EXHIBIT 99.2
Stock and Warrant Purchase Agreement
DREXLER TECHNOLOGY CORPORATION
STOCK AND WARRANT PURCHASE AGREEMENT
December 23, 2003
TABLE OF CONTENTS
Page
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1. Purchase and Sale of Stock and Warrants......................................................................1
1.1 Sale and Issuance of Common Stock...............................................................1
1.2 Sale and Issuance of Investor Option............................................................1
1.3 Sale and Issuance of Warrants...................................................................1
1.4 Closing.........................................................................................2
2. Representations and Warranties of the Company................................................................2
2.1 Corporate Existence.............................................................................2
2.2 Authorization and Power; No Contravention.......................................................2
2.3 Governmental Authorization; Third Party Consents................................................3
2.4 Binding Effect..................................................................................3
2.5 Litigation......................................................................................3
2.6 Compliance with Laws............................................................................3
2.7 Capitalization..................................................................................4
2.8 No Default or Breach; Contractual Obligations...................................................4
2.9 Reports; Financial Statements...................................................................5
2.10 Taxes...........................................................................................5
2.11 No Material Adverse Change; Ordinary Course of Business.........................................5
2.12 Private Offering................................................................................6
2.13 Intellectual Property...........................................................................6
2.14 Potential Conflicts of Interest.................................................................6
2.15 Broker's, Finder's or Similar Fees..............................................................6
2.16 Insurance.......................................................................................6
2.17 NASDAQ Compliance...............................................................................6
2.18 Listing.........................................................................................6
2.19 No Manipulation of Stock........................................................................7
2.20 Company not an "Investment Company".............................................................7
3. Representations and Warranties of the Investors..............................................................7
3.1 Authorization...................................................................................7
3.2 Purchase Entirely for Own Account...............................................................7
3.3 Reliance Upon Investor's Representations........................................................7
3.4 Receipt of Information..........................................................................8
3.5 Investment Experience...........................................................................8
3.6 Accredited Investor.............................................................................8
3.7 Restricted Securities...........................................................................8
3.8 Prospectus Delivery Requirement.................................................................8
3.9 Foreign Jurisdictions...........................................................................9
3.10 Legends.........................................................................................9
3.11 Broker's, Finder's or Similar Fees.............................................................11
3.12 No Short Position..............................................................................11
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4. Registration of the Shares; Compliance with the Securities Act..............................................11
4.1 Registration Procedures and Expenses...........................................................11
4.2 Restrictions on Shares Before Registration.....................................................13
4.3 Transfer of Shares After Registration; Suspension..............................................14
4.4 Indemnification................................................................................15
4.5 Termination of Conditions and Obligations......................................................17
5. Conditions of each Investor's Obligations at Closing........................................................18
5.1 Representations and Warranties.................................................................18
5.2 Performance....................................................................................18
5.3 Compliance Certificate.........................................................................18
5.4 Qualifications.................................................................................18
5.5 Opinion of Counsel.............................................................................18
6. Conditions of the Company's Obligations at Closing..........................................................18
6.1 Representations and Warranties.................................................................18
6.2 Qualifications.................................................................................18
7. Miscellaneous...............................................................................................19
7.1 Entire Agreement...............................................................................19
7.2 Survival.......................................................................................19
7.3 Successors and Assigns.........................................................................19
7.4 Governing Law..................................................................................19
7.5 Counterparts...................................................................................19
7.6 Titles and Subtitles...........................................................................19
7.7 Notices........................................................................................19
7.8 Expenses.......................................................................................20
7.9 Attorneys' Fees................................................................................20
7.10 Amendments and Waivers.........................................................................20
7.11 Severability...................................................................................20
7.12 Rights of the Investor.........................................................................21
7.13 Conflict of Interest Waiver....................................................................21
7.14 Press Release/Form 8-K.........................................................................22
Exhibits
Exhibit A - .......Investor Option Exercise Form
Exhibit B -........Form of Warrant
Exhibit C -........Certificate of Subsequent Sale
Exhibit D -........Form of Opinion of Company's counsel
Exhibit E -........Schedule of Exceptions
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DREXLER TECHNOLOGY CORPORATION
STOCK AND WARRANT PURCHASE AGREEMENT
This Stock and Warrant Purchase Agreement (this "Agreement") is made as of
the 23rd day of December, 2003 (the "Effective Date"), by and among Drexler
Technology Corporation, a Delaware corporation (the "Company"), and each of the
persons listed on the signature pages hereto (each of whom is herein referred to
individually as an "Investor" and collectively as the "Investors"). The parties
hereto agree as follows:
1. PURCHASE AND SALE OF STOCK AND WARRANTS.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and conditions
of this Agreement, each Investor severally (and not jointly and severally)
agrees at the Closing (as defined below), and the Company agrees to issue and
sell to each Investor at the Closing, at a cash price per share equal to the
"Purchase Price" that number of shares (the "Shares") of common stock, $.01 par
value, of the Company (the "Common Stock") that is equal to the aggregate dollar
amount set forth above each Investor's name on the signature pages hereto
divided by the Purchase Price. The Purchase Price shall be eighty-five percent
(85%) of the average closing sale price of one share of Common Stock on the
Nasdaq National Market ("Nasdaq") during the five (5) trading days ending
immediately prior to the Effective Date (the "Closing Average").
1.2 SALE AND ISSUANCE OF INVESTOR OPTION. Subject to the terms and
conditions of this Agreement, each Investor severally (and not jointly and
severally) shall have the personal and non-transferable option (the "Investor
Option") to purchase from the Company, and the Company agrees to issue and sell
to each Investor who exercises the Investor Option, that number of shares (the
"Option Shares") of Common Stock equal to twenty percent (20%) of the aggregate
purchase price paid for the Shares by the Investor divided by one hundred and
ten percent (110%) of the Closing Average. The Investor Option shall have an
exercise price equal to one hundred and ten percent (110%) of the Closing
Average. The Investor Option may be exercised only in full and only once and
shall expire nine (9) months following the Closing or earlier upon a merger or
sale of the Company or its assets following which stockholders of the Company do
not own a majority of the outstanding voting interests. Each Investor exercising
the Investor Option shall deliver to the Company an Exercise Form as set forth
in the form of EXHIBIT A hereto accompanied by payment in full by wire transfer
to the Company's bank account of the Investor Option exercise price. Within five
(5) days of receipt of such Exercise Form and exercise price payment, the
Company shall deliver to the Investor exercising such Investor Option a
certificate evidencing the number of Option Shares purchased pursuant to the
Investor Option.
1.3 SALE AND ISSUANCE OF WARRANTS. Subject to the terms and conditions of
this Agreement, each Investor severally (and not jointly and severally) agrees
to purchase at the Closing, and the Company agrees to issue and sell to each
Investor at the Closing a five-year warrant to purchase that number of shares of
Common Stock equal to twenty percent (20%) of the number of Shares purchased by
such Investor with an exercise price equal to one hundred
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fifteen percent (115%) of the Closing Average (the "Warrant"), substantially in
the form attached hereto as EXHIBIT B.
1.4 CLOSING. The purchase and sale of the Shares, Investor Option, and
Warrants (the "Closing") shall occur no later than December 24, 2003, at a place
and time to be specified by the Company and Morgan Keegan & Co., Inc. (the
"Placement Agent"), and of which the Investors will be notified in not less than
one (1) business day in advance by the Placement Agent. At the Closing, after
receipt of payment therefor, the Company shall arrange delivery to each Investor
of a stock certificate representing the number of Shares purchased by such
Investor, and a Warrant, each registered in the name of the Investor. The
parties acknowledge that the schedule of Investors attached hereto as SCHEDULE A
is a preliminary schedule of investors. As soon as practicable after the
Closing, the Company shall deliver to each Investor a completed Schedule A,
listing each Investor, the number of Shares, and the aggregate dollar amount
paid for the Shares.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that, except as disclosed in all
reports, registration statements and other filings, together with any amendments
thereto, filed by the Company with the Securities and Exchange Commission (the
"Commission" or the "SEC") since June 30, 2003 (collectively, the "SEC
Reports"), the Company's press releases since June 30, 2003, and the Schedule of
Exceptions attached hereto as EXHIBIT E, specifically identifying the relevant
subparagraph, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 CORPORATE EXISTENCE. The Company, and each of the corporations or
other entities of which the Company holds a majority of the voting power of the
outstanding voting equity securities or a majority of the economic equity
interest of such corporation or entity (collectively, the "Subsidiaries") (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation; (b) has all requisite corporate
power and authority to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged;
and (c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of each jurisdiction in which its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a material adverse effect on the condition of the Company.
2.2 AUTHORIZATION AND POWER; NO CONTRAVENTION. The Company has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement. The execution, delivery and performance by the Company of
this Agreement and the transactions contemplated hereby and thereby (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Company's certificate of incorporation, as
amended (the "Certificate of Incorporation") or the Company's by-laws, as
amended and restated (the "By-Laws"); (c) do not violate, conflict with or
result in any breach, default or contravention of (or with due notice or lapse
of time or both would result in any breach, default or contravention of), or the
creation of any mortgage, deed of trust, pledge, hypothecation, assignment,
encumbrance, lien (statutory or otherwise) or preference, priority, right or
other security interest or preferential arrangement (a "Lien") under, any
provision of any agreement, undertaking, contract, indenture, mortgage, deed of
trust, or other instrument to which the
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Company is a party or by which its property is bound (a "Contractual
Obligation") of the Company or any law, statute, treaty, rule, regulation,
right, privilege, qualification, license or franchise (a "Requirement of Law")
applicable to the Company except such violations or conflicts that would not
reasonably be expected to have a material adverse effect on the condition of the
Company; and (d) do not violate any judgment, injunction, writ, award, decree or
order of any nature (individually, "Order" and collectively, "Orders") of the
government of any nation, state, city, locality or other political subdivision
thereof, any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, (a "Governmental
Authority") against, or binding upon, the Company or any of its Subsidiaries.
