Document:

exv10w6

 

Exhibit 10.6

REGISTRATION RIGHTS AGREEMENT

     Registration Rights Agreement (this “Agreement”) executed this 23rd day of June, 2005,
by and between DIGITAL RECORDERS, INC., a North Carolina corporation (the “Company”), and
JOHN D. HIGGINS (the “Holder”).

     WHEREAS, it is contemplated under that certain Stock Purchase Agreement by and between the
Company and the Holder dated June 23, 2005 (as such may be amended from time to time, the
“Stock Purchase Agreement”) and that certain Stock Purchase Warrant dated as of June 23,
2005, by the Company in favor of the Holder (the “Warrant Agreement”), that the Company
provide the Holder with certain registration rights.

     NOW THEREFORE, in consideration of the mutual covenants and agreements and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:

ARTICLE I

REQUIRED REGISTRATION

     1.1 Required Registration. Subject to Sections 1.5 and 5.2 hereof, the Company shall,
at its sole cost and expense, file a Registration Statement on or before August 23, 2005 and cause
a Registration Statement under the 1933 Act covering the resale by Holder of all of the Conversion
Shares and Warrant Stock to be declared effective by the Commission on or before October 23, 2005,
time being of the essence (the “Target Effective Date”). The Company will use its best efforts to
keep such Registration Statement current and effective for at least two (2) years from the date
hereof or until such earlier date as the Company’s registration obligations with respect to the
Conversion Shares terminate pursuant to Section 5.2 hereof.

     1.2 Demand Registration.

     (a) At any time during the period beginning on the date on which any Dividend Shares
become issuable (upon the initial issuance as dividends of shares of Preferred Stock
convertible into such Dividend Shares, as contemplated by clause (b) of the definition of
“Preferred Stock” contained in Section 6.1), and ending on the earlier of two years after
the final issue date of such shares of Preferred Stock or the date on which the Company’s
registration obligations with respect to the Dividend Shares terminate pursuant to Section
5.2 hereof, the Holder may request the Company to register under the Securities Act all, but
not less than all, of the Dividend Shares that the Holder then holds or has the right to
acquire and that constitute Registrable Securities, for sale by such Holder in the manner
specified in such request. The Company will use its best efforts to expeditiously effect
the registration of the Dividend Shares following such a request. The Holder shall have the
right to require such a registration one (1) time, provided that if the requested
registration is not effected as contemplated by Section 1.5, the Holder shall continue to
have the rights specified in this Section 1.2 until such registration is effected in
accordance herewith. The Company shall not be required to effect a registration
pursuant to a request under this Section 1.2 within six (6) months after the filing of
a registration statement relating to a public offering of securities by the Company. Any
Registration Statement filed pursuant hereto may include, in addition to the Dividend

 

 

Shares, such other shares of Common Stock or other securities of the Company for sale by the
Company or other security holders of the Company as the Company may deem appropriate,
provided that the inclusion of such additional securities does not unreasonably interfere
with the Holder’s ability to dispose of the Dividend Shares pursuant to such registration.
The Company may satisfy its obligations under this Section 1.2 by amending the Registration
Statement filed pursuant to Section 1.1 to add the Dividend Shares thereto, if appropriate
and permitted under applicable rules of the Commission.

     (b) If at the time of any request to register Dividend Shares pursuant to this Section
1.2 the Company is engaged in discussions or negotiations regarding a possible acquisition
or other significant corporate transaction that, in the good faith determination of the
Company’s Board of Directors, would be adversely affected by the requested registration to
the material detriment of the Company, then the Company may at its option direct that such
request be delayed for a period not in excess of sixty (60) days from the date of such
request, such right to delay a request to be exercised by the Company not more than once in
any one (1) year period.

     1.3 Piggyback Registration. If at any time the Company shall propose to register any
Common Stock, whether or not for sale for its own account, under the 1933 Act, by future
registrations on Form SB-2, S-1, S-2 or S-3 for future financings (but not Form S-4 or S-8) or any
successor or similar forms (except for any registrations in connection with an employee benefit
plan or dividend reinvestment plan or a merger, consolidation or other business combination) it
shall give written notice to the Holder of its intention to do so and of the Holder’s rights under
this Section 1.3 at least 30 days prior to the filing of a registration statement with respect to
such registration with the Commission. Upon the written request of the Holder made within 20 days
after the receipt of that notice, which request shall specify the Registrable Securities intended
to be registered and disposed of by such Investor, the Company shall, subject to the provisions
hereof, use its best efforts to include in such registration statement all Registrable Securities
that the Company has been so requested to register by Holder. If Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by the Company, such
Investor shall nevertheless continue to have the right pursuant to this Section 1.3 to include any
Registrable Securities in any subsequent registration statement or registration statements as may
be filed by the Company with respect to offerings of its securities, upon all the terms and
conditions set forth herein. If, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration statement filed in
connection with a registration under this Section 2(g), the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at its election, give
written notice of such determination to each Holder and upon giving that notice (i) in the case of
a determination not to register, the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such registration without prejudice and (ii) in the case
of a determination to delay registering, the Company shall be permitted to delay registering any
Registrable Securities for the same period as the delay in registering such other securities.

     1.4 Restriction on Short-Form Registration. Notwithstanding the foregoing, the
Company shall not be required to effect a registration pursuant to the foregoing provisions of

2

 

Section 1.1, 1.2 or 1.3 if it is determined that such registration would not be permitted under
applicable securities laws or the rules and regulations of the Commission.

     1.5 Expenses. The Company will pay all of its Registration Expenses in connection
with the registrations required by Sections 1.1, 1.2 and 1.3, including any Registration Statement
that is not deemed to be effected pursuant to the provisions of Section 1.6 hereof.

     1.6 Effective Registration Statement. A registration pursuant to Section 1.1, 1.2 or
1.3 of this Agreement shall not be deemed to have been effected (i) unless a Registration Statement
with respect thereto has been declared effective by the Commission, (ii) if after it has become
effective, such registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any reason or (iii) the
Registration Statement does not remain continuously effective until termination of the Company’s
registration obligations pursuant to Section 5.2 hereof. If a registration pursuant to this
Article I is deemed not to have been effected as provided in this Section 1.6, then the Company
shall continue to be obligated to effect the registration required by Section 1.1 or 1.2.

