REGISTRATION RIGHTS AGREEMENT
EXHIBIT
10.3
Registration Rights Agreement (this “Agreement”) executed as of this 21st day of
March, 2006, by and between DIGITAL RECORDERS, INC., a North Carolina corporation (the
“Company”), and TRANSIT VEHICLE TECHNOLOGY INVESTMENTS, INC. (the “Holder”).
WHEREAS, it is contemplated under that certain Share Purchase Agreement by and between the
Company and the Holder dated as of March 21, 2006 (as such may be amended from time to time, the
“Share Purchase Agreement”) and that certain Stock Purchase Warrant dated as of March 21,
2006, by the Company in favor of the Holder (the “Warrant Agreement”), that the Company
provide the Holder with certain registration rights.
NOW THEREFORE, in consideration of the mutual covenants and agreements and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
ARTICLE I
REQUIRED REGISTRATION
REQUIRED REGISTRATION
1.1 Demand Registration.
(a) At any time on or after July 19, 2006, the Holder may make a written request to the
Company (specifying that it is being made pursuant to this Section 1.1) that the Company
file a Registration Statement Form XX-0, X-0 or S-3 under the Securities Act (or a similar
document pursuant to any other statute then in effect corresponding to the Securities Act)
covering the registration of Registrable Securities. In such event, the Company shall use
its best efforts to cause to be registered under the Securities Act all Registrable
Securities that the Holder has requested be registered.
(b) Underwritten Offering. If the Holder intends to distribute the Registrable
Securities covered by its request by means of an underwritten offering, it shall so advise
the Company as a part of its request pursuant to Section 1.1(a) above. In such event, the
Holder’s right to include its Registrable Securities in such registration shall be
conditioned upon such Holder’s participation in such underwritten offering and the inclusion
of such Holder’s Registrable Securities in the underwritten offering to the extent provided
in this Section 1.1. The Holder shall enter into an underwriting agreement in customary
form with the underwriter or underwriters and execute and deliver powers of attorney,
custody agreements or other underwriting documents in customary form. Such underwriter or
underwriters shall be selected by the Holder subject to the approval of the Company, in its
reasonable discretion; provided, that all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of the Holder and that any or all of
the conditions precedent to the obligations of such underwriters under such underwriting
agreement shall be conditions precedent to the obligations of the Holder; and
provided further, that the Holder shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding the Holder,
the Registrable Securities and the Holder’s intended method of distribution and any other
representation required by law or reasonably required by the underwriter.
(c) Underwriter Limitation. Notwithstanding any other provision of this
Section 1.1 to the contrary, if the managing underwriter of an underwritten offering of the
Registrable Securities requested to be registered pursuant to this Section 1.1 advises the
Holder in writing that in its opinion marketing factors require a limitation of the number
of shares to be underwritten, the number of shares of Registrable Securities that may be
included in such underwritten offering shall be reduced to the amount of Registrable
Securities that the managing underwriter has determined in its opinion can be underwritten.
If the Holder disapproves of the terms of the underwriting, the Holder may elect to withdraw
by written notice to the Company and the managing underwriter. The securities so withdrawn
shall also be withdrawn from registration but continue to constitute Registrable Securities.
(d) Single Registration. The Company shall be obligated to effect and pay for
a total of one (1) registration pursuant to this Section 1.1 in accordance with Section 1.5
below. Notwithstanding the foregoing or anything in this Agreement to the contrary, to the
extent that the number of Registrable Securities included in a registration pursuant to this
Section 1.1 has been reduced in accordance with Section 1.1(c), the Company shall be
obligated to effect and pay for a second registration pursuant to this Section 1.1 in order
to register the remaining Registrable Securities; provided, further, that if
the Holder shall withdraw its Registrable Securities from a registration in accordance with
Section 1.1(c), the Holder’s rights to demand a registration pursuant to this Section 1.1
shall be revived, as if no registration pursuant to this Section 1.1 had taken place.
