SHARE PURCHASE AGREEMENT By and Between JOHN D. HIGGINS as the “Buyer” herein, on the one hand, and DIGITAL RECORDERS, INC. as “DRI” herein, on the other hand Dated as of October 31, 2005
Exhibit 10.1
By and Between
XXXX X. XXXXXXX
as the “Buyer” herein, on the one hand,
as the “Buyer” herein, on the one hand,
and
DIGITAL RECORDERS, INC.
as “DRI” herein, on the other hand
as “DRI” herein, on the other hand
Dated as of October 31, 2005
THIS SHARE PURCHASE AGREEMENT (this “Agreement”), dated as of October 31, 2005, by and between
XXXX X. XXXXXXX (the “Buyer”), on the one hand, and DIGITAL RECORDERS, INC. (“DRI”) on the other.
In consideration of the covenants, representations, warranties and mutual agreements herein
set forth, the Buyer and DRI hereby agree as follows:
ARTICLE I
THE SHARE PURCHASE AND ANCILLARY AGREEMENTS
THE SHARE PURCHASE AND ANCILLARY AGREEMENTS
Section 1.1 Purchase of the Shares. Subject to and upon the terms and
conditions hereof and the representations, warranties and covenants contained herein, on the
Closing Date (as defined below) DRI shall sell, transfer, assign and deliver certificate(s)
representing 50 shares of the Company’s Series H Redeemable Convertible Preferred Stock (the
“Shares”) to the Buyer, and the Buyer shall purchase the Shares from DRI, free and clear of all
liens, claims and encumbrances thereon (the “Purchase Transaction”). The Shares shall have the
rights, obligations and preferences set forth in the Certificate of Designation of Series H
Convertible Preferred Stock attached hereto as Exhibit 1.1.
Section 1.2 Purchase Price.
(a) Upon the terms and subject to the conditions herein set forth, DRI and the Buyer agree
that on the Closing Date DRI shall issue the Shares to the Buyer and tender a cash payment in the
amount of $2,301,37 (the “Cash Payment”) in exchange for the surrender and cancellation of that
certain promissory note created by DRI on July 25, 2005, in favor of Buyer in the original
principal amount of $252,301.37 attached hereto as Exhibit 1.2 (the “Xxxxxxx Note”).
(b) At the Closing, DRI shall deliver to the Buyer a certificate representing the Shares
against delivery by the Buyer to DRI of the Xxxxxxx Note and the Cash Payment for cancellation by
DRI. The certificate for the securities comprising the Shares shall be registered in the name of
Xxxx X. Xxxxxxx.
Section 1.3 Additional Warrant Shares. Additionally, DRI shall deliver to the
Buyer at the Closing a Stock Purchase Warrant, in the form set forth as Exhibit 1.3., with the
rights, obligations and preferences as set forth therein (the “Warrant Agreement”). The basic
terms of the Warrant Agreement shall provide Buyer with the right to purchase up to 55,000 shares
of common stock, par value $0.10 per share, of DRI (the “Warrant Stock”) at an exercise price of
$2.02 per share for a period of five (5) years from the Closing Date, subject to the terms and
conditions set forth in the Warrant Agreement.
Section 1.4 Registration Rights. At the Closing, the parties shall enter
into a Registration Rights Agreement, in the form set forth as Exhibit 1.4 (the “Registration
Rights Agreement”) to be entered into as of the Closing Date. The Warrant Agreement and the
Registration Rights Agreement are referred to collectively herein as the “Related Agreements”.
ARTICLE II
CLOSING
CLOSING
Section 2.1 The Closing. The closing of the sale and purchase of the Shares
contemplated hereby (the “Closing”) shall take place at a date and time to be specified by the
Buyer and DRI upon the satisfaction or waiver of and closing conditions specified in Articles VI,
VII and VIII (the “Closing Date”), but effective as of October 31, 2005. The Closing shall take
place at the offices of DRI in Research Triangle Park, North Carolina, or any other place mutually
agreeable to the parties, subject to the right of the parties to close by exchange of executed
counterpart documents on the Closing Date.
