Document:

exv10w16

 

Exhibit 10.16

SHARE PURCHASE AGREEMENT

By and Between

 

as the “Buyer” herein, on the one hand,

and

DIGITAL RECORDERS, INC.

as “DRI” herein, on the other hand

Dated as of June 11, 2007

 

 

SHARE PURCHASE AGREEMENT

     THIS SHARE PURCHASE AGREEMENT (this “Agreement”), dated as of June 11, 2007, by and between                     
                         
                (the “Buyer”), on the one hand, and DIGITAL RECORDERS, INC. (“DRI”) on
the other.

     In consideration of the covenants, representations, warranties and mutual agreements herein
set forth, the Buyer and DRI hereby agree as follows:

ARTICLE I

THE SHARE PURCHASE AND ANCILLARY AGREEMENTS

     Section 1.1 Purchase of the Shares. Subject to and upon the terms and
conditions hereof and the representations, warranties and covenants contained herein, on the
Closing Date (as defined below) DRI shall sell, transfer, assign and deliver certificate(s)
representing       
     
     
     shares of the Company’s Series J Convertible Preferred Stock (the “Shares”) to
the Buyer, and the Buyer shall purchase the Shares from DRI, free and clear of all liens, claims
and encumbrances thereon (the “Purchase Transaction”). The Shares shall have the rights,
obligations and preferences set forth in the Certificate of Designation of Series J Convertible
Preferred Stock attached hereto as Exhibit 1.1; which shall include, but not be limited to,
conversion into common stock of DRI at $2.26 per share.

     Section 1.2 Purchase Price.

     (a) Upon the terms and subject to the conditions herein set forth, DRI and the Buyer agree
that on the Closing Date DRI shall issue the Shares to the Buyer in exchange for a wire or
certified funds of $                     U.S. (the “Consideration”).

     (b) At the Closing, DRI shall deliver to the Buyer a certificate representing the Shares
against delivery by the Buyer to DRI of the Consideration. The certificate for the securities
comprising the Shares shall be registered in the name of                                                             .

     Section 1.3 Registration Rights. At the Closing, the parties shall enter
into a Registration Rights Agreement, in the form set forth as Exhibit 1.3 (the “Registration
Rights Agreement”).

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ARTICLE II

CLOSING

     Section 2.1 The Closing. The closing of the sale and purchase of the Shares
contemplated hereby (the “Closing”) shall take place at a date and time to be specified by the
Buyer and DRI (the “Closing Date”). The Closing shall take place at the offices of DRI in Research
Triangle Park, North Carolina, or any other place mutually agreeable to the parties, subject to the
right of the parties to close by exchange of executed counterpart documents on the Closing Date.

     Section 2.2 Deliveries By DRI. At the Closing, DRI shall deliver to the Buyer
or cause to be delivered to the Buyer the certificate or certificates representing the Shares
registered in the name of the Buyer or in such name as may be designated by the Buyer.

     Section 2.3 Deliveries by the Buyer. Buyer will deliver to DRI the
Consideration and a copy of the Registration Rights Agreement, executed by Buyer.

     Section 2.4 Further Assurances. DRI shall execute and deliver on the Closing
Date or thereafter any and all such other instruments, and take or cause to be taken all such
further action as may be necessary or appropriate to vest fully and confirm to the Buyer title to
and possession of the Shares delivered hereunder by DRI.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF DRI

     As a material inducement to the Buyer to (i) enter into this Agreement, and (ii) purchase and
acquire the Shares, DRI represents and warrants to the Buyer, except as disclosed in the Exhibits
to this Agreement or in the documents filed by DRI with the SEC (the “SEC Filings”) pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, as the same may be amended from time-to-time (the “1934 Act”), that:

     (a) DRI is a corporation duly formed, validly existing and in good standing under the laws of
the State of North Carolina, and has full power and authority to own, lease and operate its assets
and to carry on its business as presently conducted. DRI is duly qualified, licensed or admitted
to transact business, has all necessary government and regulatory approvals, and is in good
standing, in all of the jurisdictions in which the

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ownership, leasing or operation of its assets, or the conduct or nature of its business, makes such
qualification, licensing, approvals or admission necessary, except where the failure to be so
qualified, licensed, approved or admitted would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect (as defined below) as of the date hereof and as of
the Closing Date. For purposes of this Agreement, “Material Adverse Effect” shall mean any event,
change, condition or effect which, when considered either individually or in the aggregate together
with other events, changes, conditions or effects, is or is reasonably likely to be, materially
adverse to DRI or DRI’s business.

