Document:

exv10w1

 

EXHIBIT 10.1

LETTER AMENDMENT NO. 1

to

AMENDED AND RESTATED

MASTER SHELF AGREEMENT

As of June 22, 2005

Prudential Investment Management, Inc.

The Prudential Insurance Company of America

Pruco Life Insurance Company

Pruco Life Insurance Company of New Jersey

Gibraltar Life Insurance Co., Ltd.

RGA Reinsurance Company

Connecticut General Life Insurance Company

Zurich American Insurance Company

c/o Prudential Capital Group

2200 Ross Avenue, Suite 4200E

Dallas, Texas 75201

Ladies and Gentlemen:

     We refer to the Master Shelf Agreement, dated as of March 31, 2005 (the “Agreement”), among
Crosstex Energy, L.P., a Delaware limited partnership (the “Company”), and Crosstex Energy
Services, L.P., a Delaware limited partnership, on one hand, and each of you (the “Purchasers”), on
the other hand. Unless otherwise defined in this Letter Amendment No. 1 to Amended and Restated
Master Shelf Agreement (this “Amendment”), the terms defined in the Agreement shall be used herein
as therein defined.

     The Company desires to increase the aggregate amount of Shelf Notes that may be issued under
the Agreement to $85,000,000 and to make certain other changes to the Agreement as hereinafter
provided.

     Subject to the terms and conditions specified herein, the Purchasers have indicated their
willingness to make such amendments, all as more particularly set forth herein. However, PICA and
its subsidiaries and other corporations owned by Prudential Financial, Inc., a Delaware corporation
and the owner of all of the stock of PICA, may only purchase and hold Notes and other Debt of the
Company and its Subsidiaries in an aggregate principal amount not to exceed $150,000,000. Accepted
Notes which would otherwise cause PICA and such subsidiaries or other corporations to hold Notes
and other Debt of the Company and its Subsidiaries in an aggregate principal amount in excess of
$150,000,000 will be purchased by Prudential Affiliates that are managed accounts managed by
Prudential or a Prudential Affiliate.

 

 

     Accordingly, subject to satisfaction of the conditions set forth in paragraph 7 hereof, and in
reliance on the representations and warranties of the Company set forth in paragraph 6 hereof, the
Purchasers hereby agree with the Company to amend the Agreement as provided in paragraphs 1 through
5 below, effective in each case as of the Amendment No. 1 Effective Date (as defined in paragraph 7
below).

     1. Amendment to Paragraph 1D. Authorization of Issue of Shelf Notes.

     Paragraph 1D of the Agreement is hereby amended by changing the amount of $10,000,000 in the
first sentence thereof to “$85,000,000”.

     2. Amendments to Paragraph 2A. Purchase and Sale of Shelf Notes.

     Paragraph 2A of the Agreement is renumbered as paragraph 2A(1) and is amended and restated in
its entirety to read as set forth below, and new paragraph 2A(2) is added to the Agreement, such
paragraph 2A(2) is read as set forth below:

     “2A(1). Facility. Prudential is willing to consider, in its
sole discretion and within limits which may be authorized for
purchase by Prudential Affiliates from time to time, the purchase of
Shelf Notes pursuant to this Agreement. The willingness of
Prudential to consider such purchase of Shelf Notes is herein called
the “Facility”. At any time, subject to the additional limitations
in paragraph 2A(2), the aggregate principal amount of Shelf Notes
stated in paragraph 1D, minus the aggregate principal amount
of Shelf Notes purchased and sold pursuant to this Agreement prior
to such time, minus the aggregate principal amount of
Accepted Notes (as hereinafter defined) which have not yet been
purchased and sold hereunder prior to such time is herein called the
“Available Facility Amount” at such time. NOTWITHSTANDING THE
WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF SHELF NOTES BY
PRUDENTIAL AFFILIATES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE
SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES,
OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC
PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE
CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.

     2A(2). Limitation on Facility. Notwithstanding anything in
paragraph 2A(1), the Company may not request the issuance of Shelf
Notes, and neither Prudential nor any other Prudential Financial
Entity shall be required to purchase Shelf

 

 

Notes pursuant to the Facility if, after the issuance of such
Shelf Notes, the aggregate amount of the Crosstex Exposure would
exceed $150,000,000.”

