XXXXXXXX & XXXXXXXX, LLC WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of September 21, 2000, by and between
XXXXXXXX & XXXXXXXX, LLC, a New York Limited Liability Company (the
"Warrantee"), on the one hand, and DIGITAL RECORDERS, INC., a North Carolina
corporation ("DRI") on the other.
WHEREAS, the Warrantee and DRI have agreed to a service relationship
between themselves as more fully set forth in an Investment Banking Agreement
(the "Agreement") dated September, 2000 and attached hereto as Exhibit "A"
pursuant to which, among other things, the Warrantee is to receive the right
(the "Warrant") to purchase up to 150,000 shares of Common Stock, par value
$.10 per share (the "Warrant Shares") of DRI pursuant to the terms of this
warrant agreement; and
WHEREAS, this warrant agreement (the "Warrant Agreement") constitutes
the warrant agreement described in the Agreement;
NOW, THEREFORE, in consideration of the agreements set forth below, the
parties hereto agree as follows:
1. The Warrant. Subject to the terms and conditions hereof, the
Warrantee is hereby granted the Warrant, at any time or from time to time
commencing on the date of this Warrant Agreement and at or before 5:00 P.M.,
Eastern Time, on September 21, 2005 (such five-year period hereinafter the
"Warrant Exercise Period"), but not thereafter, to subscribe for and purchase
any or all of the Warrant Shares for a price of $3.75 per Warrant Share
purchased (the "Warrant Exercise Price"). If the rights represented hereby
shall not be exercised during the Warrant Exercise Period, this Warrant shall
become and be void without further force or effect, and all rights represented
hereby shall cease and expire.
2. EXERCISE OF WARRANT. During the Warrant Exercise Period, the
Warrantee may exercise this Warrant upon presentation and surrender of this
warrant and upon payment of the Warrant Exercise Price for the Warrant Shares
to be purchased or by notice of non-cash exercise as provided in Section 15
herein below to DRT at the principal office of DRI. Upon exercise of this
Warrant, the form of election hereinafter provided must be duly executed and
delivered to DRI. If this Warrant is exercised in part, the Warrantee shall be
required to exercise this Warrant with respect to a minimum of 25,000 shares
of Common Stock upon each such exercise in part. In the event of the exercise
of this Warrant in part only, DRI shall cause to be delivered to the Warrantee
a new Warrant of like tenor to this Warrant in the name of the Warrantee
evidencing the right of the Warrantee to purchase the number of Warrant Shares
purchasable hereunder as to which this Warrant has not been exercised. on
exercise of this Warrant, unless (i) DRI receives an opinion from counsel
satisfactory to it that such a legend is not required in order to assure
compliance with the Securities Act of 1933, as amended (the "1933 Act"), or
any applicable state securities laws, or (ii) the Warrant Shares are
registered under the 1933 Act, each certificate for Warrant Shares issued
hereunder shall bear a legend reading substantially as follows:
1
These securities have not been registered under the Securities Act of
1933, as amended, and may be offered and sold only if registered pursuant to
the provisions of that Act or if, in the opinion of counsel to the Warrantee,
an exemption from registration thereunder is available, the availability of
which must be established to the satisfaction of DRI.
The foregoing legend may be removed with respect to any Warrant Shares
sold upon registration or sold pursuant to an exemption from registration,
including the exemption for sales made in accordance with Rule 144 promulgated
under the 1933 Act; PROVIDED DRI receives an opinion from counsel satisfactory
to it that such legend may be removed; and PROVIDED FURTHER that such legend
shall be removed from the certificates as part of the right to piggyback to
any other registration statement DRI files during the term of this Agreement.
