Document:

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SECURITIES PURCHASE AGREEMENT

LAURUS MASTER FUND, LTD.

and

DIGITAL RECORDERS, INC.

TWINVISION OF NORTH AMERICA, INC.

DIGITAL AUDIO CORPORATION

AND

ROBINSON-TURNEY INTERNATIONAL, INC.

Dated: April 28, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	1	 	Agreement to Sell and Purchase	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	2	 	Fees and Warrant. On the Closing Date:	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	3	 	Closing, Delivery and Payment	 	 	2	 
	 
	 	3.1	 	Closing	 	 	2	 
	 
	 	3.2	 	Delivery	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	4	 	Representations and Warranties of the Company	 	 	2	 
	 
	 	4.1	 	Organization, Good Standing and Qualification	 	 	2	 
	 
	 	4.2	 	Subsidiaries	 	 	 	 
	 
	 	4.3	 	Capitalization; Voting Rights	 	 	3	 
	 
	 	4.4	 	Authorization; Binding Obligations	 	 	4	 
	 
	 	4.5	 	Liabilities	 	 	 	 
	 
	 	4.6	 	Agreements; Action	 	 	 	 
	 
	 	4.7	 	Obligations to Related Parties	 	 	 	 
	 
	 	4.8	 	Changes	 	 	 	 
	 
	 	4.9	 	Title to Properties and Assets; Liens, Etc.	 	 	 	 
	 
	 	4.10	 	Intellectual Property	 	 	 	 
	 
	 	4.11	 	Compliance with Other Instruments	 	 	4	 
	 
	 	4.12	 	Litigation	 	 	 	 
	 
	 	4.13	 	Tax Returns and Payments	 	 	 	 
	 
	 	4.14	 	Employees	 	 	 	 
	 
	 	4.15	 	Registration Rights and Voting Rights	 	 	 	 
	 
	 	4.16	 	Compliance with Laws; Permits	 	 	 	 
	 
	 	4.17	 	Environmental and Safety Laws	 	 	 	 
	 
	 	4.18	 	Valid Offering	 	 	4	 
	 
	 	4.19	 	Full Disclosure	 	 	4	 
	 
	 	4.20	 	Insurance	 	 	 	 
	 
	 	4.21	 	SEC Reports	 	 	 	 
	 
	 	4.22	 	Listing	 	 	 	 
	 
	 	4.23	 	No Integrated Offering	 	 	5	 
	 
	 	4.24	 	Stop Transfer	 	 	5	 
	 
	 	4.25	 	Dilution	 	 	5	 
	 
	 	4.26	 	Patriot Act	 	 	 	 
	 
	 	4.27	 	ERISA	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	5	 	Representations and Warranties of the Purchaser	 	 	5	 
	 
	 	5.1	 	No Shorting	 	 	5	 
	 
	 	5.2	 	Requisite Power and Authority	 	 	5	 
	 
	 	5.3	 	Investment Representations	 	 	6	 
	 
	 	5.4	 	The Purchaser Bears Economic Risk	 	 	6	 
	 
	 	5.5	 	Acquisition for Own Account	 	 	6	 
	 
	 	5.6	 	The Purchaser Can Protect Its Interest	 	 	6	 
	 
	 	5.7	 	Accredited Investor	 	 	7	 
	 
	 	5.8	 	Legends	 	 	7	 

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	 	 	 	 	 	 	Page
	6	 	Covenants of the Company	 	 	7	 
	 
	 	6.1	 	Stop-Orders	 	 	 	 
	 
	 	6.2	 	Listing	 	 	7	 
	 
	 	6.3	 	Market Regulations	 	 	 	 
	 
	 	6.4	 	Reporting Requirements	 	 	 	 
	 
	 	6.5	 	Use of Funds	 	 	8	 
	 
	 	6.6	 	Access to Facilities	 	 	 	 
	 
	 	6.7	 	Taxes	 	 	 	 
	 
	 	6.8	 	Insurance	 	 	 	 
	 
	 	6.9	 	Intellectual Property	 	 	 	 
	 
	 	6.10	 	Properties	 	 	 	 
	 
	 	6.11	 	Confidentiality	 	 	8	 
	 
	 	6.12	 	Required Approvals	 	 	 	 
	 
	 	6.13	 	Reissuance of Securities	 	 	8	 
	 
	 	6.14	 	Opinion	 	 	8	 
	 
	 	6.15	 	Margin Stock	 	 	8	 
	 
	 	6.16	 	Financing Right of First Refusal	 	 	 	 
	 
	 	6.17	 	Authorization and Reservation of Shares	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	7	 	Covenants of the Purchaser	 	 	9	 
	 
	 	7.1	 	Confidentiality	 	 	9	 
	 
	 	7.2	 	Non-Public Information	 	 	9	 
	 
	 	7.3	 	Limitation on Acquisition of Common Stock of the Company	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	8	 	Covenants of the Company and the Purchaser Regarding Indemnification	 	 	9	 
	 
	 	8.1	 	Company Indemnification	 	 	9	 
	 
	 	8.2	 	Purchaser’s Indemnification	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	9	 	Conversion of Convertible Note	 	 	 	 
	 
