Contract
Exhibit 4.1
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT (AS HEREINAFTER DEFINED) OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION IN REASONABLY ACCEPTABLE
FORM AND SCOPE TO THE COMPANY OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION,
QUALIFICATION OR OTHER SUCH ACTIONS ARE NOT REQUIRED UNDER THE SECURITIES ACT OR ANY OTHER LAWS OR
THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
| Warrant No. 26 | Dated: As of June 30, 2008 |
WARRANT
(A) THIS IS TO CERTIFY THAT, for value received, BHC INTERIM FUNDING III, L.P., a Delaware
limited partnership, or its registered assigns, (the “Holder”) is entitled to purchase from
DRI CORPORATION, a North Carolina corporation (the “Company”), at any time on or after the
date hereof and before 5:00 p.m. (New York time) on June 30, 2013, Three Hundred Fifty Thousand
(350,000) fully paid and non-assessable shares of the Company’s common stock, $0.10 par value per
share (the “Common Stock”) at a price (the “Exercise Price”) equal to $2.99 per
share, representing a premium of 5% over the volume weighted average trading price of the Common
Stock for the five trading days immediately prior to the Issuance Date (as hereinafter defined),
payable as provided below and subject to adjustment pursuant to Article III hereof. The shares of
Common Stock issuable upon exercise of this Warrant are herein called the “Warrant Shares.”
(B) This Warrant is the Warrant referred to in the Loan and Security Agreement (as hereinafter
defined) and is issued pursuant to the Loan and Security Agreement. Each capitalized term used and
not otherwise defined in this Warrant shall have the meaning assigned to it in the Loan and
Security Agreement (as hereinafter defined).
(C) Certain terms used in this Warrant are defined in Article V hereof.
ARTICLE I — EXERCISE OF WARRANT
1.1 Method of Exercise. To exercise this Warrant in whole or in part, the Holder
shall deliver on any Business Day to the Company at its principal place of business (a) this
Warrant, (b) a written notice in substantially the form of the Subscription Notice attached hereto,
of the Holder’s election to exercise this Warrant, which notice shall specify the number of Warrant
Shares to be purchased (which shall be a whole number of shares in an amount not less than 50,000
shares if such exercise is for less than all the Warrant Shares then issuable hereunder), and (c)
payment of the Exercise Price with respect to such Warrant Shares. Such
payment may be made, at the option of the Holder, either (x) by cash, certified or bank
cashier’s check or wire transfer in an amount equal to the product of the Exercise Price times the
number of Warrant Shares as to which this Warrant is being exercised or (y) by a “cashless
exercise” of this Warrant, in which event the Holder shall receive from the Company the number of
Warrant Shares equal to the number of Warrant Shares as to which this Warrant is being exercised
minus the number of Warrant Shares having an aggregate value (determined by reference to the Fair
Market Value of a share of Common Stock on the Business Day immediately prior to the date of such
exercise), equal to the product of the Exercise Price times the number of Warrant Shares as to
which this Warrant is being exercised.
The Company shall, as promptly as practicable and in any event within five (5) Business Days
after receipt of such notice and payment, at the Company’s expense, execute and deliver or cause to
be executed and delivered, in accordance with such notice, a certificate or certificates
representing the Warrant Shares so acquired. The certificate or certificates so delivered shall be
in such denominations as may be specified in such notice (which shall not be less than 50,000
shares per certificate unless less than 50,000 shares are being issued), and shall be issued in the
name of the Holder or such other name or names as shall be designated in such notice, subject to
payment of any applicable transfer taxes. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and such Holder or any other
Person so designated to be named therein shall be deemed for all purposes to have become a holder
of record of Warrant Shares, as of the date the aforementioned notice and payment is received by
the Company. If this Warrant shall have been exercised only in part, the Company shall, at the
time of delivery of such certificate or certificates, deliver to the Holder a new Warrant
evidencing the right to purchase the remaining shares of Common Stock issuable under this Warrant,
which new Warrant shall, in all other respects, be identical to this Warrant. The Company shall
pay all expenses, stamp, documentary and similar taxes and other charges payable in connection with
the preparation, issuance and delivery of share certificates and new Warrants under this provision.
In lieu of delivering physical certificates representing the Warrant Shares, provided the
Company’s transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Holder, the Company
shall use its best efforts to cause its transfer agent to electronically transmit the Warrant
Shares issuable upon exercise to the Holder, by crediting the account of Holder’s prime broker with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
Business Days after receipt of the applicable notice and payment. The parties agree to coordinate
with DTC to accomplish this objective.
1.2 Warrant Shares to Be Fully Paid And Nonassessable. All Warrant Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to
the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive
rights and taxes, liens and charges with respect to the issue thereof.
1.3 Legend. Each certificate for Warrant Shares issued upon exercise of this Warrant
shall, unless at the time of exercise such shares are registered under the Securities Act or
subject to a valid exemption from registration, bear the following legend:
“This security has not been registered under the Securities Act of 1933, as amended
(the “Act”) and may not be sold or offered for sale unless registered or
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qualified under the Act and any applicable state securities laws or unless the
Company receives an opinion in reasonably acceptable form and scope to the Company
of counsel reasonably satisfactory to the Company that registration, qualification
or other such actions are not required under the Act or any other laws or that an
exemption from such registration is available.”
Any certificate issued at any time in exchange or substitution for any certificate bearing
such legend (except a new certificate issued upon completion of a public offering pursuant to a
registration statement under the Securities Act) shall also bear such legend unless, in the opinion
of legal counsel selected by the Holder of such certificate (who may be an employee of such Holder)
and reasonably acceptable to the Company, the securities represented thereby need no longer be
subject to restrictions on resale under the Securities Act.
1.4 Authorization; Capitalization. The Company hereby represents, warrants and/or
covenants, as applicable, to and with the Holder as follows: The Company has duly reserved, and
will keep available for issuance upon exercise of this Warrant, the total number of Warrant Shares
deliverable from time to time upon exercise of this Warrant in its entirety. The Company will not
take any actions during the term of this Warrant that would result in any adjustment to the Warrant
Shares or issue any shares of Common Stock or other securities if the Fully-Diluted Shares would
exceed the total number of shares of Common Stock then authorized for issuance by the Company. The
Company will not, so long as this Warrant has not been fully exercised, change the par value of its
Common Stock without the prior written consent of the Holder, not to be unreasonably withheld. The
issuance of the Warrant Shares has been duly authorized and, when issued and sold in accordance
with this Warrant, the Warrant Shares will be validly issued, fully paid and non-assessable. As of
the date of issuance of this Warrant (the “Issuance Date”), except as set forth on Exhibit
A, the Company has not issued and there are no outstanding (a) shares of Common Stock, (b) shares
of preferred stock, options or warrants to acquire any shares of capital stock of the Company, and
(c) no other shares of capital stock of the Company or any securities exercisable for, convertible
into or exchangeable for shares of capital stock of the Company or any rights, options or warrants
to purchase any shares of capital stock of the Company or any securities exercisable for,
convertible into or exchangeable for shares of capital stock of the Company. Neither the issuance
of this Warrant nor the issuance of the Warrant Shares upon exercise of this Warrant violates or
conflicts or will violate or conflict with the Company’s Certificate of Incorporation or Bylaws or
any agreement to which the Company is a party or any Federal or State law.