     3. Amendment to Paragraph 2I(1). Issuance Fee. Paragraph 2I(1) of the Agreement is amended
in its entirety to read as follows:

     “2I(1). Issuance Fee. The Company will pay to each Purchaser
in immediately available funds a fee (the “Issuance Fee”) on each
Closing Day on or after November 20, 2005, in an amount equal to
0.15% of the aggregate principal amount of Shelf Notes sold to such
Purchaser on such Closing Day.”

     4. Amendment to Paragraph 3A. Certain Documents. The following new clause (xx) is added to
paragraph 3A of the Agreement:

“(xx) With respect to the issuance of any Shelf Notes which would
cause the aggregate principal amount of all Notes issued under this
Agreement to exceed $150,000,000: an executed amendment to the Bank
Agreement amending the Bank Agreement to permit the issuance of up
to an aggregate of $200,000,000 principal amount of Notes under this
Agreement, certified by a Responsible Officer as being a true and
correct copy of such amendment as of the applicable Closing Day, and
such amendment shall be in full force and effect.”

     5. Amendments to Paragraph 10B. Other Terms.

     (a) The definition of “Facility” in paragraph 10B of the Agreement is amended by adding
changing “paragraph 2A” contained therein to “paragraph 2A(1)”.

     (b) Paragraph 10B of the Agreement is amended by adding the following definitions thereto in
appropriate alphabetical order:

     “Crosstex Exposure” means, at any time, the aggregate principal
amount of (i) Notes outstanding at such time held by Prudential
Financial Entities (other than Notes held for separate accounts),
(ii) Accepted Notes which Prudential Financial Entities have agreed
to purchase but which have not been purchased at such time (other
than Accepted Notes to be purchased for separate accounts), and
(iii) any other Debt of the Company or any of its Subsidiaries owed
to any Prudential Financial Entity.

     “Prudential Financial Entities” means PICA, Pruco Life
Insurance Company, Pruco Life Insurance Company of New Jersey,
Gibraltar Life Insurance Co., Ltd. and any other corporation or
entity controlling, controlled by or under common control with PICA.
For purposes of this definition, the terms

 

 

“control”, “controlling” and “controlled” shall mean the
ownership, directly or through subsidiaries, of a majority of a
corporation’s or other entity’s voting stock on equivalent voting
securities or interests.

     6. Representations and Warranties. In order to induce the Purchasers to enter into this
Amendment, the Company hereby represents and warrants as follows:

     (a) The execution, delivery and performance by the Company and the Guarantors of this
Amendment, the Agreement, as amended hereby, and each of documents described in paragraph 7 hereof
to which each is a party, have in each case been duly authorized by all necessary limited liability
company, limited partnership or other organizational action and do not and will not (i) contravene
the terms of the Company Partnership Agreement or the partnership agreement or certificate of
formation (or other organizational documents) of the General Partner, the Company or any of their
Subsidiaries, (ii) conflict with or result in any breach or contravention of, or the creation of
any Lien under, any document evidencing any contractual obligation to which the General Partner,
the Company or any of their Subsidiaries is a party and which could subject any holder of Notes to
any liability, (iii) conflict with or result in any breach or contravention of any order,
injunction, writ or decree of any governmental authority binding on the General Partner, the
Company, any of their Subsidiaries or their respective properties, or (iv) violate any applicable
law binding on or affecting the General Partner, the Company or any of their Subsidiaries.

     (b) Each of the representations and warranties contained in paragraph 8 of the Agreement is
true and correct on and as of the date hereof, and will be true and correct immediately upon, and
as of the date of, the effectiveness of this Amendment in each case except to the extent that such
representations and warranties specifically refer to an earlier date, in which case they shall be
true and correct as of such earlier date.

     (c) On and as of the date hereof, and after giving effect to this Amendment, no Default or
Event of Default exists under the Agreement.

     (d) No Governmental Action is required for the due execution, delivery or performance by the
Company or the Guarantors of this Amendment, the Agreement, as amended hereby or each of the
documents described in paragraph 7 hereto to be executed by the Company or any Guarantor.

     (e) This Amendment, the Agreement, as amended hereby, and each of the documents described in
paragraph 7 hereto to be executed by the Company or any Guarantor, constitute legal, valid and
binding obligations of the Company or such Guarantor, as applicable, enforceable against the
Company or such Guarantor, as applicable, in accordance with their respective terms.

     7. Conditions to Effectiveness. This Amendment shall become effective as of the date (the
“Amendment No. 1 Effective Date”) first above written when and if each of the conditions set forth
in this paragraph 7 shall have been satisfied (or waived in writing by Prudential and the Required
Holder(s)).