	 	9.1	 	Mechanics of Conversion	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	10	 	Registration Rights	 	 	10	 
	 
	 	10.1	 	Registration Rights Granted	 	 	10	 
	 
	 	10.2	 	Offering Restrictions	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	11	 	Miscellaneous	 	 	10	 
	 
	 	11.1	 	Governing Law, Jurisdiction and Waiver of Jury Trial	 	 	10	 
	 
	 	11.2	 	Severability	 	 	11	 
	 
	 	11.3	 	Survival	 	 	11	 
	 
	 	11.4	 	Successors	 	 	12	 
	 
	 	11.5	 	Entire Agreement; Maximum Interest	 	 	12	 
	 
	 	11.6	 	Amendment and Waiver	 	 	12	 
	 
	 	11.7	 	Delays or Omissions	 	 	12	 
	 
	 	11.8	 	Notices	 	 	12	 
	 
	 	11.9	 	Attorneys’ Fees	 	 	13	 
	 
	 	11.10	 	Titles and Subtitles	 	 	13	 
	 
	 	11.11	 	Facsimile Signatures; Counterparts	 	 	13	 
	 
	 	11.12	 	Broker’s Fees	 	 	13	 
	 
	 	11.13	 	Construction	 	 	13	 

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LIST OF EXHIBITS

	 	 	 
	Form of Term Note

	 	Exhibit A
	Form of Warrant

	 	Exhibit B
	Form of Landlord Waiver

	 	Exhibit C
	Form of Escrow Agreement

	 	Exhibit D

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SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of April 28,
2006, by and between DIGITAL RECORDERS, INC., a North Carolina corporation (“DRI”), TWIN VISION OF
NORTH AMERICA, INC., a North Carolina corporation (“Twinvision”), DIGITAL AUDIO CORPORATION
(“DAC”), a North Carolina corporation and ROBINSON-TURNEY INTERNATIONAL, INC., a Texas corporation
(“RTI”, and together with DRI, Twinvision and DAC, the “Companies”), and LAURUS MASTER FUND, LTD.,
a Cayman Islands company (the “Purchaser”).

RECITALS

     WHEREAS, the Companies have authorized the sale to the Purchaser of a Secured Term Note in the
aggregate principal amount of One Million Six Hundred Thousand Dollars ($1,600,000) in the form of
Exhibit A hereto (as amended, modified and/or supplemented from time to time, the “Note”);

     WHEREAS, DRI wishes to issue to the Purchaser a warrant in the form of Exhibit B hereto (as
amended, modified and/or supplemented from time to time, the “Warrant”) to purchase up to 80,000
shares of DRI’s Common Stock (subject to adjustment as set forth therein) in connection with the
Purchaser’s purchase of the Note;

     WHEREAS, the Purchaser desires to purchase the Note and the Warrant on the terms and
conditions set forth herein; and

     WHEREAS, the Companies desire to issue and sell the Note and Warrant to the Purchaser on the
terms and conditions set forth herein.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set forth in
this Agreement, on the Closing Date (as defined in Section 3), the Companies shall sell to the
Purchaser, and the Purchaser shall purchase from the Companies, the Note. The sale of the Note on
the Closing Date shall be known as the “Offering.” The Note will mature on the Maturity Date (as
defined in the Note). Collectively, the Note and Warrant and Common Stock issuable upon exercise
of the Warrant are referred to as the “Securities.”

     2. Fees and Warrant. On the Closing Date:

     (a) DRI will issue and deliver to the Purchaser the Warrant to purchase up to 80,000
shares of Common Stock (subject to adjustment as set forth therein) in connection with the
Offering, pursuant to Section 1 hereof. All the representations, covenants,

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warranties, undertakings, and indemnification, and other rights made or granted to or
for the benefit of the Purchaser by the Companies are hereby also made and granted for the
benefit of the holder of the Warrant and shares of DRI’s Common Stock issuable upon exercise
of the Warrant (the “Warrant Shares”).

     (b) Subject to the terms of Section 2(d) below, the Companies shall pay to Laurus
Capital Management, LLC, the manager of the Purchaser, a closing payment in an amount equal
to three and three-sixth percent (3.60%) of the aggregate principal amount of the Note. The
foregoing fee is referred to herein as the “Closing Payment.”

     (c) The Companies shall reimburse the Purchaser for its reasonable expenses (including
legal fees and expenses) incurred in connection with the preparation and negotiation of this
Agreement and the Related Agreements (as hereinafter defined), and expenses incurred in
connection with the Purchaser’s due diligence review of the Companies (as defined in Section
4.2) and all related matters. Amounts required to be paid under this Section 2(c) will be
paid on the Closing Date and shall be $15,000 for such expenses referred to in this Section
2(c).

     (d) The Closing Payment and the expenses referred to in the preceding clause (c) (net
of deposits previously paid by the Companies) shall be paid at closing out of funds held
pursuant to the Escrow Agreement (as defined below) and a disbursement letter (the
“Disbursement Letter”).

     3. Closing, Delivery and Payment.

          3.1 Closing. Subject to the terms and conditions herein, the closing of the
transactions contemplated hereby (the “Closing”), shall take place on the date hereof, at such time
or place as the Companies and the Purchaser may mutually agree (such date is hereinafter referred
to as the “Closing Date”).