     1.7 Obligations of the Holder.

     (a) In connection with any registration of Registrable Securities pursuant to Section
1.1, 1.2 or 1.3, the Holder shall furnish to the Company in a timely manner all information
regarding itself and the distribution of such Registrable Securities as may be required to
be included in the Registration Statement and as the Company may from time to time
reasonably request in order to effect the registration of such Registrable Securities, and
shall otherwise cooperate with the Company to the extent reasonably necessary to effect such
registration.

     (b) Each Holder agrees, that upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (f) of Article II hereof, the
Holder will forthwith discontinue disposition of Registrable Securities covered by any
Registration Statement or Prospectus until the Holder’s receipt of the copies of the
supplemented or amended Prospectus contemplated by such paragraph (f), or until it is
advised in writing by the Company that the use of the applicable Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are incorporated by
reference in such Prospectus, and, if so directed by the Company, the Holder will deliver to
the Company (at the Company’s expense) all copies, other than permanent file copies then in
the Holder’s possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice.

     (c) If any Registrable Securities are to be sold in an underwritten offering, the
Holder shall complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements (including customary indemnities by the selling stockholders) and
other documents reasonably and customarily required under the terms of such underwriting
arrangements.

3

 

ARTICLE II

REGISTRATION PROCEDURES

     Whenever any Registrable Securities are to be registered pursuant to this Agreement, the
Company will use best efforts to effect the registration of such Registrable Securities for sale in
accordance with the intended method or methods of disposition thereof as quickly as possible, and
pursuant thereto the Company will as expeditiously as reasonably possible:

     (a) prepare and file with the Commission a Registration Statement with respect to such
Registrable Securities and use its best efforts to cause such Registration Statement to
become and remain effective for the period contemplated by Section 1.1 or 1.2;
provided, that as promptly as practicable before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company will (i) furnish to counsel
selected by the Holder copies of all such documents proposed to be filed, and (ii) notify
the Holder of (x) any request by the Commission to amend such Registration Statement or
amend or supplement any Prospectus, or (y) any stop order issued or threatened by the
Commission, and take all reasonable actions required to prevent the entry of such stop order
or to promptly remove it if entered;

     (b) (i) prepare and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be necessary
to keep such Registration Statement effective for the period contemplated by Section 1.1 or
1.2, and (ii) comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Holder set forth in such
Registration Statement;

     (c) furnish to the Holder, without charge, such number of conformed copies of such
Registration Statement, each amendment and supplement thereto, the Prospectus included in
such Registration Statement (including each preliminary Prospectus and, in each case,
including all exhibits) and such other documents as the Holder may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by it;

     (d) use its best efforts to register or qualify such Registrable Securities under such
other securities or blue sky laws of such jurisdictions in the United States as the Holder
shall reasonably request, to keep such registration or qualification in effect for so long
as such Registration Statement remains in effect and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by it; provided,
however, that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for this clause
(d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;

     (e) use its best efforts (if the offering is underwritten) to furnish to the Holder a
signed copy, addressed to the Holder (and the underwriters, if any) of an opinion of counsel
for the Company or special counsel to the selling stockholder, dated the effective date of
such Registration Statement (and, if such Registration Statement includes an

4

 

underwritten public offering, dated the date of the closing under the underwriting
agreement), covering substantially the same matters with respect to such Registration
Statement (and the Prospectus included therein) as are customarily covered in opinions of
issuer’s counsel delivered to the underwriters in underwritten public offerings, and such
other legal matters as the Holder (or the underwriters, if any) may reasonably request;

     (f) notify the Holder, at a time when a Prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event known to the Company as a
result of which the Prospectus included in such Registration Statement, as then in effect,
contains an untrue statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and, at the request of the Holder, the Company
will prepare and furnish to the Holder a reasonable number of copies of a supplement to or
an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the circumstances
under which they were made;

     (g) cause all such Registrable Securities to be listed on each securities exchange and
quotation system on which similar securities issued by the Company are then listed and to
enter into such customary agreements as may be required in furtherance thereof, including,
without limitation, listing applications and indemnification agreements in customary form;

     (h) provide a transfer agent and registrar for all such Registrable Securities not
later than the effective date of such Registration Statement;

     (i) make available for inspection by the Holder, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney, accountant or other
agent retained by the Holder or any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the Company’s
officers, directors, employees and independent accountants to supply all information
reasonably requested by the Holder, any such underwriter, attorney, accountant or agent in
connection with such Registration Statement to enable them to conduct a reasonable
investigation within the meaning of the Securities Act;

     (j) subject to other provisions hereof, use its best efforts to cause such Registrable
Securities covered by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities or self-regulatory organizations as may be
necessary to enable the sellers thereof to consummate the disposition of such Registrable
Securities; and

     (k) promptly notify the Holder of the issuance of any stop order by the Commission or
the issuance by any state securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of any of the Registrable
Securities under state securities or “blue sky” laws, and use every reasonable effort to
obtain the lifting at the earliest possible time of any stop order

5

 

suspending the effectiveness of any Registration Statement or of any order preventing
or suspending the use of any preliminary Prospectus.

ARTICLE III

REGISTRATION EXPENSES

     3.1 Registration Expenses. All Registration Expenses will be borne as provided in
Section 1.5 of this Agreement.

     3.2 Sellers’ Expenses. The Company shall have no obligation to pay (a) any
underwriting discounts or commissions or stock transfer taxes attributable to the sale of
Registrable Securities, which expenses will be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to be so registered, or
(b) any fees or expenses of attorneys for the Holder or any other selling stockholder.

