EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
November 5, 2003, by and among DIGITAL RECORDERS, INC., a corporation organized
under the laws of the State of North Carolina (the "COMPANY"), and the
purchasers (the "PURCHASERS") set forth on the execution pages hereof (the
"EXECUTION PAGES").
WITNESSETH:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. Each Purchaser desires to purchase, severally and not jointly,
subject to the terms and conditions stated in this Agreement, shares of the
Company's Series E Redeemable Nonvoting Convertible Preferred Stock, $0.10 par
value per share (the "PREFERRED STOCK"), in the respective denominations
described on Exhibit A attached hereto (the "SCHEDULE OF PURCHASERS").
NOW, THEREFORE, the Company and each Purchaser hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:
"AFFILIATE" or "AFFILIATES" means, with respect to any Person, any
other Person that directly or indirectly controls, is controlled by, or is under
common control with, such Person.
"BUSINESS DAY" shall mean any day on which the principal United States
securities exchange or trading market on which the Common Stock is listed or
traded.
"CERTIFICATE OF DESIGNATION" shall mean that certain Certificate of
Designation of Series E Redeemable Nonvoting Convertible Preferred Stock of the
Company, filed as an amendment to the Articles of Incorporation of the Company
with the Secretary of State of the State of North Carolina.
"COMMON STOCK" shall mean the common stock of the Company, par value
$0.10 per share.
"INVESTMENT AMOUNT" shall mean the dollar amount to be invested in the
Company at the Closing pursuant to this Agreement by a Purchaser, as set forth
on the Schedule of Purchasers.
"LIEN" means any lien, charge, claim, security interest, encumbrance,
right of first refusal or other restriction.
"MATERIAL ADVERSE EFFECT" shall mean an event that (i) adversely
affects the legality, validity or enforceability of any Transaction Document,
(ii) has or results in a material adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole, or (iii) adversely impairs the Company's
ability to perform fully on a timely basis its obligations under any of the
Transaction Document; provided, that none of the following alone shall be
deemed, in and of itself, to constitute a Material Adverse Effect: (i) a change
in the market price or trading volume of the Company's Common Stock, or (ii)
changes in general economic conditions or changes affecting the industry in
which the Company operates generally (as opposed to Company-specific changes) so
long as such changes do not have a disproportionate effect on the Company and
its Subsidiaries taken as a whole.
"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock.
"PERSON" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"SHARES" means the shares of Preferred Stock to be issued and sold by
the Company and purchased by the Purchasers at the Closing.
"SUBSIDIARY" or "SUBSIDIARIES," when used with respect to subsidiaries
of the Company in Sections 3 or 4 of this Agreement, means or includes only a
"Significant Subsidiary" as defined in Rule 405 of Regulation C under the
Securities Act.
"TRANSACTION DOCUMENTS" means this Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.
2. PURCHASE AND SALE OF SHARES.
a. Generally. Except as otherwise provided in this Section 2 and
subject to the satisfaction (or waiver) of the conditions set forth in Section 6
and Section 7 below, each Purchaser shall purchase the number of Shares
determined as provided in this Section 2, and the Company shall issue and sell
such number of Shares to each Purchaser for such Purchaser's Investment Amount
as provided below. The Company's agreement with each of the Purchasers is a
separate agreement, and the sale of the Shares to each of the Purchasers is a
separate sale.
b. Number of Closing Shares; Form of Payment; Closing Date.
(i) On the Closing Date (as defined below), the Company shall
sell and each Purchaser shall buy the number of Shares set forth on the
Schedules of Purchasers for the purchase prices set forth on the Schedules of
Purchasers. On the Closing Date, each Purchaser shall pay the Company an amount
equal to such Purchaser's Investment Amount.
2
(ii) On the Closing Date, each Purchaser shall pay its
Investment Amount by wire transfer to the Company, in accordance with the
Company's written wiring instructions against delivery of certificates
representing the Shares being purchased by such Purchaser, and the Company shall
deliver such Shares against delivery of the such Purchaser's Investment Amount.