          3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the Closing Date,
the Companies will deliver to the Purchaser, among other things, the Note and the Warrant and the
Purchaser will deliver to the Companies, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer. The Companies hereby acknowledge and agree
that Purchaser’s obligation to purchase the Note from the Companies on the Closing Date shall be
contingent upon the satisfaction (or waiver by the Purchaser in its sole discretion) of the items
and matters set forth in the closing checklist provided by the Purchaser to the Companies on or
prior to the Closing Date.

     4. Representations and Warranties of the Companies. Each of the Companies hereby
represents and warrants to the Purchaser as follows

          4.1 Prior Representations. The Companies hereby represent and warrant to Purchaser
that (i) no Event of Default exists under that certain Security Agreement by and among the
Purchaser, the Companies dated as of March 15, 2006 (as amended, modified or supplemented, the
“Security Agreement”) or any of the Ancillary Agreements (as defined in the Security Agreement) on
the date hereof, (ii) on the date hereof, all representations, warranties and covenants made by the
Companies in connection with the Security Agreement and the

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Ancillary Agreements are true, correct and complete and (iii) on the date hereof, all of the
Companies’ covenant requirements in the Security Agreement and the Ancillary Agreements have been
met.

          4.2 Organization, Good Standing and Qualification. The Companies are each a
corporation, partnership or limited liability company, as the case may be, duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization. Each of the
Companies has the corporate, limited liability company or partnership, as the case may be, power
and authority to own and operate its properties and assets and, insofar as it is or shall be a
party thereto, to (1) execute and deliver (i) this Agreement, (ii) the Note and the Warrant to be
issued in connection with this Agreement, (iii) the Reaffirmation Agreement dated as of the date
hereof between the Companies and the Purchaser (as amended, modified and/or supplemented from time
to time, the “Reaffirmation Agreement”), (iv) the Amended and Restated Registration Rights
Agreement relating to the Securities dated as of the date hereof between DRI and the Purchaser (as
amended, modified and/or supplemented from time to time, the “Registration Rights Agreement”), (v)
the Funds Escrow Agreement dated as of the date hereof among the Company, the Purchaser and the
escrow agent referred to therein, substantially in the form of Exhibit D hereto (as amended,
modified and/or supplemented from time to time, the “Escrow Agreement”) and (vii) all other
documents, instruments and agreements entered into in connection with the transactions contemplated
hereby and thereby (the preceding clauses (ii) through (vi), collectively, the “Related
Agreements”); (2) issue and sell the Warrant and the Warrant Shares; and (3) carry out the
provisions of this Agreement and the Related Agreements and to carry on its business as presently
conducted. Each of the Companies is duly qualified and is authorized to do business and is in good
standing as a foreign corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature or location of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those jurisdictions in which
failure to do so has not, or could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Companies, taken individually and as a whole
(a “Material Adverse Effect”).

          4.3 Capitalization; Voting Rights.

     (a) Except as disclosed on Schedule 4.3, neither the offer, issuance or sale of any of
the Note or the Warrant, or the issuance of any of the Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a change in the price or number of any
securities of the Companies outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.

     (b) The rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in DRI’s Certificate of Incorporation (the “Charter”). The Warrant
Shares have been duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and DRI’s Charter, the Securities will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the time a
transfer is proposed.

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          4.4 Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on the part of the Companies (including their
respective officers and directors) necessary for the authorization of this Agreement and the
Related Agreements, the performance of all obligations of the Companies hereunder and under the
other Related Agreements at the Closing and, the authorization, sale, issuance and delivery of the
Note and Warrant has been taken or will be taken prior to the Closing. This Agreement and the
Related Agreements, when executed and delivered and to the extent it is a party thereto, will be
valid and binding obligations of each of the Companies, enforceable against each such person or
entity in accordance with their terms, except:

     (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights; and

     (b) general principles of equity that restrict the availability of equitable or legal
remedies.

The sale of the Note is not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived or complied with.

          4.5 Compliance with Other Instruments. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Companies and the other Securities by the Companies each pursuant
hereto and thereto, will not, with or without the passage of time or giving of notice, result in
any such material violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Companies or any of its Subsidiaries or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Companies, their business or operations or any of its assets or properties.

          4.6 Valid Offering. Assuming the accuracy of the representations and warranties of
the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be
exempt from the registration requirements of the Securities Act of 1933, as amended (the
“Securities Act”), and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of all applicable state
securities laws.

          4.7 Full Disclosure. The Companies have provided the Purchaser with all information
requested by the Purchaser in connection with its decision to purchase the Note and Warrant,
including all information the Companies believe is reasonably necessary to make such investment
decision. Neither this Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto nor any other document delivered by the Companies to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material fact

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necessary in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections and other
estimates provided to the Purchaser by the Companies were based on the Companies’ experience in the
industry and on assumptions of fact and opinion as to future events which the Companies, at the
date of the issuance of such projections or estimates, believed to be reasonable.

