Document:

exv10wcc

 

Exhibit 10.cc

EMPLOYMENT AGREEMENT

     SBS Technologies, Inc. (“Company”) and Bruce E. Castle (“Employee”) agree,
effective July 29, 2003:

	 	1.
	 	Employment. Company employs Employee for the period
beginning on the date of this Employment Agreement as set forth
below, and ending three years from its date or upon discharge or
resignation of Employee in accordance with the terms of this
Agreement (the “Employment Period”). During the Employment Period,
Employee will serve in the position of General Counsel of the
Company, or other management position as determined by the Company.
Employee will devote sufficient time and energies to the business of
Company to accomplish the duties assigned, will perform to the best
of Employee’s ability all duties assigned to Employee by Company and
will devote Employee’s best efforts to advance the interests of
Company. Employee will have the power and authority determined by
Company.

	 	2.
	 	Compensation. For all services performed by Employee for
Company during the Employment Period, Company will pay Employee the
salary and benefits set forth on Appendix “A”. Employee will be
entitled to participate in employee benefit programs established by
Company and applicable to all full-time employees. Employee will be
entitled to vacation, national holidays and paid sick leave in
accordance with Company policy and Appendix A. During vacation,
national holidays, and paid sick leave, Employee will receive
Employee’s usual compensation.

	 	3.
	 	Reimbursement of Expenses. Company recognizes that Employee,
in performing Employee’s duties hereunder, may be required to spend
sums of money in connection with those duties for the benefit of
Company. Employee may present to Company an itemized voucher
listing expenses paid by Employee in the performance of Employee’s
duties on behalf of Company, and on presentation of the itemized
voucher, Company will reimburse Employee for all reasonable expenses
itemized, including but not limited to, travel, meals, lodging,
entertainment, and promotion with respect to all activities approved
in advance by Company. Employee may receive advances from Company
for anticipated expenses. Employee agrees that the amount by which
an advance exceeds actual expenses (“Amount”) will be promptly
refunded to Company upon determination by Company that it is due,
that the Amount may be deducted from any payments of any nature
(including without limitation salary) owed by Company to employee,
and that the Amount will constitute a debt from Employee to Company,
enforceable by Company in all respects as if

Employment Agreement

Page 1

 

 

	 	
	 	Employee had executed a promissory note or other instrument
acknowledging the debt, bearing interest at a rate of 10% per year
from the date repayment is due, and payable in full on demand
without set-off or deduction.

	 	4.
	 	Sick Leave and Disability. Employee will be entitled to
sick leave for the number of days determined by Company (“Sick
Leave”). Employee will be considered to be disabled during any
period in excess of Sick Leave during which Employee is unable to
work because of illness or incapacity (“Disability Period”).
Employee will be entitled to receive Employee’s full salary during
Sick Leave and will be deemed to be on leave, without pay, during
the Disability Period. If Employee is unable to work for a period
in excess of 90 days, Employee, at the discretion of the Chief
Executive Officer of Company, will be considered to have resigned.
In no event will Employee be entitled to payment or other
compensation for unused Sick Leave or Disability Period, unless
required by law or otherwise provided in a policy or employment
manual adopted by Company.

	 	5.
	 	Resignation and Discharge. Employee may resign or be
discharged pursuant to the terms of this paragraph. If Employee (i)
resigns, Employee must give 30 days’ notice to Company; (ii) is
discharged for cause (as later defined), Company may discharge
Employee immediately, without notice; or (iii) is discharged not for
cause from his responsibilities, Company must give 30 days’ notice
to Employee. If Employee is discharged not for cause, Employee will
be paid (a) if such discharge occurs in connection with or within
one year after a change in control of the Company, severance pay
equal to one year’s base pay of Employee in effect at the time of
discharge payable in a single lump sum, or (b) if such discharge
occurs at any other time, severance pay equal to six months’ base
pay of Employee in effect at the time of discharge payable in
monthly installments. For purposes of the preceding sentence, a
“change in control” shall mean the acquisition of ownership or
control by a single person, entity, or group of more than fifty
percent (50%) of the then issued and outstanding common shares of
the Company.

