Document:

exv4w2

 

AMENDED AND RESTATED 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, (i) the sum of One Million One Hundred Thousand
Dollars ($1,100,000) (the “Initial Principal Amount”), together with any accrued and unpaid
interest thereon, on April 28, 2007 (the “Initial Maturity Date”) and (ii) the sum of Five Hundred
Thousand Dollars ($500,000) (the “Second Principal Amount”, and together with the Initial Principal
Amount, the “Principal Amount”) together with any accrued and unpaid interest thereon, on April 30,
2008 (the “Second Maturity Date”), if not sooner paid. Terms not otherwise defined herein shall
have the meanings ascribed thereto in that certain Securities Purchase Agreement by and among the
Company and the Holder dated April 28, 2006 (as amended, modified or supplemented, the “Securities
Purchase Agreement”).

          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 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 (i) with regard to the Initial
Principal Amount, the Initial Maturity Date, and on the Initial Maturity Date, whether by
acceleration or otherwise and (ii) with regard to the Second Principal Amount, the Second 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 Second Maturity Date.

          1.3 Principal Payments. (a) Any outstanding Initial 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 Securities Purchase Agreement and/or any other Related
Agreement shall be due and payable on the Initial Maturity Date.

          (b) 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
Securities Purchase Agreement and/or any Related Agreement shall be due and payable on the Second
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 Securities
Purchase Agreement or any other Related 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 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;

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               (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;

               (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 Securities Purchase Agreement and Related 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 Securities Purchase Agreement or any other
Related Agreement in any material respect and such breach, if capable of cure, continues unremedied
for a period of fifteen (15) days after the occurrence

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thereof, (iii) the Company attempts to terminate, challenges the validity of, or its liability
under, the Securities Purchase Agreement or any Related Agreement, (iv) any proceeding shall be
brought to challenge the validity, binding effect of the Securities Purchase Agreement or any
Related Agreement or (v) the Securities Purchase Agreement or any Related 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 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 Securities Purchase Agreement
and/or any other Related Agreement and/or may elect, in addition to all rights and remedies of the
Holder under the Securities Purchase Agreement and the other Related Agreements and all obligations
and liabilities of the Company under the Securities Purchase Agreement and the other Related
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 Securities Purchase Agreement, and/or the other Related 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

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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, 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

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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 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

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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).

          5.14 Amendment and Restatement. This Amended and Restated Secured Term Note amends
and restates in its entirety, and is given in substitution for and not in satisfaction of that
certain Secured Term Note in the original principal amount of $1,600,000 issued by the Parent and
certain of its Subsidiaries in favor of the Holder on April 28, 2006.

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

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     IN WITNESS WHEREOF, the Company has caused this Amended and Restated Secured Term Note to be
signed in its name effective as of the 31st day of December, 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:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 	 	 

8exv4w3

 

SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

          This Second Amended and Restated Registration Rights Agreement (this “Agreement”) is made and
entered into as of December 31, 2006, by and between Digital Recorders, Inc., a North Carolina
corporation (the “Company”), and Laurus Master Fund, Ltd. (the “Purchaser”).

          This Agreement is made pursuant to the Security Agreement, dated as of the date hereof, by and
among the Purchaser, the Company and various subsidiaries of the Company (as amended, modified or
supplemented from time to time, the “Security Agreement”), and pursuant to the Warrants referred to
therein and certain other warrants and shares of Common Stock issued to the Purchaser subsequent to
the Security Agreement.

          The Company and the Purchaser hereby agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in
the Security Agreement shall have the meanings given such terms in the Security Agreement. As used
in this Agreement, the following terms shall have the following meanings:

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means shares of the Company’s common stock, par value $0.10 per share.

          “Effectiveness Date” means, (i) with respect to the Registration Statement required to be
filed in connection with the Shares and the Warrants, a date no later than three hundred ninety
five (395) days following such date and (ii) with respect to each additional Registration Statement
required to be filed hereunder (if any), a date no later than thirty (30) days following the
applicable Filing Date.

          “Effectiveness Period” has the meaning set forth in Section 2(a).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor
statute.