ARTICLE IV

INDEMNIFICATION

     4.1 Company’s Indemnification Obligations. The Company agrees to indemnify and hold
harmless the Holder and each other Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Holder
Indemnitees”):

     (a) against any and all loss, liability, claim, damage or expense arising out of or
based upon an untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or in any preliminary Prospectus or Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;

     (b) against any and all loss, liability, claim, damage and expense to the extent of the
aggregate amount paid in settlement of any litigation, investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim based upon any such
untrue statement or omission or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Company; and

     (c) against any and all reasonable expense incurred by them in connection with
investigating, preparing or defending against any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim based upon any
such untrue statement or omission or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under clause (a) or (b) above;

provided, that this indemnity does not apply to any loss, liability, claim, damage or
expense to the extent arising out of an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Holder expressly for use in the preparation of any Registration
Statement (or any amendment or supplement thereto), including all documents incorporated

6

 

therein by reference, or in any preliminary Prospectus or Prospectus (or any amendment or
supplement thereto); and provided further, that the Company will not be liable to
the Holder or any other Holder Indemnitee under the indemnity agreement in this Section 4.1, with
respect to any preliminary Prospectus or the final Prospectus or the final Prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, liability, claim, damage or
expense of such Holder Indemnitee results from the fact that the Holder sold Registrable Securities
to a Person to whom there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final Prospectus or of the final Prospectus as then amended or supplemented,
whichever is most recent, if the Company has previously and timely furnished copies thereof to the
Holder.

     4.2 Holder’s Indemnification Obligations. In connection with any Registration
Statement in which the Holder is participating, the Holder agrees to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Section 4.1 of this Agreement) the
Company and each Person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act with respect to any statement or alleged statement
in or omission or alleged omission from such Registration Statement, any preliminary, final or
summary Prospectus contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Holder. The obligations of each Holder
pursuant to this Section 4.2 (if there are more than one) are to be several and not joint (however,
husband and wife are to be treated as one Holder); provided, that with respect to each
claim pursuant to this Section 4.2, each such Holder’s maximum liability under this Section shall
be limited to an amount equal to the net proceeds actually received by such Holder (after deducting
any underwriting discount and expenses) from the sale of Registrable Securities being sold pursuant
to such Registration Statement or Prospectus by such Holder.

     4.3 Notices; Defense; Settlement. Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding involving a claim
referred to in Section 4.1 or Section 4.2 of this Agreement, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying party of its obligations
under Section 4.1 or Section 4.2 of this Agreement except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified, to the extent that
it may wish, and after notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof with counsel mutually satisfactory to the indemnifying party and
the indemnified party, the indemnifying party will not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection with the defense thereof,
unless in such indemnified party’s reasonable judgment, upon the advice of counsel, a conflict of
interest between such indemnified and indemnifying parties may exist in respect of such claim, in
which case the indemnifying party shall not be liable for the fees and expenses of (i) more than
one counsel for all holders of Registrable Securities, selected by the Holder or (ii) more than one
counsel for the Company in connection with any one action or separate but similar or related
actions. An indemnifying party who is not entitled to, or elects not to, assume the

7

 

defense of a claim will not be obligated to pay the fees and expenses of more than one counsel
for all parties indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party, based on advice of counsel, a conflict of interest
may exist between such indemnified party and any other of such indemnified parties with respect to
such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses
of such additional counsel or counsels. The indemnifying party will not, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which indemnification may
be sought hereunder (whether or not such indemnified party or any Person who controls such
indemnified party is a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding. Notwithstanding anything to the
contrary set forth herein, and without limiting any of the rights set forth above, in any event,
any party will have the right to retain, at its own expense, counsel with respect to the defense of
a claim.

     4.4 Indemnity Provision. The Company and the Holder shall provide for the foregoing
indemnity (with appropriate modifications) in any underwriting agreement with respect to any
required registration or other qualification of securities under any Federal or state law or
regulation of any governmental authority other than the Securities Act.

     4.5 Contribution Based on Relative Fault. In order to provide for just and equitable
contribution if a claim for indemnification pursuant to the indemnification provisions of this
Article IV is made but it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in such case, and the
express provisions hereof provide for indemnification in such case, then the indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 4.1 or Section 4.2 of this Agreement in such
proportion as is appropriate to reflect the relative fault of the indemnifying party on the one
hand, and the indemnified party on the other, in connection with statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations, including, without limitation, the relative benefits received by each
parties from the offering of the securities covered by such Registration Statement, the parties’
relative knowledge and access to information concerning the matter with respect to which the claim
was asserted and the opportunity to correct and prevent any statement or omission. The relative
fault shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party or the indemnified party and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such untrue
statements or omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 4.5 were to be determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this Section 4.5. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities referred to in the
first sentence of this Section 4.5 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating or defending any
action or claim (which shall be limited as provided in Section 4.3 of this Agreement if the
indemnifying party has assumed the defense of any such action in accordance with the provisions
thereof)

8

 

which is the subject of this Section 4.5. Promptly after receipt by an indemnified party
under this Section 4.5 of notice of the commencement of any action against such party in respect of
which a claim for contribution may be made against an indemnifying party under this Section 4.5,
such indemnified party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in Section 4.3 of this Agreement has not been given with respect to such
action; provided, that the omission to so notify the indemnifying party shall not relieve
the indemnifying party from any liability which it may otherwise have to any indemnified party
under this Section 4.5, except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. The Company and the Holder agree with each other, and will agree with
the underwriters of the Registrable Securities, if requested by such underwriters, that (i) the
underwriters’ portion of such contribution shall not exceed the underwriting discount and (ii) that
the amount of such contribution by the Holder shall not exceed an amount equal to the net proceeds
actually received by the Holder from the sale of Registrable Securities in the offering to which
the losses, liabilities, claims, damages or expenses of the indemnified parties relate. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.

     4.6 Payments. The indemnification required by this Article IV shall be made by
periodic payments of the amount thereof during the course of the investigation or defense, as and
when expense, loss, damage or liability is incurred.

ARTICLE V

TRANSFER AND TERMINATION OF REGISTRATION RIGHTS 

     5.1 Transfer of Rights. The Holder identified in the preamble of this Agreement may
transfer its rights to register such Holder’s Registrable Securities hereunder to any transferee of
such Registrable Securities, provided that such rights may not be transferred (a) to any person or
entity who or which is engaged in an activity or business directly competitive with any activity or
business of the Company or any subsidiary of the Company as presently conducted; or (b) to any
person or entity without the Company’s prior written consent, which shall not be unreasonably
withheld; and provided further that the proposed transferee enters into a written agreement with
the Company, agreeing to be bound by the terms and conditions hereof. As used in Agreement,
“Holder” shall refer to the Holder identified in the preamble of this Agreement and to each
permitted transferee of such Holder’s rights pursuant to this Section 5.1, as the context requires;
provided that no Holder other than the Holder identified in the preamble of this Agreement shall
have the right to make any transfer or assignment of rights under this Agreement.

