbonded or unstayed
for a period of ten days or in any event later than five days prior to the date
of any proposed sale thereunder.
3.5. Bankruptcy. Bankruptcy, insolvency, reorganization or
----------
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors is instituted by the Company, or against
the Company, and any such involuntary proceeding shall remain undismissed for a
period of 60 days or the Company by any act indicates its consent to, approval
of, or acquiescence in, any such proceeding.
3
<PAGE>
3.6. Attachments. Any material writ of attachment is levied against
-----------
any property or other assets of the Company and the Company fails within five
days thereafter to post a bond for the release of such attachment.
3.7. Default on Senior Indebtedness. The Company fails to pay when
------------------------------
due any obligation for money borrowed or defaults under any agreement involving
the borrowing of money or the advance of credit with respect to the Senior
Indebtedness, which results in the acceleration of the maturity of all or a
portion of the Senior Indebtedness or otherwise results in the pursuit by the
lender of: (i) collection of the indebtedness or (ii) remedies as a secured
creditor.
3.8. Failure to Pay Note when Due. The Company fails to pay this
-----------------------------
Note when due in accordance with its terms.
3.9. Change of Control. Upon either of the following to occur: (i)
-----------------
in the event of a Change of Control transaction with a Person, other than the
Payee, which is approved by the Board of Directors of the Company, the passage
of 60 calendar days after the earlier of the public announcement or the
execution of definitive documents with respect thereto; or (ii) in the event of
a Change of Control transaction with a Person, other than the Payee, which is
not approved by the Board of Directors of the Company, the passage of 60
calendar days after the consummation of such transaction.
3.10 Termination of Reporting Obligations or Listing Rights. The
------------------------------------------------------
Company's reporting obligations pursuant to Section 13 or 15(d) of the Exchange
Act are suspended or terminated or the Company's Common Stock is no longer
traded (for any reason) on the Nasdaq National Market System, except for
temporary suspensions of trading.
ARTICLE IV
DEFINITIONS
Except as otherwise specified or as to the context may otherwise
require, the following terms shall have the respective meanings set forth below
whenever used in this Note:
"Change of Control" shall mean: (i) any reorganization, merger or
-----------------
consolidation of the Company with one or more Persons (other than the Payee)
pursuant to which the Company shall not be the continuing or surviving entity
of such reorganization, merger or consolidation; (ii) the transfer of all or
substantially all of the assets of the Company; (iii) any transaction or
transactions where any Person (other than the Payee) or "group," as defined in
Rule 13d-5 of the Exchange Act, shall be the Beneficial Owner of a majority of
the then outstanding shares of the Company's securities generally entitled to
vote in the election of directors; or (iv) any transaction as a result of which
the persons who are directors of the Company before the transaction cease to
constitute a majority of the Company's Board of Directors upon consummation of
the transaction.
"Beneficial Owner" A Person shall be deemed the "Beneficial Owner" of
----------------
and shall be deemed to "beneficially own" any securities in accordance with the
term "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act as
in effect on the date hereof, and shall also include any securities which such
Person or any Affiliate of such Person has the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise.
4
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1. Enforcement of Rights. The Company shall reimburse the Payee
---------------------
for all costs and expenses incurred by the Payee and shall pay the reasonable
fees and disbursements of counsel to the Payee in connection with the
enforcement of the Payee's rights under this Note.
5.2. No Waiver. No amendment, modification or waiver of any
---------
provision of this Note nor consent to any departure by the Company therefrom
shall be effective unless the same shall be in writing and signed by the Payee
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
5.3. Waiver of Notice. The Company hereby waives any requirements of
----------------
notice of dishonor, notice of protest and protest.
5.4. Governing Law. This Note shall be shall be deemed to be a
-------------
contract made under the laws of the State of Delaware and for all purposes shall
be construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
5.5. Assignment. This Note shall be binding upon the Company and its
----------
successors and assigns and the terms hereof shall inure to the benefit of the
Payee and its successors and assigns, including subsequent holders hereof;
provided, however, any assignee of the Payee shall be an Affiliate of the Payee.
5.6. Severability. The holding of any provision of this Note to be
------------
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provisions and the other provisions of this Note shall remain in full
force and effect.
5.7. Captions. The caption headings of the Articles and Sections of
--------
this Note are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Note and shall be given no substantive
effect.
IN WITNESS WHEREOF, the Company, has caused this Note to be signed in
its corporate name and its corporate seal to be hereunto affixed by its
secretary thereunto duly authorized.
CHRYSALIS INTERNATIONAL CORPORATION
By: /s/ John G. Cooper
------------------------------------
Name: John G. Cooper
------------------------------------
Title: Senior Vice President and Chief
Financial Officer
------------------------------------
ATTEST:
Name:/s/ Paul J. Schmitt
------------------------------------
Title: Chairman of the Board of Directors
and Chief Executive Officer
-----------------------------------
5
<PAGE>
Exhibit A
---------
ASSIGNMENT FORM
---------------
For value received ________________________________ hereby sell,
assign and transfer to ___________________________ all right, title and interest
in and to the attached Note in the principal amount of $___________, and
irrevocably appoint _____________________________________________ attorney (with
full power of substitution) to transfer the Note on the books of CHRYSALIS
INTERNATIONAL CORPORATION.
Date
- ---------------------------------- ---------------------------------------------
(Please sign exactly as name appears on Note)
Name:________________________
Title:_________________________
6
<PAGE>
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
by and between
PANLABS INTERNATIONAL, INC.
and
CHRYSALIS INTERNATIONAL CORPORATION
Dated as of March 16, 1998
- --------------------------------------------------------------------------------
<PAGE>
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:
<PAGE>
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
<PAGE>
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
<PAGE>
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
-------- -------
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,
-------- -------
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
<PAGE>
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
<PAGE>
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
575 Route 28
Raritan, New Jersey 08869
Attention: John Cooper
Telecopy: (908) 722-6677
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telecopy: (216) 579-0212
<PAGE>
(b) if to the Investor to:
Panlabs International, Inc.
c/o MDS Inc.
100 International Boulevard
Etobicoke, Ontario, Canada M9W 6J6
Attention: Vice-President - Legal Affairs
Telecopy: (416) 675-4095
with a copy to:
Harris Beach & Wilcox, LLP
The Granite Building
130 East Main Street
Rochester, New York 14604-1687
Attn: Thomas E. Willett, Esq.
Telecopy: (716) 232-6925
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.
<PAGE>
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/ John G. Cooper
----------------------------------
Name: John G. Cooper
Title: Senior Vice President & Chief
Financial Officer
PANLABS INTERNATIONAL, INC.
By: /s/ Peter Brent
-----------------------------------
Name: Peter E. Brent
Title: Director & Assistant Secretary
<PAGE>
STANDSTILL AND CONFIDENTIALITY AGREEMENT
This Standstill and Confidentiality Agreement (this "Agreement") is
made and entered into this 16th day of March 1998, by and between Chrysalis
International Corporation, a Delaware corporation ("Chrysalis"), Panlabs
International Inc., a Washington corporation and a wholly owned subsidiary of
MDS Washington, Inc., a wholly owned subsidiary of MDS Inc. (the "Investor") and
MDS Inc., a corporation organized under the laws of Canada ("MDS").