2.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. No approval,
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other individual, firm,
corporation, partnership, trust, association, joint venture, limited liability
company, or other entity of any kind (a "Person"), and no lapse of a waiting
period under a Requirement of Law, is necessary or required in connection with
the execution, delivery or performance (including, without limitation, the sale,
issuance and delivery of the Shares and Warrants) by, or enforcement against,
the Company of this Agreement and the transactions contemplated hereby and
thereby.
2.4 BINDING EFFECT. This Agreement has been duly executed and delivered by
the Company, and this Agreement constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws of
general application affecting the enforcement of creditors' rights generally,
(b) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (c) to the extent the
indemnification provisions contained in this Agreement may be limited by
applicable federal or state securities laws.
2.5 LITIGATION. There are no actions, suits, proceedings, claims,
complaints, disputes, arbitrations or investigations (collectively, "Claims")
pending or, to the actual knowledge of the Company's executive officers (the
"Knowledge") of the Company, threatened, at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its Subsidiaries
that seeks damages in an amount which is material to the Company's operations,
other than ordinary routine litigation incidental to the business of the Company
nor is the Company aware that there is any basis for any of the foregoing. The
foregoing includes, without limitation, Claims pending or, to the Company's
Knowledge, threatened or any basis therefor known by the Company involving the
prior employment of any employee of the Company or any of its Subsidiaries,
their use in connection with the business of the Company or any of its
Subsidiaries of any information or techniques allegedly proprietary to any of
their former employers or their obligations under any agreements with prior
employers. No Order has been issued by any court or other Governmental Authority
against the Company or any of its Subsidiaries purporting to enjoin or restrain
the execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
2.6 COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries is in
compliance in all material respects with all Requirements of Law and all Orders
issued by any court or
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Governmental Authority against the Company in all respects. To the Company's
Knowledge, there are no Requirements of Law which could reasonably be expected
to prohibit or restrict the Company or any of its Subsidiaries from, or
otherwise materially adversely effect the Company or any of its Subsidiaries in,
conducting its business in any jurisdiction in which it now conducts its
business.
2.7 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, of which 10,567,355 shares (the "Issued Stock") were
issued and outstanding as of November 10, 2003, and 10,000,000 shares of
preferred stock, none of which were issued or outstanding as of November 10,
2003. As of November 10, 2003, 2,278,602 shares of Common Stock were reserved
for issuance under the Company's Stock Option Plan, as amended, less any options
exercised subsequent to March 31, 2003. As of November 10, 2003, 84,461 shares
of Common Stock were reserved for issuance under the Company's Employee Stock
Purchase Plan, as amended, less any shares purchased subsequent to March 31,
2003. The Issued Stock represents all of the issued and outstanding shares of
capital stock of the Company and all shares of Issued Stock have been duly
authorized and validly issued and are fully paid and nonassessable. All of the
shares of Issued Stock and other securities of the Company have been offered,
issued and sold by the Company in compliance in all material respects with the
Securities Act of 1933 ("the Securities Act") and applicable state securities
laws. There are no contracts or other agreements relating to the issuance, sale
or transfer of Issued Stock or any equity or other securities of the Company
other than pursuant to the Stock Option Plan and Employee Stock Purchase Plan,
both as amended, and the Shares, Investor Option, and Warrants issuable pursuant
to this Agreement.
(b) The Shares, Investor Option, and Warrants are duly authorized, and the
Shares, Option Shares, and shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") when issued and delivered to the Investors after
payment therefor, will be validly issued, fully paid and non-assessable, and
assuming the accuracy of the representations and warranties of the Investors set
forth in Section 3 of this Agreement, will be issued in compliance with the
registration and qualification requirements of all applicable federal, state and
foreign securities laws and will be free and clear of all other Liens. None of
the issued and outstanding shares of Common Stock were issued in violation of
any preemptive rights.
2.8 NO DEFAULT OR BREACH; CONTRACTUAL OBLIGATIONS. All of the Contractual
Obligations to which the Company or any of its Subsidiaries is a party, whether
written or oral, which are required by the Securities Exchange Act of 1934 (the
"Exchange Act") to be disclosed in the SEC Reports (collectively, "Material
Contractual Obligations") are valid, subsisting, in full force and effect and
binding upon the Company or its Subsidiary, as the case may be, and, to the
Company's Knowledge, the other parties thereto, and the Company or its
Subsidiary, as the case may be, has paid in full or accrued all amounts due
thereunder and has satisfied in full or provided for all of its liabilities and
obligations thereunder, except for such amounts as are being contested by the
Company in good faith or would not have a Material Adverse Change. Neither the
Company nor any of its Subsidiaries has received notice of a default and is not
in default under, or with respect to, any Material Contractual Obligation nor,
to the Company's Knowledge, does any condition exist that with notice or lapse
of time or both would constitute a
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default thereunder. To the Company's Knowledge, no other party to any such
Contractual Obligation is in default thereunder, nor does any condition exist
that with notice or lapse of time or both would constitute a default by such
other party thereunder.
2.9 REPORTS; FINANCIAL STATEMENTS(a) As of the respective dates of their
filing with the Commission, the SEC Reports, complied in all material respects
with the applicable requirements of the Securities Act, the Exchange Act, and
the rules and regulations of the Commission promulgated thereunder, except as
disclosed in the SEC Reports. Except as disclosed in the SEC Reports, the SEC
Reports did not at the time they were filed with the Commission, or will not at
the time they are filed with the Commission, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Company is
currently eligible to register the resale of the Shares, the Option Shares, and
the Warrant Shares on a registration statement on Form S-3 under the Securities
Act.
(b) Except as disclosed in the SEC Reports, the consolidated financial
statements (including, in each case, any related schedules or notes thereto)
contained in or incorporated by reference in the SEC Reports and any such
reports, registration statements and other filings to be filed by the Company
with the SEC prior to the Closing (the "Financial Statements") (i) have been or
will be prepared in accordance with the published rules and regulations of the
Commission and GAAP consistently applied during the periods involved (except as
may be indicated in the notes thereto) and (ii) fairly present or will fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the respective dates thereof and the
consolidated results of operations, statements of stockholders' equity and cash
flows for the periods indicated, except that any unaudited interim financial
statements were or will be subject to normal and recurring year-end adjustments
and may omit footnote disclosure as permitted by regulations of the SEC.
2.10 TAXES. Except for matters which are not reasonably expected to have a
Material Adverse Change, the Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon, and to the Company's Knowledge, no tax deficiency has been
asserted as threatened against the Company.
2.11 NO MATERIAL ADVERSE CHANGE; ORDINARY COURSE OF BUSINESS. Since
September 30, 2003, except as disclosed in or incorporated by reference in the
SEC Reports, (a) there has not been any material adverse change, in the
condition of the Company, (b) neither the Company nor any of its Subsidiaries
has participated in any transaction material to the condition of the Company,
including, without limitation, declaring or paying any dividend or declaring or
making any distribution to its stockholders except out of the earnings of the
Company or its Subsidiary, as the case may be, (c) neither the Company nor any
of its Subsidiaries has entered into any Material Contractual Obligation, other
than in the ordinary course of business, (d) there has not occurred a material
change in the accounting principles or practice of the Company or any of its
Subsidiaries except as required by reason of a change in GAAP, and (e) there has
not been any issuance of Company capital stock, or warrants, options or other
rights to purchase Company capital stock, except for (a) options granted and
shares issued under the Company Stock Option
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Plan and Employee Stock Purchase Plan, and (2) the Shares, the Investor Option,
the Option Shares, the Warrants and the Warrant Shares.
2.12 PRIVATE OFFERING. The Company has not in the past nor will it
hereafter take any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer to sale of the Shares or
Warrants as contemplated by this Agreement within the provision of Section 5 of
the Securities Act.
2.13 INTELLECTUAL PROPERTY. Except as specifically disclosed in the SEC
Reports (i) each of the Company and its Subsidiaries owns or possesses
sufficient rights to use all material patents, patent rights, trademarks,
copyrights, licenses, inventions, trade secrets, trade names and know-how
(collectively, "Intellectual Property") described or referred to in the SEC
Reports as owned or possessed by it or that are necessary for the conduct of its
business as now conducted or as proposed to be conducted as described in the SEC
Reports except where the failure to currently own or possess would not have a
material adverse effect, and (ii) to the Company's Knowledge, neither the
Company nor any of its Subsidiaries of, any rights of a third party with respect
to any Intellectual Property that, individually or in the aggregate, would have
a material adverse effect.
2.14 POTENTIAL CONFLICTS OF INTEREST. Except as disclosed in the SEC
Reports, no transaction has occurred between or among the Company or any of its
affiliates, officers or director or any affiliate or affiliates of any such
officer or director that with the passage of time will be required to be
disclosed pursuant to Section 13, 14 or 15(d) of the Exchange Act.
2.15 BROKER'S, FINDER'S OR SIMILAR FEES. Except for fees payable to the
Placement Agents, there are no brokerage commissions, finder's fees or similar
fees or commissions payable by the Company or any of its Subsidiaries in
connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any of its Subsidiaries or any
action taken by any such Person.
2.16 INSURANCE. The Company maintains insurance of the types, against such
losses and in amounts and with such insurers as are customary in the Company's
industry and otherwise reasonably prudent, including, but not limited to,
insurance covering all real property owned and leased by the Company against
theft, damage, destruction, and other risks customarily insured by similarly
situated companies.
2.17 NASDAQ COMPLIANCE. The Company's Common Stock is registered pursuant
to Section 12(g) of the Exchange Act and is listed on Nasdaq, and the Company
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or de-listing the
Common Stock from Nasdaq, nor has the Company received any notification that the
SEC or the National Association of Securities Dealers, Inc. (the "NASD") is
currently contemplating terminating such registration or listing.
2.18 LISTING. The Company shall comply with all requirements of the NASD
with respect to the issuance of the Shares, the Investor Option, the Option
Shares, the Warrant and the Warrant Shares, and the listing of the Shares,
Option Shares, and Warrant Shares on Nasdaq.
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2.19 NO MANIPULATION OF STOCK. The Company has not taken and will not, in
violation of applicable law, take, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares,
the Option Shares, or the Warrant Shares.
