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THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("ACT"), OR APPLICABLE STATE SECURITIES LAWS ("STATE ACTS"), AND SHALL
NOT BE SOLD, HYPOTHECATED, OR OTHERWISE TRANSFERRED, UNLESS SUCH TRANSFER IS
MADE IN COMPLIANCE WITH THE ACT AND THE STATE ACTS.
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DIGITAL RECORDERS, INC.
8.00% CONVERTIBLE DEBENTURE
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$1,500,000 NO. 1
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DATE OF ISSUE: JUNE 27, 2001
DIGITAL RECORDERS, INC., a North Carolina corporation (the "Company" or
"Borrower"), for value received, promises to pay to:
THE FROST NATIONAL BANK, CUSTODIAN FBO
RENAISSANCE US GROWTH & INCOME TRUST PLC
TRUST NO. W00740100
or to its order, (together with any assignee, jointly or severally, the "Holder"
or "Lender") on or before June 27, 2008 (the "Due Date") (unless this Debenture
shall have been sooner called for redemption or presented for conversion as
herein provided), the sum of One Million Five Hundred Thousand Dollars
($1,500,000) (the "Principal Amount") and to pay interest on the unpaid
Principal Amount at the rate of 8.00% per annum. All payments of both principal
and interest shall be made at the address of the Holder hereof as it appears in
the books and records of the Borrower, or at such other place as may be
designated by the Holder hereof.
1. INTEREST. Interest on the Principal Amount outstanding from
time to time shall be payable in monthly installments commencing August 1,
2001, and subsequent payments shall be made on the first day of each month
thereafter until the Principal Amount and all accrued and unpaid interest
shall have been paid in full. Overdue principal and interest on the Debenture
shall bear interest at the maximum rate permitted by applicable law.
2. MATURITY. If not sooner paid, redeemed or converted, this
Debenture shall mature on June 27, 2008 at which time the remaining unpaid
Principal Amount, and all accrued and unpaid interest and any other charges
then due under the Loan Agreement, shall be due and payable in full. This
Debenture shall be prepaid PRO RATA with any prepayments of Indebtedness
other than Senior Obligations. This Debenture shall be senior in right of
payment to all other Indebtedness of the Company, except the Senior
Obligations.
3. MANDATORY PRINCIPAL INSTALLMENTS. If this Debenture is not
sooner redeemed or converted as provided hereunder, Borrower shall pay to
Holder, commencing on June 27, 2004 and continuing on the first day of each
successive month thereafter prior to maturity, mandatory principal redemption
installments, each of such installments to be in the amount of Ten Dollars
($10) per Thousand Dollars ($1,000) of the then remaining Principal Amount,
and further, at maturity, Borrower shall pay to Holder a final installment of
the remaining unpaid Principal Amount, and all accrued and unpaid interest
and any other charges then due under the Loan Agreement.
4. OPTIONAL REDEMPTION BY HOLDER.
(a) If at any time after the date hereof (i) the Company's
Common Stock, $.10 per share ("Common Stock"), is not listed on the New
York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX"),
or quoted on the NASDAQ National Market System ("National Market") or
the NASDAQ SmallCap System ("SmallCap"), (ii) there is a change of
control of the Company's voting securities, without the written consent
of the Holder, (iii) there is a change of at least one-half of the
Company's Board of Directors as it shall exist on the date hereof,
without the written consent of the Holder, (iv) all or substantially
all of the assets or capital stock of the Company or its subsidiaries
are sold, without the consent of the Holder, or (v) the Company or its
subsidiaries are merged or consolidated with or into unaffiliated
entities, without the written consent of Holder, the Holder shall have
the right to require this Debenture to be redeemed by the Company at
the sum equal to the Principal Amount, together with an amount equal to
an 18% annual yield on the Principal Amount through the date of
redemption (the "Redemption Date").
(b) The Holder may exercise its right to require that the
Company redeem this Debenture pursuant to Section 4(a) prior to
maturity by giving notice thereof to the Company, which notice shall
specify the terms of redemption (including the place at which the
Holder may obtain payment), the total redemption payment and the
Redemption Date, which Redemption Date shall be within thirty (30) days
of the date of such notice.
5. OPTIONAL REDEMPTION BY COMPANY.
(a) On any interest payment date, and after receipt of
irrevocable notice from the Borrower as provided for below, this
Debenture is redeemable, in whole but not in part, at 101% of the
Principal Amount, together with accrued and unpaid interest through the
Redemption Date, by the Company, if all of the following conditions are
satisfied: (i) the average closing bid price for the Common Stock for
the 20 consecutive trading days prior to the date of notice exceeds an
amount equal to three times the Conversion Price then in effect, and
the Common Stock is listed or quoted on the National Market, the
SmallCap, AMEX or NYSE; (ii) the average daily trading volume for the
20 consecutive trading days prior to the date of the irrevocable notice
shall be no less than 40,000 shares; (iii) the market price for the
Common Stock at the time of notice reflects a price-to-earnings ratio
of no greater than 25 times fully diluted earnings per share, excluding
any
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extraordinary gains; and (iv) the shares of Common Stock issuable
upon conversion of this Debenture shall have been fully registered
under applicable securities laws, or the Borrower shall have furnished
to the Holder an opinion of counsel that such shares of Common Stock
may be publicly sold pursuant to an exemption from registration under
applicable securities laws. The Company's right of redemption is
subject to the Holder's prior right of conversion of the Debenture.