     (b) The audited financial statements of DRI for the year ended December 31, 2006 and unaudited
financial statements of DRI for March 31, 2007 that have been filed with the SEC Filings
(hereinafter collectively referred to as the “DRI Financial Statements”) include, as applicable to
the relevant period, a balance sheet and related statements of net income (loss), shareholders’
equity and cash flows for the periods ended on such dates. The DRI Financial Statements and other
public disclosures/filings fairly present the financial position, results of operations and other
information purported to be shown therein at the respective dates and for the respective periods to
which they apply. Since March 31, 2007, there has been no undisclosed material change in the
nature of the business of DRI, nor any material undisclosed adverse change in its financial
condition or property, nor have any warrants, options, shares of common stock or securities or
instruments convertible into or exchangeable for common stock been issued (other than as properly
disclosed), and DRI has incurred no material obligations or liabilities or made any commitments
other than as disclosed in the DRI Financial Statements, the SEC Filings, or otherwise to Buyer.

     (c) DRI is not a party to any material litigation, pending or threatened, nor has any claim
been made or, to the best knowledge of DRI’s executive officers, asserted against DRI nor are there
any proceedings threatened or pending before any federal, state or municipal government, or any
department, board, body or agency thereof, involving DRI that would, if resolved adversely to DRI,
have a Material Adverse Effect on DRI or its financial condition or operations.

     (d) DRI is not in violation or default of any provision of its Articles of Incorporation or
Bylaws or of any provision of any material instrument or contract to which it is a party or by
which it is bound or, to the best knowledge of its executive

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officers, of any provision of any federal, state or local judgment, writ, decree, order, law,
statute, rule or government regulation, applicable to it. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby and thereby will not
result in any such violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a violation or default under any such provision or an event which
results in the creation of any lien, charge or encumbrance upon any asset of DRI. DRI has all
requisite power and authority to execute, deliver and perform this Agreement and has all requisite
power and authority to execute and deliver the certificates representing the Shares. All necessary
corporate proceedings of DRI have been duly taken to authorize the execution, delivery and
performance by DRI of this Agreement and the sale and issuance of the Shares. This Agreement has
been duly authorized, executed and delivered by DRI, is the legal, valid and binding obligation of
DRI, and is enforceable as to DRI in accordance with their respective terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local or other governmental authority or any court or other
tribunal is required by DRI for the execution, delivery or performance by DRI of this Agreement.
No consent of any party to any contract, agreement, instrument, lease, license, arrangement or
understanding to which DRI is a party, or to which any of its properties or assets are subject, is
required for the execution, delivery or performance of this Agreement.

     (e) DRI is in compliance with its lending agreement with Laurus Masterfund, LLC.

     (f) The preferred stock outstanding of DRI is set forth on Exhibit III(f). Series AAA and
Series E are junior to Series J. Series G and Series H are pari passu with Series J. There are no
other series issued and outstanding of DRI.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE BUYER

     As a material inducement to DRI to enter into this Agreement and to sell and issue the Shares,
the Buyer represents and warrants to DRI that:

     (a) The Buyer is voluntarily entering this Agreement with full power and authority.

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     (b) Neither the execution and delivery of this Agreement or the Registration Rights Agreement
nor the consummation of the transactions herein or therein contemplated, will conflict with or
result in the breach of, or accelerate the performance required by, any terms of any agreement, or
result in the creation of any lien, charge or encumbrance upon any of the properties or assets of
the Buyer under the terms of any such agreement.

     (c) All action on the part of the Buyer necessary for the authorization, execution and
delivery of this Agreement and the Registration Rights Agreement and the performance of all
obligations of the Buyer hereunder or thereunder has been taken and this Agreement and the
Registration Rights Agreement constitute valid and legally binding obligations of the Buyer
enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and other
laws of general application relating to or affecting creditors’ rights, and general principles of
equity.