1.2 Piggyback Registration. If at any time the Company shall propose to register any
Common Stock, whether or not for sale for its own account or pursuant to the registration rights
given to Laurus Master Fund, Ltd., under the 1933 Act, by future registrations on Form XX-0, X-0 or
S-3 for future financings (but not Form S-4 or S-8) or any successor or similar forms (except for
any registrations in connection with an employee benefit plan or dividend reinvestment plan or a
merger, consolidation or other business combination) it shall give written notice to the Holder of
its intention to do so and of the Holder’s rights under this Section 1.2 at least 30 days prior to
the filing of a Registration Statement with respect to such registration with the Commission. Upon
the written request of the Holder made within 20 days after the receipt of that notice, which
request shall specify the Registrable Securities intended to be registered and disposed of by such
Holder, the Company shall, subject to the provisions hereof, use its best efforts to include in
such Registration Statement all Registrable Securities that the Company has been so requested to
register by Holder. If Holder decides not to include all of its Registrable Securities in any
Registration Statement thereafter filed by the Company, such Investor shall nevertheless continue
to have the right pursuant to this Section 1.2 to include any Registrable Securities in any
subsequent Registration Statement or Registration Statements as may be filed by the Company with
respect to offerings of its securities, upon all the terms and conditions set forth herein. If, at
any time after giving written notice of its intention to register any securities and prior to the
effective date of the Registration Statement filed in connection with a registration under this
Section 1.2, the Company shall determine in its good faith reasonable
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discretion not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each Holder and upon giving that notice
(i) in the case of a determination not to register, the Company shall be relieved of its obligation
to register any Registrable Securities in connection with such registration without prejudice and
(ii) in the case of a determination to delay registering, the Company shall be permitted to delay
registering any Registrable Securities for the same period as the delay in registering such other
securities.
1.3 Restriction on Short-Form Registration. Notwithstanding the foregoing, the
Company shall not be required to effect a registration pursuant to the foregoing provisions of
Section 1.1 or 1.2 if it is determined that such registration would not be permitted under
applicable securities laws or the rules and regulations of the Commission; provided, that
if the Company shall not be permitted to effectuate the Registration Statement in the manner
specified in Sections 1.1 and 1.2, the Company shall use its best efforts (i) to register the
Registrable Securities requested to be registered by the Holder on such form and in such manner as
is permitted under applicable securities laws or the rules and regulations of the Commission or
(ii) to take all commercially reasonable actions necessary to permit the Registrable Securities to
be registered in accordance with Sections 1.1 and 1.2.
1.4 Expenses. The Company will pay all Registration Expenses in connection with the
registrations required by Sections 1.1 and 1.2, including any Registration Statement that is not
deemed to be effected pursuant to the provisions of Section 1.5 hereof.
1.5 Effective Registration Statement. A registration pursuant to Section 1.1 or 1.2
of this Agreement shall not be deemed to have been effected (i) unless a Registration Statement
with respect thereto has been declared effective by the Commission, (ii) if after it has become
effective, such registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any reason or (iii) the
Registration Statement does not remain continuously effective until termination of the Company’s
registration obligations pursuant to Section 5.2 hereof. If a registration pursuant to this
Article I is deemed not to have been effected as provided in this Section 1.5, then the Company
shall continue to be obligated to effect the registration required by Section 1.1 or 1.2.
1.6 Obligations of the Holder.
(a) In connection with any registration of Registrable Securities pursuant to Section
1.1, the Holder shall furnish to the Company in a timely manner all information regarding
itself and the distribution of such Registrable Securities as may be required to be included
in the Registration Statement and as the Company may from time to time reasonably request in
order to effect the registration of such Registrable Securities, and shall otherwise
cooperate with the Company to the extent reasonably necessary to effect such registration.
