UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material under Section 240.14a-12
DIGITAL RECORDERS, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
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[DIGITAL RECORDERS, INC. LOGO]
May , 2001
Dear Digital Recorders, Inc. Shareholder:
I cordially invite you to attend the annual meeting (the "Annual Meeting")
of the shareholders of Digital Recorders, Inc. (the "Company" or "Digital") to
be held at the Microelectronics Center of North Carolina, 3021 Cornwallis Road,
Research Triangle Park, North Carolina 27709, on Thursday, May 31, 2001, at
11:00 a.m., local time. At the Annual Meeting, you will be asked to vote on the
following proposals:
- to approve the issuance of 430,000 shares of restricted common stock, par
value $.10 per share, (the "Restricted Shares") of the Company pursuant to
the Stock Purchase Agreement, among the Company, DRI Europa AB ("DRI
Europa"), the Company's wholly-owned subsidiary, and Bengt Bodin,
Annacarin Bodin, Mattias Bodin, Tobias Bodin, and Bertil Lindqvist
(collectively the "Sellers"), to acquire all of the outstanding stock of
Mobitec Holding AB ("Mobitec"), a Swedish company (the "Acquisition");
- to approve the issuance of 100,000 shares of the Company's common stock
underlying warrants granted to Bengt Bodin as part of the consideration
for the Stock Purchase Agreement;
- to approve the authorization and issuance of Convertible Debentures (The
"Debentures"), in the aggregate amount of $3,000,000 and issuance of up to
1,500,000 shares of the Company's common stock underlying such Convertible
Debentures that will be issued to certain investment funds, if the
Debentures are converted, in connection with their investment of up to
$3,000,000 in the Company, which funds will be used in part to fund part
of the Stock Purchase Agreement;
- to elect nine directors, each to serve staggered terms of one to three
years, and thereafter, three-year terms, or until their successors shall
have been duly elected and qualified;
- to ratify the appointment of McGladrey & Pullen, LLP as independent
certified public accountants for the Company;
- to approve an amendment to the Incentive Stock Option Plan to permit the
issuance of an additional 160,000 shares of common stock pursuant to the
Plan; and
- to consider and transact such other business as may be properly come
before the meeting or any adjournment thereof.
Under the Stock Purchase Agreement, the Company and/or DRI Europa, will
acquire all of the outstanding shares of Mobitec (the "Acquisition"), a company
which makes and supplies information systems for public transport vehicles for
the global market. The consideration to be given to the Sellers under the Stock
Purchase Agreement will consist of cash of $4,250,000, seller financed debt of
approximately $2,000,000, the issuance and transfer of the Restricted Shares to
certain of the Sellers, and warrants to purchase up to 100,000 shares of
Digital's Common Stock at an exercise price of $4.00 per share. Further, in
order to receive an investment of up to $3,000,000 in Digital to be used in part
to pay the purchase price, the Company will issue $3 million of The Debentures
which are payable over seven years and are convertible to up to 1,500,000 shares
of the Company's common stock. The number of shares convertible from the
Debentures could under certain circumstances, but is not expected to, exceed
1,500,000 shares.
The Stock Purchase Agreement is subject to an Amended Option Agreement dated
March 13, 2001 (the "Option Agreement"), between the Company, DRI Europa and
Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil Lindqvist
(collectively, the "Sellers"). Pursuant to the Option Agreement, the Sellers
granted to Digital and DRI Europa an irrevocable right of option to purchase
from the Sellers their shares of Mobitec Holding AB under two alternative
exercises of the option: Option A, in which only DRI Europa may exercise the
option to purchase the Sellers' shares; or Option B, in which both Digital and
DRI Europa may exercise the option to purchase the Sellers' shares. If either
option is exercised, the purchase of the Sellers' shares will be made pursuant
to the
Stock Purchase Agreement, described below. The Stock Purchase Agreement as
currently drafted conforms to Option A. If Option B is exercised, the Stock
Purchase Agreement will require certain modifications to reflect that both
Digital and DRI Europa would be deemed the Purchasers. Either Option must be
exercised during the period from March 13, 2001 and June 16, 2001.
The closing of the Acquisition is subject to certain conditions, including
approval by the Company's shareholders of the issuance of the Restricted Shares
as described above (the "Restricted Shares Issuance"), the issuance of the
shares underlying the Bodin Warrants (the "Warrant Shares Issuance"), the
authorization and issuance of the Convertible Debentures and common shares
underlying the debentures (the "Convertible Debenture Authorization" and the
"Debenture Shares Issuance"), consummation of certain bank financing and final
approval by the Company's Board of Directors. I urge you to read carefully the
detailed information that follows this letter regarding the Stock Purchase
Agreement and the related transactions.
Digital's Board of Directors has carefully reviewed and considered the terms
of the Stock Purchase Agreement and has determined that the Stock Purchase
Agreement and the transactions contemplated thereby, including the Acquisition,
the Restricted Shares Issuance, the Warrant Shares Issuance, the Convertible
Debenture Authorization and the Debenture Shares Issuance (collectively, the
"Transactions"), are in the best interests of the Company and its shareholders.
Accordingly, the Board has unanimously approved the Transactions and recommends
that you vote in favor of the Restricted Shares Issuance, the Warrant Shares
Issuance, the Convertible Debenture Authorization and the Debenture Shares
Issuance at the Annual Meeting.
Shareholder approval of the Acquisition and entering into the Option
Agreement, Stock Purchase Agreement and related agreements is not required.
Therefore, you will not be voting at the Annual Meeting regarding these matters.
With respect to the Acquisition, you will be asked at the Annual Meeting to vote
only on the Restricted Shares Issuance, the Warrant Shares Issuance, the
Convertible Debenture Authorization and the Debenture Shares Issuance.
In addition to voting on matters related to the Acquisition of Mobitec, you
will also be asked at the Annual Meeting to vote on the election of directors,
ratify our independent public accounting firm and to approve the issuance of
additional shares for our Incentive Stock Option Plan. These matters are
described in more detail in the Proxy Statement that accompanies this letter.
The Notice of Annual Meeting of Shareholders and a Proxy Statement which
more fully describe the formal business to be conducted at the Annual Meeting
are attached to this letter. In addition to the items of business, we will also
discuss our 2000 performance and answer any questions you may have about our
Company. Enclosed with the Proxy Statement are your voting card, a
postage-prepaid envelope to return your voting card, your admission ticket to
the Annual Meeting and our 2000 Annual Report.
Your participation in the Annual Meeting, in person or by proxy, is
especially important, because the items to be voted upon are very important to
the Company. Whether or not you plan to attend the Annual Meeting in person, on
behalf of Digital and your fellow shareholders, I urge you to complete, date,
sign and promptly return the enclosed proxy card in the enclosed prepaid
envelope to ensure that your shares will be represented at the Annual Meeting.
The Company's Board of Directors believes that the proposals are in the best
interests of the Company and recommends that you vote for all the proposals at
the Annual Meeting. The approval of the first three proposals related to the
Mobitec Acquisition may have certain adverse effects that shareholders should
consider, including, among other things, the further dilution of shareholders'
equity in our Company. You should review the attached Proxy Statement carefully
in this regard, but we believe that you will conclude, as we have, that the
importance and benefit of these transactions to the Company outweighs these
concerns.
The Board of Directors and Management look forward to seeing you at the
Annual Meeting.
Very truly yours,
/s/ DAVID L. TURNEY
--------------------------------------
David L. Turney,
Chairman of the Board
DIGITAL RECORDERS, INC.
4018 Patriot Drive, One Park Center, Suite 100, Durham, North Carolina 27703
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Digital Recorders, Inc. will be held
on May 31, 2001 at 11:00 a.m. at the Microelectronics Center of North Carolina
Auditorium, 3021 Cornwallis Road, Research Triangle Park, North Carolina 27709,
followed by lunch in Conference Rooms A and B at 12:00 p.m. The purposes of the
Annual Meeting are:
1. to approve the issuance of 430,000 shares of Digital Recorders, Inc.'s
restricted common stock, par value of $.10 per share (the "Restricted Shares
Issuance"), to be transferred to certain of the Sellers as part of the
purchase price of the Stock Purchase Agreement (described in the attached
Proxy Statement), pursuant to which Agreement DRI Europa AB, a wholly-owned
subsidiary of Digital Recorders, Inc., and/or Digital Recorders, Inc. will
acquire 100% of the outstanding stock of Mobitec Holding AB (the
"Acquisition").
2. to approve the issuance of 100,000 shares of the Company's common stock
underlying warrants granted to Bengt Bodin pursuant to the Bodin Warrant
Agreement (the "Warrant Shares Issuance") as part of the consideration for
the Stock Purchase Agreement.
3. to approve the authorization and issuance of Convertible Debentures in the
aggregate amount of $3,000,000 (the "Convertible Debenture Authorization")
and issuance of up to 1,500,000 shares of the Company's common stock
underlying the Convertible Debentures that will be issued to certain
investment funds, if the Debentures are converted (the "Debenture Shares
Issuance"), in connection with their investment of up to $3,000,000 in the
Company, which funds will be used in part to fund part of the Stock Purchase
Agreement.
4. to elect nine directors, each to serve staggered terms of one to three
years, and thereafter, three -- year terms, or until their successors shall
have been duly elected and qualified;
5. to ratify the appointment of McGladrey & Pullen, LLP as independent
certified public accountants for the Company.
6. to consider and approve an amendment to the Company's Incentive Stock Option
Plan to permit the issuance of an additional 160,000 shares of common stock
pursuant to the Plan (the "Stock Option Shares Issuance"); and
7. to consider and transact such other business as may be properly come before
the meeting or any adjournment thereof.
THE BOARD OF DIGITAL RECORDERS, INC. HAS UNANIMOUSLY APPROVED EACH OF THE
PROPOSALS DESCRIBED ABOVE AND RECOMMENDS THAT YOU VOTE FOR EACH PROPOSAL AT THE
ANNUAL MEETING.
The Board of Directors has fixed the close of business on April 16, 2001, as
the record date for the determination of shareholders entitled to notice of and
to vote at this annual meeting or any adjournment thereof. A complete list of
the shareholders entitled to vote at the meeting will be available for
inspection at the Annual Meeting and for a period of ten days prior to the
Annual Meeting at Digital Recorders, Inc.'s corporate offices, 4018 Patriot
Drive, One Park Center, Suite 100, Durham, North Carolina 27703, during normal
business hours.
A Proxy Statement which describes the formal business to be conducted at the
annual meeting is attached to this Notice.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed voting card in the postage-prepaid envelope to ensure that your
shares are represented at the annual meeting. Your shares cannot be voted unless
you date, sign, and return the enclosed voting card or attend the meeting in
person. Regardless of the number of shares you own, your vote is important. You
may
revoke your proxy in the manner described in the Proxy Statement at any time
before the vote at the Annual Meeting. Executed proxies with no instructions
indicated thereon will be voted "FOR" approval of each of the Proposals for
which no vote is cast.
The Board of Directors and Management look forward to seeing you at the
meeting.
By Order of The Board of Directors,
/s/ DAVID L. TURNEY
--------------------------------------
David L. Turney, Chairman of the Board
May , 2001
IMPORTANT
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
CANNOT ATTEND THE MEETING, PLEASE MARK, DATE, SIGN, NOTE ANY CHANGE OF ADDRESS
AND RETURN THE ENCLOSED PROXY CARD IMMEDIATELY IN THE ENCLOSED, SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, WE WILL BE GLAD TO RETURN YOUR PROXY SO THAT YOU MAY VOTE IN PERSON
AT THE MEETING.
DIGITAL RECORDERS, INC.
4018 Patriot Drive, Suite 100
Durham, North Carolina 27703
PROXY STATEMENT
RELATING TO THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD MAY 31, 2001
TABLE OF CONTENTS
General Information......................................... 1
Information About the Annual Meeting...................... 1
Voting of Securities...................................... 1
No Appraisal or Preemptive Rights......................... 2
Regulatory Approvals...................................... 2
Annual Report............................................. 2
Forward-Looking Statements in this Proxy Statement........ 2
PROPOSAL I. -- TO APPROVE THE ISSUANCE OF THE RESTRICTED
SHARES (THE "RESTRICTED SHARES ISSUANCE") IN CONNECTION
WITH THE PURCHASE OF ALL OUTSTANDING SHARES OF MOBITEC
HOLDING AB (THE "ACQUISITION")............................ 2
Introduction and Summary of Acquisition Transactions...... 3
The Company............................................... 5
Mobitec Holding AB........................................ 5
DRI Europa................................................ 6
Background and Reasons for the Acquisition................ 6
Factors Considered by the Board of Directors Regarding the
Acquisition............................................. 8
Fairness Opinion.......................................... 9
Summary of Option Agreement, As Amended................... 10
Summary of Stock Purchase Agreement....................... 11
Purchase Price.......................................... 11
Conditions Precedent to the Purchaser's Obligations..... 12
Closing Conditions...................................... 12
Representations and Warranties of the Sellers........... 12
Representations and Warranties of the Bodin Sellers..... 12
Covenants............................................... 13
Registration of the Restricted Shares................... 14
Indemnification......................................... 14
Representations and Warranties of the Purchaser......... 14
Closing Date............................................ 15
General Provisions...................................... 15
Summary of Consulting Agreement........................... 15
Summary of Trademark License Agreement.................... 15
Certain Risks and Factors to Consider Regarding this
Proposal................................................ 15
Board of Directors' Recommendation........................ 16
PROPOSAL II -- THE WARRANT SHARES ISSUANCE.................. 16
Summary of the Bodin Warrant Agreement.................... 16
Summary of the Registration Rights Agreement.............. 17
Board of Directors' Recommendation........................ 17
i
PROPOSAL III -- THE CONVERTIBLE DEBENTURE AUTHORIZATION AND
THE DEBENTURE SHARES ISSUANCE............................. 18
Summary of the Renaissance Convertible Debenture
Preliminary Outline of Terms............................ 18
Board of Directors' Recommendation........................ 19
Certain Risks and Factors to Consider Regarding Proposals I,
II and III................................................ 20
Dilution of Existing Shareholders......................... 20
Consequences if Share Issuances are not Approved.......... 20
Competition............................................... 20
Technology Advancements by Competitors.................... 20
Risks Regarding Financing of Cash Component of Purchase
Price................................................... 20
Market Recession.......................................... 21
Ability to Retain Key Mobitec Management Personnel........ 21
Liquidity of Mobitec in the Event of Business Failure..... 21
Accounting Treatment of Mobitec Acquisition................. 21
Tax Treatment of Mobitec Acquisition........................ 21
Description of Securities to Be Issued Pursuant to the
Acquisition............................................... 21
Interest of Certain Persons in Proposed Acquisition......... 22
PROPOSAL IV -- ELECTION OF DIRECTORS........................ 22
Nominees for Election..................................... 23
Nominees Standing for Election as Directors at the Annual
Meeting................................................. 23
Executive Officers........................................ 26
Significant Employee...................................... 27
Security Ownership of Certain Beneficial Owners and
Management.............................................. 27
Board Committees.......................................... 29
Audit Committee Report.................................... 29
Board and Committee Attendance............................ 30
Executive Compensation.................................... 30
Summary Compensation Table.............................. 30
Option/SAR Grants in Last Fiscal Year................... 31
Board Compensation........................................ 32
Aggregate Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values................................ 32
401(k) Plan............................................... 32
Employment Contracts and Termination of Employment and
Change-In-Control Arrangements.......................... 33
PROPOSAL V -- RATIFICATION OF APPOINTMENT OF INDEPENDENT
PUBLIC ACCOUNTANTS........................................ 34
PROPOSAL VI. -- PROPOSAL TO APPROVE AMENDMENT TO THE
INCENTIVE STOCK OPTION PLAN............................... 34
Summary of the Incentive Stock Option Plan................ 34
Federal Income Tax Effects of the Issuance and Exercise of
Options Under the Plan.................................. 35
Nonqualified Stock Options.............................. 35
Incentive Stock Options................................. 36
Incentive Stock Option Plan Benefits Table................ 37
Financial Information....................................... 38
Information About Digital................................... 38
Description of Business................................... 38
ii
Description of Property................................... 38
Legal Proceedings......................................... 38
Market for Common Equity and Related Stockholder
Matters................................................. 38
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 38
Information About Mobitec................................... 39
Description of Business................................... 39
Market for Common Equity and Related Stockholder
Matters................................................. 39
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 39
Certain Relationships and Related Transactions.............. 41
Compliance with Section 16(a) of the Exchange Act........... 42
Shareholder Proposals....................................... 42
Other Matters............................................... 42
Documents Incorporated by Reference......................... 42
APPENDICES
Appendix A -- Proxy Card
Appendix I -- Stock Purchase Agreement
Appendix II -- Amended Option Agreement
Appendix III -- Bodin Warrant Agreement
Appendix IV -- Registration Rights Agreement
Appendix V -- Trademark License Agreement
Appendix VI -- form of Promissory Note
Appendix VII -- Preliminary Outline of Terms, dated
November 28, 2000
Appendix VIII -- Consulting Agreement
Appendix IX -- form of Fairness Opinion
Appendix X -- Mobitec Holding and Subsidiaries
Consolidated Financial Statements, December 31, 2000 and
1999.
Appendix XI -- Pro Forma Combined Condensed Balance Sheet
and Statement of Operations as of and for the year ended
December 31, 2000.
Appendix XII -- Audit Committee Charter
Appendix XIII -- Amendments to the Company's Bylaws and
Articles of Incorporation.
Appendix XIV -- Employment Agreement -- David L. Turney
Appendix XV -- Employment Agreement -- Lawrence A.
Hagemann
Appendix XVI -- Employment Agreement -- Lawrence A. Taylor
iii
GENERAL INFORMATION
INFORMATION ABOUT THE ANNUAL MEETING
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF DIGITAL
RECORDERS, INC. (the "Company" or "Digital") for use at the Annual Meeting of
Shareholders (the "Annual Meeting"). The Annual Meeting will be held at the
Microelectronics Center of North Carolina, 3021 Cornwallis Road, Research
Triangle Park, North Carolina 27709, on Thursday, May 31, 2001, at 11:00 a.m.,
for the purposes set forth in the foregoing Notice of Annual Meeting of
Shareholders. This Proxy Statement and the form of proxy will be mailed to
shareholders on or about May , 2001.
VOTING OF SECURITIES
The record date with respect to this solicitation is April 16, 2001 (the
"Record Date"). All holders of record of Common Stock of the Company as of the
close of business on the Record Date are entitled to vote at the Annual Meeting.
As of that date, the Company had 3,274,475 shares of Common Stock outstanding,
which shares constitute the only class of outstanding shares of the Company
entitled to notice of, and to vote at, the Annual Meeting. Each share of Common
Stock is entitled to one vote.
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Annual Meeting in order to constitute a quorum for the
transaction of business. If a quorum exists, a proposal is approved if the votes
cast in person or by proxy favoring the proposal exceed the votes cast opposing
the proposal. Abstentions and broker non-votes are not counted in the
calculation of the vote. A proxy may be revoked by the shareholder at any time
prior to its being voted by giving notice to the Secretary of the Company, by
executing and delivering a proxy with a later date or by voting in person at the
Annual Meeting. Unless the proxy is revoked, or unless it is received in such
form as to render it invalid, the shares represented by it will be voted in
accordance with the instructions of the shareholder contained therein. If the
proxy is signed and returned without specifying choices, the shares will be
voted in accordance with the recommendations of the Board of Directors.
The cost of this solicitation will be borne by the Company, including
expenses incurred in connection with preparing and mailing this Proxy Statement.
Such expenses will include charges by brokers, banks or their nominees, other
custodians and fiduciaries for forwarding proxy material to the beneficial
owners of shares held in the name of a nominee. Proxies may be solicited
personally or by mail, facsimile, telephone or telegraph. Employees and
directors of the Company may solicit proxies but will not receive any additional
compensation for such solicitation.
As a matter of policy, proxies, ballots, and voting tabulations that
identify individual shareholders are held confidential by the Company. Such
documents are available for examination only by the inspectors of election that
are employees appointed to tabulate the votes. The identity of the vote of any
shareholder is not disclosed except as may be necessary to meet legal
requirements.
If you have additional questions about the proposals discussed in this Proxy
Statement you should contact:
DIGITAL RECORDERS, INC.
4018 Patriot Drive
One Park Center, Suite 100
Durham, North Carolina 27703
(919) 361-2155
Attn: Lawrence A. Taylor
If you would like additional copies of this Proxy Statement, or if you have
questions with respect to voting your shares, you should contact the Company's
transfer agent:
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
1
NO APPRAISAL OR PREEMPTIVE RIGHTS
Holders of the Company's Common Stock are not entitled under North Carolina
law to seek appraisal of their shares in connection with the Acquisition
described in the Notice of Annual Shareholders Meeting, including the Restricted
Shares Issuance, the Warrant Shares Issuance and the Debenture Shares Issuance.
In addition, holders of Digital Common Stock are not entitled to preemptive
rights with respect to the Restricted Shares Issuance, the Warrant Shares
Issuance or the Debenture Shares Issuance.
REGULATORY APPROVALS
The Company is not aware of any state or federal regulatory approvals
regarding the Acquisition and related Transactions that must be obtained.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 2000 is
enclosed with this Proxy Statement.
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT
This proxy statement contains certain forward-looking statements. When used
in this proxy statement, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," "believe" and similar expressions
are intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 regarding events, conditions and financial trends
including, without limitation, business conditions and growth in the markets in
which the Company participates and the general economy; competitive factors,
such as the entry of new competitors into any of the markets in which the
Company participates; price pressures and increased competition in those
markets; inventory risks due to shifts in market demand and/or price erosion of
purchased components; changes in product mix; that the Company's working capital
and existing credit arrangement will be adequate to fund its operations; and the
risks and uncertainties listed from time to time in the Company's Securities and
Exchange Commission reports and filings. Such statements are based on
management's current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual plan of operations,
business strategy, operating results and financial position could differ
materially from those expressed in, or implied by, such forward-looking
statements.
PROPOSAL I.
TO APPROVE THE ISSUANCE OF THE RESTRICTED SHARES (THE "RESTRICTED SHARES
ISSUANCE") IN CONNECTION WITH THE PURCHASE OF ALL OUTSTANDING SHARES OF MOBITEC
HOLDING AB (THE "ACQUISITION").
THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING DIGITAL'S ACQUISITION, THROUGH ITSELF AND/OR ITS WHOLLY-OWNED
SUBSIDIARY, OF ALL THE OUTSTANDING STOCK OF MOBITEC HOLDING AB ("MOBITEC") (THE
"ACQUISITION") AND THE RESTRICTED SHARES ISSUANCE (COLLECTIVELY, THE
"TRANSACTIONS") ARE SUMMARIZED BELOW. THIS SUMMARY DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STOCK PURCHASE
AGREEMENT, ATTACHED AS APPENDIX I; THE AMENDED OPTION AGREEMENT, ATTACHED AS
APPENDIX II; THE BODIN WARRANT AGREEMENT, ATTACHED AS APPENDIX III; THE
REGISTRATION RIGHTS AGREEMENT, ATTACHED AS APPENDIX IV; THE TRADEMARK LICENSE
AGREEMENT, BETWEEN MOBITEC AB AND MOBITEC KLIMAT AB, ATTACHED AS APPENDIX V; THE
FORM OF PROMISSORY NOTE, ATTACHED AS APPENDIX VI; THE PRELIMINARY OUTLINE OF
TERMS BETWEEN DIGITAL AND RENAISSANCE CAPITAL GROUP, INC., DATED NOVEMBER 28,
2000, ATTACHED AS APPENDIX VII; AND THE CONSULTING AGREEMENT, ATTACHED AS
APPENDIX; EACH OF WHICH IS INCORPORATED BY REFERENCE. SHAREHOLDERS ARE URGED TO
READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR ENTIRETY.
2
INTRODUCTION AND SUMMARY OF ACQUISITION TRANSACTIONS
On March 13, 2001, Digital and its wholly-owned subsidiary, DRI Europa AB
("DRI Europa"), entered into an Amended Option Agreement (the "Option
Agreement"), superseding an Option Agreement dated December 7, 2000, with Bengt
Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil Lindqvist
(collectively, the "Offerors"). Pursuant to the Option Agreement, the Offerors
granted to Digital and DRI Europa an irrevocable right of option to purchase the
Offerors' shares of Mobitec Holding AB for the period from March 13, 2001 to
June 16, 2001, based upon the occurrence of certain events.
The Option Agreement provides for two alternative exercises of the option
right of Digital and DRI Europa: Option A, in which only DRI Europa may exercise
the option to purchase the Offerors' shares; or Option B, in which both Digital
and DRI Europa may exercise the option to purchase the Offerors' shares. If
either option is exercised, the purchase of the Offerors' shares will be made
pursuant to the Stock Purchase Agreement, described below. The Stock Purchase
Agreement as currently drafted conforms to Option A. If Option B is exercised,
the Stock Purchase Agreement will require certain modifications to reflect that
both Digital and DRI Europa would be deemed the Purchasers. Whether the Option
Agreement will be exercised under Option A or B depends primarily on the tax
treatment of the transaction to the Offerors under Swedish law. See "Summary of
Option Agreement, As Amended," below.
The Stock Purchase Agreement (the "Stock Purchase Agreement"), which will be
executed by the parties after one of the options is exercised pursuant to the
Option Agreement, is between Digital and DRI Europa, and Bengt Bodin, Annacarin
Bodin, Mattias Bodin, Tobias Bodin (collectively, the "Bodin Sellers") and
Bertil Lindqvist ("Lindqvist") (collectively, the Bodin Sellers and Lindqvist
are referred to as "the Sellers"). Under the terms of the Stock Purchase
Agreement, which is attached to this Proxy Statement as Appendix I, subject to
certain conditions, DRI Europa and/or Digital has agreed to purchase 100,000
shares of Mobitec Holding AB, a Swedish corporation ("Mobitec"), constituting
all of the outstanding stock of Mobitec, from the Sellers for a purchase price
consisting of:
- 5,700,000 Swedish Krona (SEK) (at an assumed exchange rate of .092982 such
that SEK 5,700,000 is equal to US $530,000) to be paid to Lindqvist for
his shares of Mobitec;
- Subject to adjustment following the Closing Date, based upon a comparison
of Mobitec's net equity at the time of the Closing as set forth in the
Closing Financial Statement and as of March 31, 2000:
- US $3,680,000 to be paid to the Bodin Sellers;
- Promissory Notes totaling up to US $2 million to be issued to each
Bodin Seller on the Closing Date;
- 430,000 Restricted Shares of Digital (valued at $3 per share) to be
transferred to the Bodin Sellers on the Closing Date; and,
- Warrants to purchase in the aggregate 100,000 shares of Digital's common
stock at an exercise price of US $4.00 per share for a period of five
years issued to Bengt Bodin pursuant to the Bodin Warrant Agreement.
Interest on the cash portions of the consideration to be paid to the Sellers
and on the Promissory Notes shall accrue at the rate of eight percent per annum
from March 16, 2001 up to the Closing Date of the Stock Purchase Agreement and
related agreements. In the event the Company elects not to proceed with the
Mobitec Acquisition for reasons not attributable to the Sellers and does not
exercise one of the options under the Option Agreement, interest shall be paid
to the Sellers for the period from March 16, 2001 through June 16, 2001 at eight
percent per annum.
The Restricted Shares will be transferred to the Bodin Sellers on the
Closing Date, subject to all of the terms and conditions of the Registration
Rights Agreement, attached as Appendix IV. See
3
"Summary of Registration Rights Agreement," in Proposal II, below. Two hundred
thousand shares of the 430,000 Restricted Shares to be transferred to the Bodin
Sellers at Closing are to be registered by the Company within one year of the
Closing of the Stock Purchase Agreement. The remaining 230,000 Restricted Shares
are to be registered by the Company within two years of the Closing.
The cash portion of the purchase price is being provided by two separate
sources: (1) the authorization and issuance of up to $3 million in Convertible
Debentures (the "Convertible Debentures") by the Company to certain investment
funds associated with Renaissance Capital Group, Inc. of Dallas, Texas (the
"Convertible Debentures Issuance"); and, (2) a loan to DRI Europa from Svenska
Handelsbanken AB of Goteborg, Sweden in the amount of SEK 22,000,000 (the
"Acquisition Loan"). See "Summary of the Renaissance Convertible Debenture
Preliminary Outline of Terms."
The Convertible Debentures are convertible into the Company's common stock
(the "Debenture Shares") at an Initial Conversion Price equal to the
volume-weighted average closing price for Digital's common stock for the five
day period prior to the closing of the Convertible Debenture Agreement and
related documents but in no event below $2.00 per share or greater than $3.00
per share. Accordingly, the Convertible Debentures are initially convertible
into at least 1,000,000 shares of the Company's common stock and no more than
1,500,000 shares of the Company's common stock (the "Debenture Shares
Issuance"). However, the conversion price is subject to an Automatic Adjustment
if (i) the Company does not attain certain financial performance goals, to be
agreed upon, and (ii) the market price of the Company's common stock is below
the conversion price at the time of publication of the Company's financial
results for the period. If applicable, at the adjustment date, the conversion
price will be reduced to equal the volume-weighted average closing price for the
Company's common stock over a ten day trading period following the Company's
public release of that year's financial results. Therefore, as a result of the
Automatic Adjustment, the shares of the Company convertible from the Convertible
Debentures could, but are not expected to, exceed 1,500,000. See, Proposal III
regarding the Convertible Debenture Authorization, the Convertible Debenture
Issuance and the Debenture Shares Issuance.
The Bodin Warrant Agreement, which is attached hereto as Appendix III,
provides for a grant by Digital to Bengt Bodin of warrants to purchase 100,000
shares of Digital's common stock for a period of five years at an exercise price
of $4.00 per share. The Warrants can be exercised in cash or by the non-cash
conversion provision. Bodin can offset and reduce any part or all of the
exercise price by the sum of the unpaid principal balance on the Promissory
Note, plus accrued and unpaid interest. Pursuant to the Registration Rights
Agreement, the common shares underlying the warrants will be registered by
Digital within one year from the date of Closing of the Stock Purchase
Agreement. See "Summary of Bodin Warrant Agreement," below in Proposal II. See
Proposal II regarding the Warrant Shares Issuance.
See "Description of Securities Issued Pursuant to the Acquisition."
The 430,000 Restricted Shares of the Company's common stock constitutes
approximately 13% of the Company's common stock outstanding on April 16, 2001.
The 100,000 shares of common stock underlying the Bodin Warrants represent
approximately 3% of the Company's common stock on April 16, 2001 and would
constitute approximately 3% of the common stock after exercise. The up to
1,500,000 shares of common stock underlying the Convertible Debentures represent
approximately 46% of the Company's common stock on April 16, 2001 and would
constitute approximately 29% of the common stock after conversion. After Closing
of the Stock Purchase Agreement and related Transactions, the Restricted Shares,
the shares underlying the Bodin Warrants and the shares underlying the
Convertible Debentures would together constitute approximately 62% of the
Company's common stock outstanding on April 16, 2001 and would constitute
approximately 38% of Digital's common stock after exercise and conversion.
4
The Board of Directors has unanimously approved the execution and delivery
of the Stock Purchase Agreement, the Acquisition and the related Transactions,
including the Restricted Shares Issuance, the Warrant Shares Issuance, the
Convertible Debentures Authorization and Debenture Shares Issuance and the
Acquisition Loan. Because the Stock Purchase Agreement and related Transactions
may collectively involve the issuance of common stock in excess of 20% of the
currently outstanding shares of the Company's common stock, the Nasdaq Stock
Market, Inc. ("Nasdaq") Marketplace Rules require that Digital obtain the
approval of the transaction by the holders of a majority of the votes present
and voting at the Annual Meeting. Pursuant to the enclosed proxy, the Board of
Directors is submitting the Restricted Shares Issuance, the Warrant Shares
Issuance, the Convertible Debenture Authorization and the Debentures Shares
Issuance to the Shareholders for approval. Shareholder approval is not required,
and will not be requested, for the Option Agreement, the Stock Purchase
Agreement, the Acquisition, the Acquisition Loan and the related Transactions
other than the Restricted Shares Issuance, the Warrant Shares Issuance, the
Convertible Debenture Authorization and the Debentures Shares Issuance. Unless
the required majority of the votes for approval of the Restricted Shares
Issuance, the Warrant Shares Issuance, the Convertible Debenture Authorization
and Debentures Shares Issuance is obtained, the Restricted Shares Issuance, the
Warrant Shares Issuance, the Convertible Debenture Authorization and Debentures
Shares Issuance, and accordingly, the Stock Purchase Agreement, the Acquisition
and the related Transactions, will not be completed. As of the date of this
Proxy Statement, the Board of Directors anticipates completing the Stock
Purchase as soon a practicable after the Annual Meeting, assuming satisfaction
or waiver of all conditions to closing. See "Summary of Stock Purchase
Agreement -- Closing Conditions."
The Promissory Notes (the "Notes") to be issued to the Bodin Sellers at
Closing total approximately US $2 Million and will be issued to each Bodin
Seller on the Closing Date. The amounts of the Notes are subject to adjustment
by any discrepancy between the amount of net equity of Mobitec exceeding SEK
100,000 reflected on the Closing Financial Statement of Mobitec and the net
equity of Mobitec reflected in its interim financial statement at March 31,
2000. The Notes are due 36 months from the Closing Date and bear interest at the
rate of 9% per annum payable on a quarterly basis. The notes are unsecured. A
form of the Promissory Notes is attached to this Proxy Statement as
Appendix VI.
THE COMPANY
Digital Recorders, Inc.
4018 Patriot Drive
One Park Center, Suite 100
Durham, North Carolina 27703
(919) 361-2155
DRI designs, manufacturers or contracts for the manufacture of, sells, and
services products to the transit and transportation market and the law
enforcement market. The Company creates and produces products and systems to
improve the flow and mobility of people through the transportation
infrastructure. DRI markets its products to customers located in North America,
Europe and Asia.
MOBITEC HOLDING AB
Bilgatan 7
442 40 Kungalv
Goteborg, Sweden
Telephone: 46 513 22900
Mobitec makes and supplies information systems for public transport vehicles
for the global market. Mobitec Information systems include signs for displaying
route numbers, destination and next stop in public transport vehicles, primarily
buses.
5
DRI EUROPA
DRI Europa is a recently formed Swedish corporation and wholly-owned
subsidiary of Digital which will act as a holding company for the Acquisition of
the Mobitec shares pursuant to the Stock Purchase Agreement if Option A of the
Option Agreement is exercised. If Option B of the Option Agreement is exercised,
DRI Europa and Digital will purchase the Mobitec shares. DRI Europa will also
act as the holding company for Transit-Media Gmbh ("Transit-Media"), another
wholly-owned subsidiary of Digital based in Germany.
After the Acquisition is completed, the Company anticipates that Mobitec and
Transit-Media will operate as separate entities, reporting to their common
parent corporation, DRI Europa, and indirectly reporting to Digital's principal
office.
In order to induce certain Key Employees of Mobitec to remain with the
company after the Acquisition, Digital has required, as part of the Stock
Purchase Agreement, that such Key Employees' employment contracts remain in full
force and effect. As further inducement for certain Key Employees to remain with
Mobitec, Digital may, within its sole discretion, grant certain warrants or
options to some or all Mobitec Employees after the Acquisition is completed.
Prior to the Closing Date, Mobitec has pledged that all existing options
held by Mobitec personnel, granted pursuant to Mobitec's Stock Option Program,
to purchase shares of Mobitec stock will have been extinguished or retired so
that there will be no outstanding options to purchase Mobitec's stock.
As a condition to the Stock Purchase Agreement, at or before the Closing
Date, Digital will enter into a Consulting Agreement with Bengt Bodin for a
period of three years. Further, Digital has agreed to continue the
administration of Bengt Bodin's pension arrangement. The Sellers have
represented in the Stock Purchase Agreement that Bengt Bodin's pension
arrangement will not have any negative impact on the financial position of
Mobitec or any subsidiary.
BACKGROUND AND REASONS FOR THE ACQUISITION
Digital, as stated in its Strategic Business Plans, as reviewed and approved
by the Company's Board of Directors, seeks to increase growth through
acquisition of profitable businesses operating in its core markets. The Company
is seeking acquisition candidates that will diversify its business in geographic
coverage, served markets and/or technological capability. Acquisition candidates
must possess strong operating management, capable of managing not only the
acquired business within the Company's management structure, but also of
strengthening the overall DRI operating structure.
Mobitec is a profitable company that meets Digital's profile for acquisition
candidates. Mobitec was founded in 1987 by Bengt Bodin and employs approximately
45 people. It has a principal operating office in Herrljunga, Sweden, located
about a one-hour drive East-Northeast of Goteborg, Sweden. Access from Central
Europe is typically by land/sea from Denmark or via air through either the
Goteborg or Stockholm International Airports. Mobitec is thus situated in a
strategically important segment of this overall general niche market and is
further positioned to serve the former Eastern Block markets. Mobitec has one
wholly-owned subsidiary, Mobitec AB, which in turn owns 100% of Mobitec Gmbh,
located in Weinstadt, Germany and Mobitec Australia Pty Ltd., which is located
in Sydney, Australia. In addition, Mobitec AB owns 50% of a company operating in
Caxias do Sul, Brazil known as Mobitec Ltda. Two other subsidiaries of Mobitec,
Hexair AB and Mobitec Klimat AB, are not part of the Stock Purchase Agreement
and are to be sold to Bengt Bodin prior to the Closing Date.
Discussions with Mobitec started at the American Public Transportation
Association ("APTA") Annual Meeting and Exposition in Orlando in October 1999
where Bengt Bodin, majority shareholder of Mobitec, talked with David L. Turney,
CEO of Digital, after having heard, through industry circles, Digital was
planning to initiate growth through acquisition. Turney made clear Digital's
long-term plans
6
and in response Bodin delivered initial brief financial information. This
contact had roots in many years of previous contact in the industry between
Bodin and Turney.
Mobitec generated net sales of approximately US $11.7 million and a net
income of US $121,000 for its fiscal year ending December 31, 2000. The
consolidated financial statements of Mobitec Holding AB and Subsidiaries for the
fiscal years ended December 31, 2000 and 1999 are attached as Appendix X to this
Proxy Statement.
Mobitec is a leader in the Nordic Market (consisting of Iceland, Greenland,
Sweden, Norway, Denmark and Finland) for Electronic Destination Sign Systems.
Mobitec holds an estimated 70% market share in the Scandinavian Market (Sweden,
Norway, Denmark and Finland). Mobitec's sign system technology is compatible
with the Twin Vision-Registered Trademark- technology of Digital, although
Mobitec uses a technologically less advanced flip-dot display with indirect
illumination. Because the traditional flip-dot system using indirect LED
illumination employed by Mobitec is typically less expensive than the Twin
Vision technology, the Acquisition of Mobitec positions the Company to offer
two-tier product pricing. Outside of Europe, Mobitec has an estimated 50% market
share in Australia and operates through a 50% owned joint venture in Brazil.
Mobitec has also established a sales office subsidiary in central Germany.
Mobitec company management includes a strong operational, marketing, and
technical team reporting to a Management Board chaired by Mobitec founder Bengt
Bodin. Mr. Bodin is respected in the Transit markets as a trustworthy
customer-oriented businessman. Mobitec also enjoys this favorable image.
Mr. Bodin wants to withdraw from day-to-day Mobitec business to pursue other
interests but intends to make sure that the Mobitec business continues to
thrive. Thus, Mr. Bodin is seeking a special type of buyer; one which will grow
the Mobitec business, protect what he created, provide growth opportunities for
the personnel, and at the same time, provide liquidity to his Mobitec
investment.
Approximately two years ago, Mr. Bodin started preparing to reduce his
direct involvement in Mobitec's business. He personally stepped-back from
day-to-day operating detail. A former marketing person in the company was
appointed Managing Director. A Management Board was structured so the company
functions much like a USA public company. Quarterly meetings are held for the
Management Board to oversee business activities and plans as reported by the
Managing Director. Having operated in this manner for two years, Mobitec is now
ready to make a transition in ownership with minimal disruption.
While there is some minimal market overlap, Mobitec serves several markets
not currently served by the Company. Essentially, Mobitec brings added market
coverage that could coincide with that of Transit-Media. Based upon last year's
net sales, adding Mobitec's market presence would almost quintuple Digital's
international business sales volume. In addition, Digital expects that the
Mobitec Acquisition will benefit Transit-Media and Twin Vision of North
America, Inc., the Company's destinations signs systems' supplier in the United
States, by allowing cost savings through increased volume component purchasing.
Finally, Mobitec may be in a position to assist in sales and marketing in Europe
of other products of Digital, such as its "Talking Bus" product.
From the initial meeting in Orlando, numerous meetings have been held,
together with many separate communications. These communications and discussions
established parameters of a possible deal structure potentially attractive to
both the buyer and seller. In early 2000, it became clear discussions had
reached a point that it would be productive to enter more serious negotiations.
At several meetings, including a meeting in May 2000 at Digital's headquarters
in Research Triangle Park, North Carolina, the framework of an initial proposal
from Digital was designed. This framework also included detailed discussion
about how Mobitec might fit with Digital in market, technology, operational and
corporate contexts.
In mid 2000, Digital management compiled a Business Case analysis and
proposal for the acquisition of Mobitec. This analysis and proposal was
subsequently considered by the Digital Board of
7
Directors' Executive Committee and recommended to the full Digital Board of
Directors for approval. Approval was granted in a July 24, 2000 meeting and
Management prepared and issued to Mobitec a Non-Binding Letter of Intent
("Letter of Intent"). The Letter of Intent was presented to the sellers in two
meetings, including one in Sweden accompanied by a visit to the Mobitec
facilities and subsequently, a second meeting at Digital's facilities. After
minor adjustment at the request of the sellers, the Letter of Intent was
subsequently signed by Bodin, having voting control of Mobitec and acting with
consent of all owners and Board Members of Mobitec.
Management retained legal counsel in Sweden skilled in international
transactions to assist with the legal, tax, and structural issues associated
with this type transaction. At the advice of legal counsel, plans were made to
establish a holding company subsidiary in Sweden -- "DRI Europa" -- through
which the Acquisition would be made. From this preliminary planning, the
acquisition process entered the detail investigation and work phase.
Due diligence, detail point negotiations and development of a definitive
Stock Purchase Agreement spanned the time from August through December 7, 2000,
at which time the Acquisition was agreed in full subject to approval of the
Digital Board of Directors and the Company's exercise of the Option Agreement,
as amended. In parallel with this phase, Digital management pursued numerous
alternatives for funding of the Acquisition, including sources developed prior
to the Letter of Intent.
Funding for the cash component of the purchase price of the Stock Purchase
Agreement will consist of the Acquisition Loan and debt securities (the
Convertible Debentures) issued by the Company. The Acquisition Loan is being
provided by a Swedish Bank, Svenska Handelsbanken AB, and is in the amount of
SEK 22 Million, to be repaid over five years in annual installments of SEK
4,400,000 each. The loan is secured by all of the shares of Mobitec Holding AB.
In addition, Svenska Handelsbanken is loaning SEK 20 Million to Mobitec AB and
1 Million German Marks to Transit-Media Gmbh for general working capital needs
in a form similar to revolving asset based lending. The Convertible Debenture
Issuance is described more fully in connection with Proposal III, below.
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS REGARDING THE ACQUISITION
In considering the Acquisition and related Transactions, the Board of
Directors took into account a number of considerations, including (i) the
results of the due diligence review conducted on Mobitec's operations by Company
management and legal counsel; (ii) the Executive Committee's recommendation to
the Board of Directors; (iii) the strategic and operational advantages that
could result from the Acquisition of Mobitec and the combination of its
manufacturing contacts, product line and management to the Company's business;
(iv) the terms of the Stock Purchase Agreement and related documents, including
the parties' respective representations, warranties and covenants and the
conditions to their respective obligations; and (v) the fairness opinion of
Investech-Ernst & Co. delivered orally to management and expected to be
delivered in writing to the Board of Directors at the closing of the Stock
Purchase Agreement and related Transactions, stating in effect that the
aggregate consideration paid by Digital in connection with the Stock Purchase
Agreement and the related Transactions is fair, from a financial point of view,
to the Company and its shareholders. See, "Fairness Opinion." The Board of
Directors concluded that the Stock Purchase and the acquisition of Mobitec would
bring substantial value to the Company.
The Board also considered various countervailing factors in its
deliberations concerning the Transactions, including, the risks described below
(see "Certain Risks and Factors to Consider Regarding Proposals I, II and III")
and whether the Company's growth plans could be fulfilled internally. However,
the Board determined that internal growth of the magnitude achieved by the
Acquisition could not reasonably be met internally within a reasonable time
frame.
8
FAIRNESS OPINION
In December 2000, Investech-Ernst & Co. ("Investech-Ernst") confirmed to the
Board of Directors that it would be delivering a fairness opinion to the
Company's Board concerning the aggregate consideration paid in connection with
the Stock Purchase Agreement and related Transactions. The aggregate
consideration paid in connection with the Stock Purchase Agreement was initially
determined by the Company after negotiating with the Sellers. Subsequently,
after conducting extensive due diligence and investigation, Investech-Ernst
delivered an oral fairness opinion to Company management, to the effect that, as
of that date, the aggregate consideration paid by Digital in connection with the
Stock Purchase Agreement and the related Transactions is fair, from a financial
point of view, to the Company and its shareholders. Further, Investech-Ernst
stated to management that it anticipated delivering a written fairness opinion
to the Company's Board Directors to the same effect at the time of the closing
of the Stock Purchase Agreement and related Transactions (the "Fairness
Opinion"). In rendering the Fairness Opinion, Investech-Ernst visited the
Company and Mobitec and interviewed the management of both companies. In
addition, Investech-Ernst conducted (i) a financial analysis (ii) operational
analysis and (iii) a limited comparables analysis assuming the complete accuracy
and completeness of all materials, written and verbal, provided by the Company's
and Mobitec's management. The Fairness Opinion addresses only the fairness, from
a financial point of view, of the aggregate purchase price to be paid by the
Company for the Shares of Mobitec. A copy of the form of Fairness Opinion will
be attached as Appendix IX to this Proxy Statement and should be read in its
entirety for a description of the procedures followed, assumptions and
qualifications made, matters considered and the limits of the review undertaken
by Investech-Ernst. The written Fairness Opinion is based on conditions as of
its date and, although subsequent developments could have a material effect on
the opinion stated, the Fairness Opinion will not be updated.
In arriving at its Fairness Opinion and the basis therefor, Investech-Ernst,
among other things, reviewed: (i) the Stock Purchase Agreement; (ii) the Option
Agreement, as amended; (iii) the Bodin Warrant Agreement; (iii) the Registration
Rights Agreement; (iv) the form of Promissory Note; (v) the Preliminary Outline
of Terms between Digital and Renaissance Capital Group, Inc.; (vi) the
Consulting Agreement; (vii) the consolidated financial statements of Mobitec and
Subsidiaries for the fiscal years ended December 31, 2000 and 1999; (viii) the
pro forma combined financial statements of Mobitec Holding AB and Digital at
December 31, 2000; (ix) internal financial statements of the Company and Mobitec
for the period ending November 30, 2000. In addition, Investech-Ernst conducted
such other investigations, financial analyses and studies and reviewed such
other information and factors as it deemed appropriate for the purposes of its
Fairness Opinion.
In arriving at its opinion, Investech-Ernst assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to it by or on behalf of Digital and Mobitec, and
was not engaged to, nor did it, independently verify any such information.
Investech-Ernst assumed, with Digital's consent, that (i) all material assets
and liabilities (contingent or otherwise, known or unknown) of Digital and
Mobitec are as set forth in their respective financial statements, and the pro
forma adjustments thereto set forth in the draft Proxy Statement available on
the date of such opinion will not be materially altered; (ii) the Acquisition
will be accounted for as a purchase transaction; (iii) the strategic and
operating benefits currently contemplated by Digital's and Mobitec's management
will be realized; and (iv) the Acquisition will be consummated in accordance
with the terms of the Stock Purchase Agreement, and related Agreements, without
any material amendment thereto and without waiver by Digital or Mobitec of any
of the material conditions to their respective obligations thereunder.
Investech-Ernst also assumed that the financial forecasts of Digital and Mobitec
examined by Investech-Ernst were reasonably prepared on a basis reflecting the
best available estimates and good faith judgments of Digital's senior management
as to future performance of Digital, and Mobitec's senior management as to
future performance of Mobitec. In conducting its review, Investech-Ernst did not
undertake nor obtain an independent evaluation or appraisal of any of the assets
or liabilities (contingent or otherwise) of Digital or
9
Mobitec. Investech-Ernst's opinion necessarily is based upon economic, monetary,
exchange rate, market and other conditions as they existed and could be
evaluated on the date of the opinion, and does not predict or take into account
any changes which may have occurred, or information which may have become
available, after the date of such opinion. Investech-Ernst's opinion does not
constitute an opinion as to any price at which Digital Common Stock will
actually trade at any time.
