THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("ACT"), OR APPLICABLE STATE SECURITIES LAWS ("STATE ACTS"), AND SHALL
NOT BE SOLD, HYPOTHECATED, OR OTHERWISE TRANSFERRED, UNLESS SUCH TRANSFER IS
MADE IN COMPLIANCE WITH THE ACT AND THE STATE ACTS.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant"), dated June 27, 2001, is
issued THE FROST NATIONAL BANK, CUSTODIAN FBO, RENAISSANCE US GROWTH & INCOME
TRUST PLC, TRUST NO. W00740100 ("Holder"), by DIGITAL RECORDERS, INC., a North
Carolina corporation (the "Company").
1. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth, the Holder is entitled, upon surrender of this Warrant
at the principal office of the Company (or at such other place as the Company
shall notify the holder hereof in writing), to purchase from the Company one
hundred thousand (100,000) fully paid and non-assessable shares of Common
Stock, no par value (the "Common Stock"), of the Company (as adjusted pursuant
to Section 7 hereof, the "Shares") for the purchase price specified in Section
2 below.
2. PURCHASE PRICE. The purchase price for the Shares is $2.00
per share. Such price shall be subject to adjustment pursuant to Section 7
hereof (such price, as adjusted from time to time, is herein referred to as the
"Warrant Price").
3. EXERCISE PERIOD. This Warrant is exercisable in whole or in
part at any time from the date hereof through June 27, 2006.
4. METHOD OF EXERCISE. While this Warrant remains outstanding
and exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) surrender of this Warrant, together with a duly executed
copy of the form of Exercise Notice attached hereto, to the Secretary of the
Company at its principal offices, and the payment to the Company of an amount
equal to the aggregate purchase price for the number of Shares being purchased;
or
(b) if the Company's Common Stock is publicly traded as of
such date, the instruction to retain that number of Shares having a value equal
to the aggregate exercise price of the Shares as to which this Warrant is being
exercised and to issue to the Holder the remainder of such Shares computed using
the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder.
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Y = the number of shares of Common Stock as to which this
Warrant is being exercised.
A = the fair market value of one share of Common Stock.
B = the Warrant Price.
As used herein, the "fair market value of one share of Common Stock"
shall mean:
(2) Except in the circumstances described in clause (2)
or (3) hereof, the closing price of the Company's Common Stock, as reported in
the WALL STREET JOURNAL, on the trading day immediately prior to the date of
exercise;
(3) If such exercise is in conjunction with a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving entity, the value received by the holders of the Common Stock
pursuant to such transaction for each share; or
(4) If such exercise is in conjunction with the initial
public offering of the Company, the price at which the Common Stock is sold to
the public in such offering.
5. CERTIFICATES FOR SHARES. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Shares so purchased shall be issued as soon as practicable thereafter, and in
any event within thirty (30) days of the delivery of the subscription notice.
6. RESERVATION OF SHARES. The Company covenants that it will at
all times keep available such number of authorized shares of its Common Stock,
free from all preemptive rights with respect thereto, which will be sufficient
to permit the exercise of this Warrant for the full number of Shares specified
herein. The Company further covenants that such Shares, when issued pursuant to
the exercise of this Warrant, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS AND OTHER
ISSUANCES. If the Company shall at any time prior to the expiration of this
Warrant subdivide its Common Stock, by stock split or otherwise, combine its
Common Stock or issue additional shares of its Common Stock as a dividend with
respect to any shares of its Common Stock, the number of Shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend and proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 7(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective or
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as of the record date of such dividend, or, in the event that no record date is
fixed, upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION, MERGER, SALE OR
CONSOLIDATION. In the event of any reclassification, capital reorganization or
other change in the Common Stock of the Company (other than as a result of a
subdivision, combination or stock dividend provided for in Section 7(a) above)
or in the event of a consolidation or merger of the Company with or into, or the
sale of all or substantially all of the properties and assets of the Company, to
any person, and in connection therewith consideration is payable to holders of
Common Stock in cash, securities or other property, then as a condition of such
reclassification, reorganization or change, consolidation, merger or sale,
lawful provision shall be made, and duly executed documents evidencing the same
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant immediately prior to such
event, the kind and amount of cash, securities or other property receivable in
connection with such reclassification, reorganization or change, consolidation,
merger or sale, by a holder of the same number of shares of Common Stock as were
exercisable by the Holder immediately prior to such reclassification,
reorganization or change, consolidation, merger or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interest of
the Holder so that the provisions hereof shall thereafter be applicable with
respect to any cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or consolidates with,
or sells all or substantially all of its property and assets to, any other
person, and consideration is payable to holders of Common Stock in exchange for
their Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (ii) in the event of the dissolution, liquidation or
winding up of the Company, then the Holder shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock as if this Warrant had been exercised immediately prior to such event,
less the Warrant Price. Upon receipt of such payment, if any, the rights of the
Holder shall terminate and cease, and this Warrant shall expire. In case of any
such merger, consolidation or sale of assets, the surviving or acquiring person
and, in the event of any dissolution, liquidation or winding up of the Company,
the Company shall promptly, after receipt of this surrendered Warrant, make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate) to
such person as it may be directed in writing by the Holder surrendering this
Warrant.