ARTICLE II — TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
2.1 Ownership of Warrant. The Company shall deem and treat the Person in whose name
this Warrant is registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by any Person other than the Company) for all purposes and shall
not be affected by any notice to the contrary, until due presentment of this Warrant for
registration of transfer as provided in this Article II.
2.2 Transfer of Warrants. The Company agrees to maintain at its principal office the
books for the registration of transfers of the Warrant, and transfer of this Warrant and all rights
hereunder shall be registered, in whole or in part, on such books, upon surrender of this Warrant
at the Company, together with (a) a written assignment of this Warrant duly executed by the Holder
or its duly authorized agent or attorney, with (if the Holder is a natural Person) signatures
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guaranteed by a bank or trust company or a broker or dealer registered with the NASD,
provided, however, that so long as no Event of Default exists under the Loan and
Security Agreement, the Holder may not assign all or any part of this Warrant to any Person other
than an Affiliate of the Holder without the Company’s prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed, (b) funds sufficient to pay any transfer
taxes payable upon such transfer, and (c) an Investment Representation Letter executed by the
proposed transferee. Upon surrender and, if required, such payment, the Company shall promptly
execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in the instrument of assignment and shall issue to the assignor a new
Warrant or Warrants evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be canceled. The Company shall permit the Holder to inspect the warrant registration
books from time to time during normal business hours at the Company. The Holder shall pay all fees
(including reasonable attorney’s fees), costs and expenses associated with any transfer of this
Warrant requested by the Holder.
2.3 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation,
on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
2.4 Division or Combination of Warrants. This Warrant may be divided or combined with
other Warrants of like tenor upon presentment to the Company of this Warrant and of any Warrant or
Warrants with which this Warrant is to be combined, together with a written notice specifying the
names and denominations in which the new Warrant or Warrants are to be issued (which shall not be
less than 50,000 shares per Warrant), signed by the holders hereof and thereof or their respective
duly authorized agents or attorneys. Subject to compliance with Section 2.2 above as to
any transfer or assignment which may be involved in the division or combination, the Company shall
promptly execute and deliver a new Warrant in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
2.5 Expenses of Delivery of Warrant. The Company shall pay all reasonable expenses,
stamp, documentary and similar taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of the Warrants.
2.6 Representations of Holder. On the date hereof, the Holder shall sign an
Investment Representation Letter substantially in the form of Exhibit A attached hereto, as the
same may be amended from time to time to correspond to the definition of “accredited investor”
under Regulation D promulgated under the Securities Act (an “Investment Representation
Letter”). The Company shall not be required to transfer the Warrants in whole or in part to
any Person who does not execute an Investment Representation Letter.
2.7 Financial Statements And Other Information. Promptly upon transmission thereof,
the Company will deliver to each Holder copies of any and all financial statements, proxy
statements, notices and other reports as it may send to its shareholders and copies of all
registration statements and all reports which it files with the Commission (or any governmental
body or agency succeeding to its functions). Transmission of information required by this
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Section 2.7 can be made by e-mail of the corresponding internet link on the SEC web
site of any filings.
ARTICLE III — REORGANIZATION, RECLASSIFICATION AND LIQUIDATION
3.1 Reorganization, Reclassification and Liquidation.
(a) In the case of any reorganization or reclassification of the Common Stock or in the case
of any consolidation of the Company with, or merger of the Company with, another Person, or in the
case of any sale, lease or conveyance of all, or substantially all, of the property, assets,
business and goodwill of the Company as an entity, or on the occurrence of any other Change of
Control, the holder of this Warrant shall thereafter have the right upon exercise to receive the
kind and amount of shares of stock and Other Securities and property receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of the number of shares
of Common Stock which the holder of this Warrant would have received had all Warrant Shares
issuable upon exercise of this Warrant been issued immediately prior to such reorganization,
reclassification, consolidation, merger or sale, at a price equal to the Exercise Price then in
effect pertaining to this Warrant (the kind, amount and price of such stock and Other Securities to
be subject to adjustment as herein provided).
(b) In case the Company shall effect a dissolution following any sale, lease or conveyance of
all, or substantially all, of the property, assets, business and goodwill of the Company as an
entity or any other Change of Control, the Company, concurrently with any distributions made to
holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder
the stock and other securities and property (including cash, where applicable) receivable by the
Holder pursuant to Section 3.1(a) hereof, or, if the Holder shall so instruct the Company,
to a bank or trust company specified by the Holder and having its principal office in New York, New
York as trustee for the Holder (the “Trustee”).
(c) In case the Company shall, at any time prior to the expiration of this Warrant and prior
to the exercise thereof, make a distribution of assets (other than cash) or securities of the
Company to its stockholders (the “Distribution”) the Holder shall be entitled, upon the
exercise thereof, to receive, in addition to the Warrant Shares it is entitled to receive, the same
kind and amount of assets or securities as would have been distributed to it in the Distribution
had it been the holder of record of the shares of Common Stock receivable upon exercise of this
Warrant on the record date for determination of those entitled to receive the Distribution. The
Company shall give the Holder fourteen (14) days notice prior to setting the record date for any
such Distribution.
(d) Upon any reorganization, reclassification or liquidation (and any dissolution following
any transfer) referred to in this Section 3.1, this Warrant shall continue in full force
and effect and the terms hereof shall be applicable to the Warrant Shares and property receivable
on the exercise of this Warrant after the consummation of such reorganization, reclassification or
liquidation or the effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities, including, in the case
of a transfer to any person as a result of a Change of Control. In the event this Warrant does not
continue in full force and effect after the consummation of the transactions described in this
Section 3.1, then the Warrant Shares and property (including cash, where
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applicable) receivable by the Holder will be delivered to the Holder or the Trustee as
contemplated by Section 3.1(b).
3.2 Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of Common Stock (or Common Stock Equivalents) as a dividend or other
distribution on outstanding Common Stock issued by the Company (b) subdivide its outstanding shares
of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be the Exercise Price
then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 3.2. The
number of Warrant Shares that the Holder will thereafter be entitled to receive shall be adjusted
to a number determined by multiplying the number of Warrant Shares that would otherwise (but for
the provisions of this Section 3.2) be issuable by a fraction of which (x) the numerator is
the Exercise Price that would otherwise (but for the provisions of this Section 3.2) be in
effect, and (y) the denominator is the Exercise Price in effect on the date of such exercise
(taking into account the provisions of this Section 3.2).
3.3 Dilutive Issuance. If the Company, at any time while this Warrant is outstanding,
shall: (a) offer, sell, or grant any option to any Person to purchase its Common Stock or Common
Stock Equivalents; (b) offer, sell or grant to any Person any right to reprice its Common Stock
Equivalents; or (c) otherwise dispose of or issue any Common Stock or Common Stock Equivalents to
any Person, other than the issuance of options and shares of Common stock at any time pursuant to
any of the Company’s existing equity compensation plans or pursuant to any of the Company’s
existing Common Stock Equivalents (each an “Exempt Issuance”); and in any case set forth in clauses
(a), (b) and (c) at a price per share or effective per share of Common Stock less than the Exercise
Price (such issuances collectively a “Dilutive Issuance”), as adjusted hereunder, then the Exercise
Price shall be adjusted to equal the product obtained by multiplying the then effective Exercise
Price by a fraction, the numerator of which is the sum of (x) the Fully Diluted Shares immediately
prior to a Dilutive Issuance and (y) the quotient obtained by dividing the aggregate consideration
received or to be received by the Company with respect to the Dilutive Issuance by the then
effective Exercise Price and the denominator of which is the sum of the Fully Diluted Shares and
the number of shares of Common Stock subject to the Dilutive Issuance. If any adjustment to the
Exercise Price is to be made pursuant to this paragraph, the Company shall give prompt notice
thereof to the holder together with the adjustment calculation.