Furthermore, Investech-Ernst reviewed pro forma analyses of the financial
impact of the Acquisition. In conducting its analysis, Investech-Ernst relied
upon certain assumptions described above and earnings estimates for Mobitec
(prepared by Mobitec management) and Digital (prepared by Digital management).
Investech-Ernst compared the earnings per share of Digital Common Stock, on a
stand-alone (I.E., without giving effect to the Acquisition) basis, to the
earnings per share of the common stock of the combined companies on a pro forma
basis. This analysis (assuming no transaction-related expenses) indicated that,
assuming the accuracy of the projections provided to Investech-Ernst by the
Company and Mobitec, the proposed transaction would be accretive to Digital's
stockholders on an earnings per share basis in fiscal year 2001. The results of
the pro forma acquisition analysis are not necessarily indicative of future
operating results or financial position.
As compensation for rendering its Fairness Opinion to the Company,
Investech-Ernst will receive a fee of $45,000, plus reimbursement of reasonable
out of pocket expenses.
THE FULL TEXT OF THE PROPOSED FORM OF FAIRNESS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND
THE SCOPE OF THE REVIEW IN RENDERING SUCH OPINION, WILL BE ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX IX AND IS INCORPORATED BY REFERENCE HEREIN. THE
FAIRNESS OPINION IS ADDRESSED TO THE COMPANY'S BOARD OF DIRECTORS AND ADDRESSES
THE FAIRNESS OF THE AGGREGATE PURCHASE PRICE PAID BY THE COMPANY FOR THE SHARES
OF MOBITEC FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF THE COMPANY'S COMMON STOCK AS TO HOW TO VOTE AT
THE ANNUAL MEETING. THE SUMMARY OF THE FAIRNESS OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. HOLDERS OF THE COMMON STOCK ARE ENCOURAGED TO CAREFULLY READ THE FORM
OF FAIRNESS OPINION IN ITS ENTIRETY.
SUMMARY OF OPTION AGREEMENT, AS AMENDED
On March 13, 2001, DRI Europa and Digital entered into an Amended Option
Agreement (the "Option Agreement") with Bengt Bodin, Annacarin Bodin, Mattias
Bodin, Tobias Bodin and Bertil Lindqvist (the "Offerors"), which amended and
superseded an Option Agreement between the same parties dated December 7, 2000.
Pursuant to the Option Agreement, the Offerors granted to Digital and DRI Europa
an irrevocable option to purchase the Offerors' shares of Mobitec Holding AB for
the period from March 13, 2001 to June 16, 2001, based upon the occurrence of
certain events.
The Option Agreement provides for two alternative exercises of the option
right of Digital and DRI Europa: Option A, in which only DRI Europa may exercise
the option to purchase the Offerors' shares; or Option B, in which both Digital
and DRI Europa may exercise the option to purchase the Offerors' shares. If
either option is exercised, the purchase of the Offerors' shares will be made
pursuant to the Stock Purchase Agreement, described below. The Stock Purchase
Agreement as currently drafted conforms to Option A. If Option B is exercised,
the Stock Purchase Agreement will require certain modifications to reflect that
both Digital and DRI Europa would be deemed the Purchasers. Whether the Option
Agreement will be exercised under Option A or B depends primarily on the tax
treatment of the transaction to the Offerors under Swedish law.
10
The Option Agreement amended certain provisions of the Stock Purchase
Agreement, including changing the Closing Financial Statement, by which certain
potential adjustments to the Final Purchase Price are measured and providing
that a dividend of SEK 500,000 paid by Mobitec to its shareholders will be
accounted for in adjusting the Final Purchase Price.
The Option Agreement provides that interest on the cash portions of the
consideration to be paid to the Sellers under the Stock Purchase Agreement and
on the Promissory Notes shall accrue at the rate of eight percent per annum from
March 16, 2001 up to the Closing Date of the Stock Purchase Agreement and
related agreements. In the event the Company elects not to proceed with the
Mobitec Acquisition for reasons not attributable to the Sellers and does not
exercise one of the options under the Option Agreement, interest shall be paid
to the Sellers for the period from March 16, 2001 through June 16, 2001.
The Option Agreement also provides that Mobitec shall pay Bengt Bodin a
monthly salary of SEK 54,075 from January 1, 2001 through the Closing Date. Such
salary is to be taken into account in adjusting the Final Purchase Price under
the Stock Purchase Agreement.
SUMMARY OF STOCK PURCHASE AGREEMENT
The following summary of certain material terms of the Stock Purchase
Agreement is qualified in its entirety by reference to the provisions of the
Stock Purchase Agreement, which is incorporated by reference herein and attached
hereto as Appendix I to this Proxy Statement. Capitalized terms have the
meanings set forth in the Stock Purchase Agreement or the appendices thereto.
The Stock Purchase Agreement attached as Appendix I is drafted in accordance
with the exercise of Option A under the Option Agreement -- I.E., DRI Europa is
the Purchaser of the Mobitec Shares. However, if Option B is exercised, both
Digital and DRI Europa will constitute the Purchaser under the Stock Purchase
Agreement. In addition, certain provisions of the Stock Purchase Agreement have
been amended in the Amended Option Agreement (the "Option Agreement"), which is
attached to this Proxy Statement as Appendix II and incorporated herein. See
"Summary of Option Agreement, As Amended," above.
PURCHASE PRICE
Under the terms of the Stock Purchase Agreement, subject to exercise of the
Option Agreement, as amended, Digital and/or DRI Europa, has agreed to purchase
100,000 shares of Mobitec Holding AB, a Swedish corporation ("Mobitec"),
constituting all of the outstanding stock of Mobitec, from the Sellers for a
purchase price consisting of: (i) SEK 5,700,000 to be paid to Lindqvist for his
shares of Mobitec; (ii) subject to adjustment following the Closing Date, based
upon a comparison of Mobitec's net equity at the time of the Closing as set
forth in the Closing Financial Statement and as of March 31, 2000: (a) US
$3,680,000 to be paid to the Bodin Sellers; (b) Promissory Notes totaling
approximately US $2 million to be issued to each Bodin Seller on the Closing
Date; (iii) 430,000 Restricted Shares of Digital to be transferred to the Bodin
Sellers on the Closing Date; and, (iv) Warrants to purchase in the aggregate
100,000 shares of Digital's common stock at a price of US $4.00 per share for a
period of five years issued to the Bodin Sellers pursuant to the Bodin Warrant
Agreement. The Stock Purchase Agreement provides for a Preliminary Purchase
Price, which, after any adjustments made pursuant to (ii) (a) and (b), becomes
the Final Purchase Price. The US $3,680,000, the SEK 5,700,000 and the
Promissory Notes totaling $2,000,000 shall accrue interest at the rate of eight
percent per annum from March 16, 2001 until the date of Closing. If the Closing
does not occur for reasons attributable to Digital, such interest will still be
due and payable to the Sellers on June 16, 2001.
11
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
The obligation of DRI Europa and/or Digital to consummate the Agreement is
subject to the satisfaction at or prior to the Closing Date of all of the
following conditions: all the representations, warranties and covenants of the
Bodin Sellers are true and accurate; no litigation which would prevent or make
unlawful the carrying out of the Stock Purchase Agreement shall be threatened or
pending against the Sellers, DRI Europa, Digital or Mobitec.
CLOSING CONDITIONS
At the Closing, the Sellers and the Purchaser shall do those acts necessary
to consummate the Agreement, including, without limitation: (i) the Sellers,
subject to receipt of the purchase price of the Lindqvist Shares and of the
Preliminary Purchase Price for the Bodin Shares, shall deliver the certificates,
duly endorsed, representing their Shares, to DRI Europa; (ii) the Bodin Sellers
shall present to DRI Europa the share ledger of Mobitec evidencing that DRI
Europa has been registered as the owner of the Shares; (iii) the Bodin Sellers
shall present to DRI Europa the original share certificates and certified copies
of the share ledger with regard to each Subsidiary, evidencing that all the
shares of each Subsidiary are as reflected in the Stock Purchase Agreement;
(iv) DRI Europa shall deliver to the Bodin Sellers a legal opinion in the form
appearing as Appendix 5.3 to the Stock Purchase Agreement; (v) Digital shall
deliver the Restricted Shares to the Bodin Sellers, containing a restrictive
legend and, (vi) the Bodin Warrant Agreement, the Registration Rights Agreement
and the Bodin Consulting Agreement shall be executed.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers jointly and severally represent and warrant, as of the date of
execution of the Agreement and at the Closing Date certain matters related to
Mobitec and its Subsidiaries, including: (i) entering into the Stock Purchase
Agreement will not breach any agreement to which any of the Sellers is a party
or the Articles of Mobitec or any Subsidiary; and, (ii) the Shares sold to DRI
Europa constitute the entire issued capital stock of Mobitec, are legally issued
and fully paid and each Seller owns the number of shares shown in the Agreement
free of any Encumbrances.
REPRESENTATIONS AND WARRANTIES OF THE BODIN SELLERS
The Bodin Sellers jointly and severally represent and warrant, as of the
date of execution of the Agreement and at the Closing Date, among other things:
(i) except for the Subsidiaries, Mobitec does not own any interest in any
corporation or partnership and does not have any branch offices; (ii) the
Financial Documents give a true and fair picture of the financial position and
results of operations of Mobitec and the Subsidiaries and were prepared in
accordance with U.S. GAAP and all applicable laws; (iii) the net equity
appearing in the balance sheet of Mobitec AB, Mobitec Gmbh and Mobitec Ltda
contained in the Interim Financial Statement dated March 31, 2000 is not less
than SEK 10,867,000 in accordance with U.S. GAAP and all applicable laws;
(iv) neither Mobitec nor any Subsidiary has pledged any assets or have any
commitments or contingent liabilities and Mobitec and each Subsidiary has full
and exclusive title, with no Encumbrances, to all assets reflected on the
balance sheet; (iv) the operations and activities of Mobitec and the
Subsidiaries have been conducted in the ordinary course of business and since
January 1, 2000 there has been no, among other things: (a) material adverse
change in financial condition or operations; (b) obligations, commitments or
liabilities, except those arising in the ordinary course of business and which
are not material; (c) amendment or termination of any agreement to amend or
terminate any Material Agreement; (d) extraordinary event or loss or any waiver
of any debts, claims or rights under a Material Agreement in excess of SEK
100,000; (e) damage, destruction, or loss affecting their respective properties
to the extent not covered by insurance in excess of SEK 100,000; (f) disposal of
any individual asset with a value in excess of SEK 300,000, with one noted
exception; or, (g) other transaction other than in the
12
ordinary course of business; (v) all assets, properties and rights belonging to
Mobitec and each Subsidiary have been included in the transfer to DRI Europa;
(vi) Mobitec and its Subsidiaries does not have any liability or obligation as a
result of any purchase or sale of shares, business operations or individual
assets; (vii) certain environmental matters, including that Mobitec and its
Subsidiaries have complied with and obtained all necessary environmental
approvals, permits and consents, which are in full force and effect;
(viii) Mobitec and its Subsidiaries have performed all obligations and are not
in default of any Material Agreement; and the execution of the Stock Purchase
Agreement will not result in the breach or constitute a default under any
Material Agreement; (ix) certain Intellectual Property and Know-How matters,
including that all Intellectual Property used by Mobitec and its Subsidiaries is
duly owned or licensed without restriction as to current use; all Know-How, as
defined in the Stock Purchase Agreement, is owned by or licensed to the Company
or the Subsidiaries without restriction as to current use; there is no
infringement by any third party of any Intellectual Property or Know-How owned
by or licensed to Mobitec or any Subsidiary within any country where they
operate, with one noted exception; (x) certain matters related to the business
of Mobitec and its Subsidiaries, including that no customer of Mobitec and its
Subsidiaries as set forth in the Customer List attached has ceased to buy
products from Mobitec and its Subsidiaries; no supplier will cease to sell
products or components or will increase their prices; Mobitec and its
Subsidiaries maintains the disclosed insurance; (xi) certain matters related to
employees of Mobitec and its Subsidiaries; (xii) certain matters related to the
Sellers, including that none of the Sellers or any Related Person own any
interest in any entity in competition with Mobitec or any Subsidiary; except for
the Consulting Agreement and pension arrangement with Bengt Bodin, there are no
contractual relations of any kind between Mobitec or any Subsidiary on one hand
and any of the Sellers or Related Person on the other hand; Bengt Bodin's
pension arrangement will not have a negative impact on the financial position of
Mobitec or any Subsidiary; (xiii) except as disclosed by Mobitec and set forth
in Appendix 8.10, there are no law suits or other legal proceedings pending or
threatened against Mobitec or any Subsidiary; (xiv) certain matters related to
taxes and other charges, including that all taxes, social charges and duties
assessed or due by Mobitec and its Subsidiaries have been fully paid and all
necessary returns and reports have been filed; (xv) no representation or
warranty in the Stock Purchase Agreement or document provided to DRI Europa by
the Sellers contains any materially untrue statement or fails to state a
material fact or fact necessary to make the statements made not misleading; and,
(xvi) the Bodin Sellers acknowledge that there ownership of the Restricted
Shares is subject to a substantial risk of loss.
COVENANTS
Each Seller covenants, among other things, that for a period of three years
from the Closing Date not to directly or indirectly carry on or in engage in any
business competing with the businesses of Mobitec or any Subsidiary in any part
of the world. The period is limited to two years with respect to countries which
are members of the European Economic Area. In case of any breach, Lindqvist,
solely on his part, and the Bodin Sellers, jointly and severally, are liable to
DRI Europa for actual damages suffered from each breach but in no case an amount
less than SEK 8,000,000. For a period of three years after the Closing Date,
each Seller agrees to refrain from employing, offering to employ or negotiating
employment with any Key Employee of Mobitec or any Subsidiary without DRI
Europa's prior written consent.
The Sellers covenant that Mobitec and any Subsidiary will make their best
efforts to fulfill the obligations under the Mobitec Stock Option Program prior
to the Closing Date. The Bodin Sellers agree that Mobitec AB is the full and
unrestricted owner of the trademark and business name, "Mobitec," and no Seller
or any Related Person has any right to the name Mobitec, except as set forth in
the Trademark Licence Agreement.
DRI Europa shall discharge all directors of Mobitec from personal liability
for the period of January 1, 2000 to the Closing Date on the next Annual
Shareholders' Meeting of Mobitec. DRI
13
Europa is entitled to all dividends of Mobitec and the Subsidiaries derived from
the financial year 2000.
The Bodin Sellers will make sure that Mobitec has transferred and sold its
shares of its Klimat and Hexair subsidiaries prior to the Closing Date and that
all liabilities of such subsidiaries shall have been transferred to the
purchasers of such shares. The sale of shares of these subsidiaries shall be
completed under such terms that will have no negative impact on Mobitec's or any
Subsidiary's financial position. At the Closing Date, Mobitec and its
Subsidiaries will have no financial or contractual relation with the Klimat and
Hexair subsidiaries except the Trademark License Agreement between Mobitec AB
and Klimat. The Bodin Sellers shall jointly and severally indemnify Mobitec, any
Subsidiary and DRI Europa regarding the sale and transfer of the Klimat and
Hexair subsidiary shares.
The pending or threatened disputes involving Mobitec and/or any Subsidiary
are described in an Appendix to the Stock Purchase Agreement.
Lindqvist is liable only as to certain provisions of the Stock Purchase
Agreement, as set forth in paragraph 8.11 thereof.
REGISTRATION OF THE RESTRICTED SHARES
Digital agrees to register the Restricted Shares pursuant to the terms and
conditions of the Registration Rights Agreement.
INDEMNIFICATION
The Bodin Sellers, except as set forth in the Stock Purchase Agreement with
respect to Lindqvist, shall be jointly severally liable to and shall indemnify
DRI Europa from any Loss arising out of any misrepresentation, breach of
warranty or failure to perform a covenant or other obligation or any breach of
the Stock Purchase Agreement.
Lindqvist is liable and shall indemnify DRI Europa from any Loss arising out
of any misrepresentation, breach of warranty or failure to perform a covenant or
other obligation or any breach of the Stock Purchase Agreement as set forth in
paragraph 8.11 of the Agreement.
The liability of the Bodin Sellers and Lindqvist with regard to Losses
sustained as a result of any misrepresentation or breach of any representation
or warranty as to certain provisions shall remain valid for 18 months from the
Closing Date and, as to other provisions, shall remain valid for a period of
five years from the Closing Date, and as to taxes, social charges and duties,
shall remain valid for three months from the Closing Date, as set forth in
paragraph 9.3 of the Stock Purchase Agreement. The indemnification provision is
applicable for the full amount of aggregate Losses equaling or exceeding SEK
500,0000. The aggregate liability of the Bodin Sellers shall not exceed SEK
33,000,000 and shall not exceed the purchase price of the Lindqvist Shares as to
Lindqvist.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
DRI Europa and Digital are duly organized, validly existing and in good
standing and have full authority to enter into the Stock Purchase Agreement and
the Transactions contemplated therein. The execution of the Stock Purchase
Agreement, the consummation of the Transactions provided for therein, and the
fulfillment of the terms of the Agreement will not result in a breach of any
agreement to which DRI Europa or Digital is a party nor the Articles of
Association of DRI Europa. The Restricted Shares are credited as fully paid and
are free of any Encumbrances and Digital has the absolute right, power and
capacity to transfer the Restricted Shares to the Bodin Sellers.
14
CLOSING DATE
The Closing Date shall occur five business days from the date all parties
sign the Agreement.
GENERAL PROVISIONS
Digital and Bengt Bodin will enter into a separate Consulting Agreement to
become effective on the Closing Date.
Bengt Bodin, Mattias Bodin and Tobias Bodin undertake for a period of
36 months from the Closing Date to consult with Digital prior to any sale of
their Digital Shares.
The Agreement shall be governed by and construed in accordance with the laws
of Sweden.
Any dispute arising out of or in connection with the Stock Purchase
Agreement shall be settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce and shall be
conducted in Gothenburg, Sweden. The arbitration proceedings shall be conducted
in English.
SUMMARY OF CONSULTING AGREEMENT
In connection with, and to be consummated as a condition to Closing of the,
Stock Purchase Agreement, Bengt Bodin entered into a Consulting Agreement with
Digital, to be executed concurrently with the closing of the Stock Purchase
Agreement (the "Consulting Agreement"), which is attached as Appendix VIII.
Under the Consulting Agreement, Bengt Bodin agrees, for a period of three years,
to furnish to Mobitec and its Subsidiaries after the Acquisition advisory or
consulting services with respect to their business and affairs and, if
requested, to meet and consult with customers in order to maintain the
contractual relationships of Mobitec and its Subsidiaries with their customers.
For his services, Bodin is to be paid $120,000 the first year, $160,000 the
second year and $200,000 the third year, payable quarterly.
The Consulting Agreement contains provisions prohibiting Bengt Bodin from
soliciting employees of Digital to work for competitors for a period of two
years after the Agreement's termination. The Agreement also contains provisions
protecting the Confidential Information of the Company, including customer
names. The Consulting Agreement prohibits Bodin from engaging in competing
business during the term of the Agreement.
SUMMARY OF TRADEMARK LICENSE AGREEMENT
Mobitec AB, a wholly-owned subsidiary of Mobitec, entered into a Trademark
License Agreement with Mobitec Klimat AB ("Klimat"), to be executed concurrently
with the closing of the Stock Purchase Agreement. As set forth in the Stock
Purchase Agreement, Klimat is a Subsidiary of Mobitec that is to be sold prior
to the Closing of the Stock Purchase Agreement. Pursuant to the Trademark
License Agreement, which is attached as Appendix V, Mobitec AB, which holds full
and unrestricted ownership of all rights to the trademark and business name,
"Mobitec," grants a royalty-free, non-exclusive license to Klimat to use the
Mobitec Trademark with respect to its Products and in its business. Klimat
agrees not to use the Mobitec Trademark in its company name after twelve months
from signing the Agreement. The Agreement remains in force for five years,
subject to successive three year terms unless terminated.
CERTAIN RISKS AND FACTORS TO CONSIDER REGARDING THIS PROPOSAL
Certain risks and other factors relevant to your vote regarding Proposals I
through III are set forth below, following Proposal III. See, "Certain Risks and
Factors to Consider Regarding Proposals I, II and III."
15
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has reviewed and considered the terms and conditions
of the Restricted Shares Issuance and believes that the Restricted Shares
Issuance is fair to, and is advisable and in the best interests of, the Company
and its shareholders and has unanimously approved the Restricted Shares Issuance
and unanimously recommends that shareholders vote "for" approval of the
Restricted Shares Issuance.
PROPOSAL II.
THE WARRANT SHARES ISSUANCE
THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING DIGITAL'S ACQUISITION, THROUGH ITS WHOLLY-OWNED SUBSIDIARY, OF ALL THE
OUTSTANDING STOCK OF MOBITEC HOLDING AB ("MOBITEC") (THE "ACQUISITION") AND THE
WARRANT SHARE ISSUANCE (COLLECTIVELY, THE "TRANSACTIONS") ARE SUMMARIZED ABOVE
IN PROPOSAL I AND BELOW. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STOCK PURCHASE AGREEMENT, ATTACHED
AS APPENDIX I; THE OPTION AGREEMENT, AS AMENDED, ATTACHED AS APPENDIX II; THE
BODIN WARRANT AGREEMENT, ATTACHED AS APPENDIX III; THE REGISTRATION RIGHTS
AGREEMENT, ATTACHED AS APPENDIX IV; EACH OF WHICH IS INCORPORATED BY REFERENCE.
SHAREHOLDERS ARE URGED TO READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR
ENTIRETY.
The Bodin Warrant Agreement, which is attached hereto as Appendix III,
provides for a grant by Digital to Bengt Bodin of warrants to purchase 100,000
shares of Digital's common stock for a period of five years at an exercise price
of $4.00 per share. Pursuant to the Registration Rights Agreement, the common
shares underlying the warrants will be registered by Digital within one year
from the date of Closing of the Stock Purchase Agreement. See "Summary of Bodin
Warrant Agreement," below. While the Warrant Shares will be issued to Bengt
Bodin only upon his exercise of all or part of the Warrants, this proposal seeks
shareholder approval for the issuance of such Warrant Shares in the event that
the Bodin Warrants are exercised.
The Warrant Shares Issuance is necessary to issue the 100,000 shares of the
Company's common stock underlying the Bodin Warrants in the event they are
exercised by Bengt Bodin within the five year period that the warrants are
effective. The Bodin Warrants are a material component of the consideration
given to the Sellers for the Acquisition and a required condition to close the
Stock Purchase Agreement. The Bodin Warrants are to be issued to Bodin in
connection with the Promissory Note. The Board of Directors has already
unanimously approved the Bodin Warrant Agreement and the Warrant Shares
Issuance. The Company's shareholders are required to approve the Warrant Shares
Issuance pursuant to Nasdaq Marketplace Rules as, in conjunction with the
Restricted Shares Issuance (Proposal I) and the Debenture Shares Issuance
(Proposal III), the amount of shares issued in connection with the Acquisition
exceeds 20% of the Company's current outstanding common shares. If the
shareholders do not approve the Warrant Shares Issuance, the Stock Purchase
Agreement will not close and the Acquisition will not occur.
The background and reasons for the Acquisition and related Transactions, is
described above in Proposal I. See Proposal I, particularly, Introduction and
Summary of Acquisition Transactions and Background and Reasons for the
Acquisition. The reasons given for the Stock Purchase Agreement, the Acquisition
and related Transactions apply also to the Warrant Shares Issuance. In addition,
certain risks and other factors relevant to your vote regarding Proposals I, II
and III are set forth below, following Proposal III. See "Certain Risks and
Factors to Consider Regarding Proposals I, II and III."
SUMMARY OF THE BODIN WARRANT AGREEMENT
The following summary of certain material terms of the Bodin Warrant
Agreement is qualified in its entirety by reference to the provisions of the
Bodin Warrant Agreement, which is incorporated by
16
reference herein and attached hereto as Appendix III to this Proxy Statement.
Capitalized terms have the meanings set forth in the Bodin Warrant Agreement
and/or the Stock Purchase Agreement.
The Bodin Warrant Agreement, to be executed concurrently with the closing of
the Stock Purchase Agreement, is an agreement between Bengt Bodin, one of the
Sellers, and Digital. It grants to Bodin warrants (the "Bodin Warrants") to
purchase up to 100,000 shares of the Company's common stock (the "Warrant
Shares") at an exercise price of $4.00 per share for a period of five years from
the date of the Agreement. Bodin is under no obligation to exercise the
Warrants, but if he does so, he is required to exercise at a minimum as to
25,000 shares of common stock for each partial exercise. The Bodin Warrant
Agreement is subject to all the terms and conditions of the Registration Rights
Agreement, summarized below. The Warrants can be exercised in cash or by the
non-cash conversion provision. Bodin can offset and reduce any part or all of
the exercise price by the sum of the unpaid principal balance on the Promissory
Note, plus accrued and unpaid interest. The non-cash conversion exercise allows
Bodin to convert all or a portion of the Warrants into the number of shares
equal to the quotient of (i) the current market value of the Warrant Shares
subject to the portion of the Warrants being exercised, divided by (ii) the
current or closing market price, as defined, of one share of common stock
immediately prior to the exercise of the conversion right.
Any of the Warrant Shares issued to Bodin after exercise will bear a
restrictive legend and are not registered under the Securities Act of 1933, as
amended. However, the Warrant Shares, if exercised, may be registered pursuant
to the Registration Rights Agreement.
The Bodin Warrant Agreement may be assigned to certain Permitted Assignees,
as defined in the Agreement, or to any other party with the Company's prior
written consent. During the time that the Bodin Warrants are in effect, Digital
will reserve and keep available out of its authorized common stock, for issuance
upon the exercise of the Warrants, the number of shares that may be issued upon
exercise of the Warrants. Prior to exercise of any or all of the Warrants, and
issuance of the corresponding number of Warrant Shares exercised, Bodin is not
granted any rights of a shareholder of Digital pursuant to the Bodin Warrant
Agreement.
SUMMARY OF THE REGISTRATION RIGHTS AGREEMENT
The following summary of certain material terms of the Registration Rights
Agreement is qualified in its entirety by reference to the provisions of the
Registration Rights Agreement, which is incorporated by reference herein and
attached hereto as Appendix IV to this Proxy Statement. Capitalized terms have
the meanings set forth in the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, Digital has agreed with to
register, on a continued or delayed basis pursuant to Rule 415 of the Securities
Act of 1933, at its expense, the Restricted Shares and the common stock
underlying the Bodin Warrants, as follows: 200,000 of the Restricted Shares and
the shares underlying the Bodin Warrants within one year of the date of the
agreement and the remaining 230,000 shares on or before two years from the date
of the agreement. The registration rights provided for in the Agreement will
terminate on the earliest date at which the registerable securities may be sold,
within a three month period pursuant to Rule 144, or pursuant to Rule 144(k)
promulgated under the Securities Act of 1933. Digital agrees to indemnify the
holders of the registerable securities from any loss, liability or claim arising
out of any untrue statement of a material fact contained in the registration
statement, any material omission.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has reviewed and considered the terms and conditions
of the Warrant Shares Issuance and believes that the Warrant Shares Issuance is
fair to, and is advisable and in the best interests of, the Company and its
shareholders and has unanimously approved the Warrant Shares
17
Issuance and unanimously recommends that shareholders vote "for" approval of the
Warrant Shares Issuance.
PROPOSAL III.
THE CONVERTIBLE DEBENTURE AUTHORIZATION AND THE DEBENTURE SHARES ISSUANCE
THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING DIGITAL'S ACQUISITION, THROUGH ITS WHOLLY-OWNED SUBSIDIARY, OF ALL THE
OUTSTANDING STOCK OF MOBITEC HOLDING AB ("MOBITEC") (THE "ACQUISITION") AND THE
CONVERTIBLE DEBENTURE AUTHORIZATION AND THE DEBENTURE SHARES ISSUANCE
(COLLECTIVELY, THE "TRANSACTIONS") ARE SUMMARIZED ABOVE IN PROPOSAL I AND BELOW.
THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE STOCK PURCHASE AGREEMENT, ATTACHED AS APPENDIX I; THE OPTION
AGREEMENT, AS AMENDED, ATTACHED AS APPENDIX II; AND THE PRELIMINARY OUTLINE OF
TERMS BETWEEN DIGITAL AND RENAISSANCE CAPITAL GROUP, INC., DATED NOVEMBER 28,
2000, ATTACHED AS APPENDIX VII; EACH OF WHICH IS INCORPORATED BY REFERENCE.
SHAREHOLDERS ARE URGED TO READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR
ENTIRETY.
Part of the cash portion of the purchase price for the Stock Purchase
Agreement is to be furnished by an investment of certain Investment Funds
associated with Renaissance Capital Group, Inc. ("Renaissance Capital") of up to
$3,000,000 in the Company's Convertible Debentures. This Proposal seeks
shareholder approval for the authorization of up to $3 million of Convertible
Debentures (the "Convertible Debenture Authorization") and approval for the
issuance of up to 1,500,000 shares of the Company's common stock underlying the
Debentures (the "Debenture Shares") pursuant to the Convertible Debenture
conversion terms (the "Debenture Shares Issuance"). The Debenture Shares will be
issued to the Investment Funds only if the Debentures are converted. Under
certain circumstances, the conversion price of the Convertible Debentures could
be adjusted downward (the "Automatic Adjustment") such that the total number of
shares that could be converted to the Company's common stock could, but is not
expected to, exceed 1,500,000. See "Summary of the Renaissance Convertible
Debenture Preliminary Outline of Terms," below.
The Convertible Debenture investment is a material component of the purchase
price to be paid to the Sellers under the Stock Purchase Agreement. The Board of
Directors has already unanimously approved the Convertible Debenture
Authorization and Debenture Shares Issuance. The Company's shareholders are
required to approve the Debenture Shares Issuance pursuant to NASD rules as, in
conjunction with the Restricted Shares Issuance (Proposal I) and the Warrant
Shares Issuance (Proposal II), the amount of shares issued in connection with
the Acquisition exceeds 20% of the Company's current outstanding common shares.
If the shareholders do not approve the Convertible Debenture Authorization and
Debenture Shares Issuance, the Stock Purchase Agreement will not close and the
Acquisition will not occur.
The background and reasons for the Acquisition and related Transactions, is
described above in Proposal I. See Proposal I, particularly, Introduction and
Summary of Acquisition Transactions and Background and Reasons for the
Acquisition. The reasons given for the Stock Purchase Agreement, the Acquisition
and related Transactions apply also to the Convertible Debenture Authorization
and Debenture Shares Issuance. In addition, certain risks and other factors
relevant to your vote regarding Proposals I, II and III are set forth below,
following Proposal III. See "Certain Risks and Factors to Consider Regarding
Proposals I, II and III."
SUMMARY OF THE RENAISSANCE CONVERTIBLE DEBENTURE PRELIMINARY OUTLINE OF TERMS
The following summary of certain material terms of the Renaissance
Convertible Debenture Preliminary Outline of Terms is qualified in its entirety
by reference to the provisions of the Renaissance Convertible Debenture
Preliminary Outline of Terms, which is incorporated by reference
18
herein and attached hereto as Appendix VII to this Proxy Statement. Capitalized
terms have the meanings set forth in the Renaissance Convertible Debenture
Preliminary Outline of Terms.
Convertible Debentures in the aggregate amount of up to $3,000,000 are to be
authorized and issued to certain investment funds associated with Renaissance
Capital Group, Inc. of Dallas, Texas. The Convertible Debentures may be
converted into Digital's unregistered common stock at any time before maturity.
The Debentures will yield interest of 8.00% per annum, payable monthly and will
mature in seven years.
The Convertible Debentures are convertible, at any time before maturity,
into the Company's common stock at an Initial Conversion Price equal to the
volume-weighted average closing price for Digital's common stock for the five
day period prior to the closing of the Convertible Debenture Agreement and
related documents but in no event below $2.00 per share or greater than $3.00
per share. Accordingly, the Debentures are initially convertible into at least
1,000,000 shares of the Company's common stock and no more than 1,500,000 shares
of the Company's common stock (the "Debenture Shares"). For a period of time to
be defined, the Investment Funds will be entitled to a downward adjustment (the
"Automatic Adjustment") to the Conversion Price if (i) the Company does not
attain certain financial performance targets, to be agreed upon, based upon
earnings before interest, taxes, depreciation and amortization for the Company's
fiscal 2001 year and (ii) the market price of the Company's common stock is
below the Conversion Price at the of publication of the Company's results for
the period. At the adjustment date, the Conversion Price will be reduced to
equal the volume-weighted average closing price for the Company's common stock
over a ten day trading period following the Company's public release of that
year's results. Therefore, as a result of the Automatic Adjustment, the number
of shares of the Company's common stock convertible from the Convertible
Debentures could, but is not expected to, exceed 1,500,000.
The Debentures will be secured by all assets, tangible and intangible, of
the Company and its subsidiaries and will be subordinated only to senior and
asset-backed loans. The Company will have the right to call the Debentures at
101% of face value if certain conditions are met. The Debenture Holders will
have the right to require redemption of the Debentures under specific conditions
to be defined in the Convertible Debenture Agreement and Loan Agreement.
After the Debentures Shares are converted, the Debenture Holders will have
certain registration rights, including "piggy-back" registration rights at their
expense; a shelf registration at the Company's expense and demand registration
rights at the Debenture Holders' expense. The Debenture Shares have the same
voting, preemptive and dividend rights as other shares of the Company's common
stock.
Certain covenants will be required, including, but not limited to, requiring
the Company to provide annual audited financial statements and quarterly
unaudited financial statements; furnish monthly financial statements and
budgets; stay current with all required SEC filings; make timely interest
payments on the Convertible Debentures; and, maintain certain financial
standards to be agreed upon.
The Investment Funds will designate Russell Cleveland to serve as a member
of the Company's Board of Directors. The Company will reimburse the Investment
Funds for all reasonable expenses incurred in connection with Mr. Cleveland's
board representation.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has reviewed and considered the terms and conditions
of the Convertible Debenture Authorization and the Debenture Shares Issuance and
believes that the Convertible Debenture Authorization and the Debenture Shares
Issuance is fair to, and is advisable and in the best interests of, the Company
and its shareholders and has unanimously approved the Convertible Debenture
Authorization and the Debenture Shares Issuance and unanimously recommends that
19
shareholders vote "for" approval of the Convertible Debenture Authorization and
the Debenture Shares Issuance.
CERTAIN RISKS AND FACTORS TO CONSIDER REGARDING PROPOSALS I, II AND III
The following risks and factors to consider apply to your decision as to
Proposals I, II and III, above.
DILUTION OF EXISTING SHAREHOLDERS
The Restricted Shares Issuance will cause the issuance of 430,000 common
shares, which will become registered over the next two years. The Warrant Shares
Issuance may, if the Bodin Warrants are exercised, cause the issuance of up to
100,000 shares of the Company's common stock. The Convertible Debentures, if
converted, may cause the issuance of up to 1,500,000 (or more, if the conditions
for the Automatic Adjustment of the conversion price applies) additional common
shares of Digital. These new shares of the Company's common stock will cause
substantial dilution of the voting power of current Company shareholders.
CONSEQUENCES IF SHARE ISSUANCES ARE NOT APPROVED
Shareholder approval of the Restricted Shares Issuance, the Warrant Shares
Issuance and the Debenture Shares Issuance, which are required by Nasdaq
Marketplace Rules, is a condition precedent to the consummation of the
Transactions. If this requirement is not satisfied, then the Company has no
obligation to complete the Transactions contemplated by the Stock Purchase
Agreement.
COMPETITION
The Mobitec Acquisition, because it would significantly increase Digital's
market presence in the destination sign systems market, particularly in Europe,
might attract the attention of larger competitors. This could lead to more
competitive pricing by Mobitec's and Transit-Media's competitors.
TECHNOLOGY ADVANCEMENTS BY COMPETITORS
New technology advances by the Company's competitors in the destination sign
market could adversely affect the Company, Transit-Media and Twin Vision of
North America, Inc. ("Twin Vision"), the Company's destinations signs systems'
supplier in the United States. After the Mobitec Acquisition, Digital will have
a larger market share of the destination signs systems market in Europe based
upon the differing technologies offered by Mobitec and Transit-Media. If
competitors were to develop new advanced technologies, this could adversely
affect the Company's products offered by Transit-Media and Twin Vision. Further,
if new technologies were developed by competitors, this could also adversely
affect Mobitec's revenues.
RISKS REGARDING FINANCING OF CASH COMPONENT OF PURCHASE PRICE
The Acquisition Loan through Svenska Handelsbanken AB, which will provide
part of the cash portion of the purchase price of the Stock Purchase Agreement,
is secured by all of the Mobitec shares that the Company is purchasing in the
Acquisition. If the Company were to default on the Acquisition Loan, Svenska
Handelsbanken AB could foreclose upon and take possession and ownership of the
Company's shares of Mobitec.
Part of the cash portion of the purchase price is being funded by the
issuance of the Convertible Debentures. The Debentures are secured by all assets
of the Company and its subsidiaries, subordinated only to senior and
asset-backed lenders. If the Company were to default on its obligation
20
to repay the Debentures in accordance with their terms, any of the assets of the
Company could be at risk in a foreclosure to satisfy the unpaid principal and
interest due.
MARKET RECESSION
The market in which Mobitec, Transit-Media and Twin Vision operate could
suffer a recession which could adversely affect the Company's business.
ABILITY TO RETAIN KEY MOBITEC MANAGEMENT PERSONNEL
The Company hopes to retain certain key Mobitec management personnel after
the Acquisition. However, there can be no assurance that such personnel may not
terminate their employment with Mobitec. The effect of losing certain key
management personnel might make the transition and integration of Mobitec's
business more difficult. In addition, the loss of such key personnel could have
an overall negative effect on the productivity, moral and revenues of Mobitec's
operations after the Acquisition.
LIQUIDITY OF MOBITEC IN THE EVENT OF BUSINESS FAILURE
If, after the Acquisition, Mobitec's business failed and it became necessary
to liquidate Mobitec's business in order to recoup the Company's investment, a
sale or liquidation of Mobitec's business would depend largely on the going
concern value of Mobitec's business, which, depending on the financial and
operational status of the business at the time, could yield less than the
purchase price of the Stock Purchase Agreement.
ACCOUNTING TREATMENT OF MOBITEC ACQUISITION
The Transactions will be accounted for by Digital under the purchase method
of accounting in accordance with United States generally accepted accounting
principles, and all of the assets acquired and specific liabilities assumed by
Digital pursuant to the Stock Purchase Agreement will be recorded in Digital's
consolidated financial statements at their estimated relative fair value on the
Closing Date of the Acquisition to reflect the aggregate consideration paid by
Digital in connection with the Transactions.
TAX TREATMENT OF MOBITEC ACQUISITION
For United States Federal income tax purposes, no income, gain or loss will
be recognized by Digital or the Digital shareholders as a result of the
Transactions.
DESCRIPTION OF SECURITIES TO BE ISSUED PURSUANT TO THE ACQUISITION
The 430,000 Restricted Shares that will be issued to the Bodin Sellers in
connection with the Stock Purchase Agreement and the Transactions comprising the
Acquisition of Mobitec are common stock of Digital which are subject to the same
dividend and voting rights as other common shares. The Restricted Shares are
restricted from trading pursuant to the provisions of Rule 144 promulgated under
the Securities Act of 1933.
Warrants to purchase up to 100,000 shares of the Company's common stock are
being issued to the Bengt Bodin pursuant to the Bodin Warrant Agreement. The
warrants are exercisable for a period of five years following their issuance at
a price of $4.00 per share. The common shares underlying the warrants contain
the same provisions as other common stock of the Company.
Convertible Debentures in the aggregate amount of up to $3,000,000 are to be
authorized and issued to certain investment funds associated with Renaissance
Capital Group, Inc. of Dallas, Texas. The Convertible Debentures may be
converted into Digital's unregistered common stock at any time
21
prior to maturity. The Debentures will yield interest of 8.00% per annum,
payable monthly and will mature in seven years. The Convertible Debentures are
convertible into the Company's common stock at an Initial Conversion Price equal
to the volume-weighted average closing price for Digital's common stock for the
five day period prior to the closing of the Convertible Debenture Agreement and
related documents but in no event below $2.00 per share or greater than $3.00
per share. Accordingly, the Debentures are initially convertible into at least
1,000,000 shares of the Company's common stock and no more than 1,500,000 shares
of the Company's common stock (the "Debenture Shares"). For a period of time, to
be agreed upon, after the Debentures are issued, the conversion price of the
Debentures may be adjusted downward if the Company does not achieve certain
financial performance targets, which are to be agreed upon, and if the market
price of the Company's common stock is below the conversion price at the time of
publication of the Company's financial results for the period (the "Automatic
Adjustment"). The Automatic Adjustment, if applicable, will be computed by
reducing the conversion price to equal the volume-weighted average closing price
for the Company's common stock over a ten day trading period following the
Company's public disclosure of the fiscal 2001 year earnings. The Debentures
will be secured by all assets, tangible and intangible, of the Company and its
subsidiaries and will be subordinated only to senior and asset-backed loans. The
Company will have the right to call the Debentures at 101% of face value if
certain conditions are met. The Debenture Holders will have the right to require
redemption of the Debentures under specific conditions to be defined in the
Convertible Debenture Agreement and Loan Agreement. After the Debentures Shares
are converted, the Debenture Holders will have certain registration rights,
including "piggy-back" registration rights at their expense; a shelf
registration at the Company's expense and demand registration rights at the
Debenture Holders' expense. The Debenture Shares have the same voting,
preemptive and dividend rights as other shares of the Company's common stock.
Each share of the Company's common stock is entitled to one vote. Dividends
are declared annually in the sole discretion of management. The common shares
have no preemptive rights.
INTEREST OF CERTAIN PERSONS IN PROPOSED ACQUISITION
John D. Higgins, a director of the Company, is a member of the Corporate
Finance Group of Investech-Ernst & Co., an international investment and merchant
banking firm that is providing a fairness opinion with respect to certain
aspects of the proposed Acquisition and related Transactions. See "Fairness
Opinion." Investech-Ernst & Co. will receive a fee of $45,000, plus reasonable
actual expenses, for furnishing the fairness opinion.
In addition, Mr. Higgins will receive a fee upon successful completion of
the Renaissance Capital Group, Inc. Convertible Debenture financing. See
Proposal III. Such fee payable is based upon a percentage of the amount of
financing. The fee will be $17,500, assuming the full $3 million of convertible
debenture financing is provided by Renaissance Capital Group, Inc.
The Company believes that these transactions with Investech-Ernst & Co. and
Mr. Higgins were arranged at terms at least as favorable to the Company as those
generally available from unaffiliated third parties.
PROPOSAL IV.
ELECTION OF DIRECTORS
Digital's Board of Directors is divided into three classes with each class
serving staggered terms of three years. Since this is the first election of
directors after staggered director terms was approved by the shareholders, all
nine nominees for election as directors are nominated for election this year.
Commencing with the Annual Meeting for 2002, those directors in Class One would
be eligible for reelection for a three year term, if nominated. The following
year, the directors in Class Two would be up for reelection, if nominated, and
in the next year, the directors in Class Three would be up for
22
reelection, if nominated. Commencing with the election at next year's Annual
Meeting, each re-elected director will serve a term of three years and until a
successor has been elected.
Attached as Appendix XIII to this Proxy Statement is the Amendment to the
Company's Bylaws and Articles of Incorporation which implemented the election of
directors with staggered terms.
The nine nominees for election as directors are identified below. Seven of
the nominees are now members of the Board of Directors. The Board of Directors
knows of no reason why any nominee would be unable to serve as a director. If
any nominee should for any reason become unable to serve, the shares represented
by all valid proxies will be voted for the election of such other person as the
Board of Directors may designate the Board of Directors may reduce the number of
directors to eliminate the vacancy.
The three Classes of Director/Nominees is:
Class One: Joseph Tang, Juliann Tenney, Lawrence A. Taylor and Stephanie
L. Pinson
Class Two: John K. Pirotte, C. James Meese, Jr. and David L. Turney
Class Three: J. Philips L. Johnston and John D. Higgins
NOMINEES STANDING FOR ELECTION AS DIRECTORS AT THE ANNUAL MEETING
TERM EXPIRES
NAME AGE CURRENT POSITION IF ELECTED
- ---- -------- ------------------------------ ------------
John D. Higgins............................ 68 Director 2004
J. Phillips L. Johnston, JD................ 61 Director 2004
C. James Meese, Jr......................... 59 Director 2003
Stephanie L. Pinson........................ 64 None 2002
John K. Pirotte............................ 51 Director 2003
Joseph Tang................................ 53 Director 2002
Lawrence A. Taylor......................... 54 CFO and Secretary 2002
Juliann Tenney............................. 48 Director 2002
David L. Turney............................ 57 Chairman of the Board and CEO 2003
NOMINEES FOR ELECTION
The following material contains information concerning the nominees for
election as directors, including their recent employment, positions with the
Company, other directorships and age as of the date of this Proxy Statement.
JOHN D. HIGGINS, age 68, was elected a director of the Company in
February 1998. Since 1990 and until November 1999, Mr. Higgins was Senior Vice
President of Corporate Finance for Royce Investment Group, Inc., which was
subsequently acquired by Investech-Ernst & Co., an international investment and
merchant banking firm. Mr. Higgins is presently an investment banker with
Investech-Ernst & Co. Mr. Higgins holds B.B.A. and M.B.A. degrees from Hofstra
University.
J. PHILLIPS L. JOHNSTON, JD, age 61, has served on the Board of Directors
since April 1990. He is Chief Executive Officer and President of ID
Technologies, a public company since September 1999. He was Chief Executive
Officer of Pilot Therapeutics, Inc. from September 1998 to September 1999. He
was President and Special Programs Administrator of Digital Recorders from
April 1998 to May 15, 1998. From May 15, 1998 to December 31, 1998 he served as
Special Programs Administrator. Until April 1998 he had served as the Chairman
of the Board, President and Chief Executive Officer of the Company. He was the
Administrator of the North Carolina Credit Unions from September 1987 to
April 1990. From October 1979 to September 1987, Mr. Johnston served as
President and Chief
23
Executive Officer of Data Pix, Inc., Norman Perry, Chantry, Ltd., and
Erwin-Lambeth, Inc., each of which were privately-held companies. From 1971
through 1979, he was President and Chief Executive Officer of Currier Piano
Company, Marion, North Carolina. He is a director of several private companies
including RemoteLight.com, Inc. where he serves as Vice Chairman. He has
authored two books and is a Babcock Fellow at Wake Forest University.
Mr. Johnston received his AB degree in economics from Duke University, attended
the Stern Business School at New York University and received his law degree
from the University of North Carolina.
C. JAMES MEESE, JR., age 59, has served as a director of the Company since
April 1991 and was an independent sales representative for the DR business group
from February 1993 through May 1995. Since 1989 he has provided advice and
assistance to high growth companies on issues of market development,
capitalization, corporate governance and organizational structuring through
Business Development Associates, Inc., for which he is President. In addition,
during 2000, he became a General Partner in Passages Venture Fund, LP, a venture
capital fund that intends to invest in early stage technology-based companies.
Prior to 1989 he spent approximately 20 years in various senior corporate
marketing, business development and finance positions. Mr. Meese is also a
director of New Wave Powerboats, Inc. of Goldsboro, NC. Mr. Meese received a
B.A. degree in Economics from the University of Pennsylvania and an M.B.A. from
Temple University.
STEPHANIE L. PINSON, age 64, presently serves as President of Gilbert Tweed
Associates, Inc., a well established retained executive search firm based in
New York City. Ms. Pinson has served as President of Gilbert Tweed since 1996,
prior to which she held the title of Principle, joined the company in 1981, and
has been an owner since 1987. She is a member of the Gilbert Tweed Board of
Directors and has responsibility for the successful operation of the firm.
Ms. Pinson is the practice leader for the firm's widely recognized
Transportation Search Practice, specializing in searches for Public Transit
Authorities and their suppliers. The practice also supports aviation and port
clients. With her partner, Janet Tweed Gusman, Ms. Pinson is also engaged in the
Information Technology, Insurance and Industrial Practices. Her work with high
technology and manufacturing companies is global in nature, and she directs
Gilbert Tweed's offices in Bombay and New Delhi, India.
Prior to joining Gilbert Tweed Associates, Ms. Pinson served as Director of
Relocation Services for Real Estate World in Boulder, Colorado from 1978 to
1980. From 1972 to 1980, she studied and taught Medieval English Literature at
Rutgers, the State University in New Jersey. Ms. Pinson serves in a variety of
Association and Not for Profit Board positions. She is a member of the American
Public Transportation Association's ("APTA") Executive Committee, serving as
Vice Chair-Business Members at Large. She also serves on the APTA Chairman's
Diversity Council. She is a member of the Overlook Hospital Board of Advisors in
Summit, New Jersey where she chairs the Patient Satisfaction Committee.