Section 2.2 Deliveries By DRI. At the Closing, DRI shall deliver to the Buyer
or cause to be delivered to the Buyer the certificate or certificates representing the Shares
registered in the name of the Buyer or in such name as may be designated by the Buyer, the Cash
Payment, together with the Warrant Agreement and the Registration Rights Agreement executed by DRI.
Section 2.3 Deliveries by the Buyer. Buyer will deliver to DRI the Xxxxxxx
Note for cancellation and a copy of the Registration Rights Agreement, executed by Buyer.
Section 2.4 Further Assurances. DRI shall execute and deliver on the Closing
Date or thereafter any and all such other instruments, and take or cause to be taken all such
further action as may be necessary or appropriate to vest fully and confirm to the Buyer title to
and possession of the Shares delivered hereunder by DRI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DRI
REPRESENTATIONS AND WARRANTIES OF DRI
As a material inducement to the Buyer to (i) enter into this Agreement, and (ii) purchase and
acquire the Shares, DRI represents and warrants to the Buyer, except as disclosed in the Exhibits
to this Agreement or in the documents filed by DRI with the SEC (the “SEC Filings”) pursuant to the
requirements of the Securities Exchange Act of 1934 (the “1934 Act”), that:
(a) DRI is a corporation duly organized, validly existing and in good standing under the laws
of North Carolina.
(b) The audited financial statements of DRI for the year ended December 31, 2004 and unaudited
financial statements of DRI for the three months ended March 31, 2005 and June 30, 2005, that have
been filed with the SEC Filings (hereinafter
collectively referred to as the “DRI Financial Statements”) include, as applicable to the relevant
period, a balance sheet and related statements of net income (loss), shareholders’ equity and cash
flows for the periods ended on such dates. The DRI Financial Statements fairly present the
financial position, results of operations and other information purported to be shown therein at
the respective dates and for the respective periods to which they apply. Since June 30, 2005,
there has been no material change in the nature of the business of DRI, nor any material adverse
change in its financial condition or property, nor have any warrants, options, shares of common
stock or securities or instruments convertible into or exchangeable for common stock been issued,
and DRI has incurred no material obligations or liabilities or made any commitments other than as
disclosed in the DRI Financial Statements, the SEC Filings, or otherwise to Buyer.
(c) DRI is not a party to any material litigation, pending or threatened, nor has any claim
been made or, to the best knowledge of DRI’s executive officers, asserted against DRI nor are there
any proceedings threatened or pending before any federal, state or municipal government, or any
department, board, body or agency thereof, involving DRI that would, if resolved adversely to DRI,
have a material adverse effect on DRI or its financial condition or operations.
(d) DRI is not in violation or default of any provision of its Articles of Incorporation or
Bylaws or of any provision of any material instrument or contract to which it is a party or by
which it is bound or, to the best knowledge of its executive officers, of any provision of any
federal, state or local judgment, writ, decree, order, law, statute, rule or government regulation,
applicable to it. The execution, delivery and performance of this Agreement or the Related
Agreements and the consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or without the passage of time and
giving of notice, either a violation or default under any such provision or an event which results
in the creation of any lien, charge or encumbrance upon any asset of DRI. DRI has all requisite
power and authority to execute, deliver and perform this Agreement and the Related Agreements and
has all requisite power and authority to execute and deliver the certificates representing the
Shares. All necessary corporate proceedings of DRI have been duly taken to authorize the execution,
delivery and performance by DRI of this Agreement and the sale and issuance of the Shares. This
Agreement and the Related Agreements have been duly authorized, executed and delivered by DRI, are
the legal, valid and binding obligations of DRI, and are enforceable as to DRI in accordance with
their respective terms. No consent, authorization, approval, order, license, certificate, or permit
of or from, or declaration or filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required by DRI for the execution, delivery or
performance by DRI of this Agreement and the Related Agreements other than as set forth in Article
VI. No consent of any party to any contract, agreement, instrument, lease, license, arrangement or
understanding to which DRI is a party, or to which any of its properties or assets are subject, is
required for the execution, delivery or performance of this Agreement and the Related Agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As a material inducement to DRI to enter into this Agreement and the Related Agreements and to
sell and issue the Shares, the Buyer represents and warrants to DRI that:
(a) The Buyer is voluntarily entering this Agreement with full power and authority.
