<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material under Section 240.14a-12
DIGITAL RECORDERS, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
January __, 2001
Dear Shareholder:
I cordially invite you to attend a special meeting (the "Special Meeting")
of the shareholders of Digital Recorders, Inc. (the "Company" or "Digital") to
be held at the Radisson-Governor's Inn, I-40 at Davis Drive, Research Triangle
Park, Durham, NC 27709, on Thursday, February 22, 2001, at 11:00 a.m., local
time. At the Special Meeting, you will be asked to vote on (i) a proposal to
approve the issuance of 430,000 shares of restricted common stock, par value
$.10 per share, (the "Restricted Shares") of the Company pursuant to the Stock
Purchase Agreement, among the Company, DRI-Europa AB ("DRI-Europa"), the
Company's wholly-owned subsidiary, and Bengt Bodin, Annacarin Bodin, Mattias
Bodin, Tobias Bodin, and Bertil Lindqvist (collectively the "Sellers"), to
acquire all of the outstanding stock of Mobitec Holding AB ("Mobitec"), a
Swedish company (the "Acquisition"); (ii) to approve the issuance of 100,000
shares of the Company's common stock underlying warrants granted to the Bengt
Bodin as part of the consideration for the Stock Purchase Agreement; and,
(iii) to approve the authorization and issuance of Convertible Debentures in the
aggregate amount of $3,000,000 and issuance of up to 1,500,000 shares of the
Company's common stock underlying Convertible Debentures that will be issued to
certain investment funds, if the Debentures are converted, in connection with
their investment of up to $3,000,000 in the Company, which funds will be used in
part to fund part of the Stock Purchase Agreement.
Under the Stock Purchase Agreement, the Company and/or DRI-Europa, will
acquire all of the outstanding shares of Mobitec (the "Acquisition"), a company
which makes and supplies information systems for public transport vehicles for
the global market. The consideration to be given to the Sellers under the Stock
Purchase Agreement will consist of cash of $4,250,000, seller financed debt of
approximately $2,000,000, the issuance and transfer of the Restricted Shares to
certain of the Sellers, and warrants to purchase up to 100,000 shares of
Digital's Common Stock at an exercise price of $4.00 per share. Further, in
order to receive an investment of up to $3,000,000 in Digital to be used in part
to pay the purchase price, the Company will issue $3 million of Convertible
Debentures which are payable over seven years and are convertible to up to
1,500,000 shares of the Company's common stock. The number of shares convertible
from the Debentures could under certain circumstances, but is not expected to,
exceed 1,500,000 shares.
The Stock Purchase Agreement is subject to an Option Agreement dated
December 7, 2000 (the "Option Agreement"), between the Company, DRI-Europa and
Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil Lindqvist
(collectively, the "Offerors"). Pursuant to the Option Agreement, the Offerors
granted to Digital and DRI-Europa an irrevocable right of option to purchase
from the Offerors their shares of Mobitec Holding AB under two alternative
exercises of the option: Option A, in which only DRI-Europa may exercise the
option to purchase the Offerors' shares; or Option B, in which both Digital and
DRI-Europa may exercise the option to purchase the Offerors' shares. If either
option is exercised, the purchase of the Offerors' shares will be made pursuant
to the Stock Purchase Agreement, described below. The Stock Purchase Agreement
as currently drafted conforms to Option A. If Option B is exercised, the Stock
Purchase Agreement will require certain modifications to reflect that both
Digital and DRI-Europa would be deemed the Purchasers. Either Option must be
exercised during the period from January 31, 2001 through and including
February 28, 2001, which period may be extended for a maximum of 15 days.
The closing of the Acquisition is subject to certain conditions, including
approval by the Company's shareholders of the issuance of the Restricted Shares
as described above (the "Restricted Shares Issuance"), the issuance of the
shares underlying the Bodin Warrants (the "Warrant Shares Issuance"), the
authorization and issuance of the Convertible Debentures and common shares
underlying the debentures (the "Convertible Debenture Authorization" and the
"Debenture Shares Issuance"), consummation of certain bank financing and final
approval by the Company's Board of Directors. I urge you to read carefully the
detailed information that follows this letter regarding the Stock Purchase
Agreement, the Restricted Shares Issuance, and the related transactions.
<PAGE>
Digital's Board of Directors has carefully reviewed and considered the terms
of the Stock Purchase Agreement and has determined that the Stock Purchase
Agreement and the transactions contemplated thereby, including the Acquisition,
the Restricted Shares Issuance, the Warrant Shares Issuance, the Convertible
Debenture Authorization and the Debenture Shares Issuance (collectively, the
"Transactions"), are in the best interests of the Company and its shareholders.
Accordingly, the Board has unanimously approved the Transactions and recommends
that you vote in favor of the Restricted Shares Issuance, the Warrant Shares
Issuance, the Convertible Debenture Authorization and the Debenture Shares
Issuance at the Special Meeting.
Shareholder approval of the Acquisition and entering into the Option
Agreement, Stock Purchase Agreement and related documents is not required.
Therefore, you will not be voting at the Special Meeting regarding these
matters. You will be asked at the Special Meeting to vote only on the Restricted
Shares Issuance, the Warrant Shares Issuance, the Convertible Debenture
Authorization and the Debenture Shares Issuance.
Your participation in the Special Meeting, in person or by proxy, is
especially important, because the item to be voted upon is very important to the
Company. Whether or not you plan to attend the Special Meeting in person, on
behalf of Digital and your fellow shareholders, I urge you to complete, date,
sign and promptly return the enclosed proxy card in the enclosed prepaid
envelope to ensure that your shares will be represented at the Special Meeting.
On behalf of the Company's Board, I thank you for your support and urge you
to vote FOR approval of the Restricted Shares Issuance, the Warrant Shares
Issuance and the Convertible Debenture Authorization and the Debenture Shares
Issuance.
Very truly yours,
/s/ DAVID L. TURNEY
____________________
David L. Turney,
CHAIRMAN OF THE BOARD
<PAGE>
DIGITAL RECORDERS, INC.
4018 Patriot Drive, One Park Center, Suite 100, Durham, North Carolina 27703
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------------
A Special Meeting of Shareholders of Digital Recorders, Inc. will be held on
February 22, 2001 at 11:00 a.m. at the Radisson-Governor's Inn, I-40 at Davis
Drive, Research Triangle Park, Durham, NC 27709, for the following purposes:
1. to approve the issuance of 430,000 shares of Digital Recorders, Inc.'s
restricted common stock, par value of $.10 per share (the "Restricted
Shares Issuance"), to be transferred to certain of the Sellers as part of
the purchase price of the Stock Purchase Agreement (described in the
attached Proxy Statement), pursuant to which Agreement DRI Europa AB, a
wholly-owned subsidiary of Digital Recorders, Inc., and/or Digital
Recorders, Inc. will acquire 100% of the outstanding stock of Mobitec
Holding AB (the "Acquisition").
2. to approve the issuance of 100,000 shares of the Company's common stock
underlying warrants granted to Bengt Bodin pursuant to the Bodin Warrant
Agreement (the "Warrant Shares Issuance") as part of the consideration
for the Stock Purchase Agreement.
3. to approve the authorization and issuance of Convertible Debentures in
the aggregate amount of $3,000,000 and issuance of up to 1,500,000 shares
of the Company's common stock underlying Convertible Debentures that will
be issued to certain investment funds, if the Debentures are converted,
in connection with their investment of up to $3,000,000 in the Company,
which funds will be used in part to fund part of the Stock Purchase
Agreement.
4. to transact any other business that may properly come before the
meeting.
THE BOARD OF DIGITAL RECORDERS, INC. HAS UNANIMOUSLY APPROVED EACH OF THE
PROPOSALS DESCRIBED ABOVE AND RECOMMENDS THAT YOU VOTE FOR EACH PROPOSAL AT THE
SPECIAL MEETING.
The Board of Directors has fixed the close of business on January 2, 2001,
as the record date for the determination of shareholders entitled to notice of
and to vote at this special meeting or any adjournment thereof. A complete list
of the shareholders entitled to vote at the meeting will be available for
inspection at the Special Meeting and for a period of ten days prior to the
Special Meeting at Digital Recorders, Inc.'s corporate offices, 4018 Patriot
Drive, One Park Center, Suite 100, Durham, North Carolina 27703, during normal
business hours.
A Proxy Statement which describes the formal business to be conducted at the
special meeting is attached to this Notice.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed voting card in the postage-prepaid envelope to ensure that your
shares are represented at the special meeting. Your shares cannot be voted
unless you date, sign, and return the enclosed voting card or attend the meeting
in person. Regardless of the number of shares you own, your vote is important.
You may revoke your proxy in the manner described in the Proxy Statement at any
time before the vote at the Special Meeting. Executed proxies with no
instructions indicated thereon will be voted "FOR" approval of each of the
Proposals for which no vote is cast.
The Board of Directors and Management look forward to seeing you at the
meeting.
By Order of The Board of Directors,
David L. Turney, Chairman of the Board
January ______, 2001
IMPORTANT
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
CANNOT ATTEND THE MEETING, PLEASE MARK, DATE, SIGN, NOTE ANY CHANGE OF ADDRESS
AND RETURN THE ENCLOSED PROXY CARD IMMEDIATELY IN THE ENCLOSED, SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, WE WILL BE GLAD TO RETURN YOUR PROXY SO THAT YOU MAY VOTE IN PERSON
AT THE MEETING.
<PAGE>
DIGITAL RECORDERS, INC.
4018 PATRIOT DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27703
PROXY STATEMENT
RELATING TO THE SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD FEBRUARY 22, 2001
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information......................................... 1
No Appraisal or Preemptive Rights........................... 2
Interest of Certain Persons in Proposed Acquisition......... 2
Security Ownership of Certain Beneficial Owners and
Management................................................ 2
PROPOSAL I--TO APPROVE THE ISSUANCE OF THE RESTRICTED SHARES
(THE "RESTRICTED SHARES ISSUANCE") IN CONNECTION WITH
DIGITAL'S PURCHASE OF ALL OUTSTANDING SHARES OF MOBITEC
HOLDING AB (THE "ACQUISITION")............................ 4
Introduction and Summary of Acquisition Transactions...... 4
The Company............................................... 7
Mobitec Holding AB........................................ 7
DRI-Europa................................................ 7
Background and Reasons for the Acquisition................ 8
Fairness Opinion.......................................... 10
Summary of Stock Purchase Agreement....................... 12
Purchase Price.......................................... 12
Conditions Precedent to the Purchaser's Obligations..... 12
Closing Conditions...................................... 12
Representations and Warranties of the Sellers........... 13
Representations and Warranties of the Bodin Sellers..... 13
Covenants............................................... 14
Registration of the Restricted Shares................... 15
Indemnification......................................... 15
Representations and Warranties of the Purchaser......... 15
Closing Date............................................ 15
General Provisions...................................... 15
Summary of Consulting Agreement........................... 16
Summary of Trademark License Agreement.................... 16
Certain Risks and Factors to Consider in Determining How
to Vote................................................. 16
Board of Directors' Recommendation........................ 16
PROPOSAL II--THE WARRANT SHARES ISSUANCE.................... 17
Summary of the Bodin Warrant Agreement.................... 17
Summary of the Registration Rights Agreement.............. 18
Board of Directors' Recommendation........................ 18
PROPOSAL III--THE CONVERTIBLE DEBENTURE AUTHORIZATION AND
THE DEBENTURE SHARES ISSUANCE............................. 19
Summary of the Renaissance Convertible Debenture
Preliminary Outline of Terms............................ 19
Board of Directors' Recommendation........................ 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Certain Risks and Factors to Consider in Determining How to
Vote...................................................... 21
Dilution of Existing Shareholders......................... 21
Consequences if Share Issuances are not Approved.......... 21
Competition............................................... 21
Technology Advancements by Competitors.................... 21
Risks Regarding Financing of Cash Component of Purchase
Price................................................... 21
Market Recession.......................................... 22
Ability to Retain Key Mobitec Management Personnel........ 22
Liquidity of Mobitec in the Event of Business Failure..... 22
Accounting Treatment........................................ 22
Tax Treatment............................................... 22
Description of Securities to Be Issued Pursuant to the
Acquisition............................................... 22
Compliance with Section 16(a) of the Exchange Act........... 23
Financial Information....................................... 23
Pro Forma Consolidated Financial Statements of Digital and
Mobitec................................................... 24
Information About Digital................................... 24
Description of Business................................... 24
General................................................. 24
Industry Overviews...................................... 25
Products and Product Design............................. 26
Transportation Products Segment....................... 26
Digital's "Talking Bus-TM-" Product Line.............. 26
Transit-Media GmbH and TwinVision of North America,
Inc. Product Line.................................... 26
Law Enforcement and Surveillance Segment................ 27
Digital Audio Corporation Product Line................ 27
Marketing and Sales..................................... 27
Research and Development................................ 27
Acquisitions and Reorganization......................... 28
Competition............................................. 28
Manufacturing........................................... 29
Proprietary Rights...................................... 29
Employees............................................... 29
Description of Property................................... 29
Legal Proceedings......................................... 30
Market for Common Equity and Related Stockholder
Matters................................................. 31
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 31
General................................................. 31
Results of Operations................................... 32
Comparison of Years Ended December 31, 1999 and 1998.... 32
Comparison of Nine Months Ended September 30, 2000 and
1999................................................... 33
Liquidity and Capital Resources......................... 34
Information About Mobitec................................... 36
Description of Business................................... 36
Market for Common Equity and Related Stockholder
Matters................................................. 36
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 36
Certain Relationships and Related Transactions.............. 40
Shareholder Proposals....................................... 40
Other Matters............................................... 40
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Documents Incorporated by Reference......................... 40
</TABLE>
APPENDICES
<TABLE>
<S> <C>
Appendix A--Proxy Card
Appendix I--Stock Purchase Agreement
Appendix II--Option Agreement
Appendix III--Bodin Warrant Agreement
Appendix IV--Registration Rights Agreement
Appendix V--Trademark License Agreement
Appendix VI--form of Promissory Note
Appendix VII--Preliminary Outline of Terms, dated
November 28, 2000
Appendix VIII--Consulting Agreement
Appendix IX--form of Fairness Opinion
Appendix X--Auditors Letter of Opinion for Mobitec AB of
Ernst & Young AB dated January 5, 2001
Appendix XI--Mobitec Consolidated Balance Sheets
December 31, 1999 and 1998 and Mobitec Consolidated
Statements of Operations, Years Ended December 31, 1999
and 1998
Appendix XII--Mobitec Consolidated Balance Sheets
September 30, 2000 and 1999 and Mobitec Consolidated
Statements of Operations, Nine Months Ended
September 30, 2000 and 1999.
Appendix XIII--Pro Forma Combined Condensed Statement of
Operations--Year Ended December 31, 1999.
Appendix XIV--Pro Forma Combined Condensed Statement of
Operations--Nine Months Ended September 30, 2000.
Appendix XV--Pro Forma Combined Condensed Balance
Sheet--September 30, 2000.
</TABLE>
<PAGE>
GENERAL INFORMATION
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF DIGITAL
RECORDERS, INC. (the "Company" or "Digital") for use at the Special Meeting of
Shareholders (the "Special Meeting"). The Special Meeting will be held at the
Radisson-Governor's Inn, I-40 at Davis Drive, Research Triangle Park, Durham, NC
27709, on Thursday, February 22, 2001, at 11:00 a..m., for the purposes set
forth in the foregoing Notice of Special Meeting of Shareholders. This Proxy
Statement and the form of proxy will be mailed to shareholders on or about
January , 2001.
The record date with respect to this solicitation is January 2, 2001 (the
"Record Date"). All holders of record of Common Stock of the Company as of the
close of business on the Record Date are entitled to vote at the Special
Meeting. As of that date, the Company had 3,274,075 shares of Common Stock
outstanding, which shares constitute the only class of outstanding shares of the
Company entitled to notice of, and to vote at, the Special Meeting. Each share
of Common Stock is entitled to one vote.
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Special Meeting in order to constitute a quorum for
the transaction of business. If a quorum exists, a proposal is approved if the
votes cast in person or by proxy favoring the proposal exceed the votes cast
opposing the proposal. Abstentions and broker non-votes are not counted in the
calculation of the vote. A proxy may be revoked by the shareholder at any time
prior to its being voted by giving notice to the Secretary of the Company, by
executing and delivering a proxy with a later date or by voting in person at the
Special Meeting. Unless the proxy is revoked, or unless it is received in such
form as to render it invalid, the shares represented by it will be voted in
accordance with the instructions of the shareholder contained therein. If the
proxy is signed and returned without specifying choices, the shares will be
voted in accordance with the recommendations of the Board of Directors.
The cost of this solicitation will be borne by the Company, including
expenses incurred in connection with preparing and mailing this Proxy Statement.
Such expenses will include charges by brokers, banks or their nominees, other
custodians and fiduciaries for forwarding proxy material to the beneficial
owners of shares held in the name of a nominee. Proxies may be solicited
personally or by mail, facsimile, telephone or telegraph. Employees and
directors of the Company may solicit proxies but will not receive any additional
compensation for such solicitation.
As a matter of policy, proxies, ballots, and voting tabulations that
identify individual shareholders are held confidential by the Company. Such
documents are available for examination only by the inspectors of election that
are employees appointed to tabulate the votes. The identity of the vote of any
shareholder is not disclosed except as may be necessary to meet legal
requirements.
If you have additional questions about the Transactions you should contact:
DIGITAL RECORDERS, INC.
4018 Patriot Drive
One Park Center, Suite 100
Durham, North Carolina 27703
Attn: Lawrence A. Taylor
If you would like additional copies of this Proxy Statement, or if you have
questions with respect to voting your shares, you should contact the Company's
transfer agent:
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
<PAGE>
NO APPRAISAL OR PREEMPTIVE RIGHTS
Holders of the Company's Common Stock are not entitled under North Carolina
law to seek appraisal of their shares in connection with the Transactions. In
addition, holders of Digital Common Stock are not entitled to preemptive rights
with respect to the Restricted Shares Issuances, the Warrant Shares Issuance or
the Debenture Shares Issuance.
INTEREST OF CERTAIN PERSONS IN PROPOSED ACQUISITION
John D. Higgins, a director of the Company, is a member of the Corporate
Finance Group of Investech-Ernst & Co., an international investment and merchant
banking firm that is providing a fairness opinion with respect to certain
aspects of the proposed Acquisition and related Transactions. See "Fairness
Opinion." Investech-Ernst & Co. will receive a fee of $45,000, plus reasonable
actual expenses, for furnishing the fairness opinion.
In addition, Investech-Ernst & Co. will receive a fee upon successful
completion of the Renaissance Capital Group, Inc. Convertible Debenture
financing. See Proposal III. The fee payable to Investech-Ernst & Co. will be
$17,500, assuming the full $3 million of convertible debenture financing is
provided by Renaissance Capital Group, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Digital's Common Stock as of January 2, 2001 by (i) each person
known by Digital to own beneficially more than 5% of the outstanding Common
Stock, (ii) each director and (iii) all executive officers and directors as a
group. The information with respect to institutional investors is derived solely
from statements filed with the Commission under Section 13(d) of the Securities
Exchange Act. Each person has sole voting and sole investment or dispositive
power with respect to the shares shown except as noted.
<TABLE>
<CAPTION>
SHAREHOLDINGS ON JANUARY 2, 2000(1)
------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
---------------- ----------------- ----------------
<S> <C> <C>
David L. Turney(2).......................................... 385,950 11.0
Lawrence A. Taylor(3)....................................... 81,667 2.5
Lawrence A. Hagemann(4)..................................... 72,147 2.2
Robert W. Huber(5).......................................... 23,666 0.7
Tanya Johnson(6)............................................ 39,523 1.2
Craig Scates(5)............................................. 20,000 0.6
Floyd J. Diaz(5)............................................ 11,667 0.4
Gerald W. Sheehan(5)........................................ 22,667 0.7
John D. Higgins(7).......................................... 136,277 4.1
J. Phillips L. Johnston(8).................................. 104,448 3.1
C. James Meese, Jr.(9)...................................... 29,254 0.9
John K. Pirotte(10)......................................... 68,362 2.1
John M. Reeves, II(11)...................................... 18,667 0.6
Joseph Tang(5).............................................. 16,667 0.5
Juliann Tenney(12).......................................... 37,315 1.1
Lite Vision Corporation..................................... 400,000 12.2
736 Chung-Cheng Road, 18th Floor
Chung Ho City, Taipei Hsien, Taiwan, R.O.C.
All current directors and officers as a group (15
persons)(12).............................................. 1,468,277 35.9
</TABLE>
2
<PAGE>
------------------------
(1) Beneficial ownership includes both outstanding Common Stock and shares
issuable upon exercise of options or warrants that are currently
exercisable or will become exercisable within 60 days after the date
hereof. Unless otherwise noted, sole voting and dispositive power is
possessed with respect to all Common Stock shown. All percentages are
calculated based on the number of outstanding shares plus shares which a
person or group has the right to acquire within 60 days. The address for
all persons listed is 4018 Patriot Drive, One Park Center, Suite 100,
Durham, North Carolina 27709.
(2) Includes 250,000 shares subject to currently exercisable options.
(3) Includes 51,667 shares subject to currently exercisable options.
(4) Includes 62,147 shares subject to currently exercisable options.
(5) Consists solely of shares subject to currently exercisable options.
(6) Includes 38,523 shares subject to currently exercisable options.
(7) Includes 16,667 shares subject to currently exercisable options.
(8) Includes 76,666 shares subject to currently exercisable options.
(9) Includes 28,654 shares subject to currently exercisable options.
(10) Includes 18,667 shares subject to currently exercisable options.
(11) Includes 18,667 shares subject to currently exercisable options.
(12) Includes 19,333 shares subject to currently exercisable options.
(13) Includes 712,987 shares subject to currently exercisable options.
3
<PAGE>
PROPOSAL I.
TO APPROVE THE ISSUANCE OF THE RESTRICTED SHARES (THE "RESTRICTED SHARES
ISSUANCE") IN CONNECTION WITH DIGITAL'S PURCHASE OF ALL OUTSTANDING SHARES OF
MOBITEC HOLDING AB (THE "ACQUISITION").
THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING DIGITAL'S ACQUISITION, THROUGH ITSELF AND/OR ITS WHOLLY-OWNED
SUBSIDIARY, OF ALL THE OUTSTANDING STOCK OF MOBITEC HOLDING AB ("MOBITEC") (THE
"ACQUISITION") AND THE RESTRICTED SHARES ISSUANCE (COLLECTIVELY, THE
"TRANSACTIONS") ARE SUMMARIZED BELOW. THIS SUMMARY DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STOCK PURCHASE
AGREEMENT, ATTACHED AS APPENDIX I; THE OPTION AGREEMENT, ATTACHED AS
APPENDIX II; THE BODIN WARRANT AGREEMENT, ATTACHED AS APPENDIX III; THE
REGISTRATION RIGHTS AGREEMENT, ATTACHED AS APPENDIX IV; THE TRADEMARK LICENSE
AGREEMENT, BETWEEN MOBITEC AB AND MOBITEC KLIMAT AB, ATTACHED AS APPENDIX V; THE
FORM OF PROMISSORY NOTE, ATTACHED AS APPENDIX VI; THE PRELIMINARY OUTLINE OF
TERMS BETWEEN DIGITAL AND RENAISSANCE CAPITAL GROUP, INC., DATED NOVEMBER 28,
2000, ATTACHED AS APPENDIX VII; AND THE CONSULTING AGREEMENT, ATTACHED AS
APPENDIX; EACH OF WHICH IS INCORPORATED BY REFERENCE. SHAREHOLDERS ARE URGED TO
READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR ENTIRETY.
This proxy statement contains certain forward-looking statements. When used
in this proxy statement, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," "believe" and similar expressions
are intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 regarding events, conditions and financial trends
including, without limitation, business conditions and growth in the markets in
which the Company participates and the general economy; competitive factors,
such as the entry of new competitors into any of the markets in which the
Company participates; price pressures and increased competition in those
markets; inventory risks due to shifts in market demand and/or price erosion of
purchased components; changes in product mix; that the Company's working capital
and existing credit arrangement will be adequate to fund its operations; and the
risks and uncertainties listed from time to time in the Company's Securities and
Exchange Commission reports and filings. Such statements are based on
management's current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual plan of operations,
business strategy, operating results and financial position could differ
materially from those expressed in, or implied by, such forward-looking
statements.
INTRODUCTION AND SUMMARY OF ACQUISITION TRANSACTIONS
On December 7, 2000, Digital and its wholly-owned subsidiary, DRI Europa AB
("DRI Europa"), entered into an Option Agreement (the "Option Agreement") with
Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil Lindqvist
(collectively, the "Offerors"). Pursuant to the Option Agreement, the Offerors
granted to Digital and DRI-Europa an irrevocable right of option to purchase
from the Offerors their shares of Mobitec Holding AB for the period from
January 31, 2001 through February 28, 2001, subject to a maximum extension of
15 days, based upon the occurrence of certain events. The Company has requested
that the maximum extension period apply. The Option Agreement provides for two
alternative exercises of the option right of Digital and DRI-Europa: Option A,
in which only DRI-Europa may exercise the option to purchase the Offerors'
shares; or Option B, in which both Digital and DRI-Europa may exercise the
option to purchase the Offerors' shares. If either option is exercised, the
purchase of the Offerors' shares will be made pursuant to the Stock Purchase
Agreement, described below. The Stock Purchase Agreement as currently drafted
conforms to Option A. If Option B is exercised, the Stock Purchase Agreement
will require certain modifications to reflect that both Digital and DRI-Europa
would be deemed the Purchasers.
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The Stock Purchase Agreement (the "Stock Purchase Agreement"), which will be
executed by the parties after one of the options is exercised pursuant to the
Option Agreement, is between Digital and DRI Europa, and Bengt Bodin, Annacarin
Bodin, Mattias Bodin, Tobias Bodin (collectively, the "Bodin Sellers") and
Bertil Lindqvist ("Lindqvist") (collectively, the Bodin Sellers and Lindqvist
are referred to as "the Sellers"). Under the terms of the Stock Purchase
Agreement, which is attached to this Proxy Statement as Appendix I, subject to
certain conditions, DRI Europa and/or Digital has agreed to purchase 100,000
shares of Mobitec Holding AB, a Swedish corporation ("Mobitec"), constituting
all of the outstanding stock of Mobitec, from the Sellers for a purchase price
consisting of:
- 5,700,000 Swedish Krona (SEK) (at an assumed exchange rate of .092982 such
that SEK 5,700,000 is equal to US $530,000) to be paid to Lindqvist for
his shares of Mobitec;
- Subject to adjustment following the Closing Date, based upon a comparison
of Mobitec's net equity at the time of the Closing as set forth in the
Closing Financial Statement and as of March 31, 2000:
- US $3,680,000 to be paid to the Bodin Sellers;
- Promissory Notes totaling up to US $2 million to be issued to each
Bodin Seller on the Closing Date;
- 430,000 Restricted Shares of Digital (valued at $3 per share) to be
transferred to the Bodin Sellers on the Closing Date; and,
- Warrants to purchase in the aggregate 100,000 shares of Digital's common
stock at an exercise price of US $4.00 per share for a period of five
years issued to the Bengt Bodin pursuant to the Bodin Warrant Agreement.
The Restricted Shares will be transferred to the Bodin Sellers on the
Closing Date, subject to all of the terms and conditions of the Registration
Rights Agreement, attached as Appendix IV. See Summary of Registration Rights
Agreement, in Proposal II, below. Two hundred thousand shares of the 430,000
Restricted Shares to be transferred to the Bodin Sellers at Closing are to be
registered by the Company within one year of the Closing of the Stock Purchase
Agreement. The remaining 230,000 Restricted Shares are to be registered by the
Company within two years of the Closing.
The cash portion of the purchase price is being provided by two separate
sources: (1) the authorization and issuance of up to $3 million in Convertible
Debentures (the "Convertible Debentures") by the Company to certain investment
funds associated with Renaissance Capital Group, Inc. of Dallas, Texas (the
"Convertible Debentures Issuance"); and, (2) a loan to DRI-Europa from Svenska
Handelsbanken AB of Goteborg, Sweden in the amount of SEK 22,000,000 (the
"Acquisition Loan").
The Convertible Debentures are convertible into the Company's common stock
(the "Debenture Shares") at an Initial Conversion Price equal to the
volume-weighted average closing price for Digital's common stock for the five
day period prior to the closing of the Convertible Debenture Agreement and
related documents but in no event below $2.00 per share or greater than $3.00
per share. Accordingly, the Convertible Debentures are initially convertible
into at least 1,000,000 shares of the Company's common stock and no more than
1,500,000 shares of the Company's common stock (the "Debenture Shares
Issuance"). However, the conversion price is subject to an Automatic Adjustment
if (i) the Company does not attain certain financial performance goals, to be
agreed upon, and (ii) the market price of the Company's common stock is below
the conversion price at the time of publication of the Company's financial
results for the period. If applicable, at the adjustment date, the conversion
price will be reduced to equal the volume-weighted average closing price for the
Company's common stock over a ten day trading period following the Company's
public release of that year's financial results. Therefore, as a result of the
Automatic Adjustment, the shares of the Company convertible from the
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Convertible Debentures could, but are not expected to, exceed 1,500,000. See,
Proposal III regarding the Convertible Debenture Authorization, the Convertible
Debenture Issuance and the Debenture Shares Issuance.
The Bodin Warrant Agreement, which is attached hereto as Appendix III,
provides for a grant by Digital to Bengt Bodin of warrants to purchase 100,000
shares of Digital's common stock for a period of five years at an exercise price
of $4.00 per share. The Warrants can be exercised in cash or by the non-cash
conversion provision. Bodin can offset and reduce any part or all of the
exercise price by the sum of the unpaid principal balance on the Promissory
Note, plus accrued and unpaid interest. Pursuant to the Registration Rights
Agreement, the common shares underlying the warrants will be registered by
Digital within one year from the date of Closing of the Stock Purchase
Agreement. See Summary of Bodin Warrant Agreement, below in Proposal II. See
Proposal II regarding the Warrant Shares Issuance.
See "Description of Securities Issued Pursuant to the Acquisition."
The 430,000 Restricted Shares of the Company's common stock constitutes
approximately 13% of the Company's common stock outstanding on January 2, 2001.
The 100,000 shares of common stock underlying the Bodin Warrants represent
approximately 3% of the Company's common stock on January 2, 2001 and would
constitute approximately 3% of the common stock after exercise. The up to
1,500,000 shares of common stock underlying the Convertible Debentures represent
approximately 46% of the Company's common stock on January 2, 2001 and would
constitute approximately 31% of the common stock after conversion. After Closing
of the Stock Purchase Agreement and related Transactions, the Restricted Shares,
the shares underlying the Bodin Warrants and the shares underlying the
Convertible Debentures would together constitute approximately 62% of the
Company's common stock outstanding on January 2, 2001 and would constitute
approximately 38% of Digital's common stock after exercise and conversion.
The Board of Directors has unanimously approved the execution and delivery
of the Stock Purchase Agreement, the Acquisition and the related Transactions,
including the Restricted Shares Issuance, the Warrant Shares Issuance, the
Convertible Debentures Authorization and Debenture Shares Issuance and the
Acquisition Loan. Because the Stock Purchase Agreement and related Transactions
may collectively involve the issuance of common stock in excess of 20% of the
currently outstanding shares of the Company's common stock, the National
Association of Securities Dealers, Inc. (the "NASD") requires that Digital
obtain the approval of the transaction by the holders of a majority of the votes
present and voting at the Special Meeting. Pursuant to this Proxy Statement, the
Board of Directors is submitting the Restricted Shares Issuance, the Warrant
Shares Issuance, the Convertible Debenture Authorization and the Debentures
Shares Issuance to the Shareholders for approval. Shareholder approval is not
required, and will not be requested, for the Option Agreement, the Stock
Purchase Agreement, the Acquisition, the Acquisition Loan and the related
Transactions other than the Restricted Shares Issuance, the Warrant Shares
Issuance, the Convertible Debenture Authorization and the Debentures Shares
Issuance. Unless the required majority of the votes for approval of the
Restricted Shares Issuance, the Warrant Shares Issuance, the Convertible
Debenture Authorization and Debentures Shares Issuance is obtained, the
Restricted Shares Issuance, the Warrant Shares Issuance, the Convertible
Debenture Authorization and Debentures Shares Issuance, and accordingly, the
Stock Purchase Agreement, the Acquisition and the related Transactions, will not
be completed. As of the date of this Proxy Statement, the Board of Directors
anticipates completing the Stock Purchase as soon a practicable after the
Special Meeting, assuming satisfaction or waiver of all conditions to closing.
See "Summary of Stock Purchase Agreement--Closing Conditions."
The Promissory Notes (the "Notes") to be issued to the Bodin Sellers at
Closing total approximately US $2 Million and will be issued to each Bodin
Seller on the Closing Date. The amounts of the Notes are subject to adjustment
by any discrepancy between the amount of net equity of
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Mobitec exceeding SEK 100,000 reflected on the Closing Financial Statement of
Mobitec and the net equity of Mobitec reflected in its interim financial
statement at March 31, 2000. The Notes are due 36 months from the Closing Date
and bear interest at the rate of 9% per annum payable on a quarterly basis. A
form of the Promissory Notes is attached to this Proxy Statement as
Appendix VI.
THE COMPANY
Digital Recorders, Inc.
4018 Patriot Drive
One Park Center, Suite 100
Durham, North Carolina 27703
(919) 361-2155
DRI designs, manufactures or contracts for the manufacture of, sells, and
services products to the transit and transportation market and the law
enforcement market. The Company creates and produces products and systems to
improve the flow and mobility of people through the transportation
infrastructure. DRI markets its products to customers located in North America,
Europe and Asia.
MOBITEC HOLDING AB
Bilgatan 7
442 40 Kungalv
Gotteburg, Sweden
Telephone: 46 513 22900
Mobitec makes and supplies information systems for public transport vehicles
for the global market. Mobitec Information systems include signs for displaying
route numbers, destination and next stop in public transport vehicles, primarily
buses.
DRI-EUROPA
DRI Europa is a recently formed Swedish corporation and wholly-owned
subsidiary of Digital which will act as a holding company for the Acquisition of
the Mobitec shares pursuant to the Stock Purchase Agreement if Option A of the
Option Agreement is exercised. If Option B of the Option Agreement is exercised,
DRI-Europa and Digital will purchase the Mobitec shares. DRI Europa will also
act as the holding company for Transit-Media Gmbh ("Transit-Media"), another
wholly-owned subsidiary of Digital based in Germany.
After the Acquisition is completed, the Company anticipates that Mobitec and
Transit-Media will operate as separate entities, reporting to their common
parent corporation, DRI-Europa, and indirectly reporting to Digital's principal
office.
In order to induce certain Key Employees of Mobitec to remain with the
company after the Acquisition, Digital has required, as part of the Stock
Purchase Agreement, that such Key Employees' employment contracts remain in full
force and effect. As further inducement for certain Key Employees to remain with
Mobitec, Digital may, within its sole discretion, grant certain warrants to some
or all Mobitec Employees after the Acquisition is completed.
Prior to the Closing Date, Mobitec has pledged that all existing options
held by Mobitec personnel, granted pursuant to Mobitec's Stock Option Program,
to purchase shares of Mobitec stock will have been extinguished or retired so
that there will be no outstanding options to purchase Mobitec's stock.
As a condition to the Stock Purchase Agreement, at or before the Closing
Date, Digital will enter into a Consulting Agreement with Bengt Bodin for a
period of three years. Further, Digital has agreed to continue the
administration of Bengt Bodin's pension arrangement. The Sellers have
represented in
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the Stock Purchase Agreement that Bengt Bodin's pension arrangement will not
have any negative impact on the financial position of Mobitec or any subsidiary.
BACKGROUND AND REASONS FOR THE ACQUISITION
Digital, as stated in its Strategic Business Plans, as reviewed and approved
by the Company's Board of Directors, seeks to increase growth through
acquisition of profitable businesses operating in its core markets. The Company
is looking for acquisition candidates that will diversify its business in
geographic coverage, served markets and/or technological capability. Acquisition
candidates must possess strong operating management, capable of managing not
only the acquired business within the Company's management structure, but also
of strengthening the overall DRI operating structure.
Mobitec is a well-managed, profitable company that meets Digital's profile
for acquisition candidates. Mobitec was founded in 1987 by Bengt Bodin and
employs approximately 45 people. It has a principal operating office in
Herrljunga, Sweden, located about a one-hour drive East-Northeast of Goteborg,
Sweden. Access from Central Europe is typically by land/sea from Denmark or via
air through either the Goteborg or Stockholm International Airports. Mobitec is
thus situated in a strategically important segment of this overall general niche
market and is further positioned to serve the former Eastern Block markets.
Mobitec has one wholly-owned subsidiary, Mobitec AB, which in turn owns 100% of
Mobitec Gmbh and Mobitec Australia Pty Ltd. In addition, Mobitec AB owns 50% of
a company operating in Brazil known as Mobitec Ltda. Two other subsidiaries of
Mobitec, Hexair AB and Mobitec Klimat AB, are not part of the Stock Purchase
Agreement and are to be sold to Bengt Bodin prior to the Closing Date.
Discussions with Mobitec started at the American Public Transportation
Association ("APTA") Annual Meeting and Exposition in Orlando in October 1999
where Bengt Bodin, majority shareholder of Mobitec, talked with David L. Turney,
CEO of Digital, after having heard, through industry circles, Digital was
planning to initiate growth through acquisition. Turney made clear Digital's
long-term plans and in response Bodin delivered initial brief financial
information. This contact had roots in many years of previous contact in the
industry between Bodin and Turney.
Mobitec generated net sales of approximately US $12.5 million and a net
income of US $666,772 for its fiscal year ending December 31, 2000. The net
sales and net income for the nine months ended September 30, 2000 was $8,255,000
and $320,000 respectively. See Appendix XII. The consolidated audited balance
sheet and income statement of Mobitec for the fiscal years ended December 31,
1998 and 1999, as well as the unaudited consolidated balance sheet and income
statements at September 30, 1999 and 2000, are attached as Appendices XI and XII
to this Proxy Statement.
Mobitec is a leader in the Nordic Market (consisting of Iceland, Greenland,
Sweden, Norway, Denmark and Finland) for Electronic Destination Sign Systems.
Mobitec holds an estimated 70% market share in the Scandinavian Market (Sweden,
Norway, Denmark and Finland). Mobitec's sign system technology is compatible
with the Twin Vision-Registered Trademark- technology of Digital, although
Mobitec uses a technologically less advanced flip-dot display with indirect
illumination. Because the traditional flip-dot system using indirect LED
illumination employed by Mobitec is typically less expensive than the Twin
Vision technology, the Acquisition of Mobitec positions the Company to offer
two-tier product pricing. Outside of Europe, Mobitec has an estimated 50% market
share in Australia and operates through a 50% owned joint venture in Brazil.
Mobitec has also established a sales office subsidiary in central Germany.
Mobitec company management includes a strong operational, marketing, and
technical team reporting to a Management Board chaired by Mobitec founder Bengt
Bodin. Mr. Bodin is respected in the Transit markets as a trustworthy
customer-oriented businessman. Mobitec also enjoys this favorable image.
Mr. Bodin wants to withdraw from day-to-day Mobitec business to pursue other
interests but intends to make sure that the Mobitec business continues to
thrive. Thus, Mr. Bodin is seeking a
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special type of buyer; one which will grow the Mobitec business, protect what he
created, provide growth opportunities for the personnel, and at the same time,
provide liquidity to his Mobitec investment.
Approximately two years ago, Mr. Bodin started preparing to reduce his
direct involvement in Mobitec's business. He personally stepped-back from
day-to-day operating detail. A former marketing person in the company was
appointed Managing Director. A Management Board was structured so the company
functions much like a USA public company. Quarterly meetings are held for the
Management Board to oversee business activities and plans as reported by the
Managing Director. Having operated in this manner for two years, Mobitec is now
ready to make a transition in ownership with minimal disruption.
While there is some minimal market overlap, Mobitec serves several markets
not currently served by the Company. Essentially, Mobitec brings added market
coverage that could coincide with that of Transit-Media. Based upon last year's
net sales, adding Mobitec's market presence would almost quintuple Digital's
international business sales volume. In addition, Digital expects that the
Mobitec Acquisition will benefit Transit-Media and Twin Vision of North
America, Inc., the Company's destinations signs systems' supplier in the United
States, by allowing cost savings through increased volume component purchasing.
Finally, Mobitec may be in a position to assist in sales and marketing in Europe
of other products of Digital, such as its "Talking Bus" product.