(b) The Holder agrees, that upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (f) of Article II hereof, the
Holder will forthwith discontinue disposition of Registrable Securities covered by any
Registration Statement or Prospectus until the Holder’s receipt of the copies of the
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supplemented or amended Prospectus contemplated by such paragraph (f), or until it is
advised in writing by the Company that the use of the applicable Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are incorporated by
reference in such Prospectus, and, if so directed by the Company, the Holder will deliver to
the Company (at the Company’s expense) all copies, other than permanent file copies then in
the Holder’s possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice.
(c) If any Registrable Securities are to be sold in an underwritten offering, the
Holder shall complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements (including customary indemnities by the selling stockholders) and
other documents reasonably and customarily required under the terms of such underwriting
arrangements.
ARTICLE II
REGISTRATION PROCEDURES
REGISTRATION PROCEDURES
Whenever any Registrable Securities are to be registered pursuant to this Agreement, the
Company will use best efforts to effect the registration of such Registrable Securities for sale in
accordance with the intended method or methods of disposition thereof as quickly as possible, and
pursuant thereto the Company will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a Registration Statement with respect to such
Registrable Securities and use its best efforts to cause such Registration Statement to
become and remain effective for the period contemplated such Registration Statement;
provided, that as promptly as practicable before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company will (i) furnish to counsel
selected by the Holder copies of all such documents proposed to be filed at least ten (10)
Business Days prior to the anticipated date that such documents are to be filed with the
Commission or other federal, state or foreign regulatory authority, and (ii) notify the
Holder of (x) any request by the Commission to amend such Registration Statement or amend or
supplement any Prospectus, or (y) any stop order issued or threatened by the Commission, and
take all reasonable actions required to prevent the entry of such stop order or to promptly
remove it if entered;
(b) (i) prepare and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be necessary
to keep such Registration Statement effective for the period contemplated by such
Registration Statement, and (ii) comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the Holder set forth
in such Registration Statement;
(c) furnish to the Holder, without charge, such number of conformed copies of such
Registration Statement, each amendment and supplement thereto, the Prospectus included in
such Registration Statement (including each preliminary Prospectus and, in
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each case, including all exhibits) and such other documents as the Holder may
reasonably request in order to facilitate the disposition of the Registrable Securities
owned by it;
(d) use its best efforts to register or qualify such Registrable Securities under such
other securities or blue sky laws of such jurisdictions in the United States as the Holder
shall reasonably request, to keep such registration or qualification in effect for so long
as such Registration Statement remains in effect and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by it; provided,
however, that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for this clause
(d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
(e) use its best efforts (if the offering is underwritten) to furnish to the Holder a
signed copy, addressed to the Holder (and the underwriters, if any) of an opinion of counsel
for the Company or special counsel to the selling stockholder, dated the effective date of
such Registration Statement (and, if such Registration Statement includes an underwritten
public offering, dated the date of the closing under the underwriting agreement), covering
substantially the same matters with respect to such Registration Statement (and the
Prospectus included therein) as are customarily covered in opinions of issuer’s counsel
delivered to the underwriters in underwritten public offerings, and such other legal matters
as the Holder (or the underwriters, if any) may reasonably request;
(f) notify the Holder, at a time when a Prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event known to the Company as a
result of which the Prospectus included in such Registration Statement, as then in effect,
contains an untrue statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and, at the request of the Holder, the Company
will prepare and furnish to the Holder a reasonable number of copies of a supplement to or
an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the circumstances
under which they were made;
(g) cause all such Registrable Securities to be listed on each securities exchange and
quotation system on which similar securities issued by the Company are then listed and to
enter into such customary agreements as may be required in furtherance thereof, including,
without limitation, listing applications and indemnification agreements in customary form;
(h) provide a transfer agent and registrar for all such Registrable Securities not
later than the effective date of such Registration Statement;
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(i) make available for inspection by the Holder, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney, accountant or other
agent retained by the Holder or any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the Company’s
officers, directors, employees and independent accountants to supply all information
reasonably requested by the Holder, any such underwriter, attorney, accountant or agent in
connection with such Registration Statement to enable them to conduct a reasonable
investigation within the meaning of the Securities Act;
(j) subject to other provisions hereof, use its best efforts to cause such Registrable
Securities covered by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities or self-regulatory organizations as may be
necessary to enable the sellers thereof to consummate the disposition of such Registrable
Securities; and
(k) notify the Holder of the issuance of any stop order by the Commission or the
issuance by any state securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of any of the Registrable
Securities under state securities or “blue sky” laws, and use every reasonable effort to
obtain the lifting at the earliest possible time of any stop order suspending the
effectiveness of any Registration Statement or of any order preventing or suspending the use
of any preliminary Prospectus.
