STOCK PURCHASE WARRANT
EXHIBIT
10.2
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.
This Stock Purchase Warrant (this “Warrant”), dated as of March 21, 2006, is issued to TRANSIT
VEHICLE TECHNOLOGY INVESTMENTS, INC., a Texas corporation (the “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 93,750 fully paid and non-assessable shares of Common Stock, $0.10 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 $1.60 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 March 20, 2011.
4. Method of Exercise. As long as this Warrant remains outstanding and exercisable in
accordance with Section 3 above, the Holder may exercise, in whole or in part, but in increments of
no less than 20,000 shares, the purchase rights evidenced hereby. Such exercise shall be effected
by tender of 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 unless done by cashless exercise
pursuant to Section 10 below.
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 and agrees that it shall 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 in paragraph 1 above. 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.
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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 Warrant Price payable per Share, but the aggregate Warrant
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 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 purchasable upon exercise hereof 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
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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 Section 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
reasonably 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.
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 other than as set forth herein,
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 upon exercise of this
Warrant shall be subject to the registration rights set forth in the Registration Rights Agreement
of even date herewith by and between the Holder and the Company (the “Registration Rights
Agreement”), and the Holder shall be entitled to all rights and benefits thereof.
10. 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 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 immediately prior
to the exercise of the Conversion Right. For the purpose of any computation under this Section 10,
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 or trading market 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 Company in good faith. This provision shall only apply if legally available to Holder
at the time of any exercise; otherwise, it
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shall be deemed null and void if prohibited under the then prevailing statutes, rules and
regulations.
11. Limitation of Liability. No provision hereof, in the absence of any affirmative
action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of
the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase
price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
12. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered
for exercise shall be accompanied by an assignment in form and substance reasonably satisfactory to
the Company duly executed by the Holder.
13. 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, provided that neither party may assign its rights or obligations hereunder with the prior
written consent of the other party.
14. Governing Law. This Warrant shall be governed by the laws of the State of North
Carolina, excluding the conflicts of laws provisions thereof.
15. Loss of Warrant. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of indemnification in form and substance acceptable to the Company in its
reasonable discretion, and upon surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor and date.
16. Amendments. No amendment, modification, supplement, waiver or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly executed by the Holder and
the Company. Any such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. The waiver by any of the parties of a breach of or a
default under any of the provisions of this Agreement or to exercise any right or privilege under
this Agreement, shall not be construed as a waiver of any other breach or default of a similar
nature, or as a waiver of any of such provisions, rights or privileges under this Agreement. No
failure by any party to exercise, and no delay in exercising, any right hereunder shall operate as
a waiver thereof. 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.
17. Notice. Any notice given under this Agreement shall be deemed to have been given
sufficiently if in writing and sent by registered or certified mail, return receipt requested
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and postage prepaid, by receipt confirmed facsimile transmission, or by tested telex, telegram
or cable addressed as set forth on Schedule A hereto to the parties hereto, or to any other address
or addresses which may hereafter be designated by any party by notice given in such manner. All
notices shall be deemed to have been given as of the date of receipt.
18. Remedies. Holder, 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 Warrant. The Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law would be adequate.
19. Severability. In the event that any provision of this Warrant 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 Warrant and the validity, binding effect and enforceability of the remaining provisions of
this Warrant shall not be affected or impaired in any manner.
20. Further Assurances. The Company 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 Warrant and
make effective this Warrant and the issuance of the Common Stock in accordance with the terms and
conditions herein.
| DIGITAL RECORDERS, INC. | ||||||
| By: | ||||||
| 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 as of
March 21, 2006, 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 pursuant hereto in
cash or elects to purchase
shares of Common Stock in Company pursuant to non-cash
conversion of the Warrant as provided in Section 10 of the Warrant (if legally available).
Please issue the shares as to which this Warrant is exercised in accordance with the
instructions given below.
By:
INSTRUCTIONS FOR REGISTRATION OF SHARES
Register Shares in name of: |
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Address: |
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