	 	
	 	For purposes of this paragraph, “for cause” means that during the
Employment Period, Employee, unless otherwise provided by Company
policy or Company employment manual, (a) is reasonably believed by
Company (i) to have failed to comply with any law, regulation or
policy, including without limitation securities or employment or
non-discrimination or similar laws, regulations or policies, and
that failure causes a significant financial, regulatory,
operational or public perception detriment to Company, (ii) to
abuse, as determined by the Company,

Employment Agreement

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	 	alcohol or to use drugs, (other than as prescribed by Employee’s
physician), or (b) refuses to submit to testing for alcohol or
drugs, or (c) is reasonably believed by Company to have committed
or is charged with any felony or misdemeanor involving moral
turpitude, or (d) through willful neglect, gross negligence, or
malfeasance causes a significant financial, regulatory,
operational or public perception detriment to Company. A
determination by the Board of Directors that Employee has failed
to perform Employee’s responsibilities to the satisfaction of the
Board of Directors, without one or more of the other elements set
out in this paragraph, is not “for cause”.

	 	6.
	 	Competition and Confidential Information Restrictions.

	 	A.
	 	Competition Restrictions. Employee may not
during the Employment Period, and for a period of two years
following the termination of the Employment Period, anywhere
in the United States, directly or indirectly, own, manage,
operate, invest in, control, be employed by, participate in,
be a financial sponsor of, or be connected in any manner with
the ownership, management, operation or control of any
business that competes with a business conducted by Company
at any time during the Employment Period or which Employee
knows, during the Employment Period, that Company intends to
conduct. Employee acknowledges that this restriction is
necessary for Company’s welfare and protection in light of
the responsibilities assigned to Employee and Employee’s
status in Company, that Employee is fully and adequately
compensated for this restriction.

	 	B.
	 	Confidential Information. Employee
acknowledges and recognizes that Employee is, or will be,
employed by Company in a confidential relationship and may
receive and have access to the confidential business
information, customer names, contracts and other customer
data, business methods, techniques and trade secrets of
Company (“Confidential Information”). Employee may develop
ideas, conceptions, inventions, processes, methods, products
and improvements; and Employee may receive disclosures of
ideas, conceptions, inventions, processes, methods, products
and improvements made by other employees of Company (“Company
Inventions”). Employee may participate with Company in
improving and developing Confidential Information and Company
Inventions. Confidential Information and Company Inventions
developed on behalf of Company are neither commonly known nor
readily accessible to others and are used by Company in its
business to obtain a competitive advantage over Company’s

Employment Agreement

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	 	competitors who do not know or use the Confidential
Information or Company Inventions. Protection of the
Confidential Information and Company Inventions against
unauthorized disclosure and use is of critical importance
to Company in maintaining its competitive position.
Employee agrees that Employee will not, at any time, during
or after the Employment Period, make any independent use
of, or disclose to any other person or organization, except
as authorized by Company in writing, any Confidential
Information or Company Inventions. Upon termination of the
Employment Period for any reason, Employee shall promptly
deliver to Company all drawings, manuals, letters, notes,
notebooks, reports, customer lists, customer data, mailing
lists, and all other materials and records of any kinds,
and all copies thereof, that may be in the possession of,
or under the control of, Employee pertaining to Company’s
business including any that contain any Confidential
Information or Company Invention.

	 	C.
	 	Business Relationships. Employee acknowledges
Company’s efforts to establish valuable business
relationships with its clients, customers and suppliers.
Employee recognizes that Company has invested resources in
the training and the professional development of Employee,
and Employee further recognizes Employee’s responsibility to
the Company when Company entrusts Employee with Confidential
Information. In view of Company’s efforts, Employee agrees
that unless Company authorizes Employee to do so in writing,
Employee will not, for a period of one year after termination
of employment with Company, solicit the purchase of products
or services directly competing with products and services of
Company from any person, corporation, business organization
or enterprise which: (i) has made any purchase of products or
services from Company within the two years immediately
preceding termination of former Employee’s employment
(“Customer”); or (ii) has been contacted by Employee during
the last 12 months of Employee’s employment for the purpose
of securing the purchase of products or services from Company
(“Prospective Customer”).