     (d) The Buyer is acquiring the Shares, and will acquire the Conversion Shares, upon payment
for and delivery thereof, for its own account for investment and not with a view to the
distribution or public resale thereof within the meaning of the Securities Act of 1933 (the “1933
Act”). The Buyer further agrees that DRI may cause to be set forth on the certificates for the
Shares to be delivered to the Buyer hereunder and any Conversion Shares subsequently acquired by
the Buyer a legend in substantially the following form:

     These securities have not been registered under the Securities Act of 1933, as
amended, and may be offered and sold only if registered pursuant to the provisions
of that Act or if, in the opinion of counsel to the seller an exemption from
registration thereunder is available, the availability of which must be established
to the reasonable satisfaction of Digital Recorders, Inc.

     DRI shall not be obligated to recognize any purported transfer by the Buyer of the Shares
unless accompanied by an opinion of the Buyer’s counsel in form and substance reasonably
satisfactory to counsel for DRI to the effect that such transfer is not in violation of the 1933
Act.

     (e) The Buyer is an “accredited investor” as defined in Regulation D promulgated under the
1933 Act. The Buyer has substantial experience in evaluating and investing in private

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placement transactions of preferred stock in companies similar to DRI, has substantial knowledge of
the industry and market segment of DRI, and the Buyer has the capacity to protect its own
interests. The Buyer is aware that the purchase of the Shares involves substantial risk. The
Buyer is in a financial position that will allow it to hold such securities for an indefinite
period, to bear the economic risk of ownership and to withstand a complete loss of its investment.

     (f) The Buyer acknowledges that neither DRI nor any person acting on behalf of DRI has made
any representations or warranties to the Buyer except as expressly set forth in this Agreement.

ARTICLE V

COVENANTS OF THE PARTIES

     Section 5.1 Conduct of Business. From the date hereof until the Closing,
except as permitted by this Agreement, reflected in the Exhibits hereto or as otherwise consented
to by the Buyer in writing, DRI shall:

     (a) Carry on its business only in the ordinary course, in substantially the same manner in
which it previously has been conducted;

     (b) Comply with all registration, filing and reporting requirements of the 1934 Act; and

     (c) Use its best efforts to maintain a listing of the common stock with The Nasdaq Stock
Market, Inc. (“Nasdaq”).

     Section 5.2 Access and Information. DRI shall give to the Buyer and its
representatives full access at all reasonable times prior to the Closing to the properties, books
and records of DRI and furnish such information and documents in its possession relating to DRI as
the Buyer may reasonably request, subject to the agreement by the Buyer to maintain the
confidentiality of, and not to trade in the securities of DRI while in the possession of, any
material nonpublic information of DRI.

     Section 5.3 No Short Sales. The Buyer shall not make any short sale of, or
enter into any other hedging transactions with respect to, DRI’s common stock prior to the earlier
of (i) effectiveness of the Registration Statement required to be filed by DRI for the benefit of
the Buyer pursuant to the Registration Rights Agreement or (ii) failure of the Company to timely
file

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such Registration Statement under the terms of the Registration Rights Agreement.

ARTICLE VI

CONDITIONS TO EACH PARTY’S OBLIGATION TO CLOSE

     In addition to those specific conditions set forth in Articles VII and VIII below, the
obligations of the Buyer and DRI to consummate the transactions described herein shall be subject
to the following:

     (a) The Application for the Listing of Additional shares to cover the shares of DRI common
stock to be issued upon the conversion of the Shares (the “Application”) shall have been approved
by Nasdaq.

     (b) No government regulatory body or agency shall have instituted court action or legal
proceedings seeking preliminary or permanent injunctive relief prohibiting the Buyer’s purchase of
the Shares or the execution or performance of this Agreement.

ARTICLE VII

CONDITIONS TO DRI’S OBLIGATION TO CLOSE

     DRI’s obligation to complete the transactions provided for herein shall be subject to the
performance by the Buyer of all its covenants to be performed hereunder on or before the Closing,
and to the further conditions that:

     (a) The representations and warranties of the Buyer contained in Article IV hereof are true
and correct in all material respects as of the Closing with the same effect as if made on and as of
such date and the officers of the Buyer shall so certify thereto.

     (b) The issuance of the Shares to Buyer without registration shall be permitted under an
available exemption from registration under the 1933 Act, and such issuance, and the consummation
of the other transactions contemplated by this Agreement, shall not violate any law or any rule or
regulation of the SEC or Nasdaq.