          “Filing Date” means, with respect to (1) the Registration Statement required to be filed in
connection with the Shares, the date which is three hundred sixty five (365) days after the
issuance of the Shares, (2) and the shares of Common Stock issuable to the Holder upon exercise of
a Warrant, the date which is one hundred twenty (120) days after the issuance of such Warrant, and
(2) the Registration Statement required to be filed in connection with the shares of Common Stock
issuable to the Holder as a result of adjustments to the Exercise Price made pursuant to Section 4
of the Warrant or otherwise, thirty (30) days after the occurrence of such event or the date of the
adjustment of the Exercise Price.

          “Holder” or “Holders” means the Purchaser or any of its affiliates or transferees to the
extent any of them hold Registrable Securities, other then those purchasing Registrable Securities
in a market transaction.

 

 

          “Indemnified Party” has the meaning set forth in Section 5(c).

          “Indemnifying Party” has the meaning set forth in Section 5(c).

          “Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether commenced or
threatened.

          “Prospectus” means the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such Registration
Statement, and all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

          “Registrable Securities” means (i) the Shares, and (ii) the shares of Common Stock issuable
upon exercise of the Warrants.

          “Registration Statement” means each registration statement required to be filed hereunder,
including the Prospectus therein, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such registration statement.

          “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          “Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

          “Security Agreement” has the meaning given to such term in the Preamble hereto.

          “Shares” means the shares of the Company’s Common Stock issued to the Purchaser on the date
hereof.

          “Trading Market” means any of the NASD Over The Counter Bulletin Board, NASDAQ Capital Market,
the NASDAQ National Market, the American Stock Exchange or the New York Stock Exchange

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          “Warrants” means the Common Stock purchase warrants issued in connection with the Security
Agreement, whether on the date thereof or thereafter, and the Common Stock purchase warrants issued
to the Purchaser on April 28, 2006.

     2. Registration.

          (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a
Registration Statement covering the Registrable Securities for a selling stockholder resale
offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement shall
be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another appropriate form in
accordance herewith). The Company shall cause each Registration Statement to become effective and
remain effective as provided herein. The Company shall use its best efforts to cause each
Registration Statement to be declared effective under the Securities Act as promptly as possible
after the filing thereof, but in any event no later than the Effectiveness Date. The Company shall
use its reasonable commercial efforts to keep each Registration Statement continuously effective
under the Securities Act until the date which is the earlier date of when (i) all Registrable
Securities covered by such Registration Statement have been sold or (ii) all Registrable Securities
covered by such Registration Statement may be sold immediately without registration under the
Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the
counsel to the Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the affected Holders (each, an “Effectiveness
Period”).

          (b) Within three business days of the Effectiveness Date, the Company shall cause its counsel
to issue a blanket opinion in the form attached hereto as Exhibit A, to the transfer agent stating
that the shares are subject to an effective registration statement and can be reissued free of
restrictive legend upon notice of a sale by the Purchaser and confirmation by the Purchaser that it
has complied with the prospectus delivery requirements, provided that the Company has not advised
the transfer agent orally or in writing that the opinion has been withdrawn. Copies of the blanket
opinion required by this Section 2(b) shall be delivered to the Purchaser within the time frame set
forth above.

     3. Registration Procedures. If and whenever the Company is required by the provisions hereof
to effect the registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:

          (a) prepare and file with the Commission a Registration Statement with respect to such
Registrable Securities, respond as promptly as possible to any comments received from the
Commission, and use its best efforts to cause such Registration Statement to become and remain
effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser
copies of all filings and Commission letters of comment relating thereto;

          (b) prepare and file with the Commission such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all Registrable Securities
covered by such Registration Statement and to keep such Registration

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Statement effective until the expiration of the Effectiveness Period applicable to such
Registration Statement;

          (c) furnish to the Purchaser such number of copies of the Registration Statement and the
Prospectus included therein (including each preliminary Prospectus) as the Purchaser reasonably may
request to facilitate the public sale or disposition of the Registrable Securities covered by such
Registration Statement;

          (d) use its best efforts to register or qualify the Purchaser’s Registrable Securities covered
by such Registration Statement under the securities or “blue sky” laws of such jurisdictions within
the United States as the Purchaser may reasonably request, provided, however, that the Company
shall not for any such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;

          (e) list the Registrable Securities covered by such Registration Statement with any securities
exchange on which the Common Stock of the Company is then listed;

          (f) immediately notify the Purchaser at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event of which the
Company has knowledge as a result of which the Prospectus contained in such Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and

          (g) make available for inspection by the Purchaser and any attorney, accountant or other agent
retained by the Purchaser, all publicly available, non-confidential financial and other records,
pertinent corporate documents and properties of the Company, and cause the Company’s officers,
directors and employees to supply all publicly available, non-confidential information reasonably
requested by the attorney, accountant or agent of the Purchaser.