 

 

     (a) Execution and Delivery of Documents. Each Purchaser shall have received the following,
each to be dated the date of execution and delivery thereof unless otherwise indicated, and each to
be in form and substance satisfactory to such Purchaser and executed and delivered by each of the
parties thereto, as applicable:

     (i) This Amendment, dated as of the Amendment No. 1 Effective Date.

     (ii) A certificate of a Responsible Officer, dated as of the Amendment No. 1 Effective
Date, certifying that (A) the representations and warranties contained in this Amendment and
the Agreement, as amended hereby, are true and correct on and as of the Amendment No. 1
Effective Date, except to the extent that such representations and warranties specifically
refer to an earlier date, in which case they shall be true and correct as of such earlier
date, (B) no Event of Default or Default exists as of the date thereof and (C) all of the
conditions specified in this paragraph 7 have been met.

     (iii) A certificate of the Secretary or an Assistant Secretary of the General Partner,
dated as of the Amendment No. 1 Effective Date, certifying (A) the existence of the Company
and the General Partner, (B) the Company Partnership Agreement, (C) the Company’s and
General Partner’s organizational documents, (D) the resolutions of the General Partner
approving this Amendment, the documents to be executed by the Company described in this
paragraph 7 and the related transactions, and (E) all documents evidencing other necessary
corporate, partnership or limited liability company action and governmental approvals, if
any, with respect to this Amendment and the other documents executed in connection herewith.

     (iv) A certificate of the Secretary or an Assistant Secretary of the General Partner,
dated as of the Amendment No. 1 Effective Date, certifying the names and true signatures of
the officers of the General Partner authorized to sign this Amendment and the other
documents executed in connection herewith.

     (v) Certificates of the Secretary or an Assistant Secretary of each of the Guarantors,
dated as of the Amendment No. 1 Effective Date, certifying (A) the organizational documents
of such Guarantor, (B) the resolutions of the governing body of such Guarantor approving
this Amendment, the documents to be executed by such Guarantor described in this paragraph 7
and the related transactions, and (C) all other documents evidencing other necessary
corporate, partnership or limited liability company action and governmental approvals, if
any, with respect to this Amendment and the other documents executed in connection herewith.

     (vi) Such additional documents or certificates with respect to such legal matters or
limited liability company, limited partnership or other proceedings related to the
transactions contemplated hereby as may be reasonably requested by such Purchaser.

     (b) Prudential shall have received payment of a structuring fee in the amount of $50,000 by
wire transfer of immediately available funds to the account specified for payments to Prudential in
the Purchasers Schedule attached to the Agreement.

 

 

     8. Miscellaneous.

     (a) Effect on Agreement. On and after the Amendment No. 1 Effective Date, each reference in
the Agreement to “this Agreement”, “hereunder”, “hereof”, or words of like import referring to the
Agreement and each reference in the Notes and all other documents executed in connection with the
Agreement to “the Agreement”, “thereunder”, “thereof”, or words of like import referring to the
Agreement shall mean the Agreement as amended by this Amendment. The Agreement, as amended by this
Amendment, is and shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy under the Agreement nor constitute a waiver of
any provision of the Agreement. Without limiting the generality of the foregoing, nothing in this
Amendment shall be deemed (i) to constitute a waiver of compliance or consent to noncompliance by
the Company or any other Person with respect to any term, provision, covenant or condition of the
Agreement or any other Loan Document or (ii) to prejudice any right or remedy that any holder of
Notes may now have or may have in the future under or in connection with the Agreement or any other
Loan Document.

     (b) Counterparts. This Amendment may be executed in any number of counterparts (including
those transmitted by facsimile) and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment. Delivery of this Amendment may be made by facsimile
transmission of a duly executed counterpart copy hereof.

     (c) Expenses. The Company confirms its agreement, pursuant to paragraph 11B of the Agreement,
to pay promptly all out-of-pocket expenses of the Purchasers related to the preparation,
negotiation, reproduction, execution and delivery of this Amendment and all matters contemplated
hereby and thereby, including without limitation all fees and out-of-pocket expenses of the
Purchasers’ special counsel.

     (d) Governing Law. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.