From the initial meeting in Orlando, numerous meetings have been held,
together with many separate communications. These communications and discussions
established parameters of a possible deal structure potentially attractive to
both the buyer and seller. In early 2000, it became clear discussions had
reached a point that it would be productive to enter more serious negotiations.
At several meetings, including a meeting in May 2000 at Digital's headquarters
in Research Triangle Park, North Carolina, the framework of an initial proposal
from Digital was designed. This framework also included detailed discussion
about how Mobitec might fit with Digital in market, technology, operational, and
corporate contexts.
In mid 2000, Digital management compiled a Business Case analysis and
proposal for the acquisition of Mobitec. This analysis and proposal was
subsequently considered by the Digital Board of Directors' Executive Committee
and recommended to the full Digital Board of Directors for approval. Approval
was granted in a July 24, 2000 meeting and Management prepared and issued to
Mobitec a Non-Binding Letter of Intent ("Letter of Intent"). The Letter of
Intent was presented to the sellers in two meetings, including one in Sweden
accompanied by a visit to the Mobitec facilities and subsequently, a second
meeting at Digital's facilities. After minor adjustment at the request of the
sellers, the Letter of Intent was subsequently signed by Bodin, having voting
control of Mobitec and acting with consent of all owners and Board Members of
Mobitec.
Management retained legal counsel in Sweden skilled in international
transactions to assist with the legal, tax, and structural issues associated
with this type transaction. At the advice of legal counsel, plans were made to
establish a holding company subsidiary in Sweden--"DRI-Europa"--through which
the Acquisition would be made. From this preliminary planning, the acquisition
process entered the detail investigation and work phase.
Due diligence, detail point negotiations and development of a definitive
Stock Purchase Agreement spanned the time from August through December 7, 2000,
at which time the Acquisition was agreed in full subject to approval of the
Digital shareholders and the Company's exercise of the Option Agreement. In
parallel with this phase, Digital management pursued numerous alternatives for
funding of the Acquisition, including sources developed prior to the Letter of
Intent.
Funding for the cash component of the purchase price of the Stock Purchase
Agreement will consist of the Acquisition Loan and debt securities (the
Convertible Debentures) issued by the
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Company. The Acquisition Loan is being provided by a Swedish Bank, Svenska
Handelsbanken AB, and is in the amount of SEK 22 Million, to be repaid over five
years in annual installments of SEK 4,400,000 each. The loan is secured by all
of the shares of Mobitec Holding AB. In addition, Svenska Handelsbanken is
loaning SEK 20 Million to Mobitec AB and 1 Million German Marks to Transit-
Media Gmbh for general working capital needs in a form similar to revolving
asset based lending. The Convertible Debenture Issuance is described more fully
in connection with Proposal III, below.
In considering the Stock Purchase and related Transactions, the Board of
Directors took into account a number of considerations, including (i) the
results of the due diligence review conducted on Mobitec's operations by Company
management and legal counsel; (ii) the Executive Committee's recommendation to
the Board of Directors; (iii) the strategic and operational advantages that
could result from the Acquisition of Mobitec and the combination of its
manufacturing contacts, product line and management to the Company's business;
(iv) the terms of the Stock Purchase Agreement and related documents, including
the parties' respective representations, warranties and covenants and the
conditions to their respective obligations; and (v) the fairness opinion of
Investech-Ernst & Co. delivered orally to management and expected to be
delivered in writing to the Board of Directors at the closing of the Stock
Purchase Agreement and related Transactions, stating in effect that the
aggregate consideration paid by Digital in connection with the Stock Purchase
Agreement and the related Transactions is fair, from a financial point of view,
to the Company and its shareholders. See, "Fairness Opinion." The Board of
Directors concluded that the Stock Purchase and the acquisition of Mobitec would
bring substantial value to the Company.
The Board also considered various countervailing factors in its
deliberations concerning the Transactions, including, the risks described below
(see Certain Risks and Factors to Consider in Determining How to Vote) and
whether the Company's growth plans could be fulfilled internally. However, the
Board determined that internal growth of the magnitude achieved by the
Acquisition could not reasonably be met internally within a reasonable time
frame.
FAIRNESS OPINION
On December __, 2000, Investech-Ernst & Co. ("Investech-Ernst") confirmed to
the Board of Directors that it would be delivering a fairness opinion to the
Company's Board concerning the aggregate consideration paid in connection with
the Stock Purchase Agreement and related Transactions. Subsequently, after
conducting extensive due diligence and investigation, Investech-Ernst delivered
an oral fairness opinion to Company management, to the effect that, as of that
date, the aggregate consideration paid by Digital in connection with the Stock
Purchase Agreement and the related Transactions is fair, from a financial point
of view, to the Company and its shareholders. Further, Investech-Ernst stated to
management that it anticipated delivering a written fairness opinion to the
Company's Board of Directors to the same effect at the time of the closing of
the Stock Purchase Agreement and related Transactions (the "Fairness Opinion").
In rendering the Fairness Opinion, Investech-Ernst visited the Company and
Mobitec and interviewed the management of both companies. In addition,
Investech-Ernst conducted (i) a financial analysis (ii) operational analysis and
(iii) a limited comparables analysis assuming the complete accuracy and
completeness of all materials, written and verbal, provided by the Company's and
Mobitec's management. The Fairness Opinion addresses only the fairness, from a
financial point of view, of the aggregate purchase price to be paid by the
Company for the Shares of Mobitec. A copy of the form of Fairness Opinion will
be attached as Appendix IX to this Proxy Statement and should be read in its
entirety for a description of the procedures followed, assumptions and
qualifications made, matters considered and the limits of the review undertaken
by Investech-Ernst. The written Fairness Opinion is based on conditions as of
its date and, although subsequent developments could have a material effect on
the opinion stated, the Fairness Opinion will not be updated.
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In arriving at its Fairness Opinion and the basis therefor, Investech-Ernst,
among other things, reviewed: (i) the Stock Purchase Agreement; (ii) the Option
Agreement; (iii) the Bodin Warrant Agreement; (iii) the Registration Rights
Agreement; (iv) the form of Promissory Note; (v) the Preliminary Outline of
Terms between Digital and Renaissance Capital Group, Inc.; (vi) the Consulting
Agreement; (vii) the audited financial statements of Mobitec for the fiscal year
ended December 31, 1999; (viii) the unaudited financial statements of Mobitec
for the interim period ended September 30, 2000; (ix) the pro forma combined
financial statements of Mobitec and Digital at December 31, 1999 and
September 30, 2000; (x) internal financial statements of the Company and Mobitec
for the period ending November 30, 2000. In addition, Investech-Ernst conducted
such other investigations, financial analyses and studies and reviewed such
other information and factors as it deemed appropriate for the purposes of its
Fairness Opinion.
In arriving at its opinion, Investech-Ernst assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to it by or on behalf of Digital and Mobitec, and
was not engaged to, nor did it, independently verify any such information.
Investech-Ernst assumed, with Digital's consent, that (i) all material assets
and liabilities (contingent or otherwise, known or unknown) of Digital and
Mobitec are as set forth in their respective financial statements, and the pro
forma adjustments thereto set forth in the draft Proxy Statement available on
the date of such opinion will not be materially altered; (ii) the Acquisition
will be accounted for as a purchase transaction; (iii) the strategic and
operating benefits currently contemplated by Digital's and Mobitec's management
will be realized; and (iv) the Acquisition will be consummated in accordance
with the terms of the Stock Purchase Agreement, and related Agreements, without
any material amendment thereto and without waiver by Digital or Mobitec of any
of the material conditions to their respective obligations thereunder.
Investech-Ernst also assumed that the financial forecasts of Digital and Mobitec
examined by Investech-Ernst were reasonably prepared on a basis reflecting the
best available estimates and good faith judgments of Digital's senior management
as to future performance of Digital, and Mobitec's senior management as to
future performance of Mobitec. In conducting its review, Investech-Ernst did not
undertake nor obtain an independent evaluation or appraisal of any of the assets
or liabilities (contingent or otherwise) of Digital or Mobitec.
Investech-Ernst's opinion necessarily is based upon economic, monetary, exchange
rate, market and other conditions as they existed and could be evaluated on the
date of the opinion, and does not predict or take into account any changes which
may have occurred, or information which may have become available, after the
date of such opinion. Investech-Ernst's opinion does not constitute an opinion
as to any price at which Digital Common Stock will actually trade at any time.
Furthermore, Investech-Ernst reviewed pro forma analyses of the financial
impact of the Acquisition. In conducting its analysis, Investech-Ernst relied
upon certain assumptions described above and earnings estimates for Mobitec
(prepared by Mobitec management) and Digital (prepared by Digital management).
Investech-Ernst compared the earnings per share of Digital Common Stock, on a
stand-alone (I.E., without giving effect to the Acquisition) basis, to the
earnings per share of the common stock of the combined companies on a pro forma
basis. This analysis (assuming no transaction-related expenses) indicated that,
assuming the accuracy of the projections provided to Investech-Ernst by the
Company and Mobitec, the proposed transaction would be accretive to Digital's
stockholders on an earnings per share basis in fiscal year 2001. The results of
the pro forma acquisition analysis are not necessarily indicative of future
operating results or financial position.
As compensation for rendering its Fairness Opinion to the Company,
Investech-Ernst will receive a fee of $45,000, plus reimbursement of reasonable
out of pocket expenses.
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THE FULL TEXT OF THE FORM OF FAIRNESS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND
THE SCOPE OF THE REVIEW IN RENDERING SUCH OPINION, WILL BE ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX IX AND IS INCORPORATED BY REFERENCE HEREIN. THE
FAIRNESS OPINION IS ADDRESSED TO THE COMPANY'S BOARD OF DIRECTORS AND ADDRESSES
THE FAIRNESS OF THE AGGREGATE PURCHASE PRICE PAID BY THE COMPANY FOR THE SHARES
OF MOBITEC FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF THE COMPANY'S COMMON STOCK AS TO HOW TO VOTE AT
THE SPECIAL MEETING. THE SUMMARY OF THE FAIRNESS OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. HOLDERS OF THE COMMON STOCK ARE ENCOURAGED TO CAREFULLY READ THE FORM
OF FAIRNESS OPINION IN ITS ENTIRETY.
SUMMARY OF STOCK PURCHASE AGREEMENT
The following summary of certain material terms of the Stock Purchase
Agreement is qualified in its entirety by reference to the provisions of the
Stock Purchase Agreement, which is incorporated by reference herein and attached
hereto as Appendix I to this Proxy Statement. Capitalized terms have the
meanings set forth in the Stock Purchase Agreement or the appendices thereto.
The Stock Purchase Agreement attached as Appendix I is drafted in accordance
with the exercise of Option A under the Option Agreement -- I.E., DRI-Europa is
the Purchaser of the Mobitec Shares. However, if Option B is exercised, both
Digital and DRI-Europa will constitute the Purchaser under the Stock Purchase
Agreement.
PURCHASE PRICE
Under the terms of the Stock Purchase Agreement, subject to exercise of the
Option Agreement, Digital and/or DRI Europa, has agreed to purchase 100,000
shares of Mobitec Holding AB, a Swedish corporation ("Mobitec"), constituting
all of the outstanding stock of Mobitec, from the Sellers for a purchase price
consisting of: (i) SEK 5,700,000 to be paid to Lindqvist for his shares of
Mobitec; (ii) subject to adjustment following the Closing Date, based upon a
comparison of Mobitec's net equity at the time of the Closing as set forth in
the Closing Financial Statement and as of March 31, 2000: (a) US $3,680,000 to
be paid to the Bodin Sellers; (b) Promissory Notes totaling approximately US
$2 million to be issued to each Bodin Seller on the Closing Date; (iii) 430,000
Restricted Shares of Digital to be transferred to the Bodin Sellers on the
Closing Date; and, (iv) Warrants to purchase in the aggregate 100,000 shares of
Digital's common stock at a price of US $4.00 per share for a period of five
years issued to the Bodin Sellers pursuant to the Bodin Warrant Agreement. The
Stock Purchase Agreement provides for a Preliminary Purchase Price, which, after
any adjustments made pursuant to (ii) (a) and (b), becomes the Final Purchase
Price.
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
The obligation of DRI-Europa and/or Digital to consummate the Agreement is
subject to the satisfaction at or prior to the Closing Date of all of the
following conditions: all the representations, warranties and covenants of the
Bodin Sellers are true and accurate; no litigation which would prevent or make
unlawful the carrying out of the Stock Purchase Agreement shall be threatened or
pending against the Sellers, DRI-Europa, Digital or Mobitec.
CLOSING CONDITIONS
At the Closing, the Sellers and the Purchaser shall do those acts necessary
to consummate the Agreement, including, without limitation: (i) the Sellers,
subject to the receipt of the purchase price of
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the Lindquist Shares and of the Preliminary Purchase Price for the Bodin Shares,
shall deliver the certificates, duly endorsed, representing their Shares, to
DRI-Europa; (ii) the Bodin Sellers shall present to DRI-Europa the share ledger
of Mobitec evidencing that DRI-Europa has been registered as the owner of the
Shares; (iii) the Bodin Sellers shall present to DRI-Europa the original share
certificates and certified copies of the share ledger with regard to each
Subsidiary, evidencing that all the shares of each Subsidiary are as reflected
in the Stock Purchase Agreement; (iv) DRI-Europa shall deliver to the Bodin
Sellers a legal opinion in the form appearing as Appendix 5.3 to the Stock
Purchase Agreement; (v) Digital shall deliver the Restricted Shares to the Bodin
Sellers, containing a restrictive legend and, (vi) the Bodin Warrant Agreement,
the Registration Rights Agreement and the Bodin Consulting Agreement shall be
executed.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers jointly and severally represent and warrant, as of the date of
execution of the Agreement and at the Closing Date certain matters related to
Mobitec and its Subsidiaries, including: (i) entering into the Stock Purchase
Agreement will not breach any agreement to which any of the Sellers is a party
or the Articles of Mobitec or any Subsidiary; and, (ii) the Shares sold to
DRI-Europa constitute the entire issued capital stock of Mobitec, are legally
issued and fully paid and each Seller owns the number of shares shown in the
Agreement free of any Encumbrances.
REPRESENTATIONS AND WARRANTIES OF THE BODIN SELLERS
The Bodin Sellers jointly and severally represent and warrant, as of the
date of execution of the Agreement and at the Closing Date, among other things:
(i) except for the Subsidiaries, Mobitec does not own any interest in any
corporation or partnership and does not have any branch offices; (ii) the
Financial Documents give a true and fair picture of the financial position and
results of operations of Mobitec and the Subsidiaries and were prepared in
accordance with GAAP and all applicable laws; (iii) the net equity appearing in
the balance sheet of Mobitec AB, Mobitec Gmbh and Mobitec Ltda contained in the
Interim Financial Statement dated March 31, 2000 is not less than SEK 10,867,000
in accordance with GAAP and all applicable laws; (iv) neither Mobitec nor any
Subsidiary has pledged any assets or have any commitments or contingent
liabilities and Mobitec and each Subsidiary has full and exclusive title, with
no Encumbrances, to all assets reflected on the balance sheet; (iv) the
operations and activities of Mobitec and the Subsidiaries have been conducted in
the ordinary course of business and since January 1, 2000 there has been no,
among other things: (a) material adverse change in financial condition or
operations; (b) obligations, commitments or liabilities, except those arising in
the ordinary course of business and which are not material; (c) amendment or
termination of any agreement to amend or terminate any Material Agreement;
(d) extraordinary event or loss or any waiver of any debts, claims or rights
under a Material Agreement in excess of SEK 100,000; (e) damage, destruction, or
loss affecting their respective properties to the extent not covered by
insurance in excess of SEK 100,000; (f) disposal of any individual asset with a
value in excess of SEK 300,000, with one noted exception; or, (g) other
transaction other than in the ordinary course of business; (v) all assets,
properties and rights belonging to Mobitec and each Subsidiary have been
included in the transfer to DRI-Europa; (vi) Mobitec and its Subsidiaries does
not have any liability or obligation as a result of any purchase or sale of
shares, business operations or individual assets; (vii) certain environmental
matters, including that Mobitec and its Subsidiaries have complied with and
obtained all necessary environmental approvals, permits and consents, which are
in full force and effect; (viii) Mobitec and its Subsidiaries have performed all
obligations and are not in default of any Material Agreement; and the execution
of the Stock Purchase Agreement will not result in the breach or constitute a
default under any Material Agreement; (ix) certain Intellectual Property and
Know-How matters, including that all Intellectual Property used by Mobitec and
its Subsidiaries is duly owned or licensed without restriction as to current
use; all Know-How, as defined in the Stock Purchase Agreement, is owned by or
licensed to the Company or the Subsidiaries without restriction as to
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current use; there is no infringement by any third party of any Intellectual
Property or Know-How owned by or licensed to Mobitec or any Subsidiary within
any country where they operate, with one noted exception; (x) certain matters
related to the business of Mobitec and its Subsidiaries, including that no
customer of Mobitec and its Subsidiaries as set forth in the Customer List
attached has ceased to buy products from Mobitec and its Subsidiaries; no
supplier will cease to sell products or components or will increase their
prices; Mobitec and its Subsidiaries maintains the disclosed insurance;
(xi) certain matters related to employees of Mobitec and its Subsidiaries;
(xii) certain matters related to the Sellers, including that none of the Sellers
or any Related Person own any interest in any entity in competition with Mobitec
or any Subsidiary; except for the Consulting Agreement and pension arrangement
with Bengt Bodin, there are no contractual relations of any kind between Mobitec
or any Subsidiary on one hand and any of the Sellers or Related Person on the
other hand; Bengt Bodin's pension arrangement will not have a negative impact on
the financial position of Mobitec or any Subsidiary; (xiii) except as disclosed
by Mobitec and set forth in Appendix 8.10, there are no law suits or other legal
proceedings pending or threatened against Mobitec or any Subsidiary;
(xiv) certain matters related to taxes and other charges, including that all
taxes, social charges and duties assessed or due by Mobitec and its Subsidiaries
have been fully paid and all necessary returns and reports have been filed;
(xv) no representation or warranty in the Stock Purchase Agreement or document
provided to DRI-Europa by the Sellers contains any materially untrue statement
or fails to state a material fact or fact necessary to make the statements made
not misleading; and, (xvi) the Bodin Sellers acknowledge that their ownership of
the Restricted Shares is subject to a substantial risk of loss.
COVENANTS
Each Seller covenants, among other things, that for a period of three years
from the Closing Date not to directly or indirectly carry on or in engage in any
business competing with the businesses of Mobitec or any Subsidiary in any part
of the world. The period is limited to two years with respect to countries which
are members of the European Economic Area. In case of any breach, Lindqvist,
solely on his part, and the Bodin Sellers, jointly and severally, are liable to
DRI-Europa for actual damages suffered from each breach but in no case an amount
less than SEK 8,000,000. For a period of three years after the Closing Date,
each Seller agrees to refrain from employing, offering to employ or negotiating
employment with any Key Employee of Mobitec or any Subsidiary without
DRI-Europa's prior written consent.
The Sellers covenant that Mobitec and any Subsidiary will make their best
efforts to fulfill the obligations under the Mobitec Stock Option Program prior
to the Closing Date. The Bodin Sellers agree that Mobitec AB is the full and
unrestricted owner of the trademark and business name, "Mobitec," and no Seller
or any Related Person has any right to the name Mobitec, except as set forth in
the Trademark Licence Agreement.
DRI-Europa shall discharge all directors of Mobitec from personal liability
for the period of January 1, 2000 to the Closing Date on the next Annual
Shareholders' Meeting of Mobitec. DRI-Europa is entitled to all dividends of
Mobitec and the Subsidiaries derived from the financial year 2000.
The Bodin Sellers will make sure that Mobitec has transferred and sold its
shares of its Klimat and Hexair subsidiaries prior to the Closing Date and that
all liabilities of such subsidiaries shall have been transferred to the
purchasers of such shares. The sale of shares of these subsidiaries shall be
completed under such terms that will have no negative impact on Mobitec's or any
Subsidiary's financial position. At the Closing Date, Mobitec and its
Subsidiaries will have no financial or contractual relation with the Klimat and
Hexair subsidiaries except the Trademark License Agreement between Mobitec AB
and Klimat. The Bodin Sellers shall jointly and severally indemnify Mobitec, any
Subsidiary and DRI-Europa regarding the sale and transfer of the Klimat and
Hexair subsidiary shares.
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The pending or threatened disputes involving Mobitec and/or any Subsidiary
are described in an Appendix to the Stock Purchase Agreement.
Lindqvist is liable only as to certain provisions of the Stock Purchase
Agreement, as set forth in paragraph 8.11 thereof.
REGISTRATION OF THE RESTRICTED SHARES
Digital agrees to register the Restricted Shares pursuant to the terms and
conditions of the Registration Rights Agreement.
INDEMNIFICATION
The Bodin Sellers, except as set forth in the Stock Purchase Agreement with
respect to Lindqvist, shall be jointly severally liable to and shall indemnify
DRI-Europa from any Loss arising out of any misrepresentation, breach of
warranty or failure to perform a covenant or other obligation or any breach of
the Stock Purchase Agreement.
Lindqvist is liable and shall indemnify DRI-Europa from any Loss arising out
of any misrepresentation, breach of warranty or failure to perform a covenant or
other obligation or any breach of the Stock Purchase Agreement as set forth in
paragraph 8.11 of the Agreement.
The liability of the Bodin Sellers and Lindqvist with regard to Losses
sustained as a result of any misrepresentation or breach of any representation
or warranty as to certain provisions shall remain valid for 18 months from the
Closing Date and, as to other provisions, shall remain valid for a period of
five years from the Closing Date, and as to taxes, social charges and duties,
shall remain valid for three months from the Closing Date, as set forth in
paragraph 9.3 of the Stock Purchase Agreement. The indemnification provision is
applicable for the full amount of aggregate Losses equaling or exceeding SEK
500,0000. The aggregate liability of the Bodin Sellers shall not exceed SEK
33,000,000 and shall not exceed the purchase price of the Lindqvist Shares as to
Lindqvist.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
DRI-Europa and Digital are duly organized, validly existing and in good
standing and have full authority to enter into the Stock Purchase Agreement and
the Transactions contemplated therein. The execution of the Stock Purchase
Agreement, the consummation of the Transactions provided for therein, and the
fulfillment of the terms of the Agreement will not result in a breach of any
agreement to which DRI-Europa or Digital is a party nor the Articles of
Association of DRI-Europa. The Restricted Shares are credited as fully paid and
are free of any Encumbrances and Digital has the absolute right, power and
capacity to transfer the Restricted Shares to the Bodin Sellers.
CLOSING DATE
The Closing Date shall occur five business days from the date all parties
sign the Agreement.
GENERAL PROVISIONS
Digital and Bengt Bodin will enter into a separate Consulting Agreement to
become effective on the Closing Date.
Bengt Bodin, Mattias Bodin and Tobias Bodin undertake for a period of
36 months from the Closing Date to consult with Digital prior to any sale of
their Digital Shares.
The Agreement shall be governed by and construed in accordance with the laws
of Sweden.
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Any dispute arising out of or in connection with the Stock Purchase
Agreement shall be settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce and shall be
conducted in Gothenburg, Sweden. The arbitration proceedings shall be conducted
in English.
SUMMARY OF CONSULTING AGREEMENT
In connection with, and to be consummated as a condition to Closing of the,
Stock Purchase Agreement, Bengt Bodin entered into a Consulting Agreement with
Digital, to be executed concurrently with the closing of the Stock Purchase
Agreement (the "Consulting Agreement"), which is attached as Appendix VIII.
Under the Consulting Agreement, Bengt Bodin agrees, for a period of three years,
to furnish to Mobitec and its Subsidiaries after the Acquisition advisory or
consulting services with respect to their business and affairs and, if
requested, to meet and consult with customers in order to maintain the
contractual relationships of Mobitec and its Subsidiaries with their customers.
For his services, Bodin is to be paid $120,000 the first year, $160,000 the
second year and $200,000 the third year, payable quarterly.
The Consulting Agreement contains provisions prohibiting Bengt Bodin from
soliciting employees of Digital to work for competitors for a period of two
years after the Agreement's termination. The Agreement also contains provisions
protecting the Confidential Information of the Company, including customer
names. The Consulting Agreement prohibits Bodin from engaging in competing
business during the term of the Agreement.
SUMMARY OF TRADEMARK LICENSE AGREEMENT
Mobitec AB, a wholly-owned subsidiary of Mobitec, entered into a Trademark
License Agreement with Mobitec Klimat AB ("Klimat"), to be executed concurrently
with the closing of the Stock Purchase Agreement. As set forth in the Stock
Purchase Agreement, Klimat is a Subsidiary of Mobitec that is to be sold prior
to the Closing of the Stock Purchase Agreement. Pursuant to the Trademark
License Agreement, which is attached as Appendix V, Mobitec AB, which holds full
and unrestricted ownership of all rights to the trademark and business name,
"Mobitec," grants a royalty-free, non-exclusive license to Klimat to use the
Mobitec Trademark with respect to its Products and in its business. Klimat
agrees not to use the Mobitec Trademark in its company name after twelve months
from signing the Agreement. The Agreement remains in force for five years,
subject to successive three year terms unless terminated.
CERTAIN RISKS AND FACTORS TO CONSIDER IN DETERMINING HOW TO VOTE
Certain risks and other factors relevant to your vote regarding all the
Proposals is set forth below, following Proposal III. See, Certain Risks and
Factors to Consider in Determining How to Vote.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has reviewed and considered the terms and conditions
of the Restricted Shares Issuance and believes that the Restricted Shares
Issuance is fair to, and is advisable and in the best interests of, the Company
and its shareholders and has unanimously approved the Restricted Shares Issuance
and unanimously recommends that shareholders vote "for" approval of the
Restricted Shares Issuance.
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PROPOSAL II.
THE WARRANT SHARES ISSUANCE
THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING DIGITAL'S ACQUISITION, THROUGH ITS WHOLLY-OWNED SUBSIDIARY, OF ALL THE
OUTSTANDING STOCK OF MOBITEC HOLDING AB ("MOBITEC") (THE "ACQUISITION") AND THE
WARRANT SHARE ISSUANCE (COLLECTIVELY, THE "TRANSACTIONS") ARE SUMMARIZED ABOVE
IN PROPOSAL I AND BELOW. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STOCK PURCHASE AGREEMENT, ATTACHED
AS APPENDIX I; THE OPTION AGREEMENT, ATTACHED AS APPENDIX II; THE BODIN WARRANT
AGREEMENT, ATTACHED AS APPENDIX III; THE REGISTRATION RIGHTS AGREEMENT, ATTACHED
AS APPENDIX IV; EACH OF WHICH IS INCORPORATED BY REFERENCE. SHAREHOLDERS ARE
URGED TO READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR ENTIRETY.
The Bodin Warrant Agreement, which is attached hereto as Appendix III,
provides for a grant by Digital to Bengt Bodin of warrants to purchase 100,000
shares of Digital's common stock for a period of five years at an exercise price
of $4.00 per share. Pursuant to the Registration Rights Agreement, the common
shares underlying the warrants will be registered by Digital within one year
from the date of Closing of the Stock Purchase Agreement. See Summary of Bodin
Warrant Agreement, below. While the Warrant Shares will be issued to Bengt Bodin
only upon his exercise of all or part of the Warrants, this proposal seeks
shareholder approval for the issuance of such Warrant Shares in the event that
the Bodin Warrants are exercised.
The Warrant Shares Issuance is necessary to issue the 100,000 shares of the
Company's common stock underlying the Bodin Warrants in the event they are
exercised by Bengt Bodin within the five year period that the warrants are
effective. The Bodin Warrants are a material component of the consideration
given to the Sellers for the Acquisition and a required condition to close the
Stock Purchase Agreement. The Bodin Warrants are to be issued to Bodin in
connection with the Promissory Note. The Board of Directors has already
unanimously approved the Bodin Warrant Agreement and the Warrant Shares
Issuance. The Company's shareholders are required to approve the Warrant Shares
Issuance pursuant to NASD rules as, in conjunction with the Restricted Shares
Issuance (Proposal I) and the Debenture Shares Issuance (Proposal III), the
amount of shares issued in connection with the Acquisition exceeds 20% of the
Company's current outstanding common shares. If the shareholders do not approve
the Warrant Shares Issuance, the Stock Purchase Agreement will not close and the
Acquisition will not occur.
The background and reasons for the Acquisition and related Transactions, is
described above in Proposal I. See Proposal I, particularly, Introduction and
Summary of Acquisition Transactions and Background and Reasons for the
Acquisition. In addition, certain risks and other factors relevant to your vote
regarding all the Proposals is set forth below, following Proposal III. See,
Certain Risks and Factors to Consider in Determining How to Vote. The reasons
given for the Stock Purchase Agreement, the Acquisition and related Transactions
apply also to the Warrant Shares Issuance.
SUMMARY OF THE BODIN WARRANT AGREEMENT
The following summary of certain material terms of the Bodin Warrant
Agreement is qualified in its entirety by reference to the provisions of the
Bodin Warrant Agreement, which is incorporated by reference herein and attached
hereto as Appendix III to this Proxy Statement. Capitalized terms have the
meanings set forth in the Bodin Warrant Agreement and/or the Stock Purchase
Agreement.
The Bodin Warrant Agreement, to be executed concurrently with the closing of
the Stock Purchase Agreement, is an agreement between Bengt Bodin, one of the
Sellers, and Digital. It grants to Bodin warrants (the "Bodin Warrants") to
purchase up to 100,000 shares of the Company's common stock (the "Warrant
Shares") at an exercise price of $4.00 per share for a period of five years from
the date of the Agreement. Bodin is under no obligation to exercise the
Warrants, but if he does so, he is
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required to exercise at a minimum as to 25,000 shares of common stock for each
partial exercise. The Bodin Warrant Agreement is subject to all the terms and
conditions of the Registration Rights Agreement, summarized below. The Warrants
can be exercised in cash or by the non-cash conversion provision. Bodin can
offset and reduce any part or all of the exercise price by the sum of the unpaid
principal balance on the Promissory Note, plus accrued and unpaid interest. The
non-cash conversion exercise allows Bodin to convert all or a portion of the
Warrants into the number of shares equal to the quotient of (i) the current
market value of the Warrant Shares subject to the portion of the Warrants being
exercised, divided by (ii) the current or closing market price, as defined, of
one share of common stock immediately prior to the exercise of the conversion
right.
Any of the Warrant Shares issued to Bodin after exercise will bear a
restrictive legend and are not registered under the Securities Act of 1933, as
amended. However, the Warrant Shares, if exercised, may be registered pursuant
to the Registration Rights Agreement.
The Bodin Warrant Agreement may be assigned to certain Permitted Assignees,
as defined in the Agreement, or to any other party with the Company's prior
written consent. During the time that the Bodin Warrants are in effect, Digital
will reserve and keep available out of its authorized common stock, for issuance
upon the exercise of the Warrants, the number of shares that may be issued upon
exercise of the Warrants. Prior to exercise of any or all of the Warrants, and
issuance of the corresponding number of Warrant Shares exercised, Bodin is not
granted any rights of a shareholder of Digital pursuant to the Bodin Warrant
Agreement.
SUMMARY OF THE REGISTRATION RIGHTS AGREEMENT
The following summary of certain material terms of the Registration Rights
Agreement is qualified in its entirety by reference to the provisions of the
Registration Rights Agreement, which is incorporated by reference herein and
attached hereto as Appendix IV to this Proxy Statement. Capitalized terms have
the meanings set forth in the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, Digital has agreed to
register, on a continued or delayed basis pursuant to Rule 415 of the Securities
Act of 1933, at its expense, the Restricted Shares and the common stock
underlying the Bodin Warrants, as follows: 200,000 of the Restricted Shares and
the shares underlying the Bodin Warrants within one year of the date of the
agreement and the remaining 230,000 shares on or before two years from the date
of the agreement. The registration rights provided for in the Agreement will
terminate on the earliest date at which the registerable securities may be sold,
within a three month period pursuant to Rule 144, or pursuant to Rule 144(k)
promulgated under the Securities Act of 1933. Digital agrees to indemnify the
holders of the registerable securities from any loss, liability or claim arising
out of any untrue statement of a material fact contained in the registration
statement, any material omission.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has reviewed and considered the terms and conditions
of the Warrant Shares Issuance and believes that the Warrant Shares Issuance is
fair to, and is advisable and in the best interests of, the Company and its
shareholders and has unanimously approved the Warrant Shares Issuance and
unanimously recommends that shareholders vote "for" approval of the Warrant
Shares Issuance.
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PROPOSAL III.
THE CONVERTIBLE DEBENTURE AUTHORIZATION AND THE
DEBENTURE SHARES ISSUANCE
THE STOCK PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING DIGITAL'S ACQUISITION, THROUGH ITS WHOLLY-OWNED SUBSIDIARY, OF ALL THE
OUTSTANDING STOCK OF MOBITEC HOLDING AB ("MOBITEC") (THE "ACQUISITION") AND THE
CONVERTIBLE DEBENTURE AUTHORIZATION AND THE DEBENTURE SHARES ISSUANCE
(COLLECTIVELY, THE "TRANSACTIONS") ARE SUMMARIZED ABOVE IN PROPOSAL I AND BELOW.
THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE STOCK PURCHASE AGREEMENT, ATTACHED AS APPENDIX I; THE OPTION
AGREEMENT, ATTACHED AS APPENDIX II; AND THE PRELIMINARY OUTLINE OF TERMS BETWEEN
DIGITAL AND RENAISSANCE CAPITAL GROUP, INC., DATED NOVEMBER 28, 2000, ATTACHED
AS APPENDIX VII; EACH OF WHICH IS INCORPORATED BY REFERENCE. SHAREHOLDERS ARE
URGED TO READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR ENTIRETY.
Part of the cash portion of the purchase price for the Stock Purchase
Agreement is to be furnished by an investment of certain Investment Funds
associated with Renaissance Capital Group, Inc. ("Renaissance Capital") of up to
$3,000,000 in the Company's Convertible Debentures. This Proposal seeks
shareholder approval for the authorization of up to $3 million of Convertible
Debentures (the "Convertible Debenture Authorization") and approval for the
issuance of up to 1,500,000 shares of the Company's common stock underlying the
Debentures (the "Debenture Shares") pursuant to the Convertible Debenture
conversion terms (the "Debenture Shares Issuance"). The Debenture Shares will be
issued to the Investment Funds only if the Debentures are converted. Under
certain circumstances, the conversion price of the Convertible Debentures could
be adjusted downward (the "Automatic Adjustment") such that the total number of
shares that could be converted to the Company's common stock could, but is not
expected to, exceed 1,500,000. See Summary of the Renaissance Convertible
Debenture Preliminary Outline of Terms, below.
The Convertible Debenture investment is a material component of the purchase
price to be paid to the Sellers under the Stock Purchase Agreement. The Board of
Directors has already unanimously approved the Convertible Debenture
Authorization and Debenture Shares Issuance. The Company's shareholders are
required to approve the Debenture Shares Issuance pursuant to NASD rules as, in
conjunction with the Restricted Shares Issuance (Proposal I) and the Warrant
Shares Issuance (Proposal II), the amount of shares issued in connection with
the Acquisition exceeds 20% of the Company's current outstanding common shares.
If the shareholders do not approve the Convertible Debenture Authorization and
Debenture Shares Issuance, the Stock Purchase Agreement will not close and the
Acquisition will not occur.
The background and reasons for the Acquisition and related Transactions, is
described above in Proposal I. See Proposal I, particularly, Introduction and
Summary of Acquisition Transactions and Background and Reasons for the
Acquisition. In addition, certain risks and other factors relevant to your vote
regarding all the Proposals is set forth below, following Proposal III. See,
Certain Risks and Factors to Consider in Determining How to Vote. The reasons
given for the Stock Purchase Agreement, the Acquisition and related Transactions
apply also to the Convertible Debenture Authorization and Debenture Shares
Issuance.
SUMMARY OF THE RENAISSANCE CONVERTIBLE DEBENTURE PRELIMINARY OUTLINE OF TERMS
The following summary of certain material terms of the Renaissance
Convertible Debenture Preliminary Outline of Terms is qualified in its entirety
by reference to the provisions of the Renaissance Convertible Debenture
Preliminary Outline of Terms, which is incorporated by reference herein and
attached hereto as Appendix VII to this Proxy Statement. Capitalized terms have
the meanings set forth in the Renaissance Convertible Debenture Preliminary
Outline of Terms.
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Convertible Debentures in the aggregate amount of up to $3,000,000 are to be
authorized and issued to certain investment funds associated with Renaissance
Capital Group, Inc. of Dallas, Texas. The Convertible Debentures may be
converted into Digital's unregistered common stock at any time before maturity.
The Debentures will yield interest of 8.00% per annum, payable monthly and will
mature in seven years.
The Convertible Debentures are convertible, at any time before maturity,
into the Company's common stock at an Initial Conversion Price equal to the
volume-weighted average closing price for Digital's common stock for the five
day period prior to the closing of the Convertible Debenture Agreement and
related documents but in no event below $2.00 per share or greater than $3.00
per share. Accordingly, the Debentures are initially convertible into at least
1,000,000 shares of the Company's common stock and no more than 1,500,000 shares
of the Company's common stock (the "Debenture Shares"). For a period of time to
be defined, the Investment Funds will be entitled to a downward adjustment (the
"Automatic Adjustment") to the Conversion Price if (i) the Company does not
attain certain financial performance targets, to be agreed upon, based upon
earnings before interest, taxes, depreciation and amortization for the Company's
fiscal 2001 year and (ii) the market price of the Company's common stock is
below the Conversion Price at the of publication of the Company's results for
the period. At the adjustment date, the Conversion Price will be reduced to
equal the volume-weighted average closing price for the Company's common stock
over a ten day trading period following the Company's public release of that
year's results. Therefore, as a result of the Automatic Adjustment, the number
of shares of the Company's common stock convertible from the Convertible
Debentures could, but is not expected to, exceed 1,500,000.
The Debentures will be secured by all assets, tangible and intangible, of
the Company and its subsidiaries and will be subordinated only to senior and
asset-backed loans. The Company will have the right to call the Debentures at
101% of face value if certain conditions are met. The Debenture Holders will
have the right to require redemption of the Debentures under specific conditions
to be defined in the Convertible Debenture Agreement and Loan Agreement.
After the Debentures Shares are converted, the Debenture Holders will have
certain registration rights, including "piggy-back" registration rights at their
expense; a shelf registration at the Company's expense and demand registration
rights at the Debenture Holders' expense. The Debenture Shares have the same
voting, preemptive and dividend rights as other shares of the Company's common
stock.
Certain covenants will be required, including, but not limited to, requiring
the Company to provide annual audited financial statements and quarterly
unaudited financial statements; furnish monthly financial statements and
budgets; stay current with all required SEC filings; make timely interest
payments on the Convertible Debentures; and, maintain certain financial
standards to be agreed upon.
The Investment Funds will designate Russell Cleveland to serve as a member
of the Company's Board of Directors. The Company will reimburse the Investment
Funds for all reasonable expenses incurred in connection with Mr. Cleveland's
board representation.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has reviewed and considered the terms and conditions
of the Convertible Debenture Authorization and the Debenture Shares Issuance and
believes that the Convertible Debenture Authorization and the Debenture Shares
Issuance is fair to, and is advisable and in the best interests of, the Company
and its shareholders and has unanimously approved the Convertible Debenture
Authorization and the Debenture Shares Issuance and unanimously recommends that
shareholders vote "for" approval of the Convertible Debenture Authorization and
the Debenture Shares Issuance.
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CERTAIN RISKS AND FACTORS TO CONSIDER IN DETERMINING HOW TO VOTE
The following risks and factors to consider apply to your decision as to
each of the three Proposals above.
DILUTION OF EXISTING SHAREHOLDERS
The Restricted Shares Issuance will cause the issuance of 430,000 common
shares, which will become registered over the next two years. The Warrant Shares
Issuance may, if the Bodin Warrants are exercised, cause the issuance of up to
100,000 shares of the Company's common stock. The Convertible Debentures, if
converted, may cause the issuance of up to 1,500,000 (or more, if the conditions
for the Automatic Adjustment of the conversion price applies) additional common
shares of Digital. These new shares of the Company's common stock will cause
dilution of the voting power of current Company shareholders.
CONSEQUENCES IF SHARE ISSUANCES ARE NOT APPROVED
Shareholder approval of the Restricted Shares Issuance, the Warrant Shares
Issuance and the Debenture Shares Issuance, which are required by NASD rules, is
a condition precedent to the consummation of the Transactions. If this
requirement is not satisfied, then the Company has no obligation to complete the
Transactions contemplated by the Stock Purchase Agreement.