          4.8 No Integrated Offering. Neither the Companies, nor any of their affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Companies for purposes of the Securities Act which would
prevent the Companies from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the Companies or any of
their affiliates take any action or steps that would cause the offering of the Securities to be
integrated with other offerings.

          4.9 Stop Transfer. The Securities are restricted securities as of the date of this
Agreement. None of the Companies will issue any stop transfer order or other order impeding the
sale and delivery of any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state and federal
securities laws.

          4.10 Dilution. DRI specifically acknowledges that its obligation to issue the shares
of Common Stock upon exercise of the Warrant is binding upon DRI and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders of DRI.

     5. Representations and Warranties of the Purchaser. The Purchaser hereby represents
and warrants to the Companies as follows (such representations and warranties do not lessen or
obviate the representations and warranties of the Companies set forth in this Agreement):

          5.1 No Shorting. The Purchaser or any of its affiliates and investment partners has
not, will not and will not cause any person or entity, to directly engage in “short sales” of DRI’s
Common Stock as long as the Note shall be outstanding.

          5.2 Requisite Power and Authority. The Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this Agreement and the
Related Agreements and to carry out their provisions. All corporate action on the Purchaser’s part
required for the lawful execution and delivery of this Agreement and the Related Agreements have
been or will be effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, except:

     (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights; and

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     (b) as limited by general principles of equity that restrict the availability of
equitable and legal remedies.

          5.3 Investment Representations. The Purchaser understands that the Securities are
being offered and sold pursuant to an exemption from registration contained in the Securities Act
based in part upon the Purchaser’s representations contained in this Agreement, including, without
limitation, that the Purchaser is an “accredited investor” within the meaning of Regulation D under
the Securities Act of 1933, as amended (the “Securities Act”). The Purchaser confirms that it has
received or has had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Note and the Warrant to be purchased by it
under this Agreement and the Warrant Shares acquired by it upon the exercise of the Warrant. The
Purchaser further confirms that it has had an opportunity to ask questions and receive answers from
the Companies regarding the Companies’ business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Companies possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to the Purchaser or
to which the Purchaser had access.

          5.4 The Purchaser Bears Economic Risk. The Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in companies similar to
the Companies so that it is capable of evaluating the merits and risks of its investment in the
Companies and has the capacity to protect its own interests. The Purchaser must bear the economic
risk of this investment until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is available with
respect to such sale.

          5.5 Acquisition for Own Account. The Purchaser is acquiring the Note and Warrant and
the Warrant Shares for the Purchaser’s own account for investment only, and not as a nominee or
agent and not with a view towards or for resale in connection with their distribution.

          5.6 The Purchaser Can Protect Its Interest. The Purchaser represents that by reason
of its, or of its management’s, business and financial experience, the Purchaser has the capacity
to evaluate the merits and risks of its investment in the Note, the Warrant and the Securities and
to protect its own interests in connection with the transactions contemplated in this Agreement and
the Related Agreements. Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Related Agreements.

          5.7 Accredited Investor. The Purchaser represents that it is an accredited investor
within the meaning of Regulation D under the Securities Act.

          5.8 Legends.

     (a) The Note shall bear substantially the following legend:

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES

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LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
DIGITAL RECORDERS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

     (b) The Warrant Shares, if not issued by DWAC system (as hereinafter defined), shall
bear a legend which shall be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO DIGITAL RECORDERS, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.”

     (c) The Warrant shall bear substantially the following legend:

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO DIGITAL RECORDERS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.”

     6. Covenants of the Companies. The Companies covenant and agree with the Purchaser as
follows:

          6.1 Prior Covenants. The covenants set forth in the Security Agreement and the
Ancillary Agreements are hereby restated as if set forth herein in their entirety.

          6.2 Landlord Waivers. The Companies covenant and agree that they shall obtain obtain
(i) landlord waivers in connection with the property located at 4018 Patriot Drive, Suite 100
Durham, NC 27703 in the form of Exhibit C hereto by May 21, 2006; and (ii) descriptions of
fixtures for fixture filings regarding any fixtures located at 4018 Patriot Drive, Suite 100
Durham, NC 27703 to be filed by Purchaser by May 21, 2006.

          6.3 Listing. The Companies shall promptly secure the listing or quotation, as
applicable, of the shares of Common Stock issuable upon the exercise of the Warrant on the

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Principal Market upon which shares of Common Stock are listed or quoted for trading, as
applicable (subject to official notice of issuance) and shall maintain such listing or quotation,
as applicable, so long as any other shares of Common Stock shall be so listed or quoted, as
applicable. DRI will maintain the listing or quotation, as applicable, of its Common Stock on the
Principal Market, and will comply in all material respects with DRI’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities Dealers (“NASD”)
and such exchanges, as applicable.

          6.4 Use of Funds. The Companies shall use the proceeds of the sale of the Note and
the Warrant for general working capital purposes only.

          6.5 Confidentiality. The Companies will not, and will not permit any of its
Subsidiaries to, disclose, and will not include in any public announcement, the name of the
Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Companies may disclose the Purchaser’s identity and the terms of
this Agreement to its current and prospective debt and equity financing sources.