2.20 COMPANY NOT AN "INVESTMENT COMPANY". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and immediately after
receipt of payment for the Shares and the Warrant will not be, an "investment
company" or an entity "controlled" by an "investment company" within the meaning
of the Investment Company Act and shall conduct its business in a manner so that
it will not become subject to the Investment Company Act.
2.21 DISCLOSURE. The Company confirms that to its Knowledge neither the
Company nor the Placement Agent has provided any of the Investors or their
agents or counsel with any information that constitutes material non-public
information concerning the Company. The Company understands and confirms that
the Investors shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor hereby
represents and warrants to the Company that, solely as to such Investor:
3.1 AUTHORIZATION. The Investor has all requisite corporate power and
authority to enter into this Agreement and that this Agreement constitutes a
legal, valid and binding obligation of the Investor, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium and or similar laws of general application affecting the
enforcement of creditors' rights generally, (b) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies, and (c) to the extent the indemnification provisions contained in this
Agreement may be limited by applicable federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Shares, the Investor Option,
and Warrants to be purchased by the Investor, and the Option Shares and Warrant
Shares which the Investor may purchase upon exercise of, respectively, the
Investor Option and the Warrants (collectively the "Securities"), will be
acquired for investment for the Investor's own account, and not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and the Investor has no present intention of selling, granting any participation
in, or otherwise distributing the same. The Investor is not a party to any
contract, undertaking, agreement or arrangement with any person, including any
of its affiliates, to sell, transfer or otherwise dispose of any of the
Securities.
3.3 RELIANCE UPON INVESTOR'S REPRESENTATIONS. Each Investor understands
that the issuance and sale of the Securities to it will not be registered under
the Securities Act on the ground that such issuance and sale will be exempt from
registration under the Securities Act pursuant to section 4(2) thereof, and that
the Company's reliance on such exemption is based on each Investor's
representations set forth herein. Each Investor realizes that the basis for the
exemption may not be present if, notwithstanding such representations, any
Investor has in mind
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merely acquiring the Securities for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise. Such
Investor has no such present intention.
3.4 RECEIPT OF INFORMATION. The Investors have had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance and sale of the Shares and Warrants and the business,
properties, prospects and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investor to
rely thereon. No person other than the Company has been authorized to give any
representation not contained in this Agreement in connection with the offering
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. The Investor understands that
nothing in the SEC Reports, this Agreement or any other materials presented to
the Investor in connection with the purchase and sale of the Securities
constitutes legal, tax or investment advice. The Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities.
3.5 INVESTMENT EXPERIENCE. The Investor is experienced in evaluating and
investing in securities of companies and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment in the Securities.
3.6 ACCREDITED INVESTOR. The Investor is an "accredited investor" as such
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act, for the reason indicated on the signature page of this Agreement.
3.7 RESTRICTED SECURITIES. The Investor understands that the Securities
may not be sold, transferred or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, the Investors are aware that the Securities
may not be sold pursuant to Rule 144 promulgated under the Securities Act unless
all of the conditions of that Rule are met. Among the conditions for use of Rule
144 is the availability of current information to the public about the Company.
3.8 PROSPECTUS DELIVERY REQUIREMENT. The Investor hereby covenants with
the Company not to make any sale of the Securities without complying with the
provisions of this Agreement and without causing the prospectus delivery
requirement under the Securities Act to be satisfied (whether by delivery of the
Prospectus or pursuant to and in compliance with an exemption from such
requirement) and the Investor acknowledges that the certificates evidencing the
Securities will be imprinted with a legend that prohibits their transfer except
in accordance therewith. The Investor acknowledges that there may occasionally
be times when the Company determines that it must suspend the use of the
Prospectus forming a part of the Registration Statement, as set forth in Section
4.3.
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3.9 FOREIGN JURISDICTIONS. The Investor acknowledges, represents and
agrees that no action has been or will be taken in any jurisdiction outside the
United States by the Company that would permit an offering of the Securities or
possession or distribution of offering materials in connection with the issue of
the Securities in any jurisdiction outside the United States where legal action
by the Company for that purpose is required. Each Investor outside the United
States will comply with all applicable laws and regulations in each foreign
jurisdiction in which it purchases, offers, sells or delivers Securities or has
in its possession or distributes any offering material, in all cases at its own
expense.
3.10 LEGENDS(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of Securities
other than (i) pursuant to an effective registration statement, (ii) pursuant to
Rule 144, conditioned on the seller providing reasonable assurance of compliance
with Rule 144, (iii) to the Company, (iv) to an "Affiliate" (as defined in SEC
Rule 405) of an Investor, conditioned on the Affiliate being an accredited
investor who agrees in writing to comply with the transfer restrictions imposed
by this Agreement, or (v) in connection with a pledge as contemplated in Section
3.10(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of an Investor under this Agreement..
(b) The Investors agree to the imprinting, so long as is required by
this Section 3.10(b), of a legend on any of the Securities in the following form
and agree to abide by the transfer restrictions imposed by such legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER BONA FIDE LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT.
Notwithstanding the forgoing, neither the Investor Option nor the Warrant
shall bear the last sentence of such legend.
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(c) The Company acknowledges and agrees that an Investor may from
time to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or, in connection with a bona fide loan, grant a security interest
in some or all of the Shares, Option Shares, and Warrant Shares to a financial
institution that is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Investor may transfer
such pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no legal
opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Investor's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of such
Securities may reasonably request in connection with a pledge or transfer of
such Securities, including, if the Securities are subject to registration
pursuant to Section 4 below, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
selling stockholders thereunder.
Certificates evidencing the Shares, Option Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
3.10(b)), (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Shares, Option Shares or
Warrant Shares pursuant to Rule 144, or (iii) if such Shares, Option Shares or
Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the
Commission). The Company shall cause its counsel to issue a legal opinion to the
Company's transfer agent promptly after the effective date of the Registration
Statement if required by the Company's transfer agent to effect the removal of
the legend hereunder. If all or any portion of an Option or a Warrant is
exercised at a time when there is an effective registration statement to cover
the resale of the Option Shares or the Warrant Shares, such Option Shares and/or
Warrant Shares shall be issued free of all legends. The Company agrees that at
such time as such legend is no longer required under this Section 3.10(c)(ii),
(iii), or (iv), it will, no later than five (5) Trading Days following the
delivery by an Investor to (1) the Company of (I) a copy of (A) a Form 144, (B)
broker letter establishing compliance with the manner of sale requirements of
Rule 144, and (C) seller's representation letter establishing eligibility of the
seller to use Rule 144, or (II) letter from seller evidencing compliance with
Rule 144(k) or (III) of an opinion letter of counsel to the seller reasonably
satisfactory to the Company as to why such legend is not required, as the case
may be, and (2) the Company's transfer agent of a certificate representing
Shares, Option Shares or Warrant Shares, as the case may be, issued with a
restrictive legend (such date, the "LEGEND REMOVAL DATE"), deliver or cause to
be delivered to such Investor a certificate representing such securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on
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transfer set forth in this Section. The Investor concurrently will send a
facsimile to the Company's counsel of the documentation provided to the Company.
(d) In addition to such Investor's other available remedies, the
Company shall pay to an Investor, in cash, as liquidated damages and not as a
penalty, for each $1,000 of Shares, Option Shares or Warrant Shares (based on
the Closing Price of the Common Stock on the first date the certificate
representing such Securities and the documentation specified in Section 4.1(c)
are submitted to the Company and its transfer agent) subject to Section
4.1(c)(i) or (ii), $10 per Trading Day (increasing to $20 per Trading Day five
(5) Trading Days after such damages have begun to accrue) for each Trading Day
after the Legend Removal Date until such certificate is delivered, up to an
aggregate of $500 provided that the Investor shall provide notice to the Company
by facsimile of the commencement of such liquidated damages. Nothing herein
shall limit such Investor's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required by this
Agreement or the Warrant, and such Investor shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) The Investors have requested that the Company effect the removal
(the "Removal") of the legend on the certificates representing the Shares,
Option Shares, and Warrant Shares once the registration statement covering them
has become effective based upon their express representations that they will
transfer such Securities only in transactions which are covered by such
registration, meaning, for example, that unless SEC Rule 144(k) is available
they will effect only transactions which are in compliance with the plan of
distribution in the registration statement, they will comply with the prospectus
delivery requirements of the Act in connection with such transactions, and they
will not effect such transactions after they have been notified that the
registration statement is suspended as provided under Sections 4.3 (b) and (c)
unless they have been notified by the Company that such suspension has ceased.
The Company is willing to effect the Removal only upon the Investors' express
agreement to extend the Section 4.4 indemnification to cover any claim based
upon the Removal.
3.11 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Investor in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Investor or any action taken by
any such person.
3.12 NO SHORT POSITION. Neither the Investor nor any Affiliate of the
Investor has a short or hedge position in Company Stock except that no
representation is made as to the holdings of Knight Trading Group, Inc., Elliott
Associates LP, or Elliott International LP..
4. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT.