ARTICLE III
REGISTRATION EXPENSES
REGISTRATION EXPENSES
3.1 Registration Expenses. All Registration Expenses will be borne as provided in
Section 1.4 of this Agreement.
3.2 Holder’s Expenses. The Company shall have no obligation to pay any underwriting
discounts or commissions or stock transfer taxes attributable to the sale of Registrable
Securities, which expenses will be borne by all sellers of securities included in such registration
in proportion to the aggregate selling price of the securities to be so registered.
ARTICLE IV
INDEMNIFICATION
INDEMNIFICATION
4.1 Company’s Indemnification Obligations. The Company agrees to indemnify and hold
harmless the Holder and each other Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Holder
Indemnitees”):
(a) against any and all loss, liability, claim, damage or expense arising out of or
based upon an untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or in any preliminary Prospectus, summary Prospectus or
final Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
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to make the statements therein, in light of the circumstances under which they were
made, not misleading;
(b) against any and all loss, liability, claim, damage and expense to the extent of the
aggregate amount paid in settlement of any litigation, investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim based upon any such
untrue statement or omission or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Company; and
(c) against any and all reasonable expense incurred by them in connection with
investigating, preparing or defending against any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim based upon any
such untrue statement or omission or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under clause (a) or (b) above;
provided, that this indemnity does not apply to any loss, liability, claim, damage or
expense to the extent arising out of an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Holder expressly for use in the preparation of any Registration
Statement (or any amendment or supplement thereto), including all documents incorporated therein by
reference, or in any preliminary Prospectus, summary Prospectus or final Prospectus (or any
amendment or supplement thereto); and provided further, that the Company will not
be liable to the Holder or any other Holder Indemnitee under the indemnity agreement in this
Section 4.1, with respect to any preliminary Prospectus or the final Prospectus or the final
Prospectus as amended or supplemented, as the case may be, to the extent that any such loss,
liability, claim, damage or expense of such Holder Indemnitee results from the fact that the Holder
sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final Prospectus or of the final Prospectus as
then amended or supplemented, whichever is most recent, if the Company has previously and timely
furnished copies thereof to the Holder.
4.2 Holder’s Indemnification Obligations. In connection with any Registration
Statement in which the Holder is participating pursuant to this Agreement, the Holder agrees to
indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 4.1
of this Agreement) the Company and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act with respect to any statement
or alleged statement in or omission or alleged omission from such Registration Statement, any
preliminary Prospectus, summary Prospectus or final Prospectus contained therein, or any amendment
or supplement thereto, if such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to the Company by or on
behalf of the Holder expressly for use in the preparation of any Registration Statement (or any
amendment or supplement thereto), including all documents incorporated therein by reference, or in
any preliminary Prospectus, summary Prospectus or final Prospectus (or any amendment or supplement
thereto). The obligations of each Holder pursuant to this Section 4.2 (if there are more than one)
are to be several and not joint (however, husband and wife are to be treated as one Holder);
provided, that with respect to each claim pursuant to this Section 4.2, each such Holder’s
maximum liability under this Section
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shall be limited to an amount equal to the net proceeds actually received by such Holder
(after deducting any underwriting discount and expenses) from the sale of Registrable Securities
being sold pursuant to such Registration Statement or Prospectus by such Holder.