ARTICLE VIII

CONDITIONS TO THE BUYER’S OBLIGATION TO CLOSE

     The Buyer’s obligation to complete the transactions provided for herein shall be subject to
the performance by DRI of all agreements to be performed hereunder on or before the

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Closing, and to the further conditions that the representations and warranties of DRI contained in
Article III and the covenants of DRI contained in Article V hereof are true and correct and have
been performed or satisfied in all material respects as of the Closing with the same effect as if
made or performed on and as of such date and DRI shall so certify to the Buyer.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

     Section 9.1 Termination.

     (a) This Agreement and each agreement contemplated hereby may be terminated at any time prior
to the Closing by the mutual written consent of the Buyer and DRI.

     (b) This Agreement will be terminated immediately upon notice by Nasdaq that the Application
has been rejected.

     Section 9.2 Effect of Termination. In the event of termination of this
Agreement or any agreement contemplated hereby, this Agreement or any such other agreement shall
forthwith become void and there shall be no liability or obligation hereunder or thereunder on the
part of any party hereto.

     Section 9.3 Amendment; Waiver. No amendment, modification, supplement, waiver
or discharge of this Agreement shall be valid or binding unless set forth in writing and duly
executed by the Buyer and DRI. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. The waiver by any of the parties
of a breach of or a default under any of the provisions of this Agreement or to exercise any right
or privilege under this Agreement, shall not be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or privileges under
this Agreement. No failure by any party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof. The rights and remedies in this Agreement are
cumulative and, except as otherwise expressly provided herein, none is exclusive of any other, or
of any rights or remedies that any party may otherwise have at law or in equity.

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ARTICLE X

INDEMNIFICATION AND CONTRIBUTION

     Section 10.1 Indemnity. Subject to the conditions set forth below, DRI agrees
to indemnify and hold harmless the Buyer, its officers, directors, partners, employees, agents, and
counsel, and each person, if any, who controls the Buyer within the meaning of Section 15 of the
1933 Act or Section 20(a) of the 1934 Act, against any and all loss, liability, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Article X, but not be limited to,
attorneys’ fees and any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred, arising out of,
resulting from, based upon, or in connection with any breach of any representation, warranty,
covenant, or agreement of DRI contained in this Agreement. The foregoing agreement to indemnify
shall be in addition to any liability DRI may otherwise have, including liabilities arising under
this Agreement.

ARTICLE XI

NOTICES

     Any notice given under this Agreement shall be deemed to have been given sufficiently if in
writing and sent by registered or certified mail, return receipt requested and postage prepaid, by
receipt confirmed facsimile transmission, or by tested telex, telegram or cable addressed as
follows:

	 	 	 	 	 
	If to DRI:

	 	Digital Recorders, Inc.
	 	 
	 

	 	5949 Sherry Lane, Suite 1050	 	 
	 

	 	Dallas, TX 75225	 	 
	 

	 	Attn: CEO & President	 	 
	 

	 	Fax: 214-378-8437	 	 
	 
	 	 	 	 
	With a copy to:

	 	Mr. David M. Furr	 	 
	 

	 	Gray, Layton, Kersh, Solomon,	 	 
	 

	 	     Sigmon, Furr & Smith, P.A.	 	 
	 

	 	Post Office Box 2636	 	 
	 

	 	Gastonia, NC 28053-2636	 	 
	 

	 	Fax: 704-866-8010	 	 
	 
	 	 	 	 
	If to the Buyer:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	Fax: ___-___-___	 	 

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or to any other address or addresses which may hereafter be designated by any party by notice given
in such manner. All notices shall be deemed to have been given as of the date of receipt.

ARTICLE XII

CERTIFICATES OF OFFICERS AND DIRECTORS

     DRI shall provide to the Buyer a certificate at the Closing verifying the representations and
warranties made by DRI. Any certificate or other document executed by any officer of DRI and
delivered to the Buyer or its counsel shall be deemed a representation and warranty by such officer
on behalf of DRI as to the statements made therein.

ARTICLE XIII

COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which when executed and
delivered shall be an original, but all of such counterparts shall constitute one and the same
instrument.

ARTICLE XIV

MERGER CLAUSE AND COSTS, FEES AND EXPENSES

     This Agreement supersedes all prior agreements and understandings between the parties and may
not be changed or terminated orally, and no attempted change, termination or waiver of any of the
provisions hereof shall be binding unless in writing and signed by the parties hereto. Each party
shall pay its own expenses incident to the preparation, execution and delivery of this Agreement
and the consummation of the transactions described herein including, without limitation, all fees
of counsel, accountants and other professional fees and expenses.