4.1 REGISTRATION PROCEDURES AND EXPENSES. The Company hereby agrees that
it shall:
(a) subject to receipt of necessary information from the Investors,
prepare and file with the SEC on or before the date that is thirty (30) days
after the Closing a registration statement on
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Form S-3 (the "Registration Statement") to enable the resale of the Shares, the
Option Shares, and the Warrant Shares by the Investors and use reasonable best
efforts to respond to comments from the SEC within ten (10) calendar days of
receipt and use reasonable best efforts to cause such Registration Statement to
be declared effective no later than ninety (90) days after Closing, or, if
earlier, within five (5) trading days after the Company receives notice (oral or
written) from the SEC that the SEC either will not review the Registration
Statement or has no further comments on the Registration Statement. The Company
shall keep the Registration Statement continuously effective until the earlier
of (i) such time as all Shares, Option Shares and Warrant Shares purchased by
the Investors pursuant to this Agreement have been sold thereunder or (ii) all
Shares, Option Shares and Warrant Shares may be sold pursuant to Rule 144(k)
(the "Registration Period"). If: (i) a Registration Statement is not filed on or
prior to the required filing date, or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act, within five (5) trading days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or is not
subject to further review, subject to extension for up to 15 additional trading
days upon an opinion of counsel that it is advisable to delay effectiveness due
to pending corporate developments, public filings with the SEC or similar events
, or (iii) prior to the date when such Registration Statement is first declared
effective by the Commission, the Company fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the Commission in respect
of such Registration Statement within fifteen (15) calendar days after the
receipt of comments by or notice from the Commission that such amendment is
required in order for a Registration Statement to be declared effective, or (iv)
a Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission on or before the 90th day after the Closing, or (v)
after a Registration Statement is first declared effective by the Commission, it
ceases for any reason to remain continuously effective as to all registrable
securities for which it is required to be effective, or the Investors are not
permitted to utilize the Prospectus therein to resell such registrable
securities, for in any such case fifteen (15) consecutive trading days but no
more than an aggregate of twenty (20) trading days during any twelve (12)-month
period (which need not be consecutive trading days)(any such failure or breach
being referred to as an "EVENT," and for purposes of clause (i) or (iv) the date
on which such Event occurs, or for purposes of clause (ii) the date on which
such five (5) Trading Day period is exceeded, or for purposes of clause (iii)
the date which such fifteen (15) calendar days is exceeded, or for purposes of
clause (v) the date on which such fifteen (15)- or twenty (20)-day period, as
applicable, is exceeded being referred to as "EVENT DATE"), then in addition to
any other rights the Investors may have hereunder or under applicable law: (x)
on the first month anniversary of such Event Date the Company shall pay to each
Investor an amount in cash, as liquidated damages and not as a penalty, equal to
one-half percent (0.5%) of the aggregate purchase price paid by such Investor
pursuant to this Agreement for any Shares, Option Shares, or Warrant Shares
which can not be sold in any three (3)-month period under Rule 144 then held by
such Investor; and (y) on each subsequent monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Investor an amount in
cash, as partial liquidated damages and not as a penalty, one percent (1.0%) of
the aggregate purchase price paid by such Investor pursuant to this Agreement
for such Shares, Option Shares, or Warrant Shares which can not be sold in any
three (3)-month period under Rule 144 then held by such Investor up to an
aggregate of fifteen percent (15%) of such
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aggregate purchase price. If the Company fails to pay any partial liquidated
damages pursuant to this Section in full within seven (7) days after the date
payable, the Company will pay interest thereon at a rate of fifteen percent
(15%) per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Investor, accruing daily from the date such liquidated
damages are due until such amounts, plus all such interest thereon, are paid in
full. The partial liquidated damages pursuant to the terms hereof shall apply on
a daily pro-rata basis for any portion of a month prior to the cure of an Event.
(b) prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep the Registration Statement effective until the end of the
Registration Period;
(c) notify Investors promptly upon the effectiveness of the Registration
Statement and furnish to the Investors with respect to the shares of Common
Stock registered under the Registration Statement such reasonable number of
copies of the Registration Statement, prospectuses and preliminary prospectuses
in conformity with the requirements of the Securities Act and such other
documents as the Investor may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares, Option Shares, or
Warrant Shares by the Investor;
(d) file documents required of the Company for normal blue sky clearance
in states specified in writing by the Investor, provided, however, that the
Company shall not be required to qualify to do business or consent to service of
process in any jurisdiction in which it is not now so qualified or has not so
consented;
(e) use its reasonable best efforts to cause the Shares, Option Shares,
and Warrant Shares to be listed on the Nasdaq in connection with the filing of
the Registration Statement under Section 4.1(a);
(f) bear all expenses in connection with the procedures in paragraph (a)
through (e) of this Section 4.1 and the registration of the Shares, the Option
Shares, and the Warrant Shares pursuant to the Registration Statement other than
fees and expenses, if any, of counsel or other advisers to the Investors or
underwriting discounts, brokerage fees and commissions incurred by the
Investors, if any.
(g) provide that all Shares, Option Shares, and Warrant Shares covered by
the Registration Statement will be listed on Nasdaq or other securities market
on which the Company's Common Stock is then listed or traded.
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Section 4.1 that each Investor shall furnish to the
Company such information regarding itself, the shares of Common Stock to be sold
by the Investor, and the intended method of disposition of such securities as
shall be required to effect the registration of the Shares, the Option Shares,
and the Warrant Shares. The Company and each Holder agrees that the form of
"Plan of Distribution" attached hereto as SCHEDULE B shall be satisfactory.
4.2 RESTRICTIONS ON SHARES BEFORE REGISTRATION. Until such time as the
registration statement covering the Shares, Option Shares, and Warrant Shares
has been declared effective,
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the Investors agree that each Investor shall not margin, sell against the box,
or otherwise commit to sell any of the Securities or take a short position or
otherwise hedge in the Common Stock except to the extent necessary to offset a
long position, taking into account the Shares together with the Warrant Shares
and Option Shares then issued or underlying the then Investor Option and
Warrants.
4.3 TRANSFER OF SHARES AFTER REGISTRATION; SUSPENSION(a) Subject to
Section 4.5, the Investors agree that they will not offer to sell, solicit
offers to buy, dispose of, loan, pledge or grant any right (each, a
"Disposition") with respect to the Securities that would constitute a sale
within the meaning of the Securities Act except pursuant to the Registration
Statement referred to in Section 4.1, or pursuant to an exemption from
registration under the Securities Act, if available, and that they will promptly
notify the Company of any changes in the information set forth in the
Registration Statement after it is prepared regarding the Investor or its plan
of distribution.
(b) In addition to any suspension rights under paragraph (c) below, the
Company may, upon the happening of any event, that, in the good faith judgment
of Company's board of directors upon the opinion of counsel, renders it
advisable to suspend use of the prospectus for no more than sixty (60) days in
the aggregate in any twelve (12) month period of time due to pending corporate
developments, public filings with the SEC or similar events, subject to the
payment of partial liquidated damages as set forth in Section 4.1, suspend use
of the prospectus on written notice to each Investor, in which case each
Investor shall discontinue disposition of Shares, Option Shares, or Warrant
Shares covered by the Registration Statement or prospectus until copies of a
supplemented or amended prospectus are distributed to the Investors or until the
Investors are advised in writing by the Company that the use of the applicable
prospectus may be resumed.
(c) Subject to paragraph (d) below, in the event of: (i) any request by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
a Registration Statement or related prospectus or for additional information,
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iii) the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares, the Option
Shares, or the Warrant Shares for sale in any jurisdiction or the initiation of
any proceeding for such purpose, (iv) any event or circumstance which
necessitates the making of any changes in the Registration Statement or
prospectus, or any document incorporated or deemed to be incorporated therein by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the prospectus, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, then the Company shall deliver a certificate in writing to the
Investors (the "Suspension Notice") to the effect of the foregoing and, upon
receipt of such Suspension Notice, the Investors will refrain from selling any
Shares, Option Shares, or Warrant Shares pursuant to the Registration Statement
(a "Suspension") until the Investors' receipt of copies of a supplemented or
amended prospectus prepared and filed by the Company, or until it
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is advised in writing by the Company that the current prospectus may be used,
and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such prospectus. In the
event of any Suspension, the Company will use its reasonable best efforts to
cause the use of the prospectus so suspended to be resumed as soon as possible
within twenty (20) business days after delivery of a Suspension Notice to the
Investors. In addition to and without limiting any other remedies (including
without limitation at law or equity), available to the Investors, the Investors
shall be entitled to partial liquidated damages as set forth in Section 4.1 and
specific performance in the event the Company fails to comply with the
provisions of this Section 4.2(c).
(d) Provided that a Suspension is not then in effect, the Investors may
sell Shares, Option Shares, or Warrant Shares under the Registration Statement,
provided that the selling Investor arranges for delivery of a current prospectus
to the transferee of such Shares, Option Shares, or Warrant Shares.
(e) In the event of a sale of Shares, Option Shares, or Warrant Shares by
an Investor, such Investor must also deliver to the Company's transfer agent,
with a copy to the Company, a Certificate of Subsequent Sale substantially in
the form attached hereto as EXHIBIT C, so that ownership of the Shares, Option
Shares, or Warrant Shares may be properly transferred.
(f) For so long as the Company will have a class of securities registered
under Section 12(b) or Section 12(g) of the Exchange Act, the Company covenants
that it will file, on a timely basis, any reports required to be filed by it
under the Exchange Act and the rules and regulations adopted by the SEC
thereunder and keep all such reports and public information current to the
extent required by Rule 144 under the Securities Act until all Shares, Option
Shares and Warrant Shares have been sold or may be sold pursuant to Rule 144(k).
(g) Notwithstanding the foregoing, the Company may at any time subsequent
to two (2) years after the Closing notify the Investors that they may exercise
the Warrants via cashless exercise in which case the Company may without penalty
suspend or cancel use of or withdraw the Registration Statement.
4.4 INDEMNIFICATION. For the purpose of this Section 4.3 only, (i) the
term "Registration Statement" shall include any final prospectus, exhibit,
supplement or amendment included in or relating to the Registration Statement
referred to in Section 4.1(a); and (ii) the term "untrue statement" shall
include any untrue statement or any omission to state in the Registration
Statement a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(a) The Company agrees to indemnify and hold harmless each Investor (and
each person, if any, who controls such Investor within the meaning of section 15
of the Securities Act) from and against any losses, claims, fines, sanctions,
damages or liabilities to which such Investor (or such person, if any, who
controls such Investor within the meaning of section 15 of the Securities Act)
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, fines, sanctions, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or (ii) any failure by the Company to fulfill any
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undertaking included in the Registration Statement, and the Company will
reimburse such Investor (and each person, if any, who controls such Investor
within the meaning of section 15 of the Securities Act) for any reasonable legal
or other expenses reasonably incurred in investigating, defending or preparing
to defend any such action, proceeding or claim; provided, however, that the
Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an untrue statement
made in such Registration Statement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Investor
specifically for use in preparation of the Registration Statement, any breach of
Section 3.8, the Removal, or any statement or omission in any prospectus that is
corrected in any subsequent prospectus that was delivered to the Investor prior
to the pertinent sale or sales by the Investor.