COMPETITION
The Mobitec Acquisition, because it would significantly increase Digital's
market presence in the destination sign systems market, particularly in Europe,
might attract the attention of larger competitors. This could lead to more
competitive pricing by Mobitec's and Transit-Media's competitors.
TECHNOLOGY ADVANCEMENTS BY COMPETITORS
New technology advances by the Company's competitors in the destination sign
market could adversely affect the Company, Transit-Media and Twin Vision of
North America, Inc. ("Twin Vision"), the Company's destinations signs systems'
supplier in the United States. After the Mobitec Acquisition, Digital will have
a larger market share of the destination signs systems market in Europe based
upon the differing technologies offered by Mobitec and Transit-Media. If
competitors were to develop new advanced technologies, this could adversely
affect the Company's products offered by Transit-Media and Twin Vision. Further,
if new technologies were developed by competitors, this could also adversely
affect Mobitec's revenues.
RISKS REGARDING FINANCING OF CASH COMPONENT OF PURCHASE PRICE
The Acquisition Loan through Svenska Handelsbanken AB, which will provide
part of the cash portion of the purchase price of the Stock Purchase Agreement,
is secured by all of the Mobitec shares that the Company is purchasing in the
Acquisition. If the Company were to default on the Acquisition Loan, Svenska
Handelsbanken AB could foreclose upon and take possession and ownership of the
Company's shares of Mobitec.
Part of the cash portion of the purchase price is being funded by the
issuance of the Convertible Debentures. The Debentures are secured by all assets
of the Company and its subsidiaries, subordinated only to senior and
asset-backed lenders. If the Company were to default on its obligation to repay
the Debentures in accordance with their terms, any of the assets of the Company
could be at risk in a foreclosure to satisfy the unpaid principal and interest
due.
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MARKET RECESSION
The market in which Mobitec, Transit-Media and Twin Vision operate could
suffer a recession which could adversely affect the Company's business.
ABILITY TO RETAIN KEY MOBITEC MANAGEMENT PERSONNEL
The Company hopes to retain certain key Mobitec management personnel after
the Acquisition. However, there can be no assurance that such personnel may not
terminate their employment with Mobitec. The effect of losing certain key
management personnel might make the transition and integration of Mobitec's
business more difficult. In addition, the loss of such key personnel could have
an overall negative effect on the productivity, moral and revenues of Mobitec's
operations after the Acquisition.
LIQUIDITY OF MOBITEC IN THE EVENT OF BUSINESS FAILURE
If, after the Acquisition, Mobitec's business failed and it became necessary
to liquidate Mobitec's business in order to recoup the Company's investment, a
sale or liquidation of Mobitec's business would depend largely on the going
concern value of Mobitec's business, which, depending on the financial and
operational status of the business at the time, could yield less than the
purchase price of the Stock Purchase Agreement.
ACCOUNTING TREATMENT
The Transactions will be accounted for by Digital under the purchase method
of accounting in accordance with United States generally accepted accounting
principles, and all of the assets acquired and specific liabilities assumed by
Digital pursuant to the Stock Purchase Agreement will be recorded in Digital's
consolidated financial statements at their estimated relative fair value on the
Closing Date of the Acquisition to reflect the aggregate consideration paid by
Digital in connection with the Transactions.
TAX TREATMENT
For United States Federal income tax purposes, no income, gain or loss will
be recognized by Digital or the Digital shareholders as a result of the
Transactions.
DESCRIPTION OF SECURITIES TO BE ISSUED PURSUANT TO THE ACQUISITION
The 430,000 Restricted Shares that will be issued to the Bodin Sellers in
connection with the Stock Purchase Agreement and the Transactions comprising the
Acquisition of Mobitec are common stock of Digital which are subject to the same
dividend and voting rights as other common shares. The Restricted Shares are
restricted from trading pursuant to the provisions of Rule 144 promulgated under
the Securities Act of 1933.
Warrants to purchase up to 100,000 shares of the Company's common stock are
being issued to Bengt Bodin pursuant to the Bodin Warrant Agreement. The
warrants are exercisable for a period of five years following their issuance at
a price of $4.00 per share. The common shares underlying the warrants contain
the same provisions as other common stock of the Company.
Convertible Debentures in the aggregate amount of up to $3,000,000 are to be
authorized and issued to certain investment funds associated with Renaissance
Capital Group, Inc. of Dallas, Texas. The Convertible Debentures may be
converted into Digital's unregistered common stock at any time prior to
maturity. The Debentures will yield interest of 8.00% per annum, payable monthly
and will mature in seven years. The Convertible Debentures are convertible into
the Company's common stock at an Initial Conversion Price equal to the
volume-weighted average closing price for Digital's common
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stock for the five day period prior to the closing of the Convertible Debenture
Agreement and related documents but in no event below $2.00 per share or greater
than $3.00 per share. Accordingly, the Debentures are initially convertible into
at least 1,000,000 shares of the Company's common stock and no more than
1,500,000 shares of the Company's common stock (the "Debenture Shares"). For a
period of time, to be agreed upon, after the Debentures are issued, the
conversion price of the Debentures may be adjusted downward if the Company does
not achieve certain financial performance targets, which are to be agreed upon,
and if the market price of the Company's common stock is below the conversion
price at the time of publication of the Company's financial results for the
period (the "Automatic Adjustment"). The Automatic Adjustment, if applicable,
will be computed by reducing the conversion price to equal the volume-weighted
average closing price for the Company's common stock over a ten day trading
period following the Company's public disclosure of the fiscal 2001 year
earnings. The Debentures will be secured by all assets, tangible and intangible,
of the Company and its subsidiaries and will be subordinated only to senior and
asset-backed loans. The Company will have the right to call the Debentures at
101% of face value if certain conditions are met. The Debenture Holders will
have the right to require redemption of the Debentures under specific conditions
to be defined in the Convertible Debenture Agreement and Loan Agreement. After
the Debentures Shares are converted, the Debenture Holders will have certain
registration rights, including "piggy-back" registration rights at their
expense; a shelf registration at the Company's expense and demand registration
rights at the Debenture Holders' expense. The Debenture Shares have the same
voting, preemptive and dividend rights as other shares of the Company's common
stock.
Each share of the Company's common stock is entitled to one vote. Dividends
are declared annually in the sole discretion of management. The common shares
have no preemptive rights.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission and the Company. Specific due dates for these
reports have been established and the Company is required to disclose in this
proxy statement any failure to file, or late filing, of such reports with
respect to the fiscal year 1999. To the Company's knowledge, based solely on a
review of the copies of reports furnished to the Company and written
representations with respect to filing of such reports, the Company believes
that all Section 16(a) filing requirements applicable to the Company's executive
officers, directors and greater than ten percent beneficial owners were complied
with for the fiscal year ended December 31, 1999.
FINANCIAL INFORMATION
The Company's audited consolidated financial statements for the years ended
December 31, 1998 and 1999 are contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999, which is incorporated herein
by reference. The unaudited consolidated balance sheets and unaudited
consolidated statements of operations of the Company as of and for the
nine-month periods ended September 30, 2000 and 1999 are contained in the
Company's Form 10-QSB for the nine-month periods ended September 30, 2000 and
1999, respectively, which are incorporated herein by reference.
The consolidated financial statements of Mobitec Holding AB as of and for
the years ended December 31, 1998 and 1999 are attached to this Proxy Statement
as Appendix XI. The financial statements of Mobitec AB have been audited by
Ernst & Young AB (see Letter of Opinion for Mobitec AB, attached as Appendix X)
and are summarized in the column labeled Mobitec AB. The financial statements of
Mobitec Holding AB and the other subsidiaries (Mobitec Gmbh, Mobitec Australia
Pty Ltd., and Mobitec Ltda) are summarized in the column labeled Mobitec Other.
The
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financial statements of Mobitec Holding AB and the other subsidiaries summarized
in the column labeled Mobitec Other have not been audited but are not material
in relation to the consolidated amounts. Mobitec's unaudited consolidated
balance sheets and unaudited consolidated statements of operations as of and for
the nine-month periods ended September 30, 2000 and 1999 are attached to this
Proxy Statement as Appendix XII.
Pro forma financial statements, consisting of the Digital and Mobitec
combined statements of operations for the year ended December 31, 1999 and for
the nine-month period ended September 30, 2000 and a combined balance sheet as
of September 30, 2000, showing the effect of the Acquisition, are attached to
this Proxy Statement as Appendix XIII, XIV, and XV, respectively.
INFORMATION ABOUT DIGITAL
DESCRIPTION OF BUSINESS
GENERAL
Digital, incorporated in 1983, designs, manufactures or contracts for the
manufacturing of, sells, and services information technology products primarily
through two major business segments. These segments are 1) the transportation
products segment; and 2) the law enforcement and surveillance segment. The
transportation products segment consists of the Digital Recorders business unit
and two wholly owned subsidiaries, Transit-Media GmbH and TwinVision of North
America, Inc. The Company's transportation products segment products are sold in
the transit and transportation vehicle equipment market. These customers include
municipalities, regional transportation districts, federal, state, and local
departments of transportation, transit agencies, vehicle manufacturers, and
public, private, or commercial operators of those vehicles. The law enforcement
and surveillance segment of the Company is known as Digital Audio Corporation
and primarily serves the law enforcement market consisting of foreign and United
States federal, state, and local law enforcement agencies or organizations.
The Digital Recorders business unit focuses on supplying the transit and
transportation vehicle equipment market with Automatic Voice Announcement
Systems and services. The DR500C+ Talking Bus-Registered Trademark- system
marketed by the Company includes four core components: a vehicle logic unit (the
DR500C+), an Operator Control Unit, an internal light-emitting diode sign and a
Global Positioning Satellite navigation system. The Talking Bus system
automatically provides voice announcements including next stop, transfer points,
route and destination identification and public service messages. This system
enhances service for all passengers, complies with Americans with Disabilities
Act legislation, and further assists the vehicle operator with vehicle
management and monitoring capabilities. The demonstrated and ongoing integration
of the DR500C+ product with other "Intelligent Transportation Systems"
technologies is a key element for potential market growth. Customers include
operating agencies which use transit and transportation vehicles, commercial
transportation vehicle operators, and manufacturers of those vehicles.
Transit-Media GmbH became a wholly owned subsidiary of Digital
Recorders, Inc. after being acquired by the Company in May 1996. Shortly
thereafter, the Company formed TwinVision of North America, Inc. as another
wholly owned subsidiary of the Company and transferred the new technology of the
then recently acquired Transit-Media GmbH to TwinVision of North America, Inc.
Both of these subsidiaries design, manufacture or contract for manufacture of,
sell and service a new generation of electronic destination sign systems
primarily used on transit bus vehicles worldwide. These products are primarily
sold under the name "TwinVision-TM-." Transit-Media GmbH serves the European and
Far Eastern markets while TwinVision of North America, Inc. serves the North
American Free Trade Agreement market. Customers include operating agencies,
which use transit and transportation vehicles, commercial transportation vehicle
operators, and manufacturers of those vehicles. Digital Audio Corporation, a
wholly owned subsidiary of Digital Recorders, Inc., was acquired in 1995. It
produces a
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line of digital audio filter systems and tape transcribers used to improve the
quality and intelligibility of both live and recorded voices. Products are
marketed, both domestically and internationally, to law enforcement entities and
other customers in government organizations.
INDUSTRY OVERVIEWS
The transit communication industry, as served by the transportation products
segment, developed partially as a result of the enactment of the Americans with
Disabilities Act, the Clean Air Act, the Intermodal Surface Transportation
Efficiency Act, and Intelligent Transportation Systems initiatives, together
with the need to provide improved customer services to operators and riders of
transit and transportation vehicles. The Americans with Disabilities Act
accelerated the trend toward such systems by requiring that fixed route transit
systems 2 announce major stops and transfer points to assist visually-challenged
passengers. On the Public transit side of this market, operating authorities may
typically draw approximately 80% funding for equipment purchases from the
Federal Transit Administration with the remainder of product acquisition funding
being provided by state and local sources. TEA-21, the follow-on legislation to
the Intermodal Surface Transportation Efficiency Act, is the primary program
funding the transit market from the federal level.
TEA-21 is a $41 billion six-year federal funding initiative. Within the
transit market sector, it promotes development of modern and expanded public
transit systems in the United States and designates a wide range of devices,
services and programs intended to increase the capacity of the nation's mobility
systems. TEA-21 authorizes increased funding each of the six years covered
(1998-2003) progressing from $4.8 billion authorization in 1998 to $8.2 billion
in 2003. Federal funding accounts for roughly 20% of all transit industry
funding with the balance being derived from a combination of state, local, and
fare-box sources.
The Automatic Voice Announcement Systems market, as served by the Digital
Recorders business unit of the company, emerged primarily as a result of the
Americans with Disabilities Act legislation and has been sustained by overall
favorable acceptance of concept, design and technology by transit management
operators and passengers including being perceived as a service enhancement. The
Company believes approximately 35% of new bus vehicles contained such automated
voice announcement systems in 1999. This percentage is expected to increase over
the next few years as industry participants present Automatic Voice Announcement
Systems solutions that address cost, maintenance expense and complexity issues,
and as the customer service aspect of the product becomes more of the purchase
decision. While the Digital Recorders business unit has had nominal
international sales, the Company believes that the ownership of Transit-Media
GmbH, as well as pilot projects started in 1999, may enable the Company to
accelerate penetration of this important market segment.
The electronic destination sign market, which is the primary market for
Transit-Media GmbH and TwinVision of North America, Inc., is a highly
competitive, mature market with growth closely tied to overall market size
growth, increased market share capture, or that which is precipitated by
technological advances. Virtually all transit buses manufactured worldwide have
some form of destination sign system and the percentage of those systems that
are electronic is approximately 70% and 95% in Europe and the United States,
respectively. A single competitor in the domestic electronic destination sign
market holds the dominant market share, while no one supplier dominates the
worldwide market.
The Digital Audio Corporation ("DAC") market, as served in the law
enforcement and surveillance segment, consists of government organizations at
the local, state, and federal level. DAC also markets its products in
approximately fifteen foreign countries through a network of dealers.
Approximately 32% of Digital Audio Corporation sales are international
customers. Its' digital filter and tape transcriber technology reduces
background noises that might otherwise make recorded voice
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signals unintelligible. Additionally, Digital Audio Corporation's products are
applicable to the vibration, acoustic, and communications disciplines in the
commercial sector.
PRODUCTS AND PRODUCT DESIGN
TRANSPORTATION PRODUCTS SEGMENT
The Company's current products include the DR500C+ Talking Bus-TM- by the
Digital Recorders business unit and TwinVision-TM- light-emitting diode ("LED")
illuminated flip-dot electronic destination signs, and pure LED systems marketed
by Transit-Media GmbH and TwinVision of North America, Inc. The Digital
Recorders business unit accounted for approximately 35% of the Company's sales
in 1999 and 1998. Transit-Media GmbH accounted for approximately 15% of net
sales in 1999 and 22% in 1998. TwinVision of North America, Inc. accounted for
approximately 42% of net sales in 1999 and 29% in 1998.
DIGITAL'S "TALKING BUS-TM-" PRODUCT LINE
The Talking Bus-TM- product is an automated next stop announcement and
passenger information system which is designed for use in transit buses, light
rail vehicles, trains or subway cars, people movers, monorails, airport
vehicles, tour buses, as well as other private and commercial vehicles. Talking
Bus complies with the Americans with Disabilities Act and industry-recognized
standards. It uses an open architecture computer-based electronics system design
that accommodates the addition of new features and capabilities, including
interoperability with third-party equipment. Talking Bus' open architecture
design permits the expansion of memory capacity to the size required by the
customer and integration with other current and future electronic systems.
Talking Bus offers easy downloading or transfer of software using an industry
standard personal computer memory card international association format;
additionally, wireless download is available. Talking Bus equivalent is designed
to meet the severe operating demands of temperature, humidity, shock, vibration
and other environmental conditions found in its typical applications and is
manufactured in an ISO 9002 compliant facility.
When activated by a vehicle operator, or by an automatic trigger such as the
Global Positioning Satellite signal, Talking Bus provides a high quality digital
audio announcement properly timed to the route location. It can be recorded in
any language. Talking Bus uses the vehicle's power supply and can be operated on
most vehicle voltage sources. Its memory is provided by expandable memory cards
with up to a 40-megabyte capacity. Audio messages are stored in flash memory not
requiring battery backup.
TRANSIT-MEDIA GMBH AND TWINVISION OF NORTH AMERICA, INC. PRODUCT LINE
The Company's electronic destination sign products, generally known as
"TwinVision-TM-" Destination Sign Systems include various models covering
essentially all popular applications. These products adhere to Americans with
Disabilities Act requirements and function under industry recognized standards.
They possess an open architecture, microprocessor-based system incorporating a
new generation display device that utilizes a unique Patented light-emitting
diode configuration to individually illuminate an improved electro-magnetic
flip-dot device. Additionally, pure LED systems are included in more recent
technology advances in this product line. These new generation display devices,
some under license to the Company, improve the distance of readability while
reducing end user maintenance expense. Destination message programming is
accomplished via proprietary software developed by the Company. The programming
is accomplished through personal computer memory card international association
memory card download; additionally, wireless download is available. The product
is manufactured under various contracts in ISO certified facilities.
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LAW ENFORCEMENT AND SURVEILLANCE SEGMENT
The Company's current products by Digital Audio Corporation include digital
filter instruments and digital tape transcription machines. DAC accounted for
approximately 8% of the Company's sales in 1999 and 14% in 1998.
DIGITAL AUDIO CORPORATION PRODUCT LINE
The Company markets an extensive line of digital signal processing
instruments used by law enforcement agencies and organizations to enhance tape
recordings collected from a variety of sources. Voices on such recordings are
often obscured by room noises, acoustic resonance, muffling, background music,
and street noises. To enhance such recordings and make them understandable, the
tape's audio is processed through a sequence of highly specialized adaptive
audio filters. These real-time devices have substantial computational power with
the typical digital filter employing multiple microprocessor devices.
MARKETING AND SALES
All of the Company's products are marketed on a direct basis by the
Company's sales and marketing personnel or through commissioned independent
sales agents, dealers, or distributors. The Company's marketing activities
combine database marketing, selective media advertising, direct contact selling,
publication of newsletters directed to customers, participation in trade shows
and industry conventions, cooperative activities with system integrators, and,
in the case of DAC, a specialized DAC School. This school offers end users
opportunities to understand digital signal processing technology and to learn
about Digital Audio Corporation product operation via hands-on instruction.
The Company typically generates a significant portion of its sales from a
relatively few key customers, the identity of which may vary from year to year.
One major customer accounted for approximately 20% of net sales for 1999 and two
major customers accounted for 21% of net sales in 1998. Revenue from these
customers consists primarily of electronic destination sign and automatic voice
announcement systems.
RESEARCH AND DEVELOPMENT
The Company is committed to the continued enhancement of all of its products
and to the development or acquisition of products having related applications.
The Company's objective is to market and develop products that are considered to
be high quality, technically advanced, cost competitive, and capable of
capturing a significant share of the applicable market.
Enhancement of the Talking Bus-TM- Automatic Voice Announcement Systems and
TwinVision LeDot-TM- destination sign system products will continue in the
future in order to increase the Company's ability to integrate these products
with other technologies as well as to reduce unit cost of production. Further,
new generations of product are under various stages of development some having
been inserted into the market in late 1999.
The Company introduced a new generation display element in its TwinVision
LeDot-TM- destination sign system in October 1996. This new generation display
combines known and proven benefits of light-emitting diodes with improved
electromagnetic flip-dot elements to enhance product performance. These
enhancements improve distance of readability and reduce maintenance expense.
Further development of this product, and complimentary as well as next
generation developments, are underway by the TwinVision of North America, Inc.
and Transit-Media GmbH subsidiaries, some having been introduced to the market
in the year 2000.
The Company's engineering, research and development costs increased in 1999
as development activities continued in all business segments. Engineering,
research and development expenses were
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$1,865,940 in 1999 and $1,022,084 in 1998, an increase of 82.6%. The Company
believes convergence of core technologies, combined with the need for capital
improvements and efficiencies and customer service in the transit and
transportation market, will justify continuing high levels of research and
development.
ACQUISITIONS AND REORGANIZATION
On February 28, 1995, the Company entered into and closed an Asset Purchase
and Sale Agreement (the "DAC Agreement") with Digital Audio Corporation.
Pursuant to the DAC Agreement, the Company obtained substantially all of the
assets of Digital Audio Corporation for a purchase price in the aggregate amount
of approximately $2,100,000 which consisted of cash in the amount of $1,171,000,
a promissory note in the amount of $709,000 and 33,846 shares of the Company's
Common Stock valued at $220,000 ("Acquisition Shares"). As additional
consideration, the Agreement provided for an earn-out payment to be made over
two years if certain performance criteria were met. The Company did not make any
earn-out payments pursuant to this agreement. The unsecured promissory note
payable to Digital Audio Corporation, which accrued interest at the rate of 6%
per annum, was paid in January 1996.
On July 1, 1998, the Company, Robinson Turney International, Inc., Digital
Recorders Acquisition, Inc., a wholly owned subsidiary of the Company (the
"Subsidiary"), David L. Turney and Claude G. Robinson, the two shareholders of
Robinson Turney International (the "Shareholders") consummated an Agreement and
Plan of Reorganization (the "Reorganization Agreement") pursuant to which the
RTI merged into the Subsidiary (the "Merger"). A disinterested majority of the
directors voting with respect to the transaction approved the Merger on behalf
of the Company pursuant to a fairness opinion related to the transaction.
Pursuant to the Merger, 200,000 restricted shares of the Company's Common Stock
were issued to the Robinson Turney International, Inc. shareholders. For two
years commencing July 1, 1998, the RTI Shareholders had "piggyback" registration
rights and until January 1, 1999, the Shareholders also had demand registration
rights covering the 200,000 shares of Common Stock issued to them in the Merger.
Robinson Turney International, Inc. ("RTI") was engaged in business development,
marketing services, advisory services, and merger, acquisition and financing
assignments for selected clients, including the Company, who are primarily in
the transit and transportation equipment industries. RTI assigned a license
agreement and marketing agreement between RTI and TwinVision Corp. of North
America, Inc. to the Company. RTI also assigned a management services agreement
between RTI and Transit-Media GmbH to the Company. Mr. Turney served as the
Chairman of the Board and the Chief Executive Officer of RTI since he and
Mr. Robinson co-founded RTI in August 1994. Their respective employment
agreements with RTI were cancelled at the effective date of the Merger.
Mr. Turney has served as the Company's Chairman of the Board and Chief Executive
Officer since April 1998 and as a director since May 1996. The Company entered
into a consulting agreement with Mr. Robinson, which commenced July 1, 1998 and
terminated June 30, 1999.
COMPETITION
The markets in which the Company participates are highly competitive and are
subject to technological advances as well as evolving industry standards. The
Company believes the principal competitive factors in the markets for the
Digital Recorders, Transit-Media GmbH and TwinVision of North America, Inc.
products include ease of use, service and support, price and the ability to
integrate these products with other technologies. The Company currently views
Luminator Holding L. P., an operating unit of Mark IV Industries, Inc., as its
principal competitor in the transit market (see --Legal Proceedings). Luminator
is a significant competitor in destination signage. The Company also recognizes
Clever Devices Ltd. and Meister Electronics, LC., as competitors in the domestic
transit market, although neither of these competitors have the capital and other
resources of Luminator.
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Competition in the digital signal processing filtering business is limited
and the Company believes that Digital Audio Corporation is the dominant leader
among the small number of participants in the industry. Analog filtering
products produced for the commercial sound industry by companies such as AKG
Acoustics GmbH are not specifically designed for voice filtering and are not
considered significant competition. The Company recognizes Adaptive Digital
System, Inc. and Signalscape as competitors producing similar technology
products but in a narrower product application range.
MANUFACTURING
The Company's principal supplier for its Digital Recorder business unit
products, Xetel Corporation, is a contract manufacturing firm producing Digital
Recorder designed equipment. Trimble Navigation Ltd. supplies the Global
Positioning Satellite equipment.
The Company purchases major components for its TwinVision electronic
destination signs from Lite Vision Corporation, an entity based in Taiwan. Lite
Vision Corporation is a major stockholder in the company holding approximately
12.2% of the outstanding common stock. The Company has contracts with electronic
manufacturing or contract assembly firms to manufacture these products both
domestically and overseas. The display element is essentially a limited-source
device, and the Company is managing its inventory levels to minimize the risk of
delays in parts availability. The domestic production is compliant with all "Buy
America" regulations.
The Company's Digital Audio Corporation subsidiary manufactures or assembles
its own products. Printed circuit board components and enclosures are purchased
from specialized vendors such as Texas Instruments, Motorola, and Crystal
Semiconductor, and small local hardware suppliers.
PROPRIETARY RIGHTS
The Company currently relies on a combination of patents, copyrights, trade
secrets, nondisclosure agreements, and licensing agreements to establish and
protect its ownership of proprietary and intellectual property rights. The
Company attempts to keep the results of its research and development efforts
proprietary, but may not be able to prevent others from using some or all of
such information or technology or otherwise from "designing around" the
intellectual property rights of the Company. Patents have been issued related to
certain intellectual property rights under which the TwinVision products are
produced. The Company has registered its Talking Bus-TM- and TwinVision-TM-
trademarks and logos, as well as certain slogans, by-lines, and trade-names with
the United States Patent and Trademark Office.
The Company intends to pursue new patents and other intellectual property
right protection covering new technologies and developments on an on-going
basis. The Company intends to maintain the integrity of its service marks, trade
names and trademarks and other proprietary names and marks against unauthorized
use and to protect against infringement and unfair competition where
circumstances warrant.
EMPLOYEES
As of December 31, 2000, the Company employs sixty-seven people. The
Company's employees are not covered by any collective bargaining agreements and
the Company believes that its employee relations are good.
DESCRIPTION OF PROPERTY
The Company leases 18,484 square feet of office and operational space in an
office complex in Durham, North Carolina. The lease agreement provides for
monthly rental payments ranging from $13,486 to $17,083 and expires in
May 2009. The Company leases approximately 2,200 square feet of corporate
administration office space in Dallas, Texas and provides for monthly rental
payments of approximately $4,350. The Company also leases approximately 4,700
square feet of office and operational space in Raleigh, North Carolina. This
lease agreement contains rental rates ranging from
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$4,241 to $5,013 per month and runs through December 2002. The German
subsidiary, Transit-Media GmbH, leases office and engineering space in
Ettlingen, Germany with monthly rental payments of $2,551 and runs through
May 2001.
Management believes, if necessary, additional office and manufacturing space
will be available in or near its existing facilities at a cost approximately
equivalent to or slightly higher than that now paid by the Company for its
existing facilities.
LEGAL PROCEEDINGS
On February 24, 1999, Mark IV Industries, Ltd. ("Mark IV") filed a lawsuit
in the United States District Court for the Northern District of Texas, alleging
the Company is infringing two U.S. patents held by Mark IV and seeking
unspecified monetary damages, treble damages, and injunctive relief. The
allegations relate to the display elements used in the TwinVision destination
sign systems manufactured and marketed by the TwinVision of North America, Inc.
subsidiary of the Company under an exclusive license for the display patented
technology from Lite Vision Corporation ("Lite Vision") of Taiwan. The Company
filed an answer and amended answer to the complaint, in which it denied all the
plaintiff's allegations and asserted counterclaims against Mark IV, including
alleged violations of the antitrust laws.
In a separate action filed July 26, 1999, also in the United States District
Court for the Northern District of Texas, Mark IV further alleged the Company is
infringing a continuation patent related to one of the two patents that is the
subject of the lawsuit filed in February 1999 described above. In this second
action, Mark IV asserts similar claims and seeks similar relief.
On February 15, 2000, the TwinVision of North America, Inc. subsidiary of
the Company filed a legal action in the United States District Court for the
Eastern District of Texas, against the Luminator Holding LP subsidiary of Mark
IV Industries, Inc., the ultimate parent of Mark IV Industries, Ltd. This action
alleges infringement of the Lite Vision patents including the recently issued
continuation patent, under which TwinVision holds an exclusive license, seeks
damages, and injunctive relief.
On or about October 27, 2000, the Company and its TwinVision of North
America, Inc. subsidiary, reached a settlement with Mark IV Industries, Ltd. and
the Luminator Holding LP subsidiary of Mark IV Industries, Inc. (the ultimate
parent of Mark IV Industries, Ltd.) of all of the litigation pending between and
among them described above. The parties agreed to settle the litigation with
prejudice, which bars future litigation of the same claims. Under terms of the
settlement agreement no financial consideration is, will, or has been paid by or
among any of the parties. Further, all parties will bear their own legal
expenses.
The Company is not a party to any other litigation and is not aware of any
other threatened or pending legal action, which would have a material adverse
effect on the Company's business, operations or financial condition.
30
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Small Cap Market under
the symbol "TBus" and on the Boston Stock Exchange under the symbol "TBU." There
are approximately 1,200 stockholders. The following table sets forth the range
of high and low closing bid prices, as reported by The Nasdaq SmallCap Market,
from January 1, 1998 through September 30, 2000. The prices set forth reflect
interdealer quotations, without retail markups, markdowns or commissions, and do
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1998
First Quarter............................................. $2.50 1.38
Second Quarter............................................ 3.63 1.50
Third Quarter............................................. 3.19 1.81
Fourth Quarter............................................ 1.88 1.41
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1999
First Quarter............................................. $2.38 1.38
Second Quarter............................................ 2.19 1.75
Third Quarter............................................. 2.09 1.63
Fourth Quarter............................................ 4.81 1.50
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
2000
First Quarter............................................. $4.19 2.38
Second Quarter............................................ 2.63 1.63
Third Quarter............................................. 2.69 1.91
</TABLE>
The Company had not declared any dividends on Common Stock during 1999 and
1998 or through the third quarter of 2000 ended September 30, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company designs, manufactures or contracts for the manufacture of, and
sells information technology products primarily through two major business
segments. These segments are 1) the transportation products segment and, 2) the
law enforcement and surveillance segment. The transportation products segment
consists of the Digital Recorders business unit and two wholly owned
subsidiaries, Transit-Media GmbH and TwinVision of North America, Inc. The law
enforcement and surveillance segment of the Company is Digital Audio
Corporation, a wholly owned subsidiary. On April 14, 1998, the Company divested
the Highway Information Systems business group as more fully described in
Note 2 to the consolidated financial statements. Since 1987, when the Company
generated net sales of $348,000, net sales have increased each year, reaching
$22,441,234 in 1999 for its continuing operations. The Company attributes its
sales growth primarily to introduction of new products, increased market
penetration, competitive prices, strong customer service, growing markets for
its products, and strategic acquisitions.
The Company's products are currently marketed to the transit, transportation
and law enforcement markets. Customers include municipalities, regional transit
districts, federal, state, and local departments of transportation, bus
manufacturers, and law enforcement agencies or organizations. Sales to these
customers are characterized by a lengthy sales cycle that generally extends for
a period of two
31
<PAGE>
to twenty-four months. In addition, purchases by a majority of these customers
are dependent on federal, state and local funding that may vary from year to
year.
The Company typically recognizes revenue upon shipment of products to
customers. Because the Company's operations are characterized by significant
research and development expenses preceding product introduction, net sales and
related expenses may not be recorded in the same period, thereby producing
fluctuations in operating results. The Company's dependence on a small number of
relatively large customers or projects may increase the magnitude of
fluctuations in operating results.
The following discussion provides an analysis of the Company's results of
operations and liquidity and capital resources. This should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto. The operating results of the years presented were not significantly
affected by inflation.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items included in the Company's Statements of Operations:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------------
1999 1998 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 64.9 60.5 62.6 63.4
----- ----- ----- -----
Gross profit............................................. 35.1 39.5 37.4 36.6
----- ----- ----- -----
Operating expenses:
Selling, general and administrative.................... 28.1 39.9 29.2 29.4
Engineering, research and development.................. 8.3 7.2 8.5 7.8
----- ----- ----- -----
Total operating expenses................................. 36.4 47.1 37.7 37.2
----- ----- ----- -----
Operating loss........................................... (1.3) (7.6) (0.3) (0.6)
Other expense and interest............................... (0.8) (0.8) (1.8) (0.8)
----- ----- ----- -----
Loss before income taxes from continuing operations...... (2.1) (8.4) (2.1) (1.4)
Income tax expense (benefit)............................. -- 2.6 -- --
----- ----- ----- -----
Loss from continuing operations.......................... (2.1) (5.8) (2.1) (1.4)
Discontinued operations:
Income from operations of HIS division, net of tax..... -- 0.6 -- --
Gain on disposal of HIS division, net of tax........... -- 4.7 -- --
Cumulative effect of change in accounting principle...... (0.6) -- -- (0.8)
----- ----- ----- -----
Net loss................................................. (2.7)% (0.5)% (2.1)% (2.2)%
===== ===== ===== =====
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998.
Net sales from continuing operations for 1999 were $22,441,234, an increase
of $8,201,983 or 57.6%, as compared to $14,239,251 for 1998. The sales increase
was primarily due to higher sales for destination sign systems in the Company's
transportation products segment. Combined sales for Transit-Media GmbH and
TwinVision of North America, Inc. increased $5,616,384 or 78.1% as these two
subsidiaries realized increased orders for its destination sign products.
Digital Recorders' business unit sales increased $2,767,662 or 54.9%, an
increase primarily attributed to increasing market share. In the Company's law
enforcement and surveillance segment, Digital Audio Corporation experienced a
sales decline of $182,163 or 9.3% as this limited niche market did not realize
any above average government orders as compared to prior years.
32
<PAGE>
Gross profit from continuing operations for 1999 was $7,886,100, an increase
of $2,264,865, or 40.3% as compared to gross profit of $5,621,235 in 1998. As a
percentage of sales, gross profit was 35.1% of net sales in 1999 as compared to
39.5% during 1998. The dollar increase in gross profit coincided with the growth
of the Transportation Products Segment (TPS). The gross profit percentage
decrease was caused primarily by a lower percentage of overall sales from
Digital Audio Corporation which historically has higher gross margins than the
TPS business units.
Selling, general and administrative expenses during 1999 were $6,303,189, an
increase of $624,885 or 11% as compared to selling, general and administrative
expenses of $5,678,304 during 1998. This increase is attributed to the overall
growth of the Company.
Engineering, research and development expenses for 1999 were $1,865,940, an
increase of $843,856, or 82.6%, as compared to engineering, research and
development expenses of $1,022,084 in 1998. This increase relates to the
increase in technical personnel for all three U.S. business units and
development of new products and improvement of existing products.
The operating loss decreased by $796,124 to $283,029 in 1999 as compared to
the operating loss of $1,079,153 for 1998. This decrease during 1999 is due
primarily to the factors set forth above.
Total other income (expense) and interest for 1999 resulted in a net expense
of ($185,556), an increase of $75,503 as compared to total net income (expense)
for 1998 of ($110,053.) This increase was primarily due to an increase in
interest expense resulting from an increase in the line of credit borrowing.
Interest expense in 1999 was $186,189 and $101,635 in 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999.
Net sales for the nine months ended September 30, 2000 were $20,387,165,an
increase of $4,832,188 or 31.1%, as compared to $15,554,977 for the comparable
nine months in 1999. Increased sales resulting from an increase in market share
in the TPS was the most significant factor contributing to the increase.
During the nine months ended September 30, 2000, TPS sales increased
$5,558,690 or 39.4% from the corresponding nine months in the prior year or from
$14,093,211 in 1999 to $19,651,901 in 2000. The increase reflects TPS having
improved market share.
During the nine months ended September 30, 2000, DAC sales decreased
$726,502, or 49.7%, from the corresponding nine months in the prior year or from
$1,461,766 in 1999 to $735,264 in 2000. The sales revenue decline was the result
of timing in new product introduction, reduced customer funding and strategic
issues in addition to a significant government order completed at the end of
March 1999.
Gross profit for the nine months ended September 30, 2000 was $7,629,781, an
increase of $1,931,993 or 34%, over gross profit of $5,697,788 for the nine
months ended September 30, 1999. As a percentage of sales, gross profit during
the nine months ended September 30, 2000 was 37.4% of net sales, as compared to
36.6% during the corresponding nine months in 1999. The increase in gross profit
percentage was caused primarily by a lower cost of sales in the TPS business
units.
Selling, general and administrative expenses during the nine months ended
September 30, 2000 were $5,960,539, an increase of $1,379,901 or 30.1% as
compared to expenses of $4,580,638 during the nine months ended September 30,
1999. This increase was attributed primarily to higher payroll and related
fringe benefits, plus increases in outside services and legal expense. As a
percentage of sales, Selling, General and Administrative decreased from 29.4% in
1999 to 29.2% in 2000.
Engineering and research and development expenses for the nine months ended
September 30, 2000 were $1,735,283, an increase of $528,579, or 43.8%, as
compared to expenses of $1,206,704 during the nine months ended September 30,
1999. As a percent of sales, these expenses were 8.5% in 2000 and 7.8% in the
same period in 1999. This increase related primarily to additional engineering
33
<PAGE>
personnel and outside engineering expense for software and hardware development,
sustaining product engineering and new product development.
The net change in operating loss was a decrease of $23,513 for the nine
months ended September 30, 2000 over the same period of a year ago. The
operating loss for the nine months ended September 30, 2000 was $66,041 compared
to an operating loss of $89,554 for the nine months ended September 30, 1999.
The decrease for the nine months ended September 30, 2000 is primarily due to
the factors set forth herein.
Total other income (expense) and interest expense for the nine months ended
September 30, 2000 was ($367,455), an increase of $253,513 as compared to
($113,942) for the nine months ended September 30, 1999. This increase is
primarily the result of higher interest expense due to increased borrowings and
higher interest rates in the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
On February 26, 1998, the Company renewed its $2,500,000 secured line of
credit facility and $1,000,000 secured letter of credit facility with Wachovia
Bank, N.A. through February, 1999. At August 1, 1998, the amount of funds
available under the secured line of credit facility increased to $3,000,000 and
the secured letter of credit decreased to $500,000. Both facilities were with
the same financial institution. These facilities provided for short-term
borrowings and import letters of credit, were subject to certain loan covenants,
were secured by substantially all of the Company's accounts receivable,
inventory and equipment, and had interest, payable monthly, at the 90 day London
Inter Bank Offer Rate base rate plus 4.0%. The borrowing base and credit line
availability were computed at eighty percent (80%) of all U.S. trade accounts
receivable less those accounts exceeding ninety days outstanding.
On February 25, 1999, the Company extended its $3,000,000 secured line of
credit facility and $500,000 secured letter of credit facility with Wachovia
Bank, N.A. through March 25, 1999 and subsequently extended to August 31, 1999
as the Company completed a new and expanded financing agreement with Fremont
Financial Corporation, a subsidiary of Finova Group, Inc. Fremont Financial
Corporation was acquired in December, 1999 by Finova Group, Inc.
On August 23, 1999, Digital Recorders, Inc. and related subsidiaries signed
a four year Revolving and Term Lines of Credit Agreement ("Credit Agreement")
with Fremont Financial Corporation, now Finova Group, Inc. The Credit Agreement
provides up to $10 million for borrowing by the Company to be used for
acquisitions, working capital and general corporate purposes. The amount
available to borrow under the revolving portion of the Credit Agreement is
determined based on a formula of eligible trade accounts receivable and
inventory. The trade accounts receivable basis is eighty-five percent (85%) of
eligible domestic U.S. trade accounts plus the lesser of fifty percent (50%) or
$750,000 of eligible accounts of the German subsidiary.
The inventory basis is a weighted average formula on a ratio of domestic
U.S. inventory to the total confirmed sales orders, with advances of thirty-five
percent (35%) of primary components and eight percent (8%) of general inventory,
with a combined limit of $750,000. The term portion of the Credit Agreement will
be primarily used to fund purchases of machinery and equipment and acquisitions.
The interest rate on the revolving credit portion of the agreement is the bank's
prime lending rate plus one and three-quarters percent. Credit extended for
acquisitions will bear an interest rate of prime plus two percent.
The Credit Agreement includes other customary covenants and conditions
relating to the conduct and operation of the Company's business. Specifically,
the Company is subject to a 1:1 Earnings Before Income Tax, Dividends and
Amortization to interest coverage ratio to be calculated on a cumulative basis
for the initial four fiscal quarters after the signing date. After that it will
be calculated for the
34
<PAGE>
four fiscal quarters immediately preceding the date of determination. In
addition, any acquisition will require prior approval from Finova.
