EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
April 21, 2004, among Digital Recorders, Inc., a North Carolina corporation (the
"Company"), and the investors identified on the signature pages hereto (each, an
"Investor" and collectively, the "Investors").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below)
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
"Action" means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed under Rule
144.
"Business day" means any day except Saturday, Sunday and any
day which is a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Article II.
"Closing date" means the Business Day immediately following
the date on which all of the conditions set forth in Sections 5.1 and 5.2 hereof
are satisfied, or such other date as the parties may agree.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.10 per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company
or any Subsidiary which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"Company Counsel" means Carrington, Coleman, Sloman &
Blumenthal, L.L.P.
"Company Deliverables" has the meaning set forth in Section
2.2(a).
"Disclosure Materials" has the meaning set forth in Section
3.1(h).
"Effective Date" means the date that the Registration
Statement required by Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means U.S. generally accepted accounting principals.
"Intellectual Property Rights" has the meaning set forth in
Section 3.1(n).
"Investment Amount" means, with respect to each Investor, the
Investment Amount indicated on such Investor's signature page to this Agreement.
"Investor Deliverables" has the meaning set forth in Section
2.2(b).
"Investor Party" has the meaning set forth in Section 4.7.
"Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind, other than
restrictions on transfer of securities arising under federal or state securities
laws and regulations.
"Material Adverse Effect" means any of (i) a material and
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material and adverse effect on the results of operations,
assets, prospects, business or condition (financial or
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otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an
adverse impairment to the Company's ability to perform on a timely basis its
obligations under any Transaction Document.
"New York Courts" means the state and federal courts sitting
in the City of New York, Borough of Manhattan.
"Per Unit Purchase Price" equals $8.00.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Investors of the Shares and the Warrant Shares.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Investors, in the form of Exhibit B hereto.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" has the meaning set forth in Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable
to the Investors pursuant to this Agreement.
"Short Sales" has the meaning set forth in Section 3.2(f).
"Subsidiary" means any "significant subsidiary" as defined in
Rule 1-02(w) of the Regulation S-X promulgated by the Commission under the
Exchange Act.
"Trading Day" means (i) a day on which the Common Stock is
traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on
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a Trading Market (other than the OTC Bulletin Board), a day on which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding to its functions of reporting prices); provided, that in the
event that the Common Stock is not listed or quoted as set forth in (i), (ii)
and (iii) hereof, then Trading Day shall mean a Business Day.
"Trading Market" means whichever of the New York Stock
Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ
SmallCap Market or OTC Bulletin Board on which the Common Stock is listed or
quoted for trading on the date in question.
"Transaction Documents" means this Agreement, the Warrants,
the Registration Rights Agreement, and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Warrants" means the Common Stock purchase warrants in the
form of Exhibit A, which are issuable to the Investors at the Closing.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor, and
each Investor shall, severally and not jointly, purchase from the Company, the
Shares and the Warrants representing such Investor's Investment Amount. The
Closing shall take place at the offices of Bryan Cave LLP, 1290 Avenue of the
Americas, New York, NY 10104 on the Closing Date or at such other location or
time as the parties may agree.
2.2 Closing Deliveries. (a) At the Closing, the Company shall deliver
or cause to be delivered to each Investor the following (the "Company
Deliverables"):
(i) a certificate evidencing a number of Shares equal to such
Investor's Investment Amount divided by the Per Unit Purchase Price, registered
in the name of such Investor;
(ii) a Warrant, registered in the name of such Investor,
pursuant to which such Investor shall have the right to acquire a number of
shares of Common Stock equal to 20% of the number of Shares issuable to such
Investor pursuant to Section 2.2(a)(i);
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(iii) the legal opinion of Company Counsel, in agreed form,
addressed to the Investors; and
(iv) the Registration Rights Agreement, duly executed by the
Company.
(b) At the Closing, each Investor shall deliver or cause to be
delivered to the Company the following (the "Investor Deliverables"):
(i) its Investment Amount, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Company for such purpose; and
(ii) the Registration Rights Agreement, duly executed by such
Investor.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Investor:
(a) Subsidiaries. The Company has no direct or indirect
Subsidiaries other than as specified in the SEC Reports. Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any and all Liens, and all the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights.