(b) Each Investor agrees to indemnify and hold harmless the Company (and
each person, if any, who controls the Company within the meaning of section 15
of the Securities Act, each officer of the Company who signs the Registration
Statement and each director of the Company) and each other Investor from and
against any losses, claims, fines, sanctions, damages or liabilities to which
the Company (or any such officer, director or controlling person) or other
Investor may become subject (under the Securities Act or otherwise), insofar as
such losses, claims, fines, sanctions, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon any breach of
Section 3.8, the Removal, or any statement or omission in any prospectus that is
corrected in any subsequent prospectus that was delivered to the Investor prior
to the pertinent sale or sales by the Investor or any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement if such untrue statement was made in reliance upon and in conformity
with information furnished by or on behalf of the indemnifying Investor in
writing specifically for use in preparation of the Registration Statement, and
the indemnifying Investor will reimburse the Company (or such officer, director
or controlling person) or other Investor, as the case may be, for any legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim; providing further that, the
Investor's obligations to indemnify under this subsection (b) other than when
such obligations arise out of or are based upon the Removal shall be limited to
the amount received by the Investor from the sale of the Investor's Shares
hereunder.
(c) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 4.4, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party under this Section 4.4 (except to the extent that such
omission materially and adversely affects the indemnifying party's ability to
defend such action) or from any liability otherwise than under this Section 4.4.
Subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person, the indemnifying person shall be entitled
to participate therein, and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, shall be entitled to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified person. After notice
from the indemnifying person to such indemnified person of its election to
assume the defense thereof, such indemnifying person shall not be liable to such
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indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof. In no event shall any
indemnifying person be liable in respect of any amounts paid in settlement of
any action unless the indemnifying person shall have approved the terms of such
settlement; provided that such consent shall not be unreasonably withheld. No
indemnifying person shall, without the prior written consent of the indemnified
person, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified person is or could have been a party and
indemnification could have been sought hereunder by such indemnified person,
unless such settlement includes an unconditional release of such indemnified
person from all liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in this Section 4.4 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Investors on the other in
connection with the statements or omissions or other matters which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, in the case of an untrue
statement, whether the untrue statement relates to information supplied by the
Company on the one hand or an Investor on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement. The Company and the Investors agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Investors were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Investor shall be required to contribute
any amount in excess of the amount by which the gross amount received by the
Investor from the sale of the Shares to which such loss relates exceeds the
amount of any damages which such Investor has otherwise been required to pay by
reason of such untrue statement. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Investors' obligations in this subsection to
contribute are several in proportion to their sales of Shares to which such loss
relates and not joint.
4.5 TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions precedent
imposed by Section 4 upon the transferability of the Shares, the Option Shares,
and the Warrrant Shares shall cease and terminate as to any particular number of
the shares of Common Stock when such shares shall have been effectively
registered under the Securities Act and sold or otherwise disposed of in
accordance with the intended method of disposition set forth in the Registration
Statement covering such shares or at such time as an opinion of counsel or other
evidence
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reasonably satisfactory to the Company shall have been rendered to the effect
that such conditions are not necessary in order to comply with the Securities
Act.
5. CONDITIONS OF EACH INVESTOR'S OBLIGATIONS AT CLOSING. The obligations
of each Investor under subparagraph 1.1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
5.2 PERFORMANCE. 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 on or before the Closing.
5.3 COMPLIANCE CERTIFICATE. An Executive Officer of the Company shall have
delivered to the Investor at the Closing a certificate certifying that the
conditions specified in Sections 5.1, 5.2 and 5.4 have been fulfilled.
5.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing. The Company shall have obtained all necessary blue sky permits and
qualifications, or have the availability of exemptions therefrom, required by
any state for the offer and sale of the Shares and the Warrants.
5.5 OPINION OF COUNSEL. Investors shall have received the opinion of
Pillsbury Winthrop LLP, counsel to the Company, in substantially the form of
EXHIBIT D, attached hereto.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to each Investor under this Agreement, including the issuance of the
Shares, are subject to the fulfillment (or waiver) on or before the Closing of
each of the following conditions by the Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
such Investor contained in Section 3 shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing.
6.2 QUALIFICATIONS. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
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7. MISCELLANEOUS. Entire Agreement. This Agreement and the documents
referred to herein and all Schedules and Exhibits thereto constitute the entire
agreement among the parties and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.
7.1 SURVIVAL . The parties agree that, regardless of any investigation
made by the parties, the warranties, representations and covenants of the
Company and the Investors contained in or made pursuant to this Agreement
(including, without limitation, the provisions of Section 4) shall survive the
execution and delivery of this Agreement and the Closing.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, 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 (including permitted
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto 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.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California, without
giving effect to the principles of conflicts of law.
7.4 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, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
7.5 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.
7.6 NOTICES. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed given and
effective when delivered personally, by telex or telecopier, or by overnight
express at the following addresses or to such other address as such party may
designate by written notice to the other party in accordance with the provisions
of this Section:
If to the Company: Drexler Technology Corporation
1077 Independence Avenue
Mountain View, CA 94043
Attention: Steven G. Larson, CFO
Fax: (650) 967-6524
With a copy to: Pillsbury Winthrop LLP
2475 Hanover Street
Palo Alto, CA 94304
Attention: Stephen M. Wurzburg
Fax: (650) 233-4545
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If to an Investor: See the signature pages hereto
7.7 EXPENSES. Each party will bear its own expenses related to this
Agreement and the transactions contemplated therein.
7.8 ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Investor.
7.10 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 this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
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7.11 RIGHTS OF THE INVESTOR(a) . Each Investor shall have the absolute
right to exercise or refrain from exercising any right or rights that such
holder may have by reason of this Agreement or any Shares, Investor Option,, or
Warrants, including without limitation the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter into an agreement
with the Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such Investor shall not incur any liability
to any other Investor with respect to exercising or refraining from exercising
any such right or rights. The obligations of each Investor under this Agreement
are several and not joint with the obligations of any other Investor, and no
Investor shall be responsible in any way for the performance of the obligations
of any other Investor under this Agreement. Nothing contained herein, and no
action taken by any Investor pursuant hereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement. Each Investor shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of this Agreement or out of the Warrants, and it shall not be necessary for
any other Investor to be joined as an additional party in any proceeding for
such purpose. The decision of each Investor to purchase Securities pursuant to
this Agreement has been made by such Investor independently of any other
Investor and independently of any information, materials, statements or opinions
as to the business, affairs, operations, assets, properties, liabilities,
results of operations, condition (financial or otherwise) or prospects of the
Company or of the Subsidiaries which may have made or given by any other
Investor or by any agent or employee of any other Investor, and, as between the
Investors, no Investor or any of its agents or employees shall have any
liability to any Investor relating to or arising from any such information,
materials, statements or opinions.
Each Investor was introduced to the Company by the Placement Agent which
has acted solely as agent for the Company and not for any Investor. Each
Investor has been represented by its own separate legal counsel in their review
and negotiation of this Agreement. For reasons of administrative convenience
only, this Agreement has been reviewed by counsel for one of the Investors. Such
counsel does not represent all of the Investors but only such Investor and the
other Investors have retained their own individual counsel with respect to the
transactions contemplated hereby. The Company has elected to provide all
Investors with the same terms and Agreement for the convenience of the Company
and not because it was required or requested to do so by the Investors. The
Company acknowledges that such procedure with respect to the Agreement in no way
creates a presumption that the Investors are in any way acting in concert or as
a group with respect to the Agreement or the transactions contemplated hereby or
thereby.
7.12 CONFLICT OF INTEREST WAIVER. Each party to this Agreement acknowledges
that Pillsbury Winthrop LLP ("PW"), counsel for the Company, may have in the
past and may continue in the future to perform legal services for certain of the
Investors in matters unrelated to the transactions described in this Agreement,
including the representation of such Investors in formation of other companies,
venture capital financings, and other matters. Accordingly, each party to this
Agreement hereby (a) acknowledges that they have had an opportunity to ask for
information relevant to this disclosure; (b) acknowledges that PW represented
the Company in the transaction contemplated by this Agreement and has not
represented any individual Investor or any individual stockholder or employee of
the Company in connection with such transaction, and (c) gives its informed
consent to PW's representation of certain of the Investors in such
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unrelated matters and to PW's representation of the Company in connection with
this Agreement and the transactions contemplated hereby and in other matters.
7.13 PRESS RELEASE/FORM 8-K. The Company agrees to issue a press release
prior to the opening of the stock market on the first business day after the
Closing and to file a Form 8-K with the SEC prior to the closing of the stock
market on the first business day after the Closing, each describing the critical
features of the sale of the Shares, Investor Option, and Warrants under this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DREXLER TECHNOLOGY CORPORATION
By
------------------------------------
Richard M. Haddock
Co-CEO
INVESTOR SIGNATURE PAGES TO FOLLOW
-23-
SIGNATURE PAGE TO
STOCK AND WARRANT PURCHASE AGREEMENT
DATED AS OF DECEMBER ___, 2003
BY AND AMONG
DREXLER TECHNOLOGY CORPORATION
AND EACH INVESTOR NAMED THEREIN
The undersigned hereby executes and delivers the Drexler Technology
Corporation Stock and Warrant Purchase Agreement (the "Agreement") to which this
Signature Page is attached effective as of the date of the Agreement, which
Agreement and Signature Page, together with all counterparts of such signature
pages of the other Investors named in such Agreement, shall constitute one and
the same document in accordance with the terms of such Agreement.