4.3 Notices; Defense; Settlement. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding involving a claim
referred to in Section 4.1 or Section 4.2 of this Agreement, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying party of its obligations
under Section 4.1 or Section 4.2 of this Agreement except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified, to the extent that
it may wish, and after notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof with counsel mutually satisfactory to the indemnifying party and
the indemnified party (at the expense of the indemnifying party), the indemnifying party will not
be liable to such indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified party’s reasonable
judgment, upon the advice of counsel, a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, in which case the indemnifying party shall
not be liable for the fees and expenses of (i) more than one counsel for all holders of Registrable
Securities, selected by the Holder or (ii) more than one counsel for the Company in connection with
any one action or separate but similar or related actions. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees
and expenses of more than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified party, based on advice
of counsel, a conflict of interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels. The indemnifying
party will not, without the prior written consent of each indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any Person who controls such indemnified party is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of such indemnified party satisfactory to such indemnified party in its
reasonable discretion from all liability arising out of such claim, action, suit or proceeding.
Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights
set forth above, in any event, any party will have the right to retain, at its own expense, counsel
with respect to the defense of a claim.
4.4 Indemnity Provision. The Company and the Holder shall provide for the foregoing
indemnity (with appropriate modifications) in any underwriting agreement with respect to any
required registration or other qualification of securities under any Federal or state law or
regulation of any governmental authority other than the Securities Act.
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4.5 Contribution Based on Relative Fault. In order to provide for just and equitable
contribution if a claim for indemnification pursuant to the indemnification provisions of this
Article IV is made but it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in such case, and the
express provisions hereof provide for indemnification in such case, then the indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 4.1 or Section 4.2 of this Agreement in such
proportion as is appropriate to reflect the relative fault of the indemnifying party on the one
hand, and the indemnified party on the other, in connection with statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations, including, without limitation, the relative benefits received by each
parties from the offering of the securities covered by such Registration Statement, the parties’
relative knowledge and access to information concerning the matter with respect to which the claim
was asserted and the opportunity to correct and prevent any statement or omission. The relative
fault shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party or the indemnified party and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such untrue
statements or omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 4.5 were to be determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this Section 4.5. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities referred to in the
first sentence of this Section 4.5 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating or defending any
action or claim (which shall be limited as provided in Section 4.3 of this Agreement if the
indemnifying party has assumed the defense of any such action in accordance with the provisions
thereof) which is the subject of this Section 4.5. Promptly after receipt by an indemnified party
under this Section 4.5 of notice of the commencement of any action against such party in respect of
which a claim for contribution may be made against an indemnifying party under this Section 4.5,
such indemnified party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in Section 4.3 of this Agreement has not been given with respect to such
action; provided, that the omission to so notify the indemnifying party shall not relieve
the indemnifying party from any liability which it may otherwise have to any indemnified party
under this Section 4.5, except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. The Company and the Holder agree with each other, and will agree with
the underwriters of the Registrable Securities, if requested by such underwriters, that (i) the
underwriters’ portion of such contribution shall not exceed the underwriting discount and (ii) that
the amount of such contribution by the Holder shall not exceed an amount equal to the net proceeds
actually received by the Holder from the sale of Registrable Securities in the offering to which
the losses, liabilities, claims, damages or expenses of the indemnified parties relate. 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.
Registration
Rights Agreement
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4.6 Payments. The indemnification required by this Article IV shall be made by
periodic payments of the amount thereof during the course of the investigation or defense, as and
when expense, loss, damage or liability is incurred.