          6.6 Reissuance of Securities. The DRI agrees to reissue certificates representing the
Securities without the legends set forth in Section 5.8 above at such time as:

     (a) the holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or

     (b) upon resale subject to an effective registration statement after such Securities
are registered under the Securities Act.

DRI agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144(d)
and Rule 144(k) and provide legal opinions necessary to allow such resales provided the DRI and its
counsel receive reasonably requested representations from the Purchaser and broker, if any.

          6.7 Opinion. On the Closing Date, the Companies will deliver to the Purchaser an
opinion acceptable to the Purchaser from the Companies’ external legal counsel. The Companies will
provide, at the Companies’ expense, such other legal opinions in the future as are deemed
reasonably necessary by the Purchaser (and acceptable to the Purchaser) in connection with the
exercise of the Warrant.

          6.8 Margin Stock. The Companies will not permit any of the proceeds of the Note or the
Warrant to be used directly or indirectly to “purchase” or “carry” “margin stock” or to repay
indebtedness incurred to “purchase” or “carry” “margin stock” within the respective meanings of
each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.

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          6.9 Authorization and Reservation of Shares. DRI shall at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.

     7. Covenants of the Purchaser. The Purchaser covenants and agrees with the Companies
as follows:

          7.1 Confidentiality. The Purchaser will not disclose, and will not include in any
public announcement, the name of the Companies, unless expressly agreed to by the Companies or
unless and until such disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

          7.2 Non-Public Information. The Purchaser will not effect any sales in the shares of
DRI’s Common Stock while in possession of material, non-public information regarding the Companies
if such sales would violate applicable securities law.

          7.3 Limitation on Acquisition of Common Stock of DRI. Notwithstanding anything to the
contrary contained in this Agreement, any Related Agreement or any document, instrument or
agreement entered into in connection with any other transactions between the Purchaser and the DRI,
the Purchaser may not acquire stock in DRI (including, without limitation, pursuant to a contract
to purchase, by exercising an option or warrant, by converting any other security or instrument, by
acquiring or exercising any other right to acquire, shares of stock or other security convertible
into shares of stock in DRI, or otherwise, and such contracts, options, warrants, conversion or
other rights shall not be enforceable or exercisable) to the extent such stock acquisition would
cause any interest (including any original issue discount) payable by DRI to the Purchaser not to
qualify as “portfolio interest” within the meaning of Section 881(c)(2) of the Code, by reason of
Section 881(c)(3) of the Code, taking into account the constructive ownership rules under Section
871(h)(3)(C) of the Code (the “Stock Acquisition Limitation”). The Stock Acquisition Limitation
shall automatically become null and void without any notice to DRI upon the existence of an Event
of Default (as defined in the Note) at a time when the average closing price of DRI’s common stock
as reported by Bloomberg, L.P. on the Principal Market for the immediately preceding five trading
days is greater than or equal to 150% of the Exercise Price (as defined in the Warrant).

     8. Covenants of the Companies and the Purchaser Regarding Indemnification.

          8.1 Companies Indemnification. The Companies agree to indemnify, hold harmless,
reimburse and defend the Purchaser, each of the Purchaser’s officers, directors, agents,
affiliates, control persons, and principal shareholders, against all claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal fees) of any nature,
incurred by or imposed upon the Purchaser which result, arise out of or are based upon: (i) any
misrepresentation by the Companies or breach of any warranty by the Companies in this Agreement,
any other Related Agreement or in any exhibits or schedules attached hereto or thereto; or (ii) any
breach or default in performance by Companies of any covenant or undertaking to be performed by
Companies hereunder, under any other Related Agreement or any other agreement entered into by the
Companies and the Purchaser relating hereto or thereto.

9

 

          8.2 Purchaser’s Indemnification. The Purchaser agrees to indemnify, hold harmless,
reimburse and defend the Companies and each of the Companies’ officers, directors, agents,
affiliates, control persons and principal shareholders, at all times against any claims, costs,
expenses, liabilities, obligations, losses or damages (including reasonable legal fees) of any
nature, incurred by or imposed upon the Companies which result, arise out of or are based upon:
(i) any misrepresentation by the Purchaser or breach of any warranty by the Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by the Purchaser of any covenant or undertaking to be performed by
the Purchaser hereunder, or any other agreement entered into by the Companies and the Purchaser
relating hereto.

     9. Registration Rights.

          9.1 Registration Rights Granted. DRI hereby grants registration rights to the
Purchaser pursuant to the Registration Rights Agreement.

          9.2 Offering Restrictions. Except as previously disclosed in the SEC Reports or in
the Exchange Act Filings, or stock or stock options granted to employees or directors of the
Companies (these exceptions hereinafter referred to as the “Excepted Issuances”), neither the
Companies will, prior to the full exercise by Purchaser of the Warrants, (x) enter into any equity
line of credit agreement or similar agreement or (y) issue, or enter into any agreement to issue,
any securities with a variable/floating conversion and/or pricing feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject to a registration
statement).