ARTICLE XV

SEVERABILITY

     In the event that any provision of this Agreement is determined to be partially or wholly
invalid, illegal or unenforceable, then such provision shall be deemed to be modified or restricted
to the extent necessary to make such provision valid, binding and enforceable or, if such a
provision cannot be modified or restricted in a manner so as to make such provision valid, binding
and enforceable, then such provision

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shall be deemed to be excised from this Agreement and the validity, binding effect and
enforceability of the remaining provisions of this Agreement shall not be affected or impaired in
any manner.

ARTICLE XVI

BENEFIT

     The terms and conditions of this Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the parties hereto, and the persons and entities referred to in
Article X who are entitled to indemnification or contribution and their respective successors,
legal representatives and assigns and no other person shall have or be construed to have any legal
or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or the
Registration Rights Agreement or any provision herein or therein contained.

ARTICLE XVII

FURTHER ASSURANCES

     Following the Closing, each party shall execute, deliver, acknowledge and file, or shall cause
to be executed, acknowledged, delivered and filed, all such further instruments, certificates and
other documents and shall take, or cause to be taken, such other actions as may reasonably be
requested by any other party in order to carry out the provisions of this Agreement and make
effective the Purchase Transaction and the issuance of the Shares.

ARTICLE XVIII

WAIVER

     The failure of any party to insist upon the strict performance of any of the provisions of
this Agreement shall not be considered as a waiver of any subsequent default of the same or similar
nature. Time is of the essence in this Agreement.

ARTICLE XVIX

HEADINGS

     The headings for the sections of this Agreement are inserted for convenience in reference only
and shall not constitute a part hereof.

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ARTICLE XX

SURVIVAL

     The respective agreements, representations, warranties, covenants and other statements of the
Buyer and DRI set forth in this Agreement shall survive and remain in full force and effect for a
period of one (1) year from the Closing, regardless of any investigation or inspection made on
behalf of the Buyer or DRI.

ARTICLE XXI

GOVERNING LAW

     This Agreement shall be governed by and construed according to the laws of the State of North
Carolina, without giving effect to conflict of laws.

ARTICLE XXII

ARBITRATION

     All disputes arising in connection with this Agreement shall be finally settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration Association by one
or more arbitrators.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and
year first above written.

	 	 	 	 	 	 	 
	 	 	THE BUYER:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Print Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	DRI:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Print Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

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SCHEDULE
OF DIFFERENCES

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Buyer	 	Shares	 	Consideration	 	Registered
Name
	Doug Brown	 	 	50	 	 	$	250,000.00	 	 	Doug Brown	 
	Dartha Vanderburg	 	 	20	 	 	$	100,000.00	 	 	Dartha Vanderburg	 
	Frank T. Ewing Trust	 	 	2	 	 	$	10,000.00	 	 	Frank T. Ewing Trust	 
	Robin Jean Ewing Trust	 	 	3	 	 	$	15,000.00	 	 	Robin Jean Ewing Trust	 
	Charles K. Ewing	 	 	10	 	 	$	50,000.00	 	 	Charles K. Ewing	 
	Ewing Investments, LLLP	 	 	5	 	 	$	25,000.00	 	 	Ewing Investments, LLLPexv10w17

 

Exhibit 10.17

REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT dated as of June 11, 2007 by and among DIGITAL RECORDERS,
INC., a North Carolina corporation (the “Company”) and                                          (the “Holder”).

     The parties agree as follows:

     Section 1. Definitions. For purposes of this Agreement:

     (a) “Series J Convertible Preferred Stock” means the Company’s Series J Convertible
Preferred Stock with a liquidating value of $5,000 per share;

     (b) “Registrable Securities” means ___ shares of Series J Convertible Preferred
Stock to be issued to the Holder upon closing of that certain Stock Purchase Agreement of
even date (the “Agreement”; certain terms not defined herein but used herein are used as
defined in the Agreement);

     (c) “register” and “registration” refer to a registration of the Registrable
Securities effected by filing a registration statement or similar document pursuant to the
Securities Act of 1933, as amended (the “Act”) and the declaring or ordering of
effectiveness of such registration statement; and

     (d) The “Company” means Digital Recorders, Inc., a North Carolina corporation.

Section 2. Demand Registration.