     (e) Affirmation of Obligations. Notwithstanding that such consent is not required under the
Guaranties, each of the Guarantors consents to the execution and delivery of this Amendment by the
parties hereto, including, without limitation, the increase in the aggregate amount of Notes that
may be issued under the Agreement to $200,000,000. As a material inducement to the undersigned to
amend the Agreement as set forth herein, each of the Guarantors respectively (i) acknowledges and
confirms the continuing existence, validity and effectiveness of the Guaranty to which it is a
party, including, without limitation, with respect to any Shelf Notes that may be issued as a
result of the foregoing increase, and (ii) agrees that the execution, delivery and performance of
this Amendment shall not in any way release, diminish, impair, reduce or otherwise affect its
obligations thereunder.

     (f) FINAL AGREEMENT. THIS AMENDMENT, TOGETHER WITH THE AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS, REPRESENTS

 

 

THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

     If you agree to the terms and provisions hereof, please evidence your agreement by executing
and returning at least one counterpart to the Company at 2501 Cedar Springs, Suite 600, Dallas,
Texas 85201.

	 	 	 	 	 	 
	 
	 	Very truly yours,	 	 

	 
	 	 	 	 
	 
	 	CROSSTEX ENERGY, L.P.	 	 

	 
	 	 	 	 
	 

	 	By:
	 	Crosstex Energy GP, L.P.,

its general partner
	 
	 	 	 	 
	 

	 	By:
	 	Crosstex Energy GP, LLC,

its general partner
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum
Vice President Finance

Agreed to as of the Amendment No. 1 Effective Date:

PRUDENTIAL INVESTMENT MANAGEMENT, INC.

	 	 	 
	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

	 	 	 
	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

PRUCO LIFE INSURANCE COMPANY

	 	 	 
	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

 

 

	 	 	 	 
	PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
	 	 	 

	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

	 	 	 

	GIBRALTAR LIFE INSURANCE CO., LTD.
	 	 	 

	By:
	 	Prudential Investment Management (Japan), Inc.,
as Investment Manager

	 	 	 

	By:
	 	Prudential Investment Management, Inc.,
as Sub-Adviser

	 	 	 

	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

	 	 	 

	RGA REINSURANCE COMPANY
	 	 	 

	By:
	 	Prudential Private Placement Investors,
L.P. (as Investment Advisor)

	 	 	 

	By:
	 	Prudential Private Placement Investors, Inc.
(as its General Partner)

	 	 	 

	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

	 	 	 

	CONNECTICUT GENERAL LIFE INSURANCE COMPANY
	 	 	 

	By:
	 	Prudential Investment Management, Inc.,
as Investment Manager

	 	 	 

	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

 

 

	 	 	 	 
	ZURICH AMERICAN INSURANCE COMPANY
	 	 	 

	By:
	 	Prudential Private Placement Investors,
L.P. (as Investment Advisor)

	 	 	 

	By:
	 	Prudential Private Placement Investors, Inc.
(as its General Partner)

	 	 	 

	By:
	 	/s/ Kelly Brendel

	 	 	 

	 	 	Vice President

Agreed to and acknowledged by each of the undersigned for the purposes set forth in paragraph 8(e):

	 	 	 	 	 	 
	 
	 	GUARANTORS:	 	 

	 
	 	 	 	 
	 
	 	CROSSTEX CCNG GATHERING LTD.

CROSSTEX CCNG MARKETING LTD.

CROSSTEX CCNG PROCESSING LTD.

CROSSTEX CCNG TRANSMISSION LTD.

CROSSTEX GULF COAST MARKETING LTD.

CROSSTEX GULF COAST TRANSMISSION LTD.	 	 

	 
	 	 	 	 
	 

	 	By:
	 	Crosstex Energy Services GP, LLC

Sole General Partner of each above limited

partnership
	 
	 	 	 	 
	 

	 	By:
	 	/s/ William W. Davis
	 

	 	 	 	 
	 

	 	 	 	William W. Davis

Senior Vice President and Chief Financial Officer

 

 

	 	 	 	 	 	 
	 
	 	CROSSTEX ALABAMA GATHERING SYSTEM, L.P.

CROSSTEX MISSISSIPPI INDUSTRIAL GAS SALES, L.P.

CROSSTEX MISSISSIPPI PIPELINE, L.P.

CROSSTEX SEMINOLE GAS, L.P.

CROSSTEX ACQUISITION MANAGEMENT, L.P.	 	 