3.4 Certificate as to Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Common Stock Equivalents) issuable on the exercise of this Warrant,
the Company at its expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of Common Stock (or
Common Stock Equivalents) issued or sold or deemed to have been issued or sold, (b) the number of
shares of Common Stock outstanding or deemed to be
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outstanding, and (c) the Exercise Price and the number of Warrant Shares to be received upon
exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each
such certificate to the Holder and any Warrant agent of the Company (appointed pursuant to
Section 6.5 hereof).
ARTICLE IV — REGISTRATION RIGHTS
4.1 Registration on Request.
(a) At any time, upon the written request of the holder or holders of a majority of the
outstanding Registrable Securities (the “Initiating Holders”), requesting that the Company
effect the registration under the Securities Act of all or part of such Initiating Holders’
Registrable Securities and specifying the intended method of disposition thereof, the Company will
promptly give written notice of such requested registration to all holders of Registrable
Securities, who shall have the right to request that their Registrable Securities be included in
the registration statement requested pursuant to this Section 4.1 upon written notice to
the Company made within twenty (20) days after receipt of the Company’s written notice. Thereupon,
the Company will use its commercially reasonable efforts to effect the registration under the
Securities Act of the Registrable Securities which the Company has been so requested to register
for disposition in accordance with the intended method of disposition stated in the Initiating
Holder’s request; all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid), of the Registrable Securities to be so registered, which
shall be paid for by the Company in accordance with Section 4.1(c) below.
(b) Registrations under this Section 4.1 shall be on such appropriate registration
form of the Commission (i) as shall be selected by the Company and (ii) as shall permit the
disposition of such Registrable Securities in accordance with the intended method or methods of
disposition specified in the Initiating Holders’ request for such registration. The Company agrees
to include in any such registration statement all information which holders of Registrable
Securities being registered shall reasonably request.
(c) The Initiating Holders will be entitled to request two registrations pursuant to this
Section 4.1 for which the Company will pay all Registration Expenses. A registration
requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless
a registration statement with respect thereto has become effective; provided, that a
registration which does not become effective after being filed by the Company pursuant to this
Section 4.1 solely by reason of the refusal to proceed by the Initiating Holders (other
than a refusal to proceed based upon the advice of counsel relating to a matter with respect to the
Company) shall be deemed to have been effected by the Company at the request of the Initiating
Holders unless the Initiating Holders shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such registration is
subject to a stop order, injunction or other order of the Commission or other governmental agency
or court suspending the effectiveness of such registration statement for any reason, other than by
reason of misstatements or omissions made or not made in the registration statement in reliance
upon and in conformity with written information furnished to the Company by a Holder of Registrable
Securities specifically for use in the preparation of such registration statement, or (iii) if the
conditions to closing specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than by reason of some act or
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omission by any Holder of Registrable Securities participating in the offering. Except as
provided in Section 4.1(c)(i) above, whether or not the registration becomes effective, the
Company will pay all Registration Expenses in connection with any registration so initiated.
(d) If a requested registration pursuant to this Section 4.1 involves an underwritten
offering, and the managing underwriter shall advise the Company (with a copy of any such notice to
each holder of Registrable Securities requesting registration) that, in its opinion, the number of
securities requested to be included in such registration (including securities proposed to be sold
for the account of the Company) exceeds the number which can be sold in such offering within a
price range acceptable to the Initiating Holders, the Company will include in such registration, to
the extent of the number which the Company is so advised can be sold in such offering, (i) first,
Registrable Securities requested to be included in such registration by the holder or holders of
Registrable Securities, pro rata among such holders requesting such registration on the basis of
the number of such securities requested to be included by such holders, (ii) second, all shares
proposed to be included by the Company in such registration and (iii) third, all shares other than
Registrable Securities (any such shares with respect to any registration, “Other
Securities”) requested to be included in such registration by the holder or holders thereof.
(e) The Company may suspend any registration requested pursuant to this Section 4.1
one time per registration for a single period of up to ninety (90) days upon notice to the holders
of Registrable Securities whose Registrable Securities are covered by the registration statement
requested pursuant to this Section 4.1 that, in the good faith determination of the Board
of Directors of the Company, the registration and sale at such time of the Registrable Securities
requested to be so registered would not be in the best interests of the Company, provided that
notwithstanding such suspension, the Company shall continue to diligently process the preparation
of the documentation required for such registration. No registration shall be requested pursuant
to this Section 4.1 during the period from the date of the notice to the Holders pursuant
to Section 4.1(a) above of the Company’s intention to register securities until the
expiration of the lockup period specified in Section 4.4(b) below, or, if earlier, the date
of the Company’s notice pursuant to the proviso to the second sentence of Section 4.2(a)
below.
4.2 Incidental Registration.
(a) If the Company at any time proposes to register any of its securities under the Securities
Act (other than (x) by a registration on Form S-4 or S-8 or any successor or similar forms) or (y)
pursuant to Section 4.1 above) whether for its own account or for the account of the holder
or holders of any other shares of the Company’s Common Stock, it will each such time give prompt
written notice to all holders of Registrable Securities of its intention to do so and of such
holders’ rights under this Section 4.2. Upon the written request of any such holder made
within twenty (20) days after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the intended method of
disposition thereof), the Company will use its commercially reasonable efforts to effect the
registration under the Securities Act of all Registrable Securities which the Company has been so
requested to register, by inclusion of such Registrable Securities in the registration statement
which covers the securities which the Company proposes to register; provided that 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 such registration, the Company shall
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determine for any reason either 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 of
Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder of Registrable Securities
entitled to request that such registration be effected as a registration under Section 4.1
above, and (ii) in the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in registering such other
securities. No registration affected under this Section 4.2 shall relieve the Company of
its obligation to effect any registration upon request under Section 4.1 above, nor shall
any such registration hereunder be deemed to have been effected pursuant to Section 4.1
above. The Company will pay all Registration Expenses in connection with each registration of
Registrable Securities pursuant to this Section 4.2.
(b) If the Company at any time proposes to register any of its securities under the Securities
Act as contemplated by this Section 4.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder of Registrable
Securities as provided in this Section 4.2, use its commercially reasonable efforts to
arrange for such underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters, provided that if the
managing underwriter of such underwritten offering shall inform the Company and holders of the
Registrable Securities requesting such registration and all other holders of any Other Securities
in respect of such underwritten offering, by letter of its belief that inclusion in such
distribution of all or a specified number of the securities proposed to be distributed by such
underwriters would interfere with the successful marketing of the securities being distributed by
such underwriters (such letter to state the basis of such belief and the approximate number of such
Registrable Securities and such Other Securities which may be distributed without such effect),
then the Company may, upon written notice to all holders of such Registrable Securities and holders
of such Other Securities, reduce pro rata (if and to extent stated by such managing underwriter to
be necessary to eliminate such effect) first the number of Registrable Securities that have been
requested be included in such registration statement and second the number of Other Securities that
have been requested be included in such registration statement so that the resultant aggregate
number of such Registrable Securities and Other Securities so included in such registration,
together with the number of securities to be included in the registration for the account of the
Company, shall be equal to the number of securities stated in such managing underwriter’s letter.