     10. Miscellaneous.

          10.1 Governing Law, Jurisdiction and Waiver of Jury Trial.

     (a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

     (b) THE COMPANIES HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANIES, ON THE ONE HAND, AND THE PURCHASER,
ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS;
PROVIDED, THAT THE PURCHASER AND THE COMPANIES ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK,
STATE OF NEW YORK; AND FURTHER PROVIDED, THAT, NOTHING IN THIS
AGREEMENT SHALL BE

10

 

DEEMED OR OPERATE TO PRECLUDE THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL
(AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS
DEFINED IN THE MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE PURCHASER. THE COMPANIES EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANIES HEREBY
WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. THE COMPANIES HEREBY WAIVE PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE COMPANIES AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANIES’S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

     (c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANIES ARISING OUT OF, CONNECTED
WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

          10.2 Severability. Wherever possible each provision of this Agreement and the Related
Agreements shall be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement or any Related Agreement shall be prohibited by or invalid
or illegal under applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity or illegality, without invalidating the remainder of such provision or
the remaining provisions thereof which shall not in any way be affected or impaired thereby.

          10.3 Survival. The representations, warranties, covenants and agreements made herein
shall survive any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Companies pursuant hereto
in connection with the transactions contemplated hereby shall be deemed to be representations and
warranties by the Companies hereunder solely as of the date of

11

 

such certificate or instrument. All indemnities set forth herein shall survive the execution,
delivery and termination of this Agreement and the Note and the making and repayment of the
obligations arising hereunder, under the Note and under the other Related Agreements.

          10.4 Successors. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be enforceable by each
person or entity which shall be a holder of the Securities from time to time, other than the
holders of Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. The Purchaser shall not be permitted to assign its rights hereunder or
under any Related Agreement to a competitor of the Companies unless an Event of Default (as defined
in the Note) has occurred and is continuing.

          10.5 Entire Agreement; Maximum Interest. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set forth herein and
therein. Nothing contained in this Agreement, any Related Agreement or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum rate permitted by applicable law. In
the event that the rate of interest or dividends required to be paid or other charges hereunder
exceed the maximum rate permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Companies to the Purchaser and thus refunded to the Companies.

          10.6 Amendment and Waiver.

     (a) This Agreement may be amended or modified only upon the written consent of the
Companies and the Purchaser.

     (b) The obligations of the Companies and the rights of the Purchaser under this
Agreement may be waived only with the written consent of the Purchaser.

     (c) The obligations of the Purchaser and the rights of the Companies under this
Agreement may be waived only with the written consent of the Companies.

          10.7 Delays or Omissions. It is agreed that no delay or omission to exercise any
right, power or remedy accruing to any party, upon any breach, default or noncompliance by another
party under this Agreement or the Related Agreements, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement or the Related Agreements, by law or
otherwise afforded to any party, shall be cumulative and not alternative.

          10.8 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given pursuant to the terms of the Security Agreement.

12

 

          10.9 Attorneys’ Fees. In the event that any suit or action is instituted to enforce
any provision in this Agreement or any Related Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement and/or such Related
Agreement, including, without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

          10.10 Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in construing this
Agreement.

          10.11 Facsimile Signatures; Counterparts. This Agreement may be executed by facsimile
signatures and in any number of counterparts, each of which shall be an original, but all of which
together shall constitute one agreement.

          10.12 Broker’s Fees. Except as set forth on Schedule 11.12 hereof, each party hereto
represents and warrants that no agent, broker, investment banker, person or firm acting on behalf
of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s
fee or any other commission directly or indirectly in connection with the transactions contemplated
herein. Each party hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this Section 11.12 being
untrue.

          10.13 Construction. Each party acknowledges that its legal counsel participated in
the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting party shall not be
applied in the interpretation of this Agreement or any Related Agreement to favor any party against
the other.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

13

 

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of
the date set forth in the first paragraph hereof.

	 	 	 	 	 	 	 
	COMPANIES:	 	PURCHASER:
	 
	 	 	 	 	 	 
	DIGITAL RECORDERS, INC.	 	LAURUS MASTER FUND, LTD.
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Name:

	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Title:

	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	TWINVISION OF NORTH AMERICA, INC.	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	DIGITAL AUDIO CORPORATION	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ROBINSON-TURNEY INTERNATIONAL, INC.	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

14exv10w2

 

SECURED TERM NOTE

          FOR VALUE RECEIVED, DIGITAL RECORDERS INC., a North Carolina corporation (“DRI”), TWINVISION
OF NORTH AMERICA, INC., a North Carolina corporation (“TwinVision”), DIGITAL AUDIO CORPORATION, a
North Carolina corporation (“DAC”) and ROBINSON-TURNEY INTERNATIONAL, INC., a Texas corporation
(“RTI”, and together with DRI, TwinVision and DAC, the “Company”), jointly and severally promise to
pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House,
South Church Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the “Holder”) or
its registered assigns or successors in interest, the sum of One Million Six Hundred Thousand
Dollars ($1,600,000), together with any accrued and unpaid interest hereon, on April 28, 2007 (the
“Maturity Date”) if not sooner paid.