WHEREAS, Chrysalis and the Investor propose to enter into that Note
and Warrant Purchase Agreement, dated the date hereof (the "Note and Warrant
Purchase Agreement"), which provides for, among other things, the issuance by
Chrysalis to the Investor of, (i) a US$5,000,000 subordinated promissory note
(the "Note") and (ii) a warrant (the "Warrant") to purchase 2,000,000 shares of
Common Stock, par value $0.01 per share, of Chrysalis (the "Common Stock");
WHEREAS, the parties desire to provide for certain agreements with
respect to the ownership and voting by the Investor of any Common Stock or any
securities of Chrysalis that are entitled to vote for the election of directors
of Chrysalis, in each case now or hereafter outstanding ("Voting Securities")
and any securities convertible into or exercisable or exchangeable for Voting
Securities ("Convertible Securities"); and
WHEREAS, the execution and delivery of this Agreement is in
consideration for the consummation of the transactions contemplated by the Note
and Warrant Purchase Agreement.
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. AGREEMENTS REGARDING VOTING AND SECURITIES
Investor, Chrysalis and MDS agree and MDS agrees to cause its Affiliates to
agree that during the Term of this Agreement:
1.1 ACQUISITION OF VOTING SECURITIES. Except as contemplated by this
Agreement and except as otherwise provided for, in writing, by a majority of the
Independent Directors (as defined below), no member of the MDS Group shall,
directly or indirectly, acquire Voting Securities or Convertible Securities
other than (i) the acquisition by Investor of the Warrant, (ii) the acquisition
of the Common Stock receivable upon exercise of the Warrant in accordance with
the terms and conditions of that certain Warrant Agreement, dated the date
<PAGE>
hereof (the "Warrant Agreement") and (iii) the acquisition of Voting Securities
or Convertible Securities in accordance with Section 6.1 hereto (such Common
Stock, Voting Securities or Convertible Securities acquired by Investor upon
exercise of the Warrant or such Right of First Refusal under Section 6 hereto
being referred to as "Restricted Securities").
1.2 VOTING. The Investor shall take such action as may be required
so that all Restricted Securities at any time entitled to vote are voted:
(a) for the election of the slate of nominees for election to the
Board of Directors of Chrysalis selected by a majority of the members of
the Board of Directors of Chrysalis (the "Directors"); and
(b) on all other matters to be voted on by the holders of Voting
Securities, in accordance with the recommendation of a majority of the
Directors of Chrysalis that are not employed on a full-time basis by
Chrysalis (the "Independent Directors").
1.3 QUORUM. A representative or representatives of the MDS Group, as
holder of the Restricted Securities, shall be present, in person or by proxy, at
any meeting of stockholders of Chrysalis so that all Restricted Securities may
be counted for the purpose of determining the existence of a quorum at such
meeting.
1.4 VOTING TRUST OR ARRANGEMENT. No member of the MDS Group shall
deposit any Restricted Securities in a voting trust or subject any Restricted
Securities to any arrangement or agreement with respect to the voting of such
Restricted Securities.
1.5 PROXY SOLICITATIONS. No member of the MDS Group shall solicit
proxies or initiate, propose or become a "participant" in a "solicitation" (as
such terms are defined in Regulation 14A under the Securities Exchange Act of
1934 or any similar successor statute (the "Exchange Act")), in opposition to
any matter which has been recommended by a majority of the Directors or the
Independent Directors or in favor of any matter which has not been approved by a
majority of the Directors or the Independent Directors or seek to advise,
encourage or influence any individual, firm, corporation, partnership or other
entity (a "Person") with respect to the voting of Voting Securities in such
manner, or induce or attempt to induce any Person to initiate any stockholder
proposal; provided, however, that in the event (i) any matter is recommended by
a majority of the Independent Directors and such matter is opposed by a majority
of the Directors or (ii) any matter is not recommended by a majority of the
Independent Directors and such matter is favored by a majority of the Directors,
then such Voting Securities shall be voted in a manner consistent with the
majority of the Independent Directors.
1.6 GROUP PARTICIPATION. No member of the MDS Group shall join a
partnership, limited partnership, syndicate or other group, or otherwise act in
concert with any other Person, for the purpose of acquiring, holding, voting or
disposing of Voting Securities or Convertible Securities.
2
<PAGE>
1.7 SOLICITATIONS OF OFFERS. No director or executive officer of any
member of the MDS Group shall, and no member of the MDS Group shall, permit any
of its other officers, employees or agents (including investment bankers) to,
induce or attempt to induce or give encouragement to any third Person, or enter
into any substantive discussions or negotiations with any third Person, in
furtherance of any tender offer or business combination transaction in which
shares of Voting Securities would be acquired; provided, however, that nothing
in this Section 1.7 shall, or shall be construed, directly or indirectly, to
limit any rights of the Investor to offer, sell or otherwise dispose of shares
of Restricted Securities pursuant to any transaction effected in accordance with
Section 1.8 hereof.
1.8 DISPOSITIONS. Except as otherwise permitted by this Agreement,
the Investor shall not, directly or indirectly, offer, sell, dispose of,
transfer or hypothecate shares of Restricted Securities other than as follows:
(a) in a sale or sales to any Person approved by a majority of the
Independent Directors; or
(b) in transactions in which Restricted Securities are not sold,
disposed of, or transferred to, any other person or group who or which
would immediately thereafter, to the knowledge of the Investor after
reasonable inquiry, Beneficially Own 5% or more of the Voting Securities or
Convertible Securities then outstanding.
1.9 LEGENDS, STOP TRANSFER ORDERS AND NOTICE. The Investor agrees:
(a) to the placement on the certificate or other instrument
representing Restricted Securities of the legend substantially in the
following form:
"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
compliance with such Act. The securities represented by this
certificate are subject to the provisions of an Agreement, dated March
16, 1998, among Chrysalis International Corporation, Panlabs
International, Inc. and MDS Inc., a copy of which is on file at the
office of the Secretary of Chrysalis International Corporation."
(b) to the entry of stop transfer orders with the transfer agent (or
agents) and the registrar (or registrars) of Chrysalis against the
transfer, other than in compliance with the requirements of this Agreement,
of legended securities of which the Investor from time to time is the
Beneficial Owner.
SECTION 2. CERTAIN DEFINITIONS
2.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
3
<PAGE>
(a) Affiliate. A Person shall be deemed to be a "Affiliate" of
---------
another Person in accordance with the term "affiliate" as defined in Rule
12b-2 under the Exchange Act.
(b) Beneficial Owner. A Person shall be deemed a "Beneficial Owner"
----------------
of or to "Beneficially Own" any Voting Securities in accordance with the
term "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act
as in effect on the date hereof, and shall also include Voting Securities
which such Person or any Affiliate of such Person has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise.