At December 31, 1999, there was $3,292,619 of borrowing outstanding under
the line of credit agreement with additional borrowing availability of $909,448.
As of December 31, 1999, the Company's principal sources of liquidity
included cash and cash equivalents of $242,820, trade accounts receivable of
$5,571,452, inventory of $4,322,391, amount due under the credit line of
$3,292,619 and trade accounts payable of $3,047,336 providing the Company with
net working capital of $3,937,046.
The Company's operating activities used cash of $2,060,611 during 1999 and
$2,611,025 during 1998. For 1999, the increase in accounts receivable of
$2,200,087, increase in inventory of $274,561 and increase in other assets of
$22,922 were offset by increase in accounts payable of $1,567,597. For 1998,
excluding the gain on sale of the HIS division of $1,097,012 and net book value
of HIS assets disposed of $1,702,987, the net cash provided by operating
activities would be $188,973. For 1998, the increases of inventory of $324,384
and accounts receivable of $197,406 were offset by increases in accounts payable
of $367,454. The Company anticipates that its working capital needs will
increase with the growth in the Company's sales and as the Company implements
its expansion plans.
The Company's net investing activities during 1999 used cash of $411,713 to
purchase test equipment, computer and telecommunications equipment and office
furniture and fixtures. In 1998 it provided cash of $2,800,931, primarily as the
result of the HIS division sale recorded in the second quarter.
The Company's net financing activities provided cash of $2,199,944 in 1999
and used cash of $95,793 during 1998. In 1999, net borrowings under the line of
credit amounted to $2,367,619, which was used in operations and to pay dividends
of $167,675 on the AAA preferred Stock. In 1998, $1,071,872 of proceeds was
received from the issuance of common stock. Available cash was used to decrease
the line of credit and pay "AAA" preferred stock dividends of $199,125.
On April 6, 1998, the holders of the Series AAA Preferred Stock approved an
amendment to the Company's Articles of Incorporation to (i) extend the mandatory
redemption date of the Series AAA Preferred Stock (the "Preferred Shares") to
December 31, 2003, (ii) permit the earlier redemption of the Preferred Shares at
the Company's option at any time upon 30 days' written notice, (iii) increase
the amount of quarterly dividend payable with respect to each Preferred Share
from $112.50 to $125.00 beginning in 1999, and (iv) increase the number of
shares of Common Stock of the Company issuable upon conversion of each Preferred
Share from 500 shares of Common Stock to 625 shares of Common Stock. Such
amendment was presented to a vote of the holders of Common Stock in the
Company's fiscal 1999 Proxy Statement and was approved. The conversion rate of
the 625 shares of Common Stock for each preferred share is $8.00 per share.
On April 14, 1998 the Company sold its Highway Information Systems (HIS)
business group for $2,800,000 in cash plus other consideration of approximately
$200,000. The Company realized a gain on disposal, before applicable income
taxes, of $1,097,012. The federal income tax expense on this transaction, which
the Company offset with operating loss carryforwards, was approximately
$346,000. The state tax expense was approximately $80,000.
The Company's cash requirements, other than for normal operating expenses,
relate primarily to the development of new products and enhancement of existing
products, financing growth, and the possible acquisition of companies, products,
or technologies. The Company believes that a combination of its net working
capital and the borrowing capacity available under its existing credit facility
provides the liquidity and capital resources to satisfy its currently
anticipated cash requirements for 2000.
35
<PAGE>
INFORMATION ABOUT MOBITEC
DESCRIPTION OF BUSINESS
Mobitec is approximately a US $12.5 million sales volume company and
dominates the Nordic Market, which consists of Greenland, Greenland, Sweden,
Norway, Denmark, and Finland, for Electronic Destination Sign Systems. In the
core Scandinavian Market, Mobitec holds an estimated 70% Market share of the
1,800-2,000 new bus vehicles produced annually. Its technology is compatible
with TwinVision of North America, Inc. (TwinVision), a subsidiary of Digital,
although it has opted to not fully migrate to TwinVision LED/Flip-Dot hybrid
type technology. Mobitec uses traditional flip-dot displays indirectly
illuminated by strips of high-intensity LEDs mounted in a similar location as
the fluorescent tubes of older illumination technology systems.
In addition to holding dominant market share in Nordic Markets, Mobitec has
approximately a 50% market share in Australia, participation in a 50:50 joint
venture in Brazil, and a recently established sales office in central Germany
focused on smaller operators.
Mobitec was founded in 1987 and employs about 45 people. Its primary
operating office is in Herrljunga, Sweden located about a one-hour drive
East-Northeast of Goteborg Sweden. Access from Central Europe is typically by
land/sea from Denmark or via air through either the Goteborg or Stockholm
International Airports. Mobitec is thus situated in a strategically important
segment of this overall general niche market and is further positioned to serve
the former Eastern Block markets.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for Mobitec's common stock. There are five holders
of Mobitec's stock. After the Acquisition, all the shares of Mobitec will be
owned by DRI-Europa and/or Digital. Since January 1, 2000, Mobitec has paid
dividends consisting of SEK 350,000 to its shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Mobitec Holding AB ("Mobitee") has one wholly-owned subsidiary, Mobitec AB,
which in turn owns 100% of Mobitec GmbH and Mobitec Australia Pty. Ltd. In
addition, Mobitec AB owns 50% of a company operating in Brazil known as
Mobitec Ltda. Two other subsidiaries of Mobitec, Hexair AB and Mobitec Klimat
AB, are not part of the Stock Purchase Agreement and are to be sold to Bengt
Bodin prior to the Closing Date. Mobitec, founded in 1987, designs, manufactures
or contracts for the manufacture of electronic destination sign systems sold
primarily in the transit and transportation vehicle equipment market in
Scandinavia, continental Europe, Brazil and Australia. These customers include
municipalities, regional and local departments of transportation, transit
agencies, vehicle manufacturers, and public, private, or commercial operators of
those vehicles.
The principal manufacturing and assembly facility employing approximately 45
people is located in Herrljunga, Sweden which is approximately sixty kilometers
northeast of Goteborg, Sweden.
In the core Scandinavian market, Mobitec holds an estimated 70% market share
of the 1,800-2,000 new bus vehicles produced annually. Its technology is
compatible with that of Digital's wholly owned subsidiary, TwinVision. Mobitec
uses traditional flip-dot displays indirectly illuminated by strips of
high-intensity LEDs mounted in the same location as the fluorescent tubes of
older illumination technology systems. In addition to holding dominate market
share in Nordic Markets, Mobitec has over 50% market share in Australia,
participation in a small 50:50 joint venture in Brazil, and a recently
established sales office in central Germany focused on small operators.
Foreign currency assets and liabilities are translated using the Swedish
krona (SEK) exchange rates in effect at the balance sheet date. Results of
operations are translated using the average exchange rate prevailing throughout
the period. The effects of unrealized exchange rate fluctuations on translating
36
<PAGE>
foreign currency assets and liabilities into U. S. dollars are accumulated as a
translation adjustment in stockholders' equity. The SEK to U.S. dollar foreign
exchange rates used in the financial statements are:
<TABLE>
<CAPTION>
12/31/98 9/30/99 12/31/99 9/30/00
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance Sheet..................................... 8.103 8.201 8.505 9.628
Income Statement.................................. 7.952 8.252 8.274 8.920
</TABLE>
The following discussion provides an analysis of Mobitec's consolidated
results of operations and its liquidity and capital resources. This discussion
should be read in conjunction with the consolidated financial statements of the
Company and notes therein.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items included in Mobitec's Consolidated Statements of Operations:
MOBITEC
CONSOLDIATED STATEMENTS OF OPERATIONS -- PERCENTAGE OF REVENUES
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------- --------------------------------------------
MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC
AB OTHER ADJUSTMENTS TOTAL AB OTHER ADJUSTMENTS TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 70.6 72.9 97.8 66.2 71.1 -- -- 70.8
----- ----- ----- ----- ----- ------ ----- -----
Gross profit.................... 29.4 27.1 2.2 33.8 28.9 100.0 100.0 29.2
----- ----- ----- ----- ----- ------ ----- -----
Operating expenses:
Selling, general and
administrative.................. 15.6 33.6 3.1 22.6 15.7 200.0 61.1 17.2
Research and development.......... 5.1 -- -- 4.7 5.2 -- -- 5.2
Other............................. (0.2) -- -- (0.2) 0.0 -- -- 0.0
----- ----- ----- ----- ----- ------ ----- -----
Total operating expenses........ 20.5 33.6 3.1 27.1 20.9 200.0 61.1 22.3
----- ----- ----- ----- ----- ------ ----- -----
Operating income (loss)........... 8.9 (6.5) (0.9) 6.7 8.0 (100.0) 38.9 6.9
Other income (expense).............. 0.2 -- 3.8 (0.6) -- -- -- --
Interest income (expense)........... (0.4) 0.7 -- (0.2) (0.3) -- -- (0.3)
----- ----- ----- ----- ----- ------ ----- -----
Total other income (expense) and
interest income (expense)..... (0.3) 0.7 3.8 (0.8) (0.3) -- -- (0.3)
----- ----- ----- ----- ----- ------ ----- -----
Income (loss) before income
taxes........................... 8.7 (5.8) 2.9 5.9 7.6 (100.0) 38.9 6.6
Income tax expense.................. (1.8) (1.7) (0.3) (2.1) (1.4) -- (27.8) (1.3)
----- ----- ----- ----- ----- ------ ----- -----
Net income (loss)................. 6.8 (7.4) 2.6 3.9 6.2 (100.0) 11.1 5.3
Group contribution.................. (2.9) 10.4 -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ----- -----
Net income (loss) after group
contribution.................... 3.9% 3.0% 2.6% 3.9% 6.2% (100.0)% 11.1% 5.3%
===== ===== ===== ===== ===== ====== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales for the nine months ended September 30, 2000 were $8,255,000, an
increase of $28,000 or 0.3%, as compared to $8,227,000 for the comparable nine
months in 1999. The increase in sales resulted from a higher percentage of sales
revenues in Germany, Australia and Brazil.
Gross profit for the nine months ended September 30, 2000 was $2,789,000, an
increase of $387,000 or 16.1%, over gross profit of $2,402,000 for the nine
months ended September 30, 1999. As a
37
<PAGE>
percentage of sales, gross profit during the nine months ended September 30,
2000 was 33.8% of net sales, as compared to 29.2% during the corresponding nine
months in 1999. The increase in gross profit percentage was caused primarily by
a lower cost of electronic components.
Selling, general and administrative expenses during the nine months ended
September 30, 2000 were $1,863,000, an increase of $452,000 or 32.0% as compared
to expenses of $1,411,000 during the nine months ended September 30, 1999. This
increase was attributed primarily to the start up of the two new subsidiaries in
Germany, Australia and Brazil.
Research and development expenses for the nine months ended September 30,
2000 were $391,000, a decrease of $33,000, or 7.8%, as compared to expenses of
$424,000 during the nine months ended September 30, 1999. As a percent of sales,
these expenses were 4.7% in 2000 and 5.2% for the same period in 1999. This
slight decrease was the result of lower expenditures for the period.
Total other income (expense) and interest income (expense) for the nine
months ended September 30, 2000 was ($63,000), an increase of $36,000 as
compared to ($27,000) for the nine months ended September 30, 1999. This
increase is primarily the result of higher interest expense due to increased
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Mobitec uses a trade accountants receivable factoring arrangement with the
SEB bank in Goteborg, Sweden to provide cash for working capital. This
arrangement applies only to Scandinavian customers and bears interest at 5.5% on
unpaid accounts. In addition to the factoring relationship, Mobitec entered into
a working capital term credit loan in August 2000 with the SEB Bank to cover
other cash requirements. As the factoring arrangement only applies to
Scandinavian trade accounts, the cash needs in Sweden and foreign subsidiaries
required the additional term loan. This term loan bears interest at an annual
rate 5.5% and is secured by inventory and trade accounts receivable not covered
by the factoring arrangement. The outstanding liability at September 30, 2000
was $456,000.
As of September 30, 2000 the Company's principal sources of liquidity
included cash and cash equivalents of $163,000, trade accounts receivable of
$1,576,000, inventories of $1,480,000, short-term bank borrowings of $456,000
and trade accounts payable of $933,000 providing the Company with net working
capital of $1,435,000.
38
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items included in Mobitec's Consolidated Statements of Operations:
MOBITEC
CONSOLIDATED STATEMENTS OF OPERATIONS -- PERCENTAGE OF REVENUES
YEARS ENDED DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC
AB OTHER ADJUSTMENTS TOTAL AB OTHER ADJUSTMENTS TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 72.2 71.9 91.6 70.4 70.9 52.6 (86.8) 70.2
----- ----- ----- ----- ----- ------ ----- -----
Gross profit.................... 27.8 28.1 8.4 29.6 29.1 47.4 186.8 29.8
----- ----- ----- ----- ----- ------ ----- -----
Operating expenses:
Selling, general and
administrative.................. 16.0 64.5 10.2 21.8 19.1 426.3 50.0 20.8
Research and development.......... 5.3 -- -- 5.2 5.2 -- -- 5.1
Other............................. 0.4 0.1 -- 0.4 (1.0) -- -- (0.9)
----- ----- ----- ----- ----- ------ ----- -----
Total operating expenses........ 21.6 64.6 10.2 27.3 23.4 426.3 50.0 25.0
----- ----- ----- ----- ----- ------ ----- -----
Operating income (loss)........... 6.2 (36.6) (1.8) 2.2 5.8 (378.9) 136.8 4.8
Other income (expense).............. (0.3) 1.0 7.9 (0.9) (0.5) 176.3 15.8 0.2
Interest income (expense)........... (0.2) 0.3 -- (0.2) (0.1) -- 100.0 0.2
----- ----- ----- ----- ----- ------ ----- -----
Total other income (expense) and
interest income (expense)..... (0.5) 1.3 7.9 (1.1) (0.7) 176.3 115.8 0.4
----- ----- ----- ----- ----- ------ ----- -----
Income (loss) before income
taxes........................... 5.6 (35.2) 6.2 1.1 5.1 (202.6) 252.6 5.2
Income tax expense.................. (0.3) (0.3) (3.9) (0.0) (0.2) (52.6) (7.9) (0.4)
----- ----- ----- ----- ----- ------ ----- -----
Net income (loss)................. 5.3 (35.6) 2.3 1.1 4.9 (255.3) 244.7 4.8
Group contribution.................. (4.4) 36.2 (4.5) -- (1.5) 394.7 -- --
----- ----- ----- ----- ----- ------ ----- -----
Net income (loss) after group
contribution.................... 0.9% 0.7% (2.2)% 1.1% 3.4% 139.5% 244.7% 4.8%
===== ===== ===== ===== ===== ====== ===== =====
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 AND 1998
Net sales for the year ended December 31, 1999 were $11,112,000, an increase
of $935,000 or 9.2%, as compared to $10,177,000 for the comparable year in 1998.
The increase in sales resulted from a higher percentage of sales revenues in
Germany and Brazil.
Gross profit for the year ended December 31, 1999 was $3,286,000, an
increase of $254,000 or 8.4%, over gross profit of $3,032,000 for the year ended
December 31, 1998. As a percentage of sales, gross profit during the year ended
December 31, 1999 was 29.6% of net sales, as compared to 29.8% during the
corresponding year in 1998. The decrease in gross profit percentage was caused
primarily by a lower cost of electronic components.
Selling, general and administrative expenses during the year ended
December 31, 1999 were $2,458,000, an increase of $343,000 or 16.2% as compared
to expenses of $2,115,000 during the year ended December 31, 1998. This increase
was attributed primarily to the additional expense of start up of the two new
subsidiaries in Germany and Brazil.
Research and development expenses for the year ended December 31, 1999 were
$573,000, an increase of $50,000, or 9.6%, as compared to expenses of $523,000
during the year ended December 31, 1998. As a percent of sales, these expenses
were 5.2% in 2000 and 5.1% for the same period in 1998. This slight increase was
the result of higher expense in development of electronic sign systems.
39
<PAGE>
Total other income (expense) and interest income (expense) for the year
ended December 31, 1999 was ($122,000), a decrease of $165,000 as compared to
$43,000 for the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Mobitec uses a trade accountants receivable factoring arrangement with the
SEB bank in Goteborg, Sweden to provide cash for working capital. This
arrangement applies only to Scandinavian customers and bears interest at 5.5% on
unpaid accounts.
As of December 31, 1999 the Company's principal sources of liquidity
included cash and cash equivalents of $669,000, trade accounts receivable of
$955,000, inventories of $964,000, and trade accounts payable of $921,000
providing the Company with net working capital of $1,293,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective March 1996, the Company entered into various marketing,
distribution, licensing and management agreements with Robinson Turney
International, Inc., an entity in which David L. Turney, an officer and director
of the Company, holds a 50% ownership interest. The Company paid fees and
commissions earned under these various agreements totaling $55,013 during 1998.
This agreement ended at April 1998 effective with the merger of RTI into the
company.
The Company purchases electronic components supporting the transportation
products segment from a major stockholder, Lite Vision Corporation ("Lite
Vision"), a public Taiwan company. Lite Vision holds 12.2% of the outstanding
shares of common stock. The components consist primarily of light emitting
diodes (LED) printed circuit boards and power supplies. The Company purchased
approximately $5.3 million and $4.0 million during 1999 and 1998, respectively.
The Company has adopted a policy pursuant to which material transactions
between the Company and its executive officers, directors and principal
shareholders (i.e. shareholders owning beneficially 5% or more of the
outstanding voting securities of the Company) shall be submitted to the Board of
Directors for approval by a disinterested majority of the directors voting with
respect to the transaction.
SHAREHOLDER PROPOSALS
Shareholders who intend to submit proposals for inclusion in the Proxy
Statement for the Annual Meeting of Shareholders must do so by sending the
proposal and supporting statements, if any, to the Company no later than
January 31, 2001. Such proposals should be sent to the attention of
Mr. Lawrence A. Taylor, 4018 Patriot Drive, One Park Center, Suite 100, Durham,
North Carolina 27703.
OTHER MATTERS
Except for the matters described herein, management does not intend to
present any matter for action at the Special Meeting and knows of no matter to
be presented at such Special Meeting that is a proper subject for action by the
shareholders. However, if any other matters should properly come before the
Special Meeting, it is intended that votes will be cast pursuant to the
authority granted by the enclosed Proxy in accordance with the best judgment of
the person acting under the Proxy.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999; the Company's Quarterly Report on Form 10-QSB for the period
ended September 30, 2000; the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 2000; the Company's Quarterly Report on Form 10-QSB for
the period ended March 31, 2000; and, the Company's
40
<PAGE>
Quarterly Report on Form 10-QSB for the period ended September 30, 1999. These
incorporated documents do not form any part of the material for the solicitation
of any Proxy.
A COPY OF ANY OR ALL OF THE FOREGOING INCORPORATED DOCUMENTS, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, ARE AVAILABLE WITHOUT
CHARGE TO ANY SHAREHOLDER OF THE COMPANY UPON WRITTEN REQUEST TO MR. LAWRENCE A.
TAYLOR, 4018 PATRIOT DRIVE, ONE PARK CENTER, SUITE 100, DURHAM, NC 27703.
41
<PAGE>
APPENDIX A
DIGITAL RECORDERS, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints David M. Furr, proxy and
attorney-in-fact for the undersigned, with full power to designate a substitute
representative, to represent the undersigned and to vote all of the shares in
Digital Recorders, Inc., a North Carolina corporation (the "Company"), which the
undersigned is entitled to vote at the Special Meeting of the Shareholders of
the Company to be held at the Radisson-Governor's Inn, I-40 at Davis Drive,
Research Triangle Park, Durham, NC 27709, on February 22, 2001, at 11:00 a.m.,
local time, and at any adjournment thereof as hereinafter specified upon the
proposals listed below and as more particularly in the Proxy Statement of the
Company dated January , 2001 (the "Proxy Statement"), receipt of which is
hereby acknowledged. This proxy is first being mailed on or about January ,
2001.
/X/ Please mark your vote as in this example
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Approval of the issuance of 430,000 restricted shares of / / / / / /
Company Common Stock, pursuant to a Stock Purchase
Agreement among the Company, DRI-Europa AB and Bengt
Bodin, Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias
Bodin, Bertil Lindqvist (collectively the "Sellers"), to
acquire all of the outstanding stock of Mobitec Holding
AB.
<CAPTION>
FOR AGAINST ABSTAIN
2. Approval of the issuance of up to 100,000 shares of Company / / / / / /
<S> <C> <C> <C> <C>
Common Stock underlying the Bodin Warrants pursuant to the
Bodin Warrant Agreement between Digital and Bengt Bodin.
<CAPTION>
FOR AGAINST ABSTAIN
3. Approval of the authorization and issuance of Convertible / / / / / /
<S> <C> <C> <C> <C>
Debentures in the aggregate amount of $3,000,000 to be
issued to certain Investment Funds associated with
Renaissance Capital Group, Inc., and the issuance of up to
1,500,000 shares of Company Common Stock, to be issued if
the Debentures are converted.
</TABLE>
I PLAN TO ATTEND THE SPECIAL MEETING / /
The shares represented hereby will be voted as specified. If no Specifications
are made, such shares will be voted FOR the above proposals for which no
specification is made.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE SIGN, DATE, AND RETURN THE PROXY PROMPTLY
IN THE ENCLOSED SELF ADDRESSED STAMPED ENVELOPE.
Signature(s) _______________________________________________________ Dated
____________, 2001
NOTE: Please sign name exactly as your name appears on the Stock Certificate.
When signing as attorney, executor, administrator, trustee or guardian, please
give the full title. If more than one trustee, all should sign. All joint owners
must sign.
<PAGE>
APPENDIX I
STOCK PURCHASE AGREEMENT
BETWEEN
BENGT BODIN,
ANNACARIN BODIN,
MATTIAS BODIN,
TOBIAS BODIN,
BERTIL LINDQVIST,
AND
DRI EUROPA AB,
AND
DIGITAL RECORDERS, INC.,
DATED [ ] 2001
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1. Definitions................................................. I-5
2. Sale and purchase of the shares............................. I-8
3. Purchase Price.............................................. I-8
4. Conditions precedent to the purchaser's obligations......... I-11
5. Closing..................................................... I-11
6. Representations and warranties of all the sellers........... I-12
7. Representations and warranties of the Bodin Sellers......... I-13
8. Covenants................................................... I-20
9. Indemnification............................................. I-23
10. Representations and warranties of the purchaser............. I-25
11. Closing date................................................ I-26
12. General provisions.......................................... I-26
</TABLE>
I-2
<PAGE>
APPENDICES
<TABLE>
<S> <C> <C>
1.9 a - b Consolidated Financial Statements
1.14 a - b Financial Statements
1.19 Interim Financial Statements
3.2.1.3 Registration Rights Agreement
3.2.1.4 Promissory Note
3.2.1.5 Bodin Warrant Agreement
5.3 Legal Opinion
6.5 a) Articles of Association, Share
Ledgers
7.4 Pledges, commitments and
contingent liabilities
7.6 Dividends since 1st January 2000
7.8 Inventory stored and obsolete
products
7.19 Material Agreements and Warranties
7.30 Customer List
7.36 Insurances
7.39 Employment conditions
7.41 List of persons authorised to sign
7.42 Bonus agreement
7.46 Pension arrangement Bengt Bodin
8.4 Mobitec Stock Option Program
8.5 Trademark License Agreement
8.10 Disputes
</TABLE>
I-3
<PAGE>
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of [ ] 2001, by
and between
Bengt Bodin, an individual resident at La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Annacarin Bodin, an individual resident at La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Mattias Bodin, an individual resident at Parkgatan 10, SE-112 30 Stockholm,
Sweden;
Tobias Bodin, an individual resident at Ovre Husargatan 23 A, SE-413 14
Gothenburg, Sweden; and
Bertil Lindqvist, an individual resident at Nybrogatan 45 B, 114 39
Stockholm.
(Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil
Lindqvist are hereinafter collectively referred to as the "Sellers".)
AND
DRI Europa AB, a Swedish corporation, in the process of incorporation, to
have its principal office in Gothenburg, (the "Purchaser") and
Digital Recorders, Inc., a company duly incorporated and organised under the
laws of the state of North Carolina, USA, having its principal office at
Durham, North Carolina, ("DRI").
PREAMBLES
A. The Sellers are at the date hereof the owners of the shares (the Shares) of
Mobitec Holding AB, a Swedish corporation, registration number 556546-6793,
(the "Company"). The ownership of the Shares is, at the date hereof as
follows:
<TABLE>
<S> <C>
Bengt Bodin................................................. 51,900 shares
Annacarin Bodin............................................. 20,400 shares
Mattias Bodin............................................... 9,100 shares
Tobias Bodin................................................ 9,100 shares
Bertil Lindqvist............................................ 9,500 shares
--------------
TOTAL....................................................... 100,000 shares
</TABLE>
B. The Company is the parent company of a group of companies engaged in
developing, manufacturing, marketing and selling information systems for
public transport vehicles.
C. The aforesaid group of companies has presently a strong market position on
its respective market, has a customer base on these markets and has highly
professional and skilled personnel in the field of business where the group
of companies is active.
D. The Purchaser is a wholly owned subsidiary of Digital Recorders, Inc.
E. DRI is engaged in the businesses of design, development, production,
marketing, sales and service of information systems for transit and
transportation markets worldwide.
F. DRI, using the Purchaser as a vehicle therefor, is desirous of strengthening
its presence and its operations in Europe. After analysis of the market
situation and the business environment in Europe, DRI believes that a
stronger presence and good business opportunities will be achieved by the
purchase of the shares of the Company.
I-4
<PAGE>
G. The Sellers are willing to sell the Shares to the Purchaser and/or to DRI on
the terms and conditions set forth herein subject to the exercise by the
Purchaser and/or DRI of its right under the Option Agreement.
H. Although Bertil Lindqvist, owner of 9,500 shares of the Company, agrees to
sell his shares it is understood that he shall be paid the purchase price
for his portion of the shares in full on the Closing Date and shall only be
liable hereunder to the extent explicitly set forth hereunder. Any other
liability for breach of representations or warranties or any other failure
or breach under this Agreement will be assumed by the other Sellers in full
as if they were the Sellers of Bertil Lindqvist's shares too.
I. The Sellers have submitted to the Purchaser the budget for 2001, which has
been prepared with normal and reasonable care in accordance with previous
practice. The Board of Directors of Mobitec AB has stated that there is some
degree of uncertainty with respect to the budgeted result for Mobitec Ltda
but that this will probably be compensated by the result of other entities
of the Group. For the avoidance of doubt the purchase price for the Shares
is, however, not based on any forecasts or budgets issued by the Company or
any Subsidiary with respect to the operation of the Group beyond the Closing
Date.
J. It is understood between the parties that all shares of Klimat and Hexair
will be sold prior to Closing and that such sale will have no negative
effect on the Company or any Subsidiary except for changes in the net equity
to be reflected when adjusting the Preliminary Purchase Price into the Final
Purchase Price as set forth in sub-section 3.2.2 hereof.
K. Taking into consideration what has been set forth above, the Sellers and the
Purchaser, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purpose of this Agreement the following terms have the meanings set
forth below.
1.1 Bertil Lindqvist Shares shall mean the 9,500 shares out of the Shares
held by Bertil Lindqvist.
1.2 Bodin Sellers shall mean the aforesaid Bengt Bodin, Annacarin Bodin,
Mattias Bodin and Tobias Bodin collectively and Bodin Seller shall mean
any of them.
1.3 Bodin Shares shall mean the 90,500 shares out of the Shares held by the
Bodin Sellers.
1.4 Bodin Warrant Agreement shall mean the agreement referred to in
sub-section 3.2.1.5 below.
1.5 Closing shall mean the completion of the sale and purchase of the Shares
in accordance with this Agreement.
1.6 Closing Financial Statement shall mean the audited profit and loss
accounts and the balance sheets of the Company and each Subsidiary as
well as of the Group on a consolidated basis for the financial year 2000.
1.7 Closing Date shall mean the date set forth in section 11 below.
1.8 Company shall mean the aforesaid Mobitec Holding AB.
1.9 Consolidated Financial Statements shall mean the audited consolidated
annual reports for the Group for the financial years 1998 and 1999,
APPENDIX 1.9 A)-B) hereto.
1.10 DRI shall mean the aforesaid Digital Recorders, Inc.
1.11 Encumbrance shall mean any charge, claim, condition, lien, option,
pledge, security interest, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer or receipt of
income.
I-5
<PAGE>
1.12 Family shall mean wife, husband and co-habitant (Sw. sambo).
1.13 Financial Documents shall mean the Financial Statements, the Consolidated
Financial Statements and the Interim Financial Statements.
1.14 Financial Statements shall mean the audited annual reports of the Company
and each Subsidiary for the financial years 1998 and 1999, APPENDIX 1.14
A)-B) hereto.
1.15 GAAP shall with respect to the Company and the Swedish Subsidiaries mean
the generally accepted accounting principles including the statements and
recommendations of the Swedish Financial Accounting Standards Council
(Sw. Redovisningsradet) of the Accounting Board (Sw. Bokforingsnamnden)
as well as the Swedish Accounting Act (Sw. Bokforingslagen) and shall
with respect to non-Swedish Subsidiaries mean the generally accepted
accounting principles in the country of domicile of each such Subsidiary.
1.16 Group shall mean the Company and the Subsidiaries.
1.17 Hexair shall mean Hexair AB, registration number 556505-5067.
1.18 Intellectual Property shall mean patents, trademarks, designs,
applications for any of the foregoing, copyrights and registerable
business names--including the name "Mobitec" but with the observation of
what has been set forth in sub-section 8.5 below--and any similar rights
in any country and all rights under licenses and consents in relation to
any of the foregoing.
1.19 Interim Financial Statements shall mean the profit and loss accounts and
the balance sheets of the Company and each Subsidiary as well as of the
Group on a consolidated basis for the period 1 January--31 March 2000,
Appendix 1.19 hereto.
1.20 Key Employee shall mean each of Bob Barwick, Roberto Demore and Bjorn
Ronnhede.
1.21 Klimat shall mean Mobitec Klimat AB, registration number 556487-3403.
1.22 Know-how shall--irrespective of whether it is in verbal or any other
form--mean all technical data, specifications, procedures, manufacturing
information, product information as well as all commercial information
such as but not limited to the Customer List (as defined in
sub-section 7.30 below) market information, information on customers and
competitors, price calculations and offers all of which is used in the
Company's or any Subsidiary's development, manufacture, marketing,
selling or use of any product of the Company or any Subsidiary
irrespective of whether such product is in one or more of the stages of
development, manufacture, marketing, sale or use.
1.23 Loss shall mean any claims, losses, deficits, damages, costs, liabilities
and expenses incurred by the Group, the Company, any Subsidiary, DRI, the
Purchaser or any of the Sellers, as the case may be, including settlement
costs and any reasonable legal, accounting and other expenses for
investigation or defending any actions or threatened actions.
1.24 Except for employment agreements, the contents of which appears from
Appendix 7.39, Material Agreement shall mean all agency-, distributorship
and other sales representative agreements as well as all license- and
secrecy agreements to which the Company or any Subsidiary is a party as
well as any other agreement, contract, obligation, promise or undertaking
(whether written or oral and whether express or implied) that is legally
binding between the Company or any Subsidiary on the one hand and any
third party or any of the Sellers on the other hand and having a contract
value of more than SEK 200,000 or a remaining contract term or a period
of notice of termination of more than six months.
1.25 Mobitec Stock Option Program shall mean the stock option program of the
Company, described in APPENDIX 8.4 hereto.
I-6
<PAGE>
1.26 Option Agreement shall mean the agreement entered into between the
Sellers, the Purchaser and DRI under which the Sellers have granted the
Purchaser and DRI options to acquire the Shares.
This Stock Purchase Agreement is an appendix to the Option Agreement and
forms an integral part thereof.
1.27 Person shall mean any individual, corporation, general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organisation, labour union, or other entity or governmental
body, agency or authority.
1.28 Promissory Notes shall mean the promissory notes referred to in
sub-section 3.2.1.4 below.
1.29 Purchaser shall mean the aforesaid DRI Europa AB, in the process of
incorporation.
1.30 Related Person shall with respect to a particular individual mean:
(i) each other member of such individual's Family;
(ii) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(iii) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a material interest;
and
(iv) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer,
partner, executor or trustee (or in a similar capacity).
1.31 Restricted Shares shall mean the 430,000 shares of the voting Common
Stock of DRI of the class authorized as of the date hereof to be issued
to Mattias Bodin and Tobias Bodin pursuant to the terms hereof.
1.32 Shares shall mean all the shares numbered from 1 to 100,000 of the
capital stock of the Company.
1.33 Sellers shall mean the aforesaid Bengt Bodin, Annacarin Bodin, Mattias
Bodin, Tobias Bodin and Bertil Lindqvist collectively and Seller shall
mean any of them.
1.34 Subsidiary shall mean each of
<TABLE>
<S> <C>
Mobitec AB, reg. number 556344-9999
Mobitec GmbH, reg. number DE 812 639 645
Mobitec Australia Pty Ltd, reg. number 092 439 159
Mobitec Brazil Ltda, reg. number CNPJ-03.393.064/0001-98
</TABLE>
and Subsidiaries shall mean all of them.
1.35 The expression "Acquired Knowledge" shall mean that the statement has
been made after the Bodin Sellers have made due and reasonable inquiries
among those of the employees, consultants and representatives of the
Company and any Subsidiary who reasonably should have been asked with
respect to the relevant matter and that the statement shall be deemed to
include the knowledge obtained as aforesaid from such employees,
consultants and representatives. Knowledge, as aforesaid, of one Bodin
Seller shall be deemed to be the knowledge of all Bodin Sellers.
1.36 The expression "to the best of Bodin Sellers' Knowledge" shall mean that
the statement shall be deemed to include all information which--without
this being Acquired Knowledge--
I-7
<PAGE>
reasonably should be known to the Bodin Sellers. Knowledge, as aforesaid,
of one Bodin Seller shall be deemed to be the knowledge of all Bodin
Sellers.
2. SALE AND PURCHASE OF THE SHARES
Upon the terms and subject to the conditions of this Agreement the Sellers
agree to sell to the Purchaser and the Purchaser agrees to purchase from the
Sellers the Shares.
3. PURCHASE PRICE
3.1 BERTIL LINDQVIST SHARES
The portion of the purchase price to be paid to Bertil Lindqvist for the
Bertil Lindqvist Shares shall be SEK 5,700,000 (five million seven hundred
thousand), the said amount to be paid in cash on the Closing Date--subject
to sections 4 and 5 below--to Aragon Fondkommission AB's bank account with
SEB, account number 5228 100 2225, swift code MT 100 ESSESSESS and giving
reference to Bertil Lindqvist's account with Aragon Fondkommission AB,
account number 457325.
3.2 BODIN SHARES
The purchase price for the Bodin Shares is a Preliminary Purchase Price to
be adjusted into a Final Purchase Price in accordance with the provisions
of sub-section 3.2.2 below.
The Preliminary Purchase Price has been calculated and agreed upon between
the Bodin Sellers and the Purchaser inter alia on the basis of the balance
sheet forming part of the Interim Financial Statement for the Group on a
consolidated basis as per 31 March 2000, Appendix 1.19 hereto.
3.2.1 PRELIMINARY PURCHASE PRICE
The following is the Preliminary Purchase Price to be paid to the Bodin
Sellers for the sale and transfer to the Purchaser of the Bodin Shares:
3.2.1.1 The Sellers shall notify the Purchaser and DRI in writing on 31
January 2001 at the latest of the amount set forth in
sub-section 3.2.1.2 to be paid in cash to each of the Bodin Sellers,
the number of Restricted Shares set forth in sub-section 3.2.1.3 to be
transferred to each of Mattias Bodin and Tobias Bodin as well as the
amounts of the Promissory Notes set forth in sub-section 3.2.1.4.
In the event that the Purchaser and DRI have not received notification as
aforesaid the aforesaid cash amounts, the Restricted Shares and the
amounts of the Promissory Notes shall be divided between the Bodin Sellers
in proportion to their holding of shares in the Company.
3.2.1.2 The cash amount of USD 3,680,000 to be paid in cash on the Closing Date
by wire transfer to the following Bodin Sellers' bank accounts
<TABLE>
<CAPTION>
BANK ACCOUNT NUMBER SWIFT CODE
---------------------------------- -------------- -----------------
<S> <C> <C> <C>
Bengt Bodin Banque Populaire, 22bd Victor 15607-00051- CCBP-FR-PP.NCE
Hugo, FR-0600 Nice 68020837802
Annacarin Bodin Skandiabanken 9150-2150117 SKIASSESS
Mattias Bodin Skandiabanken 9150-2615519 SKIASSESS
TobiasBodin SEB 5061-0044508 ESSESESS
</TABLE>
3.2.1.3 The Restricted Shares shall be transferred to the Bodin Sellers on the
Closing Date, which shares shall be voting Common Stock of DRI, subject
to all of the terms and conditions of the Registration Rights
Agreement, Appendix 3.2.1.3 hereto, dated as of the date hereof by and
I-8
<PAGE>
among DRI, Bengt Bodin, Annacarin Bodin, Mattias Bodin and Tobias
Bodin. All certificates evidencing the Restricted Shares shall bear
legends as specified in Section 5.4 hereunder. The said shares shall be
divided among the Bodin Sellers (subject to adjustments as provided in
sub-sections (a) through (d) below:
(a) If, on or before the Closing Date, DRI shall issue any of its Common
Stock as a share dividend or subdivide the number of outstanding
shares of Common Stock into a greater number of shares then, in
either of such cases, the number of Restricted Shares issuable
pursuant to this Agreement shall be proportionately increased; and
conversely, if DRI shall reduce the number of outstanding shares of
Common Stock by combining such shares into a smaller number of shares
then, in such case, the number of Restricted Shares issuable pursuant
to this Agreement shall be proportionately decreased. If DRI shall,
on or before the Closing Date, declare a dividend payable in cash on
its Common Stock and shall at substantially the same time offer to
its shareholders a right to purchase new Common Stock from the
proceeds of such dividend or for an amount substantially equal to the
dividend, all Common Stock so issued shall, for the purpose of this
Agreement, be deemed to have been issued as a share dividend. Any
dividend paid or distributed upon Common Stock in shares of any other
class of securities convertible into Common Stock shall be treated as
a dividend paid in Common Stock to the extent that Common Stock is
issuable upon the conversion thereof.
(b) If, on or before the Closing Date, DRI shall be recapitalized by
reclassifying its outstanding Common Stock, or DRI or a successor
corporation shall consolidate or merge with or convey all or
substantially all of its or any successor corporation's property and
assets to any other corporation or corporations (any such corporation
being included within the meaning of the term "successor corporation"
used above in the event of any consolidation or merger of any such
corporation with, or the sale of all or substantially all of the
property of any such corporation, to another corporation or
corporations), the Bodin Sellers shall thereafter have the right to
receive, upon the basis and upon the terms and conditions and at the
time specified in this Agreement, in lieu of the Restricted Shares
theretofore issuable hereunder, such shares, securities or assets as
may be issued or payable with respect to, or in exchange for, the
number of Restricted Shares theretofore issuable hereunder had such
recapitalization, consolidation, merger or conveyance not taken place
and, in any such event, the rights of the Bodin Sellers to an
adjustment in the number of Restricted Shares issuable hereunder as
herein provided shall continue and be preserved in respect of any
shares, securities or assets which the Bodin Sellers become entitled
to receive.
(c) If: (i) DRI shall take a record of holders of its Common Stock for
the purpose of entitling them to receive a dividend payable otherwise
than in cash, or any other distribution in respect of the Common
Stock (including cash), pursuant to, without limitation, any
spin-off, split-off, or distribution of DRI's assets; or (ii) DRI
shall take a record of the holders of its Common Stock for the
purpose of entitling them to subscribe for or purchase any shares of
any class or to receive any other rights; or (iii) in the event of
any classification, reclassification or other reorganization of the
securities which DRI is authorized to issue, consolidation or merger
by DRI with or into another corporation, or conveyance of all or
substantially all of the assets of DRI; or (iv) in the event of any
voluntary or involuntary dissolution, liquidation or winding up of
DRI; then, and in any such case, DRI shall mail to the Bodin Sellers,
at least 15 days prior thereto, a notice stating the date or expected
date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up,
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as the case may be, will be effected. Such notice shall also specify
the date or expected date, if any is to be fixed, as to which holders
of Common Stock of record shall be entitled to participate in such
dividend, distribution or rights, or shall be entitled to exchange
their Common Stock or securities or other property deliverable upon
such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up, as the
case may be.