     4. Registration Expenses. Expenses relating to the Company’s compliance with Sections 2 and 3
hereof, including, without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company, fees and expenses
(including reasonable counsel fees) incurred in connection with complying with state securities or
“blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of,
and disbursements incurred by, one counsel for the Holders are called “Registration Expenses”.
Selling commissions applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Holders beyond those included in Registration Expenses,
are called “Selling Expenses.” The Company shall only be responsible for all Registration
Expenses.

     5. Indemnification.

          (a) In the event of a registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, the Company will indemnify and hold harmless each Holder, and its
officers, directors and each other person, if any, who controls such Holder within

4

 

the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which such Holder, or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Securities were
registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final
Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will reimburse such Holder,
and each such person for any reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if and to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with information furnished
by or on behalf of the Purchaser or any such person in writing specifically for use in any such
document.

          (b) In the event of a registration of the Registrable Securities under the Securities Act
pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company, and its
officers, directors and each other person, if any, who controls the Company within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which
the Company or such persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact which was
furnished in writing by the Purchaser to the Company expressly for use in (and such information is
contained in) the Registration Statement under which such Registrable Securities were registered
under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus
contained therein, or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action, provided,
however, that the Purchaser will be liable in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity with information
furnished in writing to the Company by or on behalf of the Purchaser specifically for use in any
such document. Notwithstanding the provisions of this paragraph, the Purchaser shall not be
required to indemnify any person or entity in excess of the amount of the aggregate net proceeds
received by the Purchaser in respect of Registrable Securities in connection with any such
registration under the Securities Act.

          (c) Promptly after receipt by a party entitled to claim indemnification hereunder (an
“Indemnified Party”) of notice of the commencement of any action, such Indemnified Party shall, if
a claim for indemnification in respect thereof is to be made against a party hereto obligated to
indemnify such Indemnified Party (an “Indemnifying Party”), notify the Indemnifying Party in
writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any
liability which it may have to such Indemnified Party other than under

5

 

this Section 5(c) and shall only relieve it from any liability which it may have to such
Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced
by such omission. In case any such action shall be brought against any Indemnified Party and it
shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to participate in and, to the extent it shall wish, to assume and undertake the defense
thereof with counsel satisfactory to such Indemnified Party, and, after notice from the
Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section
5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall
pay all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be reasonable defenses available
to it which are different from or additional to those available to the Indemnifying Party or if the
interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the
Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and
to assume such legal defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the Indemnifying Party as incurred.

          (d) In order to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) the Purchaser, or any officer, director or
controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5
but it is judicially determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact that this Section 5
provides for indemnification in such case, or (ii) contribution under the Securities Act may be
required on the part of the Purchaser or such officer, director or controlling person of the
Purchaser in circumstances for which indemnification is provided under this Section 5; then, and in
each such case, the Company and the Purchaser will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from others) in such
proportion so that the Purchaser is responsible only for the portion represented by the percentage
that the public offering price of its securities offered by the Registration Statement bears to the
public offering price of all securities offered by such Registration Statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to contribute any
amount in excess of the public offering price of all such securities offered by it pursuant to such
Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.

     6. Representations and Warranties.

          (a) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and,
except with respect to certain matters which the Company has disclosed to the Purchaser on
Schedule 12(u) to the Security Agreement, the Company has timely filed all proxy
statements, reports, schedules, forms, statements and other documents required to be filed by it
under the Exchange Act. The Company has filed (i) its Annual Report on Form 10-K for the

6

 

fiscal year ended December 31, 2004 and (ii) its Quarterly Report on Form 10-Q for the fiscal
quarters ended March 31, 2005, June 30, 2005 and September 30, 2005 (collectively, the “SEC
Reports”). Each SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the financial statements (and
the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any
untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company included in the SEC Reports
comply as to form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with generally
accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to the extent they may not include footnotes or may be
condensed) and fairly present in all material respects the financial condition, the results of
operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of,
and for, the periods presented in each such SEC Report.