Ms. Pinson received her Bachelors and Masters Degrees in English Literature from
Rutgers University where she also qualified for the Ph.D.
JOHN K. PIROTTE, age 51, became a director of the Company in May 1996. Since
1996, he has served as Chairman of Matrix Surface Technologies, Inc., a
privately held company that develops and markets patented surface treatment
abrasive products. Since 2000, Mr. Pirotte has served as President and Chief
Operating Officer of Teleron Wireless, Inc., a privately held company that
develops and markets wireless data modules for the telecommunications industry.
Since 1990, he has served as Chairman and Chief Executive Officer of CORPEX
Technologies, Incorporated, a privately held company that develops and markets
surface-active chemical technology. Mr. Pirotte received his B.A. degree in
economics from Princeton University and an M.S. in accounting from New York
University.
24
JOSEPH TANG, age 53, is the founder of Lite Vision Corp. Ltd. and has served
as Chairman and CEO since 1990. He has served as a director of the Company since
1998. From 1981 to 1990, Mr. Tang was the Vice President of marketing for Taiwan
Liton Electronics Corp. Ltd. Taiwan Liton is the third largest Light Emitting
Diode ("LED") manufacturer in the world. Taiwan Lite-On group, the parent
company of Taiwan Liton electronics, has sustained double digit growth for
decades with a total turnover of 2 billion U.S. dollars in 1998. Mr. Tang
received his B.S. degree in industrial engineering from Tung Hai University in
Taiwan.
LAWRENCE A. TAYLOR C.P.A., age 54, has served as Chief Financial Officer and
Secretary of the Company since May 1998. From March 1997 to June 1999,
Mr. Taylor had been a partner with Tatum CFO Partners, LLP, a professional
partnership of career CFO's. From March 1995 to August 1996, Mr. Taylor was
Senior Vice President of Precept Business Products, Inc., a privately held
holding company whose principal businesses were a distributor of business forms,
construction and on demand courier delivery service. From May 1991 through
December 1994, Mr. Taylor was Vice President and Group Controller of Mark IV
Transportation Products Group ("Mark IV TPG"), a group of nine companies,
subsidiaries and operating units serving transit and transportation markets
worldwide. Mark IV TPG was an operating group of Mark IV Industries, Inc.,
formerly a New York Stock Exchange listed company. Prior to 1991, Mr. Taylor
served in various financial managerial capacities in the food processing,
commercial construction, and oil field supply industries as well as other
manufacturing environments. Mr. Taylor received a B.S. degree in accounting from
Wayne State University. Mr. Taylor is a certified public accountant.
JULIANN TENNEY J.D., age 48, has served as a director of the Company since
April 1991. She is presently serving as Compliance Officer at Duke University
School of Medicine. From July 1993 to August 1998, Ms. Tenney was an instructor
in the non-profit management program at Duke University. From August 1990
through July 1993, she served as Executive Director of the Southern Growth
Policies Board, an interstate alliance charged with designing economic
development and growth strategies for southern Governors and legislators. From
August 1988 to August 1990, Ms. Tenney served as Director for the Economic and
Corporate Development Division of the North Carolina Biotechnology Center and
also as their House Legal Counsel. From November 1987 to August 1988,
Ms. Tenney was Assistant Secretary at the North Carolina Department of Commerce.
From August 1985 to November 1987, she was Executive Director of the North
Carolina Technological Development Authority. Prior to that time, she was a
practicing attorney. Ms. Tenney received a B.A. degree from the University of
North Carolina and a law degree from Duke University.
DAVID L. TURNEY, age 57, has served as Chairman of the Board and Chief
Executive Officer of the Company since May 1998 and as a director of the Company
since May 1996. Mr. Turney was co-founder, Chairman and CEO of Robinson Turney
International, Inc. ("RTI"), a consulting firm, which was merged into the
Company effective as of April 1998. RTI is engaged in business development,
marketing services, advisory services, and merger, acquisition and financing
assignments for selected clients. Until the date of merger, RTI clients included
the Company and all clients were in the transit and transportation equipment
industries. From March 1994 to December 1995, Mr. Turney was also engaged in
strategic planning and development consulting services for his former employer,
Mark IV Industries, Inc. ("Mark IV"), formerly a New York Stock Exchange listed
company since acquired by a private investor. From February 1991 to
February 1994, he was President and Group Executive of Mark IV Transportation
Products Group, a group of nine companies, subsidiaries and operating units of
Mark IV, serving transit and transportation markets worldwide, which group
Mr. Turney founded and developed. From 1984 to 1991, Mr. Turney was President of
the Luminator division of Gulton Industries, Inc., which became a wholly owned
subsidiary of Mark IV in 1987. Prior to 1984, he served in various managerial
and engineering capacities in four corporations spanning the telecommunications,
industrial hard goods, consumer electronics and electromagnetic components
industries. Mr. Turney received his B.S. degree in industrial management from
the University of
25
Arkansas and has participated in numerous postgraduate study courses in finance,
mergers and acquisitions, public company administration and operations.
EXECUTIVE OFFICERS
The following material contains information concerning the executive
officers of the Company who are not nominees for election as directors,
including their recent employment, positions with the Company and age as of the
date of this Proxy Statement.
LAWRENCE A. HAGEMANN, age 57, has served as Executive Vice President and
General Manager of TwinVision of North America, Inc., a wholly-owned subsidiary
of the Company since February 1998. From July 1996 until February 1998,
Mr. Hagemann was Vice President and General Manager of TwinVision of North
America, Inc. From July 1995 until July 1996, he served as Vice President of
ADDAX Sound Company, a privately held company based in Illinois. From
April 1991 to December 1993, he served as Assistant to the President of
Vapor-Mark IV. Since October 1993, he has served as a Director of Transtel
Communications Ltd., a developer of news media software based in London,
England. From 1973 through December 1990, he served as Vice President of Sales
and Marketing for Extel Corporation of Illinois and as a Director of Excom
Communications Limited (UK) and Extel Overseas Limited (HK). He is a co-editor
of the 1995 book titled HOOVER'S GUIDE TO COMPUTER COMPANIES. Mr. Hagemann
received his bachelors degree in electrical engineering from the University of
Detroit and his M.B.A. from Loyola University (Chicago).
ROBERT W. HUBER, age 61, founded Transit-Media GmbH ("Transit-Media") on
August 1, 1995. Since May 1996, he has served as Managing Director of
Transit-Media, now a wholly owned subsidiary of the Company. From October 1989
to January 1985, Mr. Huber was Managing Director of Lawo-Luminator-Europa
("LLE"), a Mark IV Industries, Inc. company belonging to the Mark IV Industries
Transportation Products Group ("Mark IV TPG"), a group of nine companies,
subsidiaries and operating units serving transit and transportation markets
worldwide. Mark IV TPG was an operating group of Mark IV Industries, Inc.,
formerly a New York Stock Exchange listed company. Prior to 1989 and since 1981,
Mr. Huber served in various executive positions introducing the then entirely
new product of alphanumeric destination sign systems for public transport
vehicles in Europe. After having been elected twice as Chairman of the Industry
Council the International Union of Public Transport ("UITP"), Mr. Huber now
serves as Honorary Chairman of the Industry Council of UITP. Mr. Huber started
his business career in a family owned business of manufacturing jewelry and
precision parts for the watch industry and gained experience working in foreign
countries including the U.S. with International Telephone & Telegraph ("ITT"),
and in Geneva, Switzerland with the United Nations.
TANYA L. JOHNSON, age 37, has served as Vice President and General Manager
of the Digital Recorders business group since February 1998. Digital Recorders
was previously described as Transit Communications ("TCS") business group. She
has been employed in various management positions with the TCS business group
since November 1995. Ms. Johnson also served as Manager of Engineering for TCS
from June 1990 to October 1995 and as an Engineering Specialist from
January 1988 to May 1989 and was, in that capacity, among the founders of the
TCS "Talking Bus" technology. Ms. Johnson served as a Component Engineer at
Teletec Corporation from June 1989 through May 1990. Ms. Johnson led the
development of the Talking Bus product line. Ms. Johnson holds a B.S. degree in
electrical engineering from Duke University.
CRAIG S. SCATES, age 36, has served as Vice President and General Manager of
Digital Audio Corporation ("DAC"), a wholly-owned subsidiary of the Company
since June 2000. Prior to joining DAC, Mr. Scates served as Director of the
Public Safety & Law Enforcement Solutions group of GTE Government Systems, and
later DynCorp Information Systems, from November 1997 to June 2000. From
March 1996 to November 1997, he served as Marketing Development Manager for GTE
26
Government Systems, located in Chantilly, VA. From May 1986 to March 1996, he
held various management positions with GTE Data Services in Tampa, FL including
National Account Manager, Section Supervisor, Systems Planning Administrator,
and Sr. Metrics Analyst. Mr. Scates is a Past President of the International
Function Point Users Group association where was a noted speaker on the subject
of software measurement and project management methods. He is currently an
Associate Member of the International Association of Chiefs of Police.
Mr. Scates holds a B.S. degree in Business Administration from Florida Southern
College and received his M.B.A. from Tampa University.
SIGNIFICANT EMPLOYEE
DR. JAMES E. PAUL, JR., age 57, has served as the Chief Scientist of Digital
Audio Corporation ("DAC"), the law enforcement and surveillance segment of
Digital, since March 1997 with focus primarily on the technology needs of the
DAC business unit. Prior to assuming that position, he had served as President
of the DAC business group since February 28, 1995 when the Company acquired
substantially all of the assets of DAC. Dr. Paul founded DAC in 1979 and served
as its President and chief engineer since its inception. DAC designs,
manufactures and markets digital signal processing equipment to law enforcement
agencies, and the Company employed Dr. Paul to continue such business operations
as a business group of the Company. From 1979 to 1981, Dr. Paul taught in the
Electrical Engineering and the Computer Science Departments of California State
University, Fullerton. From 1969 to 1979, he served as the senior research
engineer and manager of the Audio Science Group at Rockwell International
Corporation. He received B.S., M.E.E. and Ph.D. degrees in electrical
engineering from North Carolina State University.
None of Digital's directors, director nominees or executive officers is a
party to any arrangement or understanding with any other person with respect to
nomination as a director. There is no relationship by blood, marriage or
adoption, not more remote than first cousin, between any of the Company's
directors, director nominees or executive officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Digital's Common Stock as of April 16, 2001 by (i) each person
known by Digital to own beneficially more than 5% of the outstanding Common
Stock, (ii) each director and (iii) all executive officers and directors as a
group. The information with respect to institutional investors is derived solely
from statements filed
27
with the Commission under Section 13(d) of the Securities Exchange Act. Each
person has sole voting and sole investment or dispositive power with respect to
the shares shown except as noted.
SHAREHOLDINGS ON APRIL 16, 2001(1)
------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ---------------- ----------------- ----------------
David L. Turney(2).......................................... 385,950 11.0
Lawrence A. Taylor(3)....................................... 85,967 2.6
Lawrence A. Hagemann(4)..................................... 66,667 2.0
Robert W. Huber(5).......................................... 23,667 0.7
Tanya Johnson(6)............................................ 37,667 1.1
Craig Scates(5)............................................. 13,333 0.4
Floyd J. Diaz(5)............................................ 11,667 0.4
Gerald W. Sheehan(5)........................................ 19,000 0.6
John D. Higgins(7).......................................... 139,611 4.2
J. Phillips L. Johnston(8).................................. 116,782 3.5
C. James Meese, Jr.(9)...................................... 32,987 1.0
John K. Pirotte(10)......................................... 71,695 2.2
John M. Reeves, II(11)...................................... 22,000 0.7
Joseph Tang(5).............................................. 20,000 0.7
Juliann Tenney(12).......................................... 39,982 1.2
Lite Vision Corporation..................................... 400,000 12.2
736 Chung-Cheng Road, 18th Floor
Chung Ho City, Taipei Hsien, Taiwan, R.O.C.
All current directors and officers as a group (16
persons)(13).............................................. 1,487,975 36.6
- ------------------------
(1) Beneficial ownership includes both outstanding Common Stock and shares
issuable upon exercise of options or warrants that are currently exercisable
or will become exercisable within 60 days after the date hereof. Unless
otherwise noted, sole voting and dispositive power is possessed with respect
to all Common Stock shown. All percentages are calculated based on the
number of outstanding shares at April 16, 2001 plus shares which a person or
group has the right to acquire within 60 days. Except as noted otherwise,
the address for all persons listed is 4018 Patriot Drive, One Park Center,
Suite 100, Durham, North Carolina 27709.
(2) Includes 250,000 shares subject to currently exercisable options.
(3) Includes 46,667 shares subject to currently exercisable options.
(4) Includes 56,667 shares subject to currently exercisable options.
(5) Consists solely of shares subject to currently exercisable options.
(6) Includes 36,667 shares subject to currently exercisable options.
(7) Includes 20,000 shares subject to currently exercisable options.
(8) Includes 80,000 shares subject to currently exercisable options.
(9) Includes 31,987 shares subject to currently exercisable options.
(10) Includes 22,000 shares subject to currently exercisable options.
(11) Includes 22,000 shares subject to currently exercisable options.
(12) Includes 22,000 shares subject to currently exercisable options.
(13) Includes 675,655 shares subject to currently exercisable options.
28
BOARD COMMITTEES
The Board of Directors has delegated certain of its authority to an
Executive Compensation Committee, Audit Committee, Acquisition and Alliance
Committee, Nominating Committee and Executive Committee. Other than the
Executive Committee, of which Mr. Turney is Chairman, no member of any committee
is an officer or employee of the Company. Mr. Turney serves as ex-officio member
of all committees.
The Compensation Committee is currently composed of Ms. Tenney and
Mr. Higgins and is chaired by Ms. Tenney. The Compensation Committee held two
meetings in fiscal year 2000. The primary function of the Compensation Committee
is to review and make recommendations to the Board with respect to certain
compensation policy matters and to administer the Company's incentive stock
option plan.
The Audit Committee is currently composed of Mr. Meese, Mr. Pirotte and
Mr. Higgins with Mr. Meese as Chairman. The members of the Audit Committee are
independent within the meaning of Rule 4200(a)(14) of the NASD Marketplace
Rules. The Audit Committee held five meetings in fiscal year 2000. The function
of the Audit Committee is to review and approve the scope of audit procedures
employed by the Company's independent auditors, to review and approve the audit
reports rendered by the Company's independent auditors and to approve audit fees
charged by the independent auditors. The Audit Committee reports to the Board of
Directors with respect to such matters and recommends the selection of
independent auditors. See "Audit Committee Report." A copy of the Company's
Audit Committee Charter is attached to this Proxy Statement as Appendix XII.
The Nominating Committee is composed of Mr. Higgins as Chairman and
Mr. Reeves and met one time during 2000. The Nominating Committee makes advisory
recommendations to the Board of Directors about appropriate composition and
membership on the Board of Directors. The Nominating Committee will consider
nominees for board election recommended by the Company's shareholders.
Shareholders wishing to propose nominees for directors for next year's annual
meeting should submit such proposed nominees to the Company by the date that
Shareholder Proposals in next year's proxy statement must be received. See
"Shareholder Proposals." All nominees proposed by shareholders will be
considered by the Nominating Committee in making its nominations for directors
but will not necessarily be accepted.
The Executive Committee consists of Mr. Pirotte, Mr. Reeves, Mr. Meese, and
Mr. Turney who also serves as Chairman. The Executive Committee met six times in
fiscal 2000 and serves as an additional oversight of the Company in behalf for
the Board of Directors normally involving more details than would be practical
for the larger Board of Directors.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed with management the Company's
audited financial statements for the year ended December 31, 2000 (the "Fiscal
Year 2000 Financial Statements").
The Audit Committee has discussed with the Company's independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The Audit Committee has received and reviewed the written disclosures and
the letter from the independent auditors required by Independence Standard
No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, by the
Independence Standards Board, and has discussed with the auditors the auditors'
independence.
29
Based upon the reviews and discussions referred to above, the Audit
Committee has recommended to the Board of Directors that the Fiscal Year 2000
Financial Statements be included in the Company's Form 10-KSB for the year ended
December 31, 2000.
This Audit Committee Report shall not be deemed incorporated by reference in
any document previously or subsequently filed with the Securities and Exchange
Commission that incorporates by reference all or any portion of the proxy
statement, in connection with the Annual Meeting, except to the extent that the
Company specifically requests that this Report be specifically incorporated by
reference.
Dated: March 5, 2001.
The Audit Committee:
C. James Meese, Jr.
John D. Higgins
John K. Pirotte
BOARD AND COMMITTEE ATTENDANCE
In fiscal year 2000, the Board of Directors held six meetings. All
directors, except Mr. Tang, who joined the Board of Directors as of April 1999,
attended more than 75% of the aggregate of board and committee meetings held
during fiscal year 2000.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the annual and long-term
compensation for services in all capacities to the Company for the last three
fiscal years ended December 31, 2000 of David L. Turney, the Chief Executive
Officer and President of the Company, Lawrence A. Hagemann, Robert W. Huber,
Tanya L. Johnson, Craig S. Scates since June 1, 2000 and Lawrence A. Taylor.
Listed below are the Company's executive officers other than Mr. Turney who were
serving as executive officers at the end of the fiscal year ended December 31,
2000 (the "Named Executive Officers"). J. Phillips L. Johnston held an executive
officer position during the three years ended December 31, 2000, but was not an
employee of the Company on December 31, 2000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------------
SECURITIES UNDERLYING
SALARY BONUS OTHER ANNUAL OPTIONS/SARS
NAME AND PRINCIPLE POSITION YEAR ($) ($) COMPENSATION ($)
- --------------------------- -------- -------- -------- ------------ ---------------------
David L.Turney....................... 2000 185,000 30,000 $3,426(2) --
Chief Executive Officer and President 1999 185,000 20,000 -- --
1998 175,000 -- -- 250,000
J. Phillips L. Johnston.............. 1998 131,250 -- -- 50,000
Former Chief Executive Officer
Lawrence A. Hagemann................. 2000 140,000 77,000 -- 25,000
Executive Vice President and General 1999 122,727 10,000 -- 9,559
Manager, TwinVision 1998 115,416 -- -- 23,441
30
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------------
SECURITIES UNDERLYING
SALARY BONUS OTHER ANNUAL OPTIONS/SARS
NAME AND PRINCIPLE POSITION YEAR ($) ($) COMPENSATION ($)
- --------------------------- -------- -------- -------- ------------ ---------------------
Lawrence A. Taylor................... 2000 136,677 20,000 -- 25,000
Chief Financial Officer and Secretary 1999 127,000 6,000 -- 10,000
1998 74,615(3) -- -- 20,000
Tanya L. Johnson..................... 2000 107,000 -- -- 10,000
Vice President and General Manager, 1999 100,000 25,908 -- 10,000
DR 1998 72,791(4) -- -- 2,000
Craig S. Scates...................... 2000 67,803(5) 20,000 -- 20,000
Vice President and General Manager,
DR
Robert W. Huber...................... 2000 89,766 -- 11,715(2) 10,000
Managing Director 1999 82,596 -- 11,558(2) 10,000
Transit-Media GmbH 1998 78,923 -- 8,555(2) --
Michael A. Connor, Jr................ 1999 99,167(6) 23,158 -- 2,000
Former Vice President and General 1998 80,507 40,608 -- --
Manager, DAC
- ------------------------
(1) Such options were granted pursuant to the Company's Incentive Stock Option
Plan.
(2) Represents usage of company leased automobile and accident insurance.
(3) Mr. Taylor was first employed as an officer of the Company in May 1998.
(4) Ms. Johnson became Vice President and General Manager in March 1998.
(5) Mr. Scates was first employed as an officer of the Company and General
Manager of DAC in June 2000.
(6) Mr. Connor resigned from the Company effective December 31, 1999
The following table sets forth information concerning grants of stock
options to the Named Executive Officers pursuant to the Company's stock option
plan during the fiscal year ended December 31, 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE O
GRANTED EMPLOYEES IN THE BASE PRICE
NAME (#) FISCAL YEAR ($/SH) EXPIRATION DATE
- ---- ------------ ---------------- ---------- ---------------
Lawrence A. Hagemann..................... 25,000 11.8% 2.00 01-June-10
Lawrence A. Taylor....................... 25,000 11.8% 2.00 01-June-10
Tanya L. Johnson......................... 10,000 4.7% 2.00 01-June-10
Craig S. Scates.......................... 20,000 9.5% 2.00 01-June-10
Robert W. Huber.......................... 10,000 4.7% 2.00 01-June-10
31
No stock options were exercised by the Named Executive Officers in the
fiscal year ended December 31, 2000. The following table shows the stock option
values for the Named Executive Officers as of December 31, 2000.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY(1)
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END (#) YEAR-END
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
David L. Turney................................ 250,000 -- -- --
Lawrence A. Hagemann........................... 56,667 8,333 -- --
Lawrence A. Taylor............................. 46,667 8,333 -- --
Tanya L. Johnson............................... 36,667 3,333 -- --
Craig S. Scates................................ 13,333 6,667 -- --
Robert W. Huber................................ 23,667 3,333 -- --
- ------------------------
(1) Options or free-standing SARs are in-the-money if the fair market value of
the underlying securities exceeds the exercise or base price of the option
or SAR. The closing market price of the Common Stock on December 31, 2000
was $1.563.
BOARD COMPENSATION
No employee of the Company receives any additional compensation for his or
her services as a director. Non-management directors receive no salary for their
services as such although travel or other out-of-pocket expenses incurred by
non-management directors in attending meetings of the Board of Directors and
Committee meetings are reimbursed on an actual but reasonable basis. Effective
June 2000, the Company instituted a meeting-fee schedule for non-employee
directors attending Board and Committee meetings. The fee related to Board
Meetings is $1,500 for regular meetings and $750 for telephonic meetings. The
fee for Committee meetings is $1,000/meeting with the Chair receiving an
additional $750/meeting. Certain directors of the Company are consultants or
advisors to the Company and receive compensation for such services. See "Certain
Relationships and Related Transactions" and "Interest of Certain Persons in
Proposed Acquisition." During the fiscal year 2000, the Board of Directors
granted 70,000 options to non-employee, non-consultant directors. Such options
are exercisable at a price of $2.00 per share.
401(K) PLAN
In January of 1996, the Company implemented a defined contribution savings
plan ("Savings Plan") for all eligible employees (as defined). The Savings Plan
is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended. Under the Savings Plan, a participant may contribute from one
to fifteen percent of his or her compensation, not to exceed an amount which
would cause the plan to violate Section 401(k) and other applicable sections of
the Internal Revenue Code. The Company does not make any matching contributions
to the Savings Plan. All participants' contributions are invested, in accordance
with the participant's election, in various investment funds managed by the plan
trustee. The Savings Plan permits withdrawals in the event of disability, death,
attainment of age fifty nine and one-half, termination of employment or proven
financial hardship. The Company pays all the costs of administering the Savings
Plan.
32
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Effective January 1, 1998, the Company entered into an employment agreement
with David L. Turney, to serve as the Company's Chief Executive Officer and
President. The agreement provides for an annual salary of $175,000 in the first
year of the term and $185,000 in the second and succeeding years, for a term of
four years. In addition, the agreement provides for bonus and incentive stock
option compensation. In the event of a "Triggering Event," which includes a
change in ownership of the Company of at least 50% or a merger, consolidation,
reorganization or liquidation of the Company, Mr. Turney would be entitled to
receive 2.9 times his annual salary, incentive and bonus payments during the
most recent 12 month period, if Mr. Turney's employment is terminated or he is
unable to reach a satisfactory new agreement. The agreement may be terminated by
the Company or Mr. Turney with or without cause. The agreement requires
Mr. Turney to keep confidential certain technology and trade secrets of the
Company, and prohibits Mr. Turney for engaging in business competing with the
Company during his employment and for one year after termination, if initiated
by him, or six months, if initiated by the Company. A copy of Mr. Turney's
Employment Agreement is attached to this Proxy Statement as Appendix XIV.
Effective January 1, 1999, the Company entered into an employment agreement
with Larry Hagemann to serve as its Executive Vice President for a period of one
year, subject to periodic extensions for like periods. The agreement provides
for compensation of an annual salary of $122,727, initially, and bonuses or
stock options, in the discretion of the Compensation Commitee. In the event of a
"Triggering Event," which includes a change in ownership of the Company of at
least 50% or a merger, consolidation, reorganization or liquidation of the
Company, Mr. Hagemann would be entitled to receive two times his annual salary,
incentive and bonus payments during the most recent 12 month period, if
Mr. Hagemann's employment is terminated or he is unable to reach a satisfactory
new agreement. The agreement may be terminated by the Company or Mr. Hagemann
with or without cause. The agreement requires Mr. Hagemann to keep confidential
certain technology and trade secrets of the Company, and prohibits Mr. Hagemann
for engaging in business competing with the Company during him employment and
for one year after termination, if initiated by him, or six months, if initiated
by the Company. A copy of Mr. Hagemann's Employment Agreement is attached to
this Proxy Statement as Appendix XV.
Effective January 1, 1999, the Company entered into an employment agreement
with Larry Taylor to serve as its Chief Financial Officer for a period of one
year, subject to periodic extensions for like periods. The agreement provides
for compensation of an annual salary of $127,000, initially, and bonuses or
stock options, in the discretion of the Compensation Commitee. In the event of a
"Triggering Event," which includes a change in ownership of the Company of at
least 50% or a merger, consolidation, reorganization or liquidation of the
Company, Mr. Taylor would be entitled to receive two times his annual salary,
incentive and bonus payments during the most recent 12 month period, if
Mr. Taylor's employment is terminated or he is unable to reach a satisfactory
new agreement. The agreement may be terminated by the Company or Mr. Taylor with
or without cause. The agreement requires Mr. Taylor to keep confidential certain
technology and trade secrets of the Company, and prohibits Mr. Taylor for
engaging in business competing with the Company during him employment and for
one year after termination, if initiated by him, or six months, if initiated by
the Company. A copy of Mr. Taylor's Employment Agreement is attached to this
Proxy Statement as Appendix XVI.
The Company's Incentive Stock Option Plan (the "Plan") provides that, in the
event the Company enters into an agreement providing for the merger of the
Company into another corporation or the sale of substantially all the Company's
assets, any outstanding unexercised option shall become exercisable at any time
prior to the effective date of such agreement. Upon the consummation of the
merger or sale of assets, such options shall terminate unless they are assumed
or another option is substituted therefor by the successor corporation. See
"Summary of the Incentive Stock Option Plan."
33
THE BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE DIRECTOR NOMINEES IDENTIFIED ABOVE.
PROPOSAL V.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed McGladrey & Pullen LLP to serve as independent public accountants of
the Company for its fiscal year ending December 31, 2001. The Board seeks to
have the shareholders ratify the appointment of McGladrey & Pullen LLP, which
has served as the independent public accountants of Digital since
September 1998. Representatives of McGladrey & Pullen, LLP are expected to be
present at the Annual Meeting with the opportunity to make a statement if it is
their desire to do so, and will be available to respond to appropriate questions
from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF MCGLADREY & PULLEN, LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR
FISCAL YEAR 2001.
PROPOSAL VI.
PROPOSAL TO APPROVE AMENDMENT TO THE INCENTIVE STOCK OPTION PLAN
The Company's Incentive Stock Option Plan (the "Plan") was adopted effective
April 27, 1993 and amended in June 1998, April 1999 and May 2000. The Board of
Directors believes the Plan has proved to be of substantial value in recruiting
new employees as well as stimulating the efforts of existing employees.
The Company desires to attract and retain the best available employees,
directors and consultants for the Company and to encourage the highest level of
performance by such persons, thereby enhancing the value of the Company for the
benefit of its stockholders. The Company and the Compensation Committee of the
Board of Directors believe that in order to accomplish these objectives it is
necessary to: (i) meet the competitive requirements of the workforce marketplace
by including equity incentives as part of the total compensation to be paid to
prospective directors, executive officers and key employees; and (ii) reward the
performance of existing and future directors, executive officers and key
employees and increase the proprietary and vested interest of all such persons
in the growth and performance of the Company in a manner that provides them with
a means to increase their holdings of Common Stock and aligns their interests
with the interests of the stockholders of the Company.
The Board of Directors has adopted an amendment to the Plan to increase the
number of shares available for issuance under the Plan by an additional 160,000
shares of Common Stock.
The provisions of the existing Plan, as well as the proposed amendments
thereto, are summarized below.
SUMMARY OF THE INCENTIVE STOCK OPTION PLAN
The Company's Incentive Stock Option Plan (the "Plan") was adopted by the
Board of Directors and approved by the shareholders of the Company effective
April 1993 and amended in June 1999 and May 2000. An aggregate of 820,000 shares
of Common Stock is reserved for issuance under the Plan. The Plan provides for
the granting of incentive stock options ("Incentive Stock Options" or "ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQSOs") and stock
appreciation rights ("SARs"). NQSOs may be granted to employees, directors and
advisors of the Company, while ISOs may be granted only to employees. No options
may be granted under the Plan subsequent to April 2003.
34
The Plan is administered by the Compensation Committee of the Board of
Directors, which determines the terms and conditions of the options and SARs
granted under the Plan, including the exercise price, number of shares subject
to the option and the exercisability thereof.
The exercise price of all ISOs granted under the Plan must be at least equal
to the fair market value of the Common Stock of the Company on the date of
grant. In the case of an optionee who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company, the exercise price of ISOs shall be not less than 110% of the fair
market value of the Common Stock on the date of grant. The exercise price of all
NQSOs granted under the Plan shall be determined by the Compensation Committee.
The Company agreed with the underwriter of its initial public offering that the
exercise price of options granted under the Plan will not be less than 85% of
the fair market value of the Common Stock. The term of options granted under the
Plan may not exceed ten years. The Plan may be amended or terminated by the
Board of Directors, but no such action may impair the rights of a participant
under a previously granted option.
The Plan provides the Board of Directors or the Compensation Committee the
discretion to determine when options granted thereunder shall become exercisable
and the vesting period of such options. Upon termination of a participant's
employment, directorship or advisory relationship with the Company, all unvested
options terminate and are no longer exercisable. Vested options either terminate
immediately or remain exercisable for a specified period of time depending on
the nature and circumstances of the termination.
The Plan provides that, in the event the Company enters into an agreement
providing for the merger of the Company into another corporation or the sale of
substantially all the Company's assets, any outstanding unexercised option shall
become exercisable at any time prior to the effective date of such agreement.
Upon the consummation of the merger or sale of assets, such options shall
terminate unless they are assumed or another option is substituted therefor by
the successor corporation.
The Plan provides the Board of Directors or the Compensation Committee
discretion to grant SARs in connection with any grant of options. Upon the
exercise of a SAR, the holder shall be entitled to receive a cash payment in an
amount equal to the difference between the exercise price per share of options
then exercised by him and the fair market value of the Common Stock as of the
exercise date. The holder is required to exercise options covering twice the
number of shares, which are subject to the SAR so exercised. SARs are not
exercisable during the first six months after the date of grant, and may be
transferred only by will or the laws of descent and distribution.
As of December 31, 2000, a total of 803,787 NQSOs and ISOs were outstanding,
with exercise prices ranging from $1.63 to $3.00. There were no SARs outstanding
as of December 31, 2000. As of April 16, the market value of the Company's
common stock which underlies the NQSOs and ISOs was $1,256,946.
FEDERAL INCOME TAX EFFECTS OF THE ISSUANCE AND EXERCISE OF OPTIONS UNDER THE
PLAN
The following discussion summarizes the federal income tax consequences of
the 2000 Stock Incentive Plan based on current provisions of the Code, which are
subject to change. This summary does not cover any state or local tax
consequences of participation in the Plan.
NONQUALIFIED STOCK OPTIONS. The grant of a Nonqualified Stock Option, or
NQSO is not a taxable event to the recipient unless the option itself is
publicly-traded on an established securities market. Generally, when the
recipient of an option under the Plan exercises a NQSO, the difference between
the option exercise price and any higher fair market value of the shares of
Common Stock received on the date of exercise (the "Spread") will be ordinary
income to the recipient and will be generally allowed as a deduction for federal
income tax purposes to the employer.
35
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of a NQSO will generally be capital gain or loss to such
optionee, long term or short term depending on the holding period, and will not
result in any additional tax consequences to the employer. The optionee's basis
in the shares of Common Stock is determined generally at the time of exercise.
Alternatively, if the stock is subject to a substantial risk of forfeiture
(such as vesting requirements) at the time of exercise, no compensation income
will generally be realized by the holder at that time. In that case, the holder
will not recognize compensation income until the tax year in which the
forfeiture restrictions lapse (i.e., when the stock becomes vested); at which
time the holder will recognize compensation income based on the excess of the
fair market value of such stock at the time of vesting over the holder's
exercise price for the shares. Moreover, the corporation will generally be
entitled to a corresponding tax deduction at the time of vesting equal to the
amount includable by the option holder/service provider in income. The holder's
holding period for the stock will begin on the vesting date.
There is a mechanism, however, pursuant to which a holder may elect to pay
tax based on the value of the stock at the time of exercise notwithstanding that
the stock may be subject to a risk of forfeiture at that time. Specifically, the
holder may make an election under Section 83(b) of the Internal Revenue Code of
1986, as amended (the "Code") to be taxed at the time of exercise as if the
vesting restrictions did not exist. A Section 83(b) election must be made by the
holder within 30 days after the restricted stock is transferred to such holder.
This election is generally strategically effective to minimize tax if there is
little or no Spread at the time of exercise, but it is anticipated that the
stock subject to the option is likely to appreciate significantly prior to the
time that the vesting restrictions would otherwise lapse. In the event of a
Section 83(b) election, the issuing corporation is generally entitled to a tax
deduction equal to the Spread on the date of exercise. Moreover, the holding
period of the stock in the hands of the holder would begin on the date that the
option is exercised, and the subsequent satisfaction of the vesting requirements
with respect to this stock will not be a taxable event. The holder will
generally recognize long-term capital gain (rather than compensation income
taxable at ordinary income rates) or loss to the extent that the stock is held
for more than one year after the exercise date at the time of the disposition.
If the stock with respect to which a Section 83(b) election has been made is
forfeited prior to vesting, the holder will generally be entitled to a capital
loss solely to the extent of the exercise price paid by the holder.
INCENTIVE STOCK OPTIONS. The grant of an Incentive Stock Option, or ISO is
generally not a taxable event to the recipient. The Company is not entitled to a
deduction as a result of the grant or exercise of an ISO. When an optionee
exercises an ISO, while employed by the Company or a subsidiary or within three
months (one year for disability) after termination of employment by reason of
retirement or death, no ordinary income will be recognized by the optionee at
that time, but the Spread (if any) will be an adjustment to taxable income for
purposes of the federal alternative minimum tax applicable to individuals. If
the shares of Common Stock acquired upon exercise of the ISO are not disposed of
prior to the expiration of one year after the date of acquisition and two years
after the date of grant of the option, the excess (if any) of the sales proceeds
over the aggregate option price of such shares of Common Stock will be long term
capital gain, but the employer will not be entitled to any tax deduction with
respect to such gain. Generally, if the shares of Common Stock are disposed of
prior to the expiration of such periods (a "Disqualifying Disposition"), the
excess of the fair market value of such shares at the time of exercise over the
aggregate option price (but not more than the gain on the disposition if the
disposition is a transaction on which a loss, if realized, would be recognized)
will be ordinary income at the time of such Disqualifying Disposition (and the
employer will generally be entitled to a federal income tax deduction in a like
amount). Any gain realized by the optionee as the result of a Disqualifying
Disposition that exceeds the amount treated as ownership income will be capital
in nature, long term or short term depending on the holding period. If an ISO is
36
exercised more than three months (one year for disability) after termination of
employment, the tax consequences are the same as described above for NQSOs.
Certain additional special rules apply if the exercise price for an option
is paid in shares of Common Stock previously owned by the optionee rather than
in cash.
ACCORDINGLY, EACH OPTIONEE SHOULD CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE STOCK INCENTIVE
PLAN AWARDS, AS WELL AS THE USE OF SHARES OF COMMON STOCK FOR EXERCISE,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, OR FOREIGN INCOME
TAX AND OTHER LAWS.
INCENTIVE STOCK OPTION PLAN BENEFITS TABLE
Because benefits granted under the Plan are at the discretion of the
Compensation Committee, the benefits that will be awarded in the future under
the Plan are not currently determinable. The following table shows the options
that have been granted to executive officers, directors, and the groups below
since the Plan was implemented.
DIGITAL RECORDERS INCENTIVE STOCK OPTION PLAN -- SINCE INCEPTION
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY(1)
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END(#) YEAR-END($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
David L. Turney................................ 250,00 -- -- --
Lawrence A. Hagemann........................... 56,667 (8,333) -- --
Tanya L. Johnson............................... 36,667 (3,333) -- --
Craig S. Scates................................ 13,333 (6,667) -- --
Robert W. Huber................................ 23,667 (3,333) -- --
Lawrence A. Taylor............................. 46,667 (8,333) -- --
EXECUTIVE GROUP............................ 427,001 (29,999) -- --
John D. Higgins................................ 20,000 -- -- --
J. Phillips L. Johnston........................ 80,000 -- -- --
C. James Meese, Jr............................. 31,987 -- -- --
John K. Pirotte................................ 22,000 -- -- --
John M. Reeves, II............................. 22,000 -- -- --
Joseph Tang.................................... 20,000 -- -- --
Juliann Tenney................................. 22,000 -- -- --
NON-EXECUTIVE DIRECTOR GROUP............... 217,987 -- -- --
Floyd Diaz..................................... 11,667 (2,333) -- --
Jerry Sheehan.................................. 19,000 (5,000) -- --
NON-EXECUTIVE OFFICER EMPLOYEE GROUP....... 30,667 (7,333) -- --
- ------------------------
(1) Options of free-standing SARs are in-the-money if the fair market value of
the underlying securities exceed the exercise or base price of the option or
SAR. The closing market price of the Common Stock on December 31, 2000 was
$1.563.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT TO THE INCENTIVE STOCK OPTION
PLAN TO PERMIT THE ISSUANCE OF AN ADDITIONAL 160,000 SHARES PURSUANT TO THE
PLAN.
37
FINANCIAL INFORMATION
The Company's audited consolidated financial statements for the years ended
December 31, 2000 and 1999 are contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2000, which is incorporated herein
by reference and is being sent to the shareholders along with this Proxy
Statement.
The unaudited consolidated financial statements of Mobitec Holding AB and
Subsidiaries as of and for the years ended December 31, 2000 and 1999 are
attached to this Proxy Statement as Appendix X.
Pro forma financial statements, consisting of the Digital and Mobitec
combined statements of operations for the year ended December 31, 2000, and a
combined balance sheet as of December 31, 2000, showing the effect of the
Acquisition, are attached to this Proxy Statement as Appendix XI.
INFORMATION ABOUT DIGITAL
DESCRIPTION OF BUSINESS
Digital's Description of Business contained in its Annual Report on
Form 10-KSB for the year ended December 31, 2000 is incorporated herein by
reference.
DESCRIPTION OF PROPERTY
Digital's Description of Property contained in its Annual Report on
Form 10-KSB for the year ended December 31, 2000 is incorporated herein by
reference.
LEGAL PROCEEDINGS
Digital's description of Legal Proceedings contained in its Annual Report on
Form 10-KSB for the year ended December 31, 2000 is incorporated herein by
reference.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The description of Market for Common Equity and Related Stockholder matters
contained in Digital's Annual Report on Form 10-KSB for the year ended
December 31, 2000 is incorporated herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Digital incorporates herein by reference its Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in its
Annual Report on Form 10-KSB for the year ended December 31, 2000.
38
INFORMATION ABOUT MOBITEC
DESCRIPTION OF BUSINESS
Mobitec is approximately a US $11.7 million sales volume company and
dominates the Nordic Market, which consists of Greenland, Greenland, Sweden,
Norway, Denmark, and Finland, for Electronic Destination Sign Systems. In the
core Scandinavian Market, Mobitec holds an estimated 70% Market share of the
1,800-2,000 new bus vehicles produced annually. Its technology is compatible
with TwinVision of North America, Inc. (TwinVision), a subsidiary of Digital,
although it has opted to not fully migrate to TwinVision LED/Flip-Dot hybrid
type technology. Mobitec uses traditional flip-dot displays indirectly
illuminated by strips of high-intensity LEDs mounted in a similar location as
the fluorescent tubes of older illumination technology systems.
In addition to holding dominant market share in Nordic Markets, Mobitec has
approximately a 50% market share in Australia, participation in a 50:50 joint
venture in Brazil, and a recently established sales office in central Germany
focused on smaller operators.
Mobitec was founded in 1987 and employs about 45 people. Its primary
operating office is in Herrljunga, Sweden located about a one-hour drive
East-Northeast of Goteborg Sweden. Access from Central Europe is typically by
land/sea from Denmark or via air through either the Goteborg or Stockholm
International Airports. Mobitec is thus situated in a strategically important
segment of this overall general niche market and is further positioned to serve
the former Eastern Block markets.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for Mobitec's common stock. There are five holders
of Mobitec's stock. After the Acquisition, all the shares of Mobitec will be
owned by DRI Europa and/or Digital. Since January 1, 2000, Mobitec has paid
dividends consisting of SEK 350,000 to its shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Mobitec Holding AB ("Mobitec") has one wholly-owned subsidiary, Mobitec AB,
which in turn owns 100% of Mobitec GmbH and Mobitec Australia Pty. Ltd. In
addition, Mobitec AB owns 50% of a company operating in Brazil known as
Mobitec Ltda. Two other subsidiaries of Mobitec, Hexair AB and Mobitec Klimat
AB, are not part of the Stock Purchase Agreement and are to be sold to Bengt
Bodin prior to the Closing Date. Mobitec, founded in 1987, designs, manufactures
or contracts for the manufacture of electronic destination sign systems sold
primarily in the transit and transportation vehicle equipment market in
Scandinavia, continental Europe, Brazil and Australia. These customers include
municipalities, regional and local departments of transportation, transit
agencies, vehicle manufacturers, and public, private, or commercial operators of
those vehicles.
The principal manufacturing and assembly facility employing approximately 45
people is located in Herrljunga, Sweden which is approximately sixty kilometers
northeast of Goteborg, Sweden.
In the core Scandinavian market, Mobitec holds an estimated 70% market share
of the 1,800-2,000 new bus vehicles produced annually. Its technology is
compatible with that of Digital's wholly owned subsidiary, TwinVision. Mobitec
uses traditional flip-dot displays indirectly illuminated by strips of
high-intensity LEDs mounted in the same location as the fluorescent tubes of
older illumination technology systems. In addition to holding dominant market
share in Nordic Markets, Mobitec has over 50% market share in Australia,
participation in a small 50:50 joint venture in Brazil, and a recently
established sales office in central Germany focused on small operators.
Foreign currency assets and liabilities are translated using the Swedish
krona (SEK) exchange rates in effect at the balance sheet date. Results of
operations are translated using the average exchange rate prevailing throughout
the period. The effects of unrealized exchange rate fluctuations on translating
39
foreign currency assets and liabilities into U. S. dollars are accumulated as a
translation adjustment in stockholders' equity. The SEK to U.S. dollar foreign
exchange rates used in the financial statements are:
12/31/00 12/31/99
-------- --------
Balance Sheet............................................... 9.415 8.505
Income Statement............................................ 9.168 8.274
The following discussion provides an analysis of Mobitec's consolidated
results of operations and its liquidity and capital resources. This discussion
should be read in conjunction with the consolidated financial statements of the
Company and notes therein.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items included in Mobitec's Consolidated Statements of Operations. The
amounts stated below are in the functional currency of Sweden (krona -- SEK):
YEAR ENDED
DECEMBER 31,
----------------------
2000 1999
-------- --------
Net sales................................................... 100.0% 100.0%
Cost of sales............................................... 58.4 69.7
----- -----
Gross profit.............................................. 41.6 30.3
----- -----
Operating expenses:
Selling, general and administrative....................... 32.2 22.9
Research and development.................................. 6.4 5.2
Other..................................................... 0.1 0.4
----- -----
Total operating expenses................................ 38.7 28.5
----- -----
Operating income.......................................... 2.9 1.8
Other income (expense) and interest expense................. (0.1) (0.5)
----- -----
Income before income taxes................................ 2.8 1.3
Income tax expense.......................................... (0.9) (0.4)
----- -----
Income before minority interest in net income of
consolidated subsidiary................................. 1.9 0.9
Less: Minority interest in net income of consolidated
subsidiary................................................ (0.8) (0.2)
----- -----
Net income.................................................. 1.1% 0.7%
===== =====
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 AND 1999
Net sales for the year ended December 31, 2000 were SEK 107,464,000 an
increase of SEK 15,525,000 16.9% as compared to SEK 91,939,000 for the
comparable year in 1999. The increase in sales resulted from a higher percentage
of sales revenues in Germany and Brazil.
Gross profit for the year ended December 31, 2000 was SEK 44,656,000, an
increase of SEK 16,771,000 or 60.1%, over gross profit of SEK 27,885,000 for the
year ended December 31, 1999. As a percentage of sales, gross profit during the
year ended December 31, 2000 was 41.6% of net sales, as compared to 30.3% during
the corresponding year in 1999. The increase in gross profit percentage was
caused primarily by a lower cost of electronic components.
40
Selling, general and administrative expenses during the year ended
December 31, 2000 were SEK 34,617,000, an increase of SEK 13,586,000 or 32.2% as
compared to expenses of SEK 21,031,000 during the year ended December 31, 1999.
This increase was attributed primarily to the additional expense of start up of
the two new subsidiaries in Germany and Brazil.
Research and development expenses for the year ended December 31, 2000 were
SEK 6,821,000 an increase of SEK 2,079,000 or 43.8%, as compared to expenses of
SEK 4,742,000 during the year ended December 31, 1999. As a percent of sales,
these expenses were 6.3% in 2000 and 5.2% for the same period in 1999. The
increase was the result of higher expense in development of electronic sign
systems.
Total other income (expense) and interest income (expense) for the year
ended December 31, 2000 was SEK (141,000), a decrease of SEK 334,000 as compared
to SEK (475,000) for the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an agreement with a bank in which the Company may currently
borrow up to a maximum of 4,500 SEK. At December 31, 2000 and 1999, 4,406 SEK
and 4,531 SEK, respectively, was outstanding. Advances under the agreement are
subject to a borrowing base of 75% of eligible accounts receivable. The line of
credit bears interest at 5.1% and is collateralized by accounts receivable. This
line of credit agreement expires on March 31, 2001.
The Company also has an agreement with a bank in which it may borrow up to
6,000 SEK of which 5,655 SEK was outstanding at December 31, 2000. The terms of
this agreement require the payment of an unused credit line fee equal to 0.5% of
the unused portion and interest at 5% of the oustanding balance. This agreement
is secured by a mortgage on substantially all assets of the Company. This
agreement expires on March 31, 2001.
As of December 31, 2000 the Company's principal sources of liquidity
included cash and cash equivalents of SEK 2,045,000, trade accounts receivable
of SEK 19,173,000, inventories of SEK 113,923,000 and trade accounts payable of
SEK 9,824,000 providing the Company with net working capital of SEK 10,596,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective April 1997, the Company entered into a lease agreement for an
office building with a stockholder. The Company paid $53,118 in rental fees
during both 2000 and 1999 to the stockholder. Commitments under this lease are
$57,840 and $60,156 for the years 2001 and 2002, respectively.
The Company purchases electronic components supporting the transportation
products segment from a major stockholder, Lite Vision Corporation ("Lite
Vision"), a public Taiwan company. Lite Vision holds 12.2% of the outstanding
shares of common stock. The components consist primarily of light emitting
diodes (LED) printed circuit boards and power supplies. The Company purchased
approximately $6.7 million and $5.3 million during 2000 and 1999, respectively.
A director of the Company is a member of an investment and merchant banking
firm that is providing a fairness opinion with respect to certain aspects of the
proposed Acquisition and related Transactions for a flat fee. See "Fairness
Opinion." Further, the same investment and merchant banking firm will receive a
fee upon successful completion of the Renaissance Capital Group, Inc.
Convertible Debenture financing. See "Interest of Certain Persons in Proposed
Acquisition." The Company believes that the terms of the Fairness Opinion were
arranged at terms at least as favorable to the Company as those generally
available from unaffiliated third parties.
41
The Company has adopted a policy pursuant to which material transactions
between the Company and its executive officers, directors and principal
shareholders (I.E., shareholders owning beneficially 5% or more of the
outstanding voting securities of the Company) shall be submitted to the Board of
Directors for approval by a disinterested majority of the directors voting with
respect to the transaction.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission and the Company. Specific due dates for these
reports have been established and the Company is required to disclose in this
proxy statement any failure to file, or late filing, of such reports with
respect to the fiscal year 2000. To the Company's knowledge, based solely on a
review of the copies of reports furnished to the Company and written
representations with respect to filing of such reports, the Company believes
that all Section 16(a) filing requirements applicable to the Company's executive
officers, directors and greater than ten percent beneficial owners were complied
with for the fiscal year ended December 31, 2000.
