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                                  May 1, 2001


Board of Directors
Digital Recorders, Inc.
4018 Patriot Drive
Durham, NC 27713

Dear Gentlemen:

        This letter agreement (this "Agreement") will confirm the understanding
and agreement between Investec Ernst & Company ("Investec Ernst") and Digital
Recorders, Inc. (the "Company") as follows:

        1. The Company hereby engages Investec Ernst to deliver a fairness
           opinion in connection with the Company's contemplated acquisition
           of Mobitec Holding AB (the "Transaction").

        2. Investec Ernst hereby accepts the engagement described in paragraph
           1 and, in that connection, agrees to render an opinion (the
           "Opinion") to the Board of Directors with respect to the fairness or
           inadequacy, from a financial point of view, to the Company's
           stockholders of the consideration to be paid pursuant to the
           Transaction.  The Opinion shall be in such a form as Investec Ernst
           shall determine, including statements therein that Investec Ernst has
           relied upon the information furnished to it by the Company and the
           Board of Directors and has assumed the accuracy and completeness of
           all information used by it without assuming any responsibility for
           independent verification of such information.  In any event, the
           Opinion shall be limited to the fairness or inadequacy, from a
           financial point of view, of the aggregate consideration to be
           offered pursuant to the Transaction and shall not address the
           Board of Director's or the Company's underlying business decision
           as to whether to accept the Transaction.

        3. The Company and the Board of Directors shall make available to
           Investec Ernst all information concerning the business, assets,
           operations, financial condition and prospects of the Company which
           Investec Ernst reasonably requests in connection with the
           performance of its obligations hereunder.  All such information
           provided by or on behalf of the Company shall contain no untrue
           statement of material fact and shall not omit to state any material
           fact required or necessary to make the statements therein, in light
           of the circumstances under which they were made or under which such
           information will be used, not misleading.  All such information
           provided by the Company or the Board of Directors shall, to the
           best knowledge of the Company and its Board of Directors after due
           inquiry, contain no untrue statement of material fact and shall not
           omit to state any material fact required or necessary to make the
           statements therein, in light of the circumstances under which they
           were made or under which such information will be


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           used, not misleading. Investec Ernst may assume and rely upon the
           accuracy and completeness of all such information without
           independent verification.

        4. As compensation for the services rendered by Investec Ernst
           hereunder, the Company shall pay Investec Ernst as follows:

           (a) Upon delivery of the Opinion by Investec Ernst to the Board of
               Directors, a fee of $120,000, payable in cash in three
               installments consisting of $50,000 upon delivery of the Opinion
               by the Company and two subsequent equal installments each of
               $37,500 due thirty days and sixty days from the date of the
               acceptance of the Opinion by the Company.

           (b) If Investec Ernst provides any additional financial advisory or
               investment banking services to the Company or the Board of
               Directors which are not set forth in paragraph 2, then the
               Company shall pay to Investec Ernst additional fees to be
               mutually agreed upon based on Investec Ernst's customary fees
               for the services rendered.

        5. The Company shall:

           (a) indemnify Investec Ernst and hold it harmless against any and
               all losses, claims, damages or liabilities to which Investec
               Ernst may become subject arising in any manner out of or in
               connection with the rendering of services by Investec Ernst
               hereunder (including any services rendered prior to the date
               hereof) or the rendering of additional services by Investec
               Ernst as requested by the Board of Directors that are related
               to the services rendered hereunder, unless it is finally
               judicially determined that such losses, claims, damages or
               liabilities resulted from the gross negligence or willful
               misconduct of Investec Ernst; and

           (b) reimburse Investec Ernst promptly for any legal or other
               expenses reasonably incurred by it in connection with
               investigating, preparing to defend or defending, or providing
               evidence in or preparing to serve or serving as a witness with
               respect to, or otherwise relating to, any lawsuits,
               investigations, claims or other proceedings arising in any
               manner out of or in connection with the rendering of services
               by Investec Ernst hereunder or the rendering of additional
               services by Investec Ernst as requested by the Board of
               Directors that are related to the services rendered hereunder
               (including, without limitation, in connection with the
               enforcement of this Agreement and the indemnification
               obligations set forth herein); provided, however, that in the
               event a final judicial determination is made to the effect
               specified in subparagraph 5(a) above, Investec Ernst will remit
               to the Company any amounts reimbursed under this subparagraph
               5(b).

     The Company agrees that the indemnification and reimbursement commitments
set forth in this paragraph 5 shall apply if either the Company or Investec
Ernst is a formal party to any


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such lawsuits, investigations, claims or other proceedings and that such
commitments shall extend upon the terms set forth in this paragraph to any
controlling person, affiliate, director, officer, employee or consultant of
Investec Ernst (each, with Investec Ernst, an "Indemnified Person").  The
Company further agrees that, without Investec Ernst's prior written consent,
it will not enter into any settlement of a lawsuit, claim or other proceeding
arising out of the transactions contemplated by this Agreement (i) if Investec
Ernst or any other Indemnified Person is an actual or, in the reasonable
judgment of the Company, potential, party to such lawsuit, claim or
proceeding, unless such settlement includes an explicit and unconditional
release from the party bringing such lawsuit, claim or other proceeding of all
Indemnified Persons, or (ii) if Investec Ernst or any other Indemnified Person
is not an actual or, in the reasonable judgment of the Company, potential
party to such lawsuit, claim or proceeding, unless the Company uses
commercially reasonable efforts to ensure that such settlement includes an
explicit and unconditional release from the party bringing such lawsuit, claim
or other proceeding of all Indemnified Persons.