ARTICLE V
TRANSFER AND TERMINATION OF REGISTRATION RIGHTS
TRANSFER AND TERMINATION OF REGISTRATION RIGHTS
5.1 Transfer of Rights. The Holder identified in the preamble of this Agreement may
transfer its rights to register such Holder’s Registrable Securities hereunder to any transferee of
such Registrable Securities, provided that such rights may not be transferred (a) to any person or
entity who or which is engaged in an activity or business directly competitive with any activity or
business of the Company or any subsidiary of the Company as presently conducted; or (b) to any
person or entity without the Company’s prior written consent, which shall not be unreasonably
withheld; and provided further that the proposed transferee enters into a written agreement with
the Company, agreeing to be bound by the terms and conditions hereof. As used in this Agreement,
“Holder” shall refer to the Holder identified in the preamble of this Agreement and to each
permitted transferee of such Holder’s rights pursuant to this Section 5.1, as the context requires;
provided that no Holder other than the Holder identified in the preamble of this Agreement shall
have the right to make any transfer or assignment of rights under this Agreement.
5.2 Termination of Rights. The registration rights of any Holder of such rights
hereunder and the registration obligations of the Company hereunder with respect to Registrable
Securities will terminate on the earliest date at which such Registrable Securities have been sold
pursuant to the exemption from registration provided under Rule 144(k) promulgated under the
Securities Act.
ARTICLE VI
DEFINITIONS
DEFINITIONS
6.1 Terms. As used in this Agreement, the following defined terms shall have the
meanings set forth below:
“Business Day” means a day other than Saturday, Sunday or any day on which the Federal
Reserve Bank of New York is closed.
“Certificate of Designation” means the Certificate of Designation of Series I
Convertible Preferred Stock of the Company governing the Preferred Stock and providing for the
designation and number of shares, and the relative rights, preferences and limitations of the
Preferred Stock.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock, par value $0.10 per share, of the Company, any
securities into which such common stock shall have been changed or any securities resulting from
any reclassification or recapitalization of such common stock, and all other securities (other than
Preferred Stock) of any class or classes (however designated) of the Company the holders of which
have the right, without limitation as to amount, after payment on any securities entitled to
Registration
Rights Agreement
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a preference on dividends or other distributions upon any dissolution, liquidation or winding
up, either to all or to a share of the balance of payments upon such dissolution, liquidation or
winding up.
“Conversion Shares” means (i) the shares of Common Stock issued or issuable upon
conversion of the 100 shares of Preferred Stock initially issued to the Holder pursuant to the
Share Purchase Agreement, (ii) any additional shares of Common Stock issued or issuable upon
conversion of shares of Preferred Stock hereafter issued as dividends on shares of Preferred Stock
(as contemplated by clause (b) of the definition of “Preferred Stock” below), the issuance of which
does not require approval by the Company’s shareholders, and (iii) any securities issued or
issuable with respect to such shares of Common Stock pursuant to the adjustment provisions
contained in the Company’s Articles of Incorporation or the Certificate of Designation governing
the Preferred Stock in connection with a stock split or combination of shares, recapitalization,
merger, consolidation, or other reorganization.
“Dividend Shares” means (i) the shares of Common Stock, if any, issued or issuable
upon conversion of shares of Preferred Stock hereafter issued as dividends, if elected by Holder,
on outstanding shares of Series I Convertible Preferred Stock and which do not constitute
Conversion Shares and (ii) any securities issued or issuable with respect to such shares of Common
Stock pursuant to the adjustment provisions contained in the Company’s Articles of Incorporation or
the Certificate of Designation governing the Preferred Stock in connection with a stock split or
combination of shares, recapitalization, merger, consolidation, or other reorganization.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar
Federal statute then in effect, and any reference to a particular section thereof shall include a
reference to the equivalent section, if any, of any such similar Federal statute, and the rules and
regulations promulgated thereunder, as the same may be amended from time to time.
“Person” means any individual, corporation, partnership, association, trust or other
entity or organization, including a government or political subdivision or an agency or
instrumentality thereof.
“Preferred Stock” means the shares of Series I Convertible Preferred Stock of the
Company (a) issued and sold to the Holder by the Company pursuant to the Share Purchase Agreement
on or before the date hereof and (b) issued to the Holder as dividends, if elected, on outstanding
shares of Series I Convertible Preferred Stock pursuant to Section 2 of the Certificate of
Designation setting forth the terms and provisions of the Series I Convertible Preferred Stock.