(b) Organization and Qualification. The Company and each
Subsidiary are duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. The Company and each Subsidiary are
duly qualified to conduct its respective businesses and are in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution
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and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company in connection therewith. Each Transaction
Document has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement, (ii) filings required by state securities laws, (iii) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act (iv) the filing required to be made pursuant
to Rule 4310(c)(17)(D) of the Nasdaq Stock Market, which will be made prior to
Closing, (v) the filings required in accordance with Section 4.5, and (vi) those
that have been made or obtained prior to the date of this Agreement.
(f) Issuance of the Securities. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Company has reserved from its duly authorized
capital stock the shares of Common Stock issuable pursuant to
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this Agreement and the Warrants in order to issue the Shares and the Warrant
Shares. The Securities are not subject to any preemptive or similar rights to
subscribe for or purchase securities, except as have been waived prior to the
Closing.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company, and all shares
of Common Stock reserved for issuance under the Company's various option and
incentive plans, is specified in the SEC Reports. Except as specified in the SEC
Reports or on Schedule 3.1(g), no security holders of the Company are entitled
to preemptive or similar rights, and no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as specified
in the SEC Reports or on Schedule 3.1(g), there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Except as specified in the SEC Reports
or on Schedule 3.1(g), the issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Investors) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Company was required by
law to file such reports) (the foregoing materials, as amended, being
collectively referred to herein as the "SEC Reports" and, together with the
Schedules to this Agreement (if any), the "Disclosure Materials") on a timely
basis or has timely filed a valid extension of such time of filing and has filed
any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the
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dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Press Releases. The press releases disseminated by the
Company during the twelve months preceding the date of this Agreement taken as a
whole do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made and
when made, not misleading.
(j) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that would reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses and
other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its common
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans or previously issued warrants or convertible
securities. The Company does not have pending before the Commission any request
for confidential treatment of information.
(k) Litigation. There is no Action which (i) adversely affects
or challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, would, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof (in his or her capacity as such), is or has been the subject of any
Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty, except as specifically
disclosed in the SEC Reports. There has not been, and to the knowledge of the
Company, there is not pending any investigation by the Commission involving the
Company or any current or former director or officer of the Company (in his or
her capacity as such). The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(l) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(m) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or
8
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (except to the extent
such default or violation has been waived), (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. The Company is in compliance with all effective
requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and
regulations thereunder, that are applicable to it, except where such
noncompliance would not have or reasonably be expected to result in a Material
Adverse Effect.
(n) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have would, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Except as set forth in the SEC Reports, neither
the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. Except as set forth in the SEC Reports,
to the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(o) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries' existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business on terms
substantially as currently in effect.
(p) Transactions With Affiliates and Employees. None of the
officers or directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any material transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), that is required to be disclosed in the SEC Reports and
is not so disclosed.
(q) Internal Accounting Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
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conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company's Form 10-K or 10-Q, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of the
Company's controls and procedures as of the last day of the period covered by
the Form 10-K/A for the Company's most recently ended fiscal year (such date,
the "Evaluation Date"). The Company presented in its most recently filed Form
10-K or Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the
Company's knowledge, in other factors that would significantly affect the
Company's internal controls.
(r) Solvency. Based on the financial condition of the Company
as of the Closing Date (and assuming that the Closing shall have occurred), the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in
respect of its debt).
(s) Certain Fees. Except as described in Schedule 3.1(s), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such
Investor which fees or commissions shall be the sole responsibility of such
Investor) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
(t) Certain Registration Matters. Assuming the accuracy of the
Investors' representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer and sale of the
Shares and Warrant Shares by the Company to the Investors under the Transaction
Documents. As further described in Schedule 3.1(t), the Company believes, but
can not affirmatively represent and warrant, that it is eligible to register the
resale of its Common Stock for resale by the Investors under Form S-3
promulgated under the Securities Act. Except as specified in Schedule 3.1(t),
the Company has not granted or
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agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority that have not been satisfied.
(u) Listing and Maintenance Requirements. Except as specified
in the SEC Reports or on Schedule 3.1(u), the Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the effect
that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
Trading Market on which the Common Stock is currently listed or quoted. The
issuance and sale of the Securities under the Transaction Documents does not
contravene the rules and regulations of the Trading Market on which the Common
Stock is currently listed or quoted, and no approval of the shareholders of the
Company thereunder is required for the Company to issue and deliver to the
Investors the Securities contemplated by Transaction Documents.