     5.2 Termination of Rights. The registration rights of any Holder of such rights
hereunder and the registration obligations of the Company hereunder with respect to Registrable
Securities will terminate on the earliest date at which such Registrable Securities have been sold
or may be sold pursuant to the exemption from registration provided under Rule 144(k) promulgated
under the Securities Act.

9

 

ARTICLE VI

DEFINITIONS

     6.1 Terms. As used in this Agreement, the following defined terms shall have the
meanings set forth below:

     “Business Day” means a day other than Saturday, Sunday or any day on which banks
located in the State of New York are authorized or obligated to close.

     “Commission” means the United States Securities and Exchange Commission.

     “Common Stock” means the common stock, par value $.10 per share, of the Company, any
securities into which such common stock shall have been changed or any securities resulting from
any reclassification or recapitalization of such common stock, and all other securities (other than
Preferred Stock) of any class or classes (however designated) of the Company the holders of which
have the right, without limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution, liquidation or winding up,
either to all or to a share of the balance of payments upon such dissolution, liquidation or
winding up.

     “Conversion Shares” means (i) the shares of Common Stock issued or issuable upon
conversion of the 50 shares of Preferred Stock initially issued to the Holder pursuant to the Stock
Purchase Agreement, (ii) any additional shares of Common Stock issued or issuable upon conversion
of shares of Preferred Stock hereafter issued as dividends on shares of Preferred Stock (as
contemplated by clause (b) of the definition of “Preferred Stock” below), the issuance of which
does not require approval by the Company’s shareholders, and (iii) any securities issued or
issuable with respect to such shares of Common Stock pursuant to the adjustment provisions
contained in the Company’s Articles of Incorporation governing the Preferred Stock in connection
with a stock split or combination of shares, recapitalization, merger, consolidation, or other
reorganization.

     “Dividend Shares” means (i) the shares of Common Stock, if any, issued or issuable
upon conversion of shares of Preferred Stock hereafter issued as dividends on outstanding shares of
Series G Convertible Preferred Stock and which do not constitute Conversion Shares and (ii) any
securities issued or issuable with respect to such shares of Common Stock pursuant to the
adjustment provisions contained in the Company’s Articles of Incorporation governing the Preferred
Stock in connection with a stock split or combination of shares, recapitalization, merger,
consolidation, or other reorganization.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar
Federal statute then in effect, and any reference to a particular section thereof shall include a
reference to the equivalent section, if any, of any such similar Federal statute, and the rules and
regulations thereunder.

     “Person” means any individual, corporation, partnership, association, trust or other
entity or organization, including a government or political subdivision or an agency or
instrumentality thereof.

10

 

     “Preferred Stock” means the shares of Series G Convertible Preferred Stock of the
Company (a) issued and sold to the Holder by the Company pursuant to the Stock Purchase Agreement
on or before the date hereof and (b) issued to the Holder as dividends on outstanding shares of
Series G Convertible Preferred Stock pursuant to Section 2 of the Certificate of Designation
setting forth the terms and provisions of the Series G Convertible Preferred Stock.

     “Prospectus” means the prospectus included in any Registration Statement (including
without limitation, a prospectus that discloses information previously omitted from a prospectus
filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the securities covered by such Registration Statement, and
all other amendments and supplements to the prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by reference in such
prospectus.

     “Registrable Securities” means the Conversion Shares, Warrant Stock and the Dividend
Shares, provided that, as to any particular Registrable Securities, such securities will cease to
be Registrable Securities when they have been (x) effectively registered under the Securities Act
and disposed of in accordance with the Registration Statement covering them or (y) transferred
pursuant to Rule 144 (or any similar rule then in force) under the Securities Act or otherwise
transferred and, in each case, new certificates for them not bearing a restrictive Securities Act
legend have been delivered by the Company and can be sold without complying with the registration
requirements of the Securities Act.

     “Registration Expenses” means, with respect to any registration required hereunder,
all of the reasonable costs and expenses incurred in connection with such registration, other than
(i) underwriting discounts and commissions; (ii) transfer taxes; and (iii) all attorney’s fees for
selling stockholders’ attorneys.

     “Registration Statement” means any registration statement of the Company which covers
any of the Registrable Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such registration statement.

     “Securities Act” means the Securities Act of 1933, as amended, or any similar Federal
statute then in effect, and any reference to a particular section thereof shall include a reference
to a comparable section, if any, of any such similar Federal statute, and the rules and regulations
thereunder.

     6.2 “Warrant Stock” shall have the meaning set forth in the Warrant Agreement. Defined
Terms in Corresponding Sections. The following defined terms, when used in this Agreement,
shall have the meaning ascribed to them in the corresponding Sections of this Agreement listed
below:

11

 

	 	 	 	 	 	 
	“Agreement”

	 	—
	 	 	Preamble
	“Company”

	 	—
	 	 	Preamble
	“Holder Indemnitees”

	 	—
	 	 	Section 4.1
	“Holder”

	 	—
	 	 	Preamble and Section 5.1
	“Stock Purchase Agreement”

	 	—
	 	 	Recitals
	“Target Effective Date”

	 	—
	 	 	Section 1.1
	“Warrant Agreement”

	 	—
	 	 	Recitals

ARTICLE VII

MISCELLANEOUS

     7.1 Remedies. In the event of a breach by any party to this Agreement of its
obligations under this Agreement, any party injured by such breach, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The parties agree that the provisions of this
Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, for breach of any such provision will be inadequate compensation for
any loss and that any defense in any action for specific performance that a remedy at law would be
adequate is waived.

     7.2 Amendments and Waivers. Except as otherwise provided herein, no modification,
amendment or waiver of any provision of this Agreement will be effective against the Company or any
Holder of Registrable Securities, unless such modification, amendment or waiver is approved in
writing by the Company and the Holder(s) representing a majority of the Registrable Securities then
outstanding. The failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance with its terms.

     7.3 Successors and Assigns. All covenants and agreements in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of the respective successors
and permitted assigns of the parties hereto whether so expressed or not.