(c) CERTAIN DISTRIBUTIONS. In case the Company shall fix a
record date for the making of a dividend or distribution of cash, securities or
property to all holders of Common Stock (excluding any dividends or
distributions referred to in Sections 7(a) or 7(b) above, the number of Shares
purchasable upon an exercise of this Warrant after such record date shall be
adjusted to equal the product obtained by multiplying the number of Shares
purchasable upon an exercise of this Warrant immediately prior to such record
date by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such distribution, and the denominator of which shall be
the Warrant Price immediately prior to such distribution, less the fair market
value per Share, as determined by the Holder, of the cash, securities or
property so distributed. Such adjustment shall be made successively whenever any
such distribution is made and shall become effective on the effective date of
distribution.
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(d) ADJUSTMENT FOR ISSUANCE OF SHARES AT LESS THAN THE WARRANT
PRICE. If and whenever any Additional Common Stock shall be issued by Borrower
(the "Stock Issue Date") for a consideration per share less than the Warrant
Price, then in each such case the initial Warrant Price shall be reduced to a
new Warrant Price in an amount equal to the price per share for the Additional
Common Stock then issued, if issued in connection with a sale of shares, or the
value of the Additional Common Stock then issued, as determined in accordance
with generally accepted accounting principles, if issued other than for cash,
and the number of shares issuable to Holder upon conversion shall be
proportionately increased; and, in the case of Additional Common Stock issued
without consideration, the initial Warrant Price shall be reduced in amount and
the number of shares issued upon conversion shall be increased in an amount so
as to maintain for the Holder the right to convert the Debentures into shares
equal in amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock Issue Date.
(e) SALE OF SHARES. In case of the issuance of Additional
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the gross amount of the
cash paid to Borrower for such shares, before deducting any underwriting
compensation or discount in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith. In case of the issuance of any shares
of Additional Common Stock for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor, other than cash,
shall be deemed to be the then fair market value of the property received. The
term "Additional Common Stock" herein shall mean all shares of Common Stock
hereafter issued by Borrower (including Common Stock held in the treasury of
Borrower), except (A) Common Stock issued upon the conversion of any of the
Debentures; (B) Common Stock issuable upon exercise of presently outstanding
amounts or stock options; or (C) up to 300,000 shares of Common Stock issuable
upon exercise of employee or director stock options to be granted in the future
at less than the initial Warrant Price.
8. PRE-EXERCISE RIGHTS. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a shareholder with respect to the
Shares, including without limitation, the right to vote such Shares, receive
preemptive rights or be notified of shareholder meetings, and the Holder shall
not be entitled to any notice or other communication concerning the business or
affairs of the Company.
9. REGISTRATION RIGHTS. The Shares of Common Stock issuable
shall be subject to the registration rights set forth in the Convertible Loan
Agreement of even date herewith by and among the Holder and the Company, and
the Holder shall be entitled to all rights and benefits thereof.
10. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Warrant shall inure to the benefit of, and be binding upon, the Company and the
Holder and their respective successors and assigns.
[SIGNATURE PAGE FOLLOWS.]
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11. GOVERNING LAW. This Warrant shall be governed by the laws of
the State of Texas, excluding the conflicts of laws provisions thereof.
DIGITAL RECORDERS, INC.
By:
--------------------------------------
Xxxxx X. Xxxxxx
Chairman, Chief Executive Officer and
President
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EXERCISE NOTICE
Dated _________, ____
The undersigned hereby irrevocably elects to exercise the Stock
Purchase Warrant, dated June 27, 2001, issued by DIGITAL RECORDERS, INC., a
North Carolina corporation (the "Company") to the undersigned to the extent of
purchasing ___________ shares of Common Stock and hereby makes payment of
$_________ in payment of the aggregate Warrant Price of such Shares.
RENAISSANCE US GROWTH & INCOME TRUST PLC
By:
----------------------------------
Xxxxxxx Xxxxxxxxx, Director