          (b) The Common Stock is listed for trading on the NASDAQ Capital Market and satisfies all
requirements for the continuation of such listing, and the Company shall do all things necessary
for the continuation of such listing. The Company has not received any notice that its Common
Stock will be delisted from the NASDAQ Capital Market (except for prior notices which have been
fully remedied) or that the Common Stock does not meet all requirements for the continuation of
such listing

          (c) Neither the Company, nor any of its 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
the Security Agreement to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506
under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or steps that would cause
the offering of the Common Stock to be integrated with other offerings (other than such concurrent
offering to the Purchaser).

          (d) The Shares, the Warrants and the shares of Common Stock that the Purchaser may acquire
pursuant to the Warrants are all restricted securities under the Securities Act as of the date of
this Agreement. The Company will not issue any stop transfer order or other order impeding the
sale and delivery of any of the Registrable Securities at such time as such Registrable Securities
are registered for public sale or an exemption from registration is available, except as required
by federal or state securities laws.

          (e) The Company understands the nature of the Registrable Securities that are Shares and the
Registrable Securities issuable upon the exercise of each Warrant and recognizes that the issuance
of such Registrable Securities may have a potential dilutive effect. The Company specifically
acknowledges that its obligation to issue the Registrable Securities is

7

 

binding upon the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.

          (f) Except for agreements made in the ordinary course of business, there is no agreement that
has not been filed with the Commission as an exhibit to a registration statement or to a form
required to be filed by the Company under the Exchange Act, the breach of which could reasonably be
expected to have a material and adverse effect on the Company and its subsidiaries, or would
prohibit or otherwise interfere with the ability of the Company to enter into and perform any of
its obligations under this Agreement in any material respect.

          (g) The Company will at all times have authorized and reserved a sufficient number of shares
of Common Stock for the full exercise of the Warrants.

     7. Miscellaneous.

          (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their
respective obligations under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under this Agreement,
including recovery of damages, will be entitled to specific performance of its rights under this
Agreement.

          (b) No Piggyback on Registrations. Except as and to the extent set forth on Schedule 7(b)
hereto, neither the Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in any Registration Statement other
than the Registrable Securities, and the Company shall not after the date hereof enter into any
agreement providing any such right for inclusion of shares in the Registration Statement to any of
its security holders. Except as and to the extent specified in Schedule 7(b) hereto, the
Company has not previously entered into any agreement granting any registration rights with respect
to any of its securities to any Person that have not been fully satisfied.

          (c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to any Registration Statement.

          (d) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation
Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable
Securities under the applicable Registration Statement until such Holder’s receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing
(the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company
may provide appropriate stop orders to enforce the provisions of this paragraph. For purposes of
this Agreement, a “Discontinuation Event” shall mean (i) when the Commission notifies the Company
whether there will be a “review” of such Registration Statement and whenever the Commission
comments in writing on such Registration Statement (the Company shall provide true and complete
copies thereof and all

8

 

written responses thereto to each of the Holders); (ii) any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to such Registration
Statement or Prospectus or for additional information; (iii) the issuance by the Commission of any
stop order suspending the effectiveness of such Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by
the Company of any notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any
event or passage of time that makes the financial statements included in such Registration
Statement ineligible for inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires any revisions to such Registration Statement, Prospectus or
other documents so that, in the case of such Registration Statement or Prospectus, as the case may
be, it will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

          (e) Piggy-Back Registrations. If at any time [during any Effectiveness Period][after the date
hererof] there is not an effective Registration Statement covering all of the Registrable
Securities required to be covered [during such Effectiveness Period][hereunder] and the Company
shall determine to prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or
their then equivalents relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen (15) days after receipt of such notice, any such Holder shall
so request in writing, the Company shall include in such registration statement all or any part of
such Registrable Securities such Holder requests to be registered, to the extent the Company may do
so without violating registration rights of others which exist as of the date of this Agreement,
subject to customary underwriter cutbacks applicable to all holders of registration rights and
subject to obtaining any required consent of any selling stockholder(s) to such inclusion under
such registration statement.

          (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in writing and signed by the
Company and the Holders of the then outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of certain Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided, however,
that the provisions of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.

9

 

          (g) Notices. Any notice or request hereunder may be given to the Company or the Purchaser at
the respective addresses set forth below or as may hereafter be specified in a notice designated as
a change of address under this Section 7(g). Any notice or request hereunder shall be given by
registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal
Express or other national overnight next day carrier (collectively, “Courier”) or telecopy
(confirmed by mail). Notices and requests shall be, in the case of those by hand delivery, deemed
to have been given when delivered to any party to whom it is addressed, in the case of those by
mail or overnight mail, deemed to have been given three (3) business days after the date when
deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next
business day following timely delivery of the package with the Courier, and, in the case of a
telecopy, when confirmed. The address for such notices and communications shall be as follows:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Digital Recorders, Inc.
	 