	 	D.
	 	Non-Solicitation of Employees. Employee is
aware that Company has a significant investment in its
employees. For a period of twelve months after termination
for any reason of Employee’s employment, neither Employee nor
any person or entity by whom Employee may be employed or of
which Employee may be an officer, director, partner, trustee
or control person, will directly or indirectly employ or
solicit to employ, or

Employment Agreement

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	 	otherwise retain or solicit to retain, any person employed
by Company as of the date of Employee’s termination of
employment or during the twelve month period thereafter,
unless that person has been terminated by Company without
cause (as determined in good faith by Company) before the
time of the solicitation, employment or retention.

	 	E.
	 	Remedies. Employee and Company recognize that
irreparable injury may result to Company in the event of
breach or threatened breach of this paragraph of this
Agreement by Employee. If Employee commits a breach or
threatens to commit a breach of any of the provisions of this
paragraph, Company shall have the right and remedy, in
addition to any others that may be available, at law or in
equity, to have the provisions of this paragraph specifically
enforced by any court having equity jurisdiction, together
with an accounting therefor, Employee having specifically
acknowledged that any such breach or threatened breach will
cause irreparable injury to Company and that money damages
will not provide an adequate remedy to Company.

	 	7.
	 	Invalidity. If any provision of this Employment Agreement is
later construed to be unenforceable or invalid, the remaining
provisions shall not be affected but shall continue in full effect.
If any term of this Employment Agreement is found to be
unenforceable or invalid by any court having jurisdiction, that
court shall have the power to reduce or revise the term and the
paragraph(s) shall then be fully enforceable.

	 	8.
	 	Assignment. Employee acknowledges that Employee’s services
are unique and personal. Accordingly, Employee may not assign
Employee’s rights or delegate Employee’s duties or obligations under
this Agreement. The Employer’s rights and obligations shall inure
to the benefit of and shall be binding upon Employer’s successor and
assigns.

	 	9.
	 	Personnel Policies. Company’s written personnel policies
apply to all of Company’s employees, including Employee, and
describe additional terms and conditions of employment of Employee.
Those terms and conditions, as Company may revise from time to time,
are incorporated by reference into this Employment Agreement.
Company reserves the right to revise the personnel policies from
time to time, as Company deems necessary. If any personnel policy
provision conflicts with a provision of this Employment Agreement,
the terms of this Employment Agreement shall govern.

Employment Agreement

Page 5

 

 

	 	10.
	 	Alcohol and Drug Testing. Employee agrees to comply with and
submit to any Company program or policy for testing for alcohol
abuse or use of drugs and, in the absence of such a program or
policy, to submit to such testing as may be required by Company and
administered in accordance with applicable law and regulations.

	 	11.
	 	Binding Effect. This Employment Agreement constitutes the
entire understanding of the parties, may be modified only in
writing, is governed by laws of the state of New Mexico, and will
bind and inure to the benefit of Employee and Employee’s personal
representative and Company and Company’s successors and assigns.

Employment Agreement

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DATED: July 29, 2003.

	 	 	 
	 	 	
COMPANY:
	 	 	 
	 	 	
SBS Technologies, Inc.
	 	 	 
	 	 	
/s/ James E. Dixon
	 	 	

	 	 	
By: James E. Dixon
	 	 	
Its: Chief Financial Officer
	 	 	 
	 	 	
EMPLOYEE:
	 	 	 
	 	 	/s/ Bruce E. Castle
	 	 	

	 	 	
Bruce E. Castle

Employment Agreement

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Appendix A

to

Employment Agreement

Bruce E. Castle

Employee

Position: General Counsel

Compensation: $225,000 base annual salary.

	 	 	 
	Benefits:	 	 
	Standard Employee	 	 
	Benefits:	 	
Medical insurance
	 	 	
Dental insurance
	 	 	
Life Insurance
	 	 	
Long and short-term disability insurance
	 	 	
Ten holidays per year
	 	 	
Sick leave
	 	 	 
	Optional Benefits:	 	
401(k) Plan
	 	 	
Flexible Spending Account Program
	 	 	
Supplemental Life Insurance

All Standard and Optional Benefits will be as provided by Company to employees
generally, and are subject to modification from time to time by Company.

	 	 	 
	Additional Benefits:	 	
Four weeks paid vacation per year
	 	 	
Immediate, full vesting under any employee plans

in effect at signing that require vesting
	 	 	 
	Stock Option Grant:	 	
No additional award with this Employment Agreement.