(iii) Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the sale of the Shares pursuant to this Agreement (the "CLOSING") shall be
10:00 a.m. Dallas time on November 5, 2003 or such other date or time as the
Purchasers and the Company may mutually agree ("CLOSING DATE"). The Closing
shall he held at the offices of Xxxxxxxxxxx & Xxxxxxxx LLP, 0000 Xxxxx Xxxxxxx,
Xxxxx 0000, Xxxxxx, Xxxxx 00000 or at such other place as Purchasers and the
Company may otherwise mutually agree.
3. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser severally and not jointly represents and warrants to the
Company as follows:
a. Purchase for Own Account. The Purchaser is purchasing the Shares for
the Purchaser's own account and not with a present view towards the distribution
thereof. The Purchaser understands that the Purchaser must bear the economic
risk of this investment, unless the Common Stock underlying the Shares (i) is
registered pursuant to the Securities Act and any applicable state securities or
blue sky laws or an exemption from such registration is available, and (ii) the
Shares are converted into Common Stock pursuant to the terms of the Certificate
of Designation. Notwithstanding anything in this Section 3(a) to the contrary,
by making the foregoing representation, the Purchaser does not agree to hold the
Shares, or the Common Stock underlying the Shares, for any minimum or other
specific term and reserves the right to dispose of the Shares, or the Common
Stock underlying the Shares, at any time in accordance with or pursuant to a
registration statement or an exemption from registration under the Securities
Act and any applicable state securities laws; provided, that in the case of any
transfer of the Shares, or the Common Stock underlying the Shares, pursuant to
an exemption, such transfer is made in accordance with the provisions of Section
3(e).
b. Information. The Purchaser has been furnished all materials
(excluding any material nonpublic information) relating to the business,
finances and operations of the Company and its Subsidiaries and materials
relating to the offer and sale of the Shares that have been requested by the
Purchaser. The Purchaser has been afforded the opportunity to ask questions of
the Company.
c. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares.
d. Authorization; Enforcement. The Purchaser has the requisite power
and authority to enter into and perform its obligations under this Agreement and
to purchase the Shares in accordance with the terms hereof. This Agreement has
been duly and validly authorized, executed and delivered on behalf of the
Purchaser and is a valid and binding agreement of the Purchaser enforceable
against the Purchaser in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other laws affecting creditors' rights and remedies generally and
3
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity).
e. Transfer or Resale. The Purchaser understands that (i) except as
provided in Section 5(h) hereof, the Shares, and the Common Stock underlying the
Shares, have not been and are not being registered under the Securities Act or
any state securities laws, and may not be transferred unless (a) subsequently
registered thereunder or sold pursuant to Rule 144 under the Securities Act, or
(b) the Purchaser shall have delivered to the Company an opinion of counsel
reasonably acceptable to the Company (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that the Shares, or the Common Stock underlying the Shares, to be sold or
transferred may be sold or transferred under an exemption from such
registration.
f. Legends. The Purchaser understands that the Shares, and upon any
conversion of the Shares to Common Stock, the Common Stock underlying the
Shares, may bear a restrictive legend in substantially the following form:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
FULL RECOURSE LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.
Certificates evidencing Shares shall not be required to contain such
legend or any other legend (i) while a registration statement covering the
resale of the Common Stock underlying the Shares is effective under the
Securities Act provided the Purchasers at the time any of the Purchasers request
a removal of the Legend on any certificate evidencing all or any portion of the
Shares or to transfer any of the same (or a broker acting on such Purchaser's
behalf) provides to the Company (or to the Transfer Agent on the Company's
behalf) reasonable written assurances to the effect that any of the Shares sold
or to be sold by such Purchasers have been, or will be, sold in accordance with
the plan of distribution set forth in the prospectus and in compliance with the
prospectus delivery requirements under the Securities Act, or (ii) following any
sale of such Shares, or assuming
4
conversion of the Shares, the Common Stock underlying the Shares, pursuant to
Rule 144, or (iii) if such Shares, or assuming conversion, the Common Stock
underlying the Shares, are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the SEC). Following such time as a legend is no longer required for certain
Shares, or the Common Stock underlying the Shares assuming conversion, the
Company will no later than three (3) Business Days following the delivery by a
Purchaser to the Company or the Transfer Agent of a legended certificate
representing such Shares, or assuming conversion, the Common Stock underlying
the Shares, deliver or cause to be delivered to such Purchaser a certificate
representing such Shares, or assuming conversion, the Common Stock underlying
the Shares, that is free from all restrictive and other legends. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company that enlarge the restrictions on transfer set forth in this
Section 3(f).