(b) Neither the execution and delivery of this Agreement or the Registration Rights Agreement
nor the consummation of the transactions herein or therein contemplated, will conflict with or
result in the breach of, or accelerate the performance required by, any terms of any agreement, or
result in the creation of any lien, charge or encumbrance upon any of the properties or assets of
the Buyer under the terms of any such agreement.
(c) All action on the part of the Buyer necessary for the authorization, execution and
delivery of this Agreement and the Registration Rights Agreement and the performance of all
obligations of the Buyer hereunder or thereunder has been taken and this Agreement and the
Registration Rights Agreement constitute valid and legally binding obligations of the Buyer
enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and other
laws of general application relating to or affecting creditors’ rights, and general principles of
equity.
(d) The Buyer is acquiring the Shares, and will acquire the Conversion Shares and the Warrant
Stock, upon payment for and delivery thereof, for its own account for investment and not with a
view to the distribution or public resale thereof within the meaning of the Securities Act of 1933
(the “1933 Act”). The Buyer further agrees that DRI may cause to be set forth on the certificates
for the Shares to be delivered to the Buyer hereunder and any Conversion Shares and Warrant Stock
subsequently acquired by the Buyer a legend in substantially the following form:
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 seller an exemption from
registration thereunder is available, the availability of which must be established
to the satisfaction of Digital Recorders, Inc.
DRI shall not be obligated to recognize any purported transfer by the Buyer of the Shares
unless accompanied by an opinion of the Buyer’s counsel in form and substance reasonably
satisfactory to counsel for DRI to the effect that such transfer is not in violation of the 1933
Act.
(e) The Buyer is an “accredited investor” as defined in Regulation D promulgated under the
1933 Act. The Buyer has substantial experience in evaluating and investing
in private placement transactions of preferred stock in companies similar to DRI, has actually made
a past investment in DRI and is familiar with the company and its management, has been a long time
director of DRI, and the Buyer has the capacity to protect its own interests. The Buyer is aware
that the purchase of the Shares, the Conversion Shares and the Warrant Stock involves substantial
risk. The Buyer is in a financial position that will allow him to hold such securities for an
indefinite period, to bear the economic risk of ownership and to withstand a complete loss of his
investment.
(f) The Buyer acknowledges that neither DRI nor any person acting on behalf of DRI has made
any representations or warranties to the Buyer except as expressly set forth in this Agreement or
the Related Agreements.
ARTICLE V
COVENANTS OF THE PARTIES
COVENANTS OF THE PARTIES
Section 5.1 Conduct of Business. From the date hereof until the Closing,
except as permitted by this Agreement, reflected in the Exhibits hereto or as otherwise consented
to by the Buyer in writing, DRI shall:
(a) Carry on its business only in the ordinary course, in substantially the same manner in
which it previously has been conducted;
(b) Comply with all registration, filing and reporting requirements of the 1934 Act; and
(c) Use its best efforts to maintain a listing of the common stock with The Nasdaq Stock
Market, Inc. (“Nasdaq”).
Section 5.2 Access and Information. DRI shall give to the Buyer and its
representatives full access at all reasonable times prior to the Closing to the properties, books
and records of DRI and furnish such information and documents in its possession relating to DRI as
the Buyer may reasonably request, subject to the agreement by the Buyer to maintain the
confidentiality of, and not to trade in the securities of DRI while in the possession of, any
material nonpublic information of DRI.
Section 5.3 No Short Sales. The Buyer shall not make any short sale of, or
enter into any other hedging transactions with respect to, DRI’s common stock prior to the earlier
of effectiveness of the Registration Statement filed by DRI for the benefit of the Buyer pursuant
to the Registration Rights Agreement.