Employment Agreement

Page 8<PAGE>

                                                                    Exhibit 10.1

                            SHARE PURCHASE AGREEMENT

                                 By and Between

                         DOLPHIN OFFSHORE PARTNERS, L.P.
                     as the "Buyer" herein, on the one hand,

                                       and

                             DIGITAL RECORDERS, INC.
                    as the "Seller" herein, on the other hand

                          Dated as of October 13, 2003

<PAGE>

                            SHARE PURCHASE AGREEMENT

         SHARE PURCHASE AGREEMENT, dated as of October 13, 2003, by and between
DOLPHIN OFFSHORE PARTNERS, L.P. (the "Buyer"), on the one hand, and DIGITAL
RECORDERS, INC. ("DRI") on the other.

                                   WITNESSETH:

         WHEREAS, on or about October 13, 2003, the Buyer and DRI entered into
an understanding (the "Understanding"), under which DRI would sell to Buyer 300
restricted shares of DRI Series F Redeemable Convertible Preferred Stock, par
value $.10 per share, of DRI (the "Shares"); and

         WHEREAS, the Understanding contemplates that the parties will enter
into a definitive agreement and prepare such other documentation as the parties
and their respective legal counsel determine is appropriate; and

         WHEREAS, the parties intend that this Share Purchase Agreement (the
"Agreement"), together with the schedules, exhibits and other documents attached
hereto, serve as the definitive agreement between the parties with respect to
the transactions described in the Understanding.

         NOW, THEREFORE, 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

         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 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 Series F articles 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 sell to the Buyer, and
the Buyer shall purchase from DRI, the Shares for an aggregate purchase price of
$1,500,000 (the "Purchase Price").

                                       1
<PAGE>

         (b) At the Closing, DRI shall deliver to the Buyer certificate(s)
representing the Shares against delivery by the Buyer to DRI of the Purchase
Price. Certificates for the securities comprising the Shares shall be registered
in such name or names and in such authorized denominations as the Buyer may
request in writing at least five full business days prior to the Closing Date.

         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 319,150 shares of common stock,
par value $0.10 per share, of DRI (the "Warrant Stock") at an exercise price of
$3.00 per share for a period of seven (7) years, 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"). Pursuant to the Registration Rights
Agreement, DRI shall agree: (a) to file with the Securities and Exchange
Commission (the "SEC") and use its reasonable efforts to maintain the
effectiveness of a registration statement covering the resale by the Buyer of
the shares of common stock issuable upon conversion of the Shares (the
"Conversion Shares"), and (b) to use its reasonable efforts to effect the
registration of the Warrant Stock with the SEC upon demand by the Buyer in
certain circumstances, subject to the terms and conditions set forth in the
Registration Rights Agreement. The Warrant Agreement and the Registration Rights
Agreement are referred to collectively herein as the "Related Agreements".

                                   ARTICLE II
                                     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 (the "Closing Date"), but effective as of
October 13, 2003. 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, and copies of the Warrant Agreement and
Registration Rights Agreement executed by DRI.

                                       2
<PAGE>

         Section 2.3 Deliveries by the Buyer. At the Closing, the Buyer shall
deliver to DRI $1,500,000 by wire transfer of immediately available funds in
payment of the Purchase Price 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

         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, 2002 and unaudited financial statements of DRI for the six months ended June
30, 2003 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, 2003,
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, other than a
cumulative total of 1,815,000 shares of Series E Preferred Stock, which are
convertible into common stock at $3.00 per share, and an associated warrant for
60,500 shares of common stock, and DRI has incurred no material obligations or
liabilities or made any commitments other than as disclosed in the DRI Financial
Statements or the SEC Filings.

         (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,

                                       3
<PAGE>

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. 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

         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 an organization voluntarily entering this Agreement
with full power and authority from its governing body to do so after extensive
due diligence by its analysts and with full cooperation of the management of DRI
in response to both its written and oral requests for information in the nature
of due diligence.

         (b) Neither the execution and delivery of this Agreement or the
Registration Rights Agreement nor the consummation of the transactions herein or
therein

                                       4
<PAGE>

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 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, 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 it to hold such securities for an indefinite
period, to bear the economic risk of ownership and to withstand a complete loss
of its investment.