(v) Investment Company. The Company is not, and is not an
Affiliate of, and immediately following the Closing will not have become, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(w) Application of Takeover Protections. The Company has taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or would become applicable to the Investors as a
result of the Investors acquiring Securities at Closing including the Warrant
Shares issuable upon exercise of the Warrants, assuming that no Investor or
group of Investors (as defined in Rule 13d-1 of the Exchange Act) acquires more
than 15% of the Company's Common Stock other than solely by purchasing Shares
and Warrant Shares from the Company.
(x) No Additional Agreements. The Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
(y) Disclosure. The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its respective agents
or counsel with any information that the Company believes constitutes material,
non-public information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. The Company's
representations and warranties set forth in this Agreement are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
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3.2 Representations and Warranties of the Investors. Each Investor
hereby, for itself and for no other Investor, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Investor is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations thereunder. The execution, delivery and performance by such
Investor of the transactions contemplated by this Agreement has been duly
authorized by all necessary corporate or, if such Investor is not a corporation,
such partnership, limited liability company or other applicable like action, on
the part of such Investor. Each of this Agreement and the Registration Rights
Agreement has been duly executed by such Investor, and when delivered by such
Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of such Investor, enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
(b) Investment Intent. Such Investor is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Investor's right at all times to
sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws. Subject to the immediately
preceding sentence, nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is acquiring the Securities hereunder in the ordinary course of its
business. Such Investor does not have any agreement or understanding, directly
or indirectly, with any Person to distribute any of the Securities.
(c) Investor Status. At the time such Investor was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises Warrants it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act. Such Investor is not a registered broker-dealer
under Section 15 of the Exchange Act.
(d) General Solicitation. Such Investor is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(e) Access to Information. Such Investor acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Securities;
(ii) access to information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties,
management and prospects
12
sufficient to enable it to evaluate its investment; and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries nor
any other investigation conducted by or on behalf of such Investor or its
representatives or counsel shall modify, amend or affect such Investor's right
to rely on the truth, accuracy and completeness of the Disclosure Materials and
the Company's representations and warranties contained in the Transaction
Documents.
(f) Certain Trading Activities. Such Investor has not directly
or indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Investor, engaged in any transactions in the securities
of the Company (including, without limitations, any Short Sales involving the
Company's securities) since the time that such Investor was first contacted by
the Company or Roth Capital Partners, LLC regarding an investment in the
Company. For purposes of this Section, "Short Sales" include, without
limitation, all "short sales" as defined in Rule 3b-3 of the Exchange Act and
include all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers having the effect of hedging the securities
or investment made under this Agreement. Such Investor covenants that neither it
nor any Person acting on its behalf or pursuant to any understanding with it
will engage in any transactions in the securities of the Company (including
Short Sales) prior to the time that the transactions contemplated by this
Agreement are publicly disclosed.
(g) Independent Investment Decision. Such Investor has
independently evaluated the merits of its decision to purchase Securities
pursuant to the Transaction Documents, and such Investor confirms that it has
not relied on the advice of any other Investor's business and/or legal counsel
in making such decision. Such Investor has not relied on the business or legal
advice of Roth Capital Partners, LLC or any of its agents, counsel or Affiliates
in making its investment decision hereunder, and confirms that none of such
Persons has made any representations or warranties to such Investor in
connection with the transactions contemplated by the Transaction Documents.
(h) Limited Ownership. The purchase by such Investor of the
Securities issuable to it at the Closing (including the underlying shares that
would be issuable in respect of such Securities) will not result in such
Investor (individually or together with any other Person with whom such Investor
has identified, or will have identified, itself as part of a "group" in a public
filing made with the Commission involving the Company's securities) acquiring,
or obtaining the right to acquire, in excess of 14.99% of the Common Stock or
the voting power of the Company on a post transaction basis that assumes that
the Closing shall have occurred. Such Investor does not presently intend to,
alone or together with others, make a public filing with the Commission to
disclose that it has (or that it together with such other Persons have)
acquired, or obtained the right to acquire, as a result of the Closing (when
added to any other securities of the Company that it or they then own or have
the right to acquire), in excess of 14.99% of the
13
Common Stock or the voting power of the Company on a post transaction basis that
assumes that the Closing shall have occurred.