     7.4 Notices. All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered personally against written
receipt or mailed by pre-paid registered or certified mail, return receipt requested or mailed by
overnight courier prepaid to the parties at the following addresses:

	 	 	 
	If to the Company, to:

	 	Digital Recorders, Inc.
	 

	 	5949 Sherry Lane, Suite 1050
	 

	 	Dallas, TX 75225
	 
	 

	 	Attention: CEO & President
	 
	 	 
	If to Holder:

	 	John D. Higgins
	 

	 	105 High Farms Road
	 

	 	Glen Head, NY 11545

12

 

All such notices, requests and other communications will (i) if delivered personally to the address
as provided in this Section 7.4, be deemed given upon delivery, (ii) if delivered by mail in the
manner described above to the address as provided in this Section 7.4, be deemed given on the
earlier of the tenth full Business Day following the day of mailing or upon receipt, and (iii) if
delivered by overnight courier to the address provided in this Section 7.4, be deemed given on the
earlier of the third Business Day following the date sent by such overnight courier or upon
receipt. Any party from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change to the other
parties hereto.

     7.5 Headings. The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.

     7.6 Gender. Whenever the pronouns “he” or “his” are used herein they shall also be
deemed to mean “she” or “hers” or “it” or “its” whenever applicable. Words in the singular shall
be read and construed as though in the plural and words in the plural shall be construed as though
in the singular in all cases where they would so apply.

     7.7 Invalid Provisions. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future law, and if the rights or obligations of any
party hereto under this Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom and (iv) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.

     7.8 Governing Law. This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of North Carolina, without giving effect to any choice of law
or conflict of law provision or rule (whether of the State of North Carolina or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the State
of North Carolina.

     7.9 Counterparts. This Agreement may be executed in any number of counterparts, each
of which will be deemed an original, but all of which together will constitute one and the same
instrument.

     7.10 Termination of Prior Agreement. This Agreement is being entered into for the
purpose of amending and restating in its entirety the Original Agreement, and the Original
Agreement is hereby terminated and superceded in its entirety by this Agreement and shall have no
further force or effect.

13

 

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date
first above written, intending the same, to the extent legally permissible, to be effective as of
June 23, 2005.

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	Digital Recorders, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David L. Turney	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: David L. Turney	 	 
	 

	 	 	 	Title: CEO, President and Chairman	 	 

	 	 	 	 	 
	 

	 	HOLDER:
	 	 
	 
	 	 	 	 
	 

	 	/s/ John D. Higgins	 	 
	 

	 	 	 	 
	 

	 	JOHN D. HIGGINS	 	 

14exv10w66

 

Exhibit 10.66

EXECUTIVE EMPLOYMENT AGREEMENT

FOR

John S. West

This Executive Employment Agreement (the “Agreement”) is entered into as of June 23, 2005
and effective as of the Closing (as defined below), by and between John S. West
(“Executive”) and Solexa, Inc., a Delaware corporation (“Solexa”).

WHEREAS, Solexa has employed Executive effective upon the First Closing Date (as defined in the
Acquisition Agreement) (“Closing”) of the business combination transaction between Solexa
and Solexa Limited, a company registered in England and Wales (“Solexa UK”) pursuant to
that certain Acquisition Agreement dated September 28, 2004 (“Acquisition Agreement”), in
accordance with which Executive’s Solexa UK stock options have been exchanged for Solexa stock
options and in which the acquisition of Solexa UK’s goodwill is a key asset motivating the
participation of Solexa in the Acquisition Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is
hereby agreed by and among the parties as follows:

1. EMPLOYMENT BY SOLEXA .

     1.1 Title and Responsibilities. Subject to the terms set forth herein, Solexa agrees
to employ Executive effective on Closing in the position of Chief Executive Officer, and Executive
hereby accepts such employment and office. It is also anticipated that Executive will be nominated
with the support Solexa management for election by Solexa’s stockholders to serve on the board of
directors of Solexa (the “Board”). During his employment with Solexa, Executive will
devote substantially all of his business time and attention (except for vacation periods and
reasonable periods of illness or other incapacity permitted by the Solexa’s general employment
policies) to the business of Solexa and its affiliated entities (“Affiliates”). In
addition to any additional reasonable duties and responsibilities delegated to Executive from time
to time by the Board, Executive shall be responsible for the general supervision, direction, and
authority over the business, affairs, and officers of Solexa and its Affiliates, and shall perform
all the duties commonly incident to the office of a chief executive. Unless otherwise requested by
the Board, Executive shall continue to serve as a director of Solexa so long as Executive is
elected to the Board by Solexa’s stockholders.

     1.2 Budgetary Authority. So long as Executive is employed as Chief Executive Officer
of Solexa, Executive shall have responsbility over the budgetary and financial affairs of Solexa
subject to procedures and limitations established by the Board from time to time or contained in
the Solexa’s bylaws or certificate of incorporation or subject to the Executive’s general fiduciary
duties.

     1.3 Solexa Employment Policies. The employment relationship between Executive and
Solexa shall be governed by the general employment policies and procedures of Solexa ,

1

 

including those relating to protection of confidential information and assignment of
inventions, except that when the terms of this Agreement differ from or are in conflict with such
general employment policies or procedures, this Agreement shall control. Executive agrees to
execute Solexa ’s standard Proprietary Information and Inventions Agreement (“Inventions
Agreement”) attached hereto as Exhibit A.

     1.4 Board Reporting. Executive shall keep the Board reasonably informed (in writing,
if so requested) of his conduct of the business or affairs of Solexa and provide such explanations
of his conduct as the Board may reasonably require.

     1.5 Prior Employment.  From and after Closing, this Agreement shall govern
Executive’s employment and services provided with regard to Solexa and its Affiliates, including
Solexa UK, and the Executive Employment Agreement dated July 28, 2004, by and among Executive,
Abingworth Management Inc., a California corporation (“Abingworth”) and Solexa UK (the
“Prior Agreement”) will be terminated and shall have no further force or effect except with
respect to obligations that have accrued thereunder upon or prior to Closing or which by their
terms continue to apply in regard to services provided prior to Closing.