4.3 Registration Procedures.
(a) If and whenever the Company is required to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 4.1 above or Section 4.2
above, the Company shall, as expeditiously as possible:
(i) prepare and file with the Commission the requisite registration statement to effect such
registration (including such audited financial statements as may be required by the Securities Act)
within the later of forty-five (45) days after the end of the fiscal quarter of the Company within
which requests for registration may be given to the Company or
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the date the Company files its quarterly report on Form 10-Q for such period provided that
such 10-Q is filed on a timely basis taking into account all possible extension periods, except in
the case where requests for registration may be given in the Company’s fourth fiscal quarter, in
which case the filing shall be within the later of ninety (90) days after the end of such quarter
or the date the Company files its annual report on Form 10-K for the Fiscal Year then ended,
provided that such 10-K is filed on a timely basis taking into account all possible extension
periods, or a registration pursuant to Section 4.1 above, in which case the filing shall be
made as soon as possible after the initial request of an Initiating Holder of Registrable
Securities or in any event within sixty (60) days after such request, unless such request is made
during the Company’s fourth fiscal quarter, in which case the filing shall be within the later of
ninety (90) days after the end of such quarter or the date the Company timely files its annual
report on Form 10-K for the Fiscal Year then ended and thereafter use its commercially reasonable
efforts to cause such registration statement to become and remain effective. Before filing such
registration statement or any amendments thereto, the Company will furnish to the counsel selected
by the holders of Registrable Securities which are to be included in such registration copies of
all such documents proposed to be filed, which documents will be subject to the review and comment
of such counsel;
(ii) 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 and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration statement until the
earlier of (x) in the case of a registration pursuant to Section 4.1 above, the expiration
of one hundred twenty (120) consecutive days after such registration statement becomes effective,
and (y) in the case of a registration pursuant to Section 4.2 above, the expiration of
ninety (90) consecutive days after such registration statement becomes effective;
(iii) furnish to each seller of Registrable Securities covered by such registration statement
and each underwriter, if any, of the securities being sold by such seller such number of conformed
copies of such registration statement and of each such amendment and of copies of the prospectus
contained in such registration statement supplement thereto (in each case including all exhibits),
such number (including each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as such seller and underwriter, if any, may
reasonably request in order to facilitate the Public Sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its commercially reasonable efforts to register or qualify all Registrable Securities
and other securities covered by such registration statement under blue sky or similar laws of such
jurisdictions as any seller thereof and any underwriter of the securities being sold by such seller
shall reasonably request, to keep such registrations or qualifications in effect for so long as
such registration statement remains in effect, and take any other action which may be reasonably
necessary or advisable to enable such seller and underwriter to consummate the disposition in such
jurisdictions of the securities owned by such seller except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to
be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
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(v) use its commercially reasonable efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed counterpart, addressed to such
seller and the underwriters, if any, of
(A) an opinion of counsel for the Company, dated the effective date of such registration
statement (and, if such registration is in connection with an underwritten public offering, an
opinion dated the date of the closing under the underwriting agreement), reasonably satisfactory in
form and substance to a majority in interest of such seller, and
(B) a “comfort” letter, dated the effective date of such registration statement (and, if such
registration is in connection with an underwritten public offering, a letter dated the date of the
closing under the underwriting agreement), signed by the independent public accountants who have
certified the Company’s financial statements included in such registration statement, covering
substantially the same matters with respect to such registration statement (and the prospectus
included therein);
(vii) notify the holders of Registrable Securities and the managing underwriter or
underwriters, if any, promptly and confirm such advice in writing promptly thereafter:
(A) when the registration statement, the prospectus or any prospectus supplement related
thereto or post-effective amendment to the registration statement has been filed, and, with respect
to the registration statement or any post-effective amendment thereto, when the same has become
effective;
(B) of any request by the Commission for amendments or supplements to the registration
statement or the prospectus or for additional information;
(C) of the issuance by the Commission of any stop order suspending the effectiveness of the
registration or the initiation of any proceedings by any Person for that purpose; and
(D) of the receipt by the Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose;
(viii) notify each seller of Registrable Securities covered by such registration statement, at
any time when a prospectus relating thereto is required to be delivered under the Securities Act,
upon the Company’s discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances then existing, and
promptly prepare and furnish to such seller and each underwriter, if any, a reasonable number of
copies of a supplement to or an amendment of such
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prospectus as may be necessary so that, as thereafter delivered to the purchasers of such
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 then existing;
(ix) make every reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest possible moment;
(x) otherwise use its commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar quarter after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act;
(xi) provide and cause to be maintained a transfer agent and registrar for all Registrable
Securities covered by such registration statement from and after a date not later than the
effective date of such registration statement;
(xii) use its commercially reasonable efforts to list all Registrable Securities covered by
such registration statement on any securities exchange on which any Common Stock is then listed
and, if not so listed, to be listed on the NASD automated quotation system and, if listed on the
NASD automated quotation system, use its commercially reasonable efforts to secure designation of
all such Registrable Securities covered by such registration statement as a NASDAQ “national market
system security” within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or,
failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting
the generality of the foregoing, to arrange for at least two reputable market makers to register as
such with respect to such Registrable Securities with the NASD or alternatively to arrange for a
reputable market maker to sponsor the Common Stock on the OTC Bulletin Board; and
(xiii) If any Registrable Securities shall not have a CUSIP number, then the Company shall use
its commercially reasonable efforts to provide a CUSIP number for the Registrable Securities, not
later than the effective date of the registration.
The Company may require each seller of Registrable Securities as to which any registration is
being effected to furnish the Company with such information regarding such seller and the
distribution of such Registrable Securities as the Company may from time to time reasonably request
in writing for purposes of preparing the relevant registration statement and amendments and
supplements thereto.
(b) Each holder of Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the occurrence of any event of the kind
described in Section 4.3(a)(viii) above, such holder will forthwith discontinue such
holder’s disposition of Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 4.3(a)(viii) above. In the event the Company
shall give any such notice, the periods specified in Section 4.3(a)(ii) above shall be
extended by the length of the period from and including the date when each seller of any
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Registrable Securities covered by such registration statement shall have received such notice
to the date on which each such seller has received the copies of the supplemented or amended
prospectus contemplated by of Section 4.3(a)(viii) above.
(c) If any such registration or comparable statement refers to any holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company, then such holder
shall have the right to require, in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such holder.
(d) Within five (5) days of (x) receipt of any written agreement, stop order, proceeding or
notification referred to in Section 4.3(vii)(B), (C) and (D) above, or (y) the withdrawal
of any underwriter(s), the Company shall notify the Holder in writing of such event, and the Holder
shall thereupon have full and complete access to such underwriter(s) with respect to all matters
and information of and concerning the Company in the possession of such underwriter(s).