The Company acknowledges and agrees that a Purchaser may from time to
time pledge or grant a security interest in some or all of the Shares, or
assuming conversion, the Common Stock underlying the Shares, in connection with
a bona fide margin agreement or other full recourse loan or financing
arrangement secured by the Shares, or assuming conversion, the Common Stock
underlying the Shares, and if required under the terms of such agreement, loan
or arrangement, such Purchaser may transfer pledged or secured Shares, or the
Common Stock underlying the Shares, to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no legal
opinion of the pledgee, secured party or pledgor shall be required in connection
therewith, but such legal opinion may be required in connection with a
subsequent transfer following default by the Purchaser transferee of the pledge.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Shares, or assuming conversion,
the Common Stock underlying the Shares, may reasonably request in connection
with a pledge or transfer of the Shares, or assuming conversion, the Common
Stock underlying the Shares, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.
g. Investor Status. The Purchaser is an "ACCREDITED INVESTOR" within
the meaning of Rule 501 Regulation D under the Securities Act. In the normal
course of its business, it invests in or purchases securities similar to the
Shares and it has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of purchasing the
Shares.
h. Restricted Securities. The Purchaser understands that the Shares are
characterized as "restricted securities" under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
5
a. Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized and existing under the laws of the
jurisdiction in which it is incorporated, and has the requisite corporate power
to own its properties and to carry on its business as now being conducted. Each
of the Company and its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect. The Company has no
direct or indirect Subsidiaries other than those listed in Schedule 4(a). Except
as disclosed in Schedule 4(a), the Company owns, directly or indirectly, all of
the capital stock or comparable equity interests of each Subsidiary free and
clear of any Lien, and all the issued and outstanding shares of capital stock or
comparable equity interests of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, to issue and sell the Shares in accordance with the terms hereof
and to issue Common Stock upon exercise of the Shares in accordance with the
terms of the Certificate of Designation; (ii) the execution, delivery and
performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Shares and the reservation for
issuance and issuance of the Common Stock issuable upon conversion of the Shares
in accordance with the Certificate of Designation) have been duly authorized by
the Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors or its shareholders is required; (iii) this
Agreement has been duly executed and delivered by the Company; and (iv) this
Agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
c. Capitalization. The capitalization of the Company as of the date
hereof is set forth on Schedule 4(c), including the authorized capital stock,
the number and type or class of shares issued and outstanding, the number of
shares issuable and reserved for issuance pursuant to the Company's stock option
plans, the number of shares issuable and reserved for issuance pursuant to
securities exercisable for, or convertible into or exchangeable for any shares
of capital stock. All of such outstanding shares of the Company's capital stock
have been, or upon issuance will be, validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4(c), no shares of capital stock
of the Company (including, but not limited to, the Shares and the Common Stock)
or any of the Subsidiaries are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any Liens or encumbrances. Except
for the Shares and as disclosed in Schedule 4(c), as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever to which the
Company or any of its Subsidiaries is a party relating to the issuance by the
Company or any of its Subsidiaries of securities or rights convertible into or
exercisable or exchangeable for any shares of capital stock of the Company or
any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or such Subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the Securities
6
Act (except pursuant to Section 5(h) hereof). Except as set forth on Schedule
4(c), there are no securities or instruments containing anti-dilution or similar
provisions that may be triggered by the issuance of the Shares in accordance
with the terms of this Agreement and the holders of the securities and
instruments listed on such Schedule 4(c) have waived any rights they may have
under such anti-dilution or similar provisions in connection with the issuance
of the Shares in accordance with the terms of this Agreement. The Company has
made available to each Purchaser true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("ARTICLES OF
INCORPORATION"), the Company's By-laws as in effect on the date hereof (the
"BY-LAWS"), the Certificate of Designation and all other instruments,
certificates of designation and agreements governing securities convertible into
or exercisable or exchangeable for capital stock of the Company, except for
stock options granted under any benefit plan of the Company.