SHAREHOLDER PROPOSALS
Shareholders who intend to submit proposals for inclusion in the Proxy
Statement for the 2002 Annual Meeting of Shareholders must do so by sending the
proposal and supporting statements, if any, to the Company no later than
January 31, 2002. Such proposals should be sent to the attention of
Mr. Lawrence A. Taylor, 5949 Sherry Lane, Suite 1050, Dallas, Texas 75255.
OTHER MATTERS
Except for the matters described herein, management does not intend to
present any matter for action at the Annual Meeting and knows of no matter to be
presented at such Annual Meeting that is a proper subject for action by the
shareholders. However, if any other matters should properly come before the
Annual Meeting, it is intended that votes will be cast pursuant to the authority
granted by the enclosed Proxy in accordance with the best judgment of the person
acting under the Proxy.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-KSB for the fiscal years ended
December 31, 2000. This incorporated document does not form any part of the
material for the solicitation of any Proxy.
A COPY OF THE FOREGOING INCORPORATED DOCUMENT, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, IS AVAILABLE WITHOUT CHARGE TO ANY
SHAREHOLDER OF THE COMPANY UPON WRITTEN REQUEST TO MR. LAWRENCE A. TAYLOR, 5949
SHERRY LANE, SUITE 1050, DALLAS, TEXAS 75255.
42
APPENDIX A
DIGITAL RECORDERS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints David M. Furr, proxy and
attorney-in-fact for the undersigned, with full power to designate a substitute
representative, to represent the undersigned and to vote all of the shares in
Digital Recorders, Inc., a North Carolina corporation (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of the Shareholders of the
Company to be held at the Microelectronics Center of North Carolina, 3021
Cornwallis Road, Research Triangle Park, North Carolina 27709, on May 31, 2001,
at 11:00 a.m., local time, and at any adjournment thereof as hereinafter
specified upon the proposals listed below and as more particularly in the Proxy
Statement of the Company dated May , 2001 (the "Proxy Statement"), receipt
of which is hereby acknowledged. This proxy is first being mailed on or about
May , 2001.
/X/ Please mark your vote as in this example
FOR AGAINST ABSTAIN
1. Approval of the issuance of 430,000 restricted / / / / / /
shares of Company Common Stock, pursuant to a Stock
Purchase Agreement among the Company, DRI Europa AB
and Bengt Bodin, Bengt Bodin, Annacarin Bodin,
Mattias Bodin, Tobias Bodin, Bertil Lindqvist
(collectively the "Sellers"), to acquire all of the
outstanding stock of Mobitec Holding AB.
FOR AGAINST ABSTAIN
2. Approval of the issuance of up to 100,000 shares of / / / / / /
Company Common Stock underlying the Bodin Warrants
pursuant to the Bodin Warrant Agreement between
Digital and Bengt Bodin.
FOR AGAINST ABSTAIN
3. Approval of the authorization and issuance of / / / / / /
Convertible Debentures in the aggregate amount of
$3,000,000 to be issued to certain Investment Funds
associated with Renaissance Capital Group, Inc., and
the issuance of up to 1,500,000 shares of Company
Common Stock, to be issued if the Debentures are
converted.
4. To elect the nominees to serve on the Company's
board of directors for a term of one to three years
or until their successors are elected and qualified.
/ / For Election of All Nominees Listed / / To Withhold Authority to Vote for all
Nominees Listed
A-1
Instruction: To withhold authority to vote for any individual nominee, strike through the nominee's
name below:
FOR AGAINST ABSTAIN
a. John D. Higgins / / / / / /
b. J. Phillips L. Johnston, JD / / / / / /
c. C. James Meese, Jr. / / / / / /
d. Stephanie L. Pinson / / / / / /
e. John K. Pirotte / / / / / /
f. Joseph Tang / / / / / /
g. Lawrence A. Taylor / / / / / /
h. Juliann Tenney / / / / / /
i. David L. Turney / / / / / /
FOR AGAINST ABSTAIN
5. To ratify the appointment of McGladrey & Pullen LLP / / / / / /
as the independent certified public accountants of
the Company.
FOR AGAINST ABSTAIN
6. To amend the Company's Incentive Stock Option Plan / / / / / /
to permit the issuance of an additional 160,000
shares of Common Stock pursuant to the Plan.
I PLAN TO ATTEND THE ANNUAL MEETING / /
The shares represented hereby will be voted as specified. If no
Specifications are made, such shares will be voted FOR the above proposals for
which no specification is made.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING REGARDLESS
OF THE NUMBER OF SHARES YOU HOLD. PLEASE SIGN, DATE, AND RETURN THE PROXY
PROMPTLY IN THE ENCLOSED SELF ADDRESSED STAMPED ENVELOPE.
Signature(s) ____________________________________________________
Dated ________________, 2001
NOTE: Please sign name exactly as your name appears on the Stock
Certificate. When signing as attorney, executor, administrator, trustee or
guardian, please give the full title. If more than one trustee, all should sign.
All joint owners must sign.
A-2
APPENDIX I
STOCK PURCHASE AGREEMENT
BETWEEN
BENGT BODIN,
ANNACARIN BODIN,
MATTIAS BODIN,
TOBIAS BODIN,
BERTIL LINDQVIST,
AND
DRI EUROPA AB,
AND
DIGITAL RECORDERS, INC.,
DATED [ ] 2001
I-1
TABLE OF CONTENTS
1. Definitions................................................. I-5
2. Sale and purchase of the shares............................. I-8
3. Purchase Price.............................................. I-8
4. Conditions precedent to the purchaser's obligations......... I-11
5. Closing..................................................... I-11
6. Representations and warranties of all the sellers........... I-12
7. Representations and warranties of the Bodin Sellers......... I-13
8. Covenants................................................... I-20
9. Indemnification............................................. I-23
10. Representations and warranties of the purchaser............. I-25
11. Closing date................................................ I-26
12. General provisions.......................................... I-26
I-2
APPENDICES
1.9 a - b Consolidated Financial Statements
1.14 a - b Financial Statements
1.19 Interim Financial Statements
3.2.1.3 Registration Rights Agreement
3.2.1.4 Promissory Note
3.2.1.5 Bodin Warrant Agreement
5.3 Legal Opinion
6.5 a) Articles of Association, Share
Ledgers
7.4 Pledges, commitments and
contingent liabilities
7.6 Dividends since 1st January 2000
7.8 Inventory stored and obsolete
products
7.19 Material Agreements and Warranties
7.30 Customer List
7.36 Insurances
7.39 Employment conditions
7.41 List of persons authorised to sign
7.42 Bonus agreement
7.46 Pension arrangement Bengt Bodin
8.4 Mobitec Stock Option Program
8.5 Trademark License Agreement
8.10 Disputes
I-3
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of [ ] 2001, by
and between
Bengt Bodin, an individual resident at La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Annacarin Bodin, an individual resident at La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Mattias Bodin, an individual resident at Parkgatan 10, SE-112 30 Stockholm,
Sweden;
Tobias Bodin, an individual resident at Ovre Husargatan 23 A, SE-413 14
Gothenburg, Sweden; and
Bertil Lindqvist, an individual resident at Nybrogatan 45 B, 114 39
Stockholm.
(Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil
Lindqvist are hereinafter collectively referred to as the "Sellers".)
AND
DRI Europa AB, a Swedish corporation, in the process of incorporation, to
have its principal office in Gothenburg, (the "Purchaser") and
Digital Recorders, Inc., a company duly incorporated and organised under the
laws of the state of North Carolina, USA, having its principal office at
Durham, North Carolina, ("DRI").
PREAMBLES
A. The Sellers are at the date hereof the owners of the shares (the Shares) of
Mobitec Holding AB, a Swedish corporation, registration number 556546-6793,
(the "Company"). The ownership of the Shares is, at the date hereof as
follows:
Bengt Bodin................................................. 51,900 shares
Annacarin Bodin............................................. 20,400 shares
Mattias Bodin............................................... 9,100 shares
Tobias Bodin................................................ 9,100 shares
Bertil Lindqvist............................................ 9,500 shares
--------------
TOTAL....................................................... 100,000 shares
B. The Company is the parent company of a group of companies engaged in
developing, manufacturing, marketing and selling information systems for
public transport vehicles.
C. The aforesaid group of companies has presently a strong market position on
its respective market, has a customer base on these markets and has highly
professional and skilled personnel in the field of business where the group
of companies is active.
D. The Purchaser is a wholly owned subsidiary of Digital Recorders, Inc.
E. DRI is engaged in the businesses of design, development, production,
marketing, sales and service of information systems for transit and
transportation markets worldwide.
F. DRI, using the Purchaser as a vehicle therefor, is desirous of strengthening
its presence and its operations in Europe. After analysis of the market
situation and the business environment in Europe, DRI believes that a
stronger presence and good business opportunities will be achieved by the
purchase of the shares of the Company.
I-4
G. The Sellers are willing to sell the Shares to the Purchaser and/or to DRI on
the terms and conditions set forth herein subject to the exercise by the
Purchaser and/or DRI of its right under the Option Agreement.
H. Although Bertil Lindqvist, owner of 9,500 shares of the Company, agrees to
sell his shares it is understood that he shall be paid the purchase price
for his portion of the shares in full on the Closing Date and shall only be
liable hereunder to the extent explicitly set forth hereunder. Any other
liability for breach of representations or warranties or any other failure
or breach under this Agreement will be assumed by the other Sellers in full
as if they were the Sellers of Bertil Lindqvist's shares too.
I. The Sellers have submitted to the Purchaser the budget for 2001, which has
been prepared with normal and reasonable care in accordance with previous
practice. The Board of Directors of Mobitec AB has stated that there is some
degree of uncertainty with respect to the budgeted result for Mobitec Ltda
but that this will probably be compensated by the result of other entities
of the Group. For the avoidance of doubt the purchase price for the Shares
is, however, not based on any forecasts or budgets issued by the Company or
any Subsidiary with respect to the operation of the Group beyond the Closing
Date.
J. It is understood between the parties that all shares of Klimat and Hexair
will be sold prior to Closing and that such sale will have no negative
effect on the Company or any Subsidiary except for changes in the net equity
to be reflected when adjusting the Preliminary Purchase Price into the Final
Purchase Price as set forth in sub-section 3.2.2 hereof.
K. Taking into consideration what has been set forth above, the Sellers and the
Purchaser, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purpose of this Agreement the following terms have the meanings set
forth below.
1.1 Bertil Lindqvist Shares shall mean the 9,500 shares out of the Shares
held by Bertil Lindqvist.
1.2 Bodin Sellers shall mean the aforesaid Bengt Bodin, Annacarin Bodin,
Mattias Bodin and Tobias Bodin collectively and Bodin Seller shall mean
any of them.
1.3 Bodin Shares shall mean the 90,500 shares out of the Shares held by the
Bodin Sellers.
1.4 Bodin Warrant Agreement shall mean the agreement referred to in
sub-section 3.2.1.5 below.
1.5 Closing shall mean the completion of the sale and purchase of the Shares
in accordance with this Agreement.
1.6 Closing Financial Statement shall mean the audited profit and loss
accounts and the balance sheets of the Company and each Subsidiary as
well as of the Group on a consolidated basis for the financial year 2000.
1.7 Closing Date shall mean the date set forth in section 11 below.
1.8 Company shall mean the aforesaid Mobitec Holding AB.
1.9 Consolidated Financial Statements shall mean the audited consolidated
annual reports for the Group for the financial years 1998 and 1999,
APPENDIX 1.9 a)-b) hereto.
1.10 DRI shall mean the aforesaid Digital Recorders, Inc.
1.11 Encumbrance shall mean any charge, claim, condition, lien, option,
pledge, security interest, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer or receipt of
income.
I-5
1.12 Family shall mean wife, husband and co-habitant (Sw. sambo).
1.13 Financial Documents shall mean the Financial Statements, the Consolidated
Financial Statements and the Interim Financial Statements.
1.14 Financial Statements shall mean the audited annual reports of the Company
and each Subsidiary for the financial years 1998 and 1999, APPENDIX 1.14
a)-b) hereto.
1.15 GAAP shall with respect to the Company and the Swedish Subsidiaries mean
the generally accepted accounting principles including the statements and
recommendations of the Swedish Financial Accounting Standards Council
(Sw. Redovisningsradet) of the Accounting Board (Sw. Bokforingsnamnden)
as well as the Swedish Accounting Act (Sw. Bokforingslagen) and shall
with respect to non-Swedish Subsidiaries mean the generally accepted
accounting principles in the country of domicile of each such Subsidiary.
1.16 Group shall mean the Company and the Subsidiaries.
1.17 Hexair shall mean Hexair AB, registration number 556505-5067.
1.18 Intellectual Property shall mean patents, trademarks, designs,
applications for any of the foregoing, copyrights and registerable
business names--including the name "Mobitec" but with the observation of
what has been set forth in sub-section 8.5 below--and any similar rights
in any country and all rights under licenses and consents in relation to
any of the foregoing.
1.19 Interim Financial Statements shall mean the profit and loss accounts and
the balance sheets of the Company and each Subsidiary as well as of the
Group on a consolidated basis for the period 1 January--31 March 2000,
Appendix 1.19 hereto.
1.20 Key Employee shall mean each of Bob Barwick, Roberto Demore and Bjorn
Ronnhede.
1.21 Klimat shall mean Mobitec Klimat AB, registration number 556487-3403.
1.22 Know-how shall--irrespective of whether it is in verbal or any other
form--mean all technical data, specifications, procedures, manufacturing
information, product information as well as all commercial information
such as but not limited to the Customer List (as defined in
sub-section 7.30 below) market information, information on customers and
competitors, price calculations and offers all of which is used in the
Company's or any Subsidiary's development, manufacture, marketing,
selling or use of any product of the Company or any Subsidiary
irrespective of whether such product is in one or more of the stages of
development, manufacture, marketing, sale or use.
1.23 Loss shall mean any claims, losses, deficits, damages, costs, liabilities
and expenses incurred by the Group, the Company, any Subsidiary, DRI, the
Purchaser or any of the Sellers, as the case may be, including settlement
costs and any reasonable legal, accounting and other expenses for
investigation or defending any actions or threatened actions.
1.24 Except for employment agreements, the contents of which appears from
Appendix 7.39, Material Agreement shall mean all agency-, distributorship
and other sales representative agreements as well as all license- and
secrecy agreements to which the Company or any Subsidiary is a party as
well as any other agreement, contract, obligation, promise or undertaking
(whether written or oral and whether express or implied) that is legally
binding between the Company or any Subsidiary on the one hand and any
third party or any of the Sellers on the other hand and having a contract
value of more than SEK 200,000 or a remaining contract term or a period
of notice of termination of more than six months.
1.25 Mobitec Stock Option Program shall mean the stock option program of the
Company, described in APPENDIX 8.4 hereto.
I-6
1.26 Option Agreement shall mean the agreement entered into between the
Sellers, the Purchaser and DRI under which the Sellers have granted the
Purchaser and DRI options to acquire the Shares.
This Stock Purchase Agreement is an appendix to the Option Agreement and
forms an integral part thereof.
1.27 Person shall mean any individual, corporation, general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organisation, labour union, or other entity or governmental
body, agency or authority.
1.28 Promissory Notes shall mean the promissory notes referred to in
sub-section 3.2.1.4 below.
1.29 Purchaser shall mean the aforesaid DRI Europa AB, in the process of
incorporation.
1.30 Related Person shall with respect to a particular individual mean:
(i) each other member of such individual's Family;
(ii) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(iii) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a material interest;
and
(iv) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer,
partner, executor or trustee (or in a similar capacity).
1.31 Restricted Shares shall mean the 430,000 shares of the voting Common
Stock of DRI of the class authorized as of the date hereof to be issued
to Mattias Bodin and Tobias Bodin pursuant to the terms hereof.
1.32 Shares shall mean all the shares numbered from 1 to 100,000 of the
capital stock of the Company.
1.33 Sellers shall mean the aforesaid Bengt Bodin, Annacarin Bodin, Mattias
Bodin, Tobias Bodin and Bertil Lindqvist collectively and Seller shall
mean any of them.
1.34 Subsidiary shall mean each of
Mobitec AB, reg. number 556344-9999
Mobitec GmbH, reg. number DE 812 639 645
Mobitec Australia Pty Ltd, reg. number 092 439 159
Mobitec Brazil Ltda, reg. number CNPJ-03.393.064/0001-98
and Subsidiaries shall mean all of them.
1.35 The expression "Acquired Knowledge" shall mean that the statement has
been made after the Bodin Sellers have made due and reasonable inquiries
among those of the employees, consultants and representatives of the
Company and any Subsidiary who reasonably should have been asked with
respect to the relevant matter and that the statement shall be deemed to
include the knowledge obtained as aforesaid from such employees,
consultants and representatives. Knowledge, as aforesaid, of one Bodin
Seller shall be deemed to be the knowledge of all Bodin Sellers.
1.36 The expression "to the best of Bodin Sellers' Knowledge" shall mean that
the statement shall be deemed to include all information which--without
this being Acquired Knowledge--
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reasonably should be known to the Bodin Sellers. Knowledge, as aforesaid,
of one Bodin Seller shall be deemed to be the knowledge of all Bodin
Sellers.
2. SALE AND PURCHASE OF THE SHARES
Upon the terms and subject to the conditions of this Agreement the Sellers
agree to sell to the Purchaser and the Purchaser agrees to purchase from the
Sellers the Shares.
3. PURCHASE PRICE
3.1 BERTIL LINDQVIST SHARES
The portion of the purchase price to be paid to Bertil Lindqvist for the
Bertil Lindqvist Shares shall be SEK 5,700,000 (five million seven hundred
thousand), the said amount to be paid in cash on the Closing Date--subject
to sections 4 and 5 below--to Aragon Fondkommission AB's bank account with
SEB, account number 5228 100 2225, swift code MT 100 ESSESSESS and giving
reference to Bertil Lindqvist's account with Aragon Fondkommission AB,
account number 457325.
3.2 BODIN SHARES
The purchase price for the Bodin Shares is a Preliminary Purchase Price to
be adjusted into a Final Purchase Price in accordance with the provisions
of sub-section 3.2.2 below.
The Preliminary Purchase Price has been calculated and agreed upon between
the Bodin Sellers and the Purchaser inter alia on the basis of the balance
sheet forming part of the Interim Financial Statement for the Group on a
consolidated basis as per 31 March 2000, Appendix 1.19 hereto.
3.2.1 PRELIMINARY PURCHASE PRICE
The following is the Preliminary Purchase Price to be paid to the Bodin
Sellers for the sale and transfer to the Purchaser of the Bodin Shares:
3.2.1.1 The Sellers shall notify the Purchaser and DRI in writing on 31
January 2001 at the latest of the amount set forth in
sub-section 3.2.1.2 to be paid in cash to each of the Bodin Sellers,
the number of Restricted Shares set forth in sub-section 3.2.1.3 to be
transferred to each of Mattias Bodin and Tobias Bodin as well as the
amounts of the Promissory Notes set forth in sub-section 3.2.1.4.
In the event that the Purchaser and DRI have not received notification as
aforesaid the aforesaid cash amounts, the Restricted Shares and the
amounts of the Promissory Notes shall be divided between the Bodin Sellers
in proportion to their holding of shares in the Company.
3.2.1.2 The cash amount of USD 3,680,000 to be paid in cash on the Closing Date
by wire transfer to the following Bodin Sellers' bank accounts
BANK
----------------------------------
Bengt Bodin Banque Populaire, 22bd Victor
Hugo, FR-0600 Nice
Annacarin Bodin Skandiabanken
Mattias Bodin Skandiabanken
TobiasBodin SEB
3.2.1.3 The Restricted Shares shall be transferred to the Bodin Sellers on the
Closing Date, which shares shall be voting Common Stock of DRI, subject
to all of the terms and conditions of the Registration Rights
Agreement, Appendix 3.2.1.3 hereto, dated as of the date hereof by and
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among DRI, Bengt Bodin, Annacarin Bodin, Mattias Bodin and Tobias
Bodin. All certificates evidencing the Restricted Shares shall bear
legends as specified in Section 5.4 hereunder. The said shares shall be
divided among the Bodin Sellers (subject to adjustments as provided in
sub-sections (a) through (d) below:
(a) If, on or before the Closing Date, DRI shall issue any of its Common
Stock as a share dividend or subdivide the number of outstanding
shares of Common Stock into a greater number of shares then, in
either of such cases, the number of Restricted Shares issuable
pursuant to this Agreement shall be proportionately increased; and
conversely, if DRI shall reduce the number of outstanding shares of
Common Stock by combining such shares into a smaller number of shares
then, in such case, the number of Restricted Shares issuable pursuant
to this Agreement shall be proportionately decreased. If DRI shall,
on or before the Closing Date, declare a dividend payable in cash on
its Common Stock and shall at substantially the same time offer to
its shareholders a right to purchase new Common Stock from the
proceeds of such dividend or for an amount substantially equal to the
dividend, all Common Stock so issued shall, for the purpose of this
Agreement, be deemed to have been issued as a share dividend. Any
dividend paid or distributed upon Common Stock in shares of any other
class of securities convertible into Common Stock shall be treated as
a dividend paid in Common Stock to the extent that Common Stock is
issuable upon the conversion thereof.
(b) If, on or before the Closing Date, DRI shall be recapitalized by
reclassifying its outstanding Common Stock, or DRI or a successor
corporation shall consolidate or merge with or convey all or
substantially all of its or any successor corporation's property and
assets to any other corporation or corporations (any such corporation
being included within the meaning of the term "successor corporation"
used above in the event of any consolidation or merger of any such
corporation with, or the sale of all or substantially all of the
property of any such corporation, to another corporation or
corporations), the Bodin Sellers shall thereafter have the right to
receive, upon the basis and upon the terms and conditions and at the
time specified in this Agreement, in lieu of the Restricted Shares
theretofore issuable hereunder, such shares, securities or assets as
may be issued or payable with respect to, or in exchange for, the
number of Restricted Shares theretofore issuable hereunder had such
recapitalization, consolidation, merger or conveyance not taken place
and, in any such event, the rights of the Bodin Sellers to an
adjustment in the number of Restricted Shares issuable hereunder as
herein provided shall continue and be preserved in respect of any
shares, securities or assets which the Bodin Sellers become entitled
to receive.
(c) If: (i) DRI shall take a record of holders of its Common Stock for
the purpose of entitling them to receive a dividend payable otherwise
than in cash, or any other distribution in respect of the Common
Stock (including cash), pursuant to, without limitation, any
spin-off, split-off, or distribution of DRI's assets; or (ii) DRI
shall take a record of the holders of its Common Stock for the
purpose of entitling them to subscribe for or purchase any shares of
any class or to receive any other rights; or (iii) in the event of
any classification, reclassification or other reorganization of the
securities which DRI is authorized to issue, consolidation or merger
by DRI with or into another corporation, or conveyance of all or
substantially all of the assets of DRI; or (iv) in the event of any
voluntary or involuntary dissolution, liquidation or winding up of
DRI; then, and in any such case, DRI shall mail to the Bodin Sellers,
at least 15 days prior thereto, a notice stating the date or expected
date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up,
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as the case may be, will be effected. Such notice shall also specify
the date or expected date, if any is to be fixed, as to which holders
of Common Stock of record shall be entitled to participate in such
dividend, distribution or rights, or shall be entitled to exchange
their Common Stock or securities or other property deliverable upon
such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up, as the
case may be.
(d) If DRI, on or before the Closing Date, shall sell all or
substantially all of its property, dissolve, liquidate or wind up its
affairs, the Bodin Sellers may thereafter receive upon exercise
hereof, in lieu of each Restricted Share which it would have been
entitled to receive, the same kind and amount of any securities or
assets as may be issuable, distributable or payable upon any such
sale, dissolution, liquidation or winding up with respect to each
share of Common Stock of DRI issuable to the Bodin Sellers hereunder.
3.2.1.4 The Promissory Notes totalling USD 2,000,000 (two million) to be issued
and submitted to each Bodin Seller on the Closing Date, the Promissory
Notes to carry the amounts mentioned below, subject to any adjustment
set forth in sub-section 3.2.2.8 below, and falling due 36 months from
the Closing Date and accruing interest at the rate of 9 per cent per
annum payable quarterly in arrears. The Promissory Notes shall have the
contents set forth in APPENDIX 3.2.1.4 hereto. The detailed terms of
the Promissory Notes appear from the said Appendix.
3.2.1.5 The Bodin Warrant Agreement, APPENDIX 3.2.1.5 hereto to be executed and
delivered to the Bodin Sellers. As set forth in the Bodin Warrant
Agreement, DRI will grant to the Bodin Sellers the right to purchase
for five (5) years (the "Warrant") up to an additional 100,000 shares
of registered Common Stock of DRI (the "Warrant Shares") at an exercise
price of USD 4.00 per share (the "Warrant Exercise Price"), all as more
fully set forth in the Bodin Warrant Agreement, subject to all the
terms and conditions of the Registration Rights Agreement.
3.2.2 FINAL PURCHASE PRICE
3.2.2.1 The Preliminary Purchase Price set forth in sub-section 3.2.1 shall be
adjusted into a Final Purchase Price on the basis of the balance sheet
forming part of the Closing Financial Statement for the Group on a
consolidated basis.
3.2.2.2 The Bodin Sellers shall procure that the Company prepares the Closing
Financial Statement which shall be audited by the Company's chartered
accountant (auktoriserad revisor) and submit the same to the Purchaser
within 15 days from the Closing Date, however, not earlier than 10
February 2001 together with all accounting and other documentation used
in the preparation of the Closing Financial Statement.
3.2.2.3 In the event that there is any discrepancy between the net equity
appearing in the balance sheet forming part of the Closing Financial
Statement for the Group--including the Company--on a consolidated basis
(koncernens beskattade egna kapital) and the net equity SEK 10.867.000
appearing in the balance sheet forming part of the Interim Financial
Statement on a consolidated basis for Mobitec AB, Mobitec GmbH and
Mobitec Ltda as per 31 March 2000, APPENDIX 1.19 hereto (koncernens
beskattade egna kapital) the Preliminary Purchase Price shall be
increased or decreased, as the case may be, by the full amount of any
such discrepancy provided the discrepancy exceeds SEK 100.000.
3.2.2.4 The aforesaid submission by the Bodin Sellers to the Purchaser of the
Closing Financial Statement shall be accompanied by the Bodin Sellers'
written statement of any discrepancy of the net equity as aforesaid and
reasonably detailed information on the calculation thereof.
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3.2.2.5 The Purchaser shall within 15 days from receipt of the Closing
Financial Statement and the documentation mentioned in
sub-section 3.2.2.2 as well as the Bodin Sellers' written statement
mentioned in sub-section 3.2.2.4 including information on the
calculation thereof notify the Bodin Sellers in writing whether the
Purchaser accepts the contents of the Closing Financial Statement
and/or the Bodin Sellers' calculation of the discrepancy, if any, of
the net equity as aforesaid. Failing such notice the Final Purchase
Price shall be determined according to the statement of the Bodin
Sellers referred to in sub-section 3.2.2.4 above.
3.2.2.6 In the event that the Bodin Sellers and the Purchaser have not agreed
in writing within 15 days from the date of the Bodin Sellers' receipt
of the Purchaser's notification mentioned in sub-section 3.2.2.5 above
the matter of the contents of the Closing Financial Statement and the
calculation of the discrepancy of the net equity shall be referred to
arbitration in accordance with sub-section 12.13 below unless the Bodin
Sellers and the Purchaser agree in writing on an extension of the
21 days period..
3.2.2.7 The Closing Financial Statement shall be prepared in accordance with
GAAP and all applicable laws applied on a basis consistent with that of
the Interim Financial Statements.
3.2.2.8 The amounts of the Promissory Notes shall proportionally be increased
or decreased, as the case may be, by the discrepancy of the net equity
as set forth in sub-sections 3.2.2.3 - 3.2.2.7 above should it exceed
the amount SEK 100,000.
4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
4.1 The obligation of the Purchaser to consummate this Agreement is subject
to the satisfaction of the Purchaser at or prior to the Closing Date of
all of the following conditions, anyone or more of which may be waived,
in whole or in part, by the Purchaser.
4.1.1 All of the statements, representations, warranties and covenants of
Bertil Lindqvist and of the Bodin Sellers contained herein are true and
accurate, not only when made but also at and as of the Closing Date with
the same force and effect as if made at and as of such time.
4.1.2 No litigation, action, suit or other proceeding shall be pending or
threatened against any of the Sellers, the Purchaser, DRI or the Company
or any Subsidiary at the Closing Date wherein an unfavourable judgement,
decree or order would prevent or make unlawful the carrying out of this
Agreement.
5. CLOSING
The Closing shall take place on the Closing Date at the offices of
Advokatfirman Vinge KB at Nils Ericsonsgatan 17, Gothenburg, or at such other
place as is agreed between the Bodin Sellers and the Purchaser.
At the Closing each of the Sellers and the Purchaser shall do or procure to
be done all acts necessary in order to consummate the transactions contemplated
by this Agreement including, but not limited to, the following:
5.1 Bertil Lindqvist shall, subject to receipt of the purchase price for the
Bertil Lindqvist Shares referred to in sub-section 3.1 above, and each
Bodin Seller shall, subject to receipt of the Preliminary Purchase Price
referred to in sub-section 3.2.1 above, deliver to the Purchaser the
share certificates evidencing the Shares, duly endorsed in favour of the
Purchaser;
5.2 The Bodin Sellers shall present to the Purchaser the share ledger of the
Company evidencing that the Purchaser as per the Closing Date has been
registered as owner of the Shares.
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The Bodin Sellers shall further present to the Purchaser the original of
the share certificates as well as certified copies of the share ledger or
corresponding document with regard to each Subsidiary evidencing that all
the shares of each Subsidiary as per the Closing Date has the following
registered ownership:
Mobitec AB total of 100,000 shares 100% held by the Company
Mobitec GmbH 100% held by Mobitec AB
Mobitec Ltda total of 360,000 quotas 180,000 quotas or 50% held
by Mobitec AB
Mobitec Australia Pty Ltd total of one share held by Mobitec AB
5.3 DRI shall submit to the Bodin Sellers a legal opinion issued by Gray,
Leyton, Kersh, Solomon, Sigmon, Furr & Smith, P.A. in the form appearing
from APPENDIX 5.3 hereto.
5.4 DRI shall deliver to the Bodin Sellers the Restricted Shares. The
certificates evidencing said shares shall contain a legend showing them
to be restricted shares of DRI subject to restrictions on sale or
transfer provided for in the United States Securities Act of 1933, as
amended (the "Securities Act"). Upon registration pursuant to the
Registration Rights Agreement, but in no event later than one year from
the Closing Date, DRI shall remove the restrictive legends associated
with 200,000 shares and shall further remove the restrictive legends
associated with the remaining shares upon registration of such shares
pursuant to the Registration Rights Agreement, but in no event later than
on the second anniversary of the Closing Date. DRI shall reasonably and
expeditiously take necessary action to remove the restrictions on the
shares as aforesaid.
The Restricted Shares shall be divided between the Bodin Sellers as set
forth in sub-section 3.2.1.3 above.
5.5 The Bodin Warrant Agreement, the Registration Rights Agreement and the
Bodin Consulting Agreement shall be executed by the parties thereto.
6. REPRESENTATIONS AND WARRANTIES OF ALL THE SELLERS
The Sellers jointly and severally represent and warrant that on and as of
the date of signing of the Option Agreement as well as of this Agreement and on
and as of the Closing Date (unless the context otherwise requires):
CORPORATE
6.1 Each Seller has full authority to execute and deliver this Agreement and
each other document or instrument executed and delivered in connection
herewith and to consummate the transactions contemplated hereby.
6.2 The execution of this Agreement, the consummation of the transactions
provided for herein and the fulfilment of the terms hereof will not
result in a breach of any agreement to which any of the Sellers is a
party or the Articles of Association of the Company or any Subsidiary.
6.3 The Shares constitute the entire issued capital stock of the Company and
are legally and validly issued and fully paid. Each Seller lawfully owns
the number of the Shares set forth in Preamble A above, free and clear of
any Encumbrances whatsoever and each Seller has good and transferable
title to the said Shares and has the absolute right, power and capacity
to sell, assign and deliver the said number of the Shares to the
Purchaser in accordance with the terms of this Agreement, free and clear
of all Encumbrances and there are no outstanding
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subscriptions, options, rights or agreements which may require the
Company or any Subsidiary to issue or transfer any additional shares.
Matters related to the Mobitec Stock Option Program have been provided
for in sub-section 8.4 below.
6.4 The Company and each Subsidiary are duly organised and validly existing
and in good standing under the laws of Sweden or, in respect of
Subsidiaries domiciled outside of Sweden under the laws of the country of
domicile and have full corporate power and all necessary licenses,
permits and authorisations to carry on its businesses as presently and on
the Closing Date conducted and to own, lease and operate the assets and
properties used in connection therewith.
6.5 Copies of the Company's and each Subsidiary's Articles of Association,
and share ledger or corresponding documents are enclosed as APPENDIX 6.5
a)-[ ]), which copies are true and complete and fully and completely set
forth all information required to be recorded therein.
7. REPRESENTATIONS AND WARRANTIES OF THE BODIN SELLERS
The Bodin Sellers jointly and severally represent and warrant that on and as
of the date of signing of the Option Agreement as well as of this Agreement and
on and as of the Closing Date (unless the context otherwise requires):
FINANCIAL
7.1 Except for the Subsidiaries, the shares of which are held in accordance
with sub-section 5.2 above, lawfully and free and clear of any
Encumbrances whatsoever and to which the representations and warranties
contained in this section 7 shall apply, the Company does not own any
interest, directly or indirectly, in any corporation or partnership and
does not have a branch office in any country.
7.2 The Financial Documents
(i) give a true and fair view of the financial position and results of
the operations of the Group, the Company and of each Subsidiary as
of the dates appearing in the Financial Documents and for the
periods appearing in the Financial Documents and have been prepared
from and in accordance with the books and records of the Company and
of each Subsidiary;
(ii) have been prepared in accordance with GAAP and all applicable laws,
applied on a basis consistent with that of preceding years;
(iii) contain and reflect such reserves as were necessary and required by
the laws and principles referred to under (ii) above to be
reflected in such reports as of the said dates.
7.3 The net equity appearing in the balance sheet forming part of the Interim
Financial Statement as per 31 March 2000 on a consolidated basis
(koncernens beskattade egna kapital) for Mobitec AB, Mobitec GmbH and
Mobitec Ltda is not less than SEK 10,867,000 in accordance with GAAP and
all applicable laws applied on a basis consistent with that of preceding
years.
7.4 In excess of the pledges, commitments or contingent liabilities disclosed
in APPENDIX 7.4 neither the Company nor any Subsidiary have pledged any
assets or have any commitments or contingent liabilities and the Company
and each Subsidiary have full and exclusive title to all assets in the
balance sheets comprised by the Interim Financial Statement,
APPENDIX 1.19--except assets disposed of in the ordinary course of
business--and the assets are not the subject of any Encumbrance.
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7.5 The operations and other activities of the Company and each Subsidiary
during the period as from 1 January 2000 to the date hereof have been
conducted in the ordinary course of business with a view to maintaining
their respective businesses as a going concern and there has not occurred
or arisen since 1 January 2000 with respect to the Company or any of the
Subsidiaries
(i) any material adverse change in their financial conditions or in the
operations of their respective businesses; or
(ii) to Acquired Knowledge any obligations, commitments or liabilities,
liquidated or unliquidated, contingent or otherwise, except
obligations, commitments and liabilities arising in the ordinary
course of business and which are not material in relation to their
respective businesses; or
(iii) to Acquired Knowledge any amendment or termination or any agreement
to amend or terminate any Material Agreement, save in the ordinary
course of business; or
(iv) to Acquired Knowledge any extraordinary event or any extraordinary
loss suffered or any waiver of any debts, claims, rights under any
Material Agreement, or other rights representing a value in excess
of SEK 100,000; or
(v) any damage, destruction, or loss or any other event or condition
adversely affecting their respective properties and businesses,
representing loss to property to the extent not covered by insurance
in the aggregate in excess of SEK 100,000; or
(vi) any sale, assignment, transfer, pledge, lease or other disposal of
any individual asset with a value in excess of SEK 300,000 except
for the sale of real property Mellerud Frosbo 1:7, 1:10 and 1:32 at
a sales price of SEK 350,000; or
(vii) any increase in the rates of compensation (including bonuses)
payable or to become payable to any agent, distributor, sales
representative, independent contractor or consultant other than
increases made in the ordinary course of business; or
(viii) any change of accounting methods, principles or practices; or
(ix) any investment in fixed assets that exceed individually SEK 300,000
or in the aggregate SEK 500,000; or
(x) any other transaction other than in the ordinary course of business;
and neither the Company nor any of the Subsidiaries have to the Acquired
Knowledge agreed or arranged to do any of the foregoing.
The terms and conditions for the Company's sale of the shares of Hexair
and Klimat appear from sub-section 8.9 below.
7.6 Since 1 January 2000 no dividends or interim dividends have been declared
or paid by the Company or any of the Subsidiaries except for what has
been set forth in Appendix 7.6.
7.7 All accounts receivable of whatsoever nature appearing in the Financial
Documents have been valued in accordance with GAAP and all applicable
laws.
7.8 The inventory of the Company and of each Subsidiary as appearing in the
Closing Financial Statement will be valued in accordance with GAAP and
applicable laws applied on a basis consistent with that of the Interim
Financial Statement for the period 1 January--31 March 2000,
Appendix 1.19 hereto. The inventory of Mobitec AB as per 6 December 2000
was as set forth in Appendix 7.8 and was kept at Mobitec AB's premises at
Herrljunga. The said APPENDIX 7.8 also comprises the obsolete products as
of the said date.
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7.9 All liquid assets of the Company and each Subsidiary such as, but not
limited to, bank accounts and cash are on the Closing Date available free
and clear of any restriction or condition.
7.10 All assets, properties and rights belonging to the Company and each
Subsidiary, whether or not recorded in the books of the Company or the
Subsidiaries that until this date have been used in the Company's and the
Subsidiaries' respective businesses have been included in the transfer to
the Purchaser under the terms of this Agreement.
7.11 Neither the Company nor any Subsidiary has any liability or obligation of
any kind as a result of purchase or sale of shares or business operations
or part thereof or of individual assets and such purchases and sales, if
any, have been completed in all respects and neither the Company nor any
Subsidiary has or will have any liability of any kind as a result of any
such purchase or sale or as a result of any transaction or transfer
internally between any of the companies of the Group including but not
limited to payment of considerations, debts, taxes and social charges.
7.12 All properties and assets of the Company and the Subsidiaries are to
Acquired Knowledge in good physical repair and condition, ordinary wear
and tear excepted.
ENVIRONMENTAL MATTERS
To Acquired Knowledge
7.13 the Company and each Subsidiary has at all times obtained all necessary
environmental approvals, permits and consents for its operations;.
7.14 all environmental approvals, permits and consents, to the extent
required, are in full force and effect and there are no facts or
circumstances which may lead to any environmental approvals, permits or
consents being revoked, cancelled or modified;
7.15 the Company's and each Subsidiary's operations have in all respects and
at all times been carried out in compliance with any necessary
environmental approvals, permits and consents as well as any applicable
environmental laws;
7.16 all registrations and other information required to be provided by the
Company and each Subsidiary and all records and data required to be
maintained by the Company and each Subsidiary in accordance with any
environmental laws and any approvals, permits and consents, to the extent
required, have been provided and maintained;
7.17 no real property has at any point in time been used by the Company or a
Subsidiary in such way which have led to any real property having become
contaminated in a manner which will result in any liability under
environmental laws;
7.18 there are no environmental actions, claims, complaints, investigations or
other proceedings being taken or pending in connection with the
operations of the Company or any Subsidiary and there is no actual or
contingent liability to make good, repair, restore or clean up any real
property and no act or omission of the Company or any Subsidiary has
given rise to any such environmental liability.
AGREEMENTS
7.19 There are no other Material Agreements than those listed in
APPENDIX 7.19. The said Appendix contains information on the parties,
contract term, purpose of the agreement as well as any other vital matter
provided for in any Material Agreement.
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The Company and the respective Subsidiary have performed or taken all
action necessary to enable them to perform when due all obligations under
any Material Agreement. The execution of this Agreement, the consummation
of the transactions provided for herein, and the fulfilment of the terms
hereof will not result in a breach of any of the terms and provisions of,
or constitute a default under, or conflict with or give the counterparty
the right to terminate any Material Agreement and to Acquired Knowledge no
such third party has indicated its interest to terminate any Material
Agreement.
(i) NO DEFAULT. Neither the Company nor any of the Subsidiaries is
(a) in default under any provision of any contract, commitment,
agreement, letter of intent, lease or service arrangement to
which any of them is a party or by which any of them is bound,
which default would have a materially adverse effect on their
respective businesses, properties or condition, financial or
otherwise, and no event has occurred which would constitute such
a default;
(b) a party to or bound by any contract, commitment, agreement,
lease, service arrangement, order or letter of intent not made in
the ordinary course of their respective businesses;
(c) a party to any contract containing provisions for material price
redeterminations or price revision that is not on normal market
conditions, or
(d) a party to any contract containing any terms or conditions not
consistent with fair market terms, conditions and prices.
(ii) PRICING. Prices and payment terms on all contracts, bids and sales
order (order backlog) and purchase orders of the Company and any
Subsidiary which are presently in effect or outstanding have been
entered into by the Company and the respective Subsidiary on a
basis consistent with its prior practice with respect to profits
and profit margins which were estimated substantially in accordance
with its prior practice and contain no provision restricting
competition or being unlawful and all sales and services to
customers have been made at arm's-length prices, terms and
conditions.
(iii) WARRANTIES. Neither the Company nor any of the Subsidiaries have
granted or offered any other warranties for goods sold or services
rendered other than on normal market conditions or as is disclosed
in APPENDIX 7.19.
7.20 To Acquired Knowledge neither the Company nor any Subsidiary is or has
been a party to any agreement or is bound or has been bound by any
commitment, obligation or undertaking or has participated or is
participating in any activity prohibited or invalid pursuant to sections
6, 7 or 19 of the Swedish Competition Act or articles 81 or 82 of the
Treaty of Rome or pursuant to corresponding or similar rules or
regulations in any foreign jurisdiction.
7.21 Neither the Company nor any Subsidiary is bound by any prohibition to
compete or any other obligation which in any respect prohibits or
restricts the Company or any Subsidiary, to carry on such businesses as
the Company or any Subsidiary has been carrying on during five years
preceding the Closing Date.
INTELLECTUAL PROPERTY AND KNOW-HOW
7.22 All Intellectual Property, including software, which is used in, or is
necessary for, the business of the Company or any Subsidiary, whether
registered or not, is owned by or licensed to the Company or the
respective Subsidiary without any restrictions in respect of current use.
Matters related to the name Mobitec have been provided for in
sub-section 8.5 below.
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7.23 All Know-how is owned by or licensed to the Company or any of the
Subsidiaries without any restrictions in respect of current use.
7.24 There is no infringement by any third party of any Know-how or any
Intellectual Property owned by or licensed to the Company or any
Subsidiary within any country in which the Company or any Subsidiary is
operating except that a third party has registered the company name
"Nolato Mobitec AB."
7.25 The registrations of all registered Intellectual Property are made in the
name of the Company or any of the Subsidiaries and are in force and the
renewal fees for all such registrations have heretofore been paid.
7.26 There is no claim against the Company or any Subsidiary such as, but not
limited to infringement, damages or otherwise, raised by any third party
which relates to the use of Intellectual Property or Know-How by the
Company or any Subsidiary other than as set forth in Appendix 8.10
hereof.
7.27 Neither the Company nor any Subsidiary has granted, or is obliged to
grant, any license or assignment in respect of any Intellectual Property
or Know-How owned or used by it, or is obliged to disclose any
Intellectual Property or Know-How to any Person.
7.28 The Company and each Subsidiary fully owns or has a license or other
right to use, in addition to the Intellectual Property and Know-How set
forth above, all other technology, technical and commercial know-how used
in the businesses of the Company and the respective Subsidiary.
BUSINESS
7.29 The Company and each Subsidiary has in all material respects conducted
its respective businesses at all times in accordance with and have
complied with applicable national and local laws relating to its
operations and businesses, and is not a party to or subject to any
judgement, decree or order issued in any suit or proceeding brought by
any Person or party materially enjoining or otherwise restraining or
restricting the Company or any of the Subsidiaries with respect to any
business activity or practice in the conduct of its respective businesses
and will not be, in respect of circumstances, existing before or upon the
Closing Date and there is to Acquired Knowledge no controversy or
investigation pending or threatened with respect to the Company's or any
of the Subsidiary's respective businesses by any Person or party that
would materially be detrimental to the Company's or any Subsidiary's
businesses.
7.30 The Customer List, APPENDIX 7.30 hereto, contains any customer having
purchased products from the Group in excess of the aggregate sales value
of SEK 3.000.000 during the calendar year 1999 or the period as from 1
January 2000 up to and including the Closing Date.
7.31 To Acquired Knowledge all products sold and all services rendered by the
Company or any Subsidiary meet with the customer requirements with
respect to quality and suitability for intended purposes.
7.32 To Acquired Knowledge no customer appearing in the Customer List has
manifestly ceased to buy products from the Group during the calendar year
1999 or the period as from 1 January 2000 up to and including the Closing
Date except for the customers listed in APPENDIX 7.30 hereto.
7.33 To the best of Bodin Sellers' Knowledge no supplier of the Company or any
Subsidiary will cease to sell products or components to any of them and
to the best of Bodin Sellers' knowledge none of them will increase their
prices or otherwise make any changes in their businesses with the Company
or any Subsidiary which could have a materially adverse effect on the
Company's or any Subsidiary's businesses.
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7.34 To the best of Bodin Sellers' Knowledge no business partner of the
Company or any Subsidiary will terminate its business relations with the
Company or any Subsidiary.
7.35 Neither the Company nor any Subsidiary is or will be liable, due to
circumstances existing before or upon the Closing Date or related
thereto, to compensate for damages caused to the environment or third
parties as a result of products sold or services rendered.
7.36 Attached hereto as APPENDIX 7.36 is a schedule of the insurances for the
Group. The Company and each Subsidiary maintains the said policies of
fire, product and general liability, use and occupancy and other forms of
insurance covering its properties and assets in amounts and against such
losses and risks as are normally maintained for comparable business and
properties, and valid policies for the said insurances are now and will
be outstanding and duly in force on the Closing Date and for at least
30 days thereafter.
7.37 The books of account and other records of the Company and each Subsidiary
are complete and correct and have been maintained in accordance with all
relevant legislations and rules in each country of domicile of the
Company and each Subsidiary and all documents of the Company and each
Subsidiary such as, but not limited to, share ledgers, minutes of Board
of Directors' meetings and shareholders' meetings, contracts, permits and
licences exist and are safely kept and are correct, and all registrations
and applications related thereto have been fulfilled, and all applicable
fees have been paid.
7.38 To Acquired Knowledge there is no matters or circumstances that may
materially affect the businesses of the Company or any Subsidiary and the
financial results thereof other than as explicitly set forth herein.
EMPLOYEES
7.39 All employees of the Company and each Swedish Subsidiary are employed on
normal employment conditions and in accordance with applicable collective
bargaining agreements and all employees of each foreign Subsidiary are
employed on normal employment conditions in each respective country.
In APPENDIX 7.39 are shown all employment conditions of all employees of
the Company and each Subsidiary as well as the conditions of all Board
Directors of the Company and each Subsidiary as per 31 December 1999 and
no salary or other employment benefit or condition for any of the said
employees or Board Directors has been changed after the said date except
for what has been set forth in the said Appendix.
No salary increase or additional employment benefit may be granted for the
time period after 31 December 2000 without consultation with the
Purchaser.
7.40 There are no collective bargaining agreements or deferred compensation
agreements, pension, profit sharing, severance pay or retirement plans,
agreements or arrangements presently in force with respect to any former
employee of the Company or any of the Subsidiaries.
7.41 Attached hereto as APPENDIX 7.41 is a list of all employees and of all
other persons being authorised to sign for the Company and for each
Subsidiary, including all persons authorised to operate any bank accounts
and safe deposits. APPENDIX 7.41 also includes those employees holding
credit cards for the Company or any Subsidiary.