(c) MDS Group. "MDS Group" shall mean MDS and its Affiliates
---------
(regardless of whether such person is an Affiliate on the date hereof),
both in their individual capacities and collectively. An individual shall
not be deemed to be an Affiliate for purposes of this definition if such
individual is the Beneficial Owner of less than 100,000 shares of Voting
Securities or Convertible Securities solely for investment purposes and is
not a member of a "group" which includes the MDS Group as defined by
Section 13(d) of the Exchange Act.
(d) Term of this Agreement. "Term of this Agreement" for purposes
----------------------
of this Agreement shall mean a period commencing with the date of this
Agreement and ending on the first to occur of (i) an Event of Default
under Section 3.8 of the Note or (ii) the date that the Investor is no
longer the Beneficial Owner of any Restricted Securities.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF CHRYSALIS
Chrysalis represents and warrants to the Investor as follows:
3.1 CORPORATE EXISTENCE, DUE AUTHORIZATION, AND EXECUTION OF
CHRYSALIS. Chrysalis is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full corporate power
and authority to execute and deliver this Agreement and each of the other
agreements contemplated hereby, to perform Chrysalis' obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby and thereby.
This Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action of
Chrysalis. This Agreement has been duly executed and delivered by Chrysalis and
constitutes a legal, valid and binding obligation of Chrysalis, enforceable
against Chrysalis in accordance with its terms except to the extent that such
enforceability may be limited by bankruptcy or similar laws affecting the rights
of creditors generally and by the availability of equitable remedies.
3.2 NO CONFLICTS. The execution and delivery of this Agreement and
each of the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby will not conflict with, or result
in any violation of or default under, any
4
<PAGE>
provision of the Third Amended and Restated Certificate of Incorporation or
Third Amended and Restated By-Laws of Chrysalis.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
AND MDS
4.1 CORPORATE EXISTENCE, DUE AUTHORIZATION, AND EXECUTION OF THE
INVESTOR. The Investor is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Washington, with full corporate
power and authority to execute and deliver this Agreement and each of the other
agreements contemplated hereby, to perform their obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby and thereby.
This Agreement and each of the other agreements contemplated hereby and the
consummation of the transactions contemplated hereby and thereby will, at the
Closing, have been duly authorized by all necessary corporate action of the
Investor. This Agreement has been duly executed and delivered by the Investor
and constitutes a legal, valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms except to the
extent that such enforceability may be limited by bankruptcy or similar laws
affecting the rights of creditors generally and by the availability of equitable
remedies.
4.2 NO CONFLICTS. The execution and delivery of this Agreement and
each of the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby will not conflict with, or result
in any violation of or default under, any provision of the charter documents of
the Investor.
4.3 DUE AUTHORIZATION OF MDS. This Agreement constitutes a legal,
valid and binding obligation of MDS, enforceable against MDS in accordance with
its terms. MDS represents that it has full power and authority to enter into
this Agreement and the transactions contemplated hereby, and, to the extent
applicable, has taken all necessary corporate, partnership or other action with
respect to the execution and delivery of such agreements and has duly executed
and delivered this Agreement pursuant to all necessary corporate, partnership or
other action, which has been duly taken with respect to this Agreement.
SECTION 5. CONFIDENTIALITY
5.1 CONFIDENTIALITY; EXCEPTIONS. Except to the extent expressly
authorized by this Agreement, the Note and Warrant Purchase Agreement, the Note
and the Warrant, or otherwise agreed in writing, for the Term of this Agreement
and for five years thereafter, the Investor, MDS and Chrysalis and Affiliates of
Investor, MDS and Chrysalis shall keep confidential and shall not publish or
otherwise disclose or use for any purpose other than as provided for in this
Agreement any information generally not known to the public that relates to the
drug development or contract research fields generally or to the business of
Chrysalis, MDS or the Investor and Affiliates of Chrysalis, MDS and Investor,
including, but not limited to, techniques and data, inventions, practices,
methods, knowledge, know-how, skill, experience, test data including
pharmacological, pharmacokinetic, toxicological, immunological and clinical test
data,
5
<PAGE>
analytical and quality control data, marketing, pricing, distribution,
costs, sales, patent or legal data or descriptions, compositions of matter,
compounds, assays and biological materials (collectively, "Information") and
other confidential and proprietary information and materials furnished to it by
the other party pursuant to this Agreement or any Information developed by the
Investor, MDS or Chrysalis or Affiliates of Investor, MDS and Chrysalis during
the course of any strategic alliance, joint venture or collaboration between the
Investor, MDS and Chrysalis or Affiliates of Investor, MDS and Chrysalis
(collectively, "Confidential Information"), except to the extent that it can be
established by the receiving party that such Confidential Information:
(a) was in the lawful knowledge and possession of, or was
independently developed by, the receiving party prior to the time it was
disclosed to, or learned by, the receiving party as evidenced by written
records kept in the ordinary course of business, or other documentary proof
of actual use by the receiving party;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to
the disclosing party not to disclose such information to others.
5.2 AUTHORIZED DISCLOSURE. Chrysalis, MDS and the Investor may
disclose Confidential Information of the other party to the extent such
disclosure is reasonably necessary in filing or prosecuting patent, copyright
and trademark applications, prosecuting or defending litigation, complying with
applicable governmental regulations, obtaining regulatory approval, conducting
preclinical or clinical trials or marketing products; provided, however, that if
a party is required by law or regulation to make any such disclosure of the
other party's Confidential Information it shall, except where impracticable for
necessary disclosures, given reasonable advance notice to the other party of
such disclosure requirement and, except to the extent inappropriate in the case
of patent applications, shall use its reasonable efforts to secure confidential
treatment of such Confidential Information required to be disclosed. Nothing in
this Section 5 shall restrict any party from using for any purpose any
Information developed by it during the course of any strategic alliance, joint
venture or collaboration between Chrysalis, MDS and the Investor.
5.3 SURVIVAL. This Section 5 shall survive the termination or
expiration of this Agreement for a period of five years.
5.4 SPECIFIC ENFORCEMENT. The parties acknowledge and agree that
Chrysalis, MDS or the Investor, as the case may be, would be irreparably damaged
in the event any of the provisions of this Section 5 of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that Chrysalis, MDS or the
6
<PAGE>
Investor, as the case may be, shall be entitled to an injunction or injunctions
to prevent breaches of this Section 5 of this Agreement and to specifically
enforce this Section 5 of this Agreement and the terms and provisions thereof in
any action instituted in any court of the United States or any state thereof
having subject matter jurisdiction, in addition to any other remedy to which
Chrysalis, MDS or the Investor or any Affiliates of Chrysalis, MDS or Investor,
as the case may be, may be entitled, at law or in equity.
SECTION 6. RIGHT OF FIRST REFUSAL.