“Prospectus” means the prospectus included in any Registration Statement (including
without limitation, a prospectus that discloses information previously omitted from a prospectus
filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the securities covered by such Registration Statement, and
all other amendments and supplements to the prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by reference in such
prospectus.
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Rights Agreement
11
“Registrable Securities” means the Conversion Shares, Warrant Stock and the Dividend
Shares, provided that, as to any particular Registrable Securities, such securities will cease to
be Registrable Securities when they have been (x) effectively registered under the Securities Act
and disposed of in accordance with the Registration Statement covering them or (y) transferred
pursuant to Rule 144 (or any similar rule then in force) under the Securities Act or otherwise
transferred and, in each case, new certificates for them not bearing a restrictive Securities Act
legend have been delivered by the Company and can be sold without complying with the registration
requirements of the Securities Act.
“Registration Expenses” means, with respect to any registration required hereunder,
all of the reasonable costs and expenses incurred in connection with such registration, other than
(i) underwriting discounts and commissions; and (ii) transfer taxes; but including all attorney’s
fees up to $5,000 and reasonable out-of-pocket expenses for the Holder’s attorneys.
“Registration Statement” means any Registration Statement of the Company which covers
any of the Registrable Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such Registration Statement.
“Securities Act” means the Securities Act of 1933, as amended, or any similar Federal
statute then in effect, and any reference to a particular section thereof shall include a reference
to a comparable section, if any, of any such similar Federal statute, and the rules and regulations
promulgated thereunder, as the same may be amended from time to time.
“Warrant Stock” shall have the meaning set forth in the Warrant Agreement.
6.2 Defined Terms in Corresponding Sections. The following defined terms, when used
in this Agreement, shall have the meaning ascribed to them in the corresponding Sections of this
Agreement listed below:
“Agreement”
|
— | Preamble | ||
“Company”
|
— | Preamble | ||
“Holder Indemnitees”
|
— | Section 4.1 | ||
“Holder”
|
— | Preamble and Section 5.1 | ||
“Share
Purchase Agreement”
|
— | Recitals | ||
“Warrant Agreement”
|
— | Recitals |
ARTICLE VII
MISCELLANEOUS
MISCELLANEOUS
7.1 Remedies. In the event of a breach by any party to this Agreement of its
obligations under this Agreement, any party injured by such breach, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The parties agree that the provisions of this
Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, for breach of any such provision will be inadequate
Registration
Rights Agreement
12
compensation for any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
7.2 Amendments and Waivers. Except as otherwise provided herein, no modification,
amendment or waiver of any provision of this Agreement will be effective against the Company or any
Holder of Registrable Securities, unless such modification, amendment or waiver is approved in
writing by the Company and the Holder(s) representing a majority of the Registrable Securities then
outstanding. The failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance with its terms. The
rights and remedies in this Agreement are cumulative and, except as otherwise expressly provided
herein, none is exclusive of any other, or of any rights or remedies that any party may otherwise
have at law or in equity.
7.3 Successors and Assigns. All covenants and agreements in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of the respective successors
and permitted assigns of the parties hereto whether so expressed or not.