	 
	 	 	 	 
	 

	 	By:
	 	Crosstex Acquisition Management GP,
LLC
Sole General Partner of each above limited partnership
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum

Vice President Finance
	 
	 	 	 	 
	 
	 	CROSSTEX TREATING SERVICES, L.P.	 	 

	 
	 	 	 	 
	 

	 	By:
	 	Crosstex Treating Services GP, LLC

General Partner
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum

Vice President Finance
	 
	 	 	 	 
	 
	 	CROSSTEX ENERGY SERVICES, L.P.	 	 

	 
	 	 	 	 
	 

	 	By:
	 	Crosstex Operating GP, LLC,

its general partner
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum

Vice President Finance
	 
	 	 	 	 
	 
	 	CROSSTEX LIG, LLC	 	 

	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum

Vice President Finance
	 
	 	 	 	 
	 
	 	CROSSTEX LIG LIQUIDS, LLC	 	 

	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum

Vice President Finance
	 
	 	 	 	 
	 
	 	CROSSTEX TUSCALOOSA, LLC	 	 

	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gysle R. Shellum
	 

	 	 	 	 
	 

	 	 	 	Gysle R. Shellum

Vice President Financeexv10w1

 

Exhibit 10.1

SHARE PURCHASE AGREEMENT

By and Between

DOLPHIN OFFSHORE PARTNERS, L.P.

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

and

DIGITAL RECORDERS, INC.

as “DRI” herein, on the other hand

Dated as of June 23, 2005

 

 

SHARE PURCHASE AGREEMENT

     SHARE PURCHASE AGREEMENT, dated as of June 23, 2005, by and between DOLPHIN OFFSHORE PARTNERS,
L.P. (the “Buyer”), on the one hand, and DIGITAL RECORDERS, INC. (“DRI”) on the other.

W I T N E S S E T H:

     WHEREAS, on or about June 23, 2005, the Buyer and DRI entered into a non-binding understanding
(the “Understanding”), under which DRI would sell to Buyer 336 restricted shares of DRI Series G
Redeemable Convertible Preferred Stock, par value $.10 per share, of DRI (the “Shares”); and

     WHEREAS, the Understanding contemplates that the parties will enter into a definitive
agreement and prepare such other documentation as the parties and their respective legal counsel
determine is appropriate; and

     WHEREAS, the parties intend that this Share Purchase Agreement (the “Agreement”), together
with the schedules, exhibits and other documents attached hereto, serve as the definitive agreement
between the parties with respect to the transactions described in the Understanding.

     NOW, THEREFORE, 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 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
G Convertible Preferred Stock attached hereto as Exhibit 1.1.

1

 

     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 sell to the Buyer, and the Buyer shall purchase from DRI, the
Shares for an aggregate purchase price of $1,680,000 (the “Purchase Price”).

     (b) At the Closing, DRI shall deliver to the Buyer a certificate representing the Shares
against delivery by the Buyer to DRI of the Purchase Price. The certificate for the securities
comprising the Shares shall be registered in the name of Dolphin Offshore Partners, L.P.

     Section 1.3 Additional Warrant Shares. Additionally, DRI shall deliver to the
Buyer at the Closing a Stock Purchase Warrant, in the form set forth as Exhibit 1.3., with the
rights, obligations and preferences as set forth therein (the “Warrant Agreement”). The basic
terms of the Warrant Agreement shall provide Buyer with the right to purchase up to 240,000 shares
of common stock, par value $0.10 per share, of DRI (the “Warrant Stock”) at an exercise price of
$2.21 per share for a period of five (5) years, subject to the terms and conditions set forth in
the Warrant Agreement.

     Section 1.4 Registration Rights. At the Closing, the parties shall enter
into a Registration Rights Agreement, in the form set forth as Exhibit 1.4 (the “Registration
Rights Agreement”). Pursuant to the Registration Rights Agreement, DRI shall agree: (a) to file
with the Securities and Exchange Commission (the “SEC”) and use its best efforts to maintain the
effectiveness of a registration statement covering the resale by the Buyer of the shares of common
stock issuable upon conversion of the Shares (the “Conversion Shares”), and (b) to use its best
efforts to effect the registration of (1) the shares of common stock issuable upon conversion of
shares of DRI Series G Redeemable Convertible Preferred Stock issued as dividends on the Shares and
(2) the Warrant Stock with the SEC upon demand by the Buyer in certain circumstances, subject to
the terms and conditions set forth in the Registration Rights Agreement. The Warrant Agreement and
the Registration Rights Agreement are referred to collectively herein as the “Related Agreements”.