7.42 Any term, condition or obligation pursuant to the letter from the Company
to Ingemar Luppert, Stefan Lager and Anders Svensson dated 10
August 1998, APPENDIX 7.42 hereto has in its entirety ceased to have
effect prior to the Closing Date without any cost or other negative
financial effect of any kind to the Company or any Subsidiary or the
Purchaser in excess of what appears from the Closing Financial Statement
and neither the Company nor any
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Subsidiary has any other contractual relationship with any of the
aforesaid individuals, except for employment agreements, and none of them
has any other right to any kind of compensation from the Company or any
Subsidiary except for salary and other employment benefits as set forth
in Appendix 7.39.
THE SELLERS
7.43 None of the Sellers or any Related Person of any of the Sellers own,
directly or indirectly, individually or collectively, any interest in any
corporation, company, partnership, entity or organisation which is in a
business similar or competitive to the businesses of the Company or any
Subsidiary or which has any existing undisclosed contractual relationship
with the Company or any Subsidiary.
7.44 None of the Sellers or any Related Person to any of the Sellers or any of
the members of the Board of Directors of the Company or of any Subsidiary
has any claim against the Company or any Subsidiary for compensation or
payment of any nature whatsoever except for Directors' fees appearing in
the balance sheet forming part of the Closing Financial Statement and
there are no loans, guarantees or other forms of undertaking provided by
the Company and any of the Subsidiaries to any of the Sellers or to any
Related Person to any of them which are prohibited by chapter 12
section 7 of the Swedish Companies Act of 1975.
7.45 Except for the consultancy agreement with Bengt Bodin and the pension
arrangement referred to in sub-section 7.47 below, there are no
contractual relations of any kind between the Company or any Subsidiary
on one hand and any of the Sellers or any Related Person to any of the
Sellers on the other hand.
7.46 The pension arrangement with Bengt Bodin, which is described in full
detail in APPENDIX 7.46 hereto, will not have any negative net effect on
the financial position of the Company or any Subsidiary.
LITIGATION AND INVESTIGATIONS
7.47 Except for what has been provided for in sub-section 8.10 below neither
the Company nor any Subsidiary has been served with any law suit or
notice to arbitrate, and there is no law suit, administrative,
arbitration or other legal proceedings pending or to Acquired Knowledge
threatened against the Company or any Subsidiary or their businesses,
properties or assets, and there is no such suit or proceedings pending or
to Acquired Knowledge threatened by the Company or any Subsidiary against
any Person or party.
TAXES AND OTHER CHARGES
7.48 All necessary tax and other returns and reports with regard to taxes,
social charges and duties required to be filed prior to the Closing Date
by the Company or any Subsidiary have been duly filed with the
appropriate authorities and are true and correct.
7.49 All invoices with regard to all products sold or all services rendered by
the Company or any Subsidiary contain all taxes, duties and public fees
related to such sale or service.
7.50 All taxes, social charges and duties assessed or due by the Company or
any Subsidiary on or before the Closing Date have, where applicable, been
fully paid, or full reserves therefor has been made in the Financial
Documents.
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7.51 No deficiency in payment of taxes, social charges and duties or any
additional assessment thereof in respect of the period up to and
including the Closing Date, will be claimed or made by any authority for
any year or part thereof in respect of the Company or any Subsidiary.
7.52 All amounts required to be paid by the Company or any Subsidiary for the
purpose of social security, insurance, pensions and the like have been
duly and punctually paid and all amounts required to be deducted from
moneys paid to employees, consultants and others for the purposes of
taxes, social security, insurance, pensions and the like have been
deducted and have been accounted for to the appropriate authority or
person, and there is no dispute on any issue in respect of any of the
foregoing.
7.53 There are no audits with regard to taxes, social charges or duties
currently pending with respect to the Company, any Subsidiary or any of
the Sellers.
7.54 Full reserves or provisions have been made in the Financial Documents for
all liabilities in respect of pensions to be paid to employees or former
employees of the Company or any Subsidiary.
INFORMATION
7.55 No representation or warranty herein, and no document heretofore or
hereafter provided to the Purchaser by or on behalf of any of the Sellers
or the Company or any Subsidiary, contained or will contain any material
untrue statement of a fact or omitted or will omit to state a fact
necessary to make the statements contained herein or therein not
misleading.
7.56 The Bodin Sellers acknowledge that they are aware that their ownership of
the Restricted Shares is subject to a substantial risk of loss, including
risks associated with price fluctuations of the Common Stock on the
United States securities exchanges.
8. COVENANTS
8.1 CONDUCT OF BUSINESS PENDING CLOSING
After the date of the Sellers' and the Purchaser's signatures hereof no
contract or commitment shall be entered into by or on behalf of the
Company or any Subsidiary extending beyond the Closing Date, except for
contracts or commitments made in the ordinary course of business.
Moreover, neither the Company nor any Subsidiary shall borrow any
additional funds from banks or other external sources other than as
required in the ordinary course of business.
8.2 NON-COMPETITION
The Purchaser is entering into this Agreement and the purchase price has
been accepted inter alia on the basis of and in reliance upon the fact
that none of the Sellers will carry on activities competing with those of
the Company or of any Subsidiary. The Sellers have expressly stated their
full understanding thereof and have declared their willingness to
undertake the following non-competition obligation.
8.2.1 Each Seller agrees and ensures, for a period of three years from the
Closing Date not to directly or indirectly carry on, engage or otherwise
participate in any businesses competing with the businesses of the
Company or any Subsidiary in any part of the world--provided, however,
that in respect of countries which are members of the European Economic
Area, the non-compete obligation shall be limited to a period of two
years and shall apply only to the extent that the Company or the
Subsidiary was active in the market at issue on the Closing Date.
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8.2.2 In case of any breach of the obligations undertaken pursuant to
sub-section 8.2 and such breach is not remedied within five business
days of written notice to do so Bertil Lindqvist solely on his part and
the Bodin Sellers jointly and severally--in addition to any other remedy
that may be available to the Purchaser--shall be liable to pay to the
Purchaser the actual damage resulting from each such breach but in no
case an amount being less than SEK 8,000,000 (eight million) for each
such breach.
8.2.3 For the purposes of this sub-section 8.2 the Sellers' engagement in
Klimat's and Hexair's present businesses, Bengt Bodin's services under
the Bodin Consulting Agreement and the Bodin Sellers' shareholding in
DRI shall not be deemed competing.
8.3 EMPLOYMENT OF KEY EMPLOYEES
From the date of this Agreement and for a period of three years after the
Closing Date each Seller undertakes and ensures to refrain from employing,
or offering or negotiating employment with any Key Employee of the Company
or of any Subsidiary without the prior written consent of the Purchaser.
In case of breach of this obligation by any of the Bodin Sellers, the
Bodin Sellers shall jointly and severally be liable to pay to the
Purchaser the actual damage resulting from such breach but in no case with
an amount being less than SEK 3,000,000 for each such breach and in case
of breach of this obligation by Bertil Lindqvist he shall solely be liable
to pay the aforesaid damage or minimum amount.
8.4 MOBITEC STOCK OPTION PROGRAM
The Mobitec Stock Option Program is described in full detail in
APPENDIX 8.4 hereto.
The Bodin Sellers ensure that the Company and any Subsidiary will make
their best efforts in order to fulfil the obligations under the Mobitec
Stock Option Program prior to the Closing Date.
The Bodin Sellers shall have no responsibility for the acquisition of
additional options under the Mobitec Stock Option Program if on the
Closing Date there remain outstanding options representing 1000 shares or
less.
The costs of the Company and any Subsidiary in fulfilling the aforesaid
obligations will in full be accounted for and appear in the Closing
Financial Statement. However, for the purposes of adjusting the
Preliminary Purchase Price into the Final Purchase Price in accordance
with sub-section 3.2.2 above, any amount of such cost exceeding 50 per
cent of the aforesaid total cost, or the amount SEK 1,188,000 whichever is
the lower, shall be accounted for and appear in the Closing Financial
Statement.
8.5 MOBITEC NAME
The Bodin Sellers agree that Mobitec AB is the full and unrestricted owner
of the trademark and business name Mobitec and has the exclusive right
thereto.
The Bodin Sellers ensure that all measures will be taken within 12 months
from the Closing Date to remove the name Mobitec from the company name of
Klimat.
The Bodin Sellers agree and ensure that no Related Person of any of the
Sellers has any right of any kind to the name Mobitec or the use thereof
except for the rights set forth in the Trademark License AGREEMENT
APPENDIX 8.5 hereto.
8.6 PUBLICITY
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No announcement concerning the transaction contemplated by this Agreement
or any matter ancillary thereto shall be made by either party hereto
before or on the Closing Date, without the prior written consent of the
other party, provided that nothing herein shall prevent either party from
making, in consultation with the other party, any announcement or filing
required by law, regulations or by the rules and regulations of any stock
exchange on which it is listed including any announcement or filing in
connection with the filing under the SEC regulations of shareholders' vote
and proxies thereto.
8.7 DISCHARGE OF DIRECTOR LIABILITY
The Purchaser shall, provided that the auditors so recommend, discharge or
procure the discharge of all directors of the Company and any of the
Subsidiaries from their personal liability for the period as from 1
January 2001 to the Closing Date on the next Annual General Shareholders'
Meeting of the Company and of any Subsidiary, which discharges shall not
in any way limit or restrict or be construed to limit or restrict the
Purchaser's rights against the Sellers under this Agreement.
8.8 DIVIDENDS
The Purchaser shall be entitled to all dividends and other profits of the
Group deriving from the financial year 2000 and the Company shall not from
this day through the Closing Date declare or pay any dividend or make any
other distribution to its shareholders.
8.9 KLIMAT AND HEXAIR
8.9.1 The Bodin Sellers ensure that all measures shall have been taken by the
Company or any Subsidiary, as the case may be, prior to the Closing Date
to transfer and sell all its shares of Klimat and Hexair including all
obligations and liabilities of all types, direct as well as indirect,
contingent or otherwise in any way related to Klimat or Hexair or the
operations, activities or businesses carried on by any of them to an
aktiebolag wholly owned by the Sellers or the Bodin Sellers.
8.9.2 The said transfer and sale shall be made at purchase prices and other
terms and conditions having no negative effect on the Company's or any
Subsidiary's financial position or otherwise in any way be detrimental
to the remaining businesses of the Company or any Subsidiary except for
changes in the net equity to be reflected when adjusting the Preliminary
Purchase Price into the Final Purchase Price as set forth in
sub-section 3.2.2 hereof.
8.9.3 As per the Closing Date there shall not exist any financial, contractual
or other relation of any kind between any of Klimat or Hexair on one
hand and the Company or any Subsidiary on the other hand except for what
has been set forth in sub-section 8.5 above.
8.9.4 As per the Closing Date neither the Company nor any Subsidiary shall be
bound by any contract or have any commitment or obligation of any kind
or in any way relating to Klimat or Hexair or the operations, activities
or businesses carried on by any of them.
8.9.5 The Bodin Sellers shall jointly and severally indemnify and hold the
Company or any Subsidiary or the Purchaser harmless from any kind of
costs, damages and claims as a result of or in any way related to the
aforesaid sales and transfers pursuant to this sub-section 8.9 including
but not limited to any kind of taxes, duties and social charges.
8.10 DISPUTES
In APPENDIX 8.10 is a brief description of all disputes or pending or
threatened disputes involving the Company and/or any Subsidiary. The
following shall apply with respect to the said disputes.
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For the purposes of a potential payment of compensation to Aldridge
Electrical Industries Pty Ltd an amount of SEK 500.000 shall be reserved
and deducted for in the balance sheet forming part of the Closing
Financial Statement. However, such reservation and deduction shall not be
taken into account in the adjustment of the Preliminary Purchase Price
into the Final Purchase Price.
The tax dispute involving Mobitec Ltda and the dispute involving Thorsell
Elektronikmontering AB shall be reflected in the Closing Financial
Statement in accordance with GAAP.
The dispute with FP regarding the Buse component is handled as set forth
in the Option Agreement.
The Bodin Sellers shall have no liability for the outcome of the other
disputes set forth in Appendix 8.10.
8.11 LIABILITY OF BERTIL LINDQVIST
The following provisions shall apply with regard to Bertil Lindqvist's
liability under this Agreement:
Sections 1 and 2, sub-section 3.1, section 4, sub-section 5.1, section 6,
sub-sections 8.1 - 8.3, 8.6 - 8.8, 9.1 - 9.3, 9.5 - 9.11, section 11 and
sub-sections 12.3 and 12.4 and 12.6 - 12.13.
8.12 REGISTRATION OF DRI SHARES
DRI agrees that the Restricted Shares shall be duly registered under a
valid and effective registration statement of DRI pursuant to the
Securities Act and any applicable state securities laws, pursuant to all
terms, and subject to all the conditions, of the Registration Rights
Agreement. The Bodin Sellers acknowledge that the Registration Rights
Agreement has been prepared by their counsel and that they have been
advised of the basic terms and consequences of such Agreement.
9. INDEMNIFICATION
With the exclusion of the provisions of the Swedish Sales of Goods Act:
9.1 The Bodin Sellers shall--except for what has been set forth below with
respect to Bertil Lindqvist--jointly and severally be liable and shall
indemnify and hold the Purchaser harmless in full from and against any
Loss arising out of misrepresentation, breach of warranty or failure to
perform a covenant or other obligation or any other breach of this
Agreement on the part of any of the Sellers. Bertil Lindqvist shall be
liable and shall indemnify and hold the Purchaser harmless from and
against any Loss arising out of misrepresentation, breach of warranty or
failure to perform a covenant or other obligation undertaken by Bertil
Lindqvist under this Agreement as set forth in sub-section 8.11 above.
9.2 Payment for Losses and other forms of compensation under this Agreement
shall be made by reduction and repayment to the Purchaser of the purchase
price for the Bodin Shares or the Bertil Lindqvist Shares, as the case
may be. With respect to the Bodin Sellers, such reduction shall primarily
be made by the Purchaser reducing the Promissory Notes by any sum of any
such Loss and in the event that the sum of any such Loss exceeds the
total amount of the Promissory Notes the Bodin Sellers having received
Restricted Shares shall return such number of the Restricted Shares as
corresponds to the said excess amount.
In calculating the value of each Restricted Share it shall be valued at
USD 3 (three).
The Purchaser shall be entitled to compensation hereunder only upon
agreement with the Sellers or any of them or upon an arbitration award
having gained legal force and effect.
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The Sellers reserve the right to settle any claim with cash payment.
9.3 The liability of the Bodin Sellers and of Bertil Lindqvist to the extent
applicable with regard to Losses as a result of any misrepresentation or
breach of any of the representations and warranties
a) set forth in sub-sections 7.1-7.12, 7.19-7.34, 7.36-7.47 and
7.54-7.56 shall remain valid until 18 months from the Closing Date;
b) set forth in sub-sections 6.1-6.5, 7.13-7.18 and 7.35 shall remain
valid for a period of five years from the Closing Date; and
c) with regard to taxes, social charges and duties, such as
misrepresentation or breaches set forth in sub-sections 7.48 - 7.53
shall remain valid until three months from the date such taxes,
social charges and duties have been determined by the relevant
authority.
If a Loss has occurred before any of the aforesaid dates but the amount
hereof cannot be quantified, the Purchaser may claim compensation,
provided that the claim is made within the applicable time period and a
quantified claim is made as soon as information is available of the
amount.
9.4 The Purchaser shall only be indemnified under the provisions of
sub-section 9.3 if the aggregate amount of the aforesaid Losses equals or
exceeds SEK 500,000 provided, however, that in the event the Loss equals
or exceeds the said amount, the Purchaser is entitled to be indemnified
for the full amount of the Loss.
In calculating the aforesaid aggregate amount individual Losses amounting
to less than SEK 50,000 shall not be taken into account.
9.5 In calculating a Loss in accordance with this section 9 consideration
shall be given to the fact whether the Loss fully or partly is a
deductible item which can be used by the Company for tax purposes.
9.6 The aggregate liability of the Bodin Sellers under sub-section 9.3 above
shall not exceed SEK 33,000,000 (thirty three million) and with respect
to Bertil Lindqvist it shall not exceed the purchase price for the Bertil
Lindqvist Shares.
9.7 There shall be no exemption from any of the Sellers' liability for
representations, warranties, covenants or obligations under this
Agreement other than as explicitly set forth herein or by reference to an
Appendix attached hereto or pursuant to sub-section 9.8 below and no
representation, warranty, covenant or other obligation of any of the
Sellers set forth herein shall be deemed waived or otherwise affected
-- by any commercial or financial analysis, or any inquiry or
investigation which the Purchaser, its advisors, auditors, legal
counsels or representatives have made or may make with respect to the
Company, any of its Subsidiaries or their businesses or the Closing
Balance Sheet or the approval thereof; or
-- by the fact that the Board of Directors and/or the Managing Director
of the Company or any Subsidiary nominated and appointed by the
Purchaser have approved the annual report for the financial year 2000
or that the Annual General Shareholders' Meeting of the Company or
any of the Subsidiaries--at which the Shares have been represented by
the Purchaser--has adopted the aforesaid annual report; or
-- by the fact that the Purchaser has agreed to the adjustment of the
Preliminary Purchase Price into the Final Purchase Price as set forth
in sub-section 3.2.2 above.
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9.8 No liability shall arise in respect of any misrepresentation, breach of
warranty or failure to perform a covenant or other obligation or any
other breach of this Agreement on the part of any of the Sellers
-- if and to the extent a Loss has been made part of the Closing
Financial Statement has been taken into account in adjusting the
Preliminary Purchase Price into the Final Purchase Price; or
-- if and to the extent that a claim occurs as a result of any
legislation not in force at the date hereof which takes effect
retrospectively or occurs as a result of any increase in the rate of
tax in force at the date hereof;
-- in respect of any Loss which is recoverable and recovered under any
of the insurances set forth in Appendix7.36 and in force on the date
of Loss (for the avoidance of doubt it is hereby expressly stated
that any deductible shall be compensated by the Sellers as a claim).
9.9 The Purchaser shall not make any admission of liability, agreement or
compromise with any third party concerning any claim for which the
Sellers or any of them may be liable without prior written notification
with Bengt Bodin.
9.10 In the event that an exemption from liability hereunder has explicitly
been made--by reference made herein or by reference to an Appendix
attached hereto--in one provision hereof the same exemption shall apply
in respect of other provisions providing for the same subject matter.
9.11 In the event that the Purchaser shall demand indemnification hereunder,
the Purchaser shall notify each Seller without undue delay, such
notification to be given within the period of limitation as set out in
sub-section 9.3 above and in any event not later than on the sixth
anniversary of the Closing Date, whichever occurs first.
10. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
10.1 The Purchaser represents and warrants that on and as of the date of
signing of the Option Agreement as well as this Agreement and on and as
of the Closing Date (unless the context otherwise requires).
10.1.1 The Purchaser and DRI have full authority to execute and deliver this
Agreement and each other document or instrument executed and delivered
in connection herewith and to consummate the transactions contemplated
hereby.
10.1.2 The execution of this Agreement, the consummation of the transactions
provided for herein and the fulfilment of the terms hereof will not
result in a breach of any agreement to which any of the Purchaser or DRI
is a party nor the Articles of Association of the Purchaser.
10.1.3 The Purchaser or DRI are duly organised and validly existing and in good
standing under the laws of its respective country of domicile and have
full corporate power and all necessary licenses, permits and
authorisations to carry on its businesses as presently and on the
Closing Date conducted and to own, lease and operate all material assets
and properties used in connection therewith.
10.1.4 The Restricted Shares are credited as fully paid, non assessable and
rank PARI PASSU in all respects with the existing issued shares of DRI
and, subject to the provision in sub-section 5.4 are free and clear of
any Encumbrances whatsoever and free from all taxes, liens and charges
with respect to the issue thereof and DRI has the absolute right, power
and capacity to issue all Restricted Shares to the Bodin Sellers in
accordance with the terms of this Agreement.
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11. CLOSING DATE
The Closing Date shall occur five business days from the date of all
parties' signatures hereof.
12. GENERAL PROVISIONS
12.1 CONSULTANCY AGREEMENT BENGT BODIN
DRI and Bengt Bodin will enter into a separate Consultancy Agreement, the
said agreement to enter into effect on the Closing Date.
12.2 DRI LIABILITY
DRI shall be jointly and severally liable with the Purchaser with regard
to the fulfilment of any liability of the Purchaser under this
Agreement--including the liability to pay the Promissory Notes.--If the
Purchaser has not fulfilled such liability within 14 days from the date
the liability becomes due DRI shall upon the Sellers' request fulfil such
liability including interest for delayed payment, if any.
12.3 POWER OF ATTORNEY
12.3.1 Each Seller undertakes to issue on the Closing Date all necessary Powers
of Attorney and other documents requested by the Purchaser to the
Purchaser or its nominees to represent the Company and any Subsidiary
until the new Board of Directors has been registered.
12.3.2 Further each of Mattias Bodin and Tobias Bodin shall on the Closing Date
issue a Power of Attorney to Bengt Bodin to represent their DRI shares
during a period of 36 months from the Closing Date.
12.4 NOTICES
Any notice to be provided under this Agreement shall be in the English
language and deemed valid and effective if sent by courier or registered
mail or telefax to the following addresses:
If to Bengt Bodin: Bengt Bodin
La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France
Fax: +33 493 775 186
If to Annacarin Bodin: Annacarin Bodin
La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France
Fax: + 33 493 775 186
If to Mattias Bodin: Mattias Bodin
Parkgatan 10
SE-112 30 STOCKHOLM, Sweden
If to Tobias Bodin: Tobias Bodin
Ovre Husargatan 23 A
SE-413 14 GOTEBORG, Sweden
If to Bertil Bertil Lindqvist
Lindqvist: Nybrogatan 45 B,
SE-114 39 STOCKHOLM, Sweden
Fax: +46 8661 8126
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If to the Purchaser DRI Europa AB
c/o Mannheimer Swartling
Advokatbyra AB
Box 2235
SE-403 14 GOTEBORG, Sweden
Fax: +46 31 10 96 01
If to DRI Digital Recorders, Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
DALLAS, TX 75225
The communications will be considered having reached the addressees:
(i) if sent by courier -- on delivery
(ii) if sent by registered mail -- seven days from the date of dispatch
(iii) if sent by telefax -- on the day of recipient confirms
receipt
Each Seller and the Purchaser shall be obliged to send a communication to
the other parties in accordance with this sub-section 12.4 notifying any
changes in the relevant details set out herein, which details shall then
be deemed to have been amended accordingly.
12.5 CONSULTATION WITH DRI
Bengt Bodin, Mattias Bodin and Tobias Bodin undertake for a period of
36 months from the Closing Date to consult with DRI prior to any sale of
any of their shares of DRI.
12.6 CONFIDENTIALITY
Subject to sub-section 8.6 the parties agree not to disclose in whole or
in part any of the contents of this Agreement to any third party, unless
required by law.
12.7 COSTS
Each party agrees to carry his own fees and costs (including brokers',
finders' and attorney's fees) relating to this Agreement and the
consummation of the transactions hereunder.
12.8 ASSIGNMENT
None of the parties shall have the right to assign this Agreement partly
or wholly without the prior written consent of the other parties.
12.9 EXHAUSTIVE CONTRACT DOCUMENT
This Agreement sets forth exhaustively all terms and conditions related to
the transfer of the Shares and supersedes all prior agreements between the
Sellers and the Purchaser with respect to the subject matter hereof.
12.10 AMENDMENTS
No amendment to this Agreement shall be effective unless made in writing
and signed by authorised representatives of each Seller and the Purchaser.
12.11 WAIVER
The failure of any of the parties hereto to insist upon strict adherence
to any provision of this Agreement on any occasion shall not be considered
as a waiver of any right hereunder, nor shall it deprive that party of the
right thereafter to insist upon strict adherence to that provision or any
other provision of this Agreement.
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12.12 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
12.13 ARBITRATION
Any dispute arising out of or in connection with this Agreement shall be
exclusively settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce
(the"Institute"). The arbitral tribunal shall be composed of three
(3) arbitrators. The place of arbitration shall be Gothenburg, Sweden. The
arbitration proceedings shall be conducted in the English language.
Each party shall nominate one arbitrator and the Institute shall nominate
the third arbitrator, who shall be the Chairman. If arbitration is
initiated by more than one claimant simultaneously and/or against one or
more respondents, each side shall jointly appoint an arbitrator. If the
respondent has not (or, if there are more respondents than one, the
respondents have not jointly) within 30 days after receipt of a request
for arbitration, appointed an arbitrator, such arbitrator shall upon
request of any claimant be appointed by the Institute. If the provision
related to the appointment of the arbitrators is held by any court of
competent jurisdiction or arbitrators to be illegal, void or unenforceable
the illegality, voidness or unenforceability of such provision shall have
no effect upon and shall not impair the enforceability of any other
provisions of this sub-section 12.13. The parties agree that the Institute
in such case shall appoint all three arbitrators.
Any dispute arising at any time between the parties shall be referred to
one single arbitration tribunal, unless (i) the arbitration tribunal
considers it inappropriate having regard to the point of time at which the
request for arbitration is made, or (ii) one or more of the arbitrators
declares that he or they do not accept to serve as arbitrators in a
dispute other than the actual dispute for which such arbitrator(s) was
appointed.
The rules regarding joinder of claims in Chapter 14 of the Code of
Judicial Procedure (Sw. Rattegangsbalken) shall be applied by the arbitral
tribunal to the extent so is appropriate and accepted by the arbitrators.
The voting rules in the Code of Judicial Procedure shall be applied by the
arbitral tribunal.
I-28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in six
copies as of the day and year first above written.
------------------------
DRI EUROPA AB
- --------------------------------------- ---------------------------------------
Bengt Bodin
DIGITAL RECORDERS, INC.
- ---------------------------------------
Annacarin Bodin
- --------------------------------------- ---------------------------------------
Mattias Bodin
- ---------------------------------------
Tobias Bodin
- ---------------------------------------
Bertil Lindqvist
I-29
APPENDIX II
AMENDED OPTION AGREEMENT
This Amended Option Agreement (the "Agreement") is made as of March 2001, by
and between
Bengt Bodin, and individual resident at La Piniere, Cidec 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Annacarin Bodin, an individual resident at La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Mattias Bodin, an individual resident at Parkgatan 10, SE-112 30 Stockholm,
Sweden;
Tobias Bodin, an individual resident at Ovre Husargatan 23 A, SE 413 14
Gothenburg, Sweden; and
Bertil Lindqvist, an individual resident at Nybrogatan 45 B, 114 39
Stockholm.
(Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil Lindqvist
are hereinafter collectively referred to as the "Offerors".)
and
DRI Europa AB, a Swedish corporation, incorporated under the laws of Sweden,
having its principal office in Gothenburg, ("DRI Europa") and
Digital Recorders, Inc., a company duly incorporated and organized under the
laws of the state of North Carolina, USA, having its principal office at Durham,
North Carolina ("DRI Inc.").
PREAMBLES
A. The Offerors are at the date hereof the owners of the shares (the "Shares")
of Mobitec Holding AB, a Swedish corporation, registration number
556546-6793 (the "Company"). The ownership of the Shares is, at the date
hereof as follows:
Bengt Bodin................................................. 51.900 shares
Annacarin Bodin............................................. 20.400 shares
Mattias Bodin............................................... 9.100 shares
Tobias Bodin................................................ 9.100 shares
Bertil Lindqvist............................................ 9.500 shares
TOTAL....................................................... 100.000 shares
B. The Company is the parent company of a group of companies engaged in
developing, manufacturing, marketing and selling information systems for
public transport vehicles.
C. In accordance with an Option Agreement dated 7 December 2000 (the Option
Agreement) the Offerors have given DRI Europa as well as DRI Inc. and DRI
Europa jointly--as set forth in section 1 thereof - options to purchase the
Shares on the terms and conditions set forth in the stock purchase agreement
attached thereto as Appendix A (the "Stock Purchase Agreement").
The parties to the Option Agreement have agreed to extend the option period
set forth in section 2 thereof on the terms and conditions set forth in this
Amended Option Agreement, this Amended Option Agreement thereby replacing
the Option Agreement.
II-1
D. Taking into consideration what has been set forth above, the Offerors and DRI
Europa and DRI Inc., intending to be legally bound, agree as follows:
------------------------
The terms appearing in this Amended Option Agreement having been defined in
section 1 of the Stock Purchase Agreement shall have the same meaning as in the
Stock Purchase Agreement unless the context requires otherwise. All references
in the Share Purchase Agreement to the Option Agreement shall be deemed to refer
to this Amended Option Agreement.
1. OPTION
1.1 OPTION A
The Offerors hereby grant to DRI Europa the irrevocable right of option to
purchase from the Offerors the Shares on the terms and conditions set forth in
the Stock Purchase Agreement.
1.2 OPTION B
The Offerors hereby grant to DRI Europa and DRI Inc. the irrevocable right of
option to purchase from the Offerors the Shares on the terms and conditions set
forth in the Stock Purchase Agreement.
The individual Shares to be sold by each Offeror to DRI Europa and DRI Inc. as a
result of the exercise of Option B appears from APPENDIX B hereto.
The modifications of the Stock Purchase Agreement to be made as a result of the
exercise of Option B are set forth in APPENDIX C hereto.
2. OPTION PERIOD
Option A and Option B shall have effect during the period as from the effective
date of this Amended Option Agreement up to and including 16 June 2001 (the
Option Period). The parties will work diligently and cooperate with each other
during the Option Period to produce all documents, disclosures, and other
relevant requests for submission to the SEC and to facilitate timely completion
of the transactions contemplated herein.
3. EXERCISE OF OPTIONS
3.1 Based upon the Sellers' representation of the structure of Option B and
the availability of group contribution (koncernbidrag) implied therein to
DRI Europa as set forth in APPENDIX D hereto DRI Inc. and DRI Europa --
in the event they wish to exercise their option rights hereunder -- will
exercise OptionB and thereby undertake not to transfer the Shares or to
cause any other changes in respect of their shareholding in the Company
prior to the expiry of year 2001.
If group contribution is not available to DRI Europa as aforesaid DRI
Europa -- in the event it wishes to exercise its option rights hereunder
-- will exercise Option A.
3.2 In order to exercise any of Option A or Option B DRI Europa and DRI Inc.
or DRI Europa, as the case may be, shall give notice in writing during
the Option Period to any of the Offerors to that effect, such notice to
include whether Option A or Option B is exercised.
With respect to the Bodin Sellers notice hereunder shall be made to Bengt
Bodin who is hereby by the other Bodin Sellers irrevocably authorized to
receive such notice on their behalf.
In the event that such notice is not given within the Option Period this
Amended Option Agreement shall become null and void.
II-2
3.3 In the event that Option A is exercised the Stock Purchase Agreement
shall apply without any modifications.
In the event that Option B is exercised the Stock Purchase Agreement shall
be modified in accordance with APPENDIX B AND C hereto.
3.4 In the event that any of Option A or Option B is exercised the parties
shall within five business days from the date of exercise sign the Stock
Purchase Agreement and in case of exercise of Option B also modify the
same in accordance with APPENDIX B AND C hereto.
4. COVENANTS
4.1 Each of the Offerors undertakes during the Option Period not to sell,
pledge or in any other way dispose of any of the Shares to any other
party than DRI Europa or DRI Inc. and DRI Europa jointly.
4.2 From the date hereof and until the date of exercise of any of the option
rights hereunder, no contract or commitment shall be entered into by or
on behalf of the Company or any Subsidiary extending beyond the date of
exercise of any of the option rights, except for contracts or commitments
made in the ordinary course of business. Moreover, neither the Company
nor any Subsidiary shall borrow any additional funds from banks or other
external sources other than as required in the ordinary course of
business.
5. JOINT LIABILITY
Each one of the Offerors guarantees, as for his own debt, the due and timely
fulfilment by the other Offerors of all obligations under this Agreement.
6. MODIFICATIONS OF THE STOCK PURCHASE AGREEMENT
The parties hereto agree to make the following modifications of the Stock
Purchase Agreement.
6.1 Sub-section 1.6 shall read: "Closing Financial Statement shall mean the
audited profit and loss accounts and the balance sheets of the Company
and each Subsidiary as well as of the Group on a consolidated basis for
the period 1 January - 31 March 2001".
6.2 Sub-section 1.9 shall read: "Consolidated Financial Statements shall mean
the audited consolidated annual reports for the Group for the financial
years 1998, 1999 and 2000, APPENDIX 1.9 a)-c) hereto".
6.3 Sub-section 1.14 shall read: "Financial Statements shall mean the audited
annual reports of the Company and each Subsidiary for the financial years
1998, 1999 and 2000, APPENDIX 1.14 a)-c) hereto".
6.4 Sub-section 3.2.2.2 shall be amended as follows:
"...however, not earlier than 10 February 2001" shall be deleted.
6.5 Sub-section 7.6 shall be amended as follows:
The following shall be added at the end of this provision:
"...and except for a dividend of SEK 500.000 the said dividend to be taken
into account in adjusting the Preliminary Purchase Price into the Final
Purchase Price".
6.6 Sub-section 8.8 shall be amended as follows:
The following shall be added at the end of this provision:
II-3
"...except for the dividend of SEK 500.000 mentioned in sub-section 7.6
above".
6.7 The reference in sub-section 8.10 second paragraph to "Closing Financial
Statement" shall be replaced by "the Annual Report for the financial year
2000".
7. INTEREST TO THE OFFERORS
The amounts of SEK 5.700.000 and USD 3.680.000 set forth in sub-section 3.1 and
sub-section 3.2.1.2 respectively of the Stock Purchase Agreement as well as the
Promissory Notes in the total amount of USD 2.000.000 set forth in sub-section
3.2.1.4 of the Stock Purchase Agreement shall accrue annual interest at the rate
of eight per cent as from 16 March 2001 up to and including the Closing Date.
The said interest shall be paid in cash to the Offerors on the Closing Date to
each of them in proportion to their portion of the amounts SEK 5.700.000 and USD
3.680.000 respectively.
In the event that the option is not exercised within the Option Period for
reasons not attributable to the Offerors the aforesaid interest shall still be
paid and shall be calculated for the period 16 March -- 16 June 2001. The
payment thereof in such event to be made in cash on 16 June 2001.
8. PAYMENT TO BENGT BODIN
The Company shall pay to Bengt Bodin a monthly salary amount of SEK 54.075 or
any fraction thereof for any Part of a month as from 1 January 2001 up to and
including the Closing Date.
The aforesaid amounts shall be taken into account in adjusting the Preliminary
Purchase Price into the Final Purchase Price.
The Sellers shall not be deemed to be in default of sub-sections 7.39, 7.44 and
7.45 as a result of these payments.
9. PATENT MATTERS
The Offerors represent to DRI Inc. and DRI Europa that in their opinion the
patent infringement claims related to Polish patent number 177 576 are
substantially without merit and not outside of normal course of business.
Based upon the Offeror's aforesaid representation DRI Inc. and DRI Europa are
proceeding with the Amended Option Agreement, it being understood that DRI Inc.
and DRI Europa preliminarily concur with the Offerors' representation, subject
to complete review by patent counsel of DRI Inc. and DRI Europa at its own
expense.
10. NOTICES
Any notice to be provided under this Amended Option Agreement shall be in the
English language and deemed valid and effective if sent by courier or registered
mail or telefax to the following addresses:
If to Bengt Bodin: Bengt Bodin
La Piniere, Cidex 206, R.D. 2085
FR-06330 Roquefort les Pins,
France
Fax +33-493 775 186
II-4
If to Annacarin Bodin: Annacarin Bodin
La Piniere, Cidex 206, R.D. 2085
FR-06330 Roquefort les Pins,
France
Fax +33-493 775 186
If to Mattias Bodin: Mattias Bodin
Parkgatan 10
SE-112 30 STOCKHOLM
Sweden
If to Tobias Bodin: Tobias Bodin
Ovre Husargatan 23 A
SE-413 14 GOTEBORG
Sweden
If to Bertil Lindqvist: Bertil Lindqvist
Nybrogatan 45 B
114 39 STOCKHOLM
Sweden
Fax +46-8 661 81 26
If to DRI Europa AB: DRI Europa AB
c/o Mannheimer Swartling
Box 2235
403 14 GOTHENBURG
Sweden
Fax +46 31 10 96 01
If to Digital Recorders Inc.: Digital Recorders Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
Dallas, TX 75225 USA
Fax +1 214 378 8437
With copies to: David Furr
Gray, Layton, Kersh, Solomon, Sigmon, Furr &
Smith, P.A.
P.O. Box 2636
Gastonia, NC 28053 USA
Fax +1 704 866 8010
Hans-Elof Olsson
Mannheimer Swartling
Box 2235
403 14 GOTHENBURG
Sweden
Fax +46 31 10 96 01
The communications will be considered having reached the addressees:
(i) if sent by courier - on delivery
(ii) if sent by registered mail - seven days from the date of dispatch
(iii) if sent by telefax - on the day the recipient confirms receipt
II-5
Each Offeror and DRI Europa and DRI Inc. shall be obliged to send a
communication to the other parties in accordance with this section 10 notifying
any changes in the relevant details set out herein, which details shall then be
deemed to have been amended accordingly.
11. CONFIDENTIALITY
11.1 No announcement concerning the transaction contemplated by this Amended
Option Agreement or any matter ancillary thereto shall be made by either
party hereto without the written consent of the other party, provided
that nothing herein shall prevent either party from making, in
consultation with the other party, any announcement or filing required by
law, regulations or by the rules and regulations of any stock exchange on
which it is listed including any announcement or filing in connection
with the filing under the SEC regulations of shareholders' vote and
proxies thereto.
11.2 Subject to sub-section 11.1 above, the parties agree not to disclose in
whole or in part any of the contents of this Amended Option Agreement to
any third party, unless required by law.
12. EFFECTIVE DATE
This Amended Option Agreement shall enter into effect on the date it has been
signed by all Offerors, DRI Europa and DRI Inc.
The Option Agreement shall cease to have effect on the date this Amended Option
Agreement enters into effect.
13. ASSIGNMENT
None of the parties shall have the right to assign this Amended Option Agreement
partly or wholly without the prior written consent of the other parties.
14. EXHAUSTIVE CONTRACT DOCUMENT
This Amended Option Agreement sets forth exhaustively all terms and conditions
related to the option rights hereunder and supersedes all prior agreements
including the Option Agreement between the Offerors and DRI Europa and DRI Inc.
with respect to the subject matter hereof.
15. AMENDMENTS
No amendment to this Amended Option Agreement shall be effective unless made in
writing and signed by authorised representatives of each Offeror and DRI Europa
and DRI Inc.
16. GOVERNING LAW
This Amended Option Agreement shall be governed by and construed in accordance
with the laws of Sweden.
17. ARBITRATION
Any dispute arising out of or in connection with this Amended Option Agreement
shall be exclusively settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce (the "Institute").
The arbitral tribunal shall be composed of three (3) arbitrators. The place of
arbitration shall be Gothenburg, Sweden. The arbitration proceedings shall be
conducted in the English language.
Each party shall nominate one arbitrator and the Institute shall nominate the
third arbitrator, who shall be the Chairman. If arbitration is initiated by more
than one claimant simultaneously and/or against
II-6
one or more respondents, each side shall jointly appoint an arbitrator. If the
respondent has not (or, if there are more respondents than one, the respondents
have not jointly) within 30 days after receipt of a request for arbitration,
appointed an arbitrator, such arbitrator shall upon request of any claimant be
appointed by the Institute. If the provision related to the appointment of the
arbitrator is held by any court of competent jurisdiction or arbitrators to be
illegal, void or unenforceable the illegality, voidness or unenforceability of
such provision shall have no effect upon and shall not impair the enforceability
of any other provisions of this section 10. The parties agree that the Institute
in such case shall appoint all three arbitrators.
Any dispute arising at any time between the parties shall be referred to one
single arbitration tribunal, unless (i) the arbitration tribunal considers it
inappropriate having regard to the point of time at which the request for
arbitration is made, or (ii) one or more of the arbitrators declares that he or
they do not accept to serve as arbitrators in a dispute other than the actual
dispute for which such arbitrator(s) was appointed.
The rules regarding joinder of claims in Chapter 14 of the Code of Judicial
Procedure (Sw: Rattegangsbalken) shall be applied by the arbitral tribunal to
the extent so is appropriate and accepted by the arbitrators. The voting rules
in the Code of Judicial Procedure shall be applied by the arbitral tribunal.
------------------------
II-7
IN WITNESS WHEREOF, the parties hereto have executed this Amended Option
Agreement in six copies as of the day and year first above written.
----------------------------------------- -----------------------------------------
Bengt Bodin DRI Europa AB
----------------------------------------- -----------------------------------------
Annacarin Bodin Digital Recorders Inc.
-----------------------------------------
Mattias Bodin
-----------------------------------------
Tobias Bodin
-----------------------------------------
Bertil Lindqvist
II-8
APPENDIX III
BODIN WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of December , 2000, by and between BENGT
BODIN, a resident of Nice, France (the "Warrantee"), on the one hand, and
DIGITAL RECORDERS, INC., a North Carolina corporation ("DRI") on the other.
WHEREAS, the Warrantee and DRI have agreed to a form of a Promissory Note
(the "Promissory Note") to be made effective on the Closing Date of the Stock
Purchase Agreement (the "Purchase Agreement" or the "Stock Purchase Agreement")
(capitalized terms herein shall be consistent with those found in the Purchase
Agreement) pursuant to which, among other things, the Warrantee is to receive
the right (the "Warrant") to purchase up to 100,000 shares of Common Stock, par
value $.10 per share (the "Warrant Shares") of DRI pursuant to the terms of this
warrant agreement, subject to all the terms and conditions of the Registration
Rights Agreement dated as of the date hereof by and among DRI, Bengt Bodin,
Annacarin Bodin, Mattias Bodin and Tobias Bodin; and
WHEREAS, this warrant agreement (the "Bodin Warrant Agreement") constitutes
the warrant agreement described in the Purchase Agreement;
NOW, THEREFORE, in consideration of the agreements set forth below, the
parties hereto agree as follows:
1. THE WARRANT. Subject to the terms and conditions hereof, the
Warrantee is hereby granted the Warrant, at any time or from time to time
commencing on the date of this Bodin Warrant Agreement and at or before
5:00 P.M., Eastern Time, on January , 2006 (such five-year period
hereinafter the "Warrant Exercise Period"), but not thereafter, to subscribe
for and purchase any or all of the Warrant Shares for a price of $4.00 per
Warrant Share purchased (the "Warrant Exercise Price"). If the rights
represented hereby shall not be exercised during the Warrant Exercise
Period, this Warrant shall become and be void without further force or
effect, and all rights represented hereby shall cease and expire.
2. EXERCISE OF WARRANT. During the Warrant Exercise Period, the
Warrantee may exercise this Warrant upon presentation and surrender of this
Warrant and upon payment of the Warrant Exercise Price for the Warrant
Shares to be purchased or by notice of non-cash exercise as provided in
Section 15 herein below to DRI at the principal office of DRI. Upon exercise
of this Warrant, the form of election hereinafter provided must be duly
executed and delivered to DRI. If this Warrant is exercised in part, the
Warrantee shall be required to exercise this Warrant with respect to a
minimum of 25,000 shares of Common Stock upon each such exercise in part. In
the event of the exercise of this Warrant in part only, DRI shall cause to
be delivered to the Warrantee a new Warrant of like tenor to this Warrant in
the name of the Warrantee evidencing the right of the Warrantee to purchase
the number of Warrant Shares purchasable hereunder as to which this Warrant
has not been exercised. On exercise of this Warrant, unless (i) DRI receives
an opinion from counsel satisfactory to it that such a legend is not
required in order to assure compliance with the Securities Act of 1933, as
amended (the "1933 Act"), or any applicable state securities laws, or
(ii) the Warrant Shares are registered under the 1933 Act, each certificate
for Warrant Shares issued hereunder shall bear a legend reading
substantially as follows:
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
Warrantee, an exemption from registration thereunder is available, the
availability of which must be established to the satisfaction of DRI.
III-1
The foregoing legend may be removed with respect to any Warrant Shares
sold upon registration or sold pursuant to an exemption from registration,
including the exemption for sales made in accordance with Rule 144
promulgated under the 1933 Act; provided DRI receives an opinion from
counsel satisfactory to it that such legend may be removed; and provided
further that such legend shall be removed from the certificates representing
the Warrant Shares upon registration thereof pursuant to the Registration
Rights Agreement but in no event later than one year from the date hereof.
3. ASSIGNMENT.
Subject to the terms contained herein, this Warrant may be assigned by
the Warrantee in whole or in part by execution by the Warrantee of the form
of assignment attached hereto, in the sole discretion of the Warrantee, to a
"Permitted Assignee" as defined below, or with the prior written consent of
DRI, to any other party. In the event of any permitted assignment, DRI, upon
request and upon surrender of this Warrant by the Warrantee at the principal
office of DRI accompanied by payment of all transfer taxes, if any, payable
in connection therewith, shall transfer this Warrant on the books of DRI. If
the permitted assignment is in whole, DRI shall execute and deliver a new
Warrant or Warrants of like tenor to this Warrant to the appropriate
assignee expressly evidencing the right to purchase the aggregate number of
Warrant Shares purchasable hereunder; and if the permitted assignment is in
part, DRI shall execute and deliver to the appropriate assignee a new
Warrant or Warrants of like tenor expressly evidencing the right to purchase
the portion of the aggregate number of Warrant Shares as shall be
contemplated by any such permitted assignment, and shall concurrently
execute and deliver to the Warrantee a new Warrant of like tenor to this
Warrant evidencing the right to purchase the remaining portion of the
Warrant Shares purchasable hereunder which have not been transferred to the
Permitted Assignee. For purposes of this Agreement, a "Permitted Assignee"
shall mean (a) if the Warrantee or successor holder (collectively, a
"Holder") is an individual, any (i) descendant or ancestor of the Holder,
(ii) trust for the benefit of the Holder, descendant or ancestor,
(iii) beneficiary of any such trust or any descendant or ancestor of any
such beneficiary, (iv) trust or entity in which the Holder or beneficiary or
any descendant or ancestor of the Holder or beneficiary, trust or other
entity shall have any interest, (v) any of the foregoing, or any entity in
which any of the foregoing, or any trust for any foregoing Holder or
beneficiary, holds, directly or indirectly, or in trust, at least fifty
percent (50%) of the aggregate voting power and (vi) any immediate relative
or spouse of any such foregoing person (including the Holder) or persons;
and (b) if the Holder is an entity, any (i) subsidiary or affiliate of the
Holder, (ii) corporation, partnership, limited liability company or other
entity that may be organized by the Holder, or by its owners, as a separate
business unit in connection with the business activity of the Holder or of
its owners and (iii) corporation, partnership or other entity resulting from
the reorganization, merger or consolidation of the Holder with any other
corporation, partnership or other entity or to which all or substantially
all of the Holder's business or assets may be sold, assigned or transferred.
4. NOTICE. The Warrantee, by acceptance hereof, agrees that, before
any transfer is made of all or any portion of this Warrant, the Warrantee
shall give written notice to DRI at least fifteen (15) days prior to the
date of such proposed transfer, which notice shall specify the identity,
address and affiliation, if any, of such transferee. No such transfer shall
be made unless and until DRI has received an opinion of counsel for DRI or
for the Warrantee stating that no registration under the 1933 Act or any
state securities law is required with respect to such disposition or a
registration statement has been filed by DRI and declared effective by the
Securities and Exchange Commission covering such proposed transfer and the
Warrant has been registered under appropriate state securities laws.
III-2
5. SHARE DIVIDENDS, RECLASSIFICATION, REORGANIZATION PROVISIONS.
(a) If, prior to the expiration of this Warrant by exercise or by its
terms, DRI shall issue any of its Common Stock as a share dividend or
subdivide the number of outstanding shares of Common Stock into a greater
number of shares then, in either of such cases, the Warrant Exercise Price
per share purchasable pursuant to this Warrant in effect at the time of such
action shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant shall be proportionately increased; and
conversely, if DRI shall reduce the number of outstanding shares of Common
Stock by combining such shares into a smaller number of shares then, in such
case, the Warrant Exercise Price per share purchasable pursuant to this
Warrant in effect at the time of such action shall be proportionately
increased and the number of Warrant Shares at that time purchasable pursuant
to this Warrant shall be proportionately decreased. If DRI shall, at any
time during the life of this Warrant, declare a dividend payable in cash on
its Common Stock and shall at substantially the same time offer to its
shareholders a right to purchase new Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all Common
Stock so issued shall, for the purpose of this Warrant, be deemed to have
been issued as a share dividend. Any dividend paid or distributed upon
Common Stock in shares of any other class of securities convertible into
Common Stock shall be treated as a dividend paid in Common Stock to the
extent that Common Stock is issuable upon the conversion thereof.