Number of Shares: _______________
_____________________________________________
Print Name of Investor
By___________________________________________
Signature
Address: ________________________________
________________________________
________________________________
Taxpayer Identification Number:______________
INVESTOR IS AN "ACCREDITED INVESTOR" BY REASON OF (CHECK ONE):
- --------------------------------------------------------------
Investor is an entity with gross assets in excess of $5,000,000. __________
Investor is an individual with a net worth in excess of $1,000,000 __________
Investor is an individual and an Officer or Director of the Company __________
-24-
SCHEDULE A
INVESTORS
Number of Shares
Investor Name Purchased from Company Investment In Dollars
- -------------------------------------------------------------- -------------------------- -----------------------
Deephaven Small Cap Growth Fund LLC 156,740 $2,000,002.40
Elliott Associates, L.P. 40,000 $510,400.00
Elliott International, L.P. 60,000 $765,600.00
Magellan International Limited Charlotte House 58,778 $750,000.00
Yokim Asset Management 7,837 $100,000.00
SF Capital Partners, Ltd. 156,740 $2,000,002.40
Truk Opportunity Fund, LLC 25,000 $319,000.00
Truk Opportunity Fund, LLC 15,686 $200,153.36
SRG Capital 19,606 $250,172.56
Colbart Birnet, L.P. 11,756 $150,000.00
OTAPE Investments 7,837 $100,000.00
Spectra Capital Management, LLC 23,511 $300,000.00
Vertical Ventures Investments, LLC 97,963 $1,250,000.00
WestEnd Convertible Fund, L.P. 7,837 $100,000.00
THP Master Fund, Ltd. 23,511 $300,000.36
Jon D. Gruber & Linda W. Gruber 13,715 $175,003.40
Gruber & McBaine International 13,715 $175,003.40
Lagunitas Partners, L.P. 50,940 $649,994.40
TOTAL
SA-1
SCHEDULE B
Plan of Distribution
--------------------
PLAN OF DISTRIBUTION
The selling shareholders may offer and sell the shares covered by this
prospectus at various times. As used in this prospectus, the term "selling
shareholders" includes donees, pledgees, transferees or other
successors-in-interest selling shares received from a named selling shareholder
as a gift, partnership distribution, or other non-sale-related transfer after
the date of this prospectus. The selling shareholders will act independently of
CAMD in making decisions with respect to the timing, manner and size of each
sale. The shares may be sold by or for the account of the selling shareholders
in transactions on the Nasdaq National Market, the over-the-counter market, or
otherwise. These sales may be made at fixed prices, at market prices prevailing
at the time of sale, at prices related to prevailing market prices, or at
negotiated prices. The shares may be sold by means of one or more of the
following methods:
o a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions in which the broker solicits
purchasers;
o in connection with short sales, in which the shares are redelivered to
close out short positions;
o in connection with the loan or pledge of shares registered hereunder
to a broker-dealer, and the sale of the shares so loaned or the sale
of the shares so pledged upon a default;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options;
o privately negotiated transactions; or
o in a combination of any of the above methods.
If required, we will distribute a supplement to this prospectus to describe
material changes in the terms of the offering.
In effecting sales, broker-dealers engaged by the selling shareholders may
arrange for other broker-dealers to participate in resales. Broker-dealers may
receive compensation in the form of discounts, concessions or
SB-1
commissions from the selling shareholders or from the purchasers of the shares
or from both. This compensation may exceed customary commissions.
The selling shareholders and any broker-dealers, agents or underwriters that
participate with the selling shareholders in the distribution of the shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933.
Any commissions paid or any discounts or concessions allowed to any of those
persons, and any profits received on the resale of the shares purchased by them,
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless the
shares have been registered or qualified for sale in the state or an exemption
from registration or qualification is available and is complied with.
The shares to be sold in this offering have been listed on the Nasdaq National
Market, subject to official notice of issuance.
We will indemnify the selling shareholders against liabilities, including some
liabilities under the Securities Act, in accordance with the stock and warrant
purchase agreement and the placement agents' engagement letter, or the selling
shareholders will be entitled to contribution. We will be indemnified by the
selling shareholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling shareholders for use in this prospectus, in accordance with the
related stock and warrant purchase agreement and the placement agent's
engagement letter, or we will be entitled to contribution.
Once sold under this registration statement to which this prospectus relates,
the shares of common stock will be freely tradable in the hands of persons other
than our affiliates. We do not know whether any selling stockholder will sell
any or all of the shares of common stock offered by this prospectus.
The Company has agreed to bear all expenses of registration of the shares other
than fees and expenses, if any, of counsel or other advisors to the selling
shareholders. Any commissions, discounts, concessions or other fees, if any,
payable to broker-dealers in connection with any sale of the shares will be
borne by the selling shareholders selling those shares.
SB-2
EXHIBIT A
INVESTOR OPTION EXERCISE FORM
To: Drexler Technology Corporation
The undersigned is an "Investor" under the December 23, 2003, Stock and Warrant
Purchase Agreement (the "Agreement") entered into by and among Drexler
Technology Corporation, a Delaware corporation (the "Company"), and the other
Investors. All capitalized terms not specifically defined in this Notice of
Exercise are as defined in the agreement.
Investor hereby elects to exercise the Investor Option and thereby purchase all
but only all of the Option Shares, which are comprised of __________ shares of
the Company Common Stock, at $16.51 per share pursuant to the Agreement and in
particular Section 1.2. Investor either has already sent, or is concurrently
sending, by wire transfer payment in full of the purchase price for the Option
Shares.
In exercising the Investor Option, the undersigned hereby reaffirms the
representations made in Section 3 of the Agreement and agrees that they apply to
the exercise of the Option and Investor's acquisition of the Option Shares. In
these regards, for example, the Investor confirms and acknowledges that the
Option Shares are being acquired solely for the account of the Investor and not
as a nominee for any other party, or for investment, and that the Investor will
not offer, sell or otherwise dispose of any of the Option Shares except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any applicable state securities laws.
Unless otherwise noted below, Investor confirms that the Option Shares are to be
registered in the same name as the Shares were registered and delivered to the
same address.
_____________________________________
Printed Name of Investor
____________________ By___________________________________
(Date) (Signature)
_____________________________________
Printed Name and Title of Signatory
A-1
EXHIBIT B
FORM OF WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES. No. W-<<No>>
WARRANT TO PURCHASE COMMON STOCK
OF
DREXLER TECHNOLOGY CORPORATION
This certifies that, for value received as provided under a Stock and
Warrant Purchase Agreement dated December 23, 2003 (the "Purchase Agreement"),
<<Investor>> ("Holder") is entitled, subject to the terms and conditions set
forth below, to purchase from Drexler Technology Corporation, a Delaware
corporation (the "Company"), in whole or in part, <<Warrants>> fully paid and
nonassessable shares (the "Warrant Shares") of $0.01 par value common stock of
the Company ("Common Stock"), which is equal to twenty percent (20%) of the
number of shares of Common Stock purchased by Holder pursuant to the Purchase
Agreement, at the Exercise Price (as defined in Section 2). The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below and all references to "Warrant Shares" and
"Exercise Price" herein shall be deemed to include any such adjustment or series
of adjustments. The term "Warrant" as used herein shall mean this Warrant, and
any warrants delivered in substitution or exchange therefor as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date hereof and ending at 5:00 p.m., Pacific standard time, on
the five (5)-year anniversary of issue, and shall be void thereafter (the
"Exercise Period"). This Warrant shall expire prior to the end of Exercise
Period if and when it has been exercised in full.
2. EXERCISE PRICE. The Exercise Price shall be seventeen dollars and
twenty-six cents ($17.26), which is equal to the quotient of one hundred fifteen
percent (115%) of the per share
B-1
purchase price of the Company Stock bought by the Holder under the Purchase
Agreement divided by eighty-five one hundredths (0.85).
3. EXERCISE OF WARRANT. This Warrant may be exercised by the Holder only
by the surrender of this Warrant to the Company, with the Notice of Exercise
annexed hereto duly completed and executed on behalf of the Holder, at the
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder appearing on the books of the
Company) during the Exercise Period, and the delivery of payment to the Company
by wire transfer of immediately available funds to a bank account specified by
the Company of the Exercise Price for the number of Warrant Shares specified in
the Exercise Notice in lawful money of the United States of America.
The Company agrees that such Warrant Shares shall be deemed to be issued to
the Holder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Holder as promptly as practicable, and in any event within
three (3) business days, thereafter. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Holder a new Warrant evidencing the
rights to purchase the remaining Warrant Shares, which new Warrant shall in all
other respects be identical with this Warrant. No adjustments shall be made on
Warrant Shares issuable on the exercise of this Warrant for any cash dividends
paid or payable to holders of record of Common Stock prior to the date as of
which the Holder shall be deemed to be the record holder of such Warrant Shares.
The Company shall pay all expenses, taxes, and other charges payable in
connection with the preparation, execution, and delivery of stock certificates
pursuant to this Section 3.
If at any time after one (1) year from the date of issuance of this Warrant
there is no effective registration statement registering the resale of the
Warrant Shares by the Holder, including without limitation following Company
notice pursuant to Section 4.3 of the Purchase Agreement, this Warrant may also
be exercised at such time by means of a "cashless exercise" in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the closing bid price on the trading day immediately preceding the
date of such election;
(B) = the Exercise Price of the Warrants, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of the Warrants
in accordance with the terms of this Warrant.
Notwithstanding the foregoing, the Warrant may not be exercised via
"cashless exercise" if the registration statement has been suspended pursuant to
Section 4.3 of the Purchase Agreement for no more than sixty (60) days in the
aggregate in any twelve (12)-month period.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the
B-2
Holder would otherwise be entitled, the Company shall make a cash payment equal
to the Exercise Price multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. RIGHTS OF SHAREHOLDER. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance of
assets, or otherwise) or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until the Warrant shall have been exercised
as provided herein.
7. TRANSFER OF WARRANT.
7.1 WARRANT REGISTER. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. Any
Holder of this Warrant or any portion thereof may change his address as shown on
the Warrant Register by written notice to the Company requesting such change.
Any notice or written communication required or permitted to be given to the
Holder may be delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may treat the
Holder as shown on the Warrant Register as the absolute owner of this Warrant
for all purposes, notwithstanding any notice to the contrary.