3. Assignment.
Subject to the terms contained herein, this Warrant may be assigned by
the Warrantee in whole or in part by execution by the Warrantee of the form of
assignment attached hereto, in the sole discretion of the Warrantee, to a
"Permitted Assignee" as defined below, or with the prior written consent of
DRI, to any other party. In the event of any permitted assignment, DRI, upon
request and upon surrender of this Warrant by the Warrantee at the principal
office of DRI accompanied by payment of all transfer taxes, if any, payable in
connection therewith, shall transfer this Warrant on the books of DRI. If the
permitted assignment is in whole, DRI shall execute and deliver a new Warrant
or Warrants of like tenor to this Warrant to the appropriate assignee
expressly evidencing the right to purchase the aggregate number of Warrant
Shares purchasable hereunder; and if the permitted assignment is in part, DRI
shall execute and deliver to the appropriate assignee a new Warrant or
Warrants of like tenor expressly evidencing the right to purchase the portion
of the aggregate number of Warrant Shares as shall be contemplated by any such
permitted assignment, and shall concurrently execute and deliver to the
Warrantee a new Warrant of like tenor to this Warrant evidencing the right to
purchase the remaining portion of the Warrant Shares purchasable hereunder
which have not been transferred to the Permitted Assignee. For purposes of
this Agreement, a "Permitted Assignee" shall mean (a) if the Warrantee or
successor holder (collectively, a "Holder") is an individual, any (i)
descendant or ancestor of the Holder, (ii) trust for the benefit of the
Holder, descendant or ancestor, (iii) beneficiary of any such trust or any
descendant or ancestor of any such beneficiary, (iv) trust or entity in which
the Holder or beneficiary or any descendant or ancestor of the Holder or
beneficiary, trust or other entity shall have any interest, (v) any of the
foregoing, or any entity in which any of the foregoing, or any trust for any
foregoing Holder or beneficiary, holds, directly or indirectly, or in trust,
at least fifty percent (50%) of the aggregate voting power and (vi) any
immediate relative or spouse of any such foregoing person (including the
Holder) or persons; and (b) if the Holder is an entity, any (i) subsidiary or
affiliate of the Holder, (ii) corporation, partnership, limited liability
company or other entity that may be organized by the Holder, or by its owners,
as a separate business unit in connection with the business activity of the
Holder or of its owners and (iii) corporation, partnership or other entity
resulting from the reorganization, merger
2
or consolidation of the Holder with any other corporation, partnership or
other entity or to which all or substantially all of the Holder's business or
assets may be sold, assigned or transferred.
4. NOTICE. The Warrantee, by acceptance hereof, agrees that, before any
transfer is made of all or any portion of this Warrant, the Warrantee shall
give written notice to DRI at least fifteen (15) days prior to the date of
such proposed transfer, which notice shall specify the identity, address and
affiliation, if any, of such transferee. No such transfer shall be made unless
and until DRI has received an opinion of counsel for DRI or for the Warrantee
stating that no registration under the 1933 Act or any state securities law is
required with respect to such disposition or a registration statement has been
filed by DRI and declared effective by the Securities and Exchange Commission
covering such proposed transfer and the Warrant has been registered under
appropriate state securities laws.
5. SHARE DIVIDENDS, RECLASSIFICATION, REORGANIZATION PROVISIONS.
(a) If, prior to the expiration of this Warrant by exercise or by its
terms, DRI shall issue any of its Common Stock as a share dividend or
subdivide the number of outstanding shares of Common Stock into a greater
number of shares then, in either of such cases, the Warrant Exercise Price per
share purchasable pursuant to this Warrant in effect at the time of such
action shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant shall be proportionately increased; and
conversely, if DRI shall reduce the number of outstanding shares of Common
Stock by combining such shares into a smaller number of shares then, in such
case, the Warrant Exercise Price per share purchasable pursuant to this
Warrant in effect at the time of such action shall be proportionately
increased and the number of Warrant Shares at that time purchasable pursuant
to this Warrant shall be proportionately decreased. If DRI shall, at any time
during the life of this Warrant, declare a dividend payable in cash on its
Common Stock and shall at substantially the same time offer to its
shareholders a right to purchase new Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all Common
Stock so issued shall, for the purpose of this Warrant, be deemed to have been
issued as a share dividend. Any dividend paid or distributed upon Common Stock
in shares of any other class of securities convertible into Common Stock shall
be treated as a dividend paid in Common Stock to the extent that Common Stock
is issuable upon the conversion thereof.
(b) If, prior to the expiration of this Warrant by exercise or by its
terms, DRI shall be recapitalized by reclassifying its outstanding Common
Stock, or DRI or a successor corporation shall consolidate or merge with or
convey all or substantially all of its or any successor corporation's property
and assets to any other corporation or corporations (any such corporation
being included within the meaning of the term "successor corporation" used
above in the event of any consolidation or merger of any such corporation
with, or the sale of all or substantially all of the property of any such
corporation, to another corporation or corporations), the Warrantee shall
thereafter have the right to purchase, upon the basis and upon the terms and
conditions and during the time specified in this Warrant,
3
3
in lieu of the Warrant Shares theretofore purchasable upon the exercise of
this Warrant, such shares, securities or assets as may be issued or payable
with respect to, or in exchange for, the number of Warrant Shares theretofore
purchasable upon the exercise of this Warrant had such recapitalization,
consolidation, merger or conveyance not taken place and, in any such event,
the rights of the Warrantee to an adjustment in the number of Warrant Shares
purchasable upon the exercise upon this Warrant as herein provided shall
continue and be preserved in respect of any shares, securities or assets which
the Warrantee becomes entitled to purchase.