7.4 Notices. All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered (a) personally against written
receipt, (b) by pre-paid registered or certified mail, return receipt requested, (c) by overnight
courier prepaid, or (d) by receipt confirmed facsimile transmission, or by tested telex, telegram
or cable to the parties at the following addresses:
| If to the Company: | Digital Recorders, Inc. |
|
0000 Xxxxxx Xxxx, Xxxxx 0000 |
||
Xxxxxx, XX 00000 |
||
Attn: CEO & President |
||
Fax: 000-000-0000 |
With a copy (which shall not constitute notice) to:
Xx. Xxxxx X. Xxxx |
||
Xxxx, Layton, Kersh, Solomon, |
||
Sigmon, Xxxx & Xxxxx, P.A. |
||
Xxxx Xxxxxx Xxx 0000 |
||
Xxxxxxxx, XX 00000-0000 |
||
Fax: 000-000-0000 |
||
| If to the Holder: | Transit Vehicle Technology Investments, Inc. |
|
c/o Y. Xxxx Xxx |
||
0000 X. 00xx Xxxxxx, Xxxxx 000 |
||
Xxxxx, Xxxxx, Xxxxxx Xxxxxx 00000 |
||
Fax: 000.000.0000 |
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Rights Agreement
13
with a copy (which shall not constitute notice) to:
Xxxx X. Xxxxxx, Esq. |
||
Xxxxxx and Xxxxx, LLP |
||
000 Xxxx Xxxxxx, Xxxxx 0000 |
||
Xxxxxx, Xxxxx 00000-0000 |
||
Fax: 000.000.0000 |
All such notices, requests and other communications will (i) if delivered personally to the address
as provided in this Section 7.4, be deemed given upon delivery, (ii) if delivered by mail in the
manner described above to the address as provided in this Section 7.4, be deemed given on the
earlier of the tenth full Business Day following the day of mailing or upon receipt, and (iii) if
delivered by overnight courier to the address provided in this Section 7.4, be deemed given on the
earlier of the third Business Day following the date sent by such overnight courier or upon
receipt. Any party from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change to the other
parties hereto.
7.5 Headings. The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.
7.6 Gender. Whenever the pronouns “he” or “his” are used herein they shall also be
deemed to mean “she” or “hers” or “it” or “its” whenever applicable. Words in the singular shall
be read and construed as though in the plural and words in the plural shall be construed as though
in the singular in all cases where they would so apply.
7.7 Invalid Provisions. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future law, and if the rights or obligations of any
party hereto under this Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom and (iv) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
7.8 Governing Law. This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of North Carolina, without giving effect to any choice of law
or conflict of law provision or rule (whether of the State of North Carolina or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the State
of North Carolina.
7.9 Counterparts. This Agreement may be executed in any number of counterparts, each
of which will be deemed an original, but all of which together will constitute one and the same
instrument.
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Rights Agreement
14
7.10 Severability. In the event that any provision of this Agreement is determined to
be partially or wholly invalid, illegal or unenforceable, then such provision shall be deemed to be
modified or restricted to the extent necessary to make such provision valid, binding and
enforceable or, if such a provision cannot be modified or restricted in a manner so as to make such
provision valid, binding and enforceable, then such provision shall be deemed to be excised from
this Agreement and the validity, binding effect and enforceability of the remaining provisions of
this Agreement shall not be affected or impaired in any manner.
7.11 Further Assurances. Following the date hereof, each party shall execute,
deliver, acknowledge and file, or shall cause to be executed, acknowledged, delivered and filed,
all such further instruments, certificates and other documents and shall take, or cause to be
taken, such other actions as may reasonably be requested by any other party in order to carry out
the provisions of this Agreement.
7.12 Time. With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
7.13 Merger Clause. This Agreement, along with the Share Purchase Agreement and the
Warrant Agreement, supersedes all prior agreements and understandings between the parties and may
not be changed or terminated orally, and no attempted change, termination or waiver of any of the
provisions hereof shall be binding unless in writing and signed by the parties hereto.
[Remainder of Page Intentionally Left Blank]
[Signature Page to Follow]
[Signature Page to Follow]
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Rights Agreement
15
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date
first above written, intending the same, to the extent legally permissible, to be effective as of
March 21, 2006.
| COMPANY: | ||||||||
| Digital Recorders, Inc. | ||||||||
| By: | ||||||||
| Name: Xxxxx X. Xxxxxx | ||||||||
| Title: CEO, President and Chairman | ||||||||
| HOLDER: | ||||||||
| TRANSIT VEHICLE TECHNOLOGY INVESTMENTS, INC. | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
Registration
Rights Agreement
16