The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 (a) Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the
Company, to an Affiliate of an Investor or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.
(b) Certificates evidencing the Securities will contain the
following legend, until such time as they are not required under Section 4.1(c):
[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE
SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. [THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES]
[THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that an Investor may from
time to time pledge, and/or grant a security interest in some or all of the
Securities pursuant to a bona fide margin agreement in connection with a bona
fide margin account of Investor and, if required
14
under the terms of such agreement or account, such Investor may transfer pledged
or secured Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval or consent of the Company and no legal
opinion of legal counsel to the pledgee, secured party or pledgor shall be
required in connection with the pledge, but such legal opinion may be required
in connection with a subsequent transfer by the pledgee or secured party,
following default by the Investor or otherwise. No notice shall be required of
such pledge. At the appropriate Investor's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section 4.1(b)):
(i) following a sale of such Securities pursuant to an effective registration
statement (including the Registration Statement), or (ii) following a sale of
such Shares or Warrant Shares pursuant to Rule 144 (assuming the transferor is
not an Affiliate of the Company), or (iii) while such Shares or Warrant Shares
are eligible for sale under Rule 144(k). Following such time as restrictive
legends are not required to be placed on certificates representing Shares or
Warrant Shares pursuant to the preceding sentence, the Company will, no later
than four Trading Days following the delivery by an Investor to the Company or
the Company's transfer agent of a certificate representing Shares or Warrant
Shares containing a restrictive legend, deliver or cause to be delivered to such
Investor a certificate representing such Shares or Warrant Shares that is free
from all restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section.
4.2 Furnishing of Information. As long as any Investor owns the
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Shares and Warrant
Shares in compliance with Rule 144.
4.3 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investors, or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market in a manner that would require
stockholder approval of the sale of the securities to the Investors.
4.4 Subsequent Registrations. Other than pursuant to the Registration
Statement, prior to the Effective Date, the Company may not file any
registration statement with the
15
Commission with respect to any securities of the Company (other than on Form S-8
and a request for acceleration for the effectiveness of the Company's
Registration Statement on Form S-3 (Registration No. 333-111534)).
4.5 Securities Laws Disclosure; Publicity. By 9:45 a.m. (New York time)
on April 21, 2004, and by 9:30 a.m. (New York time) on the Closing Date, the
Company shall issue press releases disclosing the transactions contemplated
hereby and the Closing. On the Trading Day of the execution of this Agreement
the Company will file a Current Report on Form 8-K disclosing the material terms
of the Transaction Documents (and attach as exhibits thereto the Transaction
Documents), and on the Closing Date the Company will file an additional Current
Report on Form 8-K to disclose the Closing. In addition, the Company will make
such other filings and notices in the manner and time required by the Commission
and the Trading Market on which the Common Stock is listed. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Investor, or
include the name of any Investor in any filing with the Commission (other than
the Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.
4.6 Limitation on Issuance of Future Priced Securities. During the six
months following the Closing Date, the Company shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.
4.7 Indemnification of Investors. In addition to the indemnity provided
in the Registration Rights Agreement, the Company will indemnify and hold the
Investors and their directors, officers, shareholders, partners, employees and
agents (each, an "Investor Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Investor
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Investor
shall have executed a written agreement regarding the confidentiality and use of
such information.
4.9 Listing of Securities. The Company agrees, (i) if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application the Shares and Warrant Shares, and will take such
other action as is necessary or desirable to cause the Shares and Warrant Shares
to be listed on such other Trading Market as promptly as possible, and (ii) it
will take all action reasonably necessary to continue the listing and trading of
its
16
Common Stock on a Trading Market and will comply in all material respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the Trading Market.
4.10 Use of Proceeds. The Company will use the net proceeds from the
sale of the Securities hereunder for working capital purposes and the retirement
of any indebtedness of the Company (other than indebtedness in the form of
Common Stock Equivalents).
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to the Obligations of the Investors to
Purchase Securities. The obligation of each Investor to acquire Securities at
the Closing is subject to the satisfaction or waiver by such Investor, at or
before the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date;
(b) Performance. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by it at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d) Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that reasonably
would have or result in a Material Adverse Effect;
(e) No Suspensions of Trading in Common Stock; Listing.