d. Issuance of Shares. The Shares are duly authorized and when issued
and paid for in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable, and free from all taxes and Liens (other than those
imposed through acts or omissions of the Purchaser thereof) and will not be
subject to preemptive rights or other similar rights of shareholders of the
Company. The Common Stock issuable to the Purchaser upon conversion of the
Shares is duly authorized and reserved for issuance, and, upon conversion of the
Shares in accordance with the terms of the Certificate of Designation, will be
validly issued, fully paid and non-assessable and free from all taxes and Liens
(other than those imposed through acts or omissions of the Purchaser thereof)
and will not be subject to preemptive rights or other similar rights of
shareholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby (including, without limitation, the reservation
for issuance and issuance of the Shares and the issuance of the Common Stock
upon conversion of the Shares) will not (i) conflict with or result in a
violation of the Articles of Incorporation or By-laws or (ii) conflict with, or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including (assuming the accuracy of the representations and warranties of the
Purchasers) the United States federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected (except,
with respect to clause (ii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws and other organizational documents and neither the
Company nor any of its Subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company or any of its
Subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, except for actual or possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for actual or possible violations,
if any, the sanctions for which either singly or in the aggregate would
7
not have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the Securities Act and any applicable state
securities laws and assuming the accuracy of the representations and warranties
of the Purchasers, the Company is not required to obtain any consent, approval,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement
(including without limitation the issuance and sale of the Shares as provided
hereby) in accordance with the terms hereof.
f. SEC Documents; Financial Statements; Certain Arrangements.
(i) Since October 1, 2002, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), and has filed all registration statements and other
documents required to be filed by it with the SEC pursuant to the Securities Act
(all of the foregoing filed prior to the date hereof, and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
"SEC DOCUMENTS"). The Company has made publicly available via the SEC's
Electronic Data Gathering, Analysis and Retrieval (XXXXX) system true and
complete copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any statements made in any such SEC Documents that are or were
required to be updated or amended under applicable law have been so updated or
amended. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its Subsidiaries
as of the dates thereof and the results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
and recurring year-end audit adjustments). Except as set forth in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of such SEC Documents and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such SEC Documents, which
liabilities and obligations referred to in clauses (i) and (ii), individually or
in the aggregate, would not have a Material Adverse Effect.
(ii) The Company does not have any "off-balance sheet
arrangements." For purposes of the preceding sentence, "OFF-BALANCE SHEET
ARRANGEMENT" means with respect to any Person, any securitization transaction to
which it is party and any other transaction, agreement or other contractual
arrangement to which an entity unconsolidated with that Person is a party, under
which it, whether or not a party to the arrangement, has, or in the future may
have: (a) any obligation under a
8
direct or indirect guarantee or similar arrangement; (b) a retained or
contingent interest in assets transferred to an unconsolidated entity or similar
arrangement; (c) derivatives to the extent that the fair value thereof is not
fully reflected as a liability or asset in the financial statements; or (d) any
obligation or liability, including a contingent obligation or liability, to the
extent that it is not fully reflected in the financial statements (excluding the
footnotes thereto) (for this purpose, obligations or liabilities that are not
fully reflected in the financial statements (excluding the footnotes thereto)
include, without limitation: (i) obligations that are not classified as a
liability according to generally accepted accounting principles; (ii) contingent
liabilities as to which, as of the date of the financial statements, it is not
probable that a loss has been incurred or, if probable, is not reasonably
estimable; or (iii) liabilities as to which the amount recognized in the
financial statements is less than the reasonably possible maximum exposure to
loss under the obligation as of the date of the financial statements, but
exclude contingent liabilities arising out of litigation, arbitration or
regulatory actions (not otherwise related to off-balance sheet arrangements)).
Schedule 4(f)(ii) identifies all outstanding guarantees, letters of credit,
performance bonds, assurance bonds, surety agreements, indemnity agreements and
any other legally binding forms of assurance or guaranty in connection with the
business of the Company.
g. Absence of Certain Changes. Since the date of the latest audited
financial statements included within the SEC Documents, except as specifically
disclosed in the SEC Documents, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could result
in a Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to generally accepted accounting principles or required to
be disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option and stock purchase plans.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, or any of its Subsidiaries, or any of their directors or officers in
their capacities as such which would have a Material Adverse Effect.
i. Intellectual Property. The Company and each of its Subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted and as proposed
to be conducted. Except as disclosed in the SEC Documents, neither the Company
nor any of its Subsidiaries has received written notice that it is infringing
upon or in conflict with any third party Intangibles. Except as disclosed in the
SEC Documents, neither the Company nor any of its Subsidiaries has entered into
any consent, indemnification, forbearance to xxx or settlement agreements with
respect to the validity
9
of the Company's or such Subsidiary's ownership or right to use its Intangibles.