4.4 Underwritten Offerings.
(a) If requested by the underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested pursuant to Section 4.1 above, the Company
will enter into an underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each such holder and the
underwriters, and to contain such representations and warranties by the Company and such other
terms as are generally prevailing in agreements of this type, including, without limitation,
indemnities to the effect and to the extent provided in Section 4.5 below. The holders of
the Registrable Securities will cooperate with the Company in the negotiation of the underwriting
agreement.
(b) Each Holder of Registrable Securities agrees by acquisition of its Registrable Securities
not to sell, make any short sale of, loan, grant any option for the purchase of, effect any Public
Sale or distribution of or otherwise dispose of any equity securities of the Company, during the
ten (10) days prior to and the one hundred eighty (180) days after the effective date of any
registration statement filed Pursuant under to Section 4.1 above or Section 4.2
above which involves an underwritten offering, except as part of such registered underwritten
offering, whether or not such Holder participates in such offering, and except as otherwise
permitted by the managing underwriter of such registered underwritten (if any), provided,
that such “lock-up” period shall not be greater than the shortest lock-up period restricting other
selling shareholders of the Company in such registration. Each Holder of Registrable Securities
agrees that the Company may instruct its transfer agent to place stop transfer notations in its
records to enforce this Section 4.4(b).
(c) The Company agrees (x) not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any Public Sale or distribution of or otherwise dispose of its equity
securities or securities convertible into or exchangeable or exercisable for any of such securities
during the ten (10) days prior to and the ninety (90) days after the effective date of any
registration statement filed pursuant to Section 4.1 above or Section 4.2 above
which involves an underwritten offering, except (i) as part of such registered offering,
(ii) pursuant to registration statements on Form S-4 or S-8 or any successor or similar forms
thereto or (iii) as otherwise
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permitted by the managing underwriter of such registered offering (if any), and (y) to use all
reasonable efforts to cause each “affiliate” (as defined under Rule 144 promulgated under the
Securities Act) and each holder of five percent (5%) or more of its equity securities or any
securities convertible into or exchangeable or exercisable for any of such securities, in each case
purchased from the Company (other than in a public offering) to agree not to sell, make any short
sale of, loan, grant any option for the purchase of, effect any Public Sale or distribution of or
otherwise dispose of such securities during such period except as part of such registered
underwritten offering; provided that no Holder of Registrable Securities included in any registered
underwritten offering shall be required to make any representations or warranties to the Company or
the underwriters other than representations and warranties regarding such holder and such holder’s
intended method of distribution.
(d) No Person may participate in any registered underwritten offering hereunder unless such
Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the Person or a majority of
the Persons entitled to approve such arrangements and (ii) completes and executes all agreements,
questionnaires, indemnities and other documents (other than powers of attorney) required under the
terms of such underwriting arrangements.
4.5 Indemnification.
(a) The Company agrees to indemnify and hold harmless each Holder of Registrable Securities
whose Registrable Securities are covered by any registration statement, its directors and officers
and each other Person, if any, who controls such Holder within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which any such indemnified
party may become subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse each such indemnified party for any legal or
any other expenses reasonably incurred by them in connection with investigating or defending any
such loss, liability, action or proceeding; provided that the Company shall not be liable in any
such case to the extent that any such loss, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of such Holder
specifically for use in the preparation thereof. In addition, the Company shall indemnify any
underwriter of such offering and each other Person, if any, who controls any such underwriter
within the meaning of the Securities Act in substantially the same manner and to substantially the
same extent as the indemnity herein provided to each indemnified party. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on behalf of such holder
or any such director, officer, underwriter or controlling Person and shall survive the transfer of
such securities by such holder.
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(b) Each prospective seller of Registrable Securities hereunder shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision (a) of this
Section 4.5) the Company, each director of the Company, each officer of the Company and
each other Person, if any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereof, 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 such seller specifically for use in the
preparation of such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of such securities by such seller. The amount
payable by any prospective seller of Registrable Securities with respect to the indemnification set
forth in this Section 4.5(b) in connection with any offering of securities will not exceed
the amount of net proceeds received by such prospective seller pursuant to such offering.
(c) Promptly after receipt by an indemnified party of notice of the commencement of any action
or proceeding involving a claim referred to in this Section 4.5, 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 this Section 4.5, 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, unless in such indemnified party’s reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such, the indemnifying
party shall be entitled to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that the indemnifying party may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all liability in respect to
such claim or litigation. No indemnified party shall consent to entry of any judgment or enter
into any settlement of any such action the defense of which has been assumed by an indemnifying
party without the consent of such indemnifying party.
(d) If the indemnification provided for in the this Section 4.5 is unavailable to an
indemnified party in respect of any expense, loss, damage or liability referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage
or liability (i) in such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Holder or underwriter, as the case may be, on the other from
the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i)
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above is not permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the Holder or underwriter, as the case may be, on the other in
connection with the statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Holder or underwriter, as the case may be, on the other in
connection with the distribution of the Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by the Company from the initial sale of the
Registrable Securities by the Company to the purchaser bear to the gain realized by the selling
Holder or the underwriting discounts and commissions received by the underwriter, as the case may
be. The relative fault of the Company on the one hand and of the Holder or underwriter, as the
case may be, on the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a material fact relates
to information supplied by the Company, by the Holder or by the underwriter and parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or
omission; provided that the foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified party by reason of
the proviso contained in the first sentence of Section 4.5(a) above, and in no event shall
the obligation of any indemnifying party to contribute under this Section 4.5(d) exceed the
amount that such indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Section 4.5(a) or Section 4.5(b) above had
been available under the circumstances.
The Company and the holders of Registrable Securities agree that it would not be just and
equitable if contribution pursuant to this Section 4.5(d) were determined by pro rata
allocation (even if the Holders and any underwriters were treated as one entity for such purpose)
or by any other method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.5(d), no holder of Registrable
Securities or underwriter shall be required to contribute any amount in excess of the amount by
which (i) in the case of any such holder, the net proceeds received by such holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at which the
Registrable Securities purchased by it and distributed to the public were offered to the public
exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or omission. 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.
4.6 Rule 144. The Company agrees to file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission
thereunder and will take such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation of the
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exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
ARTICLE V — DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
“Affiliate” has the meaning set forth in the Loan and Security Agreement.
“Business Day” means any day excluding Saturday, Sunday and any day on which banking
institutions located in New York are authorized by law or other governmental action to be closed,
unless there shall have been an offering of Common Stock registered under the Securities Act, in
which case “Business Day” means (a) if Common Stock is listed or admitted to trading on a national
securities exchange, a day on which the principal national securities exchange on which Common
Stock is listed or admitted to trading is open for business or (b) if Common Stock is not so listed
or admitted to trading, a day on which the New York Stock Exchange is open for business.
“Change of Control” has the meaning set forth for such term in the Loan and Security
Agreement.
“Commission” means the Securities and Exchange Commission or any other Federal agency
at the time administering the Securities Act.
“Common Stock” has the meaning set forth in paragraph (A) of this Warrant.
“Common Stock Equivalents” means any options, warrants or other agreement to sell or
issue any shares of Common Stock to any person and any evidences of indebtedness, shares or other
securities directly or indirectly convertible into or exchangeable for Common Stock.
“Company” has the meaning set forth in paragraph (A) of this Warrant.
“Dilutive Issuance” has the meaning set forth in Section 3.3.
