SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of Earliest Event Reported): Commission File Number:
JUNE 28, 2001 01-13408
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DIGITAL RECORDERS , INC.
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 56-1362926
(State of incorporation) (I.R.S. Employer
Identification Number)
4018 PATRIOT DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27703
(919) 361-2155
(Address of principal executive
offices and telephone number)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 28, 2001, Digital Recorders, Inc. (the "Company") and its
wholly-owned subsidiary, DRI Europa AB ("DRI Europa"), acquired all of the
outstanding stock of Mobitec Holding AB ("Mobitec"), a corporation organized
under the laws of Sweden, from the five shareholders of Mobitec.
The acquisition of the Mobitec shares was made pursuant to an Amended
Option Agreement, dated March 13, 2001, and a Stock Purchase Agreement, dated
June 27, 2001. Both agreements were between the Company and DRI Europa, as
the purchasers, and Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin
and Bertil Lindqvist, the five individual Mobitec shareholders, as the
sellers.
The purchase price for the Mobitec shares consisted of a combination
of cash, notes, stock and warrants to purchase stock, subject to certain
possible adjustments, which adjustments are more fully described below.
Specifically, the total purchase price was $7,089,000, consisting of (i)
$4,210,000 in cash, (ii) promissory notes issued by DRI Europa to the sellers
aggregating $2,000,000, (iii) 430,000 restricted shares of the Company's
common stock (valued at $817,000 or $1.90 per share) issued to two of the
sellers, and (iv) warrants to purchase in the aggregate of 100,000 shares of
the Company's common stock at an exercise price of $4.00 per share for a
period of five years (valued at a total of $62,000) issued to one of the
sellers.
Pursuant to the Stock Purchase Agreement, the possible adjustments
to the purchase price are to be determined after the closing of the Mobitec
acquisition. Such final determinations have not been made but will be
reported when the Company files an amended Form 8-K within 60 days of this
report. Fifteen days after closing, Mobitec and its subsidiaries are to
provide the Company and DRI Europa their financial statements, including
balance sheet, individually and on a consolidated basis, for the period from
January 1, 2001 through March 31, 2001. If the net equity appearing on the
balance sheet of such financial statements is greater or less than SEK
10,867,000 ($1,010,435), by more than SEK 100,000 ($9,298), the purchase
price will be increased or decreased by the full amount of the difference.
The Company and DRI Europa have 15 days from receipt of the closing financial
statements from Mobitec to accept the seller's calculation of any difference
in net equity. In the event that the sellers and purchasers are not able to
agree on the amount of the adjustments, the Stock Purchase Agreement provides
that the dispute shall be submitted to binding arbitration. If any
adjustment of the purchase price is required, the adjustment would be made
only to the promissory notes forming part of the purchase price. The Company
believes that, to the extent there are adjustments to the purchase price,
they will not be material.
The cash portion of the purchase price was provided by two separate
sources: (1) the authorization and issuance of up to $3 million in convertible
debentures by the Company to certain investment funds associated with
Renaissance Capital Group, Inc. of Dallas, Texas (the "Convertible
Debentures"); and, (2) a loan to DRI Europa from Svenska Handelsbanken AB of
Goteborg, Sweden in the amount of SEK 22,000,000 ($2,045,604) (the
"Acquisition Loan").
The 8% Convertible Debentures were issued by the Company in the
amounts of $1,500,000 each to Renaissance US Growth & Income Trust PLC and
BFSUS Special Opportunities Trust PLC in accordance with the Convertible Loan
Agreement, dated June 22, 2001, between Digital
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Recorders, Inc., Renaissance US Growth & Income Trust PLC, BFSUS Special
Opportunities Trust PLC and Renaissance Capital Group, Inc., and related
documents. Unless sooner redeemed or converted, the debentures mature on June
27, 2008. The debentures are convertible into the Company's common stock at
an initial conversion price equal to $2.00 per share. However, the conversion
price is subject to an automatic adjustment if (i) the Company does not
achieve certain operating income for the fiscal year 2001 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 the
fiscal 2001 financial results, but in no event will the conversion price be
less than $1.50 per share. The conversion price can also be adjusted in the
event of certain events, including the issuance of common stock for a
consideration per share less than the conversion price, stock splits, mergers
and consolidations and distributions.
The issuance of the 430,000 restricted shares, the 100,000 shares of
common stock underlying the warrants issued to the sellers, the up to
1,500,000 shares of common stock underlying the convertible debentures and
the 200,000 shares of the Company's common stock that underlies the warrants
granted to the convertible debenture holders, required approval of the
Company's shareholders, pursuant to Nasdaq marketplace rules. The Company's
shareholder's approved the issuance of these shares at the annual meeting of
shareholders held on June 25, 2001.