2. COMPENSATION AND BENEFITS.

     2.1 Salary; Housing Allowance; Taxes. For services rendered hereunder as Chief
Executive Officer of Solexa , Executive shall receive an annualized base salary of Three Hundred
and Fifty Thousand Dollars ($350,000.00), less required withholdings and deductions, payable in
accordance with Solexa ’s standard payroll procedures. All elements of Executive’s compensation
will be considered for annual changes upon the review and approval by the Board.

     2.2 Performance Bonuses. Executive shall be eligible for the annual and special
bonuses set forth on Exhibit B attached hereto so long as Executive is employed by Solexa.
All bonuses paid to Executive shall be paid out in accordance with Solexa’s standard payroll
policies.

     2.3 Benefits. Executive shall be entitled to all rights and benefits for which he is
eligible under the terms and conditions of the standard benefits and compensation plans which may
be in effect from time to time and provided by Solexa to its executive level employees generally.
In addition, at a minimum, Solexa shall provide the following benefits to Executive:

     (a) US-based company-paid health insurance for Executive and Executive’s dependents which is
substantially the same as that provided to senior executives of Solexa;

     (b) Such monthly contributions, if any to a 401(k) as provided to other senior executives of
Solexa;

     (c) Long-term and short-term disability insurance coverage to the extent of fifty percent
(50%) of Executive’s starting base salary; and

     (d) Executive shall be entitled to twenty (20) paid days of vacation per year, to begin
accruing upon Closing, which unused vacation accruals shall carry over from year to year, up to

2

 

a maximum of twenty (20) days, after which no further vacation shall accrue until Executive
has reduced his vacation accrual balance below twenty (20) days.

     2.4 Issuance of Options to Purchase Solexa Stock.

As soon as practicable after Closing, Solexa shall issue to Executive an option (“Option”)
under Solexa’s 1992 Stock Option Plan (the “Plan”) to purchase 600,000 shares of common
stock of Solexa at an exercise price equal to the fair market value of Solexa’s common stock on the
last market trading day prior to the effective date of such Option as set forth in the Plan. The
shares underlying the Option shall vest in substantially equal monthly installments over the 48
months beginning with effect from August 9, 2004.

     2.5 Business Expense Reimbursement. Solexa shall reimburse Executive for all
reasonable travel (airfare, hotels, meals, fees, etc.), entertainment or other business expenses he
incurs in furtherance of or in connection with the performance of his duties hereunder, in
accordance with Solexa ’s expense reimbursement policies as in effect from time to time. To the
extent reasonably practicable, upon the request of Executive, Solexa shall pay all such expenses
in advance.

     2.6 Liability and Indemnification. Solexa shall indemnify Executive as a corporate
officer of Solexa and its affiliates to the maximum extent extended to the other officers and
directors of each such entity and as required by law (such indemnification is set forth in the
agreement attached as Exhibit C) and for claims relating to Executive’s duties for Solexa
but arising out of his previous employment. In addition, for so long as Executive is employed as
an executive officer or director Solexa or its Affiliates, Solexa shall use commercially reasonable
efforts to maintain an insurance policy or policies providing liability insurance for directors,
officers and employees of Solexa and any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise that such person serves at the request of Solexa, and
Executive shall be covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any director, officer, employee, agent or fiduciary
under such policy or policies.

3. OUTSIDE ACTIVITIES; NON-COMPETE.

     3.1 Activities. Executive may (a) engage in civic and not-for-profit activities so
long as such activities do not materially interfere with the performance of his duties hereunder
and (b) serve as a member of the board of directors of any entity so long as such service does not,
in the sole discretion of the Board, materially interfere with the performance of his duties
hereunder or violate Section 3.2 hereof. Executive agrees to consult the Board at the first
appropriate opportunity and in any case prior to the commencement of any such board service.

     3.2 Non-Competition During Employment. During his employment by Solexa, Executive
will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor,
associate, representative, consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other person, corporation,
firm, partnership or other entity anywhere in the world with major businesses or

3

 

business units making instrument systems for high speed sequencing of DNA (other than
companies making systems primarily for genotyping or gene expression); provided, however, that
anything above to the contrary notwithstanding, Executive may own, as a passive investor,
securities of any competitor corporation, so long as Executive’s direct holdings in any one such
corporation shall not in the aggregate constitute more than five percent (5%) of the voting stock
of such corporation.

     3.3 Non-Competition Post Employment. As the acquisition of goodwill is a key asset
motivating the participation of Solexa in the Acquisition Agreement, for a period of one year
after the termination of the Executive’s employment hereunder howsoever arising, Executive will not
directly, whether as an officer, director, stockholder holding more than 5% of the voting stock of
the relevant corporation, or partner be employed or engaged anywhere in the world in either a
company whose main business is the making of instrument systems for high speed sequencing of DNA,
or be employed in direct operational control of the business unit of a larger company which
business unit has as its main business the making of instrument systems for high speed sequencing
of DNA (other than companies or business units, as applicable, making systems primarily for
genotyping or gene expression).

     3.4 Non-solicitation of staff. During his employment under this Agreement and for a
period of one year after the termination of the Executive’s employment hereunder howsoever arising,
Executive shall not without the prior written consent of the Board directly or indirectly employ,
engage or endeavour to entice away from Solexa any key personnel.

     3.5 Non-solicitation of customers. During his employment under this Agreement and for
a period of one year after the termination of the Executive’s employment hereunder howsoever
arising, Executive shall not induce or seek to induce, by any means involving the disclosure or use
of confidential information, any customer or corporate partner of Solexa to cease dealing with
Solexa or to restrict or vary the terms upon which it deals with Solexa.

     3.6 Enforceability. If any part of this entire Section 3 is found to be unenforceable
by a competent court with jurisdiction over this Agreement, notwithstanding any other provision in
this Agreement to the contrary, nothing shall be paid to Executive under this Agreement and no
other benefits shall accrue under this Agreement except for the payment of wages and benefits
accrued immediately as of Executive’s termination of employment with Solexa.

4. OTHER AGREEMENTS.

Executive represents and warrants that his employment by Solexa will not conflict with and will
not be constrained by any prior agreement or relationship with any third party which has not been
disclosed to Solexa . During Executive’s employment by Solexa , Executive may use, in the
performance of his duties, all information generally known and used by persons with training and
experience comparable to his own and all information which is common knowledge in the industry or
otherwise legally in the public domain.