(d) If DRI, on or before the Closing Date, shall sell all or
substantially all of its property, dissolve, liquidate or wind up its
affairs, the Bodin Sellers may thereafter receive upon exercise
hereof, in lieu of each Restricted Share which it would have been
entitled to receive, the same kind and amount of any securities or
assets as may be issuable, distributable or payable upon any such
sale, dissolution, liquidation or winding up with respect to each
share of Common Stock of DRI issuable to the Bodin Sellers hereunder.
3.2.1.4 The Promissory Notes totalling USD 2,000,000 (two million) to be issued
and submitted to each Bodin Seller on the Closing Date, the Promissory
Notes to carry the amounts mentioned below, subject to any adjustment
set forth in sub-section 3.2.2.8 below, and falling due 36 months from
the Closing Date and accruing interest at the rate of 9 per cent per
annum payable quarterly in arrears. The Promissory Notes shall have the
contents set forth in APPENDIX 3.2.1.4 hereto. The detailed terms of
the Promissory Notes appear from the said Appendix.
3.2.1.5 The Bodin Warrant Agreement, APPENDIX 3.2.1.5 hereto to be executed and
delivered to the Bodin Sellers. As set forth in the Bodin Warrant
Agreement, DRI will grant to the Bodin Sellers the right to purchase
for five (5) years (the "Warrant") up to an additional 100,000 shares
of registered Common Stock of DRI (the "Warrant Shares") at an exercise
price of USD 4.00 per share (the "Warrant Exercise Price"), all as more
fully set forth in the Bodin Warrant Agreement, subject to all the
terms and conditions of the Registration Rights Agreement.
3.2.2 FINAL PURCHASE PRICE
3.2.2.1 The Preliminary Purchase Price set forth in sub-section 3.2.1 shall be
adjusted into a Final Purchase Price on the basis of the balance sheet
forming part of the Closing Financial Statement for the Group on a
consolidated basis.
3.2.2.2 The Bodin Sellers shall procure that the Company prepares the Closing
Financial Statement which shall be audited by the Company's chartered
accountant (auktoriserad revisor) and submit the same to the Purchaser
within 15 days from the Closing Date, however, not earlier than 10
February 2001 together with all accounting and other documentation used
in the preparation of the Closing Financial Statement.
3.2.2.3 In the event that there is any discrepancy between the net equity
appearing in the balance sheet forming part of the Closing Financial
Statement for the Group--including the Company--on a consolidated basis
(koncernens beskattade egna kapital) and the net equity SEK 10.867.000
appearing in the balance sheet forming part of the Interim Financial
Statement on a consolidated basis for Mobitec AB, Mobitec GmbH and
Mobitec Ltda as per 31 March 2000, APPENDIX 1.19 hereto (koncernens
beskattade egna kapital) the Preliminary Purchase Price shall be
increased or decreased, as the case may be, by the full amount of any
such discrepancy provided the discrepancy exceeds SEK 100.000.
3.2.2.4 The aforesaid submission by the Bodin Sellers to the Purchaser of the
Closing Financial Statement shall be accompanied by the Bodin Sellers'
written statement of any discrepancy of the net equity as aforesaid and
reasonably detailed information on the calculation thereof.
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3.2.2.5 The Purchaser shall within 15 days from receipt of the Closing
Financial Statement and the documentation mentioned in
sub-section 3.2.2.2 as well as the Bodin Sellers' written statement
mentioned in sub-section 3.2.2.4 including information on the
calculation thereof notify the Bodin Sellers in writing whether the
Purchaser accepts the contents of the Closing Financial Statement
and/or the Bodin Sellers' calculation of the discrepancy, if any, of
the net equity as aforesaid. Failing such notice the Final Purchase
Price shall be determined according to the statement of the Bodin
Sellers referred to in sub-section 3.2.2.4 above.
3.2.2.6 In the event that the Bodin Sellers and the Purchaser have not agreed
in writing within 15 days from the date of the Bodin Sellers' receipt
of the Purchaser's notification mentioned in sub-section 3.2.2.5 above
the matter of the contents of the Closing Financial Statement and the
calculation of the discrepancy of the net equity shall be referred to
arbitration in accordance with sub-section 12.13 below unless the Bodin
Sellers and the Purchaser agree in writing on an extension of the
21 days period..
3.2.2.7 The Closing Financial Statement shall be prepared in accordance with
GAAP and all applicable laws applied on a basis consistent with that of
the Interim Financial Statements.
3.2.2.8 The amounts of the Promissory Notes shall proportionally be increased
or decreased, as the case may be, by the discrepancy of the net equity
as set forth in sub-sections 3.2.2.3 - 3.2.2.7 above should it exceed
the amount SEK 100,000.
4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
4.1 The obligation of the Purchaser to consummate this Agreement is subject
to the satisfaction of the Purchaser at or prior to the Closing Date of
all of the following conditions, anyone or more of which may be waived,
in whole or in part, by the Purchaser.
4.1.1 All of the statements, representations, warranties and covenants of
Bertil Lindqvist and of the Bodin Sellers contained herein are true and
accurate, not only when made but also at and as of the Closing Date with
the same force and effect as if made at and as of such time.
4.1.2 No litigation, action, suit or other proceeding shall be pending or
threatened against any of the Sellers, the Purchaser, DRI or the Company
or any Subsidiary at the Closing Date wherein an unfavourable judgement,
decree or order would prevent or make unlawful the carrying out of this
Agreement.
5. CLOSING
The Closing shall take place on the Closing Date at the offices of
Advokatfirman Vinge KB at Nils Ericsonsgatan 17, Gothenburg, or at such other
place as is agreed between the Bodin Sellers and the Purchaser.
At the Closing each of the Sellers and the Purchaser shall do or procure to
be done all acts necessary in order to consummate the transactions contemplated
by this Agreement including, but not limited to, the following:
5.1 Bertil Lindqvist shall, subject to receipt of the purchase price for the
Bertil Lindqvist Shares referred to in sub-section 3.1 above, and each
Bodin Seller shall, subject to receipt of the Preliminary Purchase Price
referred to in sub-section 3.2.1 above, deliver to the Purchaser the
share certificates evidencing the Shares, duly endorsed in favour of the
Purchaser;
5.2 The Bodin Sellers shall present to the Purchaser the share ledger of the
Company evidencing that the Purchaser as per the Closing Date has been
registered as owner of the Shares.
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The Bodin Sellers shall further present to the Purchaser the original of
the share certificates as well as certified copies of the share ledger or
corresponding document with regard to each Subsidiary evidencing that all
the shares of each Subsidiary as per the Closing Date has the following
registered ownership:
<TABLE>
<S> <C> <C>
Mobitec AB total of 100,000 shares 100% held by the Company
Mobitec GmbH 100% held by Mobitec AB
Mobitec Ltda total of 360,000 quotas 180,000 quotas or 50% held
by Mobitec AB
Mobitec Australia Pty Ltd total of one share held by Mobitec AB
</TABLE>
5.3 DRI shall submit to the Bodin Sellers a legal opinion issued by Gray,
Leyton, Kersh, Solomon, Sigmon, Furr & Smith, P.A. in the form appearing
from APPENDIX 5.3 hereto.
5.4 DRI shall deliver to the Bodin Sellers the Restricted Shares. The
certificates evidencing said shares shall contain a legend showing them
to be restricted shares of DRI subject to restrictions on sale or
transfer provided for in the United States Securities Act of 1933, as
amended (the "Securities Act"). Upon registration pursuant to the
Registration Rights Agreement, but in no event later than one year from
the Closing Date, DRI shall remove the restrictive legends associated
with 200,000 shares and shall further remove the restrictive legends
associated with the remaining shares upon registration of such shares
pursuant to the Registration Rights Agreement, but in no event later than
on the second anniversary of the Closing Date. DRI shall reasonably and
expeditiously take necessary action to remove the restrictions on the
shares as aforesaid.
The Restricted Shares shall be divided between the Bodin Sellers as set
forth in sub-section 3.2.1.3 above.
5.5 The Bodin Warrant Agreement, the Registration Rights Agreement and the
Bodin Consulting Agreement shall be executed by the parties thereto.
6. REPRESENTATIONS AND WARRANTIES OF ALL THE SELLERS
The Sellers jointly and severally represent and warrant that on and as of
the date of signing of the Option Agreement as well as of this Agreement and on
and as of the Closing Date (unless the context otherwise requires):
CORPORATE
6.1 Each Seller has full authority to execute and deliver this Agreement and
each other document or instrument executed and delivered in connection
herewith and to consummate the transactions contemplated hereby.
6.2 The execution of this Agreement, the consummation of the transactions
provided for herein and the fulfilment of the terms hereof will not
result in a breach of any agreement to which any of the Sellers is a
party or the Articles of Association of the Company or any Subsidiary.
6.3 The Shares constitute the entire issued capital stock of the Company and
are legally and validly issued and fully paid. Each Seller lawfully owns
the number of the Shares set forth in Preamble A above, free and clear of
any Encumbrances whatsoever and each Seller has good and transferable
title to the said Shares and has the absolute right, power and capacity
to sell, assign and deliver the said number of the Shares to the
Purchaser in accordance with the terms of this Agreement, free and clear
of all Encumbrances and there are no outstanding
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subscriptions, options, rights or agreements which may require the
Company or any Subsidiary to issue or transfer any additional shares.
Matters related to the Mobitec Stock Option Program have been provided
for in sub-section 8.4 below.
6.4 The Company and each Subsidiary are duly organised and validly existing
and in good standing under the laws of Sweden or, in respect of
Subsidiaries domiciled outside of Sweden under the laws of the country of
domicile and have full corporate power and all necessary licenses,
permits and authorisations to carry on its businesses as presently and on
the Closing Date conducted and to own, lease and operate the assets and
properties used in connection therewith.
6.5 Copies of the Company's and each Subsidiary's Articles of Association,
and share ledger or corresponding documents are enclosed as APPENDIX 6.5
A)-[ ]), which copies are true and complete and fully and completely set
forth all information required to be recorded therein.
7. REPRESENTATIONS AND WARRANTIES OF THE BODIN SELLERS
The Bodin Sellers jointly and severally represent and warrant that on and as
of the date of signing of the Option Agreement as well as of this Agreement and
on and as of the Closing Date (unless the context otherwise requires):
FINANCIAL
7.1 Except for the Subsidiaries, the shares of which are held in accordance
with sub-section 5.2 above, lawfully and free and clear of any
Encumbrances whatsoever and to which the representations and warranties
contained in this section 7 shall apply, the Company does not own any
interest, directly or indirectly, in any corporation or partnership and
does not have a branch office in any country.
7.2 The Financial Documents
(i) give a true and fair view of the financial position and results of
the operations of the Group, the Company and of each Subsidiary as
of the dates appearing in the Financial Documents and for the
periods appearing in the Financial Documents and have been prepared
from and in accordance with the books and records of the Company and
of each Subsidiary;
(ii) have been prepared in accordance with GAAP and all applicable laws,
applied on a basis consistent with that of preceding years;
(iii) contain and reflect such reserves as were necessary and required by
the laws and principles referred to under (ii) above to be
reflected in such reports as of the said dates.
7.3 The net equity appearing in the balance sheet forming part of the Interim
Financial Statement as per 31 March 2000 on a consolidated basis
(koncernens beskattade egna kapital) for Mobitec AB, Mobitec GmbH and
Mobitec Ltda is not less than SEK 10,867,000 in accordance with GAAP and
all applicable laws applied on a basis consistent with that of preceding
years.
7.4 In excess of the pledges, commitments or contingent liabilities disclosed
in APPENDIX 7.4 neither the Company nor any Subsidiary have pledged any
assets or have any commitments or contingent liabilities and the Company
and each Subsidiary have full and exclusive title to all assets in the
balance sheets comprised by the Interim Financial Statement,
APPENDIX 1.19--except assets disposed of in the ordinary course of
business--and the assets are not the subject of any Encumbrance.
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7.5 The operations and other activities of the Company and each Subsidiary
during the period as from 1 January 2000 to the date hereof have been
conducted in the ordinary course of business with a view to maintaining
their respective businesses as a going concern and there has not occurred
or arisen since 1 January 2000 with respect to the Company or any of the
Subsidiaries
(i) any material adverse change in their financial conditions or in the
operations of their respective businesses; or
(ii) to Acquired Knowledge any obligations, commitments or liabilities,
liquidated or unliquidated, contingent or otherwise, except
obligations, commitments and liabilities arising in the ordinary
course of business and which are not material in relation to their
respective businesses; or
(iii) to Acquired Knowledge any amendment or termination or any agreement
to amend or terminate any Material Agreement, save in the ordinary
course of business; or
(iv) to Acquired Knowledge any extraordinary event or any extraordinary
loss suffered or any waiver of any debts, claims, rights under any
Material Agreement, or other rights representing a value in excess
of SEK 100,000; or
(v) any damage, destruction, or loss or any other event or condition
adversely affecting their respective properties and businesses,
representing loss to property to the extent not covered by insurance
in the aggregate in excess of SEK 100,000; or
(vi) any sale, assignment, transfer, pledge, lease or other disposal of
any individual asset with a value in excess of SEK 300,000 except
for the sale of real property Mellerud Frosbo 1:7, 1:10 and 1:32 at
a sales price of SEK 350,000; or
(vii) any increase in the rates of compensation (including bonuses)
payable or to become payable to any agent, distributor, sales
representative, independent contractor or consultant other than
increases made in the ordinary course of business; or
(viii) any change of accounting methods, principles or practices; or
(ix) any investment in fixed assets that exceed individually SEK 300,000
or in the aggregate SEK 500,000; or
(x) any other transaction other than in the ordinary course of business;
and neither the Company nor any of the Subsidiaries have to the Acquired
Knowledge agreed or arranged to do any of the foregoing.
The terms and conditions for the Company's sale of the shares of Hexair
and Klimat appear from sub-section 8.9 below.
7.6 Since 1 January 2000 no dividends or interim dividends have been declared
or paid by the Company or any of the Subsidiaries except for what has
been set forth in Appendix 7.6.
7.7 All accounts receivable of whatsoever nature appearing in the Financial
Documents have been valued in accordance with GAAP and all applicable
laws.
7.8 The inventory of the Company and of each Subsidiary as appearing in the
Closing Financial Statement will be valued in accordance with GAAP and
applicable laws applied on a basis consistent with that of the Interim
Financial Statement for the period 1 January--31 March 2000,
Appendix 1.19 hereto. The inventory of Mobitec AB as per 6 December 2000
was as set forth in Appendix 7.8 and was kept at Mobitec AB's premises at
Herrljunga. The said APPENDIX 7.8 also comprises the obsolete products as
of the said date.
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7.9 All liquid assets of the Company and each Subsidiary such as, but not
limited to, bank accounts and cash are on the Closing Date available free
and clear of any restriction or condition.
7.10 All assets, properties and rights belonging to the Company and each
Subsidiary, whether or not recorded in the books of the Company or the
Subsidiaries that until this date have been used in the Company's and the
Subsidiaries' respective businesses have been included in the transfer to
the Purchaser under the terms of this Agreement.
7.11 Neither the Company nor any Subsidiary has any liability or obligation of
any kind as a result of purchase or sale of shares or business operations
or part thereof or of individual assets and such purchases and sales, if
any, have been completed in all respects and neither the Company nor any
Subsidiary has or will have any liability of any kind as a result of any
such purchase or sale or as a result of any transaction or transfer
internally between any of the companies of the Group including but not
limited to payment of considerations, debts, taxes and social charges.
7.12 All properties and assets of the Company and the Subsidiaries are to
Acquired Knowledge in good physical repair and condition, ordinary wear
and tear excepted.
ENVIRONMENTAL MATTERS
To Acquired Knowledge
7.13 the Company and each Subsidiary has at all times obtained all necessary
environmental approvals, permits and consents for its operations;.
7.14 all environmental approvals, permits and consents, to the extent
required, are in full force and effect and there are no facts or
circumstances which may lead to any environmental approvals, permits or
consents being revoked, cancelled or modified;
7.15 the Company's and each Subsidiary's operations have in all respects and
at all times been carried out in compliance with any necessary
environmental approvals, permits and consents as well as any applicable
environmental laws;
7.16 all registrations and other information required to be provided by the
Company and each Subsidiary and all records and data required to be
maintained by the Company and each Subsidiary in accordance with any
environmental laws and any approvals, permits and consents, to the extent
required, have been provided and maintained;
7.17 no real property has at any point in time been used by the Company or a
Subsidiary in such way which have led to any real property having become
contaminated in a manner which will result in any liability under
environmental laws;
7.18 there are no environmental actions, claims, complaints, investigations or
other proceedings being taken or pending in connection with the
operations of the Company or any Subsidiary and there is no actual or
contingent liability to make good, repair, restore or clean up any real
property and no act or omission of the Company or any Subsidiary has
given rise to any such environmental liability.
AGREEMENTS
7.19 There are no other Material Agreements than those listed in
APPENDIX 7.19. The said Appendix contains information on the parties,
contract term, purpose of the agreement as well as any other vital matter
provided for in any Material Agreement.
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The Company and the respective Subsidiary have performed or taken all
action necessary to enable them to perform when due all obligations under
any Material Agreement. The execution of this Agreement, the consummation
of the transactions provided for herein, and the fulfilment of the terms
hereof will not result in a breach of any of the terms and provisions of,
or constitute a default under, or conflict with or give the counterparty
the right to terminate any Material Agreement and to Acquired Knowledge no
such third party has indicated its interest to terminate any Material
Agreement.
(i) NO DEFAULT. Neither the Company nor any of the Subsidiaries is
(a) in default under any provision of any contract, commitment,
agreement, letter of intent, lease or service arrangement to
which any of them is a party or by which any of them is bound,
which default would have a materially adverse effect on their
respective businesses, properties or condition, financial or
otherwise, and no event has occurred which would constitute such
a default;
(b) a party to or bound by any contract, commitment, agreement,
lease, service arrangement, order or letter of intent not made in
the ordinary course of their respective businesses;
(c) a party to any contract containing provisions for material price
redeterminations or price revision that is not on normal market
conditions, or
(d) a party to any contract containing any terms or conditions not
consistent with fair market terms, conditions and prices.
(ii) PRICING. Prices and payment terms on all contracts, bids and sales
order (order backlog) and purchase orders of the Company and any
Subsidiary which are presently in effect or outstanding have been
entered into by the Company and the respective Subsidiary on a
basis consistent with its prior practice with respect to profits
and profit margins which were estimated substantially in accordance
with its prior practice and contain no provision restricting
competition or being unlawful and all sales and services to
customers have been made at arm's-length prices, terms and
conditions.
(iii) WARRANTIES. Neither the Company nor any of the Subsidiaries have
granted or offered any other warranties for goods sold or services
rendered other than on normal market conditions or as is disclosed
in APPENDIX 7.19.
7.20 To Acquired Knowledge neither the Company nor any Subsidiary is or has
been a party to any agreement or is bound or has been bound by any
commitment, obligation or undertaking or has participated or is
participating in any activity prohibited or invalid pursuant to sections
6, 7 or 19 of the Swedish Competition Act or articles 81 or 82 of the
Treaty of Rome or pursuant to corresponding or similar rules or
regulations in any foreign jurisdiction.
7.21 Neither the Company nor any Subsidiary is bound by any prohibition to
compete or any other obligation which in any respect prohibits or
restricts the Company or any Subsidiary, to carry on such businesses as
the Company or any Subsidiary has been carrying on during five years
preceding the Closing Date.
INTELLECTUAL PROPERTY AND KNOW-HOW
7.22 All Intellectual Property, including software, which is used in, or is
necessary for, the business of the Company or any Subsidiary, whether
registered or not, is owned by or licensed to the Company or the
respective Subsidiary without any restrictions in respect of current use.
Matters related to the name Mobitec have been provided for in
sub-section 8.5 below.
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7.23 All Know-how is owned by or licensed to the Company or any of the
Subsidiaries without any restrictions in respect of current use.
7.24 There is no infringement by any third party of any Know-how or any
Intellectual Property owned by or licensed to the Company or any
Subsidiary within any country in which the Company or any Subsidiary is
operating except that a third party has registered the company name
"Nolato Mobitec AB."
7.25 The registrations of all registered Intellectual Property are made in the
name of the Company or any of the Subsidiaries and are in force and the
renewal fees for all such registrations have heretofore been paid.
7.26 There is no claim against the Company or any Subsidiary such as, but not
limited to infringement, damages or otherwise, raised by any third party
which relates to the use of Intellectual Property or Know-How by the
Company or any Subsidiary other than as set forth in Appendix 8.10
hereof.
7.27 Neither the Company nor any Subsidiary has granted, or is obliged to
grant, any license or assignment in respect of any Intellectual Property
or Know-How owned or used by it, or is obliged to disclose any
Intellectual Property or Know-How to any Person.
7.28 The Company and each Subsidiary fully owns or has a license or other
right to use, in addition to the Intellectual Property and Know-How set
forth above, all other technology, technical and commercial know-how used
in the businesses of the Company and the respective Subsidiary.
BUSINESS
7.29 The Company and each Subsidiary has in all material respects conducted
its respective businesses at all times in accordance with and have
complied with applicable national and local laws relating to its
operations and businesses, and is not a party to or subject to any
judgement, decree or order issued in any suit or proceeding brought by
any Person or party materially enjoining or otherwise restraining or
restricting the Company or any of the Subsidiaries with respect to any
business activity or practice in the conduct of its respective businesses
and will not be, in respect of circumstances, existing before or upon the
Closing Date and there is to Acquired Knowledge no controversy or
investigation pending or threatened with respect to the Company's or any
of the Subsidiary's respective businesses by any Person or party that
would materially be detrimental to the Company's or any Subsidiary's
businesses.
7.30 The Customer List, APPENDIX 7.30 hereto, contains any customer having
purchased products from the Group in excess of the aggregate sales value
of SEK 3.000.000 during the calendar year 1999 or the period as from 1
January 2000 up to and including the Closing Date.
7.31 To Acquired Knowledge all products sold and all services rendered by the
Company or any Subsidiary meet with the customer requirements with
respect to quality and suitability for intended purposes.
7.32 To Acquired Knowledge no customer appearing in the Customer List has
manifestly ceased to buy products from the Group during the calendar year
1999 or the period as from 1 January 2000 up to and including the Closing
Date except for the customers listed in APPENDIX 7.30 hereto.
7.33 To the best of Bodin Sellers' Knowledge no supplier of the Company or any
Subsidiary will cease to sell products or components to any of them and
to the best of Bodin Sellers' knowledge none of them will increase their
prices or otherwise make any changes in their businesses with the Company
or any Subsidiary which could have a materially adverse effect on the
Company's or any Subsidiary's businesses.
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7.34 To the best of Bodin Sellers' Knowledge no business partner of the
Company or any Subsidiary will terminate its business relations with the
Company or any Subsidiary.
7.35 Neither the Company nor any Subsidiary is or will be liable, due to
circumstances existing before or upon the Closing Date or related
thereto, to compensate for damages caused to the environment or third
parties as a result of products sold or services rendered.
7.36 Attached hereto as APPENDIX 7.36 is a schedule of the insurances for the
Group. The Company and each Subsidiary maintains the said policies of
fire, product and general liability, use and occupancy and other forms of
insurance covering its properties and assets in amounts and against such
losses and risks as are normally maintained for comparable business and
properties, and valid policies for the said insurances are now and will
be outstanding and duly in force on the Closing Date and for at least
30 days thereafter.
7.37 The books of account and other records of the Company and each Subsidiary
are complete and correct and have been maintained in accordance with all
relevant legislations and rules in each country of domicile of the
Company and each Subsidiary and all documents of the Company and each
Subsidiary such as, but not limited to, share ledgers, minutes of Board
of Directors' meetings and shareholders' meetings, contracts, permits and
licences exist and are safely kept and are correct, and all registrations
and applications related thereto have been fulfilled, and all applicable
fees have been paid.
7.38 To Acquired Knowledge there is no matters or circumstances that may
materially affect the businesses of the Company or any Subsidiary and the
financial results thereof other than as explicitly set forth herein.
EMPLOYEES
7.39 All employees of the Company and each Swedish Subsidiary are employed on
normal employment conditions and in accordance with applicable collective
bargaining agreements and all employees of each foreign Subsidiary are
employed on normal employment conditions in each respective country.
In APPENDIX 7.39 are shown all employment conditions of all employees of
the Company and each Subsidiary as well as the conditions of all Board
Directors of the Company and each Subsidiary as per 31 December 1999 and
no salary or other employment benefit or condition for any of the said
employees or Board Directors has been changed after the said date except
for what has been set forth in the said Appendix.
No salary increase or additional employment benefit may be granted for the
time period after 31 December 2000 without consultation with the
Purchaser.
7.40 There are no collective bargaining agreements or deferred compensation
agreements, pension, profit sharing, severance pay or retirement plans,
agreements or arrangements presently in force with respect to any former
employee of the Company or any of the Subsidiaries.
7.41 Attached hereto as APPENDIX 7.41 is a list of all employees and of all
other persons being authorised to sign for the Company and for each
Subsidiary, including all persons authorised to operate any bank accounts
and safe deposits. APPENDIX 7.41 also includes those employees holding
credit cards for the Company or any Subsidiary.
7.42 Any term, condition or obligation pursuant to the letter from the Company
to Ingemar Luppert, Stefan Lager and Anders Svensson dated 10
August 1998, APPENDIX 7.42 hereto has in its entirety ceased to have
effect prior to the Closing Date without any cost or other negative
financial effect of any kind to the Company or any Subsidiary or the
Purchaser in excess of what appears from the Closing Financial Statement
and neither the Company nor any
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Subsidiary has any other contractual relationship with any of the
aforesaid individuals, except for employment agreements, and none of them
has any other right to any kind of compensation from the Company or any
Subsidiary except for salary and other employment benefits as set forth
in Appendix 7.39.
THE SELLERS
7.43 None of the Sellers or any Related Person of any of the Sellers own,
directly or indirectly, individually or collectively, any interest in any
corporation, company, partnership, entity or organisation which is in a
business similar or competitive to the businesses of the Company or any
Subsidiary or which has any existing undisclosed contractual relationship
with the Company or any Subsidiary.
7.44 None of the Sellers or any Related Person to any of the Sellers or any of
the members of the Board of Directors of the Company or of any Subsidiary
has any claim against the Company or any Subsidiary for compensation or
payment of any nature whatsoever except for Directors' fees appearing in
the balance sheet forming part of the Closing Financial Statement and
there are no loans, guarantees or other forms of undertaking provided by
the Company and any of the Subsidiaries to any of the Sellers or to any
Related Person to any of them which are prohibited by chapter 12
section 7 of the Swedish Companies Act of 1975.
7.45 Except for the consultancy agreement with Bengt Bodin and the pension
arrangement referred to in sub-section 7.47 below, there are no
contractual relations of any kind between the Company or any Subsidiary
on one hand and any of the Sellers or any Related Person to any of the
Sellers on the other hand.
7.46 The pension arrangement with Bengt Bodin, which is described in full
detail in APPENDIX 7.46 hereto, will not have any negative net effect on
the financial position of the Company or any Subsidiary.
LITIGATION AND INVESTIGATIONS
7.47 Except for what has been provided for in sub-section 8.10 below neither
the Company nor any Subsidiary has been served with any law suit or
notice to arbitrate, and there is no law suit, administrative,
arbitration or other legal proceedings pending or to Acquired Knowledge
threatened against the Company or any Subsidiary or their businesses,
properties or assets, and there is no such suit or proceedings pending or
to Acquired Knowledge threatened by the Company or any Subsidiary against
any Person or party.
TAXES AND OTHER CHARGES
7.48 All necessary tax and other returns and reports with regard to taxes,
social charges and duties required to be filed prior to the Closing Date
by the Company or any Subsidiary have been duly filed with the
appropriate authorities and are true and correct.
7.49 All invoices with regard to all products sold or all services rendered by
the Company or any Subsidiary contain all taxes, duties and public fees
related to such sale or service.
7.50 All taxes, social charges and duties assessed or due by the Company or
any Subsidiary on or before the Closing Date have, where applicable, been
fully paid, or full reserves therefor has been made in the Financial
Documents.
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7.51 No deficiency in payment of taxes, social charges and duties or any
additional assessment thereof in respect of the period up to and
including the Closing Date, will be claimed or made by any authority for
any year or part thereof in respect of the Company or any Subsidiary.
7.52 All amounts required to be paid by the Company or any Subsidiary for the
purpose of social security, insurance, pensions and the like have been
duly and punctually paid and all amounts required to be deducted from
moneys paid to employees, consultants and others for the purposes of
taxes, social security, insurance, pensions and the like have been
deducted and have been accounted for to the appropriate authority or
person, and there is no dispute on any issue in respect of any of the
foregoing.
7.53 There are no audits with regard to taxes, social charges or duties
currently pending with respect to the Company, any Subsidiary or any of
the Sellers.
7.54 Full reserves or provisions have been made in the Financial Documents for
all liabilities in respect of pensions to be paid to employees or former
employees of the Company or any Subsidiary.
INFORMATION
7.55 No representation or warranty herein, and no document heretofore or
hereafter provided to the Purchaser by or on behalf of any of the Sellers
or the Company or any Subsidiary, contained or will contain any material
untrue statement of a fact or omitted or will omit to state a fact
necessary to make the statements contained herein or therein not
misleading.
7.56 The Bodin Sellers acknowledge that they are aware that their ownership of
the Restricted Shares is subject to a substantial risk of loss, including
risks associated with price fluctuations of the Common Stock on the
United States securities exchanges.
8. COVENANTS
8.1 CONDUCT OF BUSINESS PENDING CLOSING
After the date of the Sellers' and the Purchaser's signatures hereof no
contract or commitment shall be entered into by or on behalf of the
Company or any Subsidiary extending beyond the Closing Date, except for
contracts or commitments made in the ordinary course of business.
Moreover, neither the Company nor any Subsidiary shall borrow any
additional funds from banks or other external sources other than as
required in the ordinary course of business.
8.2 NON-COMPETITION
The Purchaser is entering into this Agreement and the purchase price has
been accepted inter alia on the basis of and in reliance upon the fact
that none of the Sellers will carry on activities competing with those of
the Company or of any Subsidiary. The Sellers have expressly stated their
full understanding thereof and have declared their willingness to
undertake the following non-competition obligation.
8.2.1 Each Seller agrees and ensures, for a period of three years from the
Closing Date not to directly or indirectly carry on, engage or otherwise
participate in any businesses competing with the businesses of the
Company or any Subsidiary in any part of the world--provided, however,
that in respect of countries which are members of the European Economic
Area, the non-compete obligation shall be limited to a period of two
years and shall apply only to the extent that the Company or the
Subsidiary was active in the market at issue on the Closing Date.
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8.2.2 In case of any breach of the obligations undertaken pursuant to
sub-section 8.2 and such breach is not remedied within five business
days of written notice to do so Bertil Lindqvist solely on his part and
the Bodin Sellers jointly and severally--in addition to any other remedy
that may be available to the Purchaser--shall be liable to pay to the
Purchaser the actual damage resulting from each such breach but in no
case an amount being less than SEK 8,000,000 (eight million) for each
such breach.
8.2.3 For the purposes of this sub-section 8.2 the Sellers' engagement in
Klimat's and Hexair's present businesses, Bengt Bodin's services under
the Bodin Consulting Agreement and the Bodin Sellers' shareholding in
DRI shall not be deemed competing.
8.3 EMPLOYMENT OF KEY EMPLOYEES
From the date of this Agreement and for a period of three years after the
Closing Date each Seller undertakes and ensures to refrain from employing,
or offering or negotiating employment with any Key Employee of the Company
or of any Subsidiary without the prior written consent of the Purchaser.
In case of breach of this obligation by any of the Bodin Sellers, the
Bodin Sellers shall jointly and severally be liable to pay to the
Purchaser the actual damage resulting from such breach but in no case with
an amount being less than SEK 3,000,000 for each such breach and in case
of breach of this obligation by Bertil Lindqvist he shall solely be liable
to pay the aforesaid damage or minimum amount.
8.4 MOBITEC STOCK OPTION PROGRAM
The Mobitec Stock Option Program is described in full detail in
APPENDIX 8.4 hereto.
The Bodin Sellers ensure that the Company and any Subsidiary will make
their best efforts in order to fulfil the obligations under the Mobitec
Stock Option Program prior to the Closing Date.
The Bodin Sellers shall have no responsibility for the acquisition of
additional options under the Mobitec Stock Option Program if on the
Closing Date there remain outstanding options representing 1000 shares or
less.
The costs of the Company and any Subsidiary in fulfilling the aforesaid
obligations will in full be accounted for and appear in the Closing
Financial Statement. However, for the purposes of adjusting the
Preliminary Purchase Price into the Final Purchase Price in accordance
with sub-section 3.2.2 above, any amount of such cost exceeding 50 per
cent of the aforesaid total cost, or the amount SEK 1,188,000 whichever is
the lower, shall be accounted for and appear in the Closing Financial
Statement.
8.5 MOBITEC NAME
The Bodin Sellers agree that Mobitec AB is the full and unrestricted owner
of the trademark and business name Mobitec and has the exclusive right
thereto.
The Bodin Sellers ensure that all measures will be taken within 12 months
from the Closing Date to remove the name Mobitec from the company name of
Klimat.
The Bodin Sellers agree and ensure that no Related Person of any of the
Sellers has any right of any kind to the name Mobitec or the use thereof
except for the rights set forth in the Trademark License AGREEMENT
APPENDIX 8.5 hereto.
8.6 PUBLICITY
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No announcement concerning the transaction contemplated by this Agreement
or any matter ancillary thereto shall be made by either party hereto
before or on the Closing Date, without the prior written consent of the
other party, provided that nothing herein shall prevent either party from
making, in consultation with the other party, any announcement or filing
required by law, regulations or by the rules and regulations of any stock
exchange on which it is listed including any announcement or filing in
connection with the filing under the SEC regulations of shareholders' vote
and proxies thereto.
8.7 DISCHARGE OF DIRECTOR LIABILITY
The Purchaser shall, provided that the auditors so recommend, discharge or
procure the discharge of all directors of the Company and any of the
Subsidiaries from their personal liability for the period as from 1
January 2001 to the Closing Date on the next Annual General Shareholders'
Meeting of the Company and of any Subsidiary, which discharges shall not
in any way limit or restrict or be construed to limit or restrict the
Purchaser's rights against the Sellers under this Agreement.
8.8 DIVIDENDS
The Purchaser shall be entitled to all dividends and other profits of the
Group deriving from the financial year 2000 and the Company shall not from
this day through the Closing Date declare or pay any dividend or make any
other distribution to its shareholders.
8.9 KLIMAT AND HEXAIR
8.9.1 The Bodin Sellers ensure that all measures shall have been taken by the
Company or any Subsidiary, as the case may be, prior to the Closing Date
to transfer and sell all its shares of Klimat and Hexair including all
obligations and liabilities of all types, direct as well as indirect,
contingent or otherwise in any way related to Klimat or Hexair or the
operations, activities or businesses carried on by any of them to an
aktiebolag wholly owned by the Sellers or the Bodin Sellers.
8.9.2 The said transfer and sale shall be made at purchase prices and other
terms and conditions having no negative effect on the Company's or any
Subsidiary's financial position or otherwise in any way be detrimental
to the remaining businesses of the Company or any Subsidiary except for
changes in the net equity to be reflected when adjusting the Preliminary
Purchase Price into the Final Purchase Price as set forth in
sub-section 3.2.2 hereof.
8.9.3 As per the Closing Date there shall not exist any financial, contractual
or other relation of any kind between any of Klimat or Hexair on one
hand and the Company or any Subsidiary on the other hand except for what
has been set forth in sub-section 8.5 above.
8.9.4 As per the Closing Date neither the Company nor any Subsidiary shall be
bound by any contract or have any commitment or obligation of any kind
or in any way relating to Klimat or Hexair or the operations, activities
or businesses carried on by any of them.
8.9.5 The Bodin Sellers shall jointly and severally indemnify and hold the
Company or any Subsidiary or the Purchaser harmless from any kind of
costs, damages and claims as a result of or in any way related to the
aforesaid sales and transfers pursuant to this sub-section 8.9 including
but not limited to any kind of taxes, duties and social charges.
8.10 DISPUTES
In APPENDIX 8.10 is a brief description of all disputes or pending or
threatened disputes involving the Company and/or any Subsidiary. The
following shall apply with respect to the said disputes.
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For the purposes of a potential payment of compensation to Aldridge
Electrical Industries Pty Ltd an amount of SEK 500.000 shall be reserved
and deducted for in the balance sheet forming part of the Closing
Financial Statement. However, such reservation and deduction shall not be
taken into account in the adjustment of the Preliminary Purchase Price
into the Final Purchase Price.
The tax dispute involving Mobitec Ltda and the dispute involving Thorsell
Elektronikmontering AB shall be reflected in the Closing Financial
Statement in accordance with GAAP.
The dispute with FP regarding the Buse component is handled as set forth
in the Option Agreement.
The Bodin Sellers shall have no liability for the outcome of the other
disputes set forth in Appendix 8.10.
8.11 LIABILITY OF BERTIL LINDQVIST
The following provisions shall apply with regard to Bertil Lindqvist's
liability under this Agreement:
Sections 1 and 2, sub-section 3.1, section 4, sub-section 5.1, section 6,
sub-sections 8.1 - 8.3, 8.6 - 8.8, 9.1 - 9.3, 9.5 - 9.11, section 11 and
sub-sections 12.3 and 12.4 and 12.6 - 12.13.
8.12 REGISTRATION OF DRI SHARES
DRI agrees that the Restricted Shares shall be duly registered under a
valid and effective registration statement of DRI pursuant to the
Securities Act and any applicable state securities laws, pursuant to all
terms, and subject to all the conditions, of the Registration Rights
Agreement. The Bodin Sellers acknowledge that the Registration Rights
Agreement has been prepared by their counsel and that they have been
advised of the basic terms and consequences of such Agreement.
9. INDEMNIFICATION
With the exclusion of the provisions of the Swedish Sales of Goods Act:
9.1 The Bodin Sellers shall--except for what has been set forth below with
respect to Bertil Lindqvist--jointly and severally be liable and shall
indemnify and hold the Purchaser harmless in full from and against any
Loss arising out of misrepresentation, breach of warranty or failure to
perform a covenant or other obligation or any other breach of this
Agreement on the part of any of the Sellers. Bertil Lindqvist shall be
liable and shall indemnify and hold the Purchaser harmless from and
against any Loss arising out of misrepresentation, breach of warranty or
failure to perform a covenant or other obligation undertaken by Bertil
Lindqvist under this Agreement as set forth in sub-section 8.11 above.
9.2 Payment for Losses and other forms of compensation under this Agreement
shall be made by reduction and repayment to the Purchaser of the purchase
price for the Bodin Shares or the Bertil Lindqvist Shares, as the case
may be. With respect to the Bodin Sellers, such reduction shall primarily
be made by the Purchaser reducing the Promissory Notes by any sum of any
such Loss and in the event that the sum of any such Loss exceeds the
total amount of the Promissory Notes the Bodin Sellers having received
Restricted Shares shall return such number of the Restricted Shares as
corresponds to the said excess amount.
In calculating the value of each Restricted Share it shall be valued at
USD 3 (three).
The Purchaser shall be entitled to compensation hereunder only upon
agreement with the Sellers or any of them or upon an arbitration award
having gained legal force and effect.
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The Sellers reserve the right to settle any claim with cash payment.
9.3 The liability of the Bodin Sellers and of Bertil Lindqvist to the extent
applicable with regard to Losses as a result of any misrepresentation or
breach of any of the representations and warranties
a) set forth in sub-sections 7.1-7.12, 7.19-7.34, 7.36-7.47 and
7.54-7.56 shall remain valid until 18 months from the Closing Date;
b) set forth in sub-sections 6.1-6.5, 7.13-7.18 and 7.35 shall remain
valid for a period of five years from the Closing Date; and
c) with regard to taxes, social charges and duties, such as
misrepresentation or breaches set forth in sub-sections 7.48 - 7.53
shall remain valid until three months from the date such taxes,
social charges and duties have been determined by the relevant
authority.
If a Loss has occurred before any of the aforesaid dates but the amount
hereof cannot be quantified, the Purchaser may claim compensation,
provided that the claim is made within the applicable time period and a
quantified claim is made as soon as information is available of the
amount.
9.4 The Purchaser shall only be indemnified under the provisions of
sub-section 9.3 if the aggregate amount of the aforesaid Losses equals or
exceeds SEK 500,000 provided, however, that in the event the Loss equals
or exceeds the said amount, the Purchaser is entitled to be indemnified
for the full amount of the Loss.