After closing of the Stock Purchase Agreement and related
transactions, the 430,000 restricted shares, the 100,000 shares underlying
the warrants issued to the sellers, the up to 1,500,000 shares underlying the
convertible debentures and the 200,000 shares underlying the warrants granted
to the debenture holders (collectively, 2,230,000 shares), would together
constitute approximately 68% of Company's common stock outstanding on April
18, 2001 (the record date for the annual meeting) and would constitute
approximately 41% of the Company's common stock after exercise and
conversion. Accordingly, on June 25, 2001, the Company's board voted to
exempt the collective issuance of shares of the Company's common stock in
connection with the Mobitec acquisition from the application of the Rights
Agreement, effective December 14, 1999. The Rights Agreement generally
grants rights to holders of the Company's common stock at a certain record
date to purchase certain preferred stock in the event that a person or group
publicly announces that it has acquired 15% or more of the Company's common
stock or intends to make or makes a tender offer for 15% or more of the
Company's common stock. This exemption from the Rights Agreement is the only
such exemption that has been granted by the Company. The Company has no
intention at this time of granting any further exemptions to the Rights
Agreement.
As a result of the acquisition, Mobitec has become a wholly-owned
subsidiary of the Company.
For more information concerning the acquisition of Mobitec, see the
Proxy Statement filed by the Company with the Securities and Exchange
Commission on June 6, 2001 and the appendices thereto.
FORWARD-LOOKING STATEMENTS IN THIS REPORT.
This report contains certain forward-looking statements. When used in
this report, 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 (including its subsidiaries) 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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
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(a) FINANCIAL STATEMENTS OF THE BUSINESSES ACQUIRED.
To be filed by amendment within 60 days.
(b) PRO FORMA FINANCIAL INFORMATION.
To be filed by amendment within 60 days.
(c) EXHIBITS.
The exhibits to this report are listed in the Index to Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIGITAL RECORDERS, INC.
Date: July 13, 2001 By: /s/ David L. Turney
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David L. Turney
Chairman of the Board, President and
Chief Executive Officer
INDEX TO EXHIBITS
Exhibit No. Document
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2.1 Stock Purchase Agreement between the Company, DRI-Europa AB, and
Bengt Bodin, et al., dated June 27, 2001
*2.6 Amended Option Agreement, dated March 13, 2001, between the Company,
DRI-Europa AB and Bengt Bodin, et al.
*10.1 Bodin Warrant Agreement between the Company and Bengt Bodin.
*10.11 Registration Rights Agreement between the Company and Bengt Bodin et al.
*10.12 Form of Promissory Note from DRI-Europa AB.
*10.13 Consulting Agreement between the Company and Bengt Bodin.
*10.34 Preliminary Outline of Terms, dated November 28, 2000, from Renaissance
Capital Group, Inc. to the Company, with First Amendment dated May 15,
2001.
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10.35 Convertible Loan Agreement, dated June 22, 2001, between Digital
Recorders, Inc., Renaissance US Growth & Income Trust PLC, BFSUS
Special Opportunities Trust PLC and Renaissance Capital Group, Inc.
10.36 Digital Recorders, Inc. 8% Convertible Debenture, $1,500,000, issued on
June 27, 2001 to Renaissance US Growth & Income Trust PLC.
10.37 Digital Recorders, Inc. 8% Convertible Debenture, $1,500,000, issued on
June 27, 2001 to HSBC Global Custody Nominee (U.K.) Limited.
10.38 Stock Purchase Warrant, dated June 27, 2001, issued to Renaissance US
Growth & Income Trust PLC.
10.39 Stock Purchase Warrant, dated June 27, 2001, issued to HSBC Global
Custody Nominee (U.K.) Limited.
10.40 Security Agreement, dated June 27, 2001, between the Company,
Renaissance US Growth & Income Trust PLC, BFSUS Special Opportunities
Trust PLC and Renaissance Capital Group, Inc.
10.41 Subsidiary Security Agreement, dated June 27, 2001, between Twin Vision
of North America, Inc., Digital Audio Corporation, Renaissance US Growth
& Income Trust PLC, BFSUS Special Opportunities Trust PLC and
Renaissance Capital Group, Inc.
10.42 Subsidiary Guaranty, dated June 27, 2001, between Twin Vision of North
America, Inc., Digital Audio Corporation, Renaissance US Growth & Income
Trust PLC and BFSUS Special Opportunities Trust PLC.
10.43 Form of Lock Up Agreement, dated June 27, 2001.
10.44 Pledge Agreement, between the Company, Renaissance US Growth & Income
Trust PLC, BFSUS Special Opportunities Trust PLC and Renaissance Capital
Group, Inc.
*99.1 Fairness Opinion of Investec Ernst & Company, dated May 8, 2001.
99.2 Press Release, dated June 28, 2001.
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* Incorporated by reference from the Company's Proxy Statement for its annual
meeting of shareholders, filed with the Securities and Exchange Commission on
June 6, 2001.
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