The Intangibles are valid and enforceable, and, without the Company intending to
allow such result, no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings, and all applications therefor are pending and in good standing. The
Company has complied with its contractual obligations relating to the protection
of the Intangibles used pursuant to licenses with such exceptions that would not
and will not have a Material Adverse Effect. To the Company's knowledge, no
Person is infringing on or violating the Intangibles owned or used by the
Company.
j. Environment. Except as disclosed in the SEC Documents (i) there is
no environmental liability, nor factors likely to give rise to any environmental
liability, affecting any of the properties of the Company or any of its
Subsidiaries that, individually or in the aggregate, would have a Material
Adverse Effect and (ii) neither the Company nor any of its Subsidiaries has
violated any environmental law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and will not have a Material Adverse Effect.
k. Title. The Company and each of its Subsidiaries has good title in
fee simple to all real property and good title to all personal property owned by
it which is material to its business, free and clear of all liens, encumbrances
and defects except for such defects in title that, individually or in the
aggregate, would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by the Company or such Subsidiary under valid, subsisting and enforceable leases
with such exceptions which have not had and will not have a Material Adverse
Effect.
l. Insurance. Except as disclosed in the SEC Documents, the Company and
its Subsidiaries maintain such insurance relating to their business, operations,
assets, key-employees and officers and directors as is appropriate to their
business, assets and operations, in such amounts and against such risks as are
customarily carried and insured against by owners of comparable businesses,
assets and operations, and such insurance coverage will be continued in full
force and effect to and including the Closing Date other than insurance coverage
in respect of which the failure to continue in full force and effect would not
reasonably be expected to have a Material Adverse Effect.
m. No Brokers. No brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement and the Company has not taken
any action that would cause any Purchaser to be liable for any such fees or
commissions.
n. Tax Status. The Company and each of its Subsidiaries has made or
filed all material federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company or the applicable Subsidiary has
set aside on its books provisions adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
10
declarations apply. There are no material unpaid taxes claimed to be due by the
taxing authority of any jurisdiction. The Company has not executed a waiver with
respect to any statute of limitations relating to the assessment or collection
of any federal, state or local tax. None of the Company's tax returns have been
or is being audited by any taxing authority.
o. No General Solicitation. Neither the Company nor to the knowledge of
the Company any Person participating on the Company's behalf in the transactions
contemplated hereby has conducted any "general solicitation" or "general
advertising" as such terms are used in Regulation D, with respect to any of the
Shares being offered hereby.
p. Securities Laws. Neither the Company, nor any Affiliate of the
Company, nor any Person acting on its behalf or on behalf of such Affiliate,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration of the Shares being offered hereby under the Securities Act or
cause this offering of Shares to be integrated with any prior offering of
securities of the Company for purposes of the Securities Act. Assuming the truth
and accuracy of the Purchasers' representations and warranties, the offer, sale
and delivery of shares of Common Stock upon exercise of the Shares will be
exempt from the registration requirements of Section 5 of the Securities Act.
q. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. The Company is not aware of any facts or circumstances
(including without limitation any required approvals or waivers of any
circumstances that may delay or prevent the obtaining of accountant's consents)
that would prohibit or delay the preparation and filing of a registration
statement on Form S-3 with respect to the Shares.
r. Disclosure. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the
SEC Documents and the Schedules to this Agreement, furnished by or on behalf of
the Company or filed with the SEC are true and correct and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.
s. Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles consistently applied and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
11
t. Transactions With Affiliates and Employees. Except as set forth on
Schedule 4(v), none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner. Since October 1, 2002, the Company has not (i) extended or maintained
credit, arranged for the extension of credit, or renewed an extension of credit,
in the form of a personal loan to or for any director or executive officer (or
equivalent thereof) of the Company, or (ii) materially modified any term of any
such extension or maintenance of credit. Schedule 4(v) identifies any loan or
extension of credit maintained by the Company or any of its Subsidiaries to
which the second sentence of Section 13(k)(1) of the Exchange Act applies.