(b) If, prior to the expiration of this Warrant by exercise or by its
terms, DRI shall be recapitalized by reclassifying its outstanding Common
Stock, or DRI or a successor corporation shall consolidate or merge with or
convey all or substantially all of its or any successor corporation's
property and assets to any other corporation or corporations (any such
corporation being included within the meaning of the term "successor
corporation" used above in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the
property of any such corporation, to another corporation or corporations),
the Warrantee shall thereafter have the right to purchase, upon the basis
and upon the terms and conditions and during the time specified in this
Warrant, in lieu of the Warrant Shares theretofore purchasable upon the
exercise of this Warrant, such shares, securities or assets as may be issued
or payable with respect to, or in exchange for, the number of Warrant Shares
theretofore purchasable upon the exercise of this Warrant had such
recapitalization, consolidation, merger or conveyance not taken place and,
in any such event, the rights of the Warrantee to an adjustment in the
number of Warrant Shares purchasable upon the exercise upon this Warrant as
herein provided shall continue and be preserved in respect of any shares,
securities or assets which the Warrantee becomes entitled to purchase.
(c) If: (i) DRI shall take a record of holders of its Common Stock for
the purpose of entitling them to receive a dividend payable otherwise than
in cash, or any other distribution in respect of the Common Stock (including
cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of DRI's assets; or (ii) DRI shall take a record of the holders
of its Common Stock for the purpose of entitling them to subscribe for or
purchase any shares of any class or to receive any other rights; or
(iii) in the event of any classification, reclassification or other
reorganization of the securities which DRI is authorized to issue,
consolidation or merger by DRI with or into another corporation, or
conveyance of all or substantially all of the assets of DRI; or (iv) in the
event of any voluntary or involuntary dissolution, liquidation or winding up
of DRI; then, and in any such case, DRI shall mail to the Warrantee, at
least 15 days prior thereto, a notice stating the date or expected date on
which a record is to be taken for the purpose of such dividend, distribution
or rights, or the date on which such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation
or winding up, as the case may be, will be effected. Such notice shall also
specify the date or expected date, if any is to be fixed, as to which
holders of Common Stock of record shall be entitled to participate in such
dividend,
III-3
distribution or rights, or shall be entitled to exchange their Common Stock
or securities or other property deliverable upon such classification,
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up, as the case may be.
(d) If DRI, at any time while this Warrant shall remain unexpired and
unexercised in whole or in part, shall sell all or substantially all of its
property, dissolve, liquidate or wind up its affairs, the Warrantee may
thereafter receive upon exercise hereof, in lieu of each Warrant Share which
it would have been entitled to receive, the same kind and amount of any
securities or assets as may be issuable, distributable or payable upon any
such sale, dissolution, liquidation or winding up with respect to each share
of Common Stock of DRI purchased upon exercise of this Warrant.
6. RESERVATION OF SHARES ISSUABLE ON EXERCISE OF WARRANT. At all times
during the Warrant Exercise Period, DRI will reserve and keep available out
of its authorized Common Stock, solely for issuance upon the exercise of
this Warrant, such number of shares of Common Stock and other securities as
from time to time may be issuable upon exercise of this Warrant. All Shares
that may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be validly issued, fully paid, non-assessable,
and free from all taxes, liens and charges with respect to the issue
thereof, issued in compliance with all applicable federal and state
securities laws.
7. REQUEST TO TRANSFER AGENT. On exercise of all or any portion of
this Warrant, DRI shall, within ten days of the receipt of good and clean
funds (or receipt of notice of Warrantee's election pursuant to Section 15
below) for the purchase of any or all of the Warrant Shares, advise its
Transfer Agent and Registrar of the required issuance of the number of
Warrant Shares and the names in which such Warrant Shares are to be
registered pursuant to the exercise form attached hereto. DRI shall also
execute and deliver any and all such further documents as may be requested
by the Transfer Agent and Registrar for the purpose of effecting the
issuance of Warrant Shares upon payment therefor by the Warrantee or any
assignee.
8. LOSS THEFT DESTRUCTION OR MUTILATION. Upon receipt by DRI of
evidence satisfactory to it (in the exercise of its reasonable discretion)
of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and the purchase by the Warrantee of a lost security bond (or, if
acceptable to DRI, the provision of a satisfactory indemnity from the
Warrantee) in an amount equal to or exceeding the total value of the Warrant
Shares to be purchased hereunder, DRI will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
9. WARRANTEE NOT A SHAREHOLDER. The Warrantee or any other holder of
this Warrant shall, as such, not be entitled by reason of ownership of this
Warrant to any rights whatsoever of a shareholder of DRI until this Warrant
shall have been exercised and the Warrant Shares purchasable upon the
exercise shall have become deliverable, as provided herein.
10. TRANSFER TAXES. DRI will pay all stamp taxes and other duties, if
any, to which, under the laws of the United States of America or any State
or political subdivision thereof, this Agreement or the original issuance of
this Warrant may be subject. The issuance of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to
Warrantee for any issuance tax in respect hereof, provided that DRI shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of this Warrant. The Warrantee or its
assignee(s) will pay all taxes in respect of the transfer of this Warrant or
the Warrant Shares issuable upon exercise hereof.
11. MAILING OF NOTICE. All notices and other communications from DRI
to the Warrantee or from the Warrantee to DRI shall be mailed by first
class, certified mail, postage prepaid, or sent by receipt confirmed
facsimile transmission, to the address furnished to each party in writing by
the other party.
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12. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. With
respect to any fraction of a share called for upon the exercise hereof, DRI
shall issue to the Warrantee at no extra cost another whole share for any
fraction which is one-half or greater, and the Warrantee shall forfeit the
fractional share that is less than one-half of a share.
13. COMMON STOCK DEFINED. Whenever reference is made in this Warrant
to the issue or sale of Common Stock, the term "Common Stock" shall mean the
voting Common Stock of DRI of the class authorized as of the date hereof and
any other class of stock ranking on a parity with such Common Stock.
14. REDUCTION IN NUMBER OF WARRANTS. The Warrantee and DRI acknowledge
their execution of a Promissory Note pursuant to a Stock Purchase Agreement
("Stock Purchase Agreement") between the parties which provides, among other
things, for certain offset rights by DRI against the Promissory Note
pursuant to the indemnification provisions set forth in the Stock Purchase
Agreement. To the extent the parties agree to an offset or reduction in the
Promissory Note pursuant to said provisions, the number of warrants granted
hereunder shall be proratably reduced.
15. NON-CASH EXERCISE.
(a) Warrantee shall be permitted at his election, in lieu of payment in
cash, to offset and reduce any part or all of the aggregate Warrant Exercise
Price payable under Section 2 by the sum, to the extent thereof on the date
of exercise, of (i) the unpaid principal amount of the Promissory Note plus
(ii) accrued and unpaid interest thereon. An election pursuant to this
Section 15(a) shall be made by a written notice of exercise in the form
attached hereto specifying the amount of such principal and interest to be
applied to the Warrant Exercise Price of the Warrant Shares to be purchased.
(b) In lieu of payment in cash, the rights represented by this Warrant
may also be exercised by a written notice of exercise in the form attached
hereto specifying that the holder of this Warrant wishes to convert all or
any portion of this Warrant (the "Conversion Right") into a number of Shares
equal to the quotient obtained by dividing (x) the current market value of
the Warrant Shares subject to the portion of this Warrant being exercised
(determined by subtracting the aggregate Warrant Exercise Price for all such
Warrant Shares in effect immediately prior to the exercise of the Conversion
Right from the aggregate current or closing market price of such Shares
issuable upon exercise of such portion of this Warrant immediately prior to
the exercise of the Conversion Right) by (y) the current or closing market
price (as defined below) of one share of Common Stock immediately prior to
the exercise of the Conversion Right. For the purpose of any computation
under this Section 15(b), the current or closing market price per share of
Common Stock at any date shall be deemed to be the average of the daily
closing prices for five (5) consecutive trading days commencing ten
(10) trading days before the date of such computation. The closing price for
each day shall be the last sale price for such day, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the NASDAQ National
Market (or if the Common Stock is not listed on the NASDAQ, then on the
principal United States national securities exchange on which the Common
Stock is listed or quoted. If the Common Stock is not listed or quoted on
any United States national securities exchange, then the current or closing
market price per share of Common Stock shall be determined by the Board of
Directors of DRI in good faith.
16. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of North Carolina.
17. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved
by agreement of the parties, be settled
III-5
by binding arbitration in Raleigh, Wake County, North Carolina, in
accordance with the Rules of the American Arbitration Association then
existing. This Agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law of the State of North Carolina. The
award rendered by the arbitrators shall be final and judgment may be entered
upon the award in any court of the State of North Carolina having
jurisdiction of the matter.
18. BINDING EFFECT. All of the obligations of DRI relating to the
Common Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant and all of the covenants and
agreements of DRI shall inure to the benefit of the successors and assigns
of the Holder.
IN WITNESS WHEREOF, the parties have executed this Bodin Warrant Agreement
on the day and year first above written.
DRI:
DIGITAL RECORDERS, INC.
By
--------------------------------------
Print Name
--------------------------------------------------------------------------
Title
- --------------------------------------------------------------------------------
WARRANTEE:
--------------------------------------
BENGT BODIN
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FORM TO BE USED TO EXERCISE Warrant:
EXERCISE FORM
The undersigned hereby elects irrevocably to exercise the within Warrant and
to purchase (up to a maximum 100,000) shares of Common Stock of
Digital Recorders, Inc., called for hereby, and hereby
[makes payment of $ (at the rate of $4.00 per share) in payment of
the Warrant Exercise Price pursuant hereto in cash or by offset against the
Promissory Note as provided in Section 15(a) of the Warrant as follows:
[elects to purchase shares of Common Stock of Digital
Recorders, Inc. pursuant to non-cash conversion of the Warrant as provided in
Section 15(b) of the Warrant.]
Please issue the shares as to which this Warrant is exercised in accordance
with the instructions given below.
--------------------------------------
Signature
Signature Guaranteed
Date:
- ------------------------------------------------------------
INSTRUCTIONS FOR REGISTRATION OF SHARES:
Register Shares in name of:
- -------------------------------------------
Address:
- ------------------------------------------------------------
(print)
III-7
FORM TO BE USED TO ASSIGN Warrant:
ASSIGNMENT
For value received does hereby sell, assign and transfer unto
the right to purchase shares of Common Stock of Digital
Recorders, Inc., evidenced by the within Warrant, and does hereby irrevocably
constitute and appoint Digital Recorders, Inc. and/or its Transfer Agent as
attorney to transfer the same on the books of Digital Recorders, Inc. with full
power of substitution in the premises.
--------------------------------------
Signature
Signature Guaranteed
Date:
- ------------------------------------------------------------
NOTICE: The signature to the form to exercise or form to assign must correspond
with the name as written upon the face of the within Warrant in every particular
without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank, other than a savings bank, or by a trust company or by a
firm having membership on a registered national securities exchange.
III-8
APPENDIX IV
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (this "AGREEMENT") dated as of
by and among DIGITAL RECORDERS, INC., a North Carolina
corporation (the "COMPANY"), Bengt Bodin, Annacarin Bodin, Mattias Bodin and
Tobias Bodin (together with their respective permitted transferees, the
"Holders").
WHEREAS, it is contemplated under that certain Stock Purchase Agreement by
and among the Company, Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin
and Bertil Lindqvist dated as of the date hereof (as such may be amended from
time to time, the "STOCK PURCHASE AGREEMENT") and that certain Warrant Agreement
dated the date hereof by and between the Company and Bengt Bodin (as such may be
amended form time to time, the "WARRANT AGREEMENT"), that the Company provide
the Holders with the registration rights set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
REQUIRED REGISTRATIONS
1.1 REQUIRED REGISTRATION. Subject to Sections 1.3, and 5.2 hereof, the
Company shall effect registration on a continuous or delayed basis pursuant to
Rule 415 or an equivalent provision promulgated under the Securities Act of
(a) Warrant Shares and Initial SPA Shares on or before the date that is one year
after the date hereof and (b) Remaining SPA Shares on or before the date that is
two years after the date hereof. All registrations pursuant to this Section 1.1
are referred to herein as "REQUIRED REGISTRATIONS."
1.2 EXPENSES. The Company will pay all Registration Expenses in connection
with any Required Registration, including any Registration Statement that is not
deemed to be effected pursuant to the provisions of Section 1.3 hereof.
1.3 EFFECTIVE REGISTRATION STATEMENT. A registration pursuant to
Section 1.1 of this Agreement shall not be deemed to have been effected
(i) unless a Registration Statement with respect thereto has been declared
effective by the Commission, (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason or (iii) the Registration Statement does not remain continuously
effective until termination of the Company's registration obligations pursuant
to Section 5.2 hereof. If a registration pursuant to this Article I is deemed
not to have been effected as provided in this Section 1.3, then the Company
shall continue to be obligated to effect the Required Registrations as set forth
in Section 1.1.
ARTICLE II
REGISTRATION PROCEDURES
Whenever any Registrable Securities are to be registered pursuant to this
Agreement, the Company will use reasonable efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as possible, and pursuant thereto the
Company will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such Registration Statement to become and remain effective until the
completion of the distribution contemplated thereby;
IV-1
PROVIDED, that as promptly as practicable before filing a Registration
Statement or Prospectus or any amendments or supplements thereto, the
Company will (i) furnish to counsel selected by the Holders copies of all
such documents proposed to be filed, and (ii) notify each holder of
Registrable Securities covered by such Registration Statement of (x) any
request by the Commission to amend such Registration Statement or amend or
supplement any Prospectus, or (y) any stop order issued or threatened by the
Commission, and take all reasonable actions required to prevent the entry of
such stop order or to promptly remove it if entered;
(b) (i) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective until all Registrable Securities covered by such Registration
Statement are sold in accordance with the intended plan of distribution set
forth in such Registration Statement, and (ii) comply with the provisions of
the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement;
(c) furnish to each seller of Registrable Securities, without charge,
such number of conformed copies of such Registration Statement, each
amendment and supplement thereto, the Prospectus included in such
Registration Statement (including each preliminary Prospectus and, in each
case including all exhibits) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use all reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions in the United States as any seller thereof shall reasonably
request, to keep such registration or qualification in effect for so long as
such Registration Statement remains in effect and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; PROVIDED, HOWEVER, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this clause (d), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
(e) use all reasonable efforts (if the offering is underwritten) to
furnish to each seller of Registrable Securities a signed copy, addressed to
such seller (and the underwriters, if any) of an opinion of counsel for the
Company or special counsel to the selling stockholders, dated the effective
date of such Registration Statement (and, if such Registration Statement
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), covering substantially the same matters
with respect to such Registration Statement (and the Prospectus included
therein) as are customarily covered in opinions of issuer's counsel
delivered to the underwriters in underwritten public offerings, and such
other legal matters as the seller (or the underwriters, if any) may
reasonably request;
(f) notify each seller of Registrable Securities, at a time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event known to the Company as a result of which
the Prospectus included in such Registration Statement, as then in effect,
contains an untrue statement of a material fact or omits to state any fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made,
and, at the request of any such seller, the Company will prepare and furnish
such seller a reasonable number of copies of a supplement to or an amendment
of such Prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such Registrable Securities, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
IV-2
the statements therein not misleading in the light of the circumstances
under which they were made;
(g) cause all such Registrable Securities to be listed on each
securities exchange and quotation system on which similar securities issued
by the Company are then listed and to enter into such customary agreements
as may be required in furtherance thereof, including, without limitation,
listing applications and indemnification agreements in customary form;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration Statement;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such Registration Statement and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such Registration Statement
to enable them to conduct a reasonable investigation within the meaning of
the Securities Act;
(j) subject to other provisions hereof, use all reasonable efforts to
cause such Registrable Securities covered by such Registration Statement to
be registered with or approved by such other governmental agencies or
authorities or self-regulatory organizations as may be necessary to enable
the sellers thereof to consummate the disposition of such Registrable
Securities; and
(k) promptly notify the holders of the Registrable Securities of the
issuance of any stop order by the Commission or the issuance by any state
securities commission or other regulatory authority of any order suspending
the qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws, and use every
reasonable effort to obtain the lifting at the earliest possible time of any
stop order suspending the effectiveness of any Registration Statement or of
any order preventing or suspending the use of any preliminary Prospectus.
ARTICLE III
REGISTRATION EXPENSES
3.1 REGISTRATION EXPENSES. All Registration Expenses will be borne as
provided in Section 1.2 of this Agreement.
3.2 SELLERS' EXPENSES. The Company shall have no obligation to pay any
underwriting discounts or commissions or stock transfer taxes attributable to
the sale of Registered Securities, which expenses will be borne by all sellers
of securities included in such registration in proportion to the aggregate
selling price of the securities to be so registered.
ARTICLE IV
INDEMNIFICATION
4.1 COMPANY'S INDEMNIFICATION OBLIGATIONS. The Company agrees to indemnify
and hold harmless each of the holders of any Registrable Securities covered by
any Registration Statement referred to herein and each other Person, if any, who
controls such holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively, the "HOLDER INDEMNITEES"):
(i) against any and all loss, liability, claim, damage or expense
arising out of or based upon an untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or any amendment
or supplement thereto), including all documents incorporated therein by
reference, or in any preliminary Prospectus or Prospectus (or any amendment
or
IV-3
supplement thereto) or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense to
the extent of the aggregate amount paid in settlement of any litigation,
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim based upon any such untrue statement or omission
or any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all reasonable expense incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim based upon any such untrue
statement or omission or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under clause (i) or
(ii) above;
PROVIDED, that this indemnity does not apply to any loss, liability, claim,
damage or expense to the extent arising out of an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Holder expressly for use in the preparation of any Registration Statement
(or any amendment or supplement thereto), including all documents incorporated
therein by reference, or in any preliminary Prospectus or Prospectus (or any
amendment or supplement thereto); and PROVIDED FURTHER, that the Company will
not be liable to any holder or any other Holder Indemnitee under the indemnity
agreement in this Section 4.1, with respect to any preliminary Prospectus or the
final Prospectus or the final Prospectus as amended or supplemented, as the case
may be, to the extent that any such loss, liability, claim, damage or expense of
such Holder Indemnitee results from the fact that such holder sold Registrable
Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final Prospectus or of the
final Prospectus as then amended or supplemented, whichever is most recent, if
the Company has previously and timely furnished copies thereof to such holder.
4.2 HOLDER'S INDEMNIFICATION OBLIGATIONS. In connection with any
Registration Statement in which a holder of Registrable Securities is
participating, each such holder agrees to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 4.1 of this
Agreement) the Company and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act with respect to any statement or alleged statement in or omission or alleged
omission from such Registration Statement, any preliminary, final or summary
Prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with information furnished to the Company by or
on behalf of such holder. The obligations of each holder pursuant to this
Section 4.2 are to be several and not joint (however, husband and wife are to be
treated as one holder); PROVIDED, that with respect to each claim pursuant to
this Section 4.2, each such holder's maximum liability under this Section shall
be limited to an amount equal to the net proceeds actually received by such
holder (after deducting any underwriting discount and expenses) from the sale of
Registrable Securities being sold pursuant to such Registration Statement or
Prospectus by such holder.
4.3 NOTICES; DEFENSE; SETTLEMENT. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in Section 4.1 or Section 4.2 of this
Agreement, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; PROVIDED, that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under Section 4.1 or Section 4.2 of this Agreement except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In
IV-4
case any such action is brought against an indemnified party, the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, in
which case the indemnifying party shall not be liable for the fees and expenses
of (i) more than one counsel for all holders of Registrable Securities, selected
by the Holders or (ii) more than one counsel for the Company in connection with
any one action or separate but similar or related actions. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels. The indemnifying party will not, without the prior written consent
of each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any Person who controls such indemnified party is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event, any party will have the right to retain,
at its own expense, counsel with respect to the defense of a claim.
4.4 INDEMNITY PROVISION. The Company and each holder of Registrable
Securities shall provide for the foregoing indemnity (with appropriate
modifications) in any underwriting agreement with respect to any required
registration or other qualification of securities under any Federal or state law
or regulation of any governmental authority other than the Securities Act.
4.5 CONTRIBUTION BASED ON RELATIVE FAULT. Each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Section 4.1 or
Section 4.2 of this Agreement in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand, and the
indemnified party on the other, in connection with statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations, including, without limitation, the
relative benefits received by each party from the offering of the securities
covered by such Registration Statement, the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted and the opportunity to correct and prevent any statement or omission.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statements or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 4.5
were to be determined by pro rata or per capita allocation (even if the
underwriters 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 in the first sentence of this Section 4.5. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 4.5 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim (which shall be
limited as provided in Section 4.3 of this
IV-5
Agreement if the indemnifying party has assumed the defense of any such action
in accordance with the provisions thereof) which is the subject of this
Section 4.5. Promptly after receipt by an indemnified party under this
Section 4.5 of notice of the commencement of any action against such party in
respect of which a claim for contribution may be made against an indemnifying
party under this Section 4.5, such indemnified party shall notify the
indemnifying party in writing of the commencement thereof if the notice
specified in Section 4.3 of this Agreement has not been given with respect to
such action; PROVIDED, that the omission to so notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may
otherwise have to any indemnified party under this Section 4.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. The Company and each holder of Registrable Securities agrees with
each other and the underwriters of the Registrable Securities, if requested by
such underwriters, that (i) the underwriters' portion of such contribution shall
not exceed the underwriting discount and (ii) that the amount of such
contribution shall not exceed an amount equal to the net proceeds actually
received by such indemnifying party from the sale of Registrable Securities in
the offering to which the losses, liabilities, claims, damages or expenses of
the indemnified parties relate. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
4.6 PAYMENTS. The indemnification required by this Article IV shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
ARTICLE V
TRANSFER AND TERMINATION OF REGISTRATION RIGHTS
5.1 TRANSFER OF RIGHTS. Any Holder may transfer his rights to register
such Holder's Registrable Securities hereunder, provided that such rights may
not be transferred (a) to any person or entity who or which is engaged in an
activity or business directly competitive with any activity or business of the
Company or any subsidiary of the Company as presently conducted; or (b) to any
person or entity, other than any Bodin Seller (as defined in the Stock Purchase
Agreement), without the Company's prior written consent which shall not be
unreasonably withheld; and provided further that the proposed transferee enters
into a written agreement with the Company, agreeing to be bound by the terms and
conditions hereof.
5.2 TERMINATION OF RIGHTS. The registration rights of any holder of such
rights hereunder and the registration obligations of the Company hereunder will
terminate on the earliest date at which all Registrable Securities held by such
holder may be sold (a) within a three month period pursuant to the exemption
from registration provided under Rule 144 promulgated under the Securities Act,
or (b) pursuant to the exemption from registration provided under Rule 144(k)
promulgated under the Securities Act.
ARTICLE VI
DEFINITIONS
6.1 TERMS. As used in this Agreement, the following defined terms shall
have the meanings set forth below:
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.10 per share of the
Company, any securities into which such common stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such common stock, and all other securities (other than
IV-6
Preferred Stock) of any class or classes (however designated) of the Company
the holders of which have the right, without limitation as to amount, after
payment on any securities entitled to a preference on dividends or other
distributions upon any dissolution, liquidation or winding up, either to all
or to a share of the balance of payments upon such dissolution, liquidation
or winding up.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute then in effect, and any reference to a
particular section thereof shall include a reference to the equivalent
section, if any, of any such similar Federal statute, and the rules and
regulations thereunder.
"INITIAL SPA SHARES" means (i) 200,000 shares of Common Stock issued or
issuable under the Stock Purchase Agreement (allocated among Annacarin
Bodin, Mattias Bodin and Tobias Bodin in proportion to the total number of
shares of Common Stock issuable to each of them thereunder), and (ii) any
securities issued or issuable with respect to such shares of Common Stock in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"PERSON" means any individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PROSPECTUS" means the prospectus included in any Registration Statement
(including without limitation, a prospectus that disclosed information
previously omitted from a Prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the securities
covered by such Registration Statement, and all other amendments and
supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference
in such prospectus.
"REGISTRABLE SECURITIES" means (i) Initial SPA Shares, Remaining SPA
Shares and Warrant Shares. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been
(x) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (y) transferred
pursuant to Rule 144 (or any similar rule then in force) under the
Securities Act or otherwise transferred and, in each case, new certificates
for them not bearing a restrictive Securities Act legend have been delivered
by the Company and can be sold without complying with the registration
requirements of the Securities Act.
"REGISTRATION EXPENSES" means, with respect to any Required
Registration, all of the reasonable costs and expenses incurred in
connection with such Registration, including reasonable attorney's fees up
to $10,000 for one special counsel to the selling stockholders (the "Special
Counsel"), other than (i) underwriting discounts and commissions;
(ii) transfer taxes; and (iii) all attorney's fees for selling stockholders'
attorneys other than Special Counsel, and all Special Counsel fees in excess
of $10,000.
"REGISTRATION STATEMENT" means any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits
and all material incorporated by reference in such registration statement.
"REMAINING SPA SHARES" means (i) with the exception of Initial SPA
Shares, all shares of Common Stock issued or issuable under the Stock
Purchase Agreement and (ii) any securities issued or issuable with respect
to such shares of Common Stock in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
IV-7
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute then in effect, and any reference to a particular
section thereof shall include a reference to a comparable section, if any,
of any such similar Federal statute, and the rules and regulations
thereunder.
"WARRANT SHARES" means (i) the Common Stock issued or issuable under the
Warrant Agreement, and (ii) any securities issued or issuable with respect
to such shares of Common Stock in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
6.2 DEFINED TERMS IN CORRESPONDING SECTIONS. The following defined terms,
when used in this Agreement, shall have the meaning ascribed to them in the
corresponding Sections of this Agreement listed below:
"Agreement" -- Preamble
"Company" -- Preamble
"Holder Indemnitees" -- Section 4.1
"Holders" -- Preamble
"Required Registrations" -- Section 1.1
"Stock Purchase Agreement" -- Recitals
"Warrant Agreement" -- Recitals
ARTICLE VII
MISCELLANEOUS
7.1 REMEDIES. In the event of a breach by any party to this Agreement of
its obligations under this Agreement, any party injured by such breach, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of any such provision will
be inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
7.2 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or any holder of Registrable Securities, unless
such modification, amendment or waiver is approved in writing by the Company and
the Holders representing a majority of the Registrable Securities then
outstanding. The failure of any party to enforce any of the provisions of this
Agreement will in no way be construed as a waiver of such provisions and will
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
7.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not.
7.4 NOTICES. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or mailed by pre-paid registered or certified
mail, return receipt requested or mailed by overnight courier prepaid to the
parties at the following addresses:
IV-8
If to the Company, to: Digital Recorders, Inc.
----------------------------------------
----------------------------------------
----------------------------------------
If to Bengt Bodin: Bengt Bodin
La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France
If to Mattias Bodin: Mattias Bodin
Parkgatan 10
SE-112 30 STOCKHOLM, Sweden
If to Tobias Bodin: Tobias Bodin
Ovre Husargatan 23 A
SE-413 14 GOTEBORG, Sweden
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 7.4, be deemed given upon
delivery, (ii) if delivered by mail in the manner described above to the address
as provided in this Section 7.4, be deemed given on the earlier of the tenth
full Business Day following the day of mailing or upon receipt, and (iii) if
delivered by overnight courier to the address provided in this Section 7.4, be
deemed given on the earlier of the third Business Day following the date sent by
such overnight courier or upon receipt. Any party from time to time may change
its address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
7.5 HEADINGS. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
7.6 GENDER. Whenever the pronouns "he" or "his" are used herein they shall
also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable.
Words in the singular shall be read and construed as though in the plural and
words in the plural shall be construed as though in the singular in all cases
where they would so apply.
7.7 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
7.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of North Carolina, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of North Carolina or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of North
Carolina.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IV-9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
COMPANY:
DIGITAL RECORDERS, INC.
By:
-----------------------------------------
Name:
Title:
HOLDERS:
---------------------------------------------
Bengt Bodin
---------------------------------------------
Annacarin Bodin
---------------------------------------------
Mattias Bodin
---------------------------------------------
Tobias Bodin
IV-10
APPENDIX V
TRADEMARK LICENSE AGREEMENT
BETWEEN
MOBITEC AB
AND
MOBITEC KLIMAT AB
DATED [ ] 2001
V-1
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is made as of [ ] 2001, by
and between
Mobitec AB, a Swedish corporation, registration number 556344-9999
("Mobitec")
and
Mobitec Klimat AB, a Swedish corporation, registration number 556487-3403
("Klimat").
PREAMBLES
A. DRI Europa AB, a wholly owned subsidiary of Digital Recorders, Inc., North
Carolina, USA, has this day on its own or together with Digital
Recorders, Inc. acquired all the shares of Mobitec Holding AB including the
ownership of all rights to the trademark and business name "Mobitec."
B. Mobitec, which is the holder of the full and unrestricted ownership of all
rights to the trademark and business name "Mobitec," is a wholly owned
subsidiary of the aforesaid Mobitec Holding AB.
C. Prior to the aforesaid acquisition of the shares of Mobitec Holding AB the
shares of Klimat were transferred and sold to an aktiebolag wholly owned by
the Sellers or the Bodin Sellers as defined in the Stock Purchase Agreement.
D. Klimat will within twelve months after the signature of this Agreement change
its company name, i.a. removing the name "Mobitec" therefrom.
E. Klimat desires to be able to continue to use the trademark "Mobitec" in
Klimat's Business (as hereinafter defined).
F. It is important for Digital Recorders, Inc., DRI Europa AB and Mobitec
Holding AB, with subsidiaries, to prevent any of their competitors from
gaining control over the trademark "Mobitec."
G. Taking into consideration what has been set forth above, Mobitec and Klimat,
intending to be legally bound, agree as follows.
1. DEFINITIONS
For the purposes of this Agreement the following terms shall have the meanings
set forth below.
1.1 Klimat's Business shall mean the development, marketing and sale of
climate-systems and other climate-products to the vehicle industry.
1.2 Products shall mean the products currently offered by Klimat.
1.3 The Stock Purchase Agreement shall mean the stock purchase agreement
between on the one hand Bengt Bodin, Annacarin Bodin, Mattias Bodin,
Tobias Bodin and Bertil Lindqvist, and on the other hand DRI Europe AB
and Digital Recorders, Inc., dated [ ] 2001.
1.4 Territory shall, subject to sub-section 2.3 below, mean the whole world.
1.5 Trademark shall mean the trademark "Mobitec."
2. THE LICENSE
2.1 Mobitec hereby grants to Klimat a royalty-free, non-exclusive license to
use the Trademark, without additions or modifications, in the Territory.
Klimat shall use the Trademark in a form approved by Mobitec, solely in
respect of the Products and solely for the purpose of conducting Klimat's
Business.
V-2
2.2 Mobitec reserves to itself every right to use, and to grant others the
license to use, the Trademark.
2.3 It is a condition for the granting of license with respect to each
country within the Territory that such license will not create or involve
any risk of impairment or loss of the legal protection for the Trademark
in such country.
3. USE OF THE TRADEMARK
3.1 Klimat shall use the Trademark in accordance with the provisions of this
Agreement and all laws relating to the Trademark in force from time to
time. Klimat shall however, after twelve months from the signing of this
Agreement, not use the Trademark in its company name.
3.2 Klimat recognizes and acknowledges that Mobitec is the rightful owner of
the Trademark. Klimat shall not represent in any way that it has any
right or title to, or interest in, the Trademark or any registration or
use thereof, other than the license granted to it under this Agreement.
3.3 Klimat shall not take any actions which may mislead persons to believe
that Klimat and the Products are related to Mobitec and its products
other than the relationship created by this Agreement.
3.4 Klimat shall not, during the term of this Agreement or after its
termination, adopt or use any word or mark resembling the Trademark and
which is likely to deceive or cause confusion.
3.5 Klimat shall continuously inform Mobitec in writing of any country in
which Klimat uses or intends to use the Trademark.
3.6 Klimat agrees with respect to each country that it will make use of the
license granted by Mobitec only under the condition, and in such a
manner, that there will be no risk that Mobitec's rights in and to the
Trademark will be impaired or lost.
3.7 In any country within the Territory where, in accordance with legal
requirements, registration of a trademark license, or other special
conditions for or requirements relating to a trademark license must be
observed, Klimat agrees to use the Trademark only after such requirements
have been fully complied with, and only as long as they remain fully
complied with.
3.8 Klimat shall at its own expense record this Agreement or enter Klimat as
a registered or authorised user of the Trademark in those countries in
the Territory in which such action is required by law to protect the
Trademark or is advisable in the reasonable opinion of Mobitec. Klimat
does not have any other right to register or cancel any registration of
licence without having obtained Mobitec's prior written consent.
3.9 Klimat will cooperate with Mobitec in, and Mobitec will take reasonable
steps to keep Klimat fully advised of
(i) any execution, filing and prosecution, as desired by Mobitec, of any
trademark applications in the Territory relating to the Trademark;
and
(ii) the maintenance of existing trademark registrations relating to the
Trademark, including renewals thereof, in the Territory
3.10 Mobitec shall during the term of this Agreement be under no obligation to
maintain any registration regarding the Trademark in any country of the
Territory. If Mobitec intends to make any changes or termination of or
refrain from prolonging the registrations of the Trademark, Mobitec
shall, however, endeavour to inform Klimat thereof. If Mobitec for any
reason so notifies Klimat that it does not intend to maintain any
registration relating to the
V-3
Trademark in any country of the Territory, Klimat may, upon written
approval by Mobitec, at its own expense and in the name of Mobitec make
all arrangements necessary to keep the registrations in force and good
standing.
3.11 Mobitec and Klimat shall inform each other in writing of any acts of
infringement by third parties involving the Trademark anywhere in the
Territory of which Mobitec or Klimat has knowledge and they shall consult
together in a view to determine the appropriate course of action, if any,
to be taken in such circumstances. Klimat shall fully and at its own
expense assist Mobitec in any proceeding against an infringer.
If the parties are unable to agree on any joint course of action to be
taken then Mobitec may at its own discretion decide whether or not to take
action against the infringer. If Mobitec decides not to take action
against the infringer then Mobitec may authorize Klimat to take such
action at its own expense.
3.12 Klimat recognizes and acknowledges that it uses the Trademark at its own
risk and that Mobitec in no way is responsible for Klimat not being able
to use the Trademark in every country in the Territory or for any
infringements of other trademarks or other intellectual property rights
which such usage may result into.
4. QUALITY STANDARDS AND QUALITY CONTROL
4.1 Klimat shall ascertain that the Products maintain a high reputable
standard and are of such quality that the goodwill associated with the
Trademark is fully preserved. The Products shall be produced, marketed
and provided in conformity with all applicable laws or other regulations
in force in the country, or part thereof, where any such production,
marketing or provision takes place.
4.2 Klimat shall maintain a high reputable standard in connection with the
use of the Trademark on signs, labels, packing materials, advertising,
promotional materials and the like.
4.3 Klimat shall in no way act or fail to act so as to disparage or lessen
the value of the Trademark.
5. INDEMNITY
5.1 Klimat shall have complete and exclusive responsibility for all its
activities concerning the Product in the Territory and Klimat undertakes
to indemnify and hold Mobitec harmless against all claims, losses,
damages, expenses or liability, directly or indirectly, resulting from
the use, manufacture, sale or lease of the Products in the Territory,
including but not limited to claims from third parties.
5.2 Klimat further agrees to indemnify and hold Mobitec harmless against all
claims, losses, damages, expenses or liability directly or indirectly
incurred by Mobitec as a result of Klimat's breach of this Agreement.
6. ASSIGNMENT OF THE AGREEMENT
Klimat may not wholly or partly sub-license, assign or pledge its rights
or obligations under this Agreement to any third party.
7. TERM AND TERMINATION
7.1 This Agreement shall enter into force when duly signed by both parties.
Unless terminated pursuant to the provisions in sub-section 7.2, the
Agreement shall remain in force for five years. If any one of the parties
wishes to terminate the Agreement at the end of this initial
V-4
period that party shall give the other party written notice not less than
six months in advance. If not terminated as aforesaid, this Agreement
shall after its initial term remain in force for successive periods of
three years until terminated at the end of any such period by either
party giving the other party written notice not less than six months in
advance.
7.2 This Agreement and the license rights granted hereunder may further be
terminated by written notice by Mobitec with immediate effect in the
event that
(i) Klimat fails to fulfil any of its obligations under this Agreement
and such failure is not remedied within fourteen days of written
notice to do so;
(ii) Klimat becomes insolvent or a petition for bankruptcy should be
filed by or against it, or a receiver of its property or a
substantial part thereof should be appointed; or
(iii) The ownership in Klimat should change so that the aforementioned
Bengt Bodin no longer, directly or indirectly, controls more than
fifty per cent of the capital and of the votes of Klimat.
Termination under this sub-section 7.2 (iii) may not take place if
Mobitec accepts in writing the change of ownership, such acceptance
not to be unreasonably withheld.
(iv) The ownership in Klimat has changed after acceptance by Mobitec in
accordance with sub-section 7.2 (iii) and the direct or indirect
ownership in Klimat should change thereafter.
7.3 Upon termination of this Agreement, Klimat shall, and shall cause its
distributors, dealers and agents and any other persons appointed by it to
discontinue any further use of the Trademark or any other marks
confusingly similar to the Trademark. Further, Klimat shall fully and at
its own expense cooperate with Mobitec in all measures, including i.a.
registrations relating to the Trademark, required by law or advisable in
the reasonable opinion of Mobitec as a result of the termination of this
Agreement.
7.4 The termination of this Agreement shall not effect Mobitec's rights of
indemnification in accordance with section 5 above.
8. NOTICES
Any notice provided under this Agreement shall be in the English language
and deemed valid and effective if sent by courier or registered mail or
telefax to the following addresses:
If to Mobitec: [ ]
If to Klimat: [ ]
The communications shall be considered having reached the addressee:
(i) if sent by courier --on delivery
(ii) if sent by registered mail --seven days from the date of dispatch
(iii) if sent by telefax --on the day the recipient confirms receipt of the
telefax
Mobitec and Klimat shall be obliged to send a communication to the other
party in accordance with this section 8 notifying any changes in the
relevant details set out herein, which details shall then be deemed to
have been amended accordingly.
V-5
9. EXHAUSTIVE CONTRACT DOCUMENT
This Agreement sets forth exhaustively all terms and conditions related to
the licensing of the Trademark by Mobitec to Klimat and supersedes all
prior agreements between Mobitec and Klimat with respect to the subject
matter hereof.
10. AMENDMENTS
No amendment to this Agreement shall be effective unless made in writing
and signed by authorised representatives of Mobitec and Klimat.
11. SEVERABILITY
If any provision of this Agreement or part thereof shall to any extent be
or become invalid or unenforceable, the parties shall agree upon any
necessary and reasonable adjustment of the Agreement in order to secure
the vital interests of the parties and the main objectives prevailing at
the time of execution of the Agreement. Failing an agreement between the
parties on adjustments of the Agreement, such adjustments shall be made by
arbitrators in accordance with the provisions of the arbitration clause in
this Agreement.
12. WAIVER
The failure of any of the parties hereto to insist upon strict adherence
to any provision of this Agreement on any occasion shall not be considered
as a waiver of any right hereunder, nor shall it deprive that party of the
right thereafter to insist upon strict adherence to that provision or any
other provision of this Agreement.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
14. ARBITRATION
14.1 Any dispute arising out of or in connection with this Agreement shall be
exclusively settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce (the
"Institute"). The arbitral tribunal shall be composed of three
(3) arbitrators. The place of arbitration shall be Gothenburg, Sweden.
The arbitration proceedings shall be conducted in the English language.
Each party shall nominate one arbitrator and the Institute shall nominate
the third arbitrator, who shall be the Chairman. If the respondent has not
within 30 days after receipt of a request for arbitration, appointed an
arbitrator, such arbitrator shall upon request of the claimant be
appointed by the Institute. If the provision related to the appointment of
the arbitrators is held by any court of competent jurisdiction or
arbitrators to be illegal, void or unenforceable the illegality, voidness
or unenforceability of such provision shall have no effect upon and shall
not impair the enforceability of any other provisions of this section 13.
The parties agree that the Institute in such case shall appoint all three
arbitrators.
Any dispute arising at any time between the parties shall be referred to
one single arbitration tribunal, unless (i) the arbitration tribunal
considers it inappropriate having regard to the point of time at which the
request for arbitration is made, or (ii) one or more of the arbitrators
declares that he or they do not accept to serve as arbitrators in a
dispute other than the actual dispute for which such arbitrator(s) was
appointed.
V-6
The rules regarding joinder of claims in Chapter 14 of the Code of
Judicial Procedure (Sw. Rattegangsbalken) shall be applied by the arbitral
tribunal to the extent so is appropriate and accepted by the arbitrators.
The voting rules in the Code of Judicial Procedure shall be applied by the
arbitral tribunal.
------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in two
copies as of the day and year first above written.
MOBITEC AB MOBITEC KLIMAT AB
- ------------------------------------------- -------------------------------------------
V-7
APPENDIX VI
APPENDIX 3.2.1.3.a)
TO THE STOCK PURCHASE AGREEMENT
PROMISSORY NOTE
We, the undersigned DRI Europa AB, registration number 556546-6793,
undertakes to pay 36 months from the Closing Date (as defined in the Stock
Purchase Agreement) to Bengt Bodin, an individual resident at La Piniere, Cidex
206, R.D. 2085, FR-06330 Roquefort les Pins, France, the sum of USD____.
The aforesaid amount shall accrue annual interest at the rate of 9 (nine)
per cent. The interest shall be paid for each period of 90 days in arrears, each
payment to be made within 10 days after the expiration of each aforesaid period.
The aforesaid principal amount of USD____ may be adjusted in accordance with
sub-section 3.2.2. of the Stock Purchase Agreement and may be reduced in
accordance with sub-section 9.2 of the Stock Purchase Agreement.
This Promissory Note is an Appendix to and forms an integral part of the
Stock Purchase Agreement.
Any payment of the principal amount hereunder shall only be made after our
loan from _____ banken of SEK has been paid to the bank in full
Gothenburg ____________ 2000
For DRI Europa AB
by
------------------------------------------
VI-1
[LOGO]
November 28, 2000 APPENDIX VII
Via Regular Mail
Mr. David L. Turney
Digital Recorders, Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
Dallas, TX 75225
PRELIMINARY OUTLINE OF TERMS
This Preliminary Outline of Terms (the "Terms Letter") sets forth a proposed
financing for Digital Recorders, Inc. (the "Company"). Renaissance Capital
Group, Inc. ("Renaissance") is interested in providing the Company with
financing from one or more of its investment funds ("Investment Funds" or
"Debenture Holders"), subject to certain terms and conditions as discussed
below. It should be clearly understood that this Term Letter does not constitute
a binding commitment but is merely an expression of interest subject to
satisfactory completion of due diligence and approval by the Independent Board
of Directors of each and every Investment Fund advancing monies.
1. INVESTMENT AMOUNT: A total investment in the amount of up to $3,000,000.
The investment will be in the form of a Convertible Debenture (see
conversion price below). It is understood that TBUS will have received
shareholder approval for this transaction. If such approved is not obtained,
this term sheet is deemed withdrawn.
2. DISBURSEMENT AND USE OF PROCEEDS: Disbursement will only be made after
Renaissance completes due diligence in a manner satisfactory to it and
obtains the approval of each Independent Board of Directors for every
Investment Fund advancing monies. Proceeds shall be used for working capital
and acquisitions.
3. CONVERTIBLE DEBENTURE YIELD RATE AND PAYMENTS: 8.00% per annum paid
monthly.
4. CONVERTIBLE DEBENTURE MATURITY: 7 years.
5. CONVERTIBLE DEBENTURE PRINCIPAL REPAYMENT: For the first three years,
monthly installments will consist of interest payments only. After three
years, mandatory principal redemption installments in the amount of $10 per
$1,000 of the then remaining principal amount are required with a final
installment of the remaining unpaid principal balance to be paid at
maturity.
6. UNIT CONVERSION TERMS: The Debentures and underlying Common Stock shall be
subject to the following conversion terms:
a. INITIAL CONVERSION PRICE: The Debentures will have an Initial
Conversion Price (the "Conversion Price") equal to the volume-weighted
average closing price for TBUS common stock for the 5 day period leading
up to closing, but in no circumstance will the conversion price exceed
$3.00 per share or be below $2.00 per share.
b. ADJUSTMENT TO CONVERSION PRICE: After the close of this transaction
until a mutually agreeable date, the Investment Funds will be entitled to
a downward adjustment to the Conversion Price (the "Automatic
Adjustment") if the Company does not attain a specific performance
benchmark (to be agreed upon) based on earnings before interest, taxes,
depreciation and amortization for the Company's 2001 fiscal year and the
market price of the Common Stock is
VII-1
below the conversion price at the time of publication of the Company's
results for that period. At the adjustment date, the Conversion Price
will be reduced to equal the volume-weighted average closing price for
the Company's common stock over a ten day trading period following the
Company's public press release of that year's results. Renaissance agrees
the Investment Funds will not convert and/or sell any of the Company's
common stock during the time period used to define the market price for
the adjustment as well as for nine days prior to the time the period
begins running, which restriction extends to all short selling in the
securities of the Company by the Investment Funds.
c. ANTI-DILUTION PROVISIONS: The Conversion Price shall be subject to
certain anti-dilution adjustments in the event of stock splits, stock
dividends or issuance of additional stock at a price below the Conversion
Price as defined in the Convertible Debenture Agreement, except that no
adjustment shall be made for issuance of stock pursuant to presently
outstanding options and warrants. Notwithstanding the foregoing, the
Company can issue stock options to acquire up to 300,000 shares to
employees and directors at prices below the then effective conversion
price. The Company shall submit a report at the end of each quarter to
the lenders setting forth the number of options so issued in the quarter
and cumulatively.
7. SECURITY. The Debentures will be secured by all assets, tangible and
intangible, of the Company and its subsidiaries, which will be subordinated
to senior and asset-backed lenders only.
8. CONDITIONS PRECEDENT: The Investment Funds will not be obligated to commit
to the financing unless the following conditions are met:
a. All Loan Agreements, Convertible Debenture Agreements, Security
Agreements, and other documents necessary to memorialize the transaction
are executed in a manner satisfactory to Renaissance;
b. Satisfactory opinions have been received by Renaissance from the
Company's counsel;
c. At closing, the Company shall make good on all representations and
warranties and there shall be no material or adverse change in the
Company's financial or competitive position;
d. Completion of all due diligence in a manner satisfactory to Renaissance,
and receipt of all materials requested by Renaissance from the Company,
including, but not limited to, current financial statements and a summary
of the Company's capital structure.
9. DEBENTURE CALL PROVISIONS: The Company shall have the right to call the
Debentures at 101% of face value provided that: (i) the average closing bid
price for the Company's common stock for a period of 20 consecutive trading
days exceeds a value equal to 3 times the then effective Conversion Price;
(ii) the market price for the Company's common stock at the time of call is
supported by a price-to-earnings ratio of no greater than 25 times fully
diluted earnings per share excluding any extraordinary gains; (iii) the
average daily trading volume of the Company's common stock for a period of
20 consecutive trading days shall be no less than 40,000 shares; and
(iv) the shares of common stock underlying the Debentures are fully
registered. These call provisions shall be subject to the Debentures
Holders' right to convert.
10. OPTIONAL REDEMPTION OF DEBENTURES: The Debenture Holders will have the
right to require redemption of the Debentures under specific conditions as
defined in the Convertible Debenture Agreement and Loan Agreement. In the
event the redemption conditions are met and the Debenture Holders elect to
have their position redeemed, the redemption amount will be equal to the
principal amount outstanding at the redemption date plus an amount equal to
an 18% annual yield on the principal amount through the date of redemption.
In addition, the Company shall have the option to redeem the unconverted
debentures if the Holders notify it of their intent to sell those
debentures, such option remaining in effect for a 30 day period after
issuance of
VII-2
notification. Such redemption will be for the principal amount offered plus
an amount equal to an 18% annual return on such amount.
11. REGISTRATION OF COMMON STOCK: The Debentures and underlying common stock
issuable upon conversion shall grant the Debenture Holders, at our request,
the following registration rights with regard to shares underlying the
Debentures:
a. "Piggy-back" registration rights shall be available to the Investment
Funds, at their expense, any time the Company files a registration
(subject to a 90 day delay at the underwriter's request).
b. A shelf registration (SEC Form S-3) covering all shares underlying the
Debentures shall be filed at the Company's expense within 180 days of the
sale of the Debentures or sixty days after Issuer becomes shelf eligible,
whichever date is later, which shelf shall terminate when the Debenture
Holders can sell their underlying common stock position in the open
market free of any restriction pursuant to Rule 144.
c. Demand registration rights on a one-time basis at the expense of the
Investment Funds.