6.1 RIGHT OF FIRST REFUSAL. (a) Registered Public Offerings. If
---------------------------
Chrysalis issues and sells Common Stock in a registered public offering
(other than a registration on Form S-8 or any similar or successor form
thereto, relating to an employee or director stock option, stock purchase
or other benefit plan or on Form S-4 or any similar or successive form
thereto relating to any business combination) (a "Public Offering"), the
Investor shall have, at its option, either (i) the registration rights set
forth in Section 7 of this Agreement or (ii) the right to purchase the
Investor's pro rata share (or any part thereof) of the publicly-offered
Common Stock (the "Offered Common Stock") on the same terms as contained in
the registration statement relating to such Common Stock; provided, however
-------- -------
the issuance of such shares of Common Stock to Investor as contemplated
hereby pursuant to this Section 6(a)(ii) may be effected by Chrysalis in
compliance with any applicable regulatory requirements, including, without
limitation, the rules and regulations under the federal or state securities
laws and promulgated by the National Association of Securities Dealers.
The Investor's pro rata share of the Offered Common Stock will be a
fraction of the Offered Common Stock, of which the number of shares of
Common Stock (or securities convertible into or exercisable for Common
Stock) held by the Investor on the date of the Chrysalis Notice (as defined
in Section 6.2) (the "Notice Date") shall be the numerator and the total
number of shares of Common Stock issued and outstanding on the Notice Date
shall be the denominator.
(b) Other Offerings. If, until such time as the Investor no longer
---------------
Beneficially Owns any Restricted Securities, Chrysalis should come to a
written understanding with one or more potential investors, acceptable to
Chrysalis, to issue and sell, in a transaction not registered under the
Securities Act of 1933 (the "Securities Act") in reliance upon a claimed
exemption thereunder, any equity or debt securities including options,
warrants or other securities other than as set forth in Section 6.5
(collectively, "Securities"), it shall give the Investor the first right to
purchase all such privately offered Securities on the same terms as
Chrysalis is willing to sell such Securities to such potential investors.
6.2 NOTICE. Prior to any proposed sale or issuance by Chrysalis of
any Securities or Offered Common Stock, Chrysalis shall notify the Investor in
writing (the "Chrysalis Notice"), of its intention to sell and issue such
securities which Chrysalis Notice shall set forth the general terms under which
it proposes to make such sale. The Chrysalis Notice shall be signed by
Chrysalis and, in the case of privately offered Securities shall indicate the
potential investors' concurrence with the description of the terms. The
Investor shall have 10 business days after receipt of such notice to notify
Chrysalis in writing (the "Investor Notice") that it elects to
7
<PAGE>
purchase all of the Securities so offered or its pro rata share of the Offered
Common Stock, as the case may be, in each case on the terms set forth in the
Chrysalis Notice. In the case of a private offering of Securities, the Investor
shall purchase and Chrysalis shall sell the Securities within 30 days of the
date of the Chrysalis Notice.
6.3 FAILURE TO NOTIFY. In the case of a private offering of
Securities, if, within 10 business days after the Notice Date, the Investor does
not notify Chrysalis that it desires to purchase all of the Securities described
in the Chrysalis Notice upon the terms and conditions set forth in the Chrysalis
Notice, then Chrysalis may, during a period of 120 days following the end of
such 10-day period, sell and issue the Securities which the Investor does not
elect to purchase to the investors with whom the understanding had been reached
(or to the representative of such investors and other investors designated by
such representative) at a price and upon terms and conditions no more favorable
in any material respect to such investors as those set forth in the Chrysalis
Notice. In the event that Chrysalis has not sold such Securities to such
investors within said 120-day period, Chrysalis shall not thereafter issue or
sell any Securities without first offering such securities to the Investor in
the manner provided above.
6.4 PAYMENT. If the Investor gives Chrysalis notice that it
desires to purchase all of the Securities or up to a pro rata share of the
Offered Common Stock offered by Chrysalis, then payment for the Securities shall
be by check or wire transfer, against delivery of the securities at the
executive offices of Chrysalis at the time of the scheduled closing therefor.
Chrysalis shall take all such action (except registration under the Securities
Act) as may reasonably be required by any regulatory authority in connection
with the exercise by the Investor of the right to purchase Securities or Offered
Common Stock as set forth in this Section 6.
6.5 LIMITATION. The right of first refusal contained in this
Section 6 shall not apply to the issuance by Chrysalis of:
(a) shares of Common Stock issued to employees, officers, directors
and consultants pursuant to the exercise of stock options or as payment of
employee benefits;
(b) securities issued pursuant to the acquisition of another
corporation by Chrysalis by merger, purchase of all or substantially all of
the assets, or other reorganization; or
(c) securities issued in connection with any stock split, stock
dividend or recapitalization by Chrysalis.
SECTION 7. REGISTRATION RIGHTS. For purposes of this Section 7, the
term "Registrable Securities" means any of the shares of Common Stock issued in
exercise of the Warrant and any other shares of Common Stock related thereto by
way of stock dividend or stock split, any shares of Common Stock held by
Investor that were acquired pursuant to the exercise by the Investor of its
Right of First Refusal pursuant to Section 6 of this Agreement or in connection
with any recapitalization, merger, consolidation or reorganization; provided
that, as to any particular securities, such securities will cease to be
Registrable Securities when they have
8
<PAGE>
been sold pursuant to Rule 144 promulgated by the Securities and Exchange
Commission (the "SEC") or any similar rule then in force ("Rule 144").
7.1 PIGGYBACK REGISTRATION. (a) If at any time, and from time
to time, Chrysalis proposes to issue and sell Common Stock in a registered
public offering (other than a registration on Form S-8, or any similar or
successor form, relating to an employee or director stock option, stock
purchase or other benefit plan, or a registration on Form S-4 or any
similar or successor form relating to shares issuable in a merger,
consolidation, exchange offer, purchase of assets or any similar
transaction) ("Piggyback Registration"), Chrysalis shall:
(i) promptly give to each holder of Registrable Securities
written notice thereof (which written notice shall include a list of
the jurisdictions in which Chrysalis intends to attempt to qualify
such securities under or otherwise comply with the applicable blue sky
or other state securities laws); and
(ii) include in such registration (and any related qualification
under or other compliance with blue sky or other state securities
laws), and in any underwriting involved therein on the same terms and
conditions as the securities being issued thereunder, all the
Registrable Securities specified in a written request, made within 5
days after receipt of such written notice from Chrysalis by Investor;
provided that if such registration is a registration in which the
managing underwriter advises Chrysalis that marketing factors require
a limitation of the number of shares of Common Stock to be
underwritten in such registration (a "Cutback Registration"), then if
(Y) such registration is a primary registration, whether or not it
includes a secondary registration, on behalf of Chrysalis, Chrysalis
shall register in such registration (I) first, the shares of Common
Stock Chrysalis proposes to sell in such registration and (II) second,
shares of Common Stock held by Investor and any holders of Common
Stock who have the right to request inclusion of Common Stock held by
such holder in such registration (the "Electing Holders") on a pro
---
rata basis, based upon the number of shares of Common Stock Investor
----
and any Electing Holders originally sought to include in such
registration; and (Z) if such registration is solely a secondary
registration on behalf of holders of Common Stock, Chrysalis shall
register in such registration (I) first, the shares of Common Stock,
if any, Chrysalis proposes to register in such registration as a
result of a holder exercising demand registration rights and (II)
second, the shares of Common Stock held by Investor and Electing
Holders on a pro rata basis based upon the number of shares of Common
Stock Investor and Electing Holders originally sought to include in
such registration; provided, further, that if such registration is a
Cutback Registration, Chrysalis shall use its best efforts to include
all shares of Registrable Securities specified in the holder's written
request, but such best efforts shall not include an obligation on the
part of Chrysalis to reduce the number of shares of Chrysalis or the
other Electing Holders included in such Cutback Registration beyond
that expressly provided for in this Section 7.1. Chrysalis and the
Investor shall cooperate in good faith with regard to any proposed
Cutback Registration. In the event of a Cutback Registration,
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<PAGE>
Chrysalis and the Investor shall discuss in good faith alternatives
for the sale, disposal or transfer of the Voting Securities owned by
the Investor.