“Distribution” has the meaning set forth in Section 3.1(c) of this Warrant.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any
successor Federal statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
“Exercise Price” has the meaning set forth in paragraph (A) of this Warrant.
“Fair Market Value” of a share of Common Stock as of any date of determination means:
(A) if the Common Stock is traded on an exchange or is quoted on the NASDAQ
National Market System, then the average of the closing or last sale prices,
respectively, reported for the twenty (20) trading days ended immediately preceding
the determination date; or
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(B) if the Common Stock is not traded on an exchange or on the NASDAQ National
Market System but is traded in the over-the-counter market, then the mean of the
average of the closing bid and asked prices reported for the twenty (20) trading
days ended immediately preceding the determination date; or
(C) Except as provided in Clause (D) below, if the Company’s common Stock is
not publicly traded, then as the Holder and the Company agree or in the absence of
agreement, by arbitration in accordance with the rules then in effect of the
American Arbitration Association, before a single arbitrator to be chosen from a
panel of Persons qualified by education and training to pass on the matter to be
decided; or
(D) If the date of determination of the Fair Market Value is the date of a
liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company’s organizational documents, then
all amounts to be payable per share to holders of the Common Stock pursuant to the
organization documents in the event of such liquidation, dissolution or winding up,
plus all other amounts to be payable per share in respect of the Common Stock in
liquidation under the organization documents, assuming for the purposes of this
Clause (D) that all of the shares of Common Stock then issuable upon exercise of the
Warrant are outstanding at such date of determination.
“Fiscal Year” means each twelve month period ending on the last day of December in
each year.
“Fully Diluted Shares” means (i) the total number of shares of Common Stock issued and
outstanding, (ii) all Warrant Shares; (iii) all shares of Common Stock then issuable upon exercise
of all outstanding options or warrants to purchase Common Stock or upon the exercise, conversion or
exchange of all other outstanding securities which are exercisable for or convertible into or
exchangeable for shares of Common Stock or Common Stock Equivalents.
“Holder” has the meaning set forth in paragraph (A) of this Warrant.
“Initiating Holders” has the meaning set forth in Section 4.1(a) of this
Warrant.
“Investment Representation Letter” has the meaning set forth in Section 2.2 of
this Warrant.
“Issuance Date” has the meaning set forth in Section 1.4 of this Warrant.
“Loan and Security Agreement” means the Loan and Security Agreement, dated as of even
date herewith, by and among Holder as Lender, Digital Recorders, Inc. and Twinvisions of North
America, Inc. as Borrowers, and DRI Corporation as Company Guarantor, as may be amended, restated,
supplemented or otherwise modified from time to time.
“Material Adverse Effect” means a material adverse effect upon /or material adverse
developments with respect to (a) the validity or enforceability against a Loan Party, as defined
in the Loan and Security Agreement, of a Loan Document to which it is a party, (b) the condition
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(financial or otherwise), results of operations, assets, business, properties or prospects of
any Loan Party, (c) any Loan Party’s ability to duly and punctually pay or perform the Obligations
in accordance with the terms thereof, (d) the value of the Collateral, or Lender’s Liens on the
Collateral or the priority of any such Lien or (e) the practical realization of the benefits of
Lender’s rights and remedies under the Loan and Security Agreement and the Loan Documents.
“NASD” means The National Association of Securities Dealers, Inc.
“NASDAQ” means The National Association of Securities Dealers, Inc. Automated
Quotation System.
“Other Securities” means any shares of capital stock (other than Common Stock) and
other securities of the Company or any other Person which the holder of the Warrant at any time
shall be entitled to receive, or shall have received, on the exercise of the Warrant in lieu of or
in addition to the Common Stock or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities.
“Person” means any natural person, corporation, limited liability company, limited
partnership, general partnership, joint stock company, joint venture, association, company, trust,
bank, trust company, land trust, business trust or other organization, whether or not a legal
entity, and any government agency or political subdivision thereof.
“Public Sale” means any sale of capital stock to the public pursuant to an offering
registered under the Securities Act or to the public through a broker, dealer or market maker
pursuant to the provisions of Rule 144 (or any successor provision then in effect) adopted under
the Securities Act.
“Registrable Securities” means any Warrant Shares (whether outstanding or into which
the Warrants are exercisable) until the date (if any) on which such Warrant Shares shall have been
transferred or exchanged and new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any similar state law
then in force or, such Warrant Shares can be sold without registration pursuant to Rule 144
promulgated under the Securities Act and without compliance with the volume limitations of such
Rule.
“Registration Expenses” means, other than underwriting discounts and commissions, all
expenses incident to the Company’s performance of or compliance with Section 4.1 through
Section 4.6 hereof, including (i) all registration, filing and NASD fees, (ii) all fees and
expenses of complying with federal and state securities or blue sky laws, (iii) all word
processing, duplicating and printing expenses, (iv) all messenger telephone and delivery expenses,
(v) the fees and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and “cold comfort” letters required by or
incident to such performance and compliance, (vi) the fees and disbursements of any one counsel and
any one accountant retained by the holder or holders of more than 50% of the Registrable Securities
being registered, (or, in the case of any registration effected pursuant to Section 4.1
hereof, as the Initiating Holders shall have selected to represent all holders of the Registrable
Securities being registered), (vii) the fees and expenses of the “qualified independent appraiser”
participating in an offering pursuant to Section 3 of The Schedule to the By laws of the
NASD, (viii) premiums
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and other costs of policies of insurance (if any) against liabilities arising out of the
public offering of the Registrable Securities being registered if the Company desires such
insurance (ix) fees and expenses of other Persons retained by the Company, (x) internal expenses of
the Company (including without limitation, all salaries and expenses of officers and employees of
the Company performed legal or accounting duties), (xi) the expense of any annual audit, (xii) the
fees and expenses of listing on any securities exchange, and (xiii) any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but not including underwriting
discounts and commissions and transfer taxes, if any, provided that, in any case where Registration
Expenses are not to be borne by the Company, such expenses shall not include (i) salaries of the
Company personnel or general overhead expenses of the Company, (ii) auditing fees, (iii) premiums
or other expenses relating to liability insurance required by underwriters of the Company or (iv)
other expenses for the preparation of financial statements or other data, to the extent that any of
the foregoing either is normally prepared by the Company in the ordinary course of its business or
would have been incurred by the Company had no public offering taken place.
“Securities Act” means the Securities Act of 1933, as amended, and any successor
Federal statute and the rules and regulations of the Securities and Exchange Commission (or its
successors) thereunder, all as the same shall be in effect from time to time.
“Warrant” means the Warrant to purchase all or part of the Common Stock issued by the
Company in connection with the Loan and Security Agreement.
"Warrant Shares” has the meaning set forth in paragraph (A) of this Warrant.
All references herein to “days” shall mean calendar days unless otherwise specified.