	 	 	 	 
	 

	 	Attention:
	 	David L. Turney
	 
	 	 	 	 
	 

	 	 	 	Chief Executive Officer
	 

	 	 	 	Facsimile:214.378.8347
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Gray, Layton, Kersh, Solomon, Sigmon, Furr &
Smith, P.A.
	 
	 	 	 	 
	 

	 	 	 	516 South New Hope Road
	 
	 	 	 	 
	 

	 	 	 	P.O. Box 2636
	 
	 	 	 	 
	 

	 	 	 	Gastonia, North Carolina 28053-2636
	 
	 	 	 	 
	 

	 	 	 	Attention: David Furr
	 

	 	 	 	Facsimile: 704.866.8010
	 
	 	 	 	 
	 

	 	If to a Purchaser:
	 	To the address set forth under such Purchaser
name on the signature pages hereto.
	 
	 	 	 	 
	 

	 	If to any other Person who is
then the registered Holder:
	 	To the address of such Holder as it
appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this Section
7(g) by such Person.

          (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign its rights or obligations hereunder without

10

 

the prior written
consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and
to the Persons as permitted under the Security Agreement.

          (i) Execution and Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation of the party
executing (or on whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

          (j) Governing Law, Jurisdiction and Waiver of Jury Trial. THIS AGREEMENT 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 LAW. 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 exclusion jurisdiction to hear and determine any Proceeding
between the Company, on the one hand, and the Purchaser, on the other hand, pertaining to this
Agreement or to any matter arising out of or related to this Agreement; provided, that the
Purchaser and the Company 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 deemed or operate to preclude the
Purchaser from bringing a Proceeding 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 Purchaser. The Company expressly submits and consents in advance
to such jurisdiction in any Proceeding 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 Proceeding 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 Section 7(g) 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. The parties hereto 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
Proceeding brought to resolve any dispute, whether arising in contract, tort, or otherwise between
the Purchaser and/or the Company arising out of, connected with, related or incidental to the
relationship established between then in connection with this Agreement. If either party hereto
shall commence a Proceeding to enforce any provisions of this Agreement, the Security Agreement or
any other Ancillary Agreement, then the prevailing party in such Proceeding shall be reimbursed by
the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

          (k) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.

11

 

          (l) Severability. If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall
use their reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions without including
any of such that may be hereafter declared invalid, illegal, void or unenforceable.

          (m) Headings. The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

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

12

 

          IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.

	 	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	LAURUS MASTER FUND, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 
	 

	 	Address for Notices:
	 
	 	 
	 

	 	825 Third Avenue, 14th Floor
	 

	 	New York, New York 10022
	 

	 	Attention: David Grin
	 

	 	Facsimile: 212-541-4434

13

 

EXHIBIT A

                    , 200                    

[Continental Stock Transfer

& Trust Company

Two Broadway

New York, New York 10004

Attn: William Seegraber]

Re:       Digital Recorders, Inc. Registration Statement on Form [S-3]

Ladies and Gentlemen:

     As counsel to Digital Recorders, Inc. , a North Carolina corporation (the “Company”), we have
been requested to render our opinion to you in connection with the resale by the individuals or
entitles listed on Schedule A attached hereto (the “Selling Stockholders”), of an aggregate
of                      shares (the “Shares”) of the Company’s Common Stock.

     A Registration Statement on Form [S-3] under the Securities Act of 1933, as amended (the
“Act”), with respect to the resale of the Shares was declared effective by the Securities and
Exchange Commission on [date]. Enclosed is the Prospectus dated [date]. We understand that the
Shares are to be offered and sold in the manner described in the Prospectus.

     Based upon the foregoing, upon request by the Selling Stockholders at any time while the
registration statement remains effective, it is our opinion that the Shares have been registered
for resale under the Act and new certificates evidencing the Shares upon their transfer or
re-registration by the Selling Stockholders may be issued without restrictive legend. We will
advise you if the registration statement is not available or effective at any point in the future.

Very truly yours,

[Company counsel]

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