(b) If the registration of which Chrysalis gives notice is pursuant to
an effective registration statement under the Securities Act involving an
underwriting, Chrysalis shall so advise each holder as part of Chrysalis
Notice. In such event, the right of each such holder to registration
pursuant to this Section shall be conditioned upon such holder's
participation in such underwriting, the inclusion of the Registrable
Securities in the underwriting and such holder entering into an
underwriting agreement, containing customary terms and conditions in a form
reasonably acceptable to the holder and Chrysalis with the underwriter or
underwriters selected for such underwriting (the "Underwriters") by
Chrysalis, provided that if such underwriting agreement shall not be
acceptable to holder, Chrysalis may proceed with such registration without
registering the stock of holder in such registration.
7.2 INDEMNIFICATION. (a) In connection with any such Piggyback
Registration, Chrysalis agrees to indemnify to the full extent permitted by
law, the Investor, its officers and directors and each person who controls
the Investor (within the meaning of the Exchange Act and the Securities
Act) against all losses, claims, damages, liabilities and expenses caused
by any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished to Chrysalis by the Investor or the Investor's agents
expressly for use therein or by the Investor's failure to deliver a copy of
the registration statement or prospectus or any amendments or supplements
thereto after Chrysalis has furnished the Investor with a sufficient number
of copies of the same.
(b) In connection with any such Piggyback Registration, the Investor
will furnish to Chrysalis such information relating to the Investor and the
Investor's ownership of the Registrable Securities as Chrysalis reasonably
requests for use in connection with any such registration statement or
prospectus and agrees to indemnify, to the extent permitted by law,
Chrysalis, its directors and officers and each person who controls
Chrysalis (within the meaning of the Exchange Act and the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact or any
omission or alleged omission of a material fact required to be stated in
the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue
statement or omission is actually contained in any information so furnished
by the Investor or the Investor's agents to Chrysalis; provided, that the
Investor's obligation hereunder shall be limited to the gross amount of
proceeds received by the Investor pursuant to such registration statement.
(c) Any person entitled to indemnification hereunder agree that, upon
the service of a summons or other initial legal process upon it in any
action or suit instituted against it or upon its receipt of written
notification of the commencement of any investigation or
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inquiry of, or proceeding against it, in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs,
it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be
sought hereunder. No indemnification provided for herein shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was
prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification
shall not relieve such indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or
otherwise than on account of such indemnity agreement. Any indemnifying
party shall be entitled at its own expense to participate in the defense of
any action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving
written notice (the "Notice of Defense") to the indemnified party, to
assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense
of the indemnifying party or parties, by counsel chosen by such
indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the
indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action,
suit, investigation, inquiry or proceeding or that there may be legal
defenses available to such indemnified party or parties different from or
in addition to those available to the indemnifying party or parties, then
counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be
necessary to protect the interests of the indemnified party or parties and
(ii) in any event, the indemnified party or parties shall be entitled, at
its or their own expense to have counsel chosen by such indemnified party
or parties participate in, but not conduct, the defense. It is understood
that the indemnifying parties shall not, in respect of the legal defenses
of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (a) the fees and
expenses of more than one separate firm (in addition to any local counsel)
for the Investor and each person, if any, who controls the Investor within
the meaning of Section 15 of the Act, and (b) the fees and expenses of more
than one separate firm (in addition to any local counsel) for Chrysalis,
its directors, its officers who sign the Registration Statement and each
person, if any, who controls Chrysalis within the meaning of Section 15 of
the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable
hereunder for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the
indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in
clause (i) of the proviso to the preceding sentence and (B) the
indemnifying party or parties shall bear such other expenses as it or they
have authorized to be incurred by the indemnified party or parties. If,
within a reasonable time
11
<PAGE>
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with
the defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such
consent has not been unreasonably withheld.
7.3 REGISTRATION PROCEDURES. (a) In case of each registration,
qualification or compliance effected by Chrysalis subject to this Section
7, Chrysalis shall keep holder advised in writing as to the initiation of
each such registration, qualification and compliance and as to the
completion thereof. In addition, at its expense, Chrysalis shall:
(i) prepare and file with the SEC a registration statement with
respect to such Registrable Securities, and use reasonable efforts to
cause such registration statement to become effective; provided that
before filing a registration statement or prospectus or any amendments
or supplements thereto, Chrysalis will furnish to the counsel selected
by the Investor copies of all such documents proposed to be filed;
provided further that in the event that Chrysalis files a registration
statement on Form S-3 pursuant to Rule 415 of the Act, Chrysalis shall
use reasonable efforts to cause such registration statement to remain
effective for a reasonable period of time as determined by the
Independent Directors;
(ii) furnish to the Investor such number of copies of such
registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and
such other documents as the Investor may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by
the Investor;
(iii) furnish such number of prospectuses, including preliminary
prospectuses, and other documents incident thereto as holder may
reasonably request from time to time, which shall not be deemed a
Selling Expense (as defined in Section 7.3(c));
(iv) notify the Investor, at any time when a prospectus relating
thereto is required to be deliverable under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such registration statement or any document incorporated therein by
reference contains an untrue statement of a material fact or omits to
state any material fact necessary to make the statements therein not
misleading, and prepare a supplement or amendment to such prospectus
or any such document incorporated therein by reference so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not misleading;
12
<PAGE>
(v) cause all such Registrable Securities to be listed on the
Nasdaq National Market;
(vi) register or qualify such Registrable Securities under such
other securities or blue sky laws of such jurisdictions of the United
States as holder may deem reasonable to enable it to consummate the
disposition in such jurisdiction of the Registrable Securities
(provided that Chrysalis will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be
required to qualify but for this section, or (ii) consent to general
service of process in any such jurisdiction); and
(vii) upon the sale of any Registrable Securities pursuant to
such registration statement, remove all restrictive legends from all
certificates or other instruments evidencing the Registrable
Securities.