5. COVENANTS AND OTHER AGREEMENTS.
a. Satisfaction of Conditions. The parties shall use their reasonable
efforts to satisfy in a timely manner each of the conditions set forth in
Section 6 and Section 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Shares as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Shares for sale to the Purchasers pursuant
to this Agreement under applicable securities or "blue sky" laws of the states
of the United States or obtain exemption therefrom, and shall provide evidence
of any such action so taken to each Purchaser on or prior to the Closing Date.
c. Reporting Status. So long as a Purchaser beneficially owns any
Shares or has the right to acquire any Shares pursuant to this Agreement, the
Company shall use all reasonable efforts to timely file all reports required to
be filed with the SEC pursuant to the Exchange Act, and shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares for general corporate purposes and working capital.
e. Financial Information. The Company agrees to send to each Purchaser
within ten (10) days after the filing with the SEC, to the extent not available
through the SEC's XXXXX system, a copy of its Annual Report on Form 10-K, its
Quarterly Reports on Form 10-Q, its proxy and information statements and any
Current Reports on Form 8-K.
f. Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the Shares and the
issuance of the Common Stock in connection therewith and as otherwise required
hereby and pursuant to the terms of the Certificate of Designation. The Company
shall not reduce the number of shares of Common Stock reserved for issuance
under this
12
Agreement (except as a result of the issuance of the Common Stock upon the
exercise of the Shares), without the consent of the Purchasers.
g. Listing. The Company will apply for the listing of the Common Stock
issuable upon conversion of the Shares upon each national securities exchange
and automated quotation system, if any, upon which shares of Common Stock are
then listed or quoted and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Common Stock issuable upon
conversion of the Shares from time to time issuable hereunder.
h. No Integrated Offerings; Registration.
(i) The Company shall not make any offers or sales of any
security (other than the Shares) under circumstances that would require
registration of the Shares being offered or sold hereunder under the Securities
Act or cause this offering of Shares to be integrated with any other non-exempt
offering of securities.
(ii) Within ninety (90) days from the date hereof, the Company
shall file a registration statement on Form S-3 (or, if Form S-3 is not then
available, on such form of registration statement as is then available) under
the Securities Act (the "REGISTRATION STATEMENT") covering (i) all of the Common
Stock issuable upon conversion of the Shares, and (ii) all other "Registrable
Securities" under the Convertible Loan Agreement, as defined in Section 5(l)
below, and the Company shall use its best efforts to cause the Registration
Statement to be declared effective and to keep the Registration Statement
continuously effective until all of the Registrable Securities cease to be
Registrable Securities.
(iii) The Registration Statement, to the extent allowable
under the Securities Act and the rules promulgated thereunder, shall state that
the Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon exercise of the Shares to
prevent dilution resulting from stock splits, stock dividends or similar
transactions. The Company agrees, if necessary, to supplement or amend the
Registration Statement, as required by the registration form utilized by the
Company or by the instructions applicable to such registration form or by the
Securities Act, and the Company agrees to furnish to the holders of the Shares
copies of any such supplement or amendment prior to its being used.
(iv) The covenants of the Company described in this Section
5(h) may be assigned by any Purchaser to any Person to whom such Purchaser
assigns or transfers any Shares, subject to the requirements of Section 8(g)
hereof.
i. Furnishing of Information. As long as any Purchaser owns Shares, or
Common Stock issuable upon conversion of the Shares, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. Upon the request of any Purchaser,
the Company shall deliver to such Purchaser a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence.
During the earlier of (i) the date two (2) years from the Closing Date or (ii)
as long as any Purchaser owns Shares, or Common Stock issuable upon conversion
of the Shares, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with paragraph (c)
13
of Rule 144 such information as is required for the Purchasers to sell the
Shares, or Common Stock issuable upon conversion of the Shares, under Rule 144.