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

2

 

DRI (the “Closing Date”), but effective as of June 23, 2005. 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 and the
Warrant Agreement and Registration Rights Agreement executed by DRI.

     Section 2.3 Deliveries by the Buyer. At the Closing, the Buyer shall deliver
to the trust account of Gray, Layton, Kersh, Solomon, Sigmon, Furr & Smith, P.A. the sum of
$1,680,000 (the “Investment Funds”) by wire transfer of immediately available funds in payment of
the Purchase Price 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 (the “1934 Act”), that:

     (a) DRI is a corporation duly organized, validly existing and in good standing under the laws
of North Carolina.

     (b) The audited financial statements of DRI for the year ended December 31, 2004 and unaudited
financial statements of DRI for the three months ended March 31, 2005 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

3

 

income (loss), shareholders’ equity and cash flows for the periods ended on such dates. The DRI
Financial Statements 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, 2005, there has been no material change in the nature of the
business of DRI, nor any material 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, 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 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 or the Related
Agreements 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 the Related Agreements 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 and the Related Agreements have been duly authorized, executed and delivered by DRI, are
the legal, valid and binding obligations of DRI, and are enforceable as to DRI in accordance

4

 

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 and the Related Agreements. 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 and the Related Agreements.

     (e) DRI has not in the past year received notice from any of its trading markets to the effect
that it is not in compliance with the listing or maintenance requirements thereof.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE BUYER

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

     (a) The Buyer is an organization voluntarily entering this Agreement with full power and
authority from its governing body to do so after extensive due diligence by its analysts and with
full cooperation of the management of DRI in response to both its written and oral requests for
information in the nature of due diligence.

     (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

5

 

relating to or affecting creditors’ rights, and general principles of equity.

     (d) The Buyer is acquiring the Shares, and will acquire the Conversion Shares and the Warrant
Stock, 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 and Warrant Stock
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 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 placement
transactions of preferred stock in companies similar to DRI, has actually made a past investment in
DRI and is familiar with the company and its management, and the Buyer has the capacity to protect
its own interests. The Buyer is aware that the purchase of the Shares, the Conversion Shares and
the Warrant Stock 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 or
the Related Agreements.

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

     Section 5.4 Repayment of Bodin Note. DRI shall cause such portion of the
Investment Funds as are necessary to satisfy in full all outstanding obligations under the Bodin
promissory note to be paid directly to the obligee from the trust account of Gray, Layton, Kersh,
Solomon, Sigmon, Furr & Smith, P.A.

7

 

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. 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 or the Related Agreements.

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 agreements 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 and the Related Agreements, 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 Closing, and to
the further conditions that:

     (a) 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.

8

 

     (b) There shall have been no material adverse change in the operating results, financial
condition, properties or business prospects of DRI since March 31, 2005.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

     Section 9.1 Termination. 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.

     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. This Agreement, or any agreement contemplated hereby,
may not be amended except by an instrument in writing signed on behalf of each of the parties
thereto.

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.

9

 

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:

	 	Dolphin Offshore Partners, L.P.
	 

	 	C/o Dolphin Asset Management Corp.
	 

	 	129 E. 17th Street
	 

	 	New York, NY 10003

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.

10

 

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; provided, however, that DRI shall
pay to Buyer’s counsel at Closing its fees in the amount of $2,000. DRI represents and warrants
that there is no placement fee, structuring fee, or commission payable in this transaction.

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 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.

11

 

ARTICLE XVII

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 XVIII

HEADINGS

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

ARTICLE XIX

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 XX

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 XXI

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.

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

	 	 	 	 	 
	 	 	THE BUYER:
	 
	 	 	 	 
	 	 	DOLPHIN OFFSHORE PARTNERS, L.P.
	 

	 	By:
	 	Dolphin Management, Inc., its
	 

	 	 	 	Managing General Partner
	 
	 	 	 	 
	 

	 	By
	 	/s/ Peter E. Salas
	 

	 	 	 	 
	 	 	Print Name: Peter E. Salas
	 	 	Title: President

	 	 	 	 	 	 	 
	 

	 	DRI:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.
	 
	 	 	 	 	 	 
	 	 	By	 	/s/ David L. Turney
	 	 	 	 	 
	 	 	Print Name: David L. Turney
	 	 	 	 	Title: Chairman, Chief
Executive Officer and President

13

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