(b) Chrysalis may require the Investor to furnish, and the Investor
shall furnish, to Chrysalis such information regarding the distribution of
such securities as Chrysalis may from time to time reasonably request in
writing. The Investor further agrees that, upon receipt of any notice from
Chrysalis of the happening of any event of the kind described in Section
7.3(a)(iv) hereof, the Investor will immediately discontinue disposition of
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated in Section 7.3(a)(iv)
hereof and, if so directed by Chrysalis, the Investor will deliver to
Chrysalis all copies, other than permanent file copies then in the
Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
(c) Except as required by law, all expenses incurred by Chrysalis in
complying with this Section 7, including but not limited to, all
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for Chrysalis, blue sky fees and expenses in
accordance with Section 7.2(a)(vi) hereof, including fees and disbursements
of counsel related to all blue sky matters, but excluding the compensation
of regular employees of Chrysalis which shall be paid in any event by
Chrysalis ("Registration Expenses") incurred in connection with any
registration, qualification or compliance pursuant to such Sections shall
be borne by Chrysalis. All underwriting discounts and selling commissions
and transfer taxes applicable to a sale ("Selling Expenses") incurred in
connection with any registration of Registrable Securities and the legal
fees of holder shall be born by holder.
7.4 ADDITIONAL REGISTRATION RIGHTS. From and after the date
hereof, Chrysalis will not, and will not permit any of its subsidiaries to:
(a) grant to any Person any right to have any securities of Chrysalis
registered under the Securities Act in so far as such rights would be
superior to those rights granted to the Investor hereunder this Agreement;
and
13
<PAGE>
(b) take any other action which would prevent or preclude Chrysalis
from complying with the registration priorities granted to the Investor
hereunder Section 7 of this Agreement.
7.5 FURTHER INFORMATION. If Registrable Securities owned by a
holder are included in any registration, Investor shall furnish Chrysalis
such information regarding itself and the distribution proposed by Investor
as Chrysalis may reasonably request and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
SECTION 8. MISCELLANEOUS
8.1 SPECIFIC ENFORCEMENT. The parties acknowledge and agree that
Chrysalis, MDS and the Investor would be irreparably damaged in the event any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
Chrysalis, MDS and the Investor shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to specifically enforce
this Agreement and the terms and provisions thereof in any action instituted in
any court of the United States or any state thereof having subject matter
jurisdiction, in addition to any other remedy to which Chrysalis, MDS and the
Investor may be entitled, at law or in equity.
8.2 MODIFICATION; WAIVER. This Agreement may be modified in any
manner and at any time by written instrument executed by the parties hereto.
Any of the terms, covenants, and conditions of this Agreement may be waived at
any time by the party entitled to the benefit of such term, covenant or
condition.
8.3 NOTICES. All notices, requests, demands, claims, 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 or registered mail (first class
postage pre-paid); and (e) next day for delivery by guaranteed overnight
delivery which delivery is confirmed:
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(a) if to Chrysalis to:
Chrysalis International Corporation
575 Route 28
Raritan, New Jersey 08869
Attention: John Cooper
Telecopy: (908) 722-6677
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telecopy: (216) 579-0212
(b) if to the Investor to:
Panlabs International Inc.
c/o MDS Inc.
100 International Blvd.
Etobicoke, Ontario
Canada, M9W 6J6
Attention: Vice-President - Legal Affairs
Telecopy: (416) 675-4095
with a copy to:
Harris Beach & Wilcox, LLP
The Granite Building
130 East Main Street
Rochester, New York 14604-1687
Attn: Thomas E. Willett, Esq.
Telecopy: (716) 232-6925
8.4 PARTIES IN INTEREST; ASSIGNMENT. This Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests and obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties hereto; provided, however, that the Investor may assign or
transfer its rights, interests and obligations hereunder this Agreement, the
Note and the Warrant to an
15
<PAGE>
Affiliate of MDS so long as any such Affiliate also becomes a signatory to and
is thereby bound by the terms and conditions of this Agreement, the Note and the
Warrant. In the event that the Investor does assign or transfer its rights,
interests and obligations hereunder this Agreement, the Note and the Warrant to
an Affiliate, the Investor will continue to be bound by the terms and conditions
of Section 1, Section 5 and Section 8.1 of this Agreement. Nothing in this
Agreement, whether expressed or implied, shall be construed to give any Person
other than the parties hereto any legal or equitable right, remedy or claim
under or in respect of this Agreement.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall constitute one and the same instrument.
8.6 HEADINGS. The article and section headings of this Agreement are
for convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware applicable to
contracts made and to be performed therein.
8.8 SUPERSEDE PRIOR CONFIDENTIALITY AGREEMENT. This Agreement
(including the documents referred to herein) constitutes the entire agreement
with respect to the keeping and maintaining of confidentiality of the
Information and the Confidential Information between the parties, and this
Agreement shall supersede and replace the certain Confidentiality Agreement,
dated as of __________ entered into by and between Chrysalis and Investor and
any other prior understandings, agreements, or representations by or among the
parties, written or oral, to the extent they have related in any way to the
keeping or maintaining the confidentiality of the Information and the
Confidential Information.
8.9 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 Agreement, shall not operate as a waiver thereof. The
single or partial exercise of any right, remedy, power or privilege under this
Agreement 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CHRYSALIS INTERNATIONAL
CORPORATION
By: /s/ John G. Cooper
-----------------------------------
Name: John G. Cooper
Title:Senior Vice President and
Chief Financial Officer
PANLABS INTERNATIONAL, INC.
By: /s/ Peter E. Brent
-----------------------------------
Name: Peter E. Brent
Title:Director & Assistant Secretary
MDS Inc.
By: /s/ Peter E. Brent
------------------------------------
Name: Peter E. Brent
Title:Vice President Legal Affairs
& Corporate Secretary
17
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EXHIBIT 7.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated March 16, 1998, is given by CHRYSALIS
INTERNATIONAL CORPORATION, a New Jersey corporation with its principal office
located at 575 Route 28, Raritan, New Jersey (the "Company") to PANLABS
INTERNATIONAL, INC., a Washington corporation, having its principal office at
c/o MDS Inc., 100 International Boulevard, Etobicoke, Ontario, Canada M9W 6J6
("PanLabs").
Concurrently herewith, and in accordance with the terms and conditions of
that Note and Warrant Purchase by and between the Company and PanLabs, dated on
even date herewith (the "Purchase Agreement"), the Company is issuing a 6%
Subordinated Note in the principal amount of Five Million and 00/100 Dollars
($5,000,000) (the "Note") to PanLabs.
Unless otherwise expressly provided in this Security Agreement, all
capitalized terms in this Security Agreement shall have the meanings given to
them in the Purchase Agreement, and unless otherwise provided in this Security
Agreement or the Purchase Agreement, all terms shall have the same meanings as
given to them in the Uniform Commercial Code of the State of Delaware as amended
from time to time.