12. COVENANTS: Affirmative and Negative Covenants shall be required including,
but not limited to, requiring the Company to do the following:
a. Provide audited financial statements annually and unaudited financial
statements quarterly together with compliance reports by a duly
authorized officer;
b. Furnish monthly financials within 30 days of the end of each month and
budgets (as currently used by management to conduct business) on a
rolling four month basis;
c. Stay current on all required SEC filings;
d. Make interest payments on a timely basis. In the event of noncompliance
in this regard the Debenture Holders together shall have the right to
nominate a single representative to the Company's Board of Directors;
e. Maintain compliance with existing bank requirements, and comply with
minimum financial standards (to be agreed upon following completion of
due diligence) as set forth in the Convertible Debenture and Loan
Agreements, including the maintenance of standard financial ratios as the
following:
a. Current ratio;
b. Total debt to equity ratio;
c. Interest coverage or times interest earned ratio; and
d. Cash flow to total debt ratio.
13. RESTRICTIONS: So long as any Debentures remain outstanding, the Company
shall not:
a. Issue any debt senior to or PARI PASSU with the Debentures without the
Investment Funds' consent which shall not be unreasonable withheld,
except for senior credit facilities and asset-backed loans for operations
and/or acquisitions.
b. Declare or pay any cash dividend or authorize or make any cash
distribution to any debt or equity holder junior in position to the
Debentures, except for dividend payments to the Series AAA holders of the
Company's Preferred Stock and except for any contractual obligation of
the Company to redeem the AAA Preferred during the term of the
Debentures. In the case of any debt prepayment, the Debentures will be
paid on a pro rata basis with any other debt holders that are PARI PASSU
to be Debentures.
VII-3
14. RETENTION OF STOCK OWNERSHIP: So long as the Debentures remain outstanding,
David Turney, Lawrence Taylor, and all members of the Company's Board of
Directors will agree to withhold sale or assignment of their ownership in
the Company (except for intra-family transfers or estate planning purposes)
for 12 months following closing. Notwithstanding the foregoing, sales may be
made during the 12 month period with the prior approval of each Holder so
long as such sales are made above $5 per share.
15. DEFAULT PROVISIONS: Standard default provisions will be included in the
closing documentation that will define when default occurs and outline
remedies available to the Debenture Holders in the event of default.
16. BOARD REPRESENTATIVE: The Investment Funds will designate Russell Cleveland
as a member of the Company's Board of Directors, and the Company shall
reimburse the Investment Funds for all appropriate and reasonable expenses
incurred in connection with that Board representation. In addition, the
Debenture Holders shall have the right to nominate an additional Director to
the Board in the event the Company fails to comply with interest payment
provisions as outlined in paragraph 12 above.
COMMITMENT AND CLOSING FEES AND EXPENSES.
The foregoing is intended to provide an outline of investment terms rather than
a complete statement of all conditions and documents which would be required. It
is possible that substantive terms or conditions may be changed in order to
account for or reflect changes in statutory or regulatory rules governing the
subject matter of the transaction. In addition to the above terms, the following
fees shall apply:
a. COMMITMENT FEES: Upon notification that Renaissance intends to present
the investment proposal to the Board of Directors of each respective
Investment Fund, the Borrower shall make a good faith deposit equal to
1.0% of the commitment amount (the "Commitment Fee") in an escrow account
established at Renaissance's bank. If the investment is approved,
Renaissance shall claim the Commitment Fee one day following Board
approval. If the investment is not approved, the commitment fee will be
refunded to the Company within ten (10) days after such decision. In the
event approval is obtained and the Company subsequently decides not to
proceed with the funding, Renaissance will be entitled to retain the
commitment fee.
b. CLOSING FEE: A fee of 1.0% of all funds to be disbursed shall become
due and payable at closing.
c. CLOSING EXPENSE FEE: Upon notification that Renaissance intends to
present the investment proposal to the Board of Directors of each
respective Investment Fund, the Borrower shall make a good faith deposit
in the amount of 0.50% of the commitment amount (the "Closing Expense
Fee") in an escrow account established at Renaissance's bank. The Closing
Expense Fee shall pay for all reasonable closing costs and out-of-pocket
expenses (including attorney's fees) incurred by Renaissance in
connection with the preparation and documentation of the proposed
investment up to the amount deposited. If the investment is approved,
Renaissance shall claim the Closing Expense Fee one day following
approval. If the investment is not approved, the Closing Expense Fee will
be refunded to the Company within ten (10) days after such decision, less
any legal fees and other out-of-pocket expenses incurred up to the date
the investment proposal is rejected. If Renaissance commits in writing to
disburse and the Company decides not to proceed with the funding, the
Closing Expense Fee shall be retained by Renaissance.
VII-4
d. DUE DILIGENCE FEE: To cover due diligence expenses, Borrower shall pay
Renaissance a non-refundable due diligence fee equal to $15,000.
If the Company desires Renaissance to investigate and present this plan of
financing to the Boards of Directors of each of its respective Investment Funds,
have an authorized officer execute a copy of this letter and return it to the
undersigned with a $15,000 check for the due diligence fee described above.
Except with respect to provisions relating to the commitment and closing fees
and expenses described above, this letter does not constitute a binding
agreement. Consummation of the transaction described herein will be subject to
the execution and delivery of documents in form and content satisfactory to the
Investment Funds, Renaissance and the Company.
If this letter agrees with your understanding and you wish to proceed as
provided above, please sign and return this letter within three (3) days or,
unless sooner withdrawn, this proposal shall terminate.
Sincerely,
/s/ Robert C. Pearson
Robert C. Pearson
Senior Vice President
Date: 29 Nov 00
Accepted as provided above
Due Diligence deposit check enclosed for $15,000 (CK #102902)
Digital Recorders, Inc.
By: /s/ David L. Turney
Title: CEO, President, Chairman
VII-5
APPENDIX VIII
BENGT BODIN
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), made and entered into as of the
day of ____________, 2000, by and between DIGITAL RECORDERS, INC., a North
Carolina corporation having its principal office in Research Triangle Park,
North Carolina (hereinafter referred to as "Company" or "DRI") and BENGT BODIN,
a resident of Nice, France (hereinafter referred to as "Bodin").
STATEMENT OF PURPOSE
The Company has on the date hereof under a separate Stock Purchase Agreement
("Stock Purchase Agreement") acquired from Bodin and others all the shares of
Mobitec Holding AB ("Mobitec").
Bodin has a thorough knowledge of the business purchased by Company from
Mobitec, both with regard to its Swedish and foreign subsidiaries as well as its
other foreign operations (collectively all to be referred to as "the Group"). It
has been a condition to the Stock Purchase Agreement and it is important to the
future success of the Group that it have the benefit of the advice, counsel and
services of Bodin, and Bodin desires to render such advisory and consulting
services to the Group as directed by the Company on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other valuable considerations, receipt of which is hereby
acknowledged, Company and Bodin agree as follows:
1. CONSULTING SERVICES. For a period of three (3) years from the Closing
Date as defined in the Stock Purchase Agreement unless this Agreement is
terminated by either party pursuant to the specific terms set forth herein,
Bodin shall stand ready to and shall:
(a) furnish to the Group such reasonable services of an advisory or
consulting nature with respect to its business and affairs, including but
not limited to operating procedures, customers and customer relations,
products, services and sales, as Company may reasonably call upon him to
furnish and his health and other business commitments may permit; and
(b) if requested by the Board of Directors or President of Company upon
reasonable advance notice, meet with and consult with customers with respect
to their relationship to the Group and to otherwise use his reasonable best
efforts to obtain and maintain for the Group contractual relationships with
the customers;
it being understood that Bodin shall be available on reasonable notice and at
reasonable times for periodic consultations, either in person or by telephone;
provided, however, advisory and consulting services hereunder shall not require
Bodin to be active in the day-to-day operations of Company, and in furnishing
such consulting services hereunder Bodin shall not be an employee of any company
within the Group but shall act in the capacity of an independent contractor.
Bodin shall not be required to render such services during reasonable vacation
periods or during times of illness, disability or other incapacity. In the event
Bodin should leave his residence for any continuous period in excess of one
(1) week, Bodin shall use his best efforts to keep Company advised either of his
whereabouts or of the person or persons whom he will keep advised of his
whereabouts and how Company can communicate with him.
VIII-1
In addition, Bodin shall at the sole reasonable discretion of Company agree
to serve as an advisor to the Board of Directors of any company within the Group
during the term of this Agreement.
2. PAYMENT FOR CONSULTING SERVICES.
(a) In consideration of Bodin's obligations to be available to and to
render advisory and consulting services as well as other obligations
undertaken by Bodin hereunder pursuant to the provisions of paragraph 1,
Company shall pay to Bodin compensation determined in accordance with
paragraph 2(b) below. In addition, Company shall reimburse Bodin for travel
expenses and other business expenses reasonably incurred by Bodin at the
request of Company (and properly documented and within guidelines approved
by the Board of Directors or as pre-approved by the President).
(b) In consideration of Bodin's obligations as defined herein, Company
through Digital Recorders, Inc. shall pay to Bodin the sum of One Hundred
Twenty Thousand U.S. Dollars ($120,000.00) the first year, One Hundred Sixty
Thousand U.S. Dollars ($160,000.00) the second year, and Two Hundred
Thousand U.S. Dollars ($200,000.00) the third year, payable by Company in
equal quarterly installments at the end of each quarter.
3. NONSOLICITATION OF EMPLOYEES. Bodin undertakes and agrees that during
the term of this Agreement and for a period of twenty-four (24) months after
this Agreement shall be terminated, whether voluntarily or involuntarily, he
will not, without the prior written approval of the Company solicit any
employees with regard to working for a competitor or to be employed by him, his
company or any affiliate thereof.
In the event Company shall establish to the satisfaction of a court of
competent jurisdiction the existence of a breach or threatened breach by Bodin
of this section, the Company, in addition to any other rights and remedies it
may have (including a monetary judgment/penalty pursuant to the Stock Purchase
Agreement), shall be entitled to an injunction restraining Bodin from doing or
continuing to do any such act in violation of this section, as well as
attorney's fees and costs of prosecution to enforce this Agreement, if the
Company ultimately prevails on the merits.
4. DISCLOSURE OF CONFIDENTIAL INFORMATION:
(a) NON-DISCLOSURE. Except as required in his duties to the Group,
Bodin will never, directly or indirectly, use, disseminate, disclose,
lecture upon, or publish articles concerning any Confidential Information.
Confidential Information shall be defined as information developed by or
disclosed to Bodin or known by Bodin as a consequence of or through his
employment or consultation by any company of the Group, not generally known in
the industry in which the Group is or may become engaged, about the Group's
products, processes, and services, including information and trade secrets
relating to research, development, formulas and recipes, inventions,
manufacture, profitability, purchasing, accounting, engineering, marketing,
merchandising, and selling.
"Confidential Information" shall not include information that (i) at the time of
use or disclosure by Bodin, is in the public domain through no fault of, action
or failure to act by Bodin; (ii) becomes known to Bodin from a third-party
source without violation of any obligation of confidentiality or other wrongful
or tortuous act; (iii) was known by Bodin prior to disclosure of such
information by the Company to Bodin; or (iv) was independently developed by
Bodin without any use of Confidential Information.
(b) CONFIDENTIAL PAPERS. Upon termination of this Agreement with the
Company, all documents, records, notebooks, and similar repositories of or
containing Confidential Information, including copies thereof, then in
Bodin's possession, whether prepared by him or others, will be left with the
Company.
VIII-2
(c) CONFIDENTIAL INFORMATION. As part of the consideration required of
him under this Agreement, Bodin agrees that he will not, at any time either
during the term of this Agreement or thereafter, divulge to any person,
firm, or corporation any information received by him during the course of
his relationship with regard to the personnel, financial, or other affairs
of the Group and all such information shall be kept confidential and shall
not in any manner be revealed to anyone, subject to the standard exceptions
contained in the third paragraph of Section 4(a) above.
(d) CUSTOMER NAMES. As part of the consideration for the making of
this Agreement, Bodin agrees that he will not, at any time during the term
of this Agreement or thereafter, divulge to any person, firm, or corporation
any name or names of any or all of the customers or suppliers of the Group,
subject to the standard exceptions contained in the third paragraph of
Section 4(a) above.
(e) In the event the Company shall establish to the satisfaction of a
court of competent jurisdiction the existence of a breach or threatened
breach by Bodin of any of the provisions of this Section 4, the Company, in
addition to any other rights and remedies it may have, shall be entitled to
an injunction restraining Bodin from doing or continuing to do any such act
in violation of this Section 4.
(f) Notwithstanding the foregoing, Bodin may disclose Confidential
Information, if and to the extent obligated or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) under order of a court of competent
jurisdiction or other similar requirement of a governmental agency, provided
Bodin shall promptly notify the Company of such request(s) so that the
Company may seek an appropriate protective order.
5. NONCOMPETE. Because of his association with the Group, Bodin shall have
access to trade secrets and confidential information about the Group, its
business plans, its business accounts, its business opportunities, its expansion
plans into other geographical areas and its methods of doing business. Bodin
agrees that at any time during the term of this Agreement he will not, directly
or indirectly carry on, be engaged in, or take part in any activities or
services identical or substantially similar to any of his duties and
responsibilities with the Group, anywhere the Group does business on the
effective date of the termination of this Agreement, for the purpose of
competing with the Group in the Group's business (whether on his own behalf or
on behalf of any other person, corporation, partnership, venture or any other
entity or form of business).
Bodin's current engagement in Klimat and Hexair shall not be deemed as
competing for the purposes of this provision.
6. TERMINATION. Company may terminate this Agreement and the obligations
hereunder if Bodin shall die or become permanently disabled so as to be
incapable of performing his duties hereunder, or if Bodin shall be convicted or
admit to fraud or gross negligence with regard to his dealings with the Group.
Bodin may terminate this Agreement prior to the expiration of the three year
term hereof if the Company is in substantial breach hereof and has not remedied
such breach within 30 days from Bodin's notice to the Company of the
breach;however, the obligations of Bodin as set forth in Sections 3 through 5
shall survive any termination.
7. NOTICES. Any notices, requests, demands or other communications under
this Agreement to a party hereto shall be in writing and shall be deemed to have
been duly given when delivered in person
VIII-3
or deposited in the United States mail, postage prepaid, by registered or
certified mail, return receipt requested, to the parties hereto at the following
addresses:
(a) As to Bodin: Bengt Bodin
---------------------------------
---------------------------------
(b) As to Company: Digital Recorders, Inc.
P.O. Box 14068
Research Triangle Park,
NC 27709-4068
With Copy to: David M. Furr
Gray, Layton, Kersh, Solomon,
Sigmon, Furr & Smith, P.A.
P. O. Box 2636
Gastonia, NC 28053-2636
Either party hereto may change his or its address to which notices or other
communications hereunder are to be directed by giving notice thereto to the
other party hereto as hereinabove provided. Provided, however, payments
hereunder need not be sent by registered or certified mail.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
Company and Bodin with respect to the subject matter hereof, and no amendment,
modification or cancellation hereof shall be effective unless the same is in
writing and executed by the parties hereto (or by their respective duly
authorized representatives).
9. APPLICABLE LAW. This Agreement shall be enforced, interpreted and
construed under the laws of North Carolina.
10. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved by
agreement of the parties, be settled by binding arbitration in Raleigh, Wake
County, North Carolina, in accordance with the Rules of the American Arbitration
Association then existing. This Agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law of the State of North Carolina.
The award rendered by the arbitrators shall be final and judgment may be entered
upon the award in any court of the State of North Carolina having jurisdiction
of the matter and Bodin agrees that such shall be enforceable in any
jurisdiction that Bodin might reside or have property.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, if any.
12. CAPTIONS. The captions and headings set forth in this Agreement are
for convenience of reference only and shall not be construed as a part of this
Agreement.
13. DUPLICATE ORIGINALS. This Agreement is executed in duplicate
originals, each of which shall be deemed an original hereof.
VIII-4
IN WITNESS WHEREOF, Company and Bodin have caused this Agreement to be
executed under seal, all as of the day and year first above written.
DIGITAL RECORDERS, INC.
By
-----------------------------------------
President
(SEAL)
BENGT BODIN
VIII-5
APPENDIX X
MOBITEC HOLDING AB
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
CONTENTS
FINANCIAL STATEMENTS
Consolidated balance sheets...............................
Consolidated statements of income.........................
Consolidated statements of stockholders' equity...........
Consolidated statements of cash flows.....................
Notes to consolidated financial statements................
i
MOBITEC HOLDING AB AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 2000 AND 1999
2000 2000 1999
----------- -------- -----------
(AMOUNTS IN THOUSANDS)
(EXCEPT FOR SHARE INFORMATION)
ASSETS (NOTE 4)
Current Assets
Cash and cash equivalents................................. SEK 2,045 $ 217 SEK 5,684
Trade accounts receivable (Note 8)........................ 19,173 2,037 12,645
Other receivables......................................... 2,222 236 2,386
Inventories (Note 2)...................................... 13,923 1,480 8,196
Prepaid expenses and other assets......................... 396 42 306
---------- ------ ----------
TOTAL CURRENT ASSETS.................................... 37,759 4,012 29,217
Property and equipment, net of accumulated depreciation
(Note 3)................................................ 3,173 337 2,803
Other assets (Note 7)..................................... 1,351 144 450
---------- ------ ----------
TOTAL ASSETS............................................ SEK 42,283 $4,493 SEK 32,470
========== ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Lines of credit (Note 4).................................. SEK 10,061 $1,069 SEK 4,531
Accounts payable.......................................... 9,824 1,044 7,835
Accrued expenses.......................................... 4,926 524 4,489
Income tax payable........................................ 646 68 134
Other current liabilities (Note 4)........................ 1,706 181 1,772
---------- ------ ----------
TOTAL CURRENT LIABILITIES............................... 27,163 2,886 18,761
---------- ------ ----------
Long Term Liabilities
Deferred income taxes (Note 6)............................ 145 16 334
Deferred compensation benefits (Note 7)................... 911 97 --
---------- ------ ----------
TOTAL LONG TERM LIABILITIES............................. 1,056 113 334
---------- ------ ----------
TOTAL LIABILITIES....................................... 28,219 2,999 19,095
---------- ------ ----------
Minority interest in consolidated subsidiary................ 1,819 193 1,009
---------- ------ ----------
Stockholders' Equity
Share capital, par value $1.00 per share, 100,000 shares
authorized and outstanding.............................. 100 12 100
Legal reserve............................................. 2,653 299 2,653
Accumulated other comprehensive income, foreign
translation adjustment.................................. 564 42 112
Retained earnings......................................... 8,928 948 9,501
---------- ------ ----------
TOTAL STOCKHOLDERS' EQUITY.............................. 12,245 1,301 12,366
---------- ------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. SEK 42,283 $4,493 SEK 32,470
========== ====== ==========
See Notes to Consolidated Financial Statements.
X-1
MOBITEC HOLDING AB AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 2000 1999
------------ -------- ------------
(AMOUNTS IN THOUSANDS)
(EXCEPT FOR SHARE INFORMATION)
Net sales (Note 8)..................................... SEK 107,464 $ 11,722 SEK 91,939
Cost of sales.......................................... 62,808 6,851 64,054
----------- -------- -----------
GROSS PROFIT..................................... 44,656 4,871 27,885
----------- -------- -----------
Operating expenses:
Selling, general and administrative.................. 34,617 3,776 21,031
Research and development............................. 6,821 744 4,742
Other................................................ 146 16 373
----------- -------- -----------
Total operating expenses........................... 41,584 4,536 26,146
----------- -------- -----------
OPERATING INCOME................................. 3,072 335 1,739
----------- -------- -----------
Nonoperating income (expense):
Other income (expense)............................... 219 23 (288)
Interest (expense)................................... (360) (40) (187)
----------- -------- -----------
Total nonoperating income (expense)................ (141) (17) (475)
----------- -------- -----------
INCOME BEFORE INCOME TAXES....................... 2,931 318 1,264
Income tax expense (Note 6)............................ (1,001) (109) (368)
----------- -------- -----------
INCOME BEFORE MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARY........................ 1,930 209 896
Minority interest in net income of consolidated
subsidiary........................................... (807) (88) (175)
----------- -------- -----------
NET INCOME....................................... SEK 1,123 $ 121 SEK 721
=========== ======== ===========
EARNINGS PER SHARE:
Earnings per common share............................ SEK 11.23 $ 1.21 SEK 7.21
=========== ======== ===========
Weighted average shares outstanding.................. 100,000 100,000 100,000
=========== ======== ===========
See Notes to Consolidated Financial Statements.
X-2
MOBITEC HOLDING AB AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
ACCUMULATED TOTAL
SHARE LEGAL RETAINED COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
CAPITAL RESERVE EARNINGS INCOME INCOME EQUITY
-------- -------- -------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS SEK)
Balance, January 1, 1999...... 100 2,653 9,380 -- 12,133
Net income.................. -- -- 721 -- 721 721
Changes in cumulative
translation adjustments... -- -- -- 112 112 112
-----
Total comprehensive
income.................. 833
=====
Dividends................... -- -- (600) -- (600)
--- ----- ------ --- ------
Balance, December 31, 1999.... 100 2,653 9,501 112 12,366
Net income.................. -- -- 1,123 -- 1,123 1,123
Changes in cumulative
translation adjustments... -- -- -- 452 452 452
-----
Total comprehensive
income.................. 1,575
=====
Dividends................... -- -- (1,696) -- (1,696)
--- ----- ------ --- ------
Balance, December 31, 2000.... 100 2,653 8,928 564 12,245
=== ===== ====== === ======
See Notes to Consolidated Financial Statements.
X-3
MOBITEC HOLDING AB AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)
Cash Flows From Operating Activities
Net income................................................ SEK 1,123 SEK 721
Adjustments to reconcile net income to net cash used in
operating activities:
Minority interest in net income of consolidated
subsidiary............................................ 807 175
Depreciation............................................ 1,167 1,606
Deferred income taxes................................... (189) 26
Gain on sale of property and equipment.................. (185) --
Deferred compensation expense........................... 1,046 --
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable................. (6,528) (9,096)
(Increase) decrease in other receivables................ 164 (281)
(Increase) decrease in inventories...................... (5,727) 918
(Increase) decrease in prepaid expenses and other
current assets........................................ (90) 28
Decrease in other assets................................ 6 --
(Decrease) increase in accounts payable................. 1,989 2,801
Increase in accrued expenses............................ 437 1,247
(Decrease) increase in income tax payable............... 512 (157)
(Decrease) increase in other current liabilities........ (66) 1,636
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES................. (5,534) (376)
---------- ----------
Cash Flows From Investing Activities
Proceeds from sales of property and equipment............. 453 --
Purchases of property and equipment....................... (1,805) (629)
Purchase of insurance to fund deferred compensation....... (1,046) --
---------- ----------
NET CASH USED INVESTING ACTIVITIES.................... (2,398) (629)
---------- ----------
Cash Flows From Financing Activities
Dividends................................................. (1,696) (600)
Net proceeds from bank borrowings......................... 5,530 4,531
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 3,834 3,931
---------- ----------
Effect of exchange rate change.............................. 459 105
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... (3,639) 3,031
Cash and cash equivalents at beginning of year.............. 5,684 2,653
---------- ----------
Cash and cash equivalents at end of year.................... SEK 2,045 SEK 5,684
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest................................................ SEK 360 SEK 187
========== ==========
Income taxes............................................ SEK 167 SEK 93
========== ==========
See Notes to Consolidated Financial Statements.
X-4
MOBITEC HOLDING AB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: The Company develops, manufactures, and distributes
information systems primarily for buses used in public transportation. Customers
are primarily bus manufacturers located in Australia, Brazil, Germany, and
Scandinavia.
A summary of the Company's significant accounting policies follows:
BASIS OF PRESENTATION: These consolidated financial statements have been
prepared in Swedish Krona (SEK), the Company's functional currency. The 2000
consolidated balance sheet and statement of income reflect amounts in US dollars
in a "convenience translation" column. The consolidated financial statements
have also been prepared in accordance with US generally accepted accounting
principles, except for the fact that the financial statements do not include the
accounts of Mobitec Hexair AB and Mobitec Klimat AB which have been or are
intended to be sold and their operations will not be part of the ongoing
operations. The net assets of the subsidiaries not included are approximately
1,193 SEK ($127) at December 31, 2000.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, Mobitec AB. The
consolidated financial statements also include the accounts of Mobitec AB's
wholly owned subsidiaries (Mobitec GmbH and Mobitec Australia, Pty Ltd.) and the
accounts of its 50% owned subsidiary, Mobitec Brazil LTDA. The Company has not
included the accounts of Mobitec Klimat AB and Mobitec Hexair AB since they have
been or are intended to be sold and will not be part of the ongoing operations.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
INVENTORIES: Inventories are stated at the lower of cost (average cost) or
market.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost, less
accumulated depreciation. The Company computes depreciation on its equipment
using the straight-line method over the following estimated useful lives:
YEARS
--------
Buildings................................................... 50
Leasehold improvements...................................... 5
Machinery and equipment..................................... 3 to 10
ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES: The Company reports deferred tax assets and liabilities
attributable to temporary differences between the book value of assets and
liabilities and their tax value. The accumulated deferred tax liability is
adjusted each year by applying the current tax rate in each country and is
reported in the balance sheet as deferred income taxes.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Company's
foreign subsidiaries are translated at exchange rates prevailing at the end of
the year. Revenue and expense transactions are translated at the average of
exchange rates in effect during the period. Translations gains and losses are
X-5
MOBITEC HOLDING AB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded directly to stockholders' equity. Realized gains and losses on foreign
currency translation, if any, are included in operations.
REVENUE RECOGNITION: The Company recognizes operating revenues upon
shipment of goods to customers.
RESEARCH AND DEVELOPMENT: The Company expenses all research and development
costs at the time expenses are incurred.
ADVERTISING: The Company expenses advertising costs at the time the
expenses are incurred.
EARNINGS PER SHARE AMOUNTS: Earnings per share has been computed based upon
the weighted average number of shares of share capital outstanding.
NOTE 2. INVENTORIES
The components of inventories consist of the following:
2000 1999
----------- ----------
Raw materials....................................... SEK 11,772 SEK 5,529
Work-in-process..................................... 197 148
Finished goods...................................... 1,264 802
Supplies............................................ 690 1,717
---------- ---------
SEK 13,923 SEK 8,196
========== =========
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment are as follows:
2000 1999
---------- ----------
Land................................................. SEK -- SEK 95
Buildings............................................ -- 194
Machinery and equipment.............................. 7,152 5,347
Leasehold improvements............................... 797 797
--------- ---------
7,949 6,433
Less accumulated depreciation........................ 4,776 3,630
--------- ---------
SEK 3,173 SEK 2,803
========= =========
Depreciation expense was 1,167 SEK and 1,606 SEK for 2000 and 1999,
respectively.
NOTE 4. LOAN AGREEMENTS
The Company has an agreement with a bank in which the Company may currently
borrow up to a maximum of 4,500 SEK. At December 31, 2000 and 1999, 4,406 SEK
and 4,531 SEK, respectively, was outstanding. Advances under the agreement are
subject to a borrowing base of 75% of eligible accounts
X-6
MOBITEC HOLDING AB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4. LOAN AGREEMENTS (CONTINUED)
receivable. The line of credit bears interest at 5.1% and is collateralized by
accounts receivable. This line of credit agreement expires on March 31, 2001.
The Company also has an agreement with a bank in which it may borrow up to
6,000 SEK of which 5,655 SEK was outstanding at December 31, 2000. The terms of
this agreement require the payment of an unused credit line fee equal to 0.5% of
the unused portion and interest at 5% of the outstanding balance. This agreement
is secured by a mortgage on substantially all assets of the Company. This
agreement expires on March 31, 2001.
The Company also has convertible loans of 99 SEK at December 31, 2000 from
employees that can be converted into share capital of the Company. These loans
are reflected in "other current liabilities" at December 31, 2000. These loans
are to be repaid by the Company in April 2001.
NOTE 5. LEASE COMMITMENTS
The Company has lease commitments under operating leases for vehicles.
Rental expense for 2000 and 1999 was 1,800 SEK and 1,040 SEK, respectively.
At December 31, 2000, the future minimum lease commitments under
non-cancelable operating leases are as follows:
YEAR ENDING OPERATING
DECEMBER 31, LEASES
- ------------ ----------
2001........................................................ SEK 1,600
2002........................................................ 975
2003........................................................ 450
---------
Total minimum lease payments................................ SEK 3,025
=========
NOTE 6. INCOME TAXES
The components of income tax expense for the years ended December 31, 2000
and 1999 consisted of the following:
2000 1999
---------- ---------
Current expense...................................... SEK (1,190) SEK (342)
Deferred (expense) benefit........................... 189 (26)
---------- --------
SEK (1,001) SEK (368)
========== ========
X-7
MOBITEC HOLDING AB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 6. INCOME TAXES (CONTINUED)
At December 31, 2000 and 1999, the Company has net deferred tax liabilities
that consist of the following:
2000 1999
--------- ---------
Deferred tax assets:
Property and equipment.............................. SEK 130 SEK 87
Inventories......................................... 6 --
-------- --------
136 87
-------- --------
Deferred tax liabilities:
Untaxed reserves.................................... 281 281
Inventories......................................... -- 50
Other............................................... -- 90
-------- --------
281 421
-------- --------
Net deferred tax liabilities.......................... SEK (145) SEK (334)
======== ========
The deferred tax amounts above have been classified on the consolidated
balance sheets as follows:
2000 1999
-------- --------
Current assets.......................................... SEK -- SEK --
Noncurrent assets....................................... -- --
Noncurrent liabilities.................................. 145 334
------- -------
SEK 145 SEK 334
======= =======
The income tax provision differs from the amount of income tax determined by
applying the applicable Swedish income tax rate to pretax income for 2000 and
1999 due to the following:
2000 1999
--------------------- -------------------
AMOUNT PERCENT AMOUNT %
---------- -------- -------- --------
Computed "expected" tax expense........................ SEK 821 28.0% SEK 354 28.0%
Increase in income taxes resulting from:
Nontaxable items..................................... 173 6.0% -- --
Other................................................ 7 0.3% 14 1.1%
--------- ---- ------- ----
SEK 1,001 34.3% SEK 368 29.1%
========= ==== ======= ====
NOTE 7. RETIREMENT PLAN
The Company has a deferred compensation plan agreement with a former key
employee which permitted the employee to retire at age 60. In March 2000, the
employee retired and the Company paid approximately 1,046 SEK to fund an
insurance contract. The Company also recorded a corresponding liability to cover
the estimated present value of the liability to be paid to the recipient. Each
month, the recipient will receive approximately 17 SEK over a 60-month term. At
December 31, 2000, the related asset and liability associated with this plan is
911 SEK and is included in the accompanying balance sheet as "other assets" and
as "deferred compensation benefits."
X-8
MOBITEC HOLDING AB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 7. RETIREMENT PLAN (CONTINUED)
The amount of the expense associated with this plan for the year ended
December 31, 2000 was approximately 1,046 SEK.
NOTE 8. MAJOR CUSTOMERS
Sales to major customers during the year ended December 31, 2000 and 1999
are as follows:
AMOUNT OF NET SALES
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999
----------- -----------
Customer A......................................... SEK 10,823 SEK *
Customer B......................................... * 11,321
Customer C......................................... * 9,218
---------- ----------
SEK 10,823 SEK 20,539
========== ==========
TRADE ACCOUNTS RECEIVABLE
DECEMBER 31,
-------------------------
2000 1999
---------- ------------
Customer A............................................ SEK 513 SEK *
Customer B............................................ * 2,123
Customer C............................................ * 1,863
------- ---------
SEK 513 SEK 3,986
======= =========
- ------------------------
* The net sales to Customers B and C were not significant for 2000. The net
sales to Customer A were not significant for 1999.
Because of the nature of the Company's business, the major customers may
vary between years.
NOTE 9. OTHER COMPREHENSIVE INCOME
The following is a summary of the tax effects of the components of other
comprehensive income, consisting solely of foreign currency translation
adjustments, reported in the statements of stockholders' equity for the years
ended December 31, 2000 and 1999:
PRE-TAX NET-OF-TAX
AMOUNT TAX BENEFIT AMOUNT
---------- ----------- ----------
Year ended December 31, 2000:
Foreign currency translation adjustment................... SEK 1,614 SEK (1,162) SEK 452
========= ========== =======
Year ended December 31, 1999:
Foreign currency translation adjustment................... SEK 400 SEK (288) SEK 112
========= ========== =======
NOTE 10. FOREIGN OPERATIONS
The Company has one business segment in which it develops, manufactures, and
distributes information systems primarily for buses used in public
transportation. Customers are primarily bus
X-9
MOBITEC HOLDING AB AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 10. FOREIGN OPERATIONS (CONTINUED)
manufacturers located in Scandinavia, Germany, Australia, and Brazil. Summarized
financial information for the Company's foreign operations for the year ended
December 31, 2000 and 1999 is as follows:
2000 1999
------------ -----------
Sales:
Sweden.......................................... SEK 93,194 SEK 90,948
Germany......................................... 11,925 7,727
Australia....................................... 6,770 --
Brazil.......................................... 13,850 1,594
Eliminations.................................... (18,275) (8,330)
----------- ----------
SEK 107,464 SEK 91,939
=========== ==========
Income (loss) from operations:
Sweden.......................................... SEK 1,103 SEK 1,824
Germany......................................... (1,013) (252)
Australia....................................... 770 --
Brazil.......................................... 1,767 328
Eliminations.................................... 445 (161)
----------- ----------
SEK 3,072 SEK 1,739
=========== ==========
Identifiable assets:
Sweden.......................................... SEK 39,388 SEK 33,363
Germany......................................... 3,730 4,624
Australia....................................... 5,311 --
Brazil.......................................... 6,297 3,772
Eliminations.................................... (12,444) (9,289)
----------- ----------
SEK 42,283 SEK32,470.
=========== ==========
X-10
APPENDIX XI
MOBITEC HOLDING AB
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2000
DIGITAL RECORDERS, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
These pro forma condensed financial statements reflect the proposed
acquisition of Mobitec Holding AB and Subsidiaries. The pro forma condensed
financial statements present the balance sheet as if the transaction had
occurred on December 31, 2000 and the income statement as if the transaction had
occurred at January 1, 2000.
The following unaudited pro forma condensed financial statements are derived
from the audited financial statements of Digital Recorders, Inc. (DRI or the
Company) as of and for the year ended December 31, 2000 and the unaudited
financial statements of Mobitec Holding AB and Subsidiaries as of and for the
year ended December 31, 2000. The unaudited financial information herein
reflects all adjustments, consisting only of normal recurring adjustments which,
in the opinion of management of the respective companies, are necessary to
fairly state the Company's financial position and results of its operations.
These pro forma condensed statements of operations and balance sheet do not
purport to represent what the Company's results or financial condition would
actually have been if the Acquisition had occurred on the dates indicated or to
project the Company's results or financial condition for or at any future period
or date. The pro forma adjustments, as described in the accompanying data, are
based on available information and certain assumptions that management believes
are reasonable.
The unaudited pro forma condensed financial statements should be read in
conjunction with the historical financial statements and related notes of DRI
and Mobitec Holding AB.
XI-1
DIGITAL RECORDERS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRO FORMA PRO FORMA
DIGITAL MOBITEC ADJUSTMENTS NOTE COMBINED
-------- -------- ----------- -------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 124 $ 217 $ 250 B1 $ 591
Trade accounts receivable--net............................ 9,518 2,037 -- 11,555
Other receivables......................................... 51 236 -- 287
Inventories............................................... 5,463 1,480 -- 6,943
Prepaids and other current assets......................... 360 42 -- 402
------- ------ ------ -------
Total current assets.................................... 15,516 4,012 250 19,778
Property and equipment--net............................... 586 337 -- 923
Goodwill--net............................................. 1,079 -- 1,989 B2 3,068
Intangible assets--net.................................... 76 -- 4,500 B2 4,576
Deferred taxes............................................ 170 -- -- 170
Other assets.............................................. 393 144 -- 537
------- ------ ------ -------
TOTAL ASSETS............................................ $17,820 $4,493 $6,739 $29,052
======= ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit and current maturities..................... $ 5,555 $1,069 $ 350 B3 $ 6,974
Accounts payable.......................................... 3,265 1,044 -- 4,309
Accounts payable, related party........................... 2,225 -- -- 2,225
Accrued expenses.......................................... 1,124 524 -- 1,648
Income tax payable........................................ 5 68 -- 73
Other current liabilities................................. -- 181 -- 181
Preferred stock dividends payable......................... 44 -- -- 44
------- ------ ------ -------
Total current liabilities............................... 12,218 2,886 350 15,454
------- ------ ------ -------
LONG TERM LIABILITIES
Other liabilities......................................... -- 16 -- 16
Long term liabilities..................................... -- 97 6,400 B3 6,497
------- ------ ------ -------
Total long term liabilities............................. -- 113 6,400 6,513
------- ------ ------ -------
Total Liabilities....................................... 12,218 2,999 6,750 21,967
------- ------ ------ -------
SERIES AAA REDEEMABLE, CONVERTIBLE, NONVOTING PREFERRED
STOCK..................................................... 1,770 -- -- 1,770
------- ------ ------ -------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY................ -- 193 -- 193
------- ------ ------ -------
STOCKHOLDERS' EQUITY:
Share capital............................................. -- 12 (12) B2 --
Legal reserve............................................. -- 299 (299) B2 --
Common stock.............................................. 327 -- 43 B4 370
Additional paid-in-capital................................ 11,159 -- 1,247 B4 12,406
Accumulated other comprehensive income (loss)............. (329) 42 (42) B2 (329)
Accumulated earnings (deficit)............................ (7,325) 948 (948) B2 (7,325)
------- ------ ------ -------
Total stockholders' equity.............................. 3,832 1,301 (11) 5,122
------- ------ ------ -------
Total Liabilities and Stockholders' Equity.............. $17,820 $4,493 $6,739 $29,052
------- ------ ------ -------
The accompanying notes are an integral part of these financial statements.
XI-2
DIGITAL RECORDER, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
PRO FORMA PRO FORMA
DIGITAL MOBITEC ADJUSTMENTS NOTE COMBINED
--------- -------- ----------- -------- ---------
Net sales.................................... $ 29,886 $11,722 $ -- $ 41,608
Cost of sales................................ 18,980 6,851 -- 25,831
--------- ------- ------- ---------
Gross profit........................... 10,906 4,871 -- 15,777
--------- ------- ------- ---------
Operating expenses:
Selling, general and administrative........ 8,378 3,776 529 C-1 12,683
Research and development................... 2,295 744 -- 3,039
Other...................................... -- 16 -- 16
--------- ------- ------- ---------
Total operating expenses................. 10,673 4,536 529 15,738
--------- ------- ------- ---------
Operating income (loss).................. 233 335 (529) 39
Other expense................................ (2) 23 -- 21
Interest expense............................. (510) (40) (514) C-2 (1,064)
--------- ------- ------- ---------
Total other expense and interest
expense.............................. (512) (17) (514) (1,043)
--------- ------- ------- ---------
Income (loss) before income taxes........ (279) 318 (1,043) (1,004)
Income tax expense........................... -- (109) -- (109)
--------- ------- ------- ---------
Net income (loss)........................ (279) 209 (1,043) (1,113)
Minority interest in net income of
consolidated subsidiary.................... -- (88) -- (88)
Preferred stock dividend requirements........ 177 -- -- 177
--------- ------- ------- ---------
Net income (loss) applicable to common
shareholders........................... $ (456) $ 121 $(1,043) $ (1,202)
========= ======= ======= =========
Earnings per share:
Net loss per share--basic and diluted.... $ (0.14) $ (0.32)
========= =========
Weighted average number of common shares
and common equivalent shares
outstanding............................ 3,274,475 3,704,475
========= =========
The accompanying notes are an integral part of these financial statements.
XI-3
DIGITAL RECORDERS, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE A--ACQUISITION:
On March 13, 2001, DRI Europa AB and Digital entered into an Amended Option
Agreement (the Option Agreement) with Bengt Bodin, Annacarin Bodin, Mattias
Bodin, Tobias Bodin, and Bertil Lindqvist (collectively, the "Offerors"), which
amended and superseded an Option Agreement between the same parties dated
December 7, 2000. Pursuant to the Option Agreement, the Offerors granted to
Digital and DRI Europa AB an irrevocable right of option to purchase the
Offerors' shares of Mobitec Holding AB for the period from March 13, 2001 to
June 16, 2001, based upon the occurrence of certain events. The option may be
exercised such that either DRI Europa AB, solely, or DRI Europa AB and Digital,
jointly, will be the Purchaser under that Stock Purchase Agreement. The Stock
Purchase Agreement, which will be executed after exercise of one of the options,
provides for the purchase of the Offerors' shares of Mobitec Holding AB for an
aggregate consideration of (i) $4,250,000 in cash, (ii) seller financed debt to
the Bodin Sellers of $2,000,000, (iii) 430,000 Restricted Shares of the
Digital's Common Stock, and (iv) warrants to purchase in the aggregate of
100,000 shared of Digital's Common Stock at an exercise price of $4.00 per share
for a period of five years.
NOTE B--PRO FORMA ADJUSTMENTS--BALANCE SHEET:
(1) Represents the cash received from (i) the issuance of $3,000,000 of
convertible debentures which are convertible to up to 1,500,000 shares of
the Company's common stock, which funds will be used to fund part of the
Stock Purchase Agreement, and (ii) the borrowing of $1,750,000 from
Svenska Handelsbaken AB, less (i) the cash consideration of $4,250,000
paid as part of the Acquisition and (ii) $250,000 in professional fees
related to the Acquisition.
(2) Represents the fair value of goodwill and intangible assets (customer
lists, product designs and non-compete agreements) acquired and recorded
in connection with the Acquisition and the elimination of Mobitec's
stockholders' equity.
(3) Represents the borrowings incurred related to the financing of the
Acquisition of (i) $3,000,000 of convertible debentures which are
convertible into up to 1,500,000 shares of the Company's common stock,
and (ii) $1,750,000 in a term loan from Svenska Handelsbaken AB, and
(iii) $2,000,000 in seller financed debt issued to the Bodin Sellers. All
borrowings are reflected as long-term obligations except for $350,000 of
the term loan which is due within one year.
(4) Represents the issuance of 430,000 Restricted Shares of the Company's
common stock at the stipulated value of $3.00 as part of the
consideration for the Acquisition.
NOTE C--PRO FORMA ADJUSTMENTS--STATEMENT OF OPERATIONS:
(1) Represents the amortization of recorded goodwill and intangible assets
over an estimated life of 3 to 15 years.
(2) Represents the interest expense for the year associated with the
issuance of the convertible debentures of $3,000,000 (8%), the seller
financed notes of $2,000,000 (9%) and the borrowings in connection with
the Svenska Handelsbaken AB term loan of $1,750,000 (5.35%).
XI-4
APPENDIX XII
CHARTER
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
DIGITAL RECORDERS, INC.
RESPONSIBILITY, AUTHORITY, AND GUIDELINES
NOTE
It is the specific intent of this charter to establish long-term conformity with
the "REPORT AND RECOMMENDATIONS OF THE BLUE RIBBON COMMITTEE ("BRC") ON
IMPROVING THE EFFECTIVENESS OF CORPORATE AUDIT COMMITTEES". DRI's Board of
Directors believes that certain of those recommendations cannot realistically be
applied in strict and absolute terms to relatively new and small public
companies such as DRI, in the near term, without risk of compromise of
shareholder best interest. Therefore, recognizing the ultimate long term goal is
full compliance with the BRC Report and its recommendations, matters of this
charter, and conduct of the Board of Directors and its Audit Committee, will be
such as to progress the company toward that ultimate long term goal. Further,
adherence to policies and procedures consistent with the spirit and intent of
that Report and its recommendations will be current and ongoing.
Company Management has full and total responsibility for un-compromised
compliance with all accounting standards, reporting requirements, and
disclosures. Nothing in this charter is to be construed as supplanting that
responsibility of management nor as substituting the Audit Committee in such
responsibilities. The responsibility of the Audit Committee is one of oversight
based on the assumption management has fully carried-out all reporting
requirements.
GENERAL STATEMENT OF PURPOSE: The Audit Committee serves...
- to oversee that management has devised, implemented, and maintained the
reliability and integrity of accounting policies, financial reporting, and
disclosure practices of the Company
- to oversee that management has established and maintained processes to
assure that an adequate system of internal control is functioning within
the Company
- to oversee that management has established and maintained processes to
assure compliance by the Company with applicable domestic and
international laws and regulations of financial nature
- to recommend to the Board of Directors the appointment of, changes in, and
compensation of, the Company's independent public audit firm
- as the primary interface and relationship point with the Company's
officially appointed independent public audit firm
- as an independent, direct, and open channel of communications between the
Board of Directors and the independent public audit firm
- as an extension of the Board in discharge of the Board's fudiciary
responsibility
XII-1
MEMBERSHIP: The Audit Committee shall consist of not less than three
members all of which are to be outside directors. At least one member of the
committee, and its Chair, shall be "Independent" as defined in the Blue Ribbon
Committee report and Recommendations"(1). All members of the Audit committee not
in compliance with this definition of Independence will be so noted in at least
one public disclosure each year together with a clear statement, based on annual
formal resolution of the Board of Directors, as to why the best interest of the
Company's shareholders is served in waiver of compliance. All members shall
possess working knowledge of financial statements as typically employed by the
Company in its industry, be current shareholders(2) in the company, and maintain
up-to-date knowledge (through continuing education or otherwise) related to the
duties herein, and have attended at least 75% of all meetings of the Board of
Directors in the preceding year. The Board of Directors may alter Audit
Committee membership from time to time, subject to these requirements. The
company CFO and CEO serve as ex-officio (non-voting) members of the Audit
Committee.
DUTIES AND RESPONSIBILITIES: The duties and responsibilities of the Audit
Committee shall include the following:
1. Any relevant task specifically delegated by the Board of Directors
2. Provide an open avenue of communication between the Company's independent
public audit firm, Company financial management, and the Board of Directors
3. Meet at least three times per year, or more frequently as circumstances
require, asking members of management or others to attend meetings to
provide information as deemed necessary to fully discharge it's
responsibility to the shareholders
4. Screen, select, and recommend, in consultation with company management, to
the Board of Directors, the Company's Independent Auditors
5. Confirm and assure the independence and objectivity of the Independent
Auditor
6. Inquire of management, and the Independent Auditor about the existence of,
or potential for existence of significant business risks or financial
exposures and assess steps management has taken to minimize such risks
7. Review and fully investigate results of audits, the previous year's audit,
the independent auditor's management letter, and any difficulties
encountered in the course of audit work, including any restrictions on the
scope of activities or access to required information
- ------------------------
(1) For each of the preceding five years including the current year, not
employed by, nor accepting compensation from (other than as a director), the
Company or any of its affiliates; and, not a relative or immediate family
member of any individual who is (or in the past five years has been), an
employee of the Company or its affiliates; and, not a director, partner, or
officer, in any for- profit business making significant payments to or
receiving significant payments from, the Company; and, is not employed as an
executive of another company where any of the Company executives serves on
that company's compensation committee. "Significant" is defined as having
the meaning stipulated for this purpose in the Blue Ribbon Committee"
Report.
(2) The intent of this requirement is beneficial ownership of voting
securities of the company purchased in the open NASDAQ market. However, the
Board of Directors may waive this requirement for up to one year provided
the individual is holder of options or warrants to purchase such securities
and provided there is significant reason to believe the best interest of
shareholders is served by such waiver.
XII-2
8. Meet periodically with the Independent Auditor and management, both together
and in separate sessions, to discuss any matters that the Committee,
Independent Auditors or management believes should be discussed with the
Audit Committee.
9. Advise financial management and the Independent Auditor they are expected to
provide full, complete, and accurate financial statements, reporting, and
analysis on a timely basis denoting the true and accurate financial
condition of the company
10. Provide that management and the Independent Auditor discuss with the Audit
Committee their qualitative judgments about the appropriateness (not just
the accept-ability) and effectiveness of accounting principles and financial
disclosure practices used, or proposed to be adopted, by the Company and,
particularly, about the degree of aggressiveness or conservatism of its
accounting principles and estimates
11. Inquire as to the Independent Auditor's independent qualitative judgments
about the appropriateness (not just the acceptability) and effectiveness of
the accounting principles and the clarity of the financial disclosure
practices used or proposed to be adopted by the Company
12. Inquire as to the Independent Auditor's views about whether management's
choices of accounting principles are conservative, moderate, or aggressive
from the perspective of income, asset, and liability recognition, and
whether those principles are common practices or are minority practices
13. Determine, as regards disclosures, transactions, events, accounting
principles, and changes in accounting principles, the reasoning of
management and the Independent Auditors about the appropriateness of same
14. Consider, set, and approve, in consultation with management, the scope,
cost, and schedule of the annual (and any interim) audit
15. Review the results of annual audits of expense reimbursements, compensation,
and perquisites of and to directors and officers including their use of
corporate assets together with any required or appropriate reporting of same
for tax or public company disclosure purposes.