Trading in the Common Stock shall not have been suspended by the Commission or
any Trading Market (except for any suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding the
Company) at any time since the date of execution of this Agreement, and the
Common Stock shall have been at all times since such date listed for trading on
a Trading Market;
(f) Nasdaq Listing. The Nasdaq Stock Market shall have waived
application of the 15 day prior notice contained in NASD Marketplace Rule
4310(c)(17)(D) or such timeframe shall have expired without objection;
17
(g) Company Deliverables. The Company shall have delivered the
Company Deliverables in accordance with Section 2.2(a); and
(h) Timing. The Closing shall have occurred no later than
April 30, 2004.
5.2 Conditions Precedent to the Obligations of the Company to sell
Securities. The obligation of the Company to sell Securities at the Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing,
of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of each Investor contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;
(b) Performance. Each Investor shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by such Investor at or prior to the Closing;
(c) Nasdaq Listing. The Nasdaq Stock Market shall have waived
application of the 15 day prior notice contained in NASD Marketplace Rule
4310(c)(17)(D) or such timeframe shall have expired without objection;
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(e) Investors Deliverables. Each Investor shall have delivered
its Investors Deliverables in accordance with Section 2.2(b); and
(f) Timing. The Closing shall have occurred no later than
April 30, 2004.
ARTICLE VI.
MISCELLANEOUS
6.1 Fees and Expenses. At the Closing, the Company shall pay to Bryan
Cave LLP $25,000 as partial reimbursement of Roth Capital Partners LLC for its
legal fees in connection with the preparation of the Transaction Documents, it
being understood that Bryan Cave LLP has only rendered legal advice to Roth
Capital Partners LLC, and not to the Company or any Investor in connection with
the transactions contemplated hereby, and that each of the Company and each
Investor has relied for such matters on the advice of its own respective
counsel. Except as specified in the immediately preceding sentence, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the
18
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the sale of the Shares.
6.2 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
6.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: Digital Recorders, Inc.
5949 Sherry Lane, Suite 1050
Dallas, Texas 75225
Facsimile: (214) 378-8437
Attn.: David L. Turney
With a copy to: Carrington, Coleman, Sloman & Blumenthal, L.L.P.
200 Crescent Court, Suite 1500
Dallas, Texas 75201
Facsimile: (214) 855-1333
Attn.: Kenn W. Webb, Esq.
If to an Investor: To the address set forth under such Investor's
name on the signature pages hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
6.4 Amendments; Waivers; No Additional Consideration. No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Investors holding a majority of the Shares. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver
19
in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right. No consideration shall be offered or paid to any Investor to
amend or consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who then
hold Shares.
6.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
6.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the "Investors."
6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.7 (as to each
Investor Party).
6.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to
20
it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If either party shall commence a Proceeding to enforce any
provisions of a Transaction Document, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its reasonable attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such Proceeding.
6.9 Survival. The representations and warranties contained herein shall
survive until the second anniversary of the Closing. The agreements and
covenants contained herein shall survive the Closing and the delivery of the
Securities in accordance with their respective terms.
6.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
6.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities
21
is requested due to a mutilation thereof, the Company may require delivery of
such mutilated certificate or instrument as a condition precedent to any
issuance of a replacement.
6.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.16 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
22
6.17 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
23
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
DIGITAL RECORDERS, INC.
By: /s/ DAVID L. TURNEY
---------------------------------------
Name: David L. Turney
Title: Chairman, Chief Executive
Officer and President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
24
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
ELLIOTT ASSOCIATES, L.P.
Elliott Capital Advisors, L.P., as general partner
Braxton Associates, Inc., as general partner
By: /s/ Elliot Greenberg
------------------------------------------------
Elliot Greenberg Vice President
Investment Amount: $ 320,000 (40,000 shrs)
--------------------------------
Tax ID No.: 22-2140975
-----------------------------------------
Date: 4/21/04
-----------------------------------------------
ADDRESS FOR NOTICE
c/o:
-----------------------------------------------
Street: 712 5th Ave, 35th fl
---------------------------------------------
City/State/Zip: New York, NY 10019
-------------------------------------
Attention: Elliot Greenberg, Nadav Manham
------------------------------------------
Tel: 212-506-2999
------------------------------------------------
Fax: 212-974-2092
------------------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
------------------------------------------------
Street:
---------------------------------------------
City/State/Zip:
-------------------------------------
Attention:
------------------------------------------
Tel:
------------------------------------------------
25
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
Elliott International, L.P.
