PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of June 27, 2001, between DIGITAL
RECORDERS, INC., a North Carolina corporation ("Pledgor"), RENAISSANCE US GROWTH
& INCOME TRUST PLC, a public limited company registered in England and Wales
("RUSGIT"), BFSUS SPECIAL OPPORTUNITIES TRUST PLC, a public limited company
registered in England and Wales ("BFSUS") (RUSGIT and BFSUS collectively
referred to as "Secured Party"), and RENAISSANCE CAPITAL GROUP, INC., a Texas
corporation, for the Secured Party (the "Agent").
RECITALS
A. Pledgor, Secured Party and Agent entered into a Convertible Loan
Agreement of even date herewith (the "Loan Agreement"). Capitalized terms used
but not defined herein shall have the meanings set forth in the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Secured Party will lend
to Pledgor the aggregate principal amount of $3,000,000 to be evidenced by the
Pledgor's 8.00% Convertible Debentures of even date herewith (the "Debentures").
C. Pledgor is the owner of the shares (collectively, the "Shares") of
capital stock hereto issued by each Subsidiary described on SCHEDULE A, and
Pledgor has agreed to pledge and assign to Secured Party a security interest in
the Shares, together with any additional shares of capital stock of any U.S.
subsidiary subsequently acquired by Pledgor or an affiliate, subject with
respect to such U.S. subsidiaries only, to the prior pledge to Guaranty Business
Credit Corporation ("GBCC") to secure payment of the Obligations of Pledgor
under the Loan Agreement and Debentures.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants, the parties agree as follows:
1. PLEDGE OF SHARES. Pledgor hereby pledges and assigns to the Secured
Party the Shares, subject with respect to any U.S. subsidiaries only, to the
prior pledge to GBCC, for the purpose of securing the full and prompt payment,
when due, by Pledgor of the Obligations.
2. DELIVERY OF SHARES. Upon execution of this Pledge, Pledgor shall
deliver to Agent all the certificates representing the Shares of DRI-Europa AB,
a Swedish corporation, together with duly executed stock powers, in blank. In
the event that GBCC releases its security interest in the Shares of the U.S.
subsidiaries, the Pledgor shall deliver such Shares to Agent in like manner.
Agent shall hold all such certificates and stock powers subject to the terms of
this Pledge Agreement.
3. VOTING OF SHARES AND RECEIPT OF DIVIDENDS. Subject to the rights of
GBCC with respect to the shares of the U.S. subsidiaries, Pledgor shall have the
right to vote the Shares, except as provided herein and in the Loan Agreement
and Debentures, upon the occurrence of an Event of Default or a Default.
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4. REPRESENTATIONS AND WARRANTIES. Pledgor hereby warrants, represents
and covenants as follows:
a. Pledgor owns the Shares, free from any adverse claims and
Liens, except the prior security interest of Svenska Handelsbanken with
respect to the Shares of the European Subsidiaries;
b. Pledgor will notify Secured Party of, and will defend the
Shares against, all claims and demands of all persons at any time
claiming the Shares or any interest therein;
c. Pledgor will pay all taxes and assessments upon the Shares
prior to the date of delinquency for payment of such taxes and
assessments; and
d. Pledgor has the full power, authority and capacity to grant
the security interest hereunder.
5. RETURN OF SECURITY. When the Obligations have been paid in full,
Agent shall promptly deliver the certificates representing the Shares then held
by it and all related stock powers to Pledgor.
6. OCCURRENCE OF EVENT OF DEFAULT. Subject to the rights of Svenska
Handelsbanken with respect to the Shares of the European Subsidiaries, if an
Event of Default or a Default occurs, Agent or Secured Party shall have the
right to exercise any rights and remedies provided in the Loan Agreement, as
Secured Party or Agent, in its or their sole discretion, may deem necessary or
appropriate. Secured Party or Agent shall further have the right to exercise any
remedies afforded a secured party under the Uniform Commercial Code of Texas or
any other applicable law with respect to the Shares.
7. DURATION OF PLEDGE. This Pledge shall be terminated upon the earlier
of: (i) foreclosure by Secured Party of the security interest granted hereunder
upon the occurrence of a Default or an Event of Default, or (ii) return of the
Shares to Pledgor upon payment of the Obligations.
8. Miscellaneous.
a. GOVERNING LAW. This Pledge shall be governed by and
construed and enforced in accordance with the substantive laws of the
State of Texas, without regard to the conflicts of laws provisions
thereof, and the applicable laws of the United States. Venue and
jurisdiction shall be in the state or federal courts in Dallas County,
Texas.
b. BINDING EFFECT. All of the terms, covenants,
representations, warranties and conditions herein shall be binding
upon, and inure to the benefit of, and be enforceable by the parties
and their respective successors and assignees.
c. WAIVER. This Pledge may not be amended, modified,
superseded or canceled, nor may any of the terms, covenants,
representations, warranties or conditions
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hereof be waived, except by a written instrument executed by the
party against whom such amendment, modification, supersedure,
cancellation or waiver is charged. The failure of any party at any
time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce the same.