     (a) If at any time the Company receives a written request from the Holder that the
Company file a registration statement under the Act covering the registration of Registrable
Securities held by him, then the Company shall, subject to the limitations of this Section
2, use its best efforts to, within six months of the date of such request, effect the
registration under the Act of all Registrable Securities and will keep such registration
statement effective for a minimum period of six (6) months thereafter. The Company shall be
obligated

 

 

to effect only one (1) registration pursuant to this Section 2(a).

     (b) If the Holder intends to distribute the Registrable Securities covered by his
request by means of an underwriting, he shall so advise the Company as a part of his request
made pursuant to this Section 2. The Holder shall (together with the Company as provided in
Section 3) enter into an underwriting agreement in customary form with a mutually acceptable
underwriter or underwriters.

     Section 3. “Piggyback” Rights. For a period of one (1) year from June 11, 2007, and
if (but without any obligation to do so) the Company proposes to register any of its securities
under the Act in connection with a public offering of such common stock for cash proceeds payable
in whole or in part to the Company (other than with respect to a Registration Statement filed on
Form S-8 or Form S-4 or such other similar form then in effect under the Securities Act), the
Company shall, at such time, subject to the provisions of Section 6 and 7 hereof and upon request
of the Holder cause to be registered under the Act all of the Registrable Securities which the
Holder requests be registered; provided, however, if the managing underwriter of the public
offering of shares proposed to be registered by the Company advises the Holder in writing that
marketing factors require a limitation of the number of shares to be underwritten, then the number
of shares of Registrable Securities of the Holder that may be included in the underwriting shall be
so limited prorata. Such “piggyback rights” shall expire on the registration and sale of the
Registrable Securities pursuant to Section 2 above or upon the sale of the Registrable Securities
hereunder.

     Section 4. Registration Procedure. Whenever required under this Agreement to effect
the registration of any Registrable Securities, the Company shall, as expeditiously as is
reasonably possible:

     (a) Furnish to the Holder of the Registrable Securities covered by such registration
statement such number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as he may reasonably
request in order to facilitate the disposition of the Registrable Securities owned by him.

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     (b) In the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with the managing
underwriter of such offering. The Holder participating in such underwriting shall also
enter into and perform his obligations under such agreement.

     (c) Notify the Holder of Registrable Securities covered by such registration
statement, at any time when a prospectus relating thereto covered by such registration
statement is required to be delivered under the Act, of 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 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.

     Section 5. Furnish Information. The Holder shall promptly furnish to the Company in
writing such reasonable information regarding the Holder, the Registrable Securities held by the
Holder, and the intended method of disposition of such securities as shall be required to effect
the registration of his Registrable Securities.

     Section 6. Expenses of Registration. All of the foregoing expenses relating to the
Registrable Securities incurred in connection with registration, filing or qualification pursuant
to this Agreement, including (without limitation) all registration, filing and qualification fees,
printers’ bills, mailing and delivery expenses, accounting fees, and the fees and disbursements of
counsel for the Company, but excluding underwriting discounts or fees, shall be borne by the
Company.

     Section 7. Indemnification and Contribution. In the event any Registrable Securities
are included in a registration statement under this Agreement:

     (a) To the extent permitted by law, the Company will indemnify and hold harmless the
Holder, the officers and directors of each Holder, any underwriter (as defined in the Act)
for such holder, and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934 (the “Exchange Act”), against any
losses, claims, damages, or liabilities (joint or several) to which they may become subject
under the Act, the Exchange Act or other federal or

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state law, insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any untrue statement or alleged untrue statement of
a material fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the 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 Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage, liability,
or action; provided however, that the indemnity agreement contained in this Section 7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary prospectus or final prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any such Holder,
underwriter or controlling person; provided, further, however, that if any losses, claims,
damages or liabilities arise out of or are based upon any untrue statement, alleged untrue
statement, omission or alleged omission contained in any preliminary prospectus, and made in
reliance upon and in conformity with written information furnished by such Holder expressly
for use therein, which did not appear in the final prospectus, the Company shall not have
any such liability with respect thereto to such Holder, any person who controls such Holder
within the meaning of the Act, or any director of such Holder, if such Holder delivered a
copy of the preliminary prospectus to the person alleging such losses, claims, damages or
liabilities and failed to deliver a copy of the final prospectus, as amended or supplemented
if it has been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person, provided that such Holder had an obligation to
deliver a copy of the final prospectus to such person.