By: Elliott International Capital Advisors
Inc. as Attorney-in-Fact
By: /s/ ELLIOT GREENBERG
---------------------------------------
Elliot Greenberg, Vice-President
Investment Amount: $480,000 (60,000 shrs)
-----------------------
Tax ID No.: N/A
-------------------------------
Date: 4/21/04
-------------------------------------
ADDRESS FOR NOTICE
c/o: Elliott Mgmt. Corp.
-------------------------------------
Street: 712 5th Ave., 35th Fl.
-----------------------------------
City/State/Zip: New York, NY 10019
---------------------------
Attention: Elliot Greenberg, Nadav Manham
--------------------------------
Tel: 212-506-0999
--------------------------------------
Fax: 212-974-2092
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
--------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
Attention:
--------------------------------
Tel:
--------------------------------------
26
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
BONANZA MASTER FUND LTD.
------------------------------------------
By: /s/ BRIAN LADIN
---------------------------------------
Name: Brian Ladin
Title: Managing Director
Investment Amount: $800,000
-----------------------
Tax ID No.: 98-0371835
-------------------------------
Date: 4/21/04
-------------------------------------
ADDRESS FOR NOTICE
c/o: Brian Ladin / Bonanza Capital
-------------------------------------
Street: 300 Crescent Court, Suite 1740
-----------------------------------
City/State/Zip: Dallas, TX 75201
---------------------------
Attention:
--------------------------------
Tel: 214-615-7090
--------------------------------------
Fax: 214-987-4342
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
--------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
Attention:
--------------------------------
Tel:
--------------------------------------
27
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
HEIMDALL INVESTMENTS LTD.
------------------------------------------
By: /s/
---------------------------------------
Title: Authorized Signatory
Investment Amount: $800,000.00
-----------------------
Tax ID No.: N/A
-------------------------------
Date: 4/21/04
-------------------------------------
ADDRESS FOR NOTICE
c/o: HBK INVESTMENTS
-------------------------------------
Street: 300 Crescent Court, Suite 700
-----------------------------------
City/State/Zip: Dallas, TX 75201
---------------------------
Attention: Legal Dept.
--------------------------------
Tel: 214-758-6107
--------------------------------------
Fax: 214-758-1207
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
--------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
Attention:
--------------------------------
Tel:
--------------------------------------
28
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
LANGLEY PARTNERS, L.P.
------------------------------------------
By: /s/ JEFFREY THORP
---------------------------------------
Name of Authorized Signatory: LANGLEY CAPITAL, LLC
Title of Authorized Signatory: GENERAL PARTNER
Name of Authorized Signatory: JEFFREY THORP
Title of Authorized Signatory: MANAGING MEMBER
Investment Amount: $400,000
-----------------------
Tax ID No.: 13-4136173
-------------------------------
Date: APRIL 21, 2004
-------------------------------------
ADDRESS FOR NOTICE
535 MADISON AVENUE, 7TH FLOOR
NEW YORK, NY 10022
(212) 208-2971 FAX
JT@lcap.com
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
--------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
Attention:
--------------------------------
Tel:
--------------------------------------
29
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR:
SMITHFIELD FIDUCIARY LLC
By: /s/ ADAM J. CHILL
---------------------------------------
Name: Adam J. Chill
Title: Authorized Signatory
Investment Amount: $520,000
----------------------
Tax ID No.: N/A
-------------------------------
Date: April 21, 2004
-------------------------------------
ADDRESS FOR NOTICE
c/o: Highbridge Capital Management, LLC
-------------------------------------
Street: 9 West 57th Street, 27th Floor
-----------------------------------
City/State/Zip: New York, New York 10019
---------------------------
Attention: Ari J. Storch / Adam J. Chill
--------------------------------
Tel: (212) 287-4720
--------------------------------------
Fax: (212) 751-0755
--------------------------------------
Email: ari.storch@hcmny.com
------------------------------------
adam.chill@hcmny.com
------------------------------------
30
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
OMICRON MASTER TRUST
By: Omicron Capital L.P., as advisor
By: Omicron Capital Inc., its general
partner
By: /s/ BRUCE BERNSTEIN
---------------------------------------
Name: Bruce Bernstein
Title: Managing Partner
Investment Amount: $ 720,000
-----------------------
Tax ID No.: 98-6053436
-------------------------------
Date: April 21, 2004
-------------------------------------
ADDRESS FOR NOTICE
c/o: Omicron Capital
-------------------------------------
Street: 810 Seventh Ave, 39th Fl
-----------------------------------
City/State/Zip: New York, NY 10019
---------------------------
Attention: Brian Daly
--------------------------------
Tel: 212 803-5263
--------------------------------------
Fax: 212 803-5269
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
--------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
31
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
Gabriel Capital, L.P.