7.2 WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(A) above, issuing the Warrant Shares or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
7.3 TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant may be
transferred to "affiliates" of the Holder, as defined in Rule 405, as
promulgated by the Securities and Exchange Commission (the "SEC") and, with the
prior written consent of the Company, to other persons, provided that such
transferee agrees to be bound by the other restrictions on transfer applicable
to the Warrant Shares. Notwithstanding the foregoing, this Warrant may not be
transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). However, no investment representation letter or opinion of counsel
shall be required for any transfer
B-3
of this Warrant (or any portion thereof) or any shares of Common Stock issued
upon exercise hereof in compliance with Rule 144(k) and no opinion of counsel
shall be required for any transfer of this Warrant (or any portion thereof) in
compliance with Rule 144A; provided that in each of the foregoing cases the
transferee agrees in writing to be subject to the terms of this Section 7(C).
Subject to the provisions of this Warrant with respect to compliance with the
Securities Act of 1933, as amended (the "Act"), title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form annexed
hereto) and delivery in the same manner as a negotiable instrument transferable
by endorsement and delivery.
7.4 EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this Warrant for
transfer, properly endorsed on the Assignment Form and subject to the provisions
of this Warrant with respect to compliance with the Act and with the limitations
on assignments and transfers and contained in this Section 7, the Company at its
expense shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as the Holder (on payment by the
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.
7.5 COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof, represents that it
is an "accredited investor" within the meaning of Rule 501 of Regulation D of
the Securities Act of 1933, as amended, as presently in effect.
(b) The Holder acknowledges that this Warrant is being, and the Warrant
Shares would be, acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any Warrant Shares except
under circumstances that will not result in a violation of the Act or any
applicable state securities laws. Upon exercise of this Warrant, the Holder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Warrant Shares are being acquired solely for the
Holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale.
(c) Subject to the provisions of Section 3.10 of the Purchase Agreement
pursuant to which this Warrant was issued, this Warrant and Warrant Shares shall
be stamped or imprinted with a legend in substantially the following form (in
addition to any legend required by state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
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PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER BONA FIDE LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
Notwithstanding the forgoing, the Warrant shall not bear the last sentence
of such legend but shall instead bear the following as a last sentence:
"COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND
RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES."
The Company agrees to remove promptly, upon the request of the holder of
this Warrant or the Warrant Shares, the legend set forth in Section 7(E)(iii)
above from the documents/certificates for such securities upon full compliance
with this Agreement and either Rule 144(k) or after a sale in the public market
in compliance with Rule 144.
8. RESERVATION OF STOCK. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares and, from time to time, will take all steps necessary to
amend its Articles of Incorporation to provide sufficient reserves of shares of
Common Stock for the issuance of the Warrant Shares. The Company further
covenants that all Warrant Shares, upon exercise of this Warrant and payment of
the Exercise Price, all as set forth herein, will be free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein).
9. NOTICES.
9.1 In case:
(a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive any dividend or other distribution, or
any right to subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right;
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation, or any conveyance of all or substantially all
of the assets of the Company to another corporation; or
(c) of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation, or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
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notice shall be mailed no later than the time similar notice is mailed to the
holders of Company Common Stock.
9.2 All such notices, advices and communications as required by the terms
of this Warrant shall be made and be deemed to have been received (i) in the
case of personal delivery, on the date of such delivery, (ii) in the case of
next day courier service such as Federal Express, one (1) business day after it
is delivered to the courier service for U.S. addresses and two (2) business days
for foreign addresses, and (iii) in the case of mailing by certified mail, on
the third (3rd) business day following the date of such mailing if sent to a
U.S. address and on the tenth (10th) business day following the date of such
mailing if sent to an address outside the U.S.
10. AMENDMENTS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Company
or the Holder of the Warrant against which enforcement of such change, waiver,
discharge or termination is sought.
11. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
11.1 RECLASSIFICATION, ETC. If the Company, at any time while this Warrant,
or any portion thereof, remains outstanding and unexpired, by reorganization or
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reorganization or reclassification or other change and
the Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 11.
11.2 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, then (i) in the case of a split or subdivision, the Exercise Price
for such securities shall be proportionately decreased and the securities
issuable upon exercise of this Warrant shall be proportionately increased, and
(ii) in the case of a combination, the Exercise Price for such securities shall
be proportionately increased and the securities issuable upon exercise of this
Warrant shall be proportionately decreased.
11.3 ADJUSTMENTS FOR DISTRIBUTIONS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend or
otherwise, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Company that such holder would hold on the
date of such exercise had it been the holder of record of the security
receivable upon exercise of this Warrant on the date hereof and had thereafter,
during
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the period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as
aforesaid during such period, giving effect to all adjustments called for during
such period by the provisions of this Section 11.
11.4 MERGERS, CONSOLIDATION, OR ASSET SALE. If any merger or consolidation
of the Company with or into another corporation, or the sale of substantially
all of its assets to another corporation, shall be effected in such a way that
holders of shares of Common Stock shall be entitled to receive common stock,
other securities, or assets with respect to or in exchange for shares of Common
Stock, then, as a condition to such merger, consolidation, or asset sale,
adequate provision shall be made whereby the Holder of Warrants shall thereafter
have the right to receive such shares of common stock, other securities, or
assets upon the exercise of the Warrant as though the Holder had exercised the
Warrant in full immediately prior to such merger, consolidation, or asset sale
and received Shares which were thereafter effected by the merger, consolidation,
or asset sale and the resulting shares of common stock, other securities, or
assets were thereafter held and effected by any subsequent events.
Notwithstanding the foregoing, if only cash, assets, and/or promissory notes not
convertible into equity are issued in such merger, consolidation, or asset sale,
then the Company may cause the Warrants to terminate upon the consummation of
such merger, consolidation, or asset sale, provided that the Company has
provided the Holder with at least fifteen (15) business days notice of such
merger, consolidation, or asset sale.
11.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 11, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any such Holder, furnish or cause to be furnished to
such Holder a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
11.6 NO IMPAIRMENT. The Company will not, by any voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. An event described above in this
subsections A, B, C, and D of this Section 11 for which appropriate adjustment
is made or an event described in Section 9A of which the Holder is given timely
notice pursuant to Section 9, shall not be deemed under any circumstance to be
an impairment of this Warrant.
12. MISCELLANEOUS.
12.1 This Warrant shall be governed by the internal laws of the State of
California as applied to agreements entered into in the State of California by
and among residents of the State of California, without reference to the
conflicts of laws provisions therein.
12.2 In the event of a dispute with regard to the interpretation of this
Warrant, the prevailing party may collect the cost of attorney's fees,
litigation expenses or such other expenses as may be incurred in the enforcement
of the prevailing party's rights hereunder.
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12.3 This Warrant shall be exercisable as provided for herein, except that
in the event that the expiration date of this Warrant shall fall on a Saturday,
Sunday and or United States federally recognized Holiday, the expiration date
for this Warrant shall be extended to 5:00 p.m. Pacific standard time on the
business day following such Saturday, Sunday or recognized Holiday.
12.4 This Warrant and any document or agreements executed by the parties
pursuant to this Warrant constitute the full and complete understanding of the
parties hereto with respect to the subject matter hereof and supersede all
previous agreements or understandings, written or oral, between the parties with
respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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In witness whereof, Drexler Technology Corporation has caused this Warrant
to be executed by its officer thereunto duly authorized.
Dated: December , 2003
COMPANY
-------
DREXLER TECHNOLOGY CORPORATION
By /s/ Richard M. Haddock
Richard M. Haddock, Co-CEO
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NOTICE OF EXERCISE
To: Drexler Technology Corporation
The undersigned hereby elects to purchase __________ shares of the Common Stock
of Drexler Technology Corporation pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price for such shares in full.
In exercising this Warrant, the undersigned hereby confirms and acknowledges
that the shares of Common Stock to be issued upon conversion thereof are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, or for investment, and that the undersigned will not offer, sell or
otherwise dispose of any such shares of Common Stock except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any applicable state securities laws.
Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
_________________________________
(Name)
_________________________________
(Name)
Please issue a new Warrant for the unexercised portion of the attached Warrant
in the name of the undersigned or in such other name as is specified below:
_________________________________
(Name)
_________________________________ _________________________________
(Date) (Signature)
B-10
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address Number of Shares
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of Drexler Technology Corporation, maintained
for the purpose, with full power of substitution in the premises.
If the Assignee is an "affiliate", as defined in Rule 405, promulgated by the
SEC, please explain the basis for such determination: __________________________
______________________________________________________________________________.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or any shares of stock to be
issued upon exercise hereof except under circumstances which will not result in
a violation of the Securities Act of 1933, as amended, or any applicable state
securities laws. Further, the Assignee has acknowledged that upon exercise of
this Warrant, the Assignee shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view toward
distribution or resale.
Dated: _______________.
_________________________________
Signature of Holder
EXHIBIT C
DREXLER TECHNOLOGY CORPORATION
CERTIFICATE OF SUBSEQUENT SALE
Chief Financial Officer
Drexler Technology Corporation
(650) 967-6524
RE: Sale of Shares of Common Stock of Drexler Technology Corporation (the
"Company") pursuant to the Company's Prospectus dated __________, 2004
(the "Prospectus")
Dear Sir/Madam:
The undersigned hereby certifies, in connection with the sale of shares of
Common Stock of the Company included in the table of Selling Stockholders in the
Prospectus, that the undersigned has sold the Shares pursuant to the Prospectus
and in a manner described under the caption "Plan of Distribution" in the
Prospectus and that such sale complies with all applicable securities laws,
including, without limitation, the Prospectus delivery requirements of the
Securities Act of 1933, as amended.
Selling Stockholder (the beneficial owner):________________________________
Record Holder (e.g., if held in name of nominee):__________________________
Restricted Stock Certificate No.(s):_______________________________________
Number of Shares Sold:_____________________________________________________
Date of Sale:______________________________________________________________
In the event that you receive a stock certificate(s) representing more
shares of Common Stock than have been sold by the undersigned, then you should
return to the undersigned a newly issued certificate for such excess shares in
the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you
should place a stop transfer on your records with regard to such certificate.