1. Security Interest. As security for payment of the Note and any other
-----------------
obligations of the Company to PanLabs pursuant to and under the Note, whether
now existing or hereafter created or incurred, matured or unmatured, direct or
contingent, including any extensions and renewals thereof or a part thereof,
together with interest and costs of enforcement and collection thereof and of
this Security Agreement, including all reasonable attorneys' fees and
disbursements incurred by PanLabs (collectively called the "Liabilities"), the
Company hereby grants to PanLabs a security interest in all of the following
properties (collectively, called the "Collateral"):
(i) All assets and property of the Company, excepting real property
but including, without limitation, all goods, tangible property, machinery,
equipment, furniture, fixtures, vehicles, parts, leasehold improvements,
accounts, inventory, chattel paper, contract rights, documents,
instruments, choses in action, general intangibles, goodwill and
intellectual property, of any kind or nature in which the Company has an
interest now or in the future, and which are now existing or hereafter
created or acquired, together with any and all additions, replacements,
accessions and substitutions thereto or therefore, and any proceeds
thereof; and
(ii) All insurance, to the extent it represents proceeds, covering the
properties described in Section 1(i) above against risk of fire, theft or
any other physical damage or loss, now owned or hereafter acquired.
2. Locations of the Company and Collateral. The principal office of the
---------------------------------------
Company is at the address shown in the preamble to this Security Agreement. All
locations at which the Collateral will be kept or at which the Company does
business are indicated on the Schedule A attached to and made a part of this
----------
Security Agreement. The Company will notify PanLabs of any new or changed
locations at which any of the Collateral is kept or the Company does business.
If any of the Collateral is or will be a fixture, the Company will provide
legal descriptions and the names of record owners of the premises to which the
Collateral will be affixed sufficient for perfection of the security interests
of PanLabs.
3. PanLabs's Lien. Except for the Permitted Liens and the security
--------------
interest granted hereby, the Company is the owner of the Collateral free from
all liens, encumbrances, and security
<PAGE>
interests. The Company will not sell or transfer the Collateral or, except in
the case of securing Purchase Money Indebtedness, any interest therein
(including, without limitation, a security interest) without the prior written
consent of PanLabs except for sales of inventory and collection of accounts in
the ordinary course of business and prior to an Event of Default (as herein
defined). The Company will defend the Collateral against the claims and demands
of all persons, and will cause the immediate removal and termination of any
levy, execution, judgment or other lien, or similar claim of third persons to
the Collateral.
4. Perfection of Security Interest. The Company will execute and deliver
-------------------------------
to PanLabs such financing statements, security agreements, assignments
(including without limitation assignments of specific accounts and chattel
paper) as PanLabs or PanLabs's representatives may at any time or from time to
time reasonably request.
5. Taxes. The Company will pay promptly, when due, all taxes and
-----
assessments upon the Collateral or its use or operation, or upon this Security
Agreement.
6. Insurance. The Company at all times will keep the Collateral fully
---------
insured with financially sound and reputable insurers, against such casualties
and contingencies and of such types and in such amounts as is reasonable. In
any event and without specific request by PanLabs, the Company will insure the
Collateral against fire, including so-called extended coverage and theft. The
Company will deliver certificates and policies evidencing the insurance coverage
of the Collateral to PanLabs upon its reasonable requests.
The Company will notify PanLabs in the event of any loss, damage, or other
casualty affecting the Collateral. The Company hereby assigns to PanLabs any
and all monies which may become due and payable under any policy insuring the
Collateral, directs any such insurance company to make payments directly to
PanLabs, and authorizes PanLabs to apply such monies in payment on account of
the Liabilities, whether or not due, and to remit any surplus to the Company.
7. Protection of PanLabs's Interest. Ten or more days after the day
--------------------------------
PanLabs mails the Company notice, upon failure of the Company to: (i) remove
liens or interests prohibited by Section 3 of this Security Agreement, (ii) pay
taxes or assessments as required by Section 5 of this Security Agreement, or
(iii) provide evidence satisfactory to PanLabs of insurance as required by
Section 7 of this Security Agreement, PanLabs in its discretion may discharge
any such liens or interests, pay taxes or assessments, and obtain insurance
coverage on the Collateral. The Company agrees to reimburse PanLabs on demand
for any and all expenditures so made, and until paid the amount thereof also
shall be part of the Liabilities secured by the Collateral. PanLabs shall have
no obligation to the Company to make any such expenditures nor shall the making
thereof relieve any default hereunder.
8. Representations Regarding Collateral. The Company represents and
------------------------------------
warrants to PanLabs, and so long as this Security Agreement remains in effect
shall be deemed to continue to represent and warrant that: (i) the Collateral is
genuine and what it purports to be; (ii) each account and chattel paper
represents a bona fide transaction and is enforceable according to the contract
underlying the account or the writings constituting the chattel paper; (iii) the
amount shown on Company's books and on any invoice or statement delivered to
PanLabs with respect to accounts, chattel paper, and appropriate general
intangibles is correct and duly owing to the Company; (iv) no set-off or
counterclaim to any account or chattel paper exists, and other discounts or
deductions given in the ordinary course of business are fully disclosed on the
books and records of the Company and on financial statements given to PanLabs;
and (v) no agreement has been made with any person under which any deduction or
discount may be claimed, except regular discounts allowed by the Company for
prompt payments of accounts.
<PAGE>
9. Events of Default. The following events or conditions shall be an
-----------------
"Event of Default" under this Security Agreement: (i) any failure to comply
with any term of this Security Agreement and (ii) upon the occurrence of any
Event of Default specified in the Note.
10. Remedies. Upon the occurrence of an Event of Default, PanLabs shall
--------
have the rights and remedies of a secured party under the Uniform Commercial
Code of the State of Delaware as amended from time to time in any jurisdiction
where enforcement of this Security Agreement is sought in addition to all other
rights and remedies at law or in equity. Among other remedies, PanLabs may take
immediate possession of the Collateral and for that purpose PanLabs may, so far
as the Company can give authority therefor, enter upon any premises on which the
Collateral or any part thereof may be situated and secure or remove the same
therefrom. Upon request of the PanLabs, the Company will assemble and make the
Collateral available to PanLabs, at a reasonable place and time designated by
PanLabs. The Company's failure to take possession of any Collateral at any time
and place reasonably specified by PanLabs in writing to the Company shall
constitute an abandonment of such property by the Company and PanLabs shall have
no liability or responsibility with respect to such property. The Company
agrees that notice of the time and place of public sale of any of the Collateral
or of the time after which any private sale thereof is to be made or of other
disposition of the Collateral shall be deemed reasonable notice ten (10) days
after such notice is deposited in the mail or otherwise delivered to Company at
the address shown in the preamble of this Security Agreement.