ARTICLE VI
CONDITIONS TO EACH PARTY’S OBLIGATION TO CLOSE
CONDITIONS TO EACH PARTY’S OBLIGATION TO CLOSE
In addition to those specific conditions set forth in Articles VII and VIII below, the
obligations of the Buyer and DRI to consummate the transactions described herein shall be subject
to the following:
(a) The Application for the Listing of Additional shares to cover the shares of DRI common
stock to be issued upon the conversion of the Shares and the exercise of the Warrants (the
“Application”) shall have been approved by Nasdaq.
(b) No government regulatory body or agency shall have instituted court action or legal
proceedings seeking preliminary or permanent injunctive relief prohibiting the Buyer’s purchase of
the Shares or the execution or performance of this Agreement or the Related Agreements.
ARTICLE VII
CONDITIONS TO DRI’S OBLIGATION TO CLOSE
CONDITIONS TO DRI’S OBLIGATION TO CLOSE
DRI’s obligation to complete the transactions provided for herein shall be subject to the
performance by the Buyer of all its agreements to be performed hereunder on or before the Closing,
and to the further conditions that:
(a) the representations and warranties of the Buyer contained in Article IV hereof are true
and correct in all material respects as of the Closing with the same effect as if made on and as of
such date and the officers of the Buyer shall so certify thereto.
(b) The issuance of the Shares to Buyer without registration shall be permitted under an
available exemption from registration under the 1933 Act, and such issuance, and the consummation
of the other transactions contemplated by this Agreement and the Related Agreements, shall not
violate any law or any rule or regulation of the SEC or Nasdaq.
ARTICLE VIII
CONDITIONS TO THE BUYER’S OBLIGATION TO CLOSE
CONDITIONS TO THE BUYER’S OBLIGATION TO CLOSE
The Buyer’s obligation to complete the transactions provided for herein shall be subject to
the performance by DRI of all agreements to be performed hereunder on or before the Closing, and to
the further conditions that:
(a) The representations and warranties of DRI contained in Article III and the covenants of
DRI contained in Article V hereof are true and correct and have been performed or satisfied in all
material respects as of the Closing with the same effect as if made or performed on and as of such
date and DRI shall so certify to the Buyer.
(b) There shall have been no material adverse change in the operating results, financial
condition, properties or business prospects of DRI since June 30, 2005.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination.
(a) This Agreement and each agreement contemplated hereby may be terminated at any time prior
to the Closing by the mutual written consent of the Buyer and DRI.
(b) This Agreement will be terminated immediately upon notice by Nasdaq that the Application
has been rejected.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement or any agreement contemplated hereby, this Agreement or any such other agreement shall
forthwith become void and there shall be no liability or obligation hereunder or thereunder on the
part of any party hereto.
Section 9.3 Amendment. This Agreement, or any agreement contemplated hereby,
may not be amended except by an instrument in writing signed on behalf of each of the parties
thereto.
ARTICLE X
INDEMNIFICATION AND CONTRIBUTION
INDEMNIFICATION AND CONTRIBUTION
Section 10.1 Indemnity. Subject to the conditions set forth below, DRI agrees
to indemnify and hold harmless the Buyer, its officers, directors, partners, employees, agents, and
counsel, and each person, if any, who controls the Buyer within the meaning of Section 15 of the
1933 Act or Section 20(a) of the 1934 Act, against any and all loss, liability, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Article X, but not be limited to,
attorneys’ fees and any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred, arising out of,
resulting from, based upon, or in connection with any breach of any representation, warranty,
covenant, or agreement of DRI contained in this Agreement. The foregoing agreement to indemnify
shall be in addition to any liability DRI may otherwise have, including liabilities arising under
this Agreement.
ARTICLE XI
NOTICES
NOTICES
Any notice given under this Agreement shall be deemed to have been given sufficiently if in
writing and sent by registered or certified mail, return receipt requested and postage prepaid, by
receipt confirmed facsimile transmission, or by tested telex, telegram or cable addressed as
follows:
| If to DRI: | Digital Recorders, Inc. | |||
| 0000 Xxxxxx Xxxx, Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| Attn: CEO & President | ||||
| Fax: 000-000-0000 | ||||
| With a copy to: | Xx. Xxxxx X. Xxxx | |||
| Xxxx, Layton, Kersh, Solomon, | ||||
| Sigmon, Xxxx & Xxxxx, P.A. | ||||
| Xxxx Xxxxxx Xxx 0000 | ||||
| Xxxxxxxx, XX 00000-0000 | ||||
| Fax: 000-000-0000 | ||||
| If to the Buyer: | Xxxx X. Xxxxxxx | |||
| 000 Xxxx Xxxxx Xxxx | ||||
| Xxxx Xxxx, XX 00000 | ||||
or to any other address or addresses which may hereafter be designated by any party by notice given
in such manner. All notices shall be deemed to have been given as of the date of receipt.