No waiver by any party of any condition, or of any breach of any
term, covenant, representation or warranty contained herein, in any
one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or
waiver of any other condition or of any breach of any other term,
covenant, representation or warranty.
d. ATTORNEYS' FEES. If any party brings an action in
connection with the performance, breach or interpretation of this
Pledge, or in any action related to the transaction contemplated
hereby, the prevailing party in such action shall be entitled to
recover from the losing party in such action all reasonable costs and
expenses of such litigation, including attorneys' fees, court costs,
costs of investigation, accounting and other costs reasonably incurred
or related to such litigation.
e. SEVERABILITY. If any provision hereof is determined to be
illegal or unenforceable, such determination shall not affect the
validity or enforceability of the remaining provisions hereof, all of
which shall remain in full force and effect.
f. FURTHER DOCUMENTS. Each party covenants and agrees that,
from time to time, after the date hereof, at the reasonable request of
any other party, and without further consideration, such party will
execute and deliver such other documents and take such other action
reasonably required to carry out, in all respects, the transactions
contemplated and intended by this Pledge.
g. NOTICES. Any notices or other communications required or
permitted to be given by this Agreement or any other documents and
instruments referred to herein must be (i) given in writing and
personally delivered, mailed by prepaid certified or registered mail or
sent by overnight service, such as FedEx, or (ii) made by telex or
facsimile transmission delivered or transmitted to the party to whom
such notice or communication is directed, with confirmation thereupon
given in writing and personally delivered or mailed by prepaid
certified or registered mail.
If to Secured Party
or Agent:
Renaissance US Growth & Income Trust PLC
c/o Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone: (214) 891-8294
Facsimile: (214) 891-8291
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BFSUS Special Opportunities Trust PLC
c/o Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone: (214) 891-8294
Facsimile: (214) 891-8291
Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone: (214) 891-8294
Facsimile: (214) 891-8291
with a copy to:
Norman R. Miller, Esq.
Kirkpatrick & Lockhart LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Telephone: (214) 939-4906
Facsimile: (214) 939-4949
If to Pledgor:
Digital Recorders, Inc.
Sterling Plaza, Box 26
5949 Sherry Lane, Suite 1050
Dallas, Texas 75225
Attn.: David L. Turney
Chairman, CEO and President
Telephone: (214) 378-9429
Facsimile: (214) 378-8437
with a copy to:
David Furr, Esq.
Gray, Layton, Drum, Kersh, Solomon & Furr, PA
516 South New Hampton Road
P.O. Box 2636
Gastonia, North Carolina 28053-2637
Telephone: (704) 865-4400
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Facsimile: (704) 866-8010
Any notice delivered personally in the manner
provided herein will be deemed given to the party to whom it
is directed upon the party's (or its agent's) actual receipt.
Any notice addressed and mailed in the manner provided herein
will be deemed given to the party to whom it is addressed at
the close of business, local time of the recipient, on the
fourth business day after the day it is placed in the mail,
or, if earlier, the time of actual receipt.
h. PARTIES IN INTEREST. Nothing in this Pledge, whether
express or implied, is intended to confer any rights or remedies under
or by reason of this Pledge on any persons other than the parties and
their respective successors and assigns, nor is anything in this Pledge
intended to relieve or discharge the obligation or liability of any
third persons to any party to this Pledge, nor shall any provision give
any third persons any right of subrogation or action over or against
any party to this Pledge.
i. DEFINED TERMS. All capitalized terms, unless otherwise
specified, have the same meanings assigned to them in the Loan
Agreement and Debentures.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, this Pledge Agreement is executed as of the date
first above written.
PLEDGOR:
DIGITAL RECORDERS, INC.
By:
------------------------------------
Name: David L. Turney
Title: Chairman, CEO and President
SECURED PARTY:
RENAISSANCE US GROWTH & INCOME TRUST, PLC
By:
------------------------------------
Name: Russell Cleveland
Title: Director
BFSUS SPECIAL OPPORTUNITIES TRUST PLC
By:
------------------------------------
Name: Russell Cleveland
Title: Director
AGENT:
RENAISSANCE CAPITAL GROUP, INC.
By:
------------------------------------
Name: Russell Cleveland
Title: President and CEO
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SCHEDULE A
SUBSIDIARIES NO. OF SHARES
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Twin Vision of North America, Inc. 100
Digital Audio Corporation 100