In calculating the aforesaid aggregate amount individual Losses amounting
to less than SEK 50,000 shall not be taken into account.
9.5 In calculating a Loss in accordance with this section 9 consideration
shall be given to the fact whether the Loss fully or partly is a
deductible item which can be used by the Company for tax purposes.
9.6 The aggregate liability of the Bodin Sellers under sub-section 9.3 above
shall not exceed SEK 33,000,000 (thirty three million) and with respect
to Bertil Lindqvist it shall not exceed the purchase price for the Bertil
Lindqvist Shares.
9.7 There shall be no exemption from any of the Sellers' liability for
representations, warranties, covenants or obligations under this
Agreement other than as explicitly set forth herein or by reference to an
Appendix attached hereto or pursuant to sub-section 9.8 below and no
representation, warranty, covenant or other obligation of any of the
Sellers set forth herein shall be deemed waived or otherwise affected
-- by any commercial or financial analysis, or any inquiry or
investigation which the Purchaser, its advisors, auditors, legal
counsels or representatives have made or may make with respect to the
Company, any of its Subsidiaries or their businesses or the Closing
Balance Sheet or the approval thereof; or
-- by the fact that the Board of Directors and/or the Managing Director
of the Company or any Subsidiary nominated and appointed by the
Purchaser have approved the annual report for the financial year 2000
or that the Annual General Shareholders' Meeting of the Company or
any of the Subsidiaries--at which the Shares have been represented by
the Purchaser--has adopted the aforesaid annual report; or
-- by the fact that the Purchaser has agreed to the adjustment of the
Preliminary Purchase Price into the Final Purchase Price as set forth
in sub-section 3.2.2 above.
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9.8 No liability shall arise in respect of any misrepresentation, breach of
warranty or failure to perform a covenant or other obligation or any
other breach of this Agreement on the part of any of the Sellers
-- if and to the extent a Loss has been made part of the Closing
Financial Statement has been taken into account in adjusting the
Preliminary Purchase Price into the Final Purchase Price; or
-- if and to the extent that a claim occurs as a result of any
legislation not in force at the date hereof which takes effect
retrospectively or occurs as a result of any increase in the rate of
tax in force at the date hereof;
-- in respect of any Loss which is recoverable and recovered under any
of the insurances set forth in Appendix7.36 and in force on the date
of Loss (for the avoidance of doubt it is hereby expressly stated
that any deductible shall be compensated by the Sellers as a claim).
9.9 The Purchaser shall not make any admission of liability, agreement or
compromise with any third party concerning any claim for which the
Sellers or any of them may be liable without prior written notification
with Bengt Bodin.
9.10 In the event that an exemption from liability hereunder has explicitly
been made--by reference made herein or by reference to an Appendix
attached hereto--in one provision hereof the same exemption shall apply
in respect of other provisions providing for the same subject matter.
9.11 In the event that the Purchaser shall demand indemnification hereunder,
the Purchaser shall notify each Seller without undue delay, such
notification to be given within the period of limitation as set out in
sub-section 9.3 above and in any event not later than on the sixth
anniversary of the Closing Date, whichever occurs first.
10. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
10.1 The Purchaser represents and warrants that on and as of the date of
signing of the Option Agreement as well as this Agreement and on and as
of the Closing Date (unless the context otherwise requires).
10.1.1 The Purchaser and DRI have full authority to execute and deliver this
Agreement and each other document or instrument executed and delivered
in connection herewith and to consummate the transactions contemplated
hereby.
10.1.2 The execution of this Agreement, the consummation of the transactions
provided for herein and the fulfilment of the terms hereof will not
result in a breach of any agreement to which any of the Purchaser or DRI
is a party nor the Articles of Association of the Purchaser.
10.1.3 The Purchaser or DRI are duly organised and validly existing and in good
standing under the laws of its respective country of domicile and have
full corporate power and all necessary licenses, permits and
authorisations to carry on its businesses as presently and on the
Closing Date conducted and to own, lease and operate all material assets
and properties used in connection therewith.
10.1.4 The Restricted Shares are credited as fully paid, non assessable and
rank PARI PASSU in all respects with the existing issued shares of DRI
and, subject to the provision in sub-section 5.4 are free and clear of
any Encumbrances whatsoever and free from all taxes, liens and charges
with respect to the issue thereof and DRI has the absolute right, power
and capacity to issue all Restricted Shares to the Bodin Sellers in
accordance with the terms of this Agreement.
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11. CLOSING DATE
The Closing Date shall occur five business days from the date of all
parties' signatures hereof.
12. GENERAL PROVISIONS
12.1 CONSULTANCY AGREEMENT BENGT BODIN
DRI and Bengt Bodin will enter into a separate Consultancy Agreement, the
said agreement to enter into effect on the Closing Date.
12.2 DRI LIABILITY
DRI shall be jointly and severally liable with the Purchaser with regard
to the fulfilment of any liability of the Purchaser under this
Agreement--including the liability to pay the Promissory Notes.--If the
Purchaser has not fulfilled such liability within 14 days from the date
the liability becomes due DRI shall upon the Sellers' request fulfil such
liability including interest for delayed payment, if any.
12.3 POWER OF ATTORNEY
12.3.1 Each Seller undertakes to issue on the Closing Date all necessary Powers
of Attorney and other documents requested by the Purchaser to the
Purchaser or its nominees to represent the Company and any Subsidiary
until the new Board of Directors has been registered.
12.3.2 Further each of Mattias Bodin and Tobias Bodin shall on the Closing Date
issue a Power of Attorney to Bengt Bodin to represent their DRI shares
during a period of 36 months from the Closing Date.
12.4 NOTICES
Any notice to be provided under this Agreement shall be in the English
language and deemed valid and effective if sent by courier or registered
mail or telefax to the following addresses:
<TABLE>
<S> <C>
If to Bengt Bodin: Bengt Bodin
La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France
Fax: +33 493 775 186
If to Annacarin Bodin: Annacarin Bodin
La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France
Fax: + 33 493 775 186
If to Mattias Bodin: Mattias Bodin
Parkgatan 10
SE-112 30 STOCKHOLM, Sweden
If to Tobias Bodin: Tobias Bodin
Ovre Husargatan 23 A
SE-413 14 GOTEBORG, Sweden
If to Bertil Bertil Lindqvist
Lindqvist: Nybrogatan 45 B,
SE-114 39 STOCKHOLM, Sweden
Fax: +46 8661 8126
</TABLE>
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<TABLE>
<S> <C>
If to the Purchaser DRI Europa AB
c/o Mannheimer Swartling
Advokatbyra AB
Box 2235
SE-403 14 GOTEBORG, Sweden
Fax: +46 31 10 96 01
If to DRI Digital Recorders, Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
DALLAS, TX 75225
</TABLE>
The communications will be considered having reached the addressees:
<TABLE>
<S> <C> <C>
(i) if sent by courier -- on delivery
(ii) if sent by registered mail -- seven days from the date of dispatch
(iii) if sent by telefax -- on the day of recipient confirms
receipt
</TABLE>
Each Seller and the Purchaser shall be obliged to send a communication to
the other parties in accordance with this sub-section 12.4 notifying any
changes in the relevant details set out herein, which details shall then
be deemed to have been amended accordingly.
12.5 CONSULTATION WITH DRI
Bengt Bodin, Mattias Bodin and Tobias Bodin undertake for a period of
36 months from the Closing Date to consult with DRI prior to any sale of
any of their shares of DRI.
12.6 CONFIDENTIALITY
Subject to sub-section 8.6 the parties agree not to disclose in whole or
in part any of the contents of this Agreement to any third party, unless
required by law.
12.7 COSTS
Each party agrees to carry his own fees and costs (including brokers',
finders' and attorney's fees) relating to this Agreement and the
consummation of the transactions hereunder.
12.8 ASSIGNMENT
None of the parties shall have the right to assign this Agreement partly
or wholly without the prior written consent of the other parties.
12.9 EXHAUSTIVE CONTRACT DOCUMENT
This Agreement sets forth exhaustively all terms and conditions related to
the transfer of the Shares and supersedes all prior agreements between the
Sellers and the Purchaser with respect to the subject matter hereof.
12.10 AMENDMENTS
No amendment to this Agreement shall be effective unless made in writing
and signed by authorised representatives of each Seller and the Purchaser.
12.11 WAIVER
The failure of any of the parties hereto to insist upon strict adherence
to any provision of this Agreement on any occasion shall not be considered
as a waiver of any right hereunder, nor shall it deprive that party of the
right thereafter to insist upon strict adherence to that provision or any
other provision of this Agreement.
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12.12 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
12.13 ARBITRATION
Any dispute arising out of or in connection with this Agreement shall be
exclusively settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce
(the"Institute"). The arbitral tribunal shall be composed of three
(3) arbitrators. The place of arbitration shall be Gothenburg, Sweden. The
arbitration proceedings shall be conducted in the English language.
Each party shall nominate one arbitrator and the Institute shall nominate
the third arbitrator, who shall be the Chairman. If arbitration is
initiated by more than one claimant simultaneously and/or against one or
more respondents, each side shall jointly appoint an arbitrator. If the
respondent has not (or, if there are more respondents than one, the
respondents have not jointly) within 30 days after receipt of a request
for arbitration, appointed an arbitrator, such arbitrator shall upon
request of any claimant be appointed by the Institute. If the provision
related to the appointment of the arbitrators is held by any court of
competent jurisdiction or arbitrators to be illegal, void or unenforceable
the illegality, voidness or unenforceability of such provision shall have
no effect upon and shall not impair the enforceability of any other
provisions of this sub-section 12.13. The parties agree that the Institute
in such case shall appoint all three arbitrators.
Any dispute arising at any time between the parties shall be referred to
one single arbitration tribunal, unless (i) the arbitration tribunal
considers it inappropriate having regard to the point of time at which the
request for arbitration is made, or (ii) one or more of the arbitrators
declares that he or they do not accept to serve as arbitrators in a
dispute other than the actual dispute for which such arbitrator(s) was
appointed.
The rules regarding joinder of claims in Chapter 14 of the Code of
Judicial Procedure (Sw. Rattegangsbalken) shall be applied by the arbitral
tribunal to the extent so is appropriate and accepted by the arbitrators.
The voting rules in the Code of Judicial Procedure shall be applied by the
arbitral tribunal.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement in six
copies as of the day and year first above written.
------------------------
<TABLE>
<S> <C>
DRI EUROPA AB
--------------------------------------- ---------------------------------------
Bengt Bodin
DIGITAL RECORDERS, INC.
---------------------------------------
Annacarin Bodin
--------------------------------------- ---------------------------------------
Mattias Bodin
---------------------------------------
Tobias Bodin
---------------------------------------
Bertil Lindqvist
</TABLE>
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APPENDIX II
OPTION AGREEMENT
This Option Agreement (the "Agreement") is made as of 7 December 2000, by and
between
Bengt Bodin, and individual resident at La Piniere, Cidec 206, R.D. 2085,
FR- 06330 Roquefort les Pins, France;
Annacarin Bodin, an individual resident at La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France;
Mattias Bodin, an individual resident at Parkgatan 10, SE-112 30 Stockholm,
Sweden;
Tobias Bodin, an individual resident at Ovre Husargatan 23 A, SE 413 14
Gothenburg, Sweden; and
Bertil Lindqvist, an individual resident at Nybrogatan 45 B, 114 39
Stockholm.
(Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and Bertil Lindqvist
are hereinafter collectively referred to as the "Offerors".)
and
DRI Europa AB, a Swedish corporation, in the process of incorporation under
the laws of Sweden, having its principal office in Gothenburg, ("DRI Europa")
and
Digital Recorders, Inc., a company duly incorporated and organized under the
laws of the state of North Carolina, USA, having its principal office at Durham,
North Carolina ("DRI Inc.").
PREAMBLES
A. The Offerors are at the date hereof the owners of the shares (the "Shares")
of Mobitec Holding AB, a Swedish corporation, registration number
556546-6793 (the "Company"). The ownership of the Shares is, at the date
hereof as follows: Bengt Bodin 51,900 shares
<TABLE>
<S> <C>
Annacarin Bodin............................................. 20,400 shares
Mattias Bodin............................................... 9,100 shares
Tobias Bodin................................................ 9,100 shares
Bertil Lindqvist............................................ 9,500 shares
--------------
TOTAL....................................................... 100,000 shares
</TABLE>
B. The Company is the parent company of a group of companies engaged in
developing, manufacturing, marketing and selling information systems for
public transport vehicles.
C. The Offerors are willing to give DRI Europa as well as DRI Inc. and DRI
Europa jointly--as set forth in section 1 hereof--options to purchase the
Shares on the terms and conditions set forth in the stock purchase agreement
attached hereto as Appendix A (the "Stock Purchase Agreement").
D. Taking into consideration what has been set forth above, the Offerors and DRI
Europa and DRI Inc., intending to be legally bound, agree as follows:
------------------------
The terms appearing in this Option Agreement having been defined in section 1 of
the Stock Purchase Agreement shall have the same meaning as in the Stock
Purchase Agreement unless the context requires otherwise.
II-1
<PAGE>
1. OPTION
1.1 OPTION A
The Offerors hereby grant to DRI Europa the irrevocable right of option to
purchase from the Offerors the Shares on the terms and conditions set forth in
the Stock Purchase Agreement.
1.2 OPTION B
The Offerors hereby grant to DRI Europa and DRI Inc. the irrevocable right
of option to purchase from the Offerors the Shares on the terms and conditions
set forth in the Stock Purchase Agreement.
The individual Shares to be sold by each Offeror to DRI Europa and DRI Inc.
as a result of the exercise of Option B appears from APPENDIX B hereto.
The modifications of the Stock Purchase Agreement to be made as a result of
the exercise of Option B are set forth in APPENDIX C hereto.
2. OPTION PERIOD
Option A and Option B shall have effect during the period as from 31
January 2001 up to and including 28 February 2001 provided that the Sellers have
on 15 December 2000 at the latest submitted to DRI Inc. all documents,
disclosures and other relevant requests for submission to the SEC. For each
business day of delay of submission as aforesaid the Option Period shall be
prolonged by one business days, however, the Option Period may not be prolonged
by more than 15 days. The parties will work diligently and cooperate with each
other during the Option Period to produce all documents, disclosures, and other
relevant requests for submission to the SEC.
3. EXERCISE OF OPTIONS
3.1 Based upon the Sellers' representation of the structure of Option B and
the availability of group contribution (koncernbidrag) implied therein to
DRI Europa as set forth in APPENDIX D hereto DRI Inc. and DRI Europa--in
the event they wish to exercise their option rights hereunder--will
exercise Option B.
If group contribution is not available to DRI Europa as aforesaid DRI
Europa--in the event it wishes to exercise its option rights
hereunder--will exercise Option A.
3.2 In order to exercise any of Option A or Option B DRI Europa and DRI Inc.
or DRI Europa, as the case may be, shall give notice in writing during
the Option Period to any of the Offerors to that effect, such notice to
include whether Option A or Option B is exercised.
With respect to the Bodin Sellers notice hereunder shall be made to Bengt
Bodin who is hereby by the other Bodin Sellers irrevocably authorized to
receive such notice on their behalf.
In the event that such notice is not given within the Option Period this
Option Agreement shall become null and void.
3.3 In the event that Option A is exercised the Stock Purchase Agreement
shall apply without any modifications.
In the event that Option B is exercised the Stock Purchase Agreement shall
be modified in accordance with APPENDIX B AND C hereto.
II-2
<PAGE>
3.4 In the event that any of Option A or Option B is exercised the parties
shall within five business days from the date of exercise sign the Stock
Purchase Agreement and in case of exercise of Option B also modify the
same in accordance with APPENDIX B AND C hereto.
4. COVENANTS
4.1 Each of the Offerors undertakes during the Option Period not to sell,
pledge or in any other way dispose of any of the Shares to any other
party than DRI Europa or DRI Inc. and DRI Europa jointly.
4.2 From the date hereof and until the date of exercise of any of the option
rights hereunder, no contract or commitment shall be entered into by or
on behalf of the Company or any Subsidiary extending beyond the date of
exercise of any of the option rights, except for contracts or commitments
made in the ordinary course of business. Moreover, neither the Company
nor any Subsidiary shall borrow any additional funds from banks or other
external sources other than as required in the ordinary course of
business.
5. JOINT LIABILITY
Each one of the Offerors guarantees, as for his own debt, the due and timely
fulfilment by the other Offerors of all obligations under this Agreement.
6. PATENT MATTERS
The Offerors represent to DRI Inc. and DRI Europa that in their opinion the
patent infringement claims related to Polish patent number 177 576 are
substantially without merit and not outside of normal course of business.
Based upon the Offeror's aforesaid representation DRI Inc. and DRI Europa
are proceeding with the Option Agreement, it being understood that DRI Inc. and
DRI Europa preliminarily concur with the Offerors' representation, subject to
complete review by patent counsel of DRI Inc. and DRI Europa at its own expense.
7. NOTICES
Any notice to be provided under this Agreement shall be in the English
language and deemed valid and effective if sent by courier or registered mail or
telefax to the following addresses:
<TABLE>
<S> <C>
If to Bengt Bodin: Bengt Bodin
La Piniere, Cidex 206, R.D. 2085
FR-06330 Roquefort les Pins,
France
Fax +33-493 775 186
If to Annacarin Bodin: Annacarin Bodin
La Piniere, Cidex 206, R.D. 2085
FR-06330 Roquefort les Pins,
France
Fax +33-493 775 186
If to Mattias Bodin: Mattias Bodin
Parkgatan 10
SE-112 30 STOCKHOLM
Sweden
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
If to Tobias Bodin: Tobias Bodin
Ovre Husargatan 23 A
SE-413 14 GOTEBORG
Sweden
If to Bertil Lindqvist: Bertil Lindqvist
Nybrogatan 45 B
114 39 STOCKHOLM
Sweden
Fax +46-8 661 81 26
If to DRI Europa AB: DRI Europa AB
c/o Mannheimer Swartling
Box 2235
403 14 GOTHENBURG
Fax +46 31 10 96 01
If to Digital Recorders Inc.: Digital Recorders Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
Dallas, TX 75225
Fax +1 214 378 8437
</TABLE>
The communications will be considered having reached the addressees:
<TABLE>
<S> <C> <C>
(i) if sent by courier - on delivery
(ii) if sent by registered mail - seven days from the date of dispatch
(iii) if sent by telefax - on the day the recipient confirms receipt
</TABLE>
Each Offeror and DRI Europa and DRI Inc. shall be obliged to send a
communication to the other parties in accordance with this section 7 notifying
any changes in the relevant details set out herein, which details shall then be
deemed to have been amended accordingly.
8. CONFIDENTIALITY
8.1 No announcement concerning the transaction contemplated by this Agreement
or any matter ancillary thereto shall be made by either party hereto
without the written consent of the other party, provided that nothing
herein shall prevent either party from making, in consultation with the
other party, any announcement or filing required by law, regulations or
by the rules and regulations of any stock exchange on which it is listed
including any announcement or filing in connection with the filing under
the SEC regulations of shareholders' vote and proxies thereto.
8.2 Subject to sub-section 8.1 above, the parties agree not to disclose in
whole or in part any of the contents of this Agreement to any third
party, unless required by law.
9. EFFECTIVE DATE
This Agreement shall enter into effect on the date it has been signed by all
Offerors, DRI Europa and DRI Inc.
10. ASSIGNMENT
None of the parties shall have the right to assign this Agreement partly or
wholly without the prior written consent of the other parties.
II-4
<PAGE>
11. EXHAUSTIVE CONTRACT DOCUMENT
This Agreement sets forth exhaustively all terms and conditions related to
this option and supersedes all prior agreements between the Offerors and DRI
Europa and DRI Inc. with respect to the subject matter hereof.
12. AMENDMENTS
No amendment to this Agreement shall be effective unless made in writing and
signed by authorised representatives of each Offeror and DRI Europa and
DRI Inc.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
14. ARBITRATION
Any dispute arising out of or in connection with this Agreement shall be
exclusively settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce (the "Institute").
The arbitral tribunal shall be composed of three (3) arbitrators. The place of
arbitration shall be Gothenburg, Sweden. The arbitration proceedings shall be
conducted in the English language.
Each party shall nominate one arbitrator and the Institute shall nominate
the third arbitrator, who shall be the Chairman. If arbitration is initiated by
more than one claimant simultaneously and/or against one or more respondents,
each side shall jointly appoint an arbitrator. If the respondent has not (or, if
there are more respondents than one, the respondents have not jointly) within
30 days after receipt of a request for arbitration, appointed an arbitrator,
such arbitrator shall upon request of any claimant be appointed by the
Institute. If the provision related to the appointment of the arbitrator is held
by any court of competent jurisdiction or arbitrators to be illegal, void or
unenforceable the illegality, voidness or unenforceability of such provision
shall have no effect upon and shall not impair the enforceability of any other
provisions of this section 10. The parties agree that the Institute in such case
shall appoint all three arbitrators.
Any dispute arising at any time between the parties shall be referred to one
single arbitration tribunal, unless (i) the arbitration tribunal considers it
inappropriate having regard to the point of time at which the request for
arbitration is made, or (ii) one or more of the arbitrators declares that he or
they do not accept to serve as arbitrators in a dispute other than the actual
dispute for which such arbitrator(s) was appointed.
The rules regarding joinder of claims in Chapter 14 of the Code of Judicial
Procedure (Sw: Rattegangsbalken) shall be applied by the arbitral tribunal to
the extent so is appropriate and accepted by the arbitrators. The voting rules
in the Code of Judicial Procedure shall be applied by the arbitral tribunal.
------------------------
II-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in six
copies as of the day and year first above written.
<TABLE>
<S> <C>
----------------------------------------- -----------------------------------------
Bengt Bodin DRI Europa AB
----------------------------------------- -----------------------------------------
Annacarin Bodin Digital Recorders Inc.
-----------------------------------------
Mattias Bodin
-----------------------------------------
Tobias Bodin
-----------------------------------------
Bertil Lindqvist
</TABLE>
II-6
<PAGE>
APPENDIX III
BODIN WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of December __, 2000, by and between BENGT
BODIN, a resident of Nice, France (the "Warrantee"), on the one hand, and
DIGITAL RECORDERS, INC., a North Carolina corporation ("DRI") on the other.
WHEREAS, the Warrantee and DRI have agreed to a form of a Promissory Note
(the "Promissory Note") to be made effective on the Closing Date of the Stock
Purchase Agreement (the "Purchase Agreement" or the "Stock Purchase Agreement")
(capitalized terms herein shall be consistent with those found in the Purchase
Agreement) pursuant to which, among other things, the Warrantee is to receive
the right (the "Warrant") to purchase up to 100,000 shares of Common Stock, par
value $.10 per share (the "Warrant Shares") of DRI pursuant to the terms of this
warrant agreement, subject to all the terms and conditions of the Registration
Rights Agreement dated as of the date hereof by and among DRI, Bengt Bodin,
Annacarin Bodin, Mattias Bodin and Tobias Bodin; and
WHEREAS, this warrant agreement (the "Bodin Warrant Agreement") constitutes
the warrant agreement described in the Purchase Agreement;
NOW, THEREFORE, in consideration of the agreements set forth below, the
parties hereto agree as follows:
1. THE WARRANT. Subject to the terms and conditions hereof, the
Warrantee is hereby granted the Warrant, at any time or from time to time
commencing on the date of this Bodin Warrant Agreement and at or before
5:00 P.M., Eastern Time, on January __, 2006 (such five-year period
hereinafter the "Warrant Exercise Period"), but not thereafter, to subscribe
for and purchase any or all of the Warrant Shares for a price of $4.00 per
Warrant Share purchased (the "Warrant Exercise Price"). If the rights
represented hereby shall not be exercised during the Warrant Exercise
Period, this Warrant shall become and be void without further force or
effect, and all rights represented hereby shall cease and expire.
2. EXERCISE OF WARRANT. During the Warrant Exercise Period, the
Warrantee may exercise this Warrant upon presentation and surrender of this
Warrant and upon payment of the Warrant Exercise Price for the Warrant
Shares to be purchased or by notice of non-cash exercise as provided in
Section 15 herein below to DRI at the principal office of DRI. Upon exercise
of this Warrant, the form of election hereinafter provided must be duly
executed and delivered to DRI. If this Warrant is exercised in part, the
Warrantee shall be required to exercise this Warrant with respect to a
minimum of 25,000 shares of Common Stock upon each such exercise in part. In
the event of the exercise of this Warrant in part only, DRI shall cause to
be delivered to the Warrantee a new Warrant of like tenor to this Warrant in
the name of the Warrantee evidencing the right of the Warrantee to purchase
the number of Warrant Shares purchasable hereunder as to which this Warrant
has not been exercised. On exercise of this Warrant, unless (i) DRI receives
an opinion from counsel satisfactory to it that such a legend is not
required in order to assure compliance with the Securities Act of 1933, as
amended (the "1933 Act"), or any applicable state securities laws, or
(ii) the Warrant Shares are registered under the 1933 Act, each certificate
for Warrant Shares issued hereunder shall bear a legend reading
substantially as follows:
These securities have not been registered under the Securities Act of
1933, as amended, and may be offered and sold only if registered pursuant
to the provisions of that Act or if, in the opinion of counsel to the
Warrantee, an exemption from registration thereunder is available, the
availability of which must be established to the satisfaction of DRI.
III-1
<PAGE>
The foregoing legend may be removed with respect to any Warrant Shares
sold upon registration or sold pursuant to an exemption from registration,
including the exemption for sales made in accordance with Rule 144
promulgated under the 1933 Act; provided DRI receives an opinion from
counsel satisfactory to it that such legend may be removed; and provided
further that such legend shall be removed from the certificates representing
the Warrant Shares upon registration thereof pursuant to the Registration
Rights Agreement but in no event later than one year from the date hereof.
3. ASSIGNMENT.
Subject to the terms contained herein, this Warrant may be assigned by
the Warrantee in whole or in part by execution by the Warrantee of the form
of assignment attached hereto, in the sole discretion of the Warrantee, to a
"Permitted Assignee" as defined below, or with the prior written consent of
DRI, to any other party. In the event of any permitted assignment, DRI, upon
request and upon surrender of this Warrant by the Warrantee at the principal
office of DRI accompanied by payment of all transfer taxes, if any, payable
in connection therewith, shall transfer this Warrant on the books of DRI. If
the permitted assignment is in whole, DRI shall execute and deliver a new
Warrant or Warrants of like tenor to this Warrant to the appropriate
assignee expressly evidencing the right to purchase the aggregate number of
Warrant Shares purchasable hereunder; and if the permitted assignment is in
part, DRI shall execute and deliver to the appropriate assignee a new
Warrant or Warrants of like tenor expressly evidencing the right to purchase
the portion of the aggregate number of Warrant Shares as shall be
contemplated by any such permitted assignment, and shall concurrently
execute and deliver to the Warrantee a new Warrant of like tenor to this
Warrant evidencing the right to purchase the remaining portion of the
Warrant Shares purchasable hereunder which have not been transferred to the
Permitted Assignee. For purposes of this Agreement, a "Permitted Assignee"
shall mean (a) if the Warrantee or successor holder (collectively, a
"Holder") is an individual, any (i) descendant or ancestor of the Holder,
(ii) trust for the benefit of the Holder, descendant or ancestor,
(iii) beneficiary of any such trust or any descendant or ancestor of any
such beneficiary, (iv) trust or entity in which the Holder or beneficiary or
any descendant or ancestor of the Holder or beneficiary, trust or other
entity shall have any interest, (v) any of the foregoing, or any entity in
which any of the foregoing, or any trust for any foregoing Holder or
beneficiary, holds, directly or indirectly, or in trust, at least fifty
percent (50%) of the aggregate voting power and (vi) any immediate relative
or spouse of any such foregoing person (including the Holder) or persons;
and (b) if the Holder is an entity, any (i) subsidiary or affiliate of the
Holder, (ii) corporation, partnership, limited liability company or other
entity that may be organized by the Holder, or by its owners, as a separate
business unit in connection with the business activity of the Holder or of
its owners and (iii) corporation, partnership or other entity resulting from
the reorganization, merger or consolidation of the Holder with any other
corporation, partnership or other entity or to which all or substantially
all of the Holder's business or assets may be sold, assigned or transferred.
4. NOTICE. The Warrantee, by acceptance hereof, agrees that, before
any transfer is made of all or any portion of this Warrant, the Warrantee
shall give written notice to DRI at least fifteen (15) days prior to the
date of such proposed transfer, which notice shall specify the identity,
address and affiliation, if any, of such transferee. No such transfer shall
be made unless and until DRI has received an opinion of counsel for DRI or
for the Warrantee stating that no registration under the 1933 Act or any
state securities law is required with respect to such disposition or a
registration statement has been filed by DRI and declared effective by the
Securities and Exchange Commission covering such proposed transfer and the
Warrant has been registered under appropriate state securities laws.
III-2
<PAGE>
5. SHARE DIVIDENDS, RECLASSIFICATION, REORGANIZATION PROVISIONS.
(a) If, prior to the expiration of this Warrant by exercise or by its
terms, DRI shall issue any of its Common Stock as a share dividend or
subdivide the number of outstanding shares of Common Stock into a greater
number of shares then, in either of such cases, the Warrant Exercise Price
per share purchasable pursuant to this Warrant in effect at the time of such
action shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant shall be proportionately increased; and
conversely, if DRI shall reduce the number of outstanding shares of Common
Stock by combining such shares into a smaller number of shares then, in such
case, the Warrant Exercise Price per share purchasable pursuant to this
Warrant in effect at the time of such action shall be proportionately
increased and the number of Warrant Shares at that time purchasable pursuant
to this Warrant shall be proportionately decreased. If DRI shall, at any
time during the life of this Warrant, declare a dividend payable in cash on
its Common Stock and shall at substantially the same time offer to its
shareholders a right to purchase new Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all Common
Stock so issued shall, for the purpose of this Warrant, be deemed to have
been issued as a share dividend. Any dividend paid or distributed upon
Common Stock in shares of any other class of securities convertible into
Common Stock shall be treated as a dividend paid in Common Stock to the
extent that Common Stock is issuable upon the conversion thereof.
(b) If, prior to the expiration of this Warrant by exercise or by its
terms, DRI shall be recapitalized by reclassifying its outstanding Common
Stock, or DRI or a successor corporation shall consolidate or merge with or
convey all or substantially all of its or any successor corporation's
property and assets to any other corporation or corporations (any such
corporation being included within the meaning of the term "successor
corporation" used above in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the
property of any such corporation, to another corporation or corporations),
the Warrantee shall thereafter have the right to purchase, upon the basis
and upon the terms and conditions and during the time specified in this
Warrant, in lieu of the Warrant Shares theretofore purchasable upon the
exercise of this Warrant, such shares, securities or assets as may be issued
or payable with respect to, or in exchange for, the number of Warrant Shares
theretofore purchasable upon the exercise of this Warrant had such
recapitalization, consolidation, merger or conveyance not taken place and,
in any such event, the rights of the Warrantee to an adjustment in the
number of Warrant Shares purchasable upon the exercise upon this Warrant as
herein provided shall continue and be preserved in respect of any shares,
securities or assets which the Warrantee becomes entitled to purchase.
(c) If: (i) DRI shall take a record of holders of its Common Stock for
the purpose of entitling them to receive a dividend payable otherwise than
in cash, or any other distribution in respect of the Common Stock (including
cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of DRI's assets; or (ii) DRI shall take a record of the holders
of its Common Stock for the purpose of entitling them to subscribe for or
purchase any shares of any class or to receive any other rights; or
(iii) in the event of any classification, reclassification or other
reorganization of the securities which DRI is authorized to issue,
consolidation or merger by DRI with or into another corporation, or
conveyance of all or substantially all of the assets of DRI; or (iv) in the
event of any voluntary or involuntary dissolution, liquidation or winding up
of DRI; then, and in any such case, DRI shall mail to the Warrantee, at
least 15 days prior thereto, a notice stating the date or expected date on
which a record is to be taken for the purpose of such dividend, distribution
or rights, or the date on which such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation
or winding up, as the case may be, will be effected. Such notice shall also
specify the date or expected date, if any is to be fixed, as to which
holders of Common Stock of record shall be entitled to participate in such
dividend,
III-3
<PAGE>
distribution or rights, or shall be entitled to exchange their Common Stock
or securities or other property deliverable upon such classification,
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up, as the case may be.
(d) If DRI, at any time while this Warrant shall remain unexpired and
unexercised in whole or in part, shall sell all or substantially all of its
property, dissolve, liquidate or wind up its affairs, the Warrantee may
thereafter receive upon exercise hereof, in lieu of each Warrant Share which
it would have been entitled to receive, the same kind and amount of any
securities or assets as may be issuable, distributable or payable upon any
such sale, dissolution, liquidation or winding up with respect to each share
of Common Stock of DRI purchased upon exercise of this Warrant.
6. RESERVATION OF SHARES ISSUABLE ON EXERCISE OF WARRANT. At all times
during the Warrant Exercise Period, DRI will reserve and keep available out
of its authorized Common Stock, solely for issuance upon the exercise of
this Warrant, such number of shares of Common Stock and other securities as
from time to time may be issuable upon exercise of this Warrant. All Shares
that may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be validly issued, fully paid, non-assessable,
and free from all taxes, liens and charges with respect to the issue
thereof, issued in compliance with all applicable federal and state
securities laws.
7. REQUEST TO TRANSFER AGENT. On exercise of all or any portion of
this Warrant, DRI shall, within ten days of the receipt of good and clean
funds (or receipt of notice of Warrantee's election pursuant to Section 15
below) for the purchase of any or all of the Warrant Shares, advise its
Transfer Agent and Registrar of the required issuance of the number of
Warrant Shares and the names in which such Warrant Shares are to be
registered pursuant to the exercise form attached hereto. DRI shall also
execute and deliver any and all such further documents as may be requested
by the Transfer Agent and Registrar for the purpose of effecting the
issuance of Warrant Shares upon payment therefor by the Warrantee or any
assignee.
8. LOSS THEFT DESTRUCTION OR MUTILATION. Upon receipt by DRI of
evidence satisfactory to it (in the exercise of its reasonable discretion)
of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and the purchase by the Warrantee of a lost security bond (or, if
acceptable to DRI, the provision of a satisfactory indemnity from the
Warrantee) in an amount equal to or exceeding the total value of the Warrant
Shares to be purchased hereunder, DRI will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
9. WARRANTEE NOT A SHAREHOLDER. The Warrantee or any other holder of
this Warrant shall, as such, not be entitled by reason of ownership of this
Warrant to any rights whatsoever of a shareholder of DRI until this Warrant
shall have been exercised and the Warrant Shares purchasable upon the
exercise shall have become deliverable, as provided herein.
10. TRANSFER TAXES. DRI will pay all stamp taxes and other duties, if
any, to which, under the laws of the United States of America or any State
or political subdivision thereof, this Agreement or the original issuance of
this Warrant may be subject. The issuance of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to
Warrantee for any issuance tax in respect hereof, provided that DRI shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of this Warrant. The Warrantee or its
assignee(s) will pay all taxes in respect of the transfer of this Warrant or
the Warrant Shares issuable upon exercise hereof.
11. MAILING OF NOTICE. All notices and other communications from DRI
to the Warrantee or from the Warrantee to DRI shall be mailed by first
class, certified mail, postage prepaid, or sent by receipt confirmed
facsimile transmission, to the address furnished to each party in writing by
the other party.
III-4
<PAGE>
12. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. With
respect to any fraction of a share called for upon the exercise hereof, DRI
shall issue to the Warrantee at no extra cost another whole share for any
fraction which is one-half or greater, and the Warrantee shall forfeit the
fractional share that is less than one-half of a share.
13. COMMON STOCK DEFINED. Whenever reference is made in this Warrant
to the issue or sale of Common Stock, the term "Common Stock" shall mean the
voting Common Stock of DRI of the class authorized as of the date hereof and
any other class of stock ranking on a parity with such Common Stock.
14. REDUCTION IN NUMBER OF WARRANTS. The Warrantee and DRI acknowledge
their execution of a Promissory Note pursuant to a Stock Purchase Agreement
("Stock Purchase Agreement") between the parties which provides, among other
things, for certain offset rights by DRI against the Promissory Note
pursuant to the indemnification provisions set forth in the Stock Purchase
Agreement. To the extent the parties agree to an offset or reduction in the
Promissory Note pursuant to said provisions, the number of warrants granted
hereunder shall be proratably reduced.
15. NON-CASH EXERCISE.
(a) Warrantee shall be permitted at his election, in lieu of payment in
cash, to offset and reduce any part or all of the aggregate Warrant Exercise
Price payable under Section 2 by the sum, to the extent thereof on the date
of exercise, of (i) the unpaid principal amount of the Promissory Note plus
(ii) accrued and unpaid interest thereon. An election pursuant to this
Section 15(a) shall be made by a written notice of exercise in the form
attached hereto specifying the amount of such principal and interest to be
applied to the Warrant Exercise Price of the Warrant Shares to be purchased.
(b) In lieu of payment in cash, the rights represented by this Warrant
may also be exercised by a written notice of exercise in the form attached
hereto specifying that the holder of this Warrant wishes to convert all or
any portion of this Warrant (the "Conversion Right") into a number of Shares
equal to the quotient obtained by dividing (x) the current market value of
the Warrant Shares subject to the portion of this Warrant being exercised
(determined by subtracting the aggregate Warrant Exercise Price for all such
Warrant Shares in effect immediately prior to the exercise of the Conversion
Right from the aggregate current or closing market price of such Shares
issuable upon exercise of such portion of this Warrant immediately prior to
the exercise of the Conversion Right) by (y) the current or closing market
price (as defined below) of one share of Common Stock immediately prior to
the exercise of the Conversion Right. For the purpose of any computation
under this Section 15(b), the current or closing market price per share of
Common Stock at any date shall be deemed to be the average of the daily
closing prices for five (5) consecutive trading days commencing ten
(10) trading days before the date of such computation. The closing price for
each day shall be the last sale price for such day, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the NASDAQ National
Market (or if the Common Stock is not listed on the NASDAQ, then on the
principal United States national securities exchange on which the Common
Stock is listed or quoted. If the Common Stock is not listed or quoted on
any United States national securities exchange, then the current or closing
market price per share of Common Stock shall be determined by the Board of
Directors of DRI in good faith.
16. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of North Carolina.
17. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved
by agreement of the parties, be settled
III-5
<PAGE>
by binding arbitration in Raleigh, Wake County, North Carolina, in
accordance with the Rules of the American Arbitration Association then
existing. This Agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law of the State of North Carolina. The
award rendered by the arbitrators shall be final and judgment may be entered
upon the award in any court of the State of North Carolina having
jurisdiction of the matter.
18. BINDING EFFECT. All of the obligations of DRI relating to the
Common Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant and all of the covenants and
agreements of DRI shall inure to the benefit of the successors and assigns
of the Holder.
IN WITNESS WHEREOF, the parties have executed this Bodin Warrant Agreement
on the day and year first above written.
DRI:
DIGITAL RECORDERS, INC.
By
--------------------------------------
Print Name
--------------------------------------------------------------------------
Title
--------------------------------------------------------------------------------
WARRANTEE:
--------------------------------------
BENGT BODIN
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<PAGE>
FORM TO BE USED TO EXERCISE Warrant:
EXERCISE FORM
The undersigned hereby elects irrevocably to exercise the within Warrant and
to purchase (up to a maximum 100,000) shares of Common Stock of
Digital Recorders, Inc., called for hereby, and hereby
[makes payment of $ (at the rate of $4.00 per share) in payment of
the Warrant Exercise Price pursuant hereto in cash or by offset against the
Promissory Note as provided in Section 15(a) of the Warrant as follows:
------------------------------------------------
[elects to purchase shares of Common Stock of Digital
Recorders, Inc. pursuant to non-cash conversion of the Warrant as provided in
Section 15(b) of the Warrant.]
Please issue the shares as to which this Warrant is exercised in accordance
with the instructions given below.
--------------------------------------
Signature
Signature Guaranteed
Date:
------------------------------------------------------------
INSTRUCTIONS FOR REGISTRATION OF SHARES:
Register Shares in name of:
-------------------------------------------
Address:
------------------------------------------------------------
(print)
III-7
<PAGE>
FORM TO BE USED TO ASSIGN Warrant:
ASSIGNMENT
For value received does hereby sell, assign and transfer unto
the right to purchase shares of Common Stock of Digital
Recorders, Inc., evidenced by the within Warrant, and does hereby irrevocably
constitute and appoint Digital Recorders, Inc. and/or its Transfer Agent as
attorney to transfer the same on the books of Digital Recorders, Inc. with full
power of substitution in the premises.