16. Arrange for the Independent Auditor to be available to the Board of
Directors at least annually to provide a basis for the Board to recommend to
Shareholders the appointment of the Auditor
17. Review and concur in the appointment, replacement, reassignment, or
dismissal of the CFO and any senior financial management personnel of the
Company under the direction of the CFO
18. Review and approve any consulting engagement (including that related to M&A
activity of the company and the independent auditors participation in work
related to same) to be performed by the Company's Independent Auditor and be
advised of any other study under taken at the request of management that is
beyond the scope of the audit engagement
19. Periodically consult with Corporate legal counsel on matters that may have a
material impact on the Company or its compliance with relevant public
company regulations, policies, and programs or constitute significant risk
or expense to the company
20. Conduct or authorize investigations into any matters within the Committee's
scope of responsibilities including, if deemed appropriate by the Board of
Directors, retaining independent counsel and other professionals to assist
21. Review, under SAS71, together with pertinent related communication with the
independent auditors of the company, prior to filing or publication, all
financial information and accompanying text (both annual and quarterly as
well as all other) to be filed with the SEC (excluding Public and
Shareholder Relations News Releases not a part of quarterly or annual SEC
reporting of the company)
XII-3
22. Prepare a letter for inclusion in the annual report that describes the
committee's composition, responsibilities, charter, how responsibilities
were discharged, and degree/extent of compliance with the BRC
recommendations.
23. Review and update the Committee's Charter annually
24. Establish with management guidelines for the company to follow with respect
to any proposed financial activities by the company in securities
25. Establish with management guidelines for term of employment of the
independent audit firm
MEETINGS, ACCOUNTABILITY, AND RECORDS: The Audit Committee will conduct at
least three scheduled meetings each year. Meetings can be called by any member
of the Audit Committee upon ten days written notice of time, date, location, and
agenda with copy to all Board of Directors members and executive management.
Minutes of all meetings will be maintained by the Committee Chair, or designee
of the Chair, and presented to the Board of Directors its next regularly
scheduled or special meeting.
Reviewed and Adopted by:
The Audit Committee & Board of Directors on _____________
XII-4
APPENDIX XIII
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
DIGITAL RECORDERS, INC.
The undersigned Corporation hereby executes these Articles of Amendment for
the purpose of amending its Articles of Incorporation.
1. The name of the Corporation is Digital Recorders, Inc.
2. The following amendment to the Articles of Incorporation of the
Corporation was adopted by its Shareholders in the manner prescribed by law:
Article VIII of the Articles of Incorporation shall be deleted in its
entirety and the following substituted in lieu thereof:
"The number of directors shall not be less than three, nor more than twelve,
and the number of directors may be increased or decreased from time to time,
within such minimum and maximum, by resolution of the Board of Directors. If
the number of directors is fixed at six or more directors by the Board of
Directors, the director's terms of office shall be staggered by dividing the
total number of directors into two or three groups, with each group
containing one-half or one-third of the total, as near as may be. In that
event, the terms of directors in the first group expire at the first annual
shareholders' meeting after their election, the terms of the second group
expire at the second annual shareholders' meeting after their election, and
the terms of the third group, if any, expire at the third annual
shareholders' meeting after their election. At each annual shareholder
meeting held thereafter, directors shall be chosen for a term of two years
or three years, as the case may be, to succeed those whose terms expire."
2. The date of the adoption of these Articles of Amendment by the Common
Stock Shareholders was May 1, 2000.
3. These Articles of Amendment do not effect an exchange, reclassification
or cancellation of issued shares of the Corporation.
Dated this the ______ day of ____________, 2000.
DIGITAL RECORDERS, INC.
By /s/ DAVID L. TURNEY
-----------------------------------------
David L. Turney
CHAIRMAN OF THE BOARD
XIII-1
AMENDED TO BYLAWS
OF
DIGITAL RECORDERS, INC.
The Bylaws of Digital Recorders, Inc. are hereby amended in accordance with
the amendment to the Articles of Incorporation approved by the shareholders on
May 1, 2000.
Article III, Sections 2, 3 and 4 of the Bylaws are deleted in their entirety
and in lieu thereof the following is substituted:
Section 2. Number. The number of directors of the corporation shall be fixed
from time to time by the board of directors, within a range of no less than
three or more than twelve. If the number of directors is fixed at six or more
directors by the Board of Directors, the directors' terms of office shall be
staggered by dividing the total number of directors into two or three groups,
with each group containing one-half or one-third of the total, as near as may
be. In that event, the terms of office of directors in the first group expire at
the first annual shareholders' meeting after their election, and the terms of
office of the third group, if any, expire at the third annual shareholders'
meeting after their election. At each annual shareholder meeting held
thereafter, directors shall be chosen for a term of two years or three years, as
the case may be, to succeed those whose terms expire.
Effective this 1st day of May, 2000.
______________________________________
Secretary
XIII-2
APPENDIX XIV
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, entered into as of April 20, 1998 to be effective as
of January 1, 1998, by and between DIGITAL RECORDERS, INC., a North Carolina
corporation (the "Company") and DAVID TURNEY (the "Employee").
WHEREAS, the Company desires to employ the Employee on a full-time basis as
the Company's Chief Executive Officer (as of April 20, 1998) and President
(after May 15, 1998);
WHEREAS, Employee desires to be so employed by the Company, from and after
the date of this Agreement;
WHEREAS, this Employment Agreement contains nondisclosure, noncompetition
and other significant secrecy agreements; and
WHEREAS, Employee agrees that the compensation given herein along with the
stock option grant approved as of April 20, 1998 is significant consideration
for the provisions of this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
ARTICLE I
EMPLOYMENT DUTIES AND BENEFITS
SECTION 1.1 EMPLOYMENT. The Company hereby employs the Employee in the
position described on Schedule 1 hereto as an executive officer of the Company.
The Employee accepts such employment and agrees to perform the duties and
responsibilities assigned to him pursuant to this Agreement upon the terms and
conditions set forth in this Agreement.
SECTION 1.2 DUTIES AND RESPONSIBILITIES. The Employee shall hold the
position with the Company which is specified on Schedule 1, which is attached
hereto and incorporated herein by reference. The Employee is employed pursuant
to the terms of this Agreement and agrees to devote full-time to the business of
the Company. The Employee shall perform the duties set forth on Schedule 1, and
such further duties consistent with Employee's position as defined herein as may
be determined and assigned to him from time-to-time by the Board of Directors of
the Company. Further, Employee shall be nominated during the term hereunder for
a seat on the Board of Directors and his annual re-election shall be recommended
to the shareholders for their approval so long as this Agreement is in effect.
SECTION 1.3 WORKING FACILITIES. The Employee shall be furnished with
facilities and services suitable to the position and adequate for the
performance of Employee's duties under this Agreement.
SECTION 1.4 VACATIONS. The Employee shall be entitled each year to a
reasonable vacation of not less than three (3) weeks in accordance with the
established practices of the Company now or hereafter in effect for executive
personnel, during which time the Employee's compensation shall be paid in full.
Employee shall be permitted to carryover up to six (6) weeks of accrued but
unused vacation.
SECTION 1.5 TERM. The term of this Agreement is for a period of four
(4) years commencing on the effective date specified above, unless otherwise
terminated as provided in this Agreement.
SECTION 1.6 EXPENSES. The Employee is authorized to incur reasonable
expenses for promoting the domestic and international business of the Company in
all respects, including expenses for entertainment, travel and similar items.
The Company will pay, within the budget established by the Board of Directors,
all reasonable expenses incurred by Employee in the conduct of Company business
XIV-1
and discharge of duties hereunder, including but not limited to, dues and fees
of business, civic, social, and professional societies and organizations, the
expense of attending business and professional meetings, conventions, and
institutions, and the cost of all business and professional books and
periodicals. The Company will reimburse the Employee for all such expenses upon
the presentation by the Employee, from time-to-time, of an itemized account of
such expenditures. In addition, Company shall reimburse Employee for all
ordinary and necessary expenses incurred in travel to and from Dallas area home
base and transitory living quarters in the Research Triangle Park area.
SECTION 1.7 AUTOMOBILE. The Company will purchase or lease in its own name
every three (3) years, or more frequently at Employer's option, a new
automobile. The vehicle will be furnished to the Employee for business use and
limited personal use not to exceed thirty percent (30%) of the total use.
SECTION 1.8 EMPLOYEE'S OTHER BUSINESS. Employee shall be allowed to
participate in outside business activities provided (i) such activities do not
interfere with Employee's performance of his duties as a full-time employee of
the Company; and (ii) the outside business is not a "Business Opportunity" of
the Company, as defined herein. A Business Opportunity of the Company shall be a
product, service, investment, venture or other opportunity which is either:
(a) directly related to or within the scope of the existing business of the
Company; or
(b) Within the logical scope of the business of the Company, as such scope
may be expanded or altered from time-to-time by the Board of Directors.
ARTICLE II
COMPENSATION
SECTION 2.1 BASE SALARY. The Company shall pay to the Employee a base
salary of not less than the amount specified on Schedule 1, such salary to be
paid in equal amounts on or before the last day of each month. This amount will
be reviewed annually for consideration of increase in the discretion of the
Compensation Committee for approval by the Board of Directors on the basis of
the value of such Employee's services to the Company.
SECTION 2.2 BONUS. In addition to the basic compensation described in
Section 2.1 above, the Company may pay to the Employee an additional sum during
each year of employment as a bonus as proposed in the discretion of the
Compensation Committee and approved by the Board of Directors and may
discretionarily grant additional stock options. As an alternative to a
discretionary bonus, Employee may present for approval a formula bonus provision
which is tied to such factors, to include but not be limited to, RONA and
Operating Profit with a cap of 100% of base salary.
SECTION 2.3 OPTION GRANTS. Employee shall receive the Option Grants set
forth on Schedule 1, subject to approval by the shareholders as may be needed,
and shall also be eligible for future grants as provided by the Compensation
Committee.
ARTICLE III
TERM OF EMPLOYMENT AND TERMINATION
SECTION 3.1 TERM. This Agreement shall be for a term which is specified on
Schedule 1, commencing on its effective date, subject, however, to termination
during such period as provided in this Article. After the term, this Agreement
shall be renewed automatically for succeeding periods of one (1) year each on
the same terms and conditions as contained in this Agreement unless either the
Company or the Employee shall, at least 180 days prior to the expiration of the
initial term or of any renewal term, give written notice of the intention not to
renew this Agreement. Such renewals shall be effective in subsequent years on
the same day of the same month as the original effective date of this Agreement.
XIV-2
SECTION 3.2 TERMINATION BY EITHER COMPANY OR EMPLOYEE WITHOUT CAUSE. The
Company or Employee, without cause, may terminate this Agreement upon ninety
(90) days' written notice to the other. In either event, the Employee shall not
be required to render the services required under this Agreement during the
ninety (90) day period; however, normal salary and benefits shall continue.
Compensation for vacation time not taken by Employee shall be paid to the
Employee at the date of termination.
SECTION 3.3 TERMINATION BY THE COMPANY WITH CAUSE. The Company may
terminate the Employee, at any time, upon 30 days' written notice and
opportunity for Employee to remedy any non-compliance with the terms of this
Agreement, by reason of the willful misconduct of the Employee which results in
a material financial loss or other detriment to the Company, as expressed in the
written opinion of the Board of Directors. Termination for cause shall result in
immediate forfeiture of Employee's right to receive future salary, accrued bonus
and other future benefits as may be granted herein. Employee shall receive any
accrued vacation, earned salary, and any reimbursements or payments pursuant to
Section 1.6 supra.
SECTION 3.4 TERMINATION BY THE EMPLOYEE WITH CAUSE. The Employee may
terminate his employment with the Company at any time, upon 30 day's written
notice and opportunity for the Company to remedy any non-compliance, by reason
of (i) the Company's material failure to perform its duties pursuant to this
Agreement, or (ii) any material change in the duties and responsibilities,
working facilities, or benefits as described in Article I of this Agreement.
SECTION 3.5 TERMINATION UPON DEATH OF EMPLOYEE. In addition to any other
provision relating to termination, this Agreement shall terminate upon the
Employee's death. No severance allowance or compensation for vacation time not
taken by Employee shall be paid to the Employee's estate.
SECTION 3.6 LUMP SUM COMPENSATION AND CONTINUATION OF BENEFITS. In the
event the Employee shall terminate this Agreement pursuant to Section 3.4 of
this Agreement, or in the event the Company or Employee shall terminate this
Agreement under Section 3.2 hereof then, in such event, the Employee shall be
entitled to receive the following on the date of such termination or, as the
case may be, as specified below:
(i) The Employee shall receive lump sum compensation equal to 180 days worth
of Base Salary.
(ii) For a period of 6 months from the date of the Employee's termination or
resignation, the Employee shall be entitled to continue to participate, at the
Company's cost, in all existing benefit plans provided to the Company's
executive employees at the time of the Employee's termination or resignation,
unless specifically prohibited by said plan. Such plans shall include, but are
not limited to, then-existing medical, health, disability, life insurance and
death benefit plans.
(iii) Within 90 days of the Employee's termination or resignation, the
Employee shall have the right, but not the obligation, to purchase any life
insurance policy now maintained by the Company on the life of the Employee. The
purchase price of such life insurance policy shall be equivalent to 105% of the
cash surrender value of such life insurance policy. The Employee, at his option,
shall have the right to pay such purchase price in the form of Common Shares of
the Company which shall be valued at the bid price of such Common Shares on the
date of purchase of such life insurance policy.
(v) Notwithstanding any language to the contrary above, the Company shall
not be obligated to pay Employee any compensation specified in this Section 3.6
in the event termination is a direct result of liquidation of the Company by
action of the Board of Directors or shareholders of the Company.
(vi) In the event of the occurrence of a "Triggering Event" which shall be
defined to include a (i) change in ownership in one or a series of transactions
of 50% or more of the outstanding shares of the Company, or (ii) merger,
consolidation, re-organization or liquidation of the Company, and following such
Triggering Event the Employee's services are terminated by the Company or the
XIV-3
Employee or the Employee's duties, authority or responsibilities are
substantially changed, or the Employee is unable to negotiate a satisfactory new
employment agreement, the Employee shall receive lump sum compensation equal to
2.9 times his annual salary and incentive or bonus payments, if any, as shall
have been paid to the Employee during the Company's most recent 12-month period
ending within 30 days of the Triggering Event (annualized if 12 months
employment has not occurred). If the total amount of the change of control
compensation were to exceed three (3) times the Employee's base amount (the
average annual taxable compensation of the Employee for the five (5) years
preceding the year in which the change of control occurs), the Company and the
Employee may agree to reduce the lump sum compensation to be received by
Employee in order to avoid the imposition of the golden parachute tax as
provided in the Tax Reform Act of 1984, as amended by the Tax Reform Act of
1986.
In the event the Employee is required to hire counsel to negotiate on his
behalf in connection with his termination or resignation from the Company upon
the occurrence of a Triggering Event, or in order to enforce the rights and
obligations of the Company as provided in this Paragraph, the Company shall
reimburse to the Employee all reasonable attorneys' fees which may be expended
by the Employee in seeking to enforce the terms hereof. Such reimbursement shall
be paid every 30 days after the Employee provides copies of invoices from the
Employee's counsel to the Company. However, such invoices may be redated to
preserve the attorney-client privilege, client confidentiality or work product.
ARTICLE IV
DISABILITY INSURANCE
SECTION 4.1 DISABILITY INSURANCE. During the term of this Agreement, the
Company agrees that it shall provide disability coverage consistent with that
offered to the other executive employees.
ARTICLE V
CONFIDENTIALITY
SECTION 5.1 CONFIDENTIALITY. Employee acknowledges that (i) the Company is
in the business of selling and distributing highly technical and proprietary
work products, information and technology developed or acquired by the Company
(hereinafter collectively referred to as "Technology"), (ii) certain of the
Technology is a trade secret, is confidential and proprietary, and (iii) the
secret, confidential and proprietary nature of the Technology is essential to
the Company. The Technology which constitutes trade secrets shall be kept
confidential by the Employee and shall not be used or disclosed by the Employee
to any third party unless written permission to disclose such information is
provided by the Company to the Employee. Employee agrees to secure and protect
the Technology in a manner consistent with the Company's rights in the
Technology. Employee shall not use the Technology to develop or to aid in the
development by any third party of competing Technology. Upon termination of
Employee, the Company shall provide Employee a detailed listing stating the
scope of any Technology, which may not include items in the public domain or
known to third parties having no obligation with confidentiality. Provided,
however, this Section 5.1 shall not apply if a "triggering event" occurs
pursuant to Section 3.6(vi) supra and Employee is not paid pursuant to the terms
thereunder.
SECTION 5.2 COVENANT OF NON-DISCLOSURE. Employee agrees that during the
term of this Agreement or thereafter, Employee will neither disclose any
confidential information as to the Company nor at any time remove for purposes
other than the conduct of Company business or retain without the Company's
express consent any figures, calculations, letters, papers or other confidential
information of any type or description. Employee also warrants and covenants not
to disclose, to reveal, to divulge or to make known to any person, firm,
corporation or entity or use for any purpose outside Company's business,
Company's clientele lists, contents of any process, data, consulting
information, methods, office procedures, filing systems, computer software
systems, subsystems, routines and subroutines, proprietary rights, work product
developed for or on behalf of the Company (except
XIV-4
information within the public domain) or any information regarding any trade
secrets or confidential information reposed in him by the Company or any
information regarding the transactions of the Company with its clients or the
state of the accounts of the individuals, firms, corporation, or others with
whom the Company does business, without the prior written permission of the
Company. Anything in this Section to the contrary notwithstanding, Employee may
use or disclose those portions of the confidential information which: (1) are or
become part of the public domain (other than as a result of a breach by
Employee); (2) were known to Employee or obtained by Employee from a third
party; or (3) Employee is ordered by a court to produce; provided Employee
promptly notifies the Company of receipt of any order or motion to require the
production of any portion of the confidential information.
SECTION 5.3 SHOP RIGHT. With respect to Inventions made or conceived by
the Employee, whether or not during the hours of his employment or with the use
of the Company facilities, materials, or personnel, either solely or jointly
with others during his employment by the Company or within one year after
termination of such employment if based on or related to Confidential
Information, and without royalty or any other consideration, the following shall
apply:
(i) INVENTIONS. "Inventions" means discoveries, concepts, and ideas,
whether patentable or not, including, but not limited to, processes, methods,
formulas, programs, and techniques, as well as improvements or know-how,
concerning any present or prospective activities of the Company with which the
Employee becomes acquainted as a result of his employment by the Company.
(ii) REPORTS. The Employee shall inform the Company promptly and fully of
such Inventions by a written report, setting forth in detail the procedures
employed and the results achieved. A report will be submitted by the Employee
upon completion of any studies or research projects undertaken on the Company's
behalf, whether or not in the Employee's opinion a given project has resulted in
an Invention.
(iii) PATENTS. The Employee shall apply, at the Company's request and
expense, for United States and foreign letter patent either in the Employee's
name or otherwise as the Company shall desire.
(iv) ASSIGNMENT. The Employee hereby assigns and agrees to assign to the
Company all of this rights to such Inventions, and to applications for United
States and/or foreign letters patent and to United States and/or foreign letters
patent granted upon such Inventions.
(v) COOPERATION. The Employee shall acknowledge and deliver promptly to the
Company, without charge to the Company but at its expense, such written
instruments and do such other reasonable acts, such as giving testimony in
support of the Employee's inventorship, as may be necessary in the opinion of
the Company to obtain and maintain United States and/or foreign letters patent
and to vest the entire right and title thereto in the Company.
(vi) USE. The Company shall also have the royalty-free right to the
business, and to make, use, and sell products, processes, and/or services
derived from any inventions, discoveries, concepts, and ideas, whether or not
patentable, including, but not limited to, processes, methods, formulas, and
techniques, as well as improvements or know-how, whether or not within the scope
of inventions, but which are conceived or made by the Employee during the hours
which he is employed by the Company or with the use or assistance of the
Company's facilities, materials, or personnel, or within the period set forth in
this Section 5.3.
SECTION 5.4 ENFORCEMENT BY INJUNCTIVE RELIEF. The Employee acknowledges
and agrees that any breach of this Article V by Employee would cause immediate
irreparable harm to the Company and monetary damages would be difficult if not
impossible to ascertain. Employee agrees that should he violate any of the terms
and conditions of this Article V, the Company shall be entitled to seek and
obtain immediate injunctive relief and enjoin further and future violations of
this Agreement. Nothing contained herein shall affect the right of the Company
to seek and obtain monetary damages in addition to or in substitution for such
equitable relief.
XIV-5
SECTION 5.5 SCOPE OF COVENANT. In the event a court of competent
jurisdiction finds any provision of this Article V to be so overboard as to be
unenforceable, then such provision shall be reduced in scope by the court, but
only to the extent deemed necessary by the court to render the provision
reasonable and enforceable, it being the Employee's intention to provide the
Company with protection to the extent provided herein.
SECTION 5.6 NON-COMPETE COVENANT. The Employee acknowledges that the
Company is presently engaged in utilizing the Technology; and the Employee
specifically agrees that he will not use the Technology in any business, other
than the business of the Company, except as provided herein. The terms "use" and
"engage" include any attempt to use or any participation in any manner in the
use of, either directly or indirectly, including without limitation, employment
by (whether as a common law employee, consultant or expert witness) or more than
a nominal ownership interest in any business which competes with the Company or
otherwise uses the Technology. The Employee agrees that he will not engage in
any competition with the Company as described in preceding sections within the
United States and Canada during the term of this Agreement and for a term of one
(1) year from and after the termination of this Agreement if termination is
initiated by Employee pursuant to Section 3.2 or is pursuant to Sections 3.3 or
3.4; however, if termination is initiated by the Company pursuant to
Section 3.2, then the term shall only be for six (6) months.
However, this provision shall not apply if a "triggering event" occurs
pursuant to Section 3.6(vi) supra and Employee is not paid pursuant to the terms
thereunder. The Employee acknowledges that the Company would suffer irreparable
harm if the Employee were to violate the provision of this Agreement. The
Employee warrants that he is now, and will in the future, be able to support
himself and his family without the need so to breach the terms hereof.
ARTICLE VI
GENERAL MATTERS
SECTION 6.1 NORTH CAROLINA LAW. This Agreement shall be governed by the
laws of the State of North Carolina and shall be construed in accordance
therewith.
SECTION 6.2 NO WAIVER. No provision of this Agreement may be waived except
by an agreement in writing signed by the waiving party. A waiver of any term or
provision shall not be construed as a waiver of any other term or provision.
SECTION 6.3 AMENDMENT. This Agreement may be amended, altered or revoked
at any time, in whole or in part, by execution of a written instrument setting
forth such changes, signed by each of the parties.
SECTION 6.4 ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties and it may not be changed orally, but only by written agreement
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
SECTION 6.5 CONSTRUCTION. Throughout this Agreement the singular shall
include the plural, and the plural shall income the singular, and the masculine
and neuter shall include the feminine, wherever the context so requires.
SECTION 6.6 TEXT TO CONTROL. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
SECTION 6.7 SEVERABILITY. If any provision of this Agreement is declared
by any court of competent jurisdiction to be invalid for any reason, such
invalidity shall not affect the remaining provisions. On the contrary, such
remaining provisions shall be fully severable, and this Agreement shall be
construed and enforced as if such invalid provisions had not been included in
the Agreement.
XIV-6
SECTION 6.8 AUTHORITY. The officer executing this Agreement on behalf of
the Company has been empowered and directed to do so by the Board of Directors
of the Company.
SECTION 6.9 EFFECTIVE DATE. The effective date of this Agreement shall be
January 1, 1998.
SECTION 6.10 INSURANCE. The Employee agrees that the Company, in its
discretion, may apply for and procure in its own name and for its own benefit
insurance of any kind and in any amount or amounts considered advisable and that
the Employee may have no right, title, or interest therein, excepting group term
life insurance.
SECTION 6.11 EXECUTORY RIGHTS. The Company agrees that with the exception
of Section 3.6(iii), nothing contained herein is intended, or will be deemed to
be granted to Employee in lieu of any rights or privileges to which the Employee
may be entitled as an employee of the Company under any retirement, pension,
profit sharing, insurance, hospitalization, health, or other plan or plans which
may now be in effect or which may be adopted hereafter.
SECTION 6.12 ASSIGNMENT. In the event of sale, assignment, or other
transfer of the Company's business or a substantial part of its assets or of the
Company's merger into or consolidation with another corporation, the rights and
benefits of the Company under this Agreement may be transferred and assigned,
with the written consent of the Employee, and all obligation and liability of
the Company will thereafter continue; provided that the transferee, in writing,
assumes the full performance on the Company's behalf of all the terms and
provisions hereof to be performed following the date of such assignment, with
the same force and effect as if such transferee originally had been a party to
this Agreement.
SECTION 6.13 ARBITRATION. Any controversy, dispute or claim arising out
of, or relating to, this Agreement and/or its interpretation shall, unless
resolved by agreement of the parties, be settled by binding arbitration in
Raleigh, North Carolina in accordance with the Rules of the American Arbitration
Association then existing. This Agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law of the State of North Carolina.
The award rendered by the arbitrators (or a single arbitrator that both parties
agree to) shall be final and judgment may be entered upon the award in any court
of the State of North Carolina having jurisdiction of the matter.
DIGITAL RECORDERS, INC.
By:
-----------------------------------------
Employee
-----------------------------------------
DAVID TURNEY
XIV-7
DIGITAL RECORDERS, INC.
EMPLOYMENT AGREEMENT
SCHEDULE 1
DUTIES AND COMPENSATION
Employee: David Turney
Position: President and Chief Executive Officer
Base Salary: $175,000 per year, payable monthly/$185,000 per year
(year 2)
Bonus: Discretion per Compensation Committee, unless Employee
presents
acceptable formula plan.
Term: Four (4) years
Duties and Responsibilities: Supervision and coordination of all operations of
the Company; supervision of all other operating officers of the Company.
Options: (i) 86,000 incentive stock options exercisable at $2.00 per
share.
(ii) Up to 14,000 incentive stock options which may be available
at June 1, 1998 at the price per share of that same date.
(iii) A total of 150,000 additional options shall be requested in
the 1998 Proxy and grants thereunder shall be subject to
shareholder approval of the requested increase under the
Option Plan and pursuant to other terms thereof.
Specifically, however, grants, if approved by the
shareholders' vote for increase it the Option Plan, will be
made at the stock price that exists on June 30, 1998 with
vesting to occur as follows: (a) 75,000 shares shall vest
when Company stock trades for ten (10) consecutive trading
days at or above $4.00 per share; and (b) 75,000 shares
shall vest when Company stock trades for ten
(10) consecutive trading days at or above $5.00 per share.
APPROVED:
THE COMPANY: EMPLOYEE:
By:
David Turney
Date: Date:
XIV-8
APPENDIX XV
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT effective January 1, 1999 (the "Agreement")
by and between DIGITAL RECORDS, INC. (the "Company") with principal offices at
Research Triangle Park, North Carolina, and LARRY HAGEMANN (the "Executive").
NOW THEREFORE, in consideration of the foregoing premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the
Executive agrees to serve the Company as its Executive Vice President.
2. POSITION AND RESPONSIBILITIES. The Executive shall exert his best
efforts and devote full time and attention to the affairs of the Company. The
Executive shall have the authority and responsibility given by the general
direction, approval and control of the Board of Directors, President, and Chief
Executive Officer of the Company, to the restrictions, limitations and
guidelines set forth by the Board of Directors in resolutions adopted in the
minutes of the Board of Directors meetings, copies of which will be provided to
the Executive from time to time and will be incorporated herein by reference.
3. TERM OF EMPLOYMENT. The term of the Executive's employment under this
Agreement shall be deemed to have commenced on January 1, 1999 and shall
continue until December 31, 1999 (the "Initial Term"), subject to extension as
hereinafter provided or termination pursuant to the provisions set forth
hereafter. Provided that Executive is in compliance with all of his obligations
hereunder, the term of Executive's employment shall be automatically extended
for an additional one-year terms upon expiration of the Initial Term unless
either party hereto receives 30 days' prior written notice from the other
electing not to extend the Executive's employment. Compensation during the term
shall be that set forth in Section 6 hereof, unless one of the termination
provisions overrides.
4. DUTIES. During the period of his employment hereunder and except for
illness, specified vacation periods and reasonable leaves of absence, the
Executive shall devote his best efforts and full attention and skill to the
business and affairs of the Company and its affiliated companies, as such
business and affairs now exist and as they may be hereinafter changed or added
to, under and pursuant to the general direction of the Board of Directors of the
Company.
5. COMPENSATION. Commencing on January 1, 1999, the Company shall pay to
the Executive as compensation for his services the sum of $____________ per
year, payable semi-monthly, or such higher salary as may be from time to time
approved by the Board of Directors. In addition, the Executive shall receive
such additional compensation and/or bonuses or stock options as may be voted to
his at the sole discretion of the Compensation Committee of the Board of
Directors.
In the event of the occurrence of a "triggering event" which shall be
defined to include a (i) change in ownership in one or a series of transactions
of 50% or more of the outstanding shares of the Company, or (ii) merger,
consolidation, reorganization or liquidation of the Company, and following such
triggering event the Executive's services are terminated by the Company or the
Executive or the Executive's duties, authority or responsibilities are
substantially diminished, the Executive shall receive lump sum compensation
equal to two (2) times his annual salary and incentive or bonus payments, if
any, as shall have been paid to the Executive during the Company's most recent
12-month period within 30 days of the triggering event. If the total amount of
the change of control compensation were to exceed three (3) times the
Executive's base amount (the average annual taxable compensation of the
Executive for the five (5) years preceding the year in which the change of
control occurs), the Company and the Executive may agree to reduce the lump sum
compensation to be
XV-1
received by Executive in order to avoid the imposition of the golden parachute
tax as provided in the Tax Reform Act of 1984, as amended by the Tax Return Act
of 1986.
In the event the Executive is required to hire counsel to negotiate on his
behalf in connection with his termination or resignation from the Company upon
the occurrence of a triggering event, or in order to enforce the rights and
obligations of the Company as provided in this paragraph, the Company shall
reimburse to the Executive all reasonable attorneys' fees which may be expended
by the Executive in seeking to enforce the terms hereof. Such reimbursement
shall be paid every 30 days after the Executive provides copies of invoices from
the Executive's counsel to the Company. However, such invoices may be redacted
to preserve the attorney-client privilege, client confidentiality or work
product.
6. STOCK OPTIONS. In addition to the compensation described above, the
Executive shall have received ____________ stock options pursuant to the Company
Stock Plan.
7. EXPENSE REIMBURSEMENT. The Company will reimburse the Executive, at
least semi-monthly, for all reasonable and necessary expenses, including without
limitation, travel expenses, and reasonable entertainment expenses, incurred by
his in carrying out his duties under this Agreement. The Executive shall present
to the Company each month an account of such expenses in such form as is
reasonably required by the Board of Directors.
8. MEDICAL AND DENTAL COVERAGE. Commencing January 1, 1999, the Executive
will be entitled to participate in the Company's employee group medical and
other group insurance programs on the same basis as other executives of the
Company.
9. MEDICAL EXAMINATION. The Executive agrees to submit himself for
physical examination on one occasion per year as requested by the Company for
the purpose of the Company's obtaining life insurance on the life of the
Executive for the benefit of the Company as may be required; provided, however,
that the Company shall bear the entire cost of such examinations and shall pay
all premiums on any key man life insurance obtained for the benefit of the
Company as beneficiary or with respect to any other designated beneficiary.
10. VACATION TIME. The Executive shall be entitled each year to a
reasonable vacation in accordance with the established practices of the Company,
now or hereafter in effect for the executive personnel, during which time the
Executive's compensation shall be paid in full.
11. BENEFITS PAYABLE ON DISABILITY. If the Executive becomes disabled from
properly performing services hereunder by reason of illness or other physical or
mental incapacity, the Company shall continue to pay the Executive his then
current salary hereunder for the first three (3) months of such continuous
disability commencing with the first date of such disability.
12. OBLIGATIONS OF EXECUTIVE DURING AND AFTER EMPLOYMENT.
(a) The Executive agrees that during the terms of his employment under
this Agreement, he will engage in no other business activities directly or
indirectly, which are competitive with or which might place his in a
competing position to that of the Company, or any affiliated company.
(b) The Executive realizes that during the course of his employment,
Executive will have produced and/or have access to confidential business
plans, information, business opportunity records, notebooks, data, formula,
specifications, trade secrets, customer lists, account lists and secret
inventions and processes of the Company and its affiliated companies.
Therefore, during or subsequent to his employment by the Company, or by an
affiliated company, the Executive agrees to hold in confidence and not to
directly or indirectly disclose or use or copy or make lists of any such
information, except to the extent authorized by the Company in writing. All
records, files, business plans, documents, equipment and the like, or copies
thereof, relating to Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come
XV-2
into contact with, shall remain the sole property of the Company, or of an
affiliated company, and shall not be removed from the Company's or the
affiliated company's premises without its written consent, and shall be
promptly returned to the Company upon termination of employment with the
Company and its affiliated companies. The restrictions and obligations of
Executive set forth in this Section 12(b) shall not apply to
(i) information that is or becomes generally available and known to the
industry (other than as a result of a disclosure directly or indirectly by
Executive); or (ii) information that was known to Executive prior to
Executive's employment by the Company or its predecessor.
(c) Because of his employment by the Company, Executive shall have
access to trade secrets and confidential information about the Company, its
business plans, its business accounts, its business opportunities, its
expansion plans into other geographical areas and its methods of doing
business. Executive agrees that for a period of two (2) years after
termination or expiration of his employment, he will not, directly or
indirectly, compete with the Company in its then present business or
anticipated lines of business.
(d) In the event a court of competent jurisdiction finds any provision
of this Section 12 to be so overbroad as to be unenforceable, then such
provision shall be reduced in scope by the court, but only to the extent
deemed necessary by the court to render the provision reasonable and
enforceable, it being the Executive's intention to provide the Company with
the broadest protection possible against harmful competition.
13. TERMINATION FOR CAUSE BY THE COMPANY. The Company may, without
liability, terminate the Executive's employment hereunder for cause at any time
upon written notice from the Board of Directors specifying such cause, and
thereafter the Company's obligations hereunder shall cease and terminate;
provided, however, that such written notice shall not be delivered until after
the Board of Directors shall have given the Executive written notice specifying
the conduct alleged to have constituted such cause and the Executive has failed
to cure such conduct, if curable, within fifteen (15) days following receipt of
such notice.
Grounds for termination "for cause" are one or more of the following:
(a) A willful breach of a material duty by the Executive during the
course of his employment;
(b) Habitual neglect of a material duty by the Executive;
(c) Action or inaction by the Executive which places the Company in
circumstances of financial peril; and
(d) Fraud on the Company or conviction of a felony involving or against
the Company.
14. TERMINATION BY THE EXECUTIVE OR THE COMPANY WITHOUT CAUSE.
(a) The Executive, without cause, may terminate this Agreement upon
90 days prior written notice to the Company. In such event, the Executive
shall be required to render the services required under this Agreement
during such 90-day period unless otherwise directed by the Board of
Directors. Compensation for vacation time not taken by Executive shall be
paid to the Executive at the date of termination. Executive shall be paid
for only the ninety (90) day period pursuant to normal pay practices and
then all obligations regarding pay shall cease.
(b) The Company, without cause, may terminate this Agreement. In such
event, the Company shall pay a severance allowance equal to three hundred
sixty-five (365) days salary to the Executive. No other benefits will be
provided once this Agreement is terminated.
15. TERMINATION UPON DEATH OF EXECUTIVE. In addition to any other provision
relating to the termination, this Agreement shall terminate upon the Executive's
death. In such event, the Company shall pay a severance allowance equal to
ninety (90) days' salary to the Executive's estate.
XV-3
16. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved by
agreement of the parties, be settled by binding arbitration in Charlotte, North
Carolina in accordance with the Rules of the American Arbitration Association
then existing. This Agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law of the State of North Carolina. The award
rendered by the arbitrators shall be final and judgment may be entered upon the
award in any court of the State of North Carolina having jurisdiction of the
matter.
17. GENERAL PROVISIONS.
(a) The Executive's rights and obligations under this Agreement shall
not be transferrable by assignment or otherwise, nor shall Executive's
rights be subject to encumbrance or to the claims of the Company's
creditors. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its property or assets.
(b) This Agreement and the rights of Executive with respect to the
benefits of employment referred to herein constitute the entire Agreement
between the parties hereto in respect of the employment of the Executive by
the Company and supersede any and all other agreements either oral or in
writing between the parties hereto with respect to the employment of the
Executive.
(c) The provisions of this Agreement shall be regarded as divisible, and
if any of said provisions or any part thereof are declared invalid or
unenforceable by a court of competent jurisdiction or in an arbitration
proceeding, the validity and enforceability of the remainder of such
provisions or parts thereof and the applicability thereof shall not be
affected thereby.
(d) This Agreement may not be amended or modified except by a written
instrument executed by Company and Executive.
(e) This Agreement and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of North
Carolina.
18. CONSTRUCTION. Throughout this Agreement the singular shall include the
plural, and the plural shall include the singular, and the masculine and neuter
shall include the feminine, wherever the context so requires.
19. TEXT TO CONTROL. The headings of paragraphs and sections are included
solely for convenience of reference. If any conflict between any heading and the
text of this Agreement exists, the text shall control.
20. AUTHORITY. The officer executing this agreement on behalf of the
Company has been empowered and directed to do so by the Board of Directors of
the Company.
XV-4
21. EFFECTIVE DATE. This Agreement shall be effective on the dates noted
below.
FOR THE COMPANY: DIGITAL RECORDERS, INC.
Dated: By:
Title:
FOR THE EXECUTIVE:
Dated: (SEAL)
LARRY HAGEMANN
XV-5
APPENDIX XVI
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT effective January 1, 1999 (the "Agreement")
by and between DIGITAL RECORDS, INC. (the "Company") with principal offices at
Research Triangle Park, North Carolina, and LARRY TAYLOR (the "Executive").
NOW THEREFORE, in consideration of the foregoing premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the
Executive agrees to serve the Company as its Chief Financial Officer.
2. POSITION AND RESPONSIBILITIES. The Executive shall exert his best
efforts and devote full time and attention to the affairs of the Company. The
Executive shall have the authority and responsibility given by the general
direction, approval and control of the Board of Directors, President, and Chief
Executive Officer of the Company, to the restrictions, limitations and
guidelines set forth by the Board of Directors in resolutions adopted in the
minutes of the Board of Directors meetings, copies of which will be provided to
the Executive from time to time and will be incorporated herein by reference.
3. TERM OF EMPLOYMENT. The term of the Executive's employment under this
Agreement shall be deemed to have commenced on January 1, 1999 and shall
continue until December 31, 1999 (the "Initial Term"), subject to extension as
hereinafter provided or termination pursuant to the provisions set forth
hereafter. Provided that Executive is in compliance with all of his obligations
hereunder, the term of Executive's employment shall be automatically extended
for an additional one-year terms upon expiration of the Initial Term unless
either party hereto receives 30 days' prior written notice from the other
electing not to extend the Executive's employment. Compensation during the term
shall be that set forth in Section 6 hereof, unless one of the termination
provisions overrides.
4. DUTIES. During the period of his employment hereunder and except for
illness, specified vacation periods and reasonable leaves of absence, the
Executive shall devote his best efforts and full attention and skill to the
business and affairs of the Company and its affiliated companies, as such
business and affairs now exist and as they may be hereinafter changed or added
to, under and pursuant to the general direction of the Board of Directors of the
Company.
5. COMPENSATION. Commencing on January 1, 1999, the Company shall pay to
the Executive as compensation for his services the sum of $____________ per
year, payable semi-monthly, or such higher salary as may be from time to time
approved by the Board of Directors. In addition, the Executive shall receive
such additional compensation and/or bonuses or stock options as may be voted to
his at the sole discretion of the Compensation Committee of the Board of
Directors.
In the event of the occurrence of a "triggering event" which shall be
defined to include a (i) change in ownership in one or a series of transactions
of 50% or more of the outstanding shares of the Company, or (ii) merger,
consolidation, reorganization or liquidation of the Company, and following such
triggering event the Executive's services are terminated by the Company or the
Executive or the Executive's duties, authority or responsibilities are
substantially diminished, the Executive shall receive lump sum compensation
equal to two (2) times his annual salary and incentive or bonus payments, if
any, as shall have been paid to the Executive during the Company's most recent
12-month period within 30 days of the triggering event. If the total amount of
the change of control compensation were to exceed three (3) times the
Executive's base amount (the average annual taxable compensation of the
Executive for the five (5) years preceding the year in which the change of
control occurs), the Company and the Executive may agree to reduce the lump sum
compensation to be received by Executive in order to avoid the imposition of the
golden parachute tax as provided in the Tax Reform Act of 1984, as amended by
the Tax Return Act of 1986.
XVI-1
In the event the Executive is required to hire counsel to negotiate on his
behalf in connection with his termination or resignation from the Company upon
the occurrence of a triggering event, or in order to enforce the rights and
obligations of the Company as provided in this paragraph, the Company shall
reimburse to the Executive all reasonable attorneys' fees which may be expended
by the Executive in seeking to enforce the terms hereof. Such reimbursement
shall be paid every 30 days after the Executive provides copies of invoices from
the Executive's counsel to the Company. However, such invoices may be redacted
to preserve the attorney-client privilege, client confidentiality or work
product.
6. STOCK OPTIONS. In addition to the compensation described above, the
Executive shall have received ____________ stock options pursuant to the Company
Stock Plan.
7. EXPENSE REIMBURSEMENT. The Company will reimburse the Executive, at
least semi-monthly, for all reasonable and necessary expenses, including without
limitation, travel expenses, and reasonable entertainment expenses, incurred by
his in carrying out his duties under this Agreement. The Executive shall present
to the Company each month an account of such expenses in such form as is
reasonably required by the Board of Directors.
8. MEDICAL AND DENTAL COVERAGE. Commencing January 1, 1999, the Executive
will be entitled to participate in the Company's employee group medical and
other group insurance programs on the same basis as other executives of the
Company.
9. MEDICAL EXAMINATION. The Executive agrees to submit himself for
physical examination on one occasion per year as requested by the Company for
the purpose of the Company's obtaining life insurance on the life of the
Executive for the benefit of the Company as may be required; provided, however,
that the Company shall bear the entire cost of such examinations and shall pay
all premiums on any key man life insurance obtained for the benefit of the
Company as beneficiary or with respect to any other designated beneficiary.
10. VACATION TIME. The Executive shall be entitled each year to a
reasonable vacation in accordance with the established practices of the Company,
now or hereafter in effect for the executive personnel, during which time the
Executive's compensation shall be paid in full.
11. BENEFITS PAYABLE ON DISABILITY. If the Executive becomes disabled from
properly performing services hereunder by reason of illness or other physical or
mental incapacity, the Company shall continue to pay the Executive his then
current salary hereunder for the first three (3) months of such continuous
disability commencing with the first date of such disability.
12. OBLIGATIONS OF EXECUTIVE DURING AND AFTER EMPLOYMENT.
(a) The Executive agrees that during the terms of his employment under
this Agreement, he will engage in no other business activities directly or
indirectly, which are competitive with or which might place his in a
competing position to that of the Company, or any affiliated company.
(b) The Executive realizes that during the course of his employment,
Executive will have produced and/or have access to confidential business
plans, information, business opportunity records, notebooks, data, formula,
specifications, trade secrets, customer lists, account lists and secret
inventions and processes of the Company and its affiliated companies.
Therefore, during or subsequent to his employment by the Company, or by an
affiliated company, the Executive agrees to hold in confidence and not to
directly or indirectly disclose or use or copy or make lists of any such
information, except to the extent authorized by the Company in writing. All
records, files, business plans, documents, equipment and the like, or copies
thereof, relating to Company's business, or the business of an affiliated
company, which Executive shall prepare, or use, or come into contact with,
shall remain the sole property of the Company, or of an affiliated company,
and shall not be removed from the Company's or the affiliated company's
premises without its written
XVI-2
consent, and shall be promptly returned to the Company upon termination of
employment with the Company and its affiliated companies. The restrictions
and obligations of Executive set forth in this Section 12(b) shall not apply
to (i) information that is or becomes generally available and known to the
industry (other than as a result of a disclosure directly or indirectly by
Executive); or (ii) information that was known to Executive prior to
Executive's employment by the Company or its predecessor.
(c) Because of his employment by the Company, Executive shall have
access to trade secrets and confidential information about the Company, its
business plans, its business accounts, its business opportunities, its
expansion plans into other geographical areas and its methods of doing
business. Executive agrees that for a period of two (2) years after
termination or expiration of his employment, he will not, directly or
indirectly, compete with the Company in its then present business or
anticipated lines of business.
(d) In the event a court of competent jurisdiction finds any provision
of this Section 12 to be so overbroad as to be unenforceable, then such
provision shall be reduced in scope by the court, but only to the extent
deemed necessary by the court to render the provision reasonable and
enforceable, it being the Executive's intention to provide the Company with
the broadest protection possible against harmful competition.
13. TERMINATION FOR CAUSE BY THE COMPANY. The Company may, without
liability, terminate the Executive's employment hereunder for cause at any time
upon written notice from the Board of Directors specifying such cause, and
thereafter the Company's obligations hereunder shall cease and terminate;
provided, however, that such written notice shall not be delivered until after
the Board of Directors shall have given the Executive written notice specifying
the conduct alleged to have constituted such cause and the Executive has failed
to cure such conduct, if curable, within fifteen (15) days following receipt of
such notice.
Grounds for termination "for cause" are one or more of the following:
(a) A willful breach of a material duty by the Executive during the
course of his employment;
(b) Habitual neglect of a material duty by the Executive;
(c) Action or inaction by the Executive which places the Company in
circumstances of financial peril; and
(d) Fraud on the Company or conviction of a felony involving or against
the Company.
14. TERMINATION BY THE EXECUTIVE OR THE COMPANY WITHOUT CAUSE.
(a) The Executive, without cause, may terminate this Agreement upon
90 days prior written notice to the Company. In such event, the Executive
shall be required to render the services required under this Agreement
during such 90-day period unless otherwise directed by the Board of
Directors. Compensation for vacation time not taken by Executive shall be
paid to the Executive at the date of termination. Executive shall be paid
for only the ninety (90) day period pursuant to normal pay practices and
then all obligations regarding pay shall cease.
(b) The Company, without cause, may terminate this Agreement. In such
event, the Company shall pay a severance allowance equal to three hundred
sixty-five (365) days salary to the Executive. No other benefits will be
provided once this Agreement is terminated.
15. TERMINATION UPON DEATH OF EXECUTIVE. In addition to any other provision
relating to the termination, this Agreement shall terminate upon the Executive's
death. In such event, the Company shall pay a severance allowance equal to
ninety (90) days' salary to the Executive's estate.
XVI-3
16. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved by
agreement of the parties, be settled by binding arbitration in Charlotte, North
Carolina in accordance with the Rules of the American Arbitration Association
then existing. This Agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law of the State of North Carolina. The award
rendered by the arbitrators shall be final and judgment may be entered upon the
award in any court of the State of North Carolina having jurisdiction of the
matter.
17. GENERAL PROVISIONS.
(a) The Executive's rights and obligations under this Agreement shall
not be transferrable by assignment or otherwise, nor shall Executive's
rights be subject to encumbrance or to the claims of the Company's
creditors. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its property or assets.
(b) This Agreement and the rights of Executive with respect to the
benefits of employment referred to herein constitute the entire Agreement
between the parties hereto in respect of the employment of the Executive by
the Company and supersede any and all other agreements either oral or in
writing between the parties hereto with respect to the employment of the
Executive.
(c) The provisions of this Agreement shall be regarded as divisible, and
if any of said provisions or any part thereof are declared invalid or
unenforceable by a court of competent jurisdiction or in an arbitration
proceeding, the validity and enforceability of the remainder of such
provisions or parts thereof and the applicability thereof shall not be
affected thereby.
(d) This Agreement may not be amended or modified except by a written
instrument executed by Company and Executive.
(e) This Agreement and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of North
Carolina.
18. CONSTRUCTION. Throughout this Agreement the singular shall include the
plural, and the plural shall include the singular, and the masculine and neuter
shall include the feminine, wherever the context so requires.
19. TEXT TO CONTROL. The headings of paragraphs and sections are included
solely for convenience of reference. If any conflict between any heading and the
text of this Agreement exists, the text shall control.
20. AUTHORITY. The officer executing this agreement on behalf of the
Company has been empowered and directed to do so by the Board of Directors of
the Company.
XVI-4
21. EFFECTIVE DATE. This Agreement shall be effective on the dates noted
below.
FOR THE COMPANY: DIGITAL RECORDERS, INC.
Dated: By:
Title:
FOR THE EXECUTIVE:
Dated: (SEAL)
LARRY TAYLOR
XVI-5