4

 

5. TERMINATION OF EMPLOYMENT.

     5.1 At-Will Employment. Executive’s relationship with Solexa is at will. Both
Executive, on the one hand, and Solexa on the other, shall have the right to terminate Executive’s
employment with Solexa at any time with or without Cause (as defined below). In the event of such
termination, Executive agrees to resign from the Board and any committees of the Board on which he
may be serving, effective as of the date of termination. Notwithstanding any other provision of
the Agreement, the Board shall be under no obligation to vest in or assign to Executive any powers
or duties or provide any work for Executive, and the Board may at any time prior to termination and
from time to time suspend the Executive from the performance of his duties or exclude him from any
premises of Solexa and its Affiliates, in which case the other provisions of this Agreement shall
continue to have full force and effect.

     5.2 Termination for Cause. If Solexa terminates Executive’s employment at any time
for Cause (as defined below), Executive’s salary shall cease on the date of termination and
Executive shall not be entitled to severance pay, pay in lieu of notice or any other such
compensation other than payment of accrued salary and vacation and such other benefits as expressly
required in such event by applicable law or the terms of applicable benefit plans.

     (a) Definition of “Cause”. For purposes of this Agreement, “Cause” shall mean
the occurrence of one or more of the following: (i) Executive’s knowing and willful action which
is or is likely to be seriously injurious to Solexa ; (ii) any intentional act by Executive in
connection with his responsibilities as an employee constituting fraud or a felony crime; (iii)
Executive’s consistent failure to report for work; (iv) persistent or repeated material breach of
this Agreement; or (v) Executive becoming disqualified from holding office through his own act or
omission; provided that in any such event, there has been delivered to Executive a written demand
for performance from the Board which describes the basis for the Board’s belief that Executive has
committed one of the acts set forth in clauses (i)-(v) above and provides Executive with thirty
(30) days to take corrective action (which may include any suspension period). Notwithstanding the
foregoing, Cause shall not include Executive’s physical or mental disability or death, poor
operating results of Solexa, litigation filed against Solexa or Executive, or general incompetence.

     5.3 Termination Without Cause. Except as provided in Section 6 below under “Change of
Control” “Change of Control Acceleration Benefit” if Executive’s employment is terminated
at any time without Cause, Executive shall be entitled to the following severance benefits:

     (a) a lump sum payment in an amount equal to twelve (12) months of Executive’s base salary as
of his termination date, less required withholdings and deductions;

     (b) reimbursement of the cost of continued health insurance coverage for Executive and
Executive’s eligible dependents, regardless of whether Executive elects continued coverage under
federal COBRA or any state equivalent or elects to procure reasonably equivalent private coverage,
for a period of twelve (12) months from the termination date; and

5

 

     (c) shares subject to the outstanding options to purchase Solexa stock then held by Executive
which, but for such termination, would have become vested over the succeeding twelve (12) months
following such termination shall immediately vest and become exercisable.

     5.4 Executive’s Voluntary Resignation. Executive may voluntarily terminate his
employment hereunder at any time with a minimum of one month notice, and with or without Good
Reason (as defined below). If Executive voluntarily terminates his employment other than for Good
Reason, he will not be entitled to severance pay, pay in lieu of notice or any other such
compensation other than payment of accrued salary and vacation and such other benefits as expressly
required in such event by applicable law or the terms of applicable benefit plans.

     5.5 Termination for Death or Disability. Executive’s employment will be
terminated in the event of Executive’s death, or, subject to applicable law, any illness,
disability or other incapacity that renders Executive physically or mentally unable to
perform his duties hereunder for a period in excess of ninety (90) consecutive days or more
than one hundred twenty (120) days in any consecutive twelve (12) month period. The
determination regarding whether Executive is physically or mentally unable to perform his
duties shall be based on the opinion of Executive’s physician(s) and/or mental health
professional(s). Executive’s inability to be physically present on Solexa’s premises shall
not constitute a presumption that Executive is unable to perform such duties. If
Executive’s employment is terminated for death or disability as described in this Section,
Executive or Executive’s heirs, successors, and assigns shall not receive any compensation
or benefits other than payment of accrued salary and vacation and such other benefits as
expressly required in such event by applicable law or the terms of applicable benefits
plans.

     5.6 Executive’s Resignation for Good Reason. Executive may resign his employment for
Good Reason so long as Executive tenders his resignation to Solexa within one hundred and twenty
(120) days after Executive learns of the occurrence of the event which forms the basis for his
termination for Good Reason. Except as provided under Section 6.2 of this Agreement, if Executive
terminates his employment for Good Reason, Executive shall be entitled to the same severance
benefits as set forth in Section 5.3 above. In the event of Executive’s termination/resignation
for Good Reason, severance benefits under Section 5.3(a) or Section 6.2(a)(i), shall be based on
Executive’s base salary immediately prior to any reduction that constitutes Good Reason under
Section 5.6(a)(ii).

     (a) Definition of “Good Reason”.

          For purposes of this Agreement, “Good Reason” shall mean any one of the following
events without Executive’s express written consent: (i) a substantial reduction of Executive’s
duties, title, authority, status, or responsibilities; (ii) a reduction of Executive’s then current
base salary; (iii) the relocation of Executive, without Executive’s consent, to a facility or
location more than 50 miles from his current home at the date of this Agreement; (iv) a material
breach by Solexa of any of its obligations under this Agreement.

6

 

6. CHANGE OF CONTROL.

     6.1 Definition. For purposes of this Agreement, a “Change of Control” means the
happening of any of the following events:

     (a) A dissolution or liquidation of Solexa.

     (b) A sale, lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of Solexa.

     (c) A consolidation or merger of Solexa in which Solexa is not the continuing or surviving
corporation or pursuant to which the stock of Solexa would be converted into cash, securities or
other property, other than a merger or consolidation of Solexa in which the holders of such
entity’s stock immediately prior to the merger or consolidation hold more than fifty percent (50%)
of the stock or other forms of equity of the surviving corporation immediately after the merger in
substantially the same proportions of ownership of shares of Solexa immediately prior to the
merger or consolidation.