--------------------------------------
Signature
Signature Guaranteed
Date:
------------------------------------------------------------
NOTICE: The signature to the form to exercise or form to assign must correspond
with the name as written upon the face of the within Warrant in every particular
without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank, other than a savings bank, or by a trust company or by a
firm having membership on a registered national securities exchange.
III-8
<PAGE>
APPENDIX IV
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement (this "AGREEMENT") dated as of
_________________ by and among DIGITAL RECORDERS, INC., a North Carolina
corporation (the "COMPANY"), Bengt Bodin, Annacarin Bodin, Mattias Bodin and
Tobias Bodin (together with their respective permitted transferees, the
"Holders").
WHEREAS, it is contemplated under that certain Stock Purchase Agreement by
and among the Company, Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin
and Bertil Lindqvist dated as of the date hereof (as such may be amended from
time to time, the "STOCK PURCHASE AGREEMENT") and that certain Warrant Agreement
dated the date hereof by and between the Company and Bengt Bodin (as such may be
amended form time to time, the "WARRANT AGREEMENT"), that the Company provide
the Holders with the registration rights set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
REQUIRED REGISTRATIONS
1.1 REQUIRED REGISTRATION. Subject to Sections 1.3, and 5.2 hereof, the
Company shall effect registration on a continuous or delayed basis pursuant to
Rule 415 or an equivalent provision promulgated under the Securities Act of
(a) Warrant Shares and Initial SPA Shares on or before the date that is one year
after the date hereof and (b) Remaining SPA Shares on or before the date that is
two years after the date hereof. All registrations pursuant to this Section 1.1
are referred to herein as "REQUIRED REGISTRATIONS."
1.2 EXPENSES. The Company will pay all Registration Expenses in connection
with any Required Registration, including any Registration Statement that is not
deemed to be effected pursuant to the provisions of Section 1.3 hereof.
1.3 EFFECTIVE REGISTRATION STATEMENT. A registration pursuant to
Section 1.1 of this Agreement shall not be deemed to have been effected
(i) unless a Registration Statement with respect thereto has been declared
effective by the Commission, (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason or (iii) the Registration Statement does not remain continuously
effective until termination of the Company's registration obligations pursuant
to Section 5.2 hereof. If a registration pursuant to this Article I is deemed
not to have been effected as provided in this Section 1.3, then the Company
shall continue to be obligated to effect the Required Registrations as set forth
in Section 1.1.
ARTICLE II
REGISTRATION PROCEDURES
Whenever any Registrable Securities are to be registered pursuant to this
Agreement, the Company will use reasonable efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as possible, and pursuant thereto the
Company will as expeditiously as reasonably possible:
(a) prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such Registration Statement to become and remain effective until the
completion of the distribution contemplated thereby;
IV-1
<PAGE>
PROVIDED, that as promptly as practicable before filing a Registration
Statement or Prospectus or any amendments or supplements thereto, the
Company will (i) furnish to counsel selected by the Holders copies of all
such documents proposed to be filed, and (ii) notify each holder of
Registrable Securities covered by such Registration Statement of (x) any
request by the Commission to amend such Registration Statement or amend or
supplement any Prospectus, or (y) any stop order issued or threatened by the
Commission, and take all reasonable actions required to prevent the entry of
such stop order or to promptly remove it if entered;
(b) (i) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective until all Registrable Securities covered by such Registration
Statement are sold in accordance with the intended plan of distribution set
forth in such Registration Statement, and (ii) comply with the provisions of
the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement;
(c) furnish to each seller of Registrable Securities, without charge,
such number of conformed copies of such Registration Statement, each
amendment and supplement thereto, the Prospectus included in such
Registration Statement (including each preliminary Prospectus and, in each
case including all exhibits) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use all reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions in the United States as any seller thereof shall reasonably
request, to keep such registration or qualification in effect for so long as
such Registration Statement remains in effect and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; PROVIDED, HOWEVER, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this clause (d), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
(e) use all reasonable efforts (if the offering is underwritten) to
furnish to each seller of Registrable Securities a signed copy, addressed to
such seller (and the underwriters, if any) of an opinion of counsel for the
Company or special counsel to the selling stockholders, dated the effective
date of such Registration Statement (and, if such Registration Statement
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), covering substantially the same matters
with respect to such Registration Statement (and the Prospectus included
therein) as are customarily covered in opinions of issuer's counsel
delivered to the underwriters in underwritten public offerings, and such
other legal matters as the seller (or the underwriters, if any) may
reasonably request;
(f) notify each seller of Registrable Securities, at a time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event known to the Company as a result of which
the Prospectus included in such Registration Statement, as then in effect,
contains an untrue statement of a material fact or omits to state any fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made,
and, at the request of any such seller, the Company will prepare and furnish
such seller a reasonable number of copies of a supplement to or an amendment
of such Prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such Registrable Securities, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
IV-2
<PAGE>
the statements therein not misleading in the light of the circumstances
under which they were made;
(g) cause all such Registrable Securities to be listed on each
securities exchange and quotation system on which similar securities issued
by the Company are then listed and to enter into such customary agreements
as may be required in furtherance thereof, including, without limitation,
listing applications and indemnification agreements in customary form;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration Statement;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such Registration Statement and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such Registration Statement
to enable them to conduct a reasonable investigation within the meaning of
the Securities Act;
(j) subject to other provisions hereof, use all reasonable efforts to
cause such Registrable Securities covered by such Registration Statement to
be registered with or approved by such other governmental agencies or
authorities or self-regulatory organizations as may be necessary to enable
the sellers thereof to consummate the disposition of such Registrable
Securities; and
(k) promptly notify the holders of the Registrable Securities of the
issuance of any stop order by the Commission or the issuance by any state
securities commission or other regulatory authority of any order suspending
the qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws, and use every
reasonable effort to obtain the lifting at the earliest possible time of any
stop order suspending the effectiveness of any Registration Statement or of
any order preventing or suspending the use of any preliminary Prospectus.
ARTICLE III
REGISTRATION EXPENSES
3.1 REGISTRATION EXPENSES. All Registration Expenses will be borne as
provided in Section 1.2 of this Agreement.
3.2 SELLERS' EXPENSES. The Company shall have no obligation to pay any
underwriting discounts or commissions or stock transfer taxes attributable to
the sale of Registered Securities, which expenses will be borne by all sellers
of securities included in such registration in proportion to the aggregate
selling price of the securities to be so registered.
ARTICLE IV
INDEMNIFICATION
4.1 COMPANY'S INDEMNIFICATION OBLIGATIONS. The Company agrees to indemnify
and hold harmless each of the holders of any Registrable Securities covered by
any Registration Statement referred to herein and each other Person, if any, who
controls such holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively, the "HOLDER INDEMNITEES"):
(i) against any and all loss, liability, claim, damage or expense
arising out of or based upon an untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or any amendment
or supplement thereto), including all documents incorporated therein by
reference, or in any preliminary Prospectus or Prospectus (or any amendment
or
IV-3
<PAGE>
supplement thereto) or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense to
the extent of the aggregate amount paid in settlement of any litigation,
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim based upon any such untrue statement or omission
or any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all reasonable expense incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim based upon any such untrue
statement or omission or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under clause (i) or
(ii) above;
PROVIDED, that this indemnity does not apply to any loss, liability, claim,
damage or expense to the extent arising out of an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Holder expressly for use in the preparation of any Registration Statement
(or any amendment or supplement thereto), including all documents incorporated
therein by reference, or in any preliminary Prospectus or Prospectus (or any
amendment or supplement thereto); and PROVIDED FURTHER, that the Company will
not be liable to any holder or any other Holder Indemnitee under the indemnity
agreement in this Section 4.1, with respect to any preliminary Prospectus or the
final Prospectus or the final Prospectus as amended or supplemented, as the case
may be, to the extent that any such loss, liability, claim, damage or expense of
such Holder Indemnitee results from the fact that such holder sold Registrable
Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final Prospectus or of the
final Prospectus as then amended or supplemented, whichever is most recent, if
the Company has previously and timely furnished copies thereof to such holder.
4.2 HOLDER'S INDEMNIFICATION OBLIGATIONS. In connection with any
Registration Statement in which a holder of Registrable Securities is
participating, each such holder agrees to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 4.1 of this
Agreement) the Company and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act with respect to any statement or alleged statement in or omission or alleged
omission from such Registration Statement, any preliminary, final or summary
Prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with information furnished to the Company by or
on behalf of such holder. The obligations of each holder pursuant to this
Section 4.2 are to be several and not joint (however, husband and wife are to be
treated as one holder); PROVIDED, that with respect to each claim pursuant to
this Section 4.2, each such holder's maximum liability under this Section shall
be limited to an amount equal to the net proceeds actually received by such
holder (after deducting any underwriting discount and expenses) from the sale of
Registrable Securities being sold pursuant to such Registration Statement or
Prospectus by such holder.
4.3 NOTICES; DEFENSE; SETTLEMENT. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in Section 4.1 or Section 4.2 of this
Agreement, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; PROVIDED, that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under Section 4.1 or Section 4.2 of this Agreement except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In
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<PAGE>
case any such action is brought against an indemnified party, the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, in
which case the indemnifying party shall not be liable for the fees and expenses
of (i) more than one counsel for all holders of Registrable Securities, selected
by the Holders or (ii) more than one counsel for the Company in connection with
any one action or separate but similar or related actions. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels. The indemnifying party will not, without the prior written consent
of each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any Person who controls such indemnified party is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event, any party will have the right to retain,
at its own expense, counsel with respect to the defense of a claim.
4.4 INDEMNITY PROVISION. The Company and each holder of Registrable
Securities shall provide for the foregoing indemnity (with appropriate
modifications) in any underwriting agreement with respect to any required
registration or other qualification of securities under any Federal or state law
or regulation of any governmental authority other than the Securities Act.
4.5 CONTRIBUTION BASED ON RELATIVE FAULT. Each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in Section 4.1 or
Section 4.2 of this Agreement in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand, and the
indemnified party on the other, in connection with statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations, including, without limitation, the
relative benefits received by each party from the offering of the securities
covered by such Registration Statement, the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted and the opportunity to correct and prevent any statement or omission.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statements or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 4.5
were to be determined by pro rata or per capita allocation (even if the
underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the first sentence of this Section 4.5. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 4.5 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim (which shall be
limited as provided in Section 4.3 of this
IV-5
<PAGE>
Agreement if the indemnifying party has assumed the defense of any such action
in accordance with the provisions thereof) which is the subject of this
Section 4.5. Promptly after receipt by an indemnified party under this
Section 4.5 of notice of the commencement of any action against such party in
respect of which a claim for contribution may be made against an indemnifying
party under this Section 4.5, such indemnified party shall notify the
indemnifying party in writing of the commencement thereof if the notice
specified in Section 4.3 of this Agreement has not been given with respect to
such action; PROVIDED, that the omission to so notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may
otherwise have to any indemnified party under this Section 4.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. The Company and each holder of Registrable Securities agrees with
each other and the underwriters of the Registrable Securities, if requested by
such underwriters, that (i) the underwriters' portion of such contribution shall
not exceed the underwriting discount and (ii) that the amount of such
contribution shall not exceed an amount equal to the net proceeds actually
received by such indemnifying party from the sale of Registrable Securities in
the offering to which the losses, liabilities, claims, damages or expenses of
the indemnified parties relate. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
4.6 PAYMENTS. The indemnification required by this Article IV shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
ARTICLE V
TRANSFER AND TERMINATION OF REGISTRATION RIGHTS
5.1 TRANSFER OF RIGHTS. Any Holder may transfer his rights to register
such Holder's Registrable Securities hereunder, provided that such rights may
not be transferred (a) to any person or entity who or which is engaged in an
activity or business directly competitive with any activity or business of the
Company or any subsidiary of the Company as presently conducted; or (b) to any
person or entity, other than any Bodin Seller (as defined in the Stock Purchase
Agreement), without the Company's prior written consent which shall not be
unreasonably withheld; and provided further that the proposed transferee enters
into a written agreement with the Company, agreeing to be bound by the terms and
conditions hereof.
5.2 TERMINATION OF RIGHTS. The registration rights of any holder of such
rights hereunder and the registration obligations of the Company hereunder will
terminate on the earliest date at which all Registrable Securities held by such
holder may be sold (a) within a three month period pursuant to the exemption
from registration provided under Rule 144 promulgated under the Securities Act,
or (b) pursuant to the exemption from registration provided under Rule 144(k)
promulgated under the Securities Act.
ARTICLE VI
DEFINITIONS
6.1 TERMS. As used in this Agreement, the following defined terms shall
have the meanings set forth below:
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.10 per share of the
Company, any securities into which such common stock shall have been changed
or any securities resulting from any reclassification or recapitalization of
such common stock, and all other securities (other than
IV-6
<PAGE>
Preferred Stock) of any class or classes (however designated) of the Company
the holders of which have the right, without limitation as to amount, after
payment on any securities entitled to a preference on dividends or other
distributions upon any dissolution, liquidation or winding up, either to all
or to a share of the balance of payments upon such dissolution, liquidation
or winding up.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute then in effect, and any reference to a
particular section thereof shall include a reference to the equivalent
section, if any, of any such similar Federal statute, and the rules and
regulations thereunder.
"INITIAL SPA SHARES" means (i) 200,000 shares of Common Stock issued or
issuable under the Stock Purchase Agreement (allocated among Annacarin
Bodin, Mattias Bodin and Tobias Bodin in proportion to the total number of
shares of Common Stock issuable to each of them thereunder), and (ii) any
securities issued or issuable with respect to such shares of Common Stock in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"PERSON" means any individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PROSPECTUS" means the prospectus included in any Registration Statement
(including without limitation, a prospectus that disclosed information
previously omitted from a Prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the securities
covered by such Registration Statement, and all other amendments and
supplements to the prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference
in such prospectus.
"REGISTRABLE SECURITIES" means (i) Initial SPA Shares, Remaining SPA
Shares and Warrant Shares. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been
(x) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (y) transferred
pursuant to Rule 144 (or any similar rule then in force) under the
Securities Act or otherwise transferred and, in each case, new certificates
for them not bearing a restrictive Securities Act legend have been delivered
by the Company and can be sold without complying with the registration
requirements of the Securities Act.
"REGISTRATION EXPENSES" means, with respect to any Required
Registration, all of the reasonable costs and expenses incurred in
connection with such Registration, including reasonable attorney's fees up
to $10,000 for one special counsel to the selling stockholders (the "Special
Counsel"), other than (i) underwriting discounts and commissions;
(ii) transfer taxes; and (iii) all attorney's fees for selling stockholders'
attorneys other than Special Counsel, and all Special Counsel fees in excess
of $10,000.
"REGISTRATION STATEMENT" means any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits
and all material incorporated by reference in such registration statement.
"REMAINING SPA SHARES" means (i) with the exception of Initial SPA
Shares, all shares of Common Stock issued or issuable under the Stock
Purchase Agreement and (ii) any securities issued or issuable with respect
to such shares of Common Stock in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
IV-7
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute then in effect, and any reference to a particular
section thereof shall include a reference to a comparable section, if any,
of any such similar Federal statute, and the rules and regulations
thereunder.
"WARRANT SHARES" means (i) the Common Stock issued or issuable under the
Warrant Agreement, and (ii) any securities issued or issuable with respect
to such shares of Common Stock in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
6.2 DEFINED TERMS IN CORRESPONDING SECTIONS. The following defined terms,
when used in this Agreement, shall have the meaning ascribed to them in the
corresponding Sections of this Agreement listed below:
<TABLE>
<S> <C> <C>
"Agreement" -- Preamble
"Company" -- Preamble
"Holder Indemnitees" -- Section 4.1
"Holders" -- Preamble
"Required Registrations" -- Section 1.1
"Stock Purchase Agreement" -- Recitals
"Warrant Agreement" -- Recitals
</TABLE>
ARTICLE VII
MISCELLANEOUS
7.1 REMEDIES. In the event of a breach by any party to this Agreement of
its obligations under this Agreement, any party injured by such breach, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of any such provision will
be inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
7.2 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or any holder of Registrable Securities, unless
such modification, amendment or waiver is approved in writing by the Company and
the Holders representing a majority of the Registrable Securities then
outstanding. The failure of any party to enforce any of the provisions of this
Agreement will in no way be construed as a waiver of such provisions and will
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
7.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not.
7.4 NOTICES. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or mailed by pre-paid registered or certified
mail, return receipt requested or mailed by overnight courier prepaid to the
parties at the following addresses:
<TABLE>
<S> <C>
</TABLE>
IV-8
<PAGE>
<TABLE>
<S> <C>
If to the Company, to: Digital Recorders, Inc.
----------------------------------------
----------------------------------------
----------------------------------------
If to Bengt Bodin: Bengt Bodin
La Piniere, Cidex 206, R.D. 2085,
FR-06330 Roquefort les Pins, France
If to Mattias Bodin: Mattias Bodin
Parkgatan 10
SE-112 30 STOCKHOLM, Sweden
If to Tobias Bodin: Tobias Bodin
Ovre Husargatan 23 A
SE-413 14 GOTEBORG, Sweden
</TABLE>
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 7.4, be deemed given upon
delivery, (ii) if delivered by mail in the manner described above to the address
as provided in this Section 7.4, be deemed given on the earlier of the tenth
full Business Day following the day of mailing or upon receipt, and (iii) if
delivered by overnight courier to the address provided in this Section 7.4, be
deemed given on the earlier of the third Business Day following the date sent by
such overnight courier or upon receipt. Any party from time to time may change
its address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
7.5 HEADINGS. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
7.6 GENDER. Whenever the pronouns "he" or "his" are used herein they shall
also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable.
Words in the singular shall be read and construed as though in the plural and
words in the plural shall be construed as though in the singular in all cases
where they would so apply.
7.7 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
7.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of North Carolina, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of North Carolina or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of North
Carolina.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IV-9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
<TABLE>
<S> <C> <C>
COMPANY:
DIGITAL RECORDERS, INC.
By:
-----------------------------------------
Name:
Title:
HOLDERS:
---------------------------------------------
Bengt Bodin
---------------------------------------------
Annacarin Bodin
---------------------------------------------
Mattias Bodin
---------------------------------------------
Tobias Bodin
</TABLE>
IV-10
<PAGE>
APPENDIX V
TRADEMARK LICENSE AGREEMENT
BETWEEN
MOBITEC AB
AND
MOBITEC KLIMAT AB
DATED [ ] 2001
V-1
<PAGE>
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is made as of [ ] 2001, by
and between
Mobitec AB, a Swedish corporation, registration number 556344-9999
("Mobitec")
and
Mobitec Klimat AB, a Swedish corporation, registration number 556487-3403
("Klimat").
PREAMBLES
A. DRI Europa AB, a wholly owned subsidiary of Digital Recorders, Inc., North
Carolina, USA, has this day on its own or together with Digital
Recorders, Inc. acquired all the shares of Mobitec Holding AB including the
ownership of all rights to the trademark and business name "Mobitec."
B. Mobitec, which is the holder of the full and unrestricted ownership of all
rights to the trademark and business name "Mobitec," is a wholly owned
subsidiary of the aforesaid Mobitec Holding AB.
C. Prior to the aforesaid acquisition of the shares of Mobitec Holding AB the
shares of Klimat were transferred and sold to an aktiebolag wholly owned by
the Sellers or the Bodin Sellers as defined in the Stock Purchase Agreement.
D. Klimat will within twelve months after the signature of this Agreement change
its company name, i.a. removing the name "Mobitec" therefrom.
E. Klimat desires to be able to continue to use the trademark "Mobitec" in
Klimat's Business (as hereinafter defined).
F. It is important for Digital Recorders, Inc., DRI Europa AB and Mobitec
Holding AB, with subsidiaries, to prevent any of their competitors from
gaining control over the trademark "Mobitec."
G. Taking into consideration what has been set forth above, Mobitec and Klimat,
intending to be legally bound, agree as follows.
1. DEFINITIONS
For the purposes of this Agreement the following terms shall have the meanings
set forth below.
1.1 Klimat's Business shall mean the development, marketing and sale of
climate-systems and other climate-products to the vehicle industry.
1.2 Products shall mean the products currently offered by Klimat.
1.3 The Stock Purchase Agreement shall mean the stock purchase agreement
between on the one hand Bengt Bodin, Annacarin Bodin, Mattias Bodin,
Tobias Bodin and Bertil Lindqvist, and on the other hand DRI Europe AB
and Digital Recorders, Inc., dated [ ] 2001.
1.4 Territory shall, subject to sub-section 2.3 below, mean the whole world.
1.5 Trademark shall mean the trademark "Mobitec."
2. THE LICENSE
2.1 Mobitec hereby grants to Klimat a royalty-free, non-exclusive license to
use the Trademark, without additions or modifications, in the Territory.
Klimat shall use the Trademark in a form approved by Mobitec, solely in
respect of the Products and solely for the purpose of conducting Klimat's
Business.
V-2
<PAGE>
2.2 Mobitec reserves to itself every right to use, and to grant others the
license to use, the Trademark.
2.3 It is a condition for the granting of license with respect to each
country within the Territory that such license will not create or involve
any risk of impairment or loss of the legal protection for the Trademark
in such country.
3. USE OF THE TRADEMARK
3.1 Klimat shall use the Trademark in accordance with the provisions of this
Agreement and all laws relating to the Trademark in force from time to
time. Klimat shall however, after twelve months from the signing of this
Agreement, not use the Trademark in its company name.
3.2 Klimat recognizes and acknowledges that Mobitec is the rightful owner of
the Trademark. Klimat shall not represent in any way that it has any
right or title to, or interest in, the Trademark or any registration or
use thereof, other than the license granted to it under this Agreement.
3.3 Klimat shall not take any actions which may mislead persons to believe
that Klimat and the Products are related to Mobitec and its products
other than the relationship created by this Agreement.
3.4 Klimat shall not, during the term of this Agreement or after its
termination, adopt or use any word or mark resembling the Trademark and
which is likely to deceive or cause confusion.
3.5 Klimat shall continuously inform Mobitec in writing of any country in
which Klimat uses or intends to use the Trademark.
3.6 Klimat agrees with respect to each country that it will make use of the
license granted by Mobitec only under the condition, and in such a
manner, that there will be no risk that Mobitec's rights in and to the
Trademark will be impaired or lost.
3.7 In any country within the Territory where, in accordance with legal
requirements, registration of a trademark license, or other special
conditions for or requirements relating to a trademark license must be
observed, Klimat agrees to use the Trademark only after such requirements
have been fully complied with, and only as long as they remain fully
complied with.
3.8 Klimat shall at its own expense record this Agreement or enter Klimat as
a registered or authorised user of the Trademark in those countries in
the Territory in which such action is required by law to protect the
Trademark or is advisable in the reasonable opinion of Mobitec. Klimat
does not have any other right to register or cancel any registration of
licence without having obtained Mobitec's prior written consent.
3.9 Klimat will cooperate with Mobitec in, and Mobitec will take reasonable
steps to keep Klimat fully advised of
(i) any execution, filing and prosecution, as desired by Mobitec, of any
trademark applications in the Territory relating to the Trademark;
and
(ii) the maintenance of existing trademark registrations relating to the
Trademark, including renewals thereof, in the Territory
3.10 Mobitec shall during the term of this Agreement be under no obligation to
maintain any registration regarding the Trademark in any country of the
Territory. If Mobitec intends to make any changes or termination of or
refrain from prolonging the registrations of the Trademark, Mobitec
shall, however, endeavour to inform Klimat thereof. If Mobitec for any
reason so notifies Klimat that it does not intend to maintain any
registration relating to the
V-3
<PAGE>
Trademark in any country of the Territory, Klimat may, upon written
approval by Mobitec, at its own expense and in the name of Mobitec make
all arrangements necessary to keep the registrations in force and good
standing.
3.11 Mobitec and Klimat shall inform each other in writing of any acts of
infringement by third parties involving the Trademark anywhere in the
Territory of which Mobitec or Klimat has knowledge and they shall consult
together in a view to determine the appropriate course of action, if any,
to be taken in such circumstances. Klimat shall fully and at its own
expense assist Mobitec in any proceeding against an infringer.
If the parties are unable to agree on any joint course of action to be
taken then Mobitec may at its own discretion decide whether or not to take
action against the infringer. If Mobitec decides not to take action
against the infringer then Mobitec may authorize Klimat to take such
action at its own expense.
3.12 Klimat recognizes and acknowledges that it uses the Trademark at its own
risk and that Mobitec in no way is responsible for Klimat not being able
to use the Trademark in every country in the Territory or for any
infringements of other trademarks or other intellectual property rights
which such usage may result into.
4. QUALITY STANDARDS AND QUALITY CONTROL
4.1 Klimat shall ascertain that the Products maintain a high reputable
standard and are of such quality that the goodwill associated with the
Trademark is fully preserved. The Products shall be produced, marketed
and provided in conformity with all applicable laws or other regulations
in force in the country, or part thereof, where any such production,
marketing or provision takes place.
4.2 Klimat shall maintain a high reputable standard in connection with the
use of the Trademark on signs, labels, packing materials, advertising,
promotional materials and the like.
4.3 Klimat shall in no way act or fail to act so as to disparage or lessen
the value of the Trademark.
5. INDEMNITY
5.1 Klimat shall have complete and exclusive responsibility for all its
activities concerning the Product in the Territory and Klimat undertakes
to indemnify and hold Mobitec harmless against all claims, losses,
damages, expenses or liability, directly or indirectly, resulting from
the use, manufacture, sale or lease of the Products in the Territory,
including but not limited to claims from third parties.
5.2 Klimat further agrees to indemnify and hold Mobitec harmless against all
claims, losses, damages, expenses or liability directly or indirectly
incurred by Mobitec as a result of Klimat's breach of this Agreement.
6. ASSIGNMENT OF THE AGREEMENT
Klimat may not wholly or partly sub-license, assign or pledge its rights
or obligations under this Agreement to any third party.
7. TERM AND TERMINATION
7.1 This Agreement shall enter into force when duly signed by both parties.
Unless terminated pursuant to the provisions in sub-section 7.2, the
Agreement shall remain in force for five years. If any one of the parties
wishes to terminate the Agreement at the end of this initial
V-4
<PAGE>
period that party shall give the other party written notice not less than
six months in advance. If not terminated as aforesaid, this Agreement
shall after its initial term remain in force for successive periods of
three years until terminated at the end of any such period by either
party giving the other party written notice not less than six months in
advance.
7.2 This Agreement and the license rights granted hereunder may further be
terminated by written notice by Mobitec with immediate effect in the
event that
(i) Klimat fails to fulfil any of its obligations under this Agreement
and such failure is not remedied within fourteen days of written
notice to do so;
(ii) Klimat becomes insolvent or a petition for bankruptcy should be
filed by or against it, or a receiver of its property or a
substantial part thereof should be appointed; or
(iii) The ownership in Klimat should change so that the aforementioned
Bengt Bodin no longer, directly or indirectly, controls more than
fifty per cent of the capital and of the votes of Klimat.
Termination under this sub-section 7.2 (iii) may not take place if
Mobitec accepts in writing the change of ownership, such acceptance
not to be unreasonably withheld.
(iv) The ownership in Klimat has changed after acceptance by Mobitec in
accordance with sub-section 7.2 (iii) and the direct or indirect
ownership in Klimat should change thereafter.
7.3 Upon termination of this Agreement, Klimat shall, and shall cause its
distributors, dealers and agents and any other persons appointed by it to
discontinue any further use of the Trademark or any other marks
confusingly similar to the Trademark. Further, Klimat shall fully and at
its own expense cooperate with Mobitec in all measures, including i.a.
registrations relating to the Trademark, required by law or advisable in
the reasonable opinion of Mobitec as a result of the termination of this
Agreement.
7.4 The termination of this Agreement shall not effect Mobitec's rights of
indemnification in accordance with section 5 above.
8. NOTICES
Any notice provided under this Agreement shall be in the English language
and deemed valid and effective if sent by courier or registered mail or
telefax to the following addresses:
<TABLE>
<S> <C>
If to Mobitec: [ ]
If to Klimat: [ ]
</TABLE>
The communications shall be considered having reached the addressee:
<TABLE>
<S> <C> <C>
(i) if sent by courier --on delivery
(ii) if sent by registered mail --seven days from the date of dispatch
(iii) if sent by telefax --on the day the recipient confirms receipt of the
telefax
</TABLE>
Mobitec and Klimat shall be obliged to send a communication to the other
party in accordance with this section 8 notifying any changes in the
relevant details set out herein, which details shall then be deemed to
have been amended accordingly.
V-5
<PAGE>
9. EXHAUSTIVE CONTRACT DOCUMENT
This Agreement sets forth exhaustively all terms and conditions related to
the licensing of the Trademark by Mobitec to Klimat and supersedes all
prior agreements between Mobitec and Klimat with respect to the subject
matter hereof.
10. AMENDMENTS
No amendment to this Agreement shall be effective unless made in writing
and signed by authorised representatives of Mobitec and Klimat.
11. SEVERABILITY
If any provision of this Agreement or part thereof shall to any extent be
or become invalid or unenforceable, the parties shall agree upon any
necessary and reasonable adjustment of the Agreement in order to secure
the vital interests of the parties and the main objectives prevailing at
the time of execution of the Agreement. Failing an agreement between the
parties on adjustments of the Agreement, such adjustments shall be made by
arbitrators in accordance with the provisions of the arbitration clause in
this Agreement.
12. WAIVER
The failure of any of the parties hereto to insist upon strict adherence
to any provision of this Agreement on any occasion shall not be considered
as a waiver of any right hereunder, nor shall it deprive that party of the
right thereafter to insist upon strict adherence to that provision or any
other provision of this Agreement.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Sweden.
14. ARBITRATION
14.1 Any dispute arising out of or in connection with this Agreement shall be
exclusively settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce
(the"Institute"). The arbitral tribunal shall be composed of three
(3) arbitrators. The place of arbitration shall be Gothenburg, Sweden.
The arbitration proceedings shall be conducted in the English language.
Each party shall nominate one arbitrator and the Institute shall nominate
the third arbitrator, who shall be the Chairman. If the respondent has not
within 30 days after receipt of a request for arbitration, appointed an
arbitrator, such arbitrator shall upon request of the claimant be
appointed by the Institute. If the provision related to the appointment of
the arbitrators is held by any court of competent jurisdiction or
arbitrators to be illegal, void or unenforceable the illegality, voidness
or unenforceability of such provision shall have no effect upon and shall
not impair the enforceability of any other provisions of this section 13.
The parties agree that the Institute in such case shall appoint all three
arbitrators.
Any dispute arising at any time between the parties shall be referred to
one single arbitration tribunal, unless (i) the arbitration tribunal
considers it inappropriate having regard to the point of time at which the
request for arbitration is made, or (ii) one or more of the arbitrators
declares that he or they do not accept to serve as arbitrators in a
dispute other than the actual dispute for which such arbitrator(s) was
appointed.
V-6
<PAGE>
The rules regarding joinder of claims in Chapter 14 of the Code of
Judicial Procedure (Sw. Rattegangsbalken) shall be applied by the arbitral
tribunal to the extent so is appropriate and accepted by the arbitrators.
The voting rules in the Code of Judicial Procedure shall be applied by the
arbitral tribunal.
------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in two
copies as of the day and year first above written.
<TABLE>
<S> <C>
MOBITEC AB MOBITEC KLIMAT AB
------------------------------------------- -------------------------------------------
</TABLE>
V-7
<PAGE>
APPENDIX VI
APPENDIX 3.2.1.3.A)
TO THE STOCK PURCHASE AGREEMENT
PROMISSORY NOTE
We, the undersigned DRI Europa AB, registration number 556546-6793,
undertakes to pay 36 months from the Closing Date (as defined in the Stock
Purchase Agreement) to Bengt Bodin, an individual resident at La Piniere, Cidex
206, R.D. 2085, FR-06330 Roquefort les Pins, France, the sum of USD____.
The aforesaid amount shall accrue annual interest at the rate of 9 (nine)
per cent. The interest shall be paid for each period of 90 days in arrears, each
payment to be made within 10 days after the expiration of each aforesaid period.
The aforesaid principal amount of USD____ may be adjusted in accordance with
sub-section 3.2.2. of the Stock Purchase Agreement and may be reduced in
accordance with sub-section 9.2 of the Stock Purchase Agreement.
This Promissory Note is an Appendix to and forms an integral part of the
Stock Purchase Agreement.
Any payment of the principal amount hereunder shall only be made after our
loan from _____ banken of SEK has been paid to the bank in full
Gothenburg ____________ 2000
<TABLE>
<S> <C> <C>
For DRI Europa AB
by
------------------------------------------
</TABLE>
VI-1
<PAGE>
[LOGO]
November 28, 2000 APPENDIX VII
Via Regular Mail
Mr. David L. Turney
Digital Recorders, Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
Dallas, TX 75225
PRELIMINARY OUTLINE OF TERMS
This Preliminary Outline of Terms (the "Terms Letter") sets forth a proposed
financing for Digital Recorders, Inc. (the "Company"). Renaissance Capital
Group, Inc. ("Renaissance") is interested in providing the Company with
financing from one or more of its investment funds ("Investment Funds" or
"Debenture Holders"), subject to certain terms and conditions as discussed
below. It should be clearly understood that this Term Letter does not constitute
a binding commitment but is merely an expression of interest subject to
satisfactory completion of due diligence and approval by the Independent Board
of Directors of each and every Investment Fund advancing monies.
1. INVESTMENT AMOUNT: A total investment in the amount of up to $3,000,000.
The investment will be in the form of a Convertible Debenture (see
conversion price below). It is understood that TBUS will have received
shareholder approval for this transaction. If such approved is not obtained,
this term sheet is deemed withdrawn.
2. DISBURSEMENT AND USE OF PROCEEDS: Disbursement will only be made after
Renaissance completes due diligence in a manner satisfactory to it and
obtains the approval of each Independent Board of Directors for every
Investment Fund advancing monies. Proceeds shall be used for working capital
and acquisitions.
3. CONVERTIBLE DEBENTURE YIELD RATE AND PAYMENTS: 8.00% per annum paid
monthly.
4. CONVERTIBLE DEBENTURE MATURITY: 7 years.
5. CONVERTIBLE DEBENTURE PRINCIPAL REPAYMENT: For the first three years,
monthly installments will consist of interest payments only. After three
years, mandatory principal redemption installments in the amount of $10 per
$1,000 of the then remaining principal amount are required with a final
installment of the remaining unpaid principal balance to be paid at
maturity.
6. UNIT CONVERSION TERMS: The Debentures and underlying Common Stock shall be
subject to the following conversion terms:
a. INITIAL CONVERSION PRICE: The Debentures will have an Initial
Conversion Price (the "Conversion Price") equal to the volume-weighted
average closing price for TBUS common stock for the 5 day period leading
up to closing, but in no circumstance will the conversion price exceed
$3.00 per share or be below $2.00 per share.
b. ADJUSTMENT TO CONVERSION PRICE: After the close of this transaction
until a mutually agreeable date, the Investment Funds will be entitled to
a downward adjustment to the Conversion Price (the "Automatic
Adjustment") if the Company does not attain a specific performance
benchmark (to be agreed upon) based on earnings before interest, taxes,
depreciation and amortization for the Company's 2001 fiscal year and the
market price of the Common Stock is
VII-1
<PAGE>
below the conversion price at the time of publication of the Company's
results for that period. At the adjustment date, the Conversion Price
will be reduced to equal the volume-weighted average closing price for
the Company's common stock over a ten day trading period following the
Company's public press release of that year's results. Renaissance agrees
the Investment Funds will not convert and/or sell any of the Company's
common stock during the time period used to define the market price for
the adjustment as well as for nine days prior to the time the period
begins running, which restriction extends to all short selling in the
securities of the Company by the Investment Funds.
c. ANTI-DILUTION PROVISIONS: The Conversion Price shall be subject to
certain anti-dilution adjustments in the event of stock splits, stock
dividends or issuance of additional stock at a price below the Conversion
Price as defined in the Convertible Debenture Agreement, except that no
adjustment shall be made for issuance of stock pursuant to presently
outstanding options and warrants. Notwithstanding the foregoing, the
Company can issue stock options to acquire up to 300,000 shares to
employees and directors at prices below the then effective conversion
price. The Company shall submit a report at the end of each quarter to
the lenders setting forth the number of options so issued in the quarter
and cumulatively.
7. SECURITY. The Debentures will be secured by all assets, tangible and
intangible, of the Company and its subsidiaries, which will be subordinated
to senior and asset-backed lenders only.
8. CONDITIONS PRECEDENT: The Investment Funds will not be obligated to commit
to the financing unless the following conditions are met:
a. All Loan Agreements, Convertible Debenture Agreements, Security
Agreements, and other documents necessary to memorialize the transaction
are executed in a manner satisfactory to Renaissance;
b. Satisfactory opinions have been received by Renaissance from the
Company's counsel;
c. At closing, the Company shall make good on all representations and
warranties and there shall be no material or adverse change in the
Company's financial or competitive position;
d. Completion of all due diligence in a manner satisfactory to Renaissance,
and receipt of all materials requested by Renaissance from the Company,
including, but not limited to, current financial statements and a summary
of the Company's capital structure.
9. DEBENTURE CALL PROVISIONS: The Company shall have the right to call the
Debentures at 101% of face value provided that: (i) the average closing bid
price for the Company's common stock for a period of 20 consecutive trading
days exceeds a value equal to 3 times the then effective Conversion Price;
(ii) the market price for the Company's common stock at the time of call is
supported by a price-to-earnings ratio of no greater than 25 times fully
diluted earnings per share excluding any extraordinary gains; (iii) the
average daily trading volume of the Company's common stock for a period of
20 consecutive trading days shall be no less than 40,000 shares; and
(iv) the shares of common stock underlying the Debentures are fully
registered. These call provisions shall be subject to the Debentures
Holders' right to convert.
10. OPTIONAL REDEMPTION OF DEBENTURES: The Debenture Holders will have the
right to require redemption of the Debentures under specific conditions as
defined in the Convertible Debenture Agreement and Loan Agreement. In the
event the redemption conditions are met and the Debenture Holders elect to
have their position redeemed, the redemption amount will be equal to the
principal amount outstanding at the redemption date plus an amount equal to
an 18% annual yield on the principal amount through the date of redemption.
In addition, the Company shall have the option to redeem the unconverted
debentures if the Holders notify it of their intent to sell those
debentures, such option remaining in effect for a 30 day period after
issuance of
VII-2
<PAGE>
notification. Such redemption will be for the principal amount offered plus
an amount equal to an 18% annual return on such amount.
11. REGISTRATION OF COMMON STOCK: The Debentures and underlying common stock
issuable upon conversion shall grant the Debenture Holders, at our request,
the following registration rights with regard to shares underlying the
Debentures:
a. "Piggy-back" registration rights shall be available to the Investment
Funds, at their expense, any time the Company files a registration
(subject to a 90 day delay at the underwriter's request).
b. A shelf registration (SEC Form S-3) covering all shares underlying the
Debentures shall be filed at the Company's expense within 180 days of the
sale of the Debentures or sixty days after Issuer becomes shelf eligible,
whichever date is later, which shelf shall terminate when the Debenture
Holders can sell their underlying common stock position in the open
market free of any restriction pursuant to Rule 144.
c. Demand registration rights on a one-time basis at the expense of the
Investment Funds.
12. COVENANTS: Affirmative and Negative Covenants shall be required including,
but not limited to, requiring the Company to do the following:
a. Provide audited financial statements annually and unaudited financial
statements quarterly together with compliance reports by a duly
authorized officer;
b. Furnish monthly financials within 30 days of the end of each month and
budgets (as currently used by management to conduct business) on a
rolling four month basis;
c. Stay current on all required SEC filings;
d. Make interest payments on a timely basis. In the event of noncompliance
in this regard the Debenture Holders together shall have the right to
nominate a single representative to the Company's Board of Directors;
e. Maintain compliance with existing bank requirements, and comply with
minimum financial standards (to be agreed upon following completion of
due diligence) as set forth in the Convertible Debenture and Loan
Agreements, including the maintenance of standard financial ratios as the
following:
a. Current ratio;
b. Total debt to equity ratio;
c. Interest coverage or times interest earned ratio; and
d. Cash flow to total debt ratio.