In addition to its other rights, PanLabs may but shall not be obligated to
notify any parties which are obligated to pay the Company any Collateral or
proceeds thereof, to make all payments directly to PanLabs. The Company
authorizes such parties to make such payments directly to PanLabs and to rely on
notice from PanLabs without further inquiry. PanLabs may demand and take all
necessary or desirable steps to collect such Collateral in either PanLabs's or
the Company's, name, with the right to enforce, compromise, settle, or discharge
any of the foregoing. PanLabs may endorse the Company's name on any checks,
commercial paper, instruments, and the like pertaining to the foregoing.
PanLabs shall not be responsible to the Company for loss or damage
resulting from PanLabs's failure to enforce or collect any Collateral or any
monies due or to become due under any Liability of the Company to PanLabs.
PanLabs shall have no obligation to take, and Company shall have the sole
responsibility for taking, any and all steps to preserve rights against any and
all prior parties to any Collateral, whether or not in PanLabs's possession.
After an Event of Default, the Company (i) will make no change in any
account (or the contract underlying such account), chattel paper, or general
intangible, and (ii) shall receive as the sole property of PanLabs and hold in
trust for PanLabs all monies, checks, notes, drafts, and other property
(collectively called "items of payment") representing the proceeds of any
Collateral. After an Event of Default, PanLabs may but shall be under no
obligation to: (a) notify all appropriate parties that the Collateral, or any
part thereof, has been assigned to PanLabs; (b) collect any or all accounts,
chattel paper or general intangibles in the Company's name, apply any such
collections against such Liabilities as PanLabs may select; (c) take control of
any cash or non-cash proceeds of any item of the Collateral; (d) compromise,
extend or renew any account, chattel paper, general intangible document, or deal
with the same as PanLabs may deem advisable; and (e) make exchanges,
substitutions or surrender of items compromising the Collateral.
The rights of PanLabs are cumulative, and PanLabs may enforce its rights
under this Security Agreement irrespective of any other collateral, guaranty,
right, or remedy it may have. The exercise of all or a part of PanLabs's rights
or remedies hereunder shall not prevent the PanLabs from exercising at the same
or any other time any other right or remedy with respect to the Liabilities.
The Company authorizes PanLabs in its sole discretion to direct the order or
manner of the disposition of the Collateral.
3
<PAGE>
From the proceeds realized from the Collateral PanLabs shall be entitled to
retain all sums secured hereby as well as its reasonable expenses of collection
including without limitation those of retaking, holding, safeguarding,
accounting for, preparing for sale, selling, and reasonable attorneys' fees and
legal expenses. If the proceeds realized from the Collateral are not sufficient
to defray said expenses and to satisfy the balance due on the Liabilities, the
Company shall remain liable for such expenses and any deficiency with respect to
the Liabilities. Any payments or proceeds from realization on the Collateral
may be applied to the Liabilities in whatever order or manner the PanLabs
elects.
11. Continuing Agreement, Termination. This is a continuing Agreement,
---------------------------------
and no notice of the creation or existence of the Liabilities, renewal,
extension or modification thereof need be given to Company. This security
interest shall continue in effect notwithstanding that from time to time no
Liabilities may exist. This Security Agreement may be terminated only (i) by a
written agreement of PanLabs, or (ii) upon written request of the Company at
such time as the Liabilities have been satisfied in full.
12. No Waiver. The Company agrees that no representation, promise, or
---------
agreement made by PanLabs, at, prior, or subsequent to the execution and
delivery of this Security Agreement shall modify, alter, limit, or otherwise
abridge the rights and remedies of PanLabs hereunder unless agreed by PanLabs in
writing. None of the rights and remedies of PanLabs hereunder shall be modified,
altered, limited, or otherwise abridged or waived by any representation,
promise, or agreement hereafter made or by any course of conduct hereafter
pursued by PanLabs. No delay or omission on the part of the PanLabs in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Security Agreement, and waiver of any right shall not be
deemed waiver of any other right unless expressly agreed by PanLabs in writing.
13. Subordination. Notwithstanding anything to the contrary contained
-------------
herein, the security interest herein granted, and all rights and remedies of
PanLabs and its successors and assigns hereunder or in connection with this
Security Agreement, are and shall be subject and subordinate and junior to all
Senior Indebtedness, any and all liens and security interests securing any
Senior Indebtedness, and the rights and remedies of the holders of any Senior
Indebtedness or of any collateral security or guarantees of any Senior
Indebtedness, as provided in the Purchase Agreement and Note. In the case of
Corestates Bank, N.A. ("Corestates"), the terms and conditions of subordination
of the Senior Indebtedness to Corestates are set forth in the Subordination
Agreement, dated March 16, 1998, by and among, the Company, the PanLabs and
Corestates.
14. Governing Law. This Security Agreement shall be shall be deemed to be
-------------
a contract made under the laws of the State of Delaware and for all purposes
shall be construed in accordance with the laws of said State without giving
effect to the rules of said State governing the conflicts of laws.
15. Counterparts. This Security Agreement 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.
16. Titles and Subtitles. The titles and subtitles used in this Security
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Security Agreement.
17. Notices. Any notice required or permitted under this Security
-------
Agreement shall be given in writing and shall be deemed effectively given upon
(a) personal delivery to the person to be notified (b) 7 days after deposit with
a domestic Post Office, by registered mail, postage prepaid and
4
<PAGE>
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 or (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.
<TABLE>
<S> <C>
(1) If to the Company, to: With a copy to:
Chrysalis International Corporation Jones, Day, Reavis & Pogue
575 Route 28 North Point, 901 Lakeside Avenue
Raritan, New Jersey 08869 Cleveland, Ohio 44114
Fax: (908) 722-6677 Fax: (216) 579-0212
Attention: John Cooper Attention: Thomas C. Daniels, Esq.
(2) If to the Purchaser, to: With a copy to:
PanLabs International, Inc. Harris Beach & Wilcox, LLP
c/o MDS Inc. 130 East Main Street
100 International Boulevard Rochester, New York 14604
Etobicoke, Ontario, Canada M9W 6J6
Fax: (416) 675-4095 Fax: (716) 232-6925
Attention: Vice President, Legal Affairs Attention: Thomas E. Willett, Esq.
</TABLE>
18. Entire Agreement. This Security Agreement, together with the Note and
-----------------
the Purchase Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the Parties
with regard to the subjects hereof and thereof.
19. Severability. If one or more provisions of this Security Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Security Agreement and the balance of this Security Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its term.
IN WITNESS WHEREOF, the Company has caused this Security Agreement to be
executed by a duly authorized representative as of the date and year first above
written.
CHRYSALIS INTERNATIONAL CORPORATION
By:/s/ John G. Cooper
____________________________________
Name: John G. Cooper
_________________________________
Title: Senior Vice President & Chief
Financial Officer
___________________________________
Accepted and acknowledged as of
the 16th day of March, 1998 by
PANLABS INTERNATIONAL, INC.
By:/s/ Peter E. Brent
______________________________
Name: Peter E. Brent
___________________________
Title: Director & Assistant Secretary
______________________________
5