Very truly yours,
By_________________________________
Print Name____________________________
Title_________________________________
Dated:_________________________________
cc: Pillsbury Winthrop LLP
Attn: Stephen M. Wurzburg
(650) 233-4545
C-1
EXHIBIT D
FORM OF OPINION OF COMPANY COUNSEL
PILLSBURY WINTHROP LLP
2475 Hanover Street
Palo Alto, CA 94304
December __, 2003
To the Investors Named
on Schedule A to the
Stock and Warrant Purchase Agreement
Referred to Below:
Re: Drexler Technology Corporation Stock and Warrant Purchase Agreement
Ladies and Gentlemen:
We have acted as counsel for Drexler Technology Corporation, a Delaware
corporation (the "Company"), in connection with the Stock and Warrant Purchase
Agreement dated as of December 23, 2003 (the "Agreement"), by and between the
Company and each of you. This letter is provided to you in satisfaction of the
requirements set forth in Section 5.5 of the Agreement. The Agreement provides,
among other things, for the sale and purchase of shares (the "Shares") of the
Company's common stock, $0.01 par value (the "Common Stock"), an option for each
Investor (the "Investor Option") to purchase shares of Common Stock (the "Option
Shares"), and warrants (the "Warrants") to purchase shares of Common Stock (the
"Warrant Shares"). Terms not otherwise defined herein have the meanings given
them in the Agreement.
In connection with the foregoing, we have examined the Agreement and its
exhibits, including the form of Warrant, records of proceedings of the directors
and stockholders of the Company, the Certificate of Incorporation, the Bylaws of
the Company, certificates of officers of the Company and public officials, and
such other documentation as we have deemed necessary or advisable in order to
render the opinions expressed herein.
Based upon the foregoing and subject to the assumptions, qualifications,
limitations and exceptions set forth below, it is our opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware and has the
requisite corporate power to own its property and assets and to conduct its
business as it is currently being conducted.
2. The Company has all requisite corporate power and authority to execute
and deliver the Agreement and to perform its obligations under the terms of such
Agreement. The Agreement has been duly and validly authorized, executed and
delivered by the Company and constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its respective
terms, except insofar as indemnification and contribution provisions contained
therein may be limited by applicable law or the application of principles of
public policy.
D-1
3. The execution and delivery by the Company of the Agreement and the
performance by the Company of its obligations thereunder and the issuance of the
Shares, Investor Option, and Warrants pursuant to the Agreement do not violate
the Company's Certificate of Incorporation or Bylaws, and do not (i) violate or
contravene any governmental statute, rule or regulation applicable to the
Company that in our experience is generally applicable to transactions of the
type contemplated by the Agreement (without our having made any investigation
concerning the applicability of any other statue, rule or regulation) or (ii)
violate or contravene any order, writ, judgment, injunction, decree,
determination or award known to us that has been entered against the Company.
4. We are not aware of any action, suit, proceeding or investigation
pending against the Company before any court or administrative agency, or that
the Company has received any written threat thereof, that questions the validity
of the Agreement.
5. No approval, authorization or other action by any federal or state
governmental authority or filing (other than filings solely for information
purposes or to obtain action that is not the subject of governmental discretion)
with any such authority that has not been obtained or accomplished is required
in connection with the execution, delivery and performance by the Company of the
Agreement.
6. The Shares and Warrants have been duly authorized and, the Shares,
Option Shares, and Warrant Shares, upon issuance and delivery against payment
therefor in accordance with the terms of the Agreement, will be validly issued,
fully paid and nonassessable.
7. Based in part upon your representations in Section 3 of the Agreement,
the offer and sale of the Shares, Investor Option, and Warrants pursuant to the
terms of the Agreement are exempt from the registration requirements of Section
5 of the Securities Act of 1933, as amended, and the offer and sale of the
Securities pursuant to the terms of the Agreement are exempt from the
qualification requirements of the California Corporate Securities Law of 1968,
as amended.
The foregoing opinion is subject to such matters as are set forth in the
Agreement and the following assumptions, qualifications, limitations and
exceptions:
(a) We have assumed the genuineness of all signatures, the
authenticity and completeness of all documents submitted to us as
originals, the conformity to original documents of all documents submitted
to us as photostatic or telecopied originals, the legal capacity of all
natural persons, and as to documents executed by entities other than the
Company, that each such entity has complied with any applicable requirement
to file tax returns and pay taxes under California and Delaware franchise
tax laws and had the power to enter into and perform its obligations under
such documents, and that such documents have been duly authorized, executed
and delivered by, and are binding upon and enforceable against such
entities. We have also assumed that the representations and warranties made
by the Company in the Agreement are true and correct as to matters of fact
and that the representations and warranties made by each of you in the
Agreement are true and correct.
(b) This opinion is limited in all respects to matters governed by
the laws of the States of California and Delaware and the federal laws of
the United States, and we express no opinion concerning the laws or
regulations of any other jurisdiction or jurisdictions. We express no
opinion as to federal or state antifraud or antitrust laws or regulations
or, except as expressly provided in paragraph 7 above, to the securities or
blue sky law of any jurisdiction. We express no opinion in clause (i) of
Paragraph 3 as to ordinances and regulations of counties and political
subdivisions thereof.
D-2
(c) We assume that you know of no agreements, understandings or
negotiations between the parties not set forth in the Agreement that would
modify the terms or rights and obligations of the parties thereunder.
(d) Our opinion in paragraph 2 above is subject to and limited by
(i) the effect of applicable bankruptcy, insolvency, reorganization,
receivership, conservatorship, arrangement, moratorium or other laws
affecting or relating to the rights of creditors generally, (ii) the rules
governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, whether
considered in a proceeding in equity or at law, (iii) the effect of
applicable court decisions, invoking statutes or principles of equity,
which have held that certain covenants and provisions of agreements are
unenforceable where the breach of such covenants or provisions imposes
restrictions or burdens upon a party thereto, and it cannot be demonstrated
that the enforcement of such restrictions or burdens is reasonably
necessary for the protection of the other party, or the enforcement of such
covenants or provisions under the circumstances would violate the covenant
of good faith and fair dealing implied under applicable law, and (iv) the
effect of California Civil Code Section 1698 and of statutes and rules of
law that cannot be waived prospectively by an obligor.
(e) Whenever a statement herein is qualified by "to our knowledge,"
"known to us," "we are not aware," or similar phrase, it indicates that in
the course of our representation of the Company no information that would
give us current actual knowledge of the inaccuracy of such statement has
come to the attention of the attorneys in this firm who have rendered legal
services in connection with this transaction. We have not made any
independent investigation to determine the accuracy of such statement,
except as expressly described herein. No inference as to our knowledge of
any matters bearing on the accuracy of such statement should be drawn from
the fact of our representation of the Company in other matters in which
such attorneys are not involved.
This opinion is rendered solely for your use and benefit in connection with
the transaction described above. This opinion may not be used or relied upon by
you for any other purpose, or furnished to, quoted to or relied upon by any
other person or entity for any purpose, without our prior written consent.
Very truly yours,
D-3
EXHIBIT E
SCHEDULE OF EXCEPTIONS
None
E-1
First Amendment to Stock and Warrant Purchase Agreement
INTRODUCTION
This First Amendment to Stock and Warrant Purchase Agreement (this "Amendment")
is entered into effective December 24, 2003, by and between Drexler Technology
Corporation, a Delaware corporation (the "Company"), and those persons who were
parties as "Investors" to that Stock and Warrant Purchase Agreement (the
"Agreement") between the "Company" and such "Investors" made as of December 23,
2003. All capitalized terms not specifically defined in this Amendment are as
defined in the Agreement.
BACKGROUND
A. The Agreement, in Section 1.4, provided for the "Closing" to be not later
than December 24, 2003.
B. While the Company has received signature pages from various Investors who
have severally committed in the aggregate to purchase in excess of $10 million
worth of Shares, it now appears that the Company will not receive funds from all
these Investors on December 24, 2003.
C. The Company and the Investors wish to amend the Agreement to provide for
multiple Closings as and when the Company receives funds, with the first Closing
to occur on December 24, 2003, if the Company receives funds on December 24,
2003, and the last Closing to occur not later than December 29, 2003.
AGREEMENT
Based upon the facts and premises in the above BACKGROUND, the Company and
Investors hereby agree as follows:
1. MULTIPLE CLOSINGS. The first sentence of Section 1.4 to the Agreement is
replaced with the following:
"The purchase and sale of the Shares, Investor Option, and Warrants (the
"Closing") as to each Investor shall occur no later than December 29, 2003, at a
place and time to be specified by the Company and Morgan Keegan & Co., Inc. (the
"Placement Agent") and of which such participating Investor will be notified in
not less than one (1) business day in advance by the Placement Agent. At each
Closing, after receipt of payment therefor, the Company shall arrange delivery
to each participating Investor of a stock certificate representing the number of
Shares purchased by such Investor, and a Warrant, each registered in the name of
the Investor. The parties acknowledge that the schedule of Investors attached
hereto as SCHEDULE A is a preliminary schedule of investors. As soon as
practicable after the last Closing, the Company shall deliver to each Investor a
completed Schedule A, listing by Closing each Investor purchasing Shares at that
Closing, the number of Shares purchased, and the aggregate dollar amount paid
for the Shares.
-1-
2. PUBLIC ANNOUNCEMENT. In Sections 4.1(a), 4.3(g), and 7.14, the word
"initial" is inserted immediately prior to the word "Closing" each time it
occurs and the following sentence is added at the end of Section 7.14: "Prior to
market opening on December 30, 2003, the Company shall publicly announce the
total amount of funding as to which Closings have occurred and prior to the end
of such date, the Company shall file an 8-K with the SEC containing such
announcement."
3. GENERAL. This Amendment, which is governed by California law, constitutes
the entire agreement of the parties concerning its subject matter, superseding
all prior oral and written understandings concerning its subject matter. The
Agreement remains in full force and effect as amended by this Amendment. This
Amendment may be executed in counterpart and by facsimile.
AUTHORIZED SIGNATURES
Drexler Technology Corporation
___________________________________
By___________________________ Printed Name of Investor
Richard M. Haddock, Co-CEO
By_________________________________
Signature
___________________________________
Printed Name and Title of Signatory
Dated Effective: December 24, 2003
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