13. RESTRICTIONS: So long as any Debentures remain outstanding, the Company
shall not:
a. Issue any debt senior to or PARI PASSU with the Debentures without the
Investment Funds' consent which shall not be unreasonable withheld,
except for senior credit facilities and asset-backed loans for operations
and/or acquisitions.
b. Declare or pay any cash dividend or authorize or make any cash
distribution to any debt or equity holder junior in position to the
Debentures, except for dividend payments to the Series AAA holders of the
Company's Preferred Stock and except for any contractual obligation of
the Company to redeem the AAA Preferred during the term of the
Debentures. In the case of any debt prepayment, the Debentures will be
paid on a pro rata basis with any other debt holders that are PARI PASSU
to be Debentures.
VII-3
<PAGE>
14. RETENTION OF STOCK OWNERSHIP: So long as the Debentures remain outstanding,
David Turney, Lawrence Taylor, and all members of the Company's Board of
Directors will agree to withhold sale or assignment of their ownership in
the Company (except for intra-family transfers or estate planning purposes)
for 12 months following closing. Notwithstanding the foregoing, sales may be
made during the 12 month period with the prior approval of each Holder so
long as such sales are made above $5 per share.
15. DEFAULT PROVISIONS: Standard default provisions will be included in the
closing documentation that will define when default occurs and outline
remedies available to the Debenture Holders in the event of default.
16. BOARD REPRESENTATIVE: The Investment Funds will designate Russell Cleveland
as a member of the Company's Board of Directors, and the Company shall
reimburse the Investment Funds for all appropriate and reasonable expenses
incurred in connection with that Board representation. In addition, the
Debenture Holders shall have the right to nominate an additional Director to
the Board in the event the Company fails to comply with interest payment
provisions as outlined in paragraph 12 above.
COMMITMENT AND CLOSING FEES AND EXPENSES.
The foregoing is intended to provide an outline of investment terms rather than
a complete statement of all conditions and documents which would be required. It
is possible that substantive terms or conditions may be changed in order to
account for or reflect changes in statutory or regulatory rules governing the
subject matter of the transaction. In addition to the above terms, the following
fees shall apply:
a. COMMITMENT FEES: Upon notification that Renaissance intends to present
the investment proposal to the Board of Directors of each respective
Investment Fund, the Borrower shall make a good faith deposit equal to
1.0% of the commitment amount (the "Commitment Fee") in an escrow account
established at Renaissance's bank. If the investment is approved,
Renaissance shall claim the Commitment Fee one day following Board
approval. If the investment is not approved, the commitment fee will be
refunded to the Company within ten (10) days after such decision. In the
event approval is obtained and the Company subsequently decides not to
proceed with the funding, Renaissance will be entitled to retain the
commitment fee.
b. CLOSING FEE: A fee of 1.0% of all funds to be disbursed shall become
due and payable at closing.
c. CLOSING EXPENSE FEE: Upon notification that Renaissance intends to
present the investment proposal to the Board of Directors of each
respective Investment Fund, the Borrower shall make a good faith deposit
in the amount of 0.50% of the commitment amount (the "Closing Expense
Fee") in an escrow account established at Renaissance's bank. The Closing
Expense Fee shall pay for all reasonable closing costs and out-of-pocket
expenses (including attorney's fees) incurred by Renaissance in
connection with the preparation and documentation of the proposed
investment up to the amount deposited. If the investment is approved,
Renaissance shall claim the Closing Expense Fee one day following
approval. If the investment is not approved, the Closing Expense Fee will
be refunded to the Company within ten (10) days after such decision, less
any legal fees and other out-of-pocket expenses incurred up to the date
the investment proposal is rejected. If Renaissance commits in writing to
disburse and the Company decides not to proceed with the funding, the
Closing Expense Fee shall be retained by Renaissance.
VII-4
<PAGE>
d. DUE DILIGENCE FEE: To cover due diligence expenses, Borrower shall pay
Renaissance a non-refundable due diligence fee equal to $15,000.
If the Company desires Renaissance to investigate and present this plan of
financing to the Boards of Directors of each of its respective Investment Funds,
have an authorized officer execute a copy of this letter and return it to the
undersigned with a $15,000 check for the due diligence fee described above.
Except with respect to provisions relating to the commitment and closing fees
and expenses described above, this letter does not constitute a binding
agreement. Consummation of the transaction described herein will be subject to
the execution and delivery of documents in form and content satisfactory to the
Investment Funds, Renaissance and the Company.
If this letter agrees with your understanding and you wish to proceed as
provided above, please sign and return this letter within three (3) days or,
unless sooner withdrawn, this proposal shall terminate.
Sincerely,
/s/ Robert C. Pearson
Robert C. Pearson
Senior Vice President
Date: 29 Nov 00
Accepted as provided above
Due Diligence deposit check enclosed for $15,000 (CK #102902)
Digital Recorders, Inc.
By: /s/ David L. Turney
Title: CEO, President, Chairman
VII-5
<PAGE>
APPENDIX VIII
BENGT BODIN
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), made and entered into as of the
day of ____________, 2000, by and between DIGITAL RECORDERS, INC., a North
Carolina corporation having its principal office in Research Triangle Park,
North Carolina (hereinafter referred to as "Company" or "DRI") and BENGT BODIN,
a resident of Nice, France (hereinafter referred to as "Bodin").
STATEMENT OF PURPOSE
The Company has on the date hereof under a separate Stock Purchase Agreement
("Stock Purchase Agreement") acquired from Bodin and others all the shares of
Mobitec Holding AB ("Mobitec").
Bodin has a thorough knowledge of the business purchased by Company from
Mobitec, both with regard to its Swedish and foreign subsidiaries as well as its
other foreign operations (collectively all to be referred to as "the Group"). It
has been a condition to the Stock Purchase Agreement and it is important to the
future success of the Group that it have the benefit of the advice, counsel and
services of Bodin, and Bodin desires to render such advisory and consulting
services to the Group as directed by the Company on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other valuable considerations, receipt of which is hereby
acknowledged, Company and Bodin agree as follows:
1. CONSULTING SERVICES. For a period of three (3) years from the Closing
Date as defined in the Stock Purchase Agreement unless this Agreement is
terminated by either party pursuant to the specific terms set forth herein,
Bodin shall stand ready to and shall:
(a) furnish to the Group such reasonable services of an advisory or
consulting nature with respect to its business and affairs, including but
not limited to operating procedures, customers and customer relations,
products, services and sales, as Company may reasonably call upon him to
furnish and his health and other business commitments may permit; and
(b) if requested by the Board of Directors or President of Company upon
reasonable advance notice, meet with and consult with customers with respect
to their relationship to the Group and to otherwise use his reasonable best
efforts to obtain and maintain for the Group contractual relationships with
the customers;
it being understood that Bodin shall be available on reasonable notice and at
reasonable times for periodic consultations, either in person or by telephone;
provided, however, advisory and consulting services hereunder shall not require
Bodin to be active in the day-to-day operations of Company, and in furnishing
such consulting services hereunder Bodin shall not be an employee of any company
within the Group but shall act in the capacity of an independent contractor.
Bodin shall not be required to render such services during reasonable vacation
periods or during times of illness, disability or other incapacity. In the event
Bodin should leave his residence for any continuous period in excess of one
(1) week, Bodin shall use his best efforts to keep Company advised either of his
whereabouts or of the person or persons whom he will keep advised of his
whereabouts and how Company can communicate with him.
VIII-1
<PAGE>
In addition, Bodin shall at the sole reasonable discretion of Company agree
to serve as an advisor to the Board of Directors of any company within the Group
during the term of this Agreement.
2. PAYMENT FOR CONSULTING SERVICES.
(a) In consideration of Bodin's obligations to be available to and to
render advisory and consulting services as well as other obligations
undertaken by Bodin hereunder pursuant to the provisions of paragraph 1,
Company shall pay to Bodin compensation determined in accordance with
paragraph 2(b) below. In addition, Company shall reimburse Bodin for travel
expenses and other business expenses reasonably incurred by Bodin at the
request of Company (and properly documented and within guidelines approved
by the Board of Directors or as pre-approved by the President).
(b) In consideration of Bodin's obligations as defined herein, Company
through Digital Recorders, Inc. shall pay to Bodin the sum of One Hundred
Twenty Thousand U.S. Dollars ($120,000.00) the first year, One Hundred Sixty
Thousand U.S. Dollars ($160,000.00) the second year, and Two Hundred
Thousand U.S. Dollars ($200,000.00) the third year, payable by Company in
equal quarterly installments at the end of each quarter.
3. NONSOLICITATION OF EMPLOYEES. Bodin undertakes and agrees that during
the term of this Agreement and for a period of twenty-four (24) months after
this Agreement shall be terminated, whether voluntarily or involuntarily, he
will not, without the prior written approval of the Company solicit any
employees with regard to working for a competitor or to be employed by him, his
company or any affiliate thereof.
In the event Company shall establish to the satisfaction of a court of
competent jurisdiction the existence of a breach or threatened breach by Bodin
of this section, the Company, in addition to any other rights and remedies it
may have (including a monetary judgment/penalty pursuant to the Stock Purchase
Agreement), shall be entitled to an injunction restraining Bodin from doing or
continuing to do any such act in violation of this section, as well as
attorney's fees and costs of prosecution to enforce this Agreement, if the
Company ultimately prevails on the merits.
4. DISCLOSURE OF CONFIDENTIAL INFORMATION:
(a) NON-DISCLOSURE. Except as required in his duties to the Group,
Bodin will never, directly or indirectly, use, disseminate, disclose,
lecture upon, or publish articles concerning any Confidential Information.
Confidential Information shall be defined as information developed by or
disclosed to Bodin or known by Bodin as a consequence of or through his
employment or consultation by any company of the Group, not generally known in
the industry in which the Group is or may become engaged, about the Group's
products, processes, and services, including information and trade secrets
relating to research, development, formulas and recipes, inventions,
manufacture, profitability, purchasing, accounting, engineering, marketing,
merchandising, and selling.
"Confidential Information" shall not include information that (i) at the time of
use or disclosure by Bodin, is in the public domain through no fault of, action
or failure to act by Bodin; (ii) becomes known to Bodin from a third-party
source without violation of any obligation of confidentiality or other wrongful
or tortuous act; (iii) was known by Bodin prior to disclosure of such
information by the Company to Bodin; or (iv) was independently developed by
Bodin without any use of Confidential Information.
(b) CONFIDENTIAL PAPERS. Upon termination of this Agreement with the
Company, all documents, records, notebooks, and similar repositories of or
containing Confidential Information, including copies thereof, then in
Bodin's possession, whether prepared by him or others, will be left with the
Company.
VIII-2
<PAGE>
(c) CONFIDENTIAL INFORMATION. As part of the consideration required of
him under this Agreement, Bodin agrees that he will not, at any time either
during the term of this Agreement or thereafter, divulge to any person,
firm, or corporation any information received by him during the course of
his relationship with regard to the personnel, financial, or other affairs
of the Group and all such information shall be kept confidential and shall
not in any manner be revealed to anyone, subject to the standard exceptions
contained in the third paragraph of Section 4(a) above.
(d) CUSTOMER NAMES. As part of the consideration for the making of
this Agreement, Bodin agrees that he will not, at any time during the term
of this Agreement or thereafter, divulge to any person, firm, or corporation
any name or names of any or all of the customers or suppliers of the Group,
subject to the standard exceptions contained in the third paragraph of
Section 4(a) above.
(e) In the event the Company shall establish to the satisfaction of a
court of competent jurisdiction the existence of a breach or threatened
breach by Bodin of any of the provisions of this Section 4, the Company, in
addition to any other rights and remedies it may have, shall be entitled to
an injunction restraining Bodin from doing or continuing to do any such act
in violation of this Section 4.
(f) Notwithstanding the foregoing, Bodin may disclose Confidential
Information, if and to the extent obligated or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) under order of a court of competent
jurisdiction or other similar requirement of a governmental agency, provided
Bodin shall promptly notify the Company of such request(s) so that the
Company may seek an appropriate protective order.
5. NONCOMPETE. Because of his association with the Group, Bodin shall have
access to trade secrets and confidential information about the Group, its
business plans, its business accounts, its business opportunities, its expansion
plans into other geographical areas and its methods of doing business. Bodin
agrees that at any time during the term of this Agreement he will not, directly
or indirectly carry on, be engaged in, or take part in any activities or
services identical or substantially similar to any of his duties and
responsibilities with the Group, anywhere the Group does business on the
effective date of the termination of this Agreement, for the purpose of
competing with the Group in the Group's business (whether on his own behalf or
on behalf of any other person, corporation, partnership, venture or any other
entity or form of business).
Bodin's current engagement in Klimat and Hexair shall not be deemed as
competing for the purposes of this provision.
6. TERMINATION. Company may terminate this Agreement and the obligations
hereunder if Bodin shall die or become permanently disabled so as to be
incapable of performing his duties hereunder, or if Bodin shall be convicted or
admit to fraud or gross negligence with regard to his dealings with the Group.
Bodin may terminate this Agreement prior to the expiration of the three year
term hereof if the Company is in substantial breach hereof and has not remedied
such breach within 30 days from Bodin's notice to the Company of the
breach;however, the obligations of Bodin as set forth in Sections 3 through 5
shall survive any termination.
7. NOTICES. Any notices, requests, demands or other communications under
this Agreement to a party hereto shall be in writing and shall be deemed to have
been duly given when delivered in person
VIII-3
<PAGE>
or deposited in the United States mail, postage prepaid, by registered or
certified mail, return receipt requested, to the parties hereto at the following
addresses:
<TABLE>
<S> <C> <C>
(a) As to Bodin: Bengt Bodin
---------------------------------
---------------------------------
(b) As to Company: Digital Recorders, Inc.
P.O. Box 14068
Research Triangle Park,
NC 27709-4068
With Copy to: David M. Furr
Gray, Layton, Kersh, Solomon,
Sigmon, Furr & Smith, P.A.
P. O. Box 2636
Gastonia, NC 28053-2636
</TABLE>
Either party hereto may change his or its address to which notices or other
communications hereunder are to be directed by giving notice thereto to the
other party hereto as hereinabove provided. Provided, however, payments
hereunder need not be sent by registered or certified mail.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
Company and Bodin with respect to the subject matter hereof, and no amendment,
modification or cancellation hereof shall be effective unless the same is in
writing and executed by the parties hereto (or by their respective duly
authorized representatives).
9. APPLICABLE LAW. This Agreement shall be enforced, interpreted and
construed under the laws of North Carolina.
10. ARBITRATION. Any controversy, dispute or claim arising out of, or
relating to, this Agreement and/or its interpretation shall, unless resolved by
agreement of the parties, be settled by binding arbitration in Raleigh, Wake
County, North Carolina, in accordance with the Rules of the American Arbitration
Association then existing. This Agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law of the State of North Carolina.
The award rendered by the arbitrators shall be final and judgment may be entered
upon the award in any court of the State of North Carolina having jurisdiction
of the matter and Bodin agrees that such shall be enforceable in any
jurisdiction that Bodin might reside or have property.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, if any.
12. CAPTIONS. The captions and headings set forth in this Agreement are
for convenience of reference only and shall not be construed as a part of this
Agreement.
13. DUPLICATE ORIGINALS. This Agreement is executed in duplicate
originals, each of which shall be deemed an original hereof.
VIII-4
<PAGE>
IN WITNESS WHEREOF, Company and Bodin have caused this Agreement to be
executed under seal, all as of the day and year first above written.
<TABLE>
<S> <C> <C>
DIGITAL RECORDERS, INC.
By
-----------------------------------------
President
(SEAL)
BENGT BODIN
</TABLE>
VIII-5
<PAGE>
APPENDIX X
[Ernst & Young Logo]
LETTER OF OPINION FOR MOBITEC AB (corp. number 556344-9999)
We have audited annual accounts of Mobitec AB for the financial years
1998-01-01 -- 1998-12-31 and 1999-01-01 -- 1999-12-31.
The annual accounts have been prepared in accordance with Annual Accounts
Act and in accordance with generally accepted accounting principles in Sweden.
We confirm that the income statement and the balance sheet for years 1998
and 1999 of Mobitec AB audited by us have been taken into Consolidated Financial
Statements in the Proxy for years ended 1998-12-31 and 1999-12-31. Profit for
years amount to TSEK 2.720 (TUSD 343) respective TSEK 777 (TUSD 94).
Goteborg January 5, 2001
Ernst & Young AB
<TABLE>
<S> <C>
/s/ SIVERT BERGLUND
------------------------------------------
Sivert Berglund
Authorized Public Accountant
</TABLE>
X-1
<PAGE>
APPENDIX XI
MOBITEC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC
AB OTHER ADJUSTMENTS TOTAL AB OTHER ADJUSTMENTS TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 352 $ 317 $ -- $ 669 $ 157 $170 $ -- $ 327
Trade accounts receivable --
net............................. 1,125 363 (533) 955 841 -- (403) 438
Other receivables................. 130 73 66 269 152 -- 107 259
Receivables from group
companies....................... 568 412 (980) -- 179 252 (431) --
Inventories....................... 684 259 21 964 1,092 -- 33 1,125
Prepaids and other current
assets.......................... 34 1 -- 35 41 37 (37) 41
------ ------ ------- ------ ------ ---- ----- ------
Total current assets............ 2,893 1,425 (1,426) 2,892 2,462 459 (731) 2,190
Property and equipment -- net..... 322 44 (36) 330 329 40 (19) 350
Participation in group
companies....................... 144 81 (225) -- -- 85 (85) --
Other assets...................... -- -- 53 53 -- -- 56 56
------ ------ ------- ------ ------ ---- ----- ------
TOTAL ASSETS.................... $3,359 $1,550 $(1,634) $3,275 $2,791 $584 $(779) $2,596
====== ====== ======= ====== ====== ==== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Accounts payable.................. 601 320 -- 921 621 95 (95) 621
Accrued expenses.................. 395 131 -- 526 354 202 (156) 400
Income tax payable................ 14 1 (15) -- 17 19 -- 36
Other current liabilities......... 44 106 -- 150 41 -- (24) 17
Untaxed reserves.................. 48 71 (119) -- 19 87 (106) --
Liabilities to group companies.... 314 592 (906) -- -- 117 (117) --
------ ------ ------- ------ ------ ---- ----- ------
Total current liabilities....... 1,416 1,221 (1,038) 1,599 1,052 520 (498) 1,074
------ ------ ------- ------ ------ ---- ----- ------
Long Term Liabilities:
Deferred items.................... 57 12 29 98 12 -- 41 53
Long term liabilities............. 533 -- (533) -- 403 -- (403) --
------ ------ ------- ------ ------ ---- ----- ------
Total long term liabilities..... 590 12 (504) 98 415 -- (362) 53
------ ------ ------- ------ ------ ---- ----- ------
Total Liabilities............... 2,006 1,233 (1,542) 1,697 1,467 520 (860) 1,127
------ ------ ------- ------ ------ ---- ----- ------
STOCKHOLDERS' EQUITY:
Share capital..................... 118 281 (387) 12 123 49 (160) 12
Legal and share premium reserve... 59 9 224 292 62 7 230 299
Foreign translation adjustment.... -- 13 (18) (5) -- -- -- --
Minority interest................. -- -- 119 119 -- -- -- --
Accumulated earnings (deficit).... 1,176 14 (28) 1,162 1,139 8 11 1,158
------ ------ ------- ------ ------ ---- ----- ------
Total stockholders' equity...... 1,353 317 (92) 1,578 1,324 64 81 1,469
------ ------ ------- ------ ------ ---- ----- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.......... $3,359 $1,550 $(1,634) $3,275 $2,791 $584 $(779) $2,596
====== ====== ======= ====== ====== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
XI-1
<PAGE>
MOBITEC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC
AB OTHER ADJUSTMENTS TOTAL AB OTHER ADJUSTMENTS TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $10,907 $1,212 $(1,007) $11,112 $10,101 $ 38 $38 $10,177
Cost of sales....................... 7,876 872 (922) 7,826 7,158 20 (33) 7,145
------- ------ ------- ------- ------- ---- --- -------
Gross profit.................... 3,031 340 (85) 3,286 2,943 18 71 3,032
------- ------ ------- ------- ------- ---- --- -------
Operating expenses:
Selling, general and
administrative.................. 1,741 782 (65) 2,458 1,934 162 19 2,115
Research and development.......... 573 -- -- 573 523 -- -- 523
Other............................. 44 1 -- 45 (96) -- -- (96)
------- ------ ------- ------- ------- ---- --- -------
Total operating expenses........ 2,358 783 (65) 3,076 2,361 162 19 2,542
------- ------ ------- ------- ------- ---- --- -------
Operating income (loss)........... 673 (443) (20) 210 582 (144) 52 490
Other income (expense).............. (31) 12 (80) (99) (55) 67 6 18
Interest income (expense)........... (27) 4 -- (23) (13) -- 38 25
------- ------ ------- ------- ------- ---- --- -------
Total other income (expense) and
interest income (expense)..... (58) 16 (80) (122) (68) 67 44 43
------- ------ ------- ------- ------- ---- --- -------
Income (loss) before income
taxes........................... 615 (427) (100) 88 514 (77) 96 533
Income tax expense.................. (37) (4) 39 (2) (21) (20) (3) (44)
------- ------ ------- ------- ------- ---- --- -------
Net income (loss)................. 578 (431) (61) 86 493 (97) 93 489
Group contribution.................. (484) 439 45 -- (150) 150 -- --
------- ------ ------- ------- ------- ---- --- -------
Net income after group
contribution.................... $ 94 $ 8 $ (16) $ 86 $ 343 $ 53 $93 $ 489
======= ====== ======= ======= ======= ==== === =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
XI-2
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ORGANIZATION
The consolidated financial statements of Mobitec include the financial
statements of Mobitec Holding AB and its subsidiaries (Mobitec AB, Mobitec Gmbh,
Mobitec Australia Pty Ltd., and Mobitec Ltda). The financial statements of
Mobitec AB have been audited by Ernst & Young and are summarized in the column
labeled "Mobitec AB". The financial statements of Mobitec Holding AB and the
other subsidiaries (Mobitec Gmbh, Mobitec Australia Pty Ltd., and Mobitec Ltda)
are summarized in the column labeled "Mobitec Other". These financial statements
have not been audited but are not material in relation to the consolidated
amounts.
NOTE B--ADJUSTMENTS
The adjustments reflected in the "Adjustments" column are those required to
(i) eliminate the intercompany investment and group receivables and payables,
(ii) eliminate the intercompany sales and purchases, expenses, and group
contribution, and (iii) to make certain adjustments to convert the financial
statements to US generally accepted accounting principles. The adjustments to
convert to US generally accepted accounting principles are immaterial in amount
for all periods presented.
XI-3
<PAGE>
APPENDIX XII
MOBITEC
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------- --------------------------------------------
MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC
AB OTHER ADJUSTMENTS TOTAL AB OTHER ADJUSTMENTS TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 73 $ 90 $ -- $ 163 $ 219 $ 19 $ -- $ 238
Trade accounts receivable --
net............................. 1,341 629 (394) 1,576 1,635 -- (440) 1,195
Other receivables................. 126 46 -- 172 97 -- 65 162
Receivables from group
companies....................... 566 160 (726) -- 64 99 (163) --
Inventories....................... 1,086 394 -- 1,480 914 -- -- 914
Prepaids and other current
assets.......................... 26 33 -- 59 241 -- -- 241
------ ------ ------- ------ ------ ---- ----- ------
Total current assets............ 3,218 1,352 (1,119) 3,451 3,170 118 (538) 2,750
Property and equipment -- net..... 256 74 (43) 287 339 -- (33) 306
Participation in group
companies....................... 127 77 (204) -- 64 84 (148) --
Other assets...................... -- 100 57 157 -- -- 125 125
------ ------ ------- ------ ------ ---- ----- ------
TOTAL ASSETS.................... $3,601 $1,603 $(1,310) $3,894 $3,573 $202 $(594) $3,181
====== ====== ======= ====== ====== ==== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................... $ -- $ -- $ 456 $ 456 $ -- $ -- $ -- $ --
Accounts payable.................. 722 371 (160) 933 702 -- 79 781
Accrued expenses.................. 301 102 -- 403 300 158 -- 458
Income tax payable................ 128 34 (15) 147 123 1 -- 124
Other current liabilities......... 34 42 -- 76 35 12 -- 47
Untaxed reserves.................. 42 62 (104) -- -- -- -- --
Liabilities to group companies.... -- 552 (552) -- 99 79 (178) --
------ ------ ------- ------ ------ ---- ----- ------
Total current liabilities....... 1,227 1,163 (374) 2,016 1,259 250 (99) 1,410
------ ------ ------- ------ ------ ---- ----- ------
Long Term Liabilities:
Other liabilities................. 507 111 (435) 183 53 8 (22) 39
Long term liabilities............. 394 -- (394) -- 440 -- (440) --
------ ------ ------- ------ ------ ---- ----- ------
Total long term liabilities..... 901 111 (829) 183 493 8 (462) 39
------ ------ ------- ------ ------ ---- ----- ------
Total Liabilities............... 2,128 1,274 (1,203) 2,199 1,752 258 (561) 1,449
------ ------ ------- ------ ------ ---- ----- ------
STOCKHOLDERS' EQUITY:
Share capital..................... 105 227 (322) 10 122 12 (122) 12
Legal reserve..................... 52 2 85 139 61 2 113 176
Foreign translation adjustment.... -- 30 11 41 -- -- -- --
Minority interest................. -- -- 160 160 -- -- -- --
Accumulated earnings (deficit).... 1,316 70 (41) 1,345 1,638 (70) (24) 1,544
------ ------ ------- ------ ------ ---- ----- ------
Total stockholders' equity...... 1,473 329 (107) 1,695 1,821 (56) (33) 1,732
------ ------ ------- ------ ------ ---- ----- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.......... $3,601 $1,603 $(1,310) $3,894 $3,573 $202 $(594) $3,181
====== ====== ======= ====== ====== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
XII-1
<PAGE>
MOBITEC
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in Thousands)
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------- --------------------------------------------
MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC MOBITEC
AB OTHER ADJUSTMENTS TOTAL AB OTHER ADJUSTMENTS TOTAL
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $7,616 $2,150 $(1,511) $8,255 $8,190 $ 73 $(36) $8,227
Cost of sales....................... 5,376 1,568 (1,478) 5,466 5,825 -- -- 5,825
------ ------ ------- ------ ------ ---- ---- ------
Gross profit.................... 2,240 582 (33) 2,789 2,365 73 (36) 2,402
------ ------ ------- ------ ------ ---- ---- ------
Operating expenses:
Selling, general and
administrative.................. 1,188 722 (47) 1,863 1,287 146 (22) 1,411
Research and development.......... 391 -- -- 391 424 -- -- 424
Other............................. (19) -- -- (19) 1 -- -- 1
------ ------ ------- ------ ------ ---- ---- ------
Total operating expenses........ 1,560 722 (47) 2,235 1,712 146 (22) 1,836
------ ------ ------- ------ ------ ---- ---- ------
Operating income (loss)........... 680 (140) 14 554 653 (73) (14) 566
Other income (expense).............. 12 -- (58) (46) -- -- -- --
Interest income (expense)........... (33) 16 -- (17) (27) -- -- (27)
------ ------ ------- ------ ------ ---- ---- ------
Total other income (expense) and
interest income (expense)..... (21) 16 (58) (63) (27) -- -- (27)
------ ------ ------- ------ ------ ---- ---- ------
Income (loss) before income
taxes........................... 659 (124) (44) 491 626 (73) (14) 539
Income tax expense.................. (139) (36) 4 (171) (116) -- 10 (106)
------ ------ ------- ------ ------ ---- ---- ------
Net income (loss)................. 520 (160) (40) 320 510 (73) (4) 433
Group contribution.................. (224) 224 -- -- -- -- -- --
------ ------ ------- ------ ------ ---- ---- ------
Net income (loss) after group
contribution.................... $ 296 $ 64 $ (40) $ 320 $ 510 $(73) $ (4) $ 433
====== ====== ======= ====== ====== ==== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
XII-2
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--ORGANIZATION
The consolidated financial statements of Mobitec include the financial
statements of Mobitec Holding AB and its subsidiaries (Mobitec AB, Mobitec Gmbh,
Mobitec Australia Pty Ltd., and Mobitec Ltda). The financial statements of
Mobitec AB have been audited by Ernst & Young and are summarized in the column
labeled "Mobitec AB". The financial statements of Mobitec Holding AB and the
other subsidiaries (Mobitec Gmbh, Mobitec Australia Pty Ltd., and Mobitec Ltda)
are summarized in the column labeled "Mobitec Other". These financial statements
have not been audited but are not material in relation to the consolidated
amounts.
NOTE B--ADJUSTMENTS
The adjustments reflected in the "Adjustments" column are those required to
(i) eliminate the intercompany investment and group receivables and payables,
(ii) eliminate the intercompany sales and purchases, expenses, and group
contribution, and (iii) to make certain adjustments to convert the financial
statements to US generally accepted accounting principles. The adjustments to
convert to US generally accepted accounting principles are immaterial in amount
for all periods presented.
XII-3
<PAGE>
APPENDIX XIII
DIGITAL RECORDERS, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Amounts in Thousands Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
DIGITAL MOBITEC ADJUSTMENTS NOTE COMBINED
---------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 22,441 $11,112 $ -- $ 33,553
Cost of sales.............................. 14,555 7,826 -- 22,381
---------- ------- ----- ----------
Gross profit........................... 7,886 3,286 -- 11,172
---------- ------- ----- ----------
Operating expenses:
Selling, general and administrative...... 6,303 2,458 406 B1 9,167
Research and development................. 1,866 573 -- 2,439
Other.................................... -- 45 -- 45
---------- ------- ----- ----------
Total operating expenses............... 8,169 3,076 406 11,651
---------- ------- ----- ----------
Operating income (loss)................ (283) 210 (406) (479)
---------- ------- ----- ----------
Other expense.............................. (19) (99) -- (118)
Interest expense........................... (167) (23) (514) B2 (704)
---------- ------- ----- ----------
Total other expense and interest
expense.............................. (186) (122) (514) (822)
---------- ------- ----- ----------
Income (loss) before income taxes........ (469) 88 (920) (1,301)
Income tax expense......................... -- (2) -- (2)
---------- ------- ----- ----------
Income (loss) before change in accounting
principle.............................. (469) 86 (920) (1,303)
Less: Cumulative effect of change in
accounting principle..................... 136 -- -- 136
---------- ------- ----- ----------
Net income (loss)........................ (605) 86 (920) (1,439)
Preferred stock dividend requirements...... (172) -- -- (172)
---------- ------- ----- ----------
Net income (loss) applicable to common
shareholders........................... $ (777) $ 86 $(920) $ (1,611)
========== ======= ===== ==========
Earnings per share:
Loss before cumulative effect of change
in accounting principle................ $ (0.20) $ (0.35)
Cumulative effect of change in accounting
principle.............................. (0.04) (0.04)
---------- ----------
Total basic and diluted net loss per
share.................................. $ (0.24) $ (0.39)
========== ==========
Weighted average number of common shares
and common equivalent shares
outstanding............................ 3,274,075 3,704,075
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
XIII-1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A--ACQUISITION:
On December 7, 2000, Digital Recorders, Inc. ("Digital") and its
wholly-owned subsidiary, DRI Europa AB ("DRI Europa"), entered into an Option
Agreement with Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and
Bertil Lindqvist (collectively, the "Offerors"), pursuant to which the Offerors
granted to Digital and DRI-Europa an irrevocable right of option to purchase
from the Offerors all of the 100,000 outstanding shares of Mobitec Holding AB,
pursuant to a Stock Purchase Agreement. The option may be exercised such that
either DRI-Europa, solely or DRI-Europa and Digital, jointly will be the
Purchaser under the Stock Purchase Agreement. The Stock Purchase Agreement,
which will be executed after exercise of one of the options, provides for the
purchase of the Offerors' shares of Mobitec Holding AB for an aggregate
consideration of (i) $4,250,000 in cash, (ii) seller financed debt to the Bodin
Sellers of $2,000,000, (iii) 430,000 Restricted Shares of the Digital's Common
Stock, and (iv) warrants to purchase in the aggregate of 100,000 shares of
Digital's Common Stock at an exercise price of $4.00 per share for a period of
5 years.
NOTE B--PRO FORMA ADJUSTMENTS:
(1) Represents the amortization of recorded goodwill over an estimated life
of 15 years.
(2) Represents the interest expense for the year associated with the
issuance of the convertible debentures of $3,000,000 (8%), the seller
financed notes of $2,000,000 (9%) and the borrowings in connection with
the Svenska Handelsbanken AB term loan of $1,750,000 (5.35%).
XIII-2
<PAGE>
APPENDIX XIV
DIGITAL RECORDERS, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(Amounts in Thousands Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
DIGITAL MOBITEC ADJUSTMENTS NOTE COMBINED
---------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales................................... $ 20,387 $8,255 $ -- $ 28,642
Cost of sales............................... 12,757 5,466 -- 18,223
---------- ------ ----- ----------
Gross profit............................ 7,630 2,789 -- 10,419
---------- ------ ----- ----------
Operating expenses:
Selling, general and administrative....... 5,961 1,863 305 B-1 8,129
Research and development.................. 1,735 391 -- 2,126
Other..................................... -- (19) -- (19)
---------- ------ ----- ----------
Total operating expenses................ 7,696 2,235 305 10,236
---------- ------ ----- ----------
Operating income (loss)................. (66) 554 (305) 183
---------- ------ ----- ----------
Other expense............................... (9) (46) -- (55)
Interest expense............................ (358) (17) (385) B-2 (760)
---------- ------ ----- ----------
Total other expense and interest
expense............................... (367) (63) (385) (815)
---------- ------ ----- ----------
Income (loss) before income taxes......... (433) 491 (690) (632)
Income tax expense.......................... -- (171) -- (171)
---------- ------ ----- ----------
Net income (loss)......................... (433) 320 (690) (803)
Preferred stock dividend requirements....... (133) -- -- (133)
---------- ------ ----- ----------
Net income (loss) applicable to common
shareholders............................ $ (566) $ 320 $(690) $ (936)
========== ====== ===== ==========
Earnings per share:
Net loss per share -- basic and diluted... $ (0.17) $ (0.25)
========== ==========
Weighted average number of common shares
and common equivalent shares
outstanding............................. 3,274,075 3,704,075
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
XIV-1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A--ACQUISITION:
On December 7, 2000, Digital Recorders, Inc. ("Digital") and its
wholly-owned subsidiary, DRI Europa AB ("DRI Europa"), entered into an Option
Agreement with Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and
Bertil Lindqvist (collectively, the "Offerors"), pursuant to which the Offerors
granted to Digital and DRI-Europa an irrevocable right of option to purchase
from the Offerors all of the 100,000 outstanding shares of Mobitec Holding AB,
pursuant to a Stock Purchase Agreement. The option may be exercised such that
either DRI-Europa, solely or DRI-Europa and Digital, jointly will be the
Purchaser under the Stock Purchase Agreement. The Stock Purchase Agreement,
which will be executed after exercise of one of the options, provides for the
purchase of the Offerors' shares of Mobitec Holding AB for an aggregate
consideration of (i) $4,250,000 in cash, (ii) seller financed debt to the Bodin
Sellers of $2,000,000, (iii) 430,000 Restricted Shares of the Digital's Common
Stock, and (iv) warrants to purchase in the aggregate of 100,000 shares of
Digital's Common Stock at an exercise price of $4.00 per share for a period of
5 years.
NOTE B--PRO FORMA ADJUSTMENTS:
(1) Represents the amortization of recorded goodwill over an estimated life
of 15 years.
(2) Represents the interest expense for the nine month period associated
with the issuance of the convertible debentures of $3,000,000 (8%), the
seller financed notes of $2,000,000 (9%) and the borrowings in connection
with the Svenska Handelsbanken AB term loan of $1,750,000 (5.35%).
XIV-2
<PAGE>
APPENDIX XV
DIGITAL RECORDERS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
DIGITAL MOBITEC ADJUSTMENTS NOTE COMBINED
-------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 104 $ 163 $ 250 B1 $ 517
Trade accounts receivable -- net.............. 6,832 1,576 -- 8,408
Other receivables............................. 52 172 -- 224
Inventories................................... 5,818 1,480 -- 7,298
Prepaids and other current assets............. 567 59 -- 626
------- ------ ------- -- -------
Total current assets........................ 13,373 3,451 250 17,074
Property and equipment -- net................. 593 287 -- 880
Goodwill -- net............................... 1,108 -- 6,095 B2 7,203
Intangible assets -- net...................... 84 -- -- 84
Deferred taxes................................ 122 -- -- 122
Other assets.................................. 245 157 -- 402
------- ------ ------- -------
TOTAL ASSETS................................ $15,525 $3,894 $ 6,345 $25,764
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit and current maturities......... $ 4,720 $ 456 $ 350 B3 $ 5,526
Accounts payable.............................. 4,543 933 -- 5,476
Accrued expenses.............................. 707 403 -- 1,110
Income tax payable............................ -- 147 -- 147
Other current liabilities..................... -- 76 -- 76
Preferred stock dividends payable............. 88 -- -- 88
------- ------ ------- -------
Total current liabilities................... 10,058 2,016 350 12,424
Long Term Liabilities:
Other liabilities............................. -- 183 -- 183
Long term liabilities......................... -- -- 6,400 B3 6,400
------- ------ ------- -------
Total long term liabilities................. -- 183 6,400 6,583
------- ------ ------- -------
Total Liabilities........................... 10,058 2,199 6,750 19,007
------- ------ ------- -------
Series AAA Redeemable, Convertible, Nonvoting
Preferred Stock............................... 1,770 -- -- 1,770
------- ------ ------- -------
STOCKHOLDERS' EQUITY:
Share capital................................. -- 10 (10) B2 --
Legal reserve................................. -- 139 (139) B2 --
Common stock.................................. 327 -- 43 B4 370
Additional paid-in-capital.................... 11,202 -- 1,247 B4 12,449
Accumulated other comprehensive income
(loss)...................................... (353) 41 (41) B2 (353)
Minority interest............................. -- 160 (160) B2 --
Accumulated earnings (deficit)................ (7,479) 1,345 (1,345) B2 (7,479)
------- ------ ------- -------
Total stockholders' equity.................. 3,697 1,695 (405) 4,987
------- ------ ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $15,525 $3,894 $ 6,345 $25,764
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
XV-1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A--ACQUISITION:
On December 7, 2000, Digital Recorders, Inc. ("Digital") and its
wholly-owned subsidiary, DRI Europa AB ("DRI Europa"), entered into an Option
Agreement with Bengt Bodin, Annacarin Bodin, Mattias Bodin, Tobias Bodin and
Bertil Lindqvist (collectively, the "Offerors"), pursuant to which the Offerors
granted to Digital and DRI-Europa an irrevocable right of option to purchase
from the Offerors all of the 100,000 outstanding shares of Mobitec Holding AB,
pursuant to a Stock Purchase Agreement. The option may be exercised such that
either DRI-Europa, solely or DRI-Europa and Digital, jointly will be the
Purchaser under the Stock Purchase Agreement. The Stock Purchase Agreement,
which will be executed after exercise of one of the options, provides for the
purchase of the Offerors' shares of Mobitec Holding AB for an aggregate
consideration of (i) $4,250,000 in cash, (ii) seller financed debt to the Bodin
Sellers of $2,000,000, (iii) 430,000 Restricted Shares of the Digital's Common
Stock, and (iv) warrants to purchase in the aggregate of 100,000 shares of
Digital's Common Stock at an exercise price of $4.00 per share for a period of
5 years.
NOTE B--PRO FORMA ADJUSTMENTS:
(1) Represents the cash received from (i) the issuance of $3,000,000 of
convertible debentures which are convertible to up to 1,500,000 shares of
the Company's common stock, which funds will be used to fund part of the
Stock Purchase Agreement, and (ii) the borrowing of $1,750,000 from
Svenska Handelsbanken AB, less (i) the cash consideration of $4,250,000
paid as part of the Acquisition and (ii) $250,000 in professional fees
related to the Acquisition.
(2) Represents the goodwill recorded in connection with the Acquisition for
the amount of the purchase price paid in excess of the fair value of
Mobitec's net assets and to record the elimination of Mobitec's
stockholders' equity.
(3) Represents the borrowings incurred related to the financing of the
Acquisition of (i) $3,000,000 of convertible debentures which are
convertible into up to 1,500,000 shares of the Company's common stock,
and (ii) $1,750,000 in a term loan from Svenska Handelsbanken AB, and
(iii) $2,000,000 in seller financed debt issued to the Bodin Sellers. All
borrowings are reflected as long-term obligations except for $350,000 of
the term loan which is due within one year.
(4) Represents the issuance of 430,000 Restricted Shares of the Company's
common stock at a value of $3.00 as part of the consideration for the
Acquisition.
XV-2