     (d) A sale or exchange by the shareholders of Solexa, in a single transaction or series of
related transactions, of more than fifty percent (50%) of the voting stock of such entity, after
which the shareholders of such entity immediately before such transaction do not retain immediately
after such transaction, in substantially the same proportions of their ownership of shares of
Solexa immediately before the transaction, direct or indirect beneficial ownership of more than
fifty percent (50%) of the combined voting power of such entity.

     6.2 Change of Control Termination. If, within six (6) months prior to or twelve (12)
months following a Change of Control, Executive’s employment is terminated without Cause or
Executive resigns from employment for Good Reason (a “Change of Control Termination”),
Executive shall be eligible to receive the severance benefits described in Section 6.2(a).

     (a) Severance Benefits. In the event of a Change of Control Termination, Executive
shall receive the following severance benefits in lieu of those set forth in Section 5 above:

     (i) a lump sum payment in an amount equal to twelve (12) months of Executive’s base
salary as of his termination date, less required withholdings and deductions; and

     (ii) reimbursement of the cost of continued health insurance coverage for Executive and
Executive’s eligible dependents, regardless of whether Executive elects continued coverage
under federal COBRA or any state equivalent or elects to procure reasonably equivalent
private coverage, for a period of twelve (12) months from the termination date.

     6.3 Change of Control Acceleration Benefit. If, at any time during Executive’s term
of employment, there is a Change of Control, shares subject to the outstanding options to purchase
Solexa stock then held by Executive which are scheduled to vest over the succeeding twenty-four
(24) months following the Change of Control shall immediately vest and become

7

 

exercisable. In the event Executive becomes entitled to this benefit, he shall no longer be
entitled to any vesting acceleration benefit pursuant to Section 5.3 or 5.6.

     GENERAL PROVISIONS.

     7.1 Notices. Any notices provided hereunder must be in writing and shall be deemed
effective upon the earlier of personal delivery (including, personal delivery by facsimile
transmission or the third day after mailing by first class mail) to each party hereto at his or its
address as listed on the signature page hereto (which address may be changed by written notice).

     7.2 Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but such invalid, illegal or
unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to
render it valid, legal, and enforceable consistent with the intent of the parties insofar as
possible.

     7.3 Waiver. If either party should waive any breach of any provisions of this
Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach
of the same or any other provision of this Agreement.

     7.4 Entire Agreement. This Agreement and its Exhibits together constitute the entire
agreement among Executive and Solexa and supersede any prior agreement, promise, representation,
or statement written or otherwise among such parties with regard to this subject matter. This
Agreement is entered into without reliance on any promise, representation, statement or agreement
other than those expressly contained or incorporated herein, and it cannot be modified or amended
except in a writing signed by Executive and a duly authorized officer of Solexa.

     7.5 Counterparts. This Agreement may be executed in separate counterparts, any one
of which need not contain signatures of more than one party, but all of which taken together will
constitute one and the same Agreement.

     7.6 Headings. The headings of the sections hereof are inserted for convenience only
and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

     7.7 Successors and Assigns. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive, Solexa and their respective successors, assigns,
heirs, executors and administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the written consent of the
other parties hereto, which shall not be withheld unreasonably.

     7.8 Remedies. Executive’s duties under Section 3 shall survive termination of
Executive’s employment. Executive acknowledges that a remedy at law for any breach or threatened
breach by Executive of the Inventions Agreement would be inadequate, and Executive therefore agrees
that Solexa shall be entitled to injunctive relief in case of any such breach or threatened
breach.

8

 

     7.9 Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of California, without
regard to conflicts of laws principles thereof, as applied to contracts made and to be performed
entirely within California.

	 	 	 	 	 
	 	 	IN WITNESS WHEREOF, the parties have
executed this Agreement effective as of the
date first above written.
	 
	 	 	 	 
	 	 	SOLEXA, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Craig C. Taylor
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Name: Craig C. Taylor
	 
	 	 	 	 
	 	 	Title: Chairman of the Board
	 
	 	 	 	 
	 	 	Address:
	 
	 	 	 	 
	 	 	John S. West
	 
	 	 	 	 
	 	 	/s/ John West
	 	 	 

9

 

EXHIBIT A

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

10

 

EXHIBIT B

ANNUAL AND SPECIAL PERFORMANCE BONUSES

In addition to the base compensation payable to Executive as provided in Section 2.1, Solexa shall
pay to Executive, as compensation for his continued services to Solexa, the following:

          (a) In respect of fiscal year 2005, Solexa shall pay to the Executive an aggregate lump sum
bonus of up to forty per cent (40%) of Executive’s annual salary (subject to adjustment pursuant to
good faith negotiations between Executive and Solexa ) proportionately upon achievement of the
milestones set forth in the business plan as approved by the Board.

          (b) Thereafter, Executive shall be paid an annual bonus on a similar basis as (a) above as
determined pursuant to good faith negotiations between Executive and Solexa based on the
achievement of milestones set forth in the annual operating plan developed by Solexa’s management
team and approved by the compensation committee of the Board.

          (c) Until August 9, 2006, upon the initial closing of any collaboration or other strategic
alliance or partnership the terms of which provide for at least Four Million Dollars ($4,000,000)
of committed cash investment in or payment to Solexa other than for goods or services, Solexa
shall, unless such investments or payments fall within Section (d) below, pay to Executive, when
received by Solexa, an aggregate lump sum bonus equal to the greater of: (i) one percent (1%) of
the aggregate committed amount to be paid in such transaction (without regard to any commissions or
other transaction expenses paid by Solexa), such amount to include upfront payments, payments in
respect of intellectual property and the premium for any equity investment above the market price
of Solexa stock; or (ii) One Hundred Thousand Dollars ($100,000).

          (d) In the event of a Change of Control (as defined in Section 6) Solexa shall pay to
Executive an aggregate lump sum bonus equal to the greater of (i) two percent (2%) of the amount by
which the value received by Solexa’s stockholders in connection with the Change of Control exceeds
the sum of Fifty Million Dollars ($50,000,000) plus the aggregate gross proceeds received by Solexa
through sales of equity securities after the Closing; or (ii) One Hundred Thousand Dollars
($100,000).

11

 

EXHIBIT C

INDEMNIFICATION AGREEMENT

12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}]]