ARTICLE XII
CERTIFICATES OF OFFICERS AND DIRECTORS
CERTIFICATES OF OFFICERS AND DIRECTORS
DRI shall provide to the Buyer a certificate at the Closing verifying the representations and
warranties made by DRI. Any certificate or other document executed by any officer of DRI and
delivered to the Buyer or its counsel shall be deemed a representation and warranty by such officer
on behalf of DRI as to the statements made therein.
ARTICLE XIII
COUNTERPARTS
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which when executed and
delivered shall be an original, but all of such counterparts shall constitute one and the same
instrument.
ARTICLE XIV
MERGER CLAUSE AND COSTS, FEES AND EXPENSES
MERGER CLAUSE AND COSTS, FEES AND EXPENSES
This Agreement supersedes all prior agreements and understandings between the parties and may
not be changed or terminated orally, and no attempted change, termination or waiver of any of the
provisions hereof shall be binding unless in writing and signed by the parties hereto. Each party
shall pay its own expenses incident to the preparation, execution and delivery of this Agreement
and the consummation of the transactions described herein including, without limitation, all fees
of counsel, accountants and other professional fees and expenses. DRI represents and warrants
that there is no placement fee, structuring fee, or commission payable in this transaction.
ARTICLE XV
SEVERABILITY
SEVERABILITY
In the event that any provision of this Agreement is determined to be partially or wholly
invalid, illegal or unenforceable, then such provision shall be deemed to be modified or restricted
to the extent necessary to make such provision valid, binding and enforceable or, if such a
provision cannot be modified or restricted in a manner so as to make such provision valid, binding
and enforceable, then such provision shall be deemed to be excised from this Agreement and the
validity, binding effect and enforceability of the remaining provisions of this Agreement shall not
be affected or impaired in any manner.
ARTICLE XVI
BENEFIT
BENEFIT
The terms and conditions of this Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the parties hereto, and the persons and entities referred to in
Article X who are entitled to indemnification or contribution and their respective successors,
legal representatives and assigns and no other person shall have or be construed to have any legal
or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or the
Registration Rights Agreement or any provision herein or therein contained.
ARTICLE XVII
WAIVER
WAIVER
The failure of any party to insist upon the strict performance of any of the provisions of
this Agreement shall not be considered as a waiver of any subsequent default of the same or similar
nature. Time is of the essence in this Agreement.
ARTICLE XVIII
HEADINGS
HEADINGS
The headings for the sections of this Agreement are inserted for convenience in reference only
and shall not constitute a part hereof.
ARTICLE XIX
SURVIVAL
SURVIVAL
The respective agreements, representations, warranties, covenants and other statements of the
Buyer and DRI set forth in this Agreement shall survive and remain in full force and effect for a
period of one (1) year from the Closing, regardless of any investigation or inspection made on
behalf of the Buyer or DRI.
ARTICLE XX
GOVERNING LAW
GOVERNING LAW
This Agreement shall be governed by and construed according to the laws of the State of North
Carolina, without giving effect to conflict of laws.
ARTICLE XXI
ARBITRATION
ARBITRATION
All disputes arising in connection with this Agreement shall be finally settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration Association by one
or more arbitrators.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and
year first above written.
| THE BUYER: | ||||
| By | /s/ Xxxx X. Xxxxxxx | |||
| Xxxx X. Xxxxxxx | ||||
| DRI: | ||||
| DIGITAL RECORDERS, INC. | ||||
| By | /s/ Xxxxx X. Xxxxxx | |||
| Xxxxx X. Xxxxxx | ||||
| Chairman, CEO and President | ||||