------------------------------------------
By: /s/ David K. Sherman
Name: David K. Sherman
Title: Authorized Agent
Investment Amount: $280,000
-----------------------
Tax ID No.: 13.36.21.277
-------------------------------
Date: April 21, 2004
-------------------------------------
ADDRESS FOR NOTICE
c/o: Gabriel Capital, L.P.
-------------------------------------
Street: 450 Park Avenue, Suite 3201
-----------------------------------
City/State/Zip: New York, NY 10022
---------------------------
Attention: Mark Weiner, David Sherman
--------------------------------
Tel: 212-838-7200
--------------------------------------
Fax: 212-759-0368
--------------------------------------
email: weinerm@gabrielcapital.com
DELIVERY INSTRUCTIONS
(if different from above)
c/o: same as above
-------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
Attention:
--------------------------------
Tel:
--------------------------------------
Fax:
--------------------------------------
32
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
Cohanzick Absolute Return
Master Fund, Ltd
------------------------------------------
By: /s/ David K. Sherman
Name: David K. Sherman
Title: Authorized Agent
Investment Amount: $ 120,000
----------------------
(15,000 shares x8,000)
Tax ID No.:
-------------------------------
Date: April 21, 2004
-------------------------------------
ADDRESS FOR NOTICE
c/o: Cohanzick Management, LLC
-------------------------------------
Street: 427 Bedford Ave, Suite 260
-----------------------------------
City/State/Zip: Pleasantville, NY 10570
---------------------------
Attention: David Sherman
--------------------------------
Tel: (212) 838-9300
--------------------------------------
Fax: (914) 992-9817
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o: Cohanzick Management, LLC
--------------------------------------
Street: 427 Bedford Ave, Suite 260
-----------------------------------
City/State/Zip: Pleasantville, NY 10570
---------------------------
Attention: David K. Sherman
--------------------------------
Tel: (212) 838-9300
--------------------------------------
33
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
CRANSHIRE CAPITAL, LP
------------------------------------------
By: /s/ MITCHELL P. KOPIN
---------------------------------------
Name: Mitchell P. Kopin
Title: President - Downsview Capital,
the General Partner
Investment Amount: $400,000
-----------------------
Tax ID No.: 36-4055954
-------------------------------
Date: 4/21/04
-------------------------------------
ADDRESS FOR NOTICE
c/o: Mitchell P. Kopin
-------------------------------------
Street: 666 Dundee Rd., Suite 1901
-----------------------------------
City/State/Zip: Northbrook, IL 60062
---------------------------
Attention: Mitchell Kopin
--------------------------------
Tel: 847-562-9030
--------------------------------------
Fax: 847-562-9031
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
--------------------------------------
Street:
-----------------------------------
City/State/Zip:
---------------------------
Attention:
--------------------------------
Tel:
--------------------------------------
34
IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTOR
PORTSIDE GROWTH AND OPPORTUNITY FUND
------------------------------------------
By: /s/ JEFF SMITH
---------------------------------------
Name: Jeff Smith
Title: Authorized Signatory
Investment Amount: $160,000
-----------------------
Tax ID No.: 98-0216878
-------------------------------
Date: 4/21/04
-------------------------------------
ADDRESS FOR NOTICE
c/o: Ramius Capital Group, LLC
-------------------------------------
Street: 666 Third Ave., 26th Fl.
-----------------------------------
City/State/Zip: New York, NY 10017
---------------------------
Attention: Jeff Smith
--------------------------------
Tel: 212-845-7955
--------------------------------------
Fax: 212-845-7999
--------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o: Christian Pesci, Citigroup
--------------------------------------
Street: 390 Greenwich St., 5th Floor
-----------------------------------
City/State/Zip: New York, NY 10013
---------------------------
Attention:
--------------------------------
Tel: 212-723-5811
--------------------------------------
35