     The Company further agrees that the Indemnified Persons are entitled to
retain separate counsel of their choice in connection with any of the matters
in respect of which indemnification, reimbursement or contribution may be
sought under this Agreement; provided that the Company may reasonably object
to the Indemnified Persons' choice of counsel if, in the reasonable opinion of
counsel to the Company, such counsel is insufficiently qualified or
inexperienced in such matters.

        6. The Company and Investec Ernst agree that if any indemnification or
           reimbursement sought pursuant to the preceding paragraph 5 is
           judicially determined to be unavailable for a reason other than the
           gross negligence or willful misconduct of Investec Ernst, then,
           whether or not Investec Ernst is the Indemnified Person, the
           Company and Investec Ernst shall contribute to the losses, claims,
           damages, liabilities and expenses for which such indemnification or
           reimbursement is held unavailable (i) in such proportion as is
           appropriate to reflect the relative benefits to the Company and the
           Board of Directors on the one hand, and Investec Ernst on the other
           hand, in connection with the transactions to which such
           indemnification or reimbursement relates, or (ii) if the allocation
           provided by clause (i) above is judicially determined not to be
           permitted, in such proportion as is appropriate to reflect not only
           the relative benefits referred to in clause (i) but also the
           relative faults of the Company and the Board of Directors on the
           one hand, and Investec Ernst on the other hand, as well as any
           other equitable considerations; provided, however, that in no event
           shall the amount to be contributed by Investec Ernst pursuant to
           this paragraph exceed the amount of the fees actually received by
           Investec Ernst hereunder.

        7. Except as contemplated by the terms hereof or as required by
           applicable law or pursuant to an order entered or subpoena issued
           by a court of competent jurisdiction, Investec Ernst shall keep
           confidential all material non-public information provided to it by
           the


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<PAGE>

           Company or the Board of Directors, and shall not disclose such
           information to any third party, other than such of its employees
           and advisors as Investec Ernst determines to have a need to know.

        8. Except as required by applicable law, any advice (including,
           without limitation, the Opinion) to be provided by Investec Ernst
           under this Agreement shall not be disclosed publicly or made
           available to third parties without the prior approval of Investec
           Ernst, and accordingly such advice shall not be relied upon by any
           person or entity other than the Board of Directors.  Notwithstanding
           the foregoing, Investec Ernst approves of a description and
           inclusion of the Opinion in documents required to be filed with the
           Securities and Exchange Commission and distributed to the Company's
           stockholders in connection with the Transaction and to references
           to Investec Ernst in such documents, provided that any such
           description and references are approved in advance by Investec
           Ernst, which approval shall not be unreasonably withheld.

        9. The Company agrees that Investec Ernst has the right to place
           advertisements in financial and other newspapers and journals at
           its own expense describing its services to the Board of Directors
           hereunder, provided that Investec Ernst will submit a copy of any
           such advertisements to the Board of Directors for its approval,
           which approval shall not be unreasonably withheld.

       10. Subject to the provisions of paragraphs 4 through 9 and paragraphs
           11 through 14, which shall survive any termination or expiration of
           this Agreement (including by operation of the preceding sentence),
           either party may terminate Investec Ernst's engagement hereunder at
           any time by giving the other party at least 10 days' prior written
           notice.

       11. The Board of Directors and Investec Ernst each represent that there
           is no other person or entity that is entitled to a finder's fee or
           any type of brokerage commission in connection with the
           transactions contemplated by this Agreement as a result of any
           agreement or understanding with it.

       12. Nothing in this Agreement, expressed or implied, is intended to
           confer or does confer on any person or entity other than the
           parties hereto or their respective successors and assigns, and to
           the extent expressly set forth herein, the Indemnified  Persons,
           any rights or remedies under or by reason of this Agreement or as a
           result of the services to be rendered by Investec Ernst hereunder.
           The parties acknowledge that Investec Ernst is not acting as an
           agent of the Company or the Board of Directors or in a fiduciary
           capacity with respect to the Company or the Board of Directors and
           that Investec Ernst is not assuming any duties or obligations other
           than those expressly set forth in this Agreement.  Each of the
           Company and the Board of Directors further agree that neither
           Investec Ernst nor any of its controlling persons, affiliates,
           directors, officers, employees or consultants shall have any
           liability to the Company or the Board of Directors or any person
           asserting claims on behalf of or in right of the Company or the
           Board of Directors for any losses, claims, damages, liabilities or
           expenses arising out of or relating to this Agreement or the
           services to be rendered by Investec Ernst hereunder, unless it is
           finally judicially


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           determined that such losses, claims, damages, liabilities or
           expenses resulted from the gross negligence or willful misconduct
           of Investec Ernst.

       13. The invalidity or unenforceability of any provision of this
           Agreement shall not affect the validity or enforceability of any
           other provisions of this Agreement, which shall remain in full
           force and effect.

       14. This Agreement may not be amended or modified except in writing
           signed by each of the parties and shall be governed by and
           construed and enforced in accordance with the laws of the State of
           New York.  Any right to trial by jury with respect to any lawsuit,
           claim or other proceeding arising out of or relating to this
           Agreement or the services to be rendered by Investec Ernst
           hereunder is expressly and irrevocably waived.

        If the foregoing correctly sets forth the understanding and agreement
between Investec Ernst, the Company and the Board of Directors, please so
indicate in the space provided for that purpose below, whereupon this letter
shall constitute a binding agreement as of the date hereof.


                                        INVESTEC ERNST & COMPANY



                                        By:__________________________

AGREED:

DIGITAL RECORDERS, INC.



By:__________________________
   Name:
   Title:

BOARD OF DIRECTORS OF DIGITAL RECORDERS, INC.



By:__________________________
   Name:
   Title:



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