                                       5
<PAGE>

         (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

         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, which consent shall not be
unreasonably withheld, 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. After the Closing, DRI shall provide information
to Buyer on the same basis as DRI is required to provide information to
Renaissance Capital pursuant to the agreement between Renaissance Capital and
DRI existing on the date hereof (the "Renaissance Agreement").

         Section 5.3 Right of First Refusal. Should DRI seek to raise additional
equity financing within five years after the Closing, DRI shall provide notice
to the Buyer of the proposed transaction and offer to the Buyer the opportunity
to participate in such financing by purchasing equity of DRI on the same terms
and conditions as are offered by DRI to third parties in connection therewith.
The notice contemplated by the preceding sentence shall be delivered by DRI to
Buyer not less than 10 days prior to the proposed closing date of the financing
transaction if DRI is then in compliance with its information obligations set
forth in the last sentence of Section 5.2, or not less than 21 days prior to
such proposed closing date if DRI is not then in compliance with such
information obligations. The amount of securities that the Buyer will have the
right to purchase in connection with any such transaction will be negotiated in
good faith

                                       6
<PAGE>

between DRI and the Buyer, but will in any event, not be proportionately less
than the Buyer's current ownership percentage on an as if converted and
exercised basis.

         Section 5.4 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 effectiveness of the Registration Statement required to be 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

         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) 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.

         (b) The performance of all conditions precedent to Closing set forth in
Articles VII and VIII below.

         (c) From the date of this Agreement to the Closing Date, there shall
have been no material adverse change (i) in the business or properties of DRI,
or (ii) in the financial condition of DRI, and the property, business and
operations of DRI shall have not been materially and adversely affected due to
any fire, accident or other casualty or by any act of God, whether or not
insured, nor shall there have been any issuance of common stock or securities
convertible into or exchangeable for common stock.

                                   ARTICLE VII
                     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

                                       7
<PAGE>

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

         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 or financial condition of DRI since June 30, 2003.

         (c) The asset-based lending agreement with LaSalle Business Credit, LLC
shall have been consummated.

                                   ARTICLE IX
                        TERMINATION, AMENDMENT AND WAIVER

         Section 9.1 Termination. 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.

         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

         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

                                       8
<PAGE>

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. The Buyer agrees to
indemnify and hold harmless DRI, its officers, directors, partners, employees,
agents, and counsel and each person, if any, who controls DRI 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 Buyer contained in this Agreement.

                                   ARTICLE XI
                                     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.
                           5949 Sherry Lane, Suite 1050
                           Dallas, TX  75225
                           Attention: CEO & President
                           Fax: (214) 378-8437

With a copy to:            Mr. David M. Furr
                           Gray, Layton, Kersh, Solomon,
                              Sigmon, Furr & Smith, P.A.
                           Post Office Box 2636
                           Gastonia, NC  28053-2636
                           Fax: (704) 866-8010

                                       9
<PAGE>

If to the Buyer:           Dolphin Offshore Partners, L.P.
                           c/o Dolphin Asset Management Corp.
                           129 E. 17th Street
                           New York, NY 10003

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

         The Buyer and DRI shall provide to each other certificates at the
Closing verifying the representations and warranties made by each party hereto.
Any certificate or other document executed by any officer of DRI or the Buyer
and delivered to the other party or its counsel shall be deemed a representation
and warranty by such officer on behalf of DRI or the Buyer as to the statements
made therein.

                                  ARTICLE XIII
                                  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

         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.

                                   ARTICLE XV
                                  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

                                       10
<PAGE>

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

         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

         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

         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

         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

         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.

                                       11
<PAGE>

                                   ARTICLE XXI
                                   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:

                                    DOLPHIN OFFSHORE PARTNERS, L.P.

                                    By /s/ Peter E. Salas
                                       -----------------------------------------
                                    Print Name: Peter E. Salas
                                                --------------------------------
                                    Title: General Partner
                                           -------------------------------------

                                    DRI:

                                    DIGITAL RECORDERS, INC.

                                    By /s/ David L. Turney
                                       -----------------------------------------
                                    Print Name: David L. Turney
                                                --------------------------------
                                    Title: CEO, President and Chairman
                                           -------------------------------------

                                       12

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