          The following terms shall apply to this Secured Term Note (this “Note”):

ARTICLE I

CONTRACT RATE AND AMORTIZATION

          1.1 Contract Rate. Subject to Sections 3.2 and 4.10, interest payable on the
outstanding principal amount of this Note (the “Principal Amount”) shall accrue at a rate per annum
equal to ten percent (10%) (the “Contract Rate”). Interest shall be (i) calculated on the basis of
a 360 day year, and (ii) payable monthly, in arrears, commencing on June 1, 2006, on the first
business day of each consecutive calendar month thereafter through and including the Maturity Date,
and on the Maturity Date, whether by acceleration or otherwise.

          1.2 Contract Rate Payments. The Contract Rate shall be calculated on the last
business day of each calendar month hereafter (other than for increases or decreases in the Prime
Rate which shall be calculated and become effective in accordance with the terms of Section 1.1)
until the Maturity Date.

          1.3 Principal Payments. Any outstanding Principal Amount together with any accrued
and unpaid interest and any and all other unpaid amounts which are then owing by the Company to the
Holder under this Note, the Security Agreement and/or any other Ancillary Agreement, together with
a fee equal to $160,000 shall be due and payable on the Maturity Date.

ARTICLE II

REDEMPTION

          2.1 Optional Redemption in Cash. The Company may prepay this Note (“Optional
Redemption”) by paying to the Holder a sum of money equal to one hundred ten percent (110%) of the
Principal Amount outstanding at such time together with accrued but unpaid interest thereon and any
and all other sums due, accrued or payable to the Holder arising under this Note, the Security
Agreement or any other Ancillary Agreement (the “Redemption Amount”) outstanding on the Redemption
Payment Date (as defined below). The Company shall deliver to the Holder a written notice of
redemption (the “Notice of Redemption”) specifying the date for such Optional Redemption (the
“Redemption Payment Date”), which date shall be seven (7) business days after the date of the
Notice of Redemption (the

 

 

"Redemption Period”). On the Redemption Payment Date, the Redemption Amount must be paid in good funds to the Holder. In the event the Company fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption Notice will be null and void.

ARTICLE III

EVENTS OF DEFAULT

          3.1 Events of Default. The occurrence of any of the following events set forth in
this Section 3.1 shall constitute an event of default (“Event of Default”) hereunder:

               (a) Failure to Pay. The Company fails to pay when due any installment of principal,
interest or other fees hereon in accordance herewith, or the Company fails to pay any of the other
Obligations (under and as defined in the Master Security Agreement) when due, and, in any such
case, such failure shall continue for a period of three (3) days following the date upon which any
such payment was due.

               (b) Breach of Covenant. The Company breaches any covenant or any other term or
condition of this Note in any material respect and such breach, if subject to cure, continues for a
period of fifteen (15) days after the occurrence thereof.

               (c) Breach of Representations and Warranties. Any representation, warranty or
statement made or furnished by the Company in this Note, the Security Agreement or any other
Ancillary Agreement shall at any time be false or misleading in any material respect on the date as
of which made or deemed made.

               (d) Default Under Other Agreements. The occurrence of any default (or similar term)
in the observance or performance of any other agreement or condition relating to any indebtedness
or contingent obligation of the Company (including, without limitation, the indebtedness evidenced
by the the Security Agreement and the Ancillary Agreements) beyond the period of grace (if any),
the effect of which default is to cause, or permit the holder or holders of such indebtedness or
beneficiary or beneficiaries of such contingent obligation to cause, such indebtedness to become
due prior to its stated maturity or such contingent obligation to become payable;

               (e) Material Adverse Effect. Any change or the occurrence of any event which could
reasonably be expected to have a Material Adverse Effect;

               (f) Bankruptcy. The Company shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) make a general assignment for the
benefit of creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition seeking to
take advantage of any other law providing for the relief of debtors, (vi) acquiesce to, without
challenge within ten (10) days of the filing thereof, or failure to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;

2

 

               (g) Judgments. Attachments or levies in excess of $50,000 in the aggregate are made
upon the Company’s assets or a judgment is rendered against the Company’s property involving a
liability of more than $50,000 which shall not have been vacated, discharged, stayed or bonded
within thirty (30) days from the entry thereof;

               (h) Insolvency. The Company shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present business;

               (i) Change of Control. A Change of Control (as defined below) shall occur with
respect to the Company, unless Holder shall have expressly consented to such Change of Control in
writing. A “Change of Control” shall mean any event or circumstance as a result of which (i) any
“Person” or “group” (as such terms are defined in Sections 13(d) and 14(d) of the Exchange Act, as
in effect on the date hereof), other than the Holder, is or becomes the “beneficial owner” (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of 35% or
more on a fully diluted basis of the then outstanding voting equity interest of the Company (other
than a “Person” or “group” that beneficially owns 35% or more of such outstanding voting equity
interests of the Company on the date hereof), (ii) the Board of Directors of the Company shall
cease to consist of a majority of the Company’s board of directors on the date hereof (or directors
appointed by a majority of the board of directors in effect immediately prior to such appointment)
or (iii) the Company merges or consolidates with, or sells all or substantially all of its assets
to, any other person or entity;

               (j) Indictment; Proceedings. The indictment or threatened indictment of the Company
or any executive officer of the Company under any criminal statute, or commencement or threatened
commencement of criminal or civil proceeding against the Company or any executive officer of the
Company pursuant to which statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of the Company ; and