ARTICLE VI — MISCELLANEOUS
6.1 Notices. Unless otherwise specifically provided herein, all notices shall be in
writing addressed to the respective party as set forth below and may be personally served,
telecopied or sent by overnight courier service or United States mail and shall be deemed to have
been given: (a) if delivered in person, when delivered; (b) if delivered by telecopy, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. Eastern standard time or, if not,
on the next succeeding Business Day; (c) if delivered by overnight courier, two (2) days after
delivery to such courier properly addressed; or (d) if by U.S. Mail, five (5) Business Days after
depositing in the United States mail, with postage prepaid and properly addressed.
| If to Company: | DRI Corporation | |||
| 00000 Xxxx Xxxx, Xxxxx 000 | ||||
| Xxxxxx, Xxxxx 00000 | ||||
| Attention: Xxxxxxx X. Xxxx | ||||
| Facsimile: (000) 000-0000 | ||||
| With a copy to: | Xxxxxxx Xxxxx LLP | |||
| 0000 Xxxx Xxxxxx, Xxxxx 0000 | ||||
| Xxxxxx, Xxxxx 00000 |
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| Attention: Xxxxxxx Xxxxxx Xxxxx, Esq. | ||||
| Facsimile: (000) 000-0000 | ||||
| If to Holder: | BHC Interim Funding III, L.P. | |||
| 000 Xxxxxxx Xxxxxx, 00xx Xxxxx | ||||
| Xxx Xxxx, XX 00000 | ||||
| Attention: Xxxxxx X. Xxxxxxxx, Managing Partner | ||||
| Facsimile: (000) 000-0000 | ||||
| E-mail for Section 2.7: xxxxxxxxx@xxxxxxxxxxxxxx.xxx | ||||
| With a copy to: | Blank Rome LLP | |||
| The Chrysler Building | ||||
| 000 Xxxxxxxxx Xxxxxx | ||||
| Xxx Xxxx, XX 00000 | ||||
| Attention: Xxxxxx X. Xxxxxxxx, Esq. | ||||
| Facsimile: (000) 000-0000 |
6.2 Waivers; Amendments. No failure or delay of the Holder in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any other right or power.
No notice or demand on the Company in any case shall entitle the Company to any other or future
notice or demand in similar or other circumstances. The rights and remedies of the Holder are
cumulative and not exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only with) the prior
written consent of the Company and a majority in interest of the Holders.
Any amendment, modification or waiver effected pursuant to and in accordance with the
provisions of this Section shall be binding upon the holders of this Warrant upon each future
Holder thereof and upon the Company. In the event of any such amendment, modification or waiver,
the Company shall give prompt notice thereof to all Holders of this Warrant and, if appropriate,
notation thereof shall be made on all Warrant thereafter surrendered for registration of transfer
or exchange.
6.3 Governing Law. THIS WARRANT AND ALL MATTERS RELATED HERETO AND ARISING HEREFROM
(WHETHER ARISING UNDER CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
6.4 Transfer; Covenants to Bind Successor and Assigns. All covenants, stipulations,
promises and agreements in this Warrant made by or on behalf of the Company or the Holder shall
bind its successors and assigns, whether so expressed or not. This Warrant and all of the Holder’s
rights hereunder, shall be transferable and assignable by the Holder hereof in whole, or from time
to time in part, to any other Person, subject to the restrictions on transferability contained
herein and under the applicable securities laws, provided however, that Holder may not assign its
rights to a competitor of the Company and the provisions of this Warrant shall be binding upon the
Company and its successors and assigns, provided that the Company may not
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assign this Warrant, its rights or obligations hereunder without the Holder’s prior written
consent and inure to the benefit of the Holder hereof and its successors and assigns.
6.5 Warrant Agent. The Company may, by written notice to the each Holder of the
Warrant, appoint an agent for the purpose of issuing Warrant Shares on the exercise of this Warrant
pursuant to Section 1.1, exchanging this Warrant pursuant to Section 2.2, and
replacing this Warrant pursuant to Section 2.3, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at such office by such
agent.
6.6 Severability. In case any one or more of the provisions contained in this Warrant
shall be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of which comes as
close as possible to that of the invalid, illegal or unenforceable provisions.
6.7 Section Headings. The section headings used herein are for convenience of
reference only, are not part of this Warrant and are not to affect the construction of or be taken
into consideration in interpreting this Warrant.
6.8 Right to Specific Performance. The Company acknowledges and agrees that in the
event of any breach of the covenants and agreements contained in this Warrant, the Holder would be
irreparably harmed and could not be made whole only by the award of monetary damages. Accordingly,
the Company agrees that the Holder, in addition to any other remedy to which the Holder may be
entitled at law or equity, will be entitled to seek and obtain an award of specific performance of
any of such covenants and agreements.
6.9 Consent to Jurisdiction. THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND IRREVOCABLY
AGREES THAT, SUBJECT TO HOLDER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS WARRANT, SHALL BE LITIGATED IN SUCH COURTS. THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS WARRANT. IF THE COMPANY PRESENTLY IS, OR IN THE
FUTURE BECOMES, A NONRESIDENT OF THE STATE OF NEW YORK, THE COMPANY HEREBY WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON THE COMPANY BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE COMPANY, AT THE COMPANY’S
ADDRESS AS MOST RECENTLY NOTIFIED BY THE COMPANY IN WRITING TO THE HOLDER AND SERVICE SO MADE SHALL
BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID.
6.10 Waiver Of Jury Trial. THE COMPANY AND HOLDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS WARRANT.
THE COMPANY AND
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HOLDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS WARRANT AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND HOLDER
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
6.11 Survival. The obligations of the Company under Article IV shall survive the
exercise or other termination of the Warrant.
[Signatures Appear on Following Page]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its corporate name
by one of its officers thereunto duly authorized, all as of the day and year first above written.
| DRI CORPORATION | ||||||
| By: | /S/ XXXXX X. XXXXXX | |||||
| Name: | Xxxxx X. Xxxxxx | |||||
| Title: | CEO/President | |||||
Accepted as of the day and year first above written:
| BHC INTERIM FUNDING III, L.P. | ||||
By:
|
BHC Interim Funding Management III, L.P., | |||
| its General Partner | ||||
By:
|
BHC Investors III, L.L.C., | |||
| its Managing Member | ||||
By:
|
GHH Holdings III, L.L.C. | |||
By:
|
/S/ XXXXXX X. XXXXXXXX | |||
Name:
|
Xxxxxx X. Xxxxxxxx | |||
Title:
|
Managing Member | |||
| As to Articles IV and VI: DRI CORPORATION |
||||||
| By: | /S/ XXXXX X. XXXXXX | |||||
| Name: | Xxxxx X. Xxxxxx | |||||
| Title: | CEO/President | |||||
Signature Page to Warrant
SUBSCRIPTION FORM
(To be executed by the Registered Holder if he desires to exercise the Warrant)
TO: [ ]
The undersigned hereby exercises the right to purchase:*
(a) the Warrant Shares covered by the attached Warrant;
(b) Warrant Shares
in accordance with the terms and conditions thereof, and herewith makes payment of the Exercise
Price for such Warrant Shares in full.