The Company further covenants that it will take such further action as any
holder of Shares, or Common Stock issuable upon conversion of the Shares, may
reasonably request to satisfy the provisions of Rule 144 applicable to the
issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.
j. Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares in a manner that would require the registration
under the Securities Act of the sale of the Shares to the Purchasers.
k. Indemnification. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED PERSON") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of any misrepresentation, breach or inaccuracy of any representation,
warranty, covenant or agreement made by the Company in any Transaction
Documents, the Company will indemnify and hold harmless such Purchaser or
Related Person for its reasonable legal and other expenses (including the costs
of any investigation, preparation and travel) and for any losses incurred in
connection therewith, as such expenses or losses are incurred, excluding only
losses that result directly from such Purchaser's or Related Person's gross
negligence or willful misconduct. The indemnification obligations of the Company
under this paragraph shall be in addition to any liability that the Company may
otherwise have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Purchasers and
any Related Persons. The Company also agrees that neither the Purchasers nor any
Related Persons shall have any liability to the Company or any Person asserting
claims on behalf of or in right of the Company in connection with or as a result
of the transactions contemplated by the Transaction Documents, except to the
extent that any losses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or Related Person in
connection with such transactions. If the Company breaches its obligations under
any Transaction Document, then, in addition to any other liabilities the Company
may have under any Transaction Document or applicable law, the Company shall pay
or reimburse the Purchasers on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses). Without limiting
the generality of the foregoing, the Company specifically agrees to reimburse
the Purchasers on demand for all costs of enforcing the indemnification
obligations in this paragraph.
l. Second Amendment of Convertible Loan Agreement. That certain
Convertible Loan Agreement by and among the parties hereto and XXXX Capital
Group, Inc. as agent dated June 22, 2001, as amended by that certain First
Amendment to Convertible Loan Agreement dated July 31, 2002 (the "CONVERTIBLE
LOAN AGREEMENT"), is hereby further amended such that the defined term
"REGISTRABLE SECURITIES" in the Convertible Loan Agreement shall include the
Common Stock issuable upon conversion of the Shares.
14
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Shares to a
Purchaser at the Closing hereunder is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions thereto; provided,
however, that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
a. The applicable Purchaser shall have executed the signature page to
this Agreement and delivered the same to the Company.
b. The applicable Purchaser shall have delivered such Purchaser's
Investment Amount in accordance with Section 2(b) above.
c. The representations and warranties of the applicable Purchaser shall
be true and correct in all material respects as of the Closing Date and the
applicable Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the Closing Date.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE SHARES.
The obligation of each Purchaser hereunder to purchase Shares to be
purchased by it hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided, however, that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in such Purchaser's sole discretion:
a. The Company shall have executed the signature pages to this
Agreement and delivered the same to the Purchaser.
b. The Company shall have delivered to the Purchaser duly executed
certificates representing the number of Shares as provided in Section 2(b)
above.
c. The Company shall have repurchased all of the shares of the
Preferred Stock owned by Xxxx X. Xxxxxx.
d. The Company shall have closed the senior credit facility from
LaSalle National Bank (the "BANK").
e. The Bank shall have executed an Intercreditor Agreement on terms and
conditions acceptable to the Purchasers.
f. The representations and warranties of the Company shall be true and
correct in all material respects as of the Closing Date and the Company shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Purchaser shall have received a certificate, executed on behalf of the Company
by its Chief Executive Officer or Chief Financial Officer, dated as of the
Closing Date, to the foregoing effect and attaching true and correct copies of
the resolutions adopted by the Company's Board of
15
Directors authorizing the execution, delivery and performance by the Company of
its obligations under this Agreement.
8. GOVERNING LAW MISCELLANEOUS.
a. Governing Law; Venue; Waiver of Jury Trial. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN DALLAS, TEXAS
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY PURCHASER
HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY PURCHASER, ANY
CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT,
OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY)
TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF
PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN
ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY
AND PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other parties. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
16
e. Entire Agreement; Amendments; Waiver. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the Company and by the Purchasers as provided
in Section 8(m) hereof. Any waiver by the Purchasers, on the one hand, or the
Company, on the other hand, of a breach of any provision of this Agreement shall
not operate as or be construed to be a waiver of any other breach of such
provision of or any breach of any other provision of this Agreement. The failure
of any one or more of the Purchasers, on the one hand, or the Company, on the
other hand to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five (5) days after being placed in the mail,
if mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Digital Recorders, Inc.