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     (b) To the extent permitted by law, each selling Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the meaning of
the Act, any underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such Holder or
underwriter against any losses, claims, damages or liabilities, joint or several) to which
the Company or any such director, officers, controlling person, or underwriter or
controlling person, or other such Holder or director, officer or controlling person may
become subject, under the Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue statement of a material fact contained
in such registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the untrue statement
or omission or alleged untrue statement or omission in respect of which such loss, claim,
damage or liability is asserted was made in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or controlling
person, or other Holder, officer, director, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action; provided
however, that the indemnity agreement contained in this Section 7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action, if such
settlement is effected without the consent of the Holder (which consent shall not be
unreasonably withheld); provided, further that the maximum liability of any selling Holder
under this Section 7(b) in regard to any registration statement shall in no event exceed the
amount of the proceeds received by such selling Holder from the sale of securities under
such registration statement; provided, further however, that if any losses, claims, damages
or liabilities arise out of or are based

5

 

upon an untrue statement, alleged untrue statement, omission or alleged omission contained
in any preliminary prospectus which did not appear in the final prospectus, such seller
shall not have any such liability with respect thereto to the Company, any person who
controls the Company within the meaning of the Act, any officer of the Company who signed
the registration statement or any director of the Company, if the Company delivered a copy
of the preliminary prospectus to the person alleging such losses, claims, damages or
liabilities and failed to deliver a copy of the final prospectus, as amended or supplemented
if it has been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person, provided that the Company had an obligation to
deliver a copy of the final prospectus to such person.

     (c) Promptly after receipt by an indemnified party under this Section 7 of notice of
the commencement of any action (including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party under this
Section 7, deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party similarly notified,
to assume the defense thereof with counsel mutually satisfactory to the parties. An
indemnified party shall have the right to retain its own counsel, however, the fees and
expenses of such counsel shall be at the expense of the indemnified party, unless (i) the
employment of such counsel has been specifically authorized in writing by the indemnifying
party, (ii) the indemnifying party has failed to assume the defense and employ counsel, or
(iii) the named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to assume the defense of such action on
behalf of such indemnified parry, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable

6

 

fees and expenses of more than one separate firm of attorneys for all indemnified parties).
The failure to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party under this Agreement.

     (d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities or actions in respect thereof referred to therein, then each indemnifying
party shall in lieu of; indemnifying such indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages, liabilities
or actions in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and selling Holder, on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages, liabilities or
actions as well as any other relevant equitable considerations, including the failure to
give any required notice. 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
Company, on the one hand, or by such selling Holder on the other, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto acknowledge and agree that it would not be just
and equitable if contribution pursuant to this subparagraph (d) were determined by prorata
allocation (even if all of the selling Holder were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the equitable
considerations referred to above in this subparagraph (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or actions in
respect thereof referred to above in this subparagraph (d) shall be deemed to include 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
subparagraph (d), the amount the selling Holder shall be required to contribute shall not
exceed the amount, if any, by which the total price at which the securities sold by each of
them were offered to the public exceeds the amount of any damages which they would have
otherwise been required to pay by reason of such untrue or

7

 

alleged untrue statement or omission or alleged omission, or other violation of law. No
person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of fraudulent misrepresentation.

Section 8. Miscellaneous.

     (a) Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the Company and to the Holder and their respective heirs, personal
representatives, successors and assigns.

     (b) Notices. Except as otherwise provided herein, any notice, consent or
request to be given in connection with any term or provision of this Agreement shall be
deemed to have been given sufficiently if sent by hand, registered or certified mail,
postage prepaid, facsimile transmission or courier (next day delivery), to the Company or to
the Holder at their respective addresses as provided on or about the date hereof.

     (c) Integration. This Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereby and no party shall be bound by,
nor shall any party be deemed to have made, any covenants, representations, warranties
undertakings or agreements except those contained in such entire Agreement. The section and
paragraph headings contained in this Agreement are for the reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.

     (d) Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together shall constitute
one and the same agreement.

     (e) Amendment. This Agreement may be amended, changed, waived or terminated
only in writing signed by each of the parties.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

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     IN WITNESS WHEREOF, this Agreement has been executed effective as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	   President	 	 
	 
	 	 	 	 	 	 
	 	 	HOLDER:	 	 
	 
	 	 	 	 	 	(SEAL)
	 	 	 	 	

9

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