(c) If: (i) DRI shall take a record of holders of its Common Stock for
the purpose of entitling them to receive a dividend payable otherwise than in
cash, or any other distribution in respect of the Common Stock (including
cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of DRI's assets; or (ii) DRI shall take a record of the holders
of its Common Stock for the purpose of entitling them to subscribe for or
purchase any shares of any class or to receive any other rights; or (iii) in
the event of any classification, reclassification or other reorganization of
the securities which DRI is authorized to issue, consolidation or merger by
DRI with or into another corporation, or conveyance of all or substantially
all of the assets of DRI; or (iv) in the event of any voluntary or involuntary
dissolution, liquidation or winding up of DRI; then, and in any such case, DRI
shall mail to the Warrantee, at least 15 days prior thereto, a notice stating
the date or expected date on which a record is to be taken for the purpose of
such dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up, as the case may be, will
be effected. Such notice shall also specify the date or expected date, if any
is to be fixed, as to which holders of Common Stock of record shall be
entitled to participate in such dividend, distribution or rights, or shall be
entitled to exchange their Common Stock or securities or other property
deliverable upon such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up, as
the case may be.
(d) If DRT, at any time while this Warrant shall remain unexpired and
unexercised in whole or in part, shall sell all or substantially all of its
property, dissolve, liquidate or wind up its affairs, the Warrantee may
thereafter receive upon exercise hereof, in lieu of each Warrant Share which
it would have been entitled to receive, the same kind and amount of any
securities or assets as may be issuable, distributable or payable upon any
such sale, dissolution, liquidation or winding up with respect to each share
of Common Stock of DRI purchased upon exercise of this Warrant.
6. RESERVATION OF SHARES ISSUABLE ON EXERCISE OF WARRANT. At all times
during the Warrant Exercise Period, DRI will reserve and keep available out of
its authorized Common Stock, solely for issuance upon the exercise of this
Warrant, such number of shares of Common Stock and other securities as from
time to time may be issuable upon exercise of this Warrant. All Shares that
may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be validly issued, fully paid, non-assessable, and free
from all taxes,
4
liens and charges with respect to the issue thereof, issued in compliance with
all applicable federal and state securities laws.
7. REQUEST TO TRANSFER AGENT. On exercise of all or any portion of this
Warrant, DRI shall, within ten days of the receipt of good and clean funds (or
receipt of notice of Warrantee's election pursuant to Section 15 below) for
the purchase of any or all of the Warrant Shares, advise its Transfer Agent
and Registrar of the required issuance of the number of Warrant Shares and the
names in which such Warrant Shares are to be registered pursuant to the
exercise form attached hereto. DRI shall also execute and deliver any and all
such further documents as may be requested by the Transfer Agent and Registrar
for the purpose of effecting the issuance of Warrant Shares upon payment
therefor by the Warrantee or any assignee.
8. LOSS THEFT DESTRUCTION OR MUTILATION. Upon receipt by DRI of
evidence satisfactory to it (in the exercise of its reasonable discretion) of
the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and the purchase by the Warrantee of a lost security bond (or, if
acceptable to DRI, the provision of a satisfactory indemnity from the
Warrantee) in an amount equal to or exceeding the total value of the Warrant
Shares to be purchased hereunder, DRI will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
9. WARRANTEE NOT A SHAREHOLDER. The Warrantee or any other holder of
this Warrant shall, as such, not be entitled by reason of ownership of this
Warrant to any rights whatsoever of a shareholder of DRI until this Warrant
shall have been exercised and the Warrant Shares purchasable upon the exercise
shall have become deliverable, as provided herein.
10. TRANSFER TAXES. DRI will pay all stamp taxes and other duties, if
any, to which, under the laws of the United States of America or any State or
political subdivision thereof, this Agreement or the original issuance of this
Warrant may be subject. The issuance of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to Warrantee
for any issuance tax in respect hereof, provided that DRI shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the holder of this Warrant. The Warrantee or its assignee(s) will pay
all taxes in respect of the transfer of this Warrant or the Warrant Shares
issuable upon exercise hereof.
11. MAILING OF NOTICE. All notices and other communications from DRI
to the Warrantee or from the Warrantee to DRI shall be mailed by first class,
certified mail, postage prepaid, or sent by receipt confirmed facsimile
transmission, to the address furnished to each party in writing by the other
party.
12. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. With respect
to any fraction of a share called for upon the exercise hereof, DRI shall
issue to the Warrantee at no extra cost another whole share for any fraction
which is one-half or greater, and
5
the Warrantee shall forfeit the fractional share that is less than one-half
of a share.
13. COMMON STOCK DEFINED. Whenever reference is made in this Warrant to
the issue or sale of Common Stock, the term "Common Stock" shall mean the
voting Common Stock of DRI of the class authorized as of the date hereof and
any other class of stock ranking on a parity with such Common Stock.
14. REDUCTION IN NUMBER OF WARRANTS. Should Warrantee terminate its
investment banking relationship as described in the Agreement on or before
October 1, 2001, then the warrant right herein shall be reduced to 75,000
shares.
15. NON-CASH EXERCISE. The rights represented by this Warrant may be
exercised by a written notice of exercise in the form attached hereto
specifying that the holder of this Warrant wishes to convert all or any
portion of this Warrant (the "CONVERSION RIGHT") into a number of Shares equal
to the quotient obtained by dividing (x) the current market value of the
Warrant Shares subject to the portion of this Warrant being exercised
(determined by subtracting the aggregate Warrant Exercise Price for all such
Warrant Shares in effect immediately prior to the exercise of the Conversion
Right from the aggregate current or closing market price of such Shares
issuable upon exercise of such portion of this Warrant immediately prior to
the exercise of the Conversion Right) by (y) the current or closing market
price (as defined below) of one share of Common Stock immediately prior to the
exercise of the Conversion Right. For the purpose of any computation under
this Section 15(b), the current or closing market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing
prices for five (5) consecutive trading days commencing ten (10) trading days
before the date of such computation. The closing price for each day shall be
the last sale price for such day, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the NASDAQ National Market (or if the Common Stock is
not listed on the NASDAQ, then on the principal United States national
securities exchange on which the Common Stock is listed or quoted. If the
Common Stock is not listed or quoted on any United States national securities
exchange, then the current or closing market price per share of Common Stock
shall be determined by the Board of Directors of DRT in good faith.
16. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of North Carolina.
17. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved
by agreement of the parties, be settled by binding arbitration in Raleigh,
Wake County, North Carolina, in accordance with the Rules of the American
Arbitration Association then existing. This Agreement to arbitrate shall be
specifically enforceable under the prevailing arbitration law of the State of
North Carolina. The award rendered by the arbitrators shall be final and
judgment may be entered upon the award in any court of the State of North
Carolina having jurisdiction of the matter.
6
18. BINDING EFFECT. All of the obligations of DRI relating to the
Common Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant and all of the covenants and
agreements of DRI shall inure to the benefit of the successors and assigns of
the Holder.
IN WITNESS WHEREOF, the parties have executed this Warrant Agreement on
the day and year first above written.
DRI:
DIGITAL RECORDERS, INC.
By
Print Name
Title
WARRANTEE:
XXXXXXXX & XXXXXXXX, LLC
By
Print Name
Title
7
FORM TO BE USED TO EXERCISE Warrant:
EXERCISE FORM
The undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase (up to a maximum 150,000) shares of Common
Stock of Digital Recorders, Inc., called for
hereby, and hereby
[makes payment of $ (at the rate of $3.75 per share) in
payment of the Warrant Exercise Price pursuant hereto in cash or elects to
purchase shares of Common Stock of Digital Recorders, Inc. pursuant to
non-cash conversion of the Warrant as provided in Section 15 of the Warrant.
Please issue the shares as to which this Warrant is exercised in accordance
with the instructions given below.
______________________________________________
Signature
Signature Guaranteed
Date:________________ ____________________________________________
INSTRUCTIONS FOR REGISTRATION OF SHARES:
Register Shares in name of:____________________________________________
(Print)
Address:_____________________________________________________________
FORM TO BE USED TO ASSIGN Warrant:
ASSIGNMENT
For value received does hereby sell, assign and transfer unto
the right to purchase shares of Common Stock of Digital Recorders, Inc.,
evidenced by the within Warrant, and does hereby irrevocably constitute and
appoint Digital Recorders, Inc. and/or its Transfer Agent as attorney to
transfer the same on the books of Digital Recorders, Inc. with full power of
substitution in the premises.
Signature
Signature Guaranteed
Date:
NOTICE: The signature to the form to exercise or form to assign must
correspond with the name as written upon the face of the within Warrant in
every particular without alteration or enlargement or any change whatsoever,
and must be guaranteed by a bank, other than a savings bank, or by a trust
company or by a firm having membership on a registered national securities
exchange.