Please deliver Warrant Shares by:
o Certificates as follows:
o DWAC as follows:
|
|
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| Name: | ||||
| Address: |
Dated:
| * | Delete (a) or (b), whichever is inapplicable. |
Signature Page to Warrant
ASSIGNMENT
(To be executed by the Registered Holder if he desires to exercise the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
[ ] the right to purchase [ ] percent of the Warrant Shares of
[ ] evidenced by the within Warrant, and does hereby
irrevocably constitute and appoint [ ] Attorney to transfer the said Warrant on
the books of the Company, with full power of substitution.
|
|
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| Signature Address: |
Dated:
In the Presence of:
EXHIBIT A
INVESTOR REPRESENTATION LETTER
Pursuant to this Investor Representation Letter (this “Agreement”), the undersigned
(“Holder”) represents and warrants to [ ] (“Company”) as
follows (Capitalized terms used, but not defined herein, have the meanings assigned to them in the
Warrant dated as of [ ] [ ], 2008 executed and delivered by the Company):
1. Authority. Holder has all requisite power and authority to enter into this
Agreement and perform Holder’s obligations hereunder. The execution, delivery and performance of
this Agreement by Holder have been duly authorized by all necessary action, corporate, partnership,
or otherwise, on the part of Holder. This Agreement has been duly executed and delivered by the
Holder and is a legal, valid and binding agreement of Holder, enforceable against the Holder in
accordance with its terms (except as enforceability may be limited by laws of bankruptcy or
insolvency and general equitable principles).
2. No Conflicts. The execution, delivery and performance of this Agreement by Holder
will not conflict with or result in the breach of any term or provision of, or violate or
constitute a default under any charter provision, bylaw, partnership agreement or similar
organizational document of Holder, or under any agreement, instrument, order, judgment, decree, law
or regulation to which the Holder is a party or by which Holder is in any way bound or obligated.
3. Approvals. No permit, authorization, notice, consent or approval is required in
connection with the execution, delivery or performance by Holder of this Agreement.
4. Investment Representations.
(a) Holder understands that the representations and warranties set forth in this Paragraph
4 are being provided to, and relied upon by, the Company to determine whether the Warrants and
the Warrant Shares may be sold to Holder pursuant to Section 4(2) of the Securities Act of
1933, as amended (the “Securities Act”), Regulation D thereunder and similar exemptions
from applicable state securities laws.
(b) Information contained herein as it relates to Holder is complete and accurate in all
material respects and may be relied upon by the Company in determining the availability of an
exemption from registration under federal and state securities laws in connection with the offering
and sale of securities as described in this Agreement.
(c) Holder is acquiring the Warrants and the Warrant Shares for Holder’s own account, for
investment and not with a view to the distribution.
(d) Holder understands that the Warrants and the Warrant Shares have not been registered under
the Securities Act or with any state authority, and that neither the Securities and Exchange
Commission nor any state securities commission has approved any of the Warrants and the Warrant
Shares or passed upon or endorsed the merits of the offering or sale of the Warrants and the
Warrant Shares or confirmed the accuracy or determined the
adequacy of any materials or information presented or made available to Holder in connection
with this transaction, none of which has been reviewed by any federal, state or other regulatory
authority.
(e) Holder acknowledges that the documents, records, and books, including the Memorandum,
pertaining to the investment in the Warrants and the Warrant Shares have been made available for
inspection by Holder and, if requested, Holder’s attorney, financial advisor, accountant, purchaser
representative or tax advisor (collectively, the “Advisors”), and that the Company has
advised the undersigned to consult with Holder’s Advisors regarding the terms of this investment
and suitability of the investment in light of Holder’s financial considerations and needs, and
after due consideration, Holder has determined that the investment in the Warrants and the Warrant
Shares is suitable.
(f) Holder and Holder’s advisors have had the opportunity to obtain nay additional information
necessary to verify the accuracy of the information contained in documents received or reviewed in
connection with the purchase of the Warrants and the Warrant Shares and have had the opportunity to
meet with representatives of the Company and to have them answer questions and provide additional
information regarding the terms and conditions of this investment and the finances, operations,
business and prospects of the Company deemed relevant by Holder, and any such questions have been
answered and requested information provided to Holder’s full satisfaction.
(g) Holder understands that Holder must bear the economic risk of an investment in the
Warrants and the Warrant Shares indefinitely because none of the Warrants and the Warrant Shares
may be sold, pledged or otherwise transferred unless subsequently registered under the Securities
Act and applicable state securities laws or unless an exemption from registration is available, and
that each certificate or agreement representing the Warrants and the Warrant Shares issuable upon
exercise of the Warrant will bear substantially the following legend until such restriction is no
longer required by law:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION IN
REASONABLY ACCEPTABLE FORM AND SCOPE TO THE COMPANY OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION OR OTHER SUCH ACTIONS
ARE NOT REQUIRED UNDER ANY SUCH LAWS OR THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. THIS SECURITY IS ALSO SUBJECT TO CERTAIN ADDITIONAL TRANSFER
RESTRICTIONS PROVIDED FOR IN THE WARRANT THE EXERCISE OF WHICH RESULTED IN THE
ORIGINAL ISSUANCE OF THIS SECURITY, A COPY OF WHICH RESTRICTIONS SHALL BE FURNISHED
TO THE HOLDER HEREOF BY THE COMPANY UPON WRITTEN REQUEST AND WITHOUT CHARGE.
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(h) Holder has a sufficient net worth to sustain a loss of Holder’s entire investment in the
Warrants and the Warrant Shares in the event such a loss should occur and Holder’s overall
commitment to investments that are not readily marketable is not excessive in view of Holder’s net
worth and financial circumstances.
(i) Holder (including all partners and equity holders in the case of a Holder that is a
corporation or partnership) is an “accredited investor” as defined in Rule 501 of Regulation D
under the Securities Act, with which Holder is familiar. Holder has initialed each of the
following which is applicable to Holder:
| (i) | Holder has significant prior investment experience, including investment in non-listed and non-registered securities, and is knowledgeable about investment considerations in start-up companies. Holder has such knowledge and experience in financial, tax, and business matters so as to enable Holder to utilize the information made available to Holder to evaluate the merits and risks of an investment in the Warrant and the Warrant Shares and to make an informed investment decision with respect thereto. | ||
| (ii) | Holder is a natural person who had individual income of more than $200,000 in each of the most recent two years or joint income with spouse in excess of $300,000 in each of the most recent two years and reasonably expects to reach that same income level for the current year. “Income” for purposes hereof should be computed as follows: individual adjusted gross income, as reported (or to be reported) on a federal income tax return, increased by (A) any deduction of long-term capital gains under Section 1202 of the Internal Revenue Code of 1986, as amended (the “Code”); (B) any deduction for depletion under Section 611 et. seq. of the Code; (C) any exclusion for interest under Section 103 of the Code; and (D) any losses of a partnership as reported on Schedule E of Form 1040). If a California resident, Holder’s investment in the Warrant and the Warrant Shares does not exceed ten percent (10%) of Holder and spouse’s joint net worth. | ||
| (iii) | Holder is a natural person whose individual net worth (i.e., total assets in excess of total liabilities) or joint net worth with spouse will at the time of purchase of the Warrant and the Warrant Shares be in excess of $1,000,000. | ||
| (iv) | Holder is not a natural person and Holder certifies that it is an “accredited investor” because it meets one of the additional qualifying conditions specified in Regulation D, which is specifically that Holder is: | ||
| (v) | Holder is a corporation or partnership and each of its shareholders or |
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| partners meets at least one of the following conditions: | |||
| (A) each shareholder or partner is a natural person who falls within at least one of the categories described in 4(i)(i) or (ii) above; or | |||
| (B) each shareholder or partner is a corporation, partnership or other entity which meets the description of at least one of the organizations described in 4(i)(i) above. | |||
| (vi) | Holder is a revocable trust established by its beneficiary and the grantor falls within one of the categories described in 4(i)(i) or (ii) above. |
Dated:
|
|
|
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