Xxxxxxxx Xxxxx, Xxx 00
0000 Xxxxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attn.: Xxxxx X. Xxxxxx, Chairman, C.E.O. and President
With a copy to:
Xxxx, Layton, Kersh, Solomon,
Sigmon, Xxxx & Xxxxx P.A.
000 Xxxxx Xxx Xxxx Xxxx
X.X. Xxx 0000
Xxxxxxxx, Xxxxx Xxxxxxxx 00000-0000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attn: Xxxxx Xxxx, Esq.
If to the Purchaser, to the address set forth under the Purchaser's name on the
Execution Page hereto executed by such Purchaser.
Each party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or
17
facsimile number, in the case of the Purchasers to the Company, and in the case
of the Company to all of the Purchasers, with a copy to:
Xxxxxxxxxxx & Xxxxxxxx LLP
0000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Telephone (000) 000-0000
Fax (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Shares, or upon conversion of the Shares, any Common Stock,
provided such transferee agrees in writing to be bound, with respect to the
transferred Shares or Common Stock, by the provisions hereof that apply to the
"Purchasers." Notwithstanding anything to the contrary herein, Shares, or upon
conversion of the Shares, any Common Stock, may be assigned to any Person in
connection with a bona fide margin account or other loan or financing
arrangement secured by such Shares, or upon conversion of the Shares, Common
Stock.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary and (in each case) may enforce the indemnity provisions directly
against the parties with obligations thereunder.
i. Survival. The representations and warranties of the Company and the
agreements and covenants of the Company shall survive the Closing
notwithstanding any due diligence investigation conducted by or on behalf of the
Purchasers. Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies a Purchaser may
have under applicable federal or state securities laws.
j. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement. As such, the
language used herein and therein shall be deemed to be the language chosen by
the parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this Agreement.
l. Determinations. All consents, approvals and other determinations to
be made by the Purchasers pursuant to this Agreement and all waivers and
amendments to or of any provisions in
18
this Agreement to be binding upon a Purchaser shall be made by Purchasers that
have invested more than fifty percent (50%) of the aggregate Investment Amounts
invested by all Purchasers hereunder.
m. Fees and Expenses. At the Closing, the Company shall pay to XXXX
Capital Group, Inc. its legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents. In lieu of the
foregoing payment, XXXX Capital Group, Inc. may retain such amount at the
Closing or require the Company to pay such amount directly to Xxxxxxxxxxx &
Xxxxxxxx LLP. Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
the Shares.
n. Replacement of Shares. If any certificate or instrument evidencing
any Shares, or upon conversion of the Shares, any Common Stock, is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested. The applicants
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Shares, or upon conversion of the Shares, any Common Stock.
o. Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
p. Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
q. Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other Person) relating to or arising
from any such information, materials, statements or opinions. Nothing
19
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
Digital Recorders, Inc.,
a North Carolina corporation
By: /s/Xxxxx X. Xxxxxx
-------------------------------
Xxxxx X. Xxxxxx, President
21
THE PURCHASERS:
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
By /s/Xxxxxxx Xxxxxxxxx
-------------------------------------
Xxxxxxx Xxxxxxxxx, Director
Address for notices:
c/o RENN Capital Group, Inc.
0000 X. Xxxxxxx Xxxxxxxxxx, Xxxxx 000-XX00
Xxxxxx, XX 00000
Telecopier: (000) 000-0000
22
RENAISSANCE US GROWTH & INVESTMENT TRUST PLC
By /s/Xxxxxxx Xxxxxxxxx
-------------------------------------
Xxxxxxx Xxxxxxxxx, Director
Address for notices:
c/o RENN Capital Group, Inc.
0000 X. Xxxxxxx Xxxxxxxxxx, Xxxxx 000-XX00
Xxxxxx, XX 00000
Telecopier: (000) 000-0000
23
EXHIBIT A
SCHEDULE OF INVESTORS
NO. OF SHARES OF
INVESTOR PREFERRED STOCK PRICE PER SHARE INVESTMENT AMOUNT
-------- ---------------- --------------- -----------------
BFSUS Special Opportunities Trust PLC 25 $5,000 $125,000
Renaissance US Growth & Investment Trust PLC 25 $5,000 $125,000
24