               (k) The Security Agreement and Ancillary Agreements. (i) An Event of Default shall
occur under and as defined in the Security Agreement or any other Ancillary Agreement, (ii) the
Company shall breach any term or provision of the Security Agreement or any other Ancillary
Agreement in any material respect and such breach, if capable of cure, continues unremedied for a
period of fifteen (15) days after the occurrence thereof, (iii) the Company attempts to terminate,
challenges the validity of, or its liability under, the Security Agreement or any Ancillary
Agreement, (iv) any proceeding shall be brought to challenge the validity, binding effect of the
Security Agreement or any Ancillary Agreement or (v) the Security Agreement or any Ancillary
Agreement ceases to be a valid, binding and enforceable obligation of the Company (to the extent
such persons or entities are a party thereto).

          3.2 Default Interest. Following the occurrence and during the continuance of an Event
of Default, the Company shall, jointly and severally, pay additional interest on this Note in an
amount equal to two percent (2%) per month, and all outstanding obligations under this Note, the
Security Agreement and each other Ancillary Agreement, including unpaid interest, shall continue to
accrue interest at such additional interest rate from the date of such Event of Default until the
date such Event of Default is cured or waived.

3

 

          3.3 Default Payment. Following the occurrence and during the continuance of an Event
of Default, the Holder, at its option, may demand repayment in full of all obligations and
liabilities owing by Company to the Holder under this Note, the Security Agreement and/or any other
Ancillary Agreement and/or may elect, in addition to all rights and remedies of the Holder under
the Security Agreement and the other Ancillary Agreements and all obligations and liabilities of
the Company under the Security Agreement and the other Ancillary Agreements, to require the
Company, jointly and severally, to make a Default Payment (“Default Payment”). The Default Payment
shall be 130% of the outstanding principal amount of the Note, plus accrued but unpaid interest,
all other fees then remaining unpaid, and all other amounts payable hereunder. The Default Payment
shall be applied first to any fees due and payable to the Holder pursuant to this Note, the
Security Agreement, and/or the other Ancillary Agreements, then to accrued and unpaid interest due
on this Note and then to the outstanding principal balance of this Note. The Default Payment shall
be due and payable immediately on the date that the Holder has exercised its rights pursuant to
this Section 3.3.

ARTICLE IV

MISCELLANEOUS

          4.1 Cumulative Remedies. The remedies under this Note shall be cumulative.

          4.2 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder
hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

          4.3 Notices. Any notice herein required or permitted to be given shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when
sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not,
then on the next business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the Company at the address provided in the Security Agreement
executed in connection herewith, and to the Holder at the address provided in the Security
Agreement for such Holder, with a copy to John E. Tucker, Esq., 825 Third Avenue, 14th
Floor, New York, New York 10022, facsimile number (212) 541-4434, or at such other address as the
Company or the Holder may designate by ten days advance written notice to the other parties hereto.

          4.4 Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed, or if later amended
or supplemented, then as so amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.

          4.5 Assignability. This Note shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of the Holder and its successors and assigns,

4

 

and may be assigned by the Holder in accordance with the requirements of the Security
Agreement. The Company may not assign any of its obligations under this Note without the prior
written consent of the Holder, any such purported assignment without such consent being null and
void.

          4.6 Cost of Collection. In case of any Event of Default under this Note, the Company
shall pay the Holder reasonable costs of collection, including reasonable attorneys’ fees.

          4.7 Governing Law, Jurisdiction and Waiver of Jury Trial.

               (a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

               (b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE OR ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN
THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR
ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.
THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE
SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.

               (c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL

5

 

BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND THE COMPANY ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE,
ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

          4.8 Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other provision of this Note.

          4.9 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Company to the Holder and thus refunded to the
Company.

          4.10 Security Interest . The Holder has been granted a security interest (i) in
certain assets of the Company as more fully described in the Reaffirmation and Ratification
Agreement by and among the Company and the Holder, dated as of the date hereof.

          4.11 Construction. Each party acknowledges that its legal counsel participated in the
preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities
are to be resolved against the drafting party shall not be applied in the interpretation of this
Note to favor any party against the other.

          5.13 Registered Obligation. This Note is intended to be a registered obligation within
the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the Company (or its agent) shall
register this Note (and thereafter shall maintain such registration) as to both principal and any
stated interest. Notwithstanding any document, instrument or agreement relating to this Note to
the contrary, transfer of this Note (or the right to any payments of principal or stated interest
thereunder) may only be effected by (i) surrender of this Note and either the reissuance by the
Company of this Note to the new holder or the issuance by the Company of a new instrument to the
new holder, or (ii) transfer through a book entry system maintained by the Company (or its agent),
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).

[Balance of page intentionally left blank; signature page follows]

6

 

          IN WITNESS WHEREOF, the Company has caused this Secured Term Note to be signed in its name
effective as of this 28th day of April, 2006.

	 	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	WITNESS:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	TWINVISION OF NORTH AMERICA, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	WITNESS:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	DIGITAL AUDIO CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	WITNESS:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	ROBINSON-TURNEY INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	WITNESS:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

7

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