(b) If the Holder shall notify the Company in writing of its
intent to sell the Debenture, this Debenture is redeemable at the
Borrower's option, in whole but not in part, at 101% of the Principle
Amount, together with accrued and unpaid interest through the
Redemption Date, by the Company for a period of up to 30 days after the
date of notice.
(c) The Company may exercise its right to redeem this
Debenture pursuant to Sections 5(a) and (b) prior to maturity by giving
notice thereof to the Holder of this Debenture as such name appears on
the books of the Borrower, which notice shall specify the terms of
redemption (including the place at which the Holder may obtain
payment), the total redemption payment and the Redemption Date.
6. CONVERSION RIGHT.
(a) The Holder of this Debenture shall have the right, at
Holder's option, at any time, to convert all, or, in multiples of
$100,000, any part of this Debenture into such number of fully paid and
nonassessable shares of Common Stock as provided herein. The Holder of
this Debenture may exercise the conversion right by giving written
notice (the "Conversion Notice") to Borrower of the exercise of such
right and stating the name or names in which the stock certificate or
stock certificates for the shares of Common Stock are to be issued and
the address to which such certificates shall be delivered. The
Conversion Notice shall be accompanied by the Debenture. The number of
shares of Common Stock that shall be issuable upon conversion of the
Debenture shall equal the outstanding Principal Amount of the Debenture
divided by the Conversion Price (as defined below) and in effect on the
date the Conversion Notice is given; provided, however, that in the
event that this Debenture shall have been partially redeemed, shares of
Common Stock shall be issued pro rata, rounded to the nearest whole
share. Conversion shall be deemed to have been effected on the date the
Conversion Notice is received (the "Conversion Date"). In the case of
any Debenture called for redemption, the conversion rights will expire
at the close of business on the Redemption Date. Within 20 business
days after receipt of the Conversion Notice, Borrower shall issue and
deliver by hand against a signed receipt therefor or by United States
registered mail, return receipt requested, to the address designated in
the Conversion Notice, a stock certificate or stock certificates of
Borrower representing the number of shares of Common Stock to which
Holder is entitled and a check or cash in payment of all interest
accrued and unpaid on the Debenture up to and including the Conversion
Date. The conversion rights will be governed by the following
provisions:
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(b) CONVERSION PRICE. On the issue date hereof and until such
time as an adjustment shall occur, the Conversion Price shall be $2.00
per share; provided, however, that the Conversion Price shall be
subject to adjustment at the times and in accordance with the
provisions set forth below.
(i) ADJUSTMENT FOR ISSUANCE OF SHARES AT LESS THAN THE
CONVERSION PRICE. If and whenever any Additional Common Stock
shall be issued by Borrower (the "Stock Issue Date") for a
consideration per share less than the Conversion Price, then in
each such case the initial Conversion Price shall be reduced to
a new Conversion Price in an amount equal to the price per
share for the Additional Common Stock then issued, if issued in
connection with a sale of shares, or the value of the Additional
Common Stock then issued, as determined in accordance with
generally accepted accounting principles, if issued other than
for cash, and the number of shares issuable to Holder upon
conversion shall be proportionately increased; and, in the case
of Additional Common Stock issued without consideration, the
initial Conversion Price shall be reduced in amount and the
number of shares issued upon conversion shall be increased in
an amount so as to maintain for the Holder the right to convert
the Debenture into shares equal in amount to the same percentage
interest in the Common Stock of the Company as existed for the
Holder immediately preceding the Stock Issue Date.
(ii) SALE OF SHARES. In case of the issuance of
Additional Common Stock for a consideration part or all of
which shall be cash, the amount of the cash consideration
therefor shall be deemed to be the gross amount of the cash
paid to Borrower for such shares, before deducting any
underwriting compensation or discount in the sale, underwriting
or purchase thereof by underwriters or dealers or others
performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of
Additional Common Stock for a consideration part or all of
which shall be other than cash, the amount of the consideration
therefor, other than cash, shall be deemed to be the then fair
market value of the property received.
(iii) STOCK SPLITS, SUBDIVISIONS OR COMBINATIONS. In the
event of a stock split or subdivision of shares of Common Stock
into a greater number of shares, the Conversion Price shall be
proportionately decreased, and in the event of a combination of
shares of Common Stock into a smaller number of shares, the
Conversion Price shall be proportionately increased, such
increase or decrease, as the case may be, becoming effective at
the record date.
(iv) STOCK DIVIDENDS. Shares of Common Stock issued as a
dividend or other distribution on any class of capital stock of
Borrower shall be deemed to have been issued without
consideration.
(v) EXCEPTIONS. The term "Additional Common Stock"
herein shall mean all shares of Common Stock or securities
convertible or exercisable into shares of Common Stock
hereafter issued by Borrower (including Common Stock
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held in the treasury of Borrower), except (A) Common Stock issued
upon the conversion of any of the Debentures; (B) Common Stock
issuable upon exercise of presently outstanding amounts or stock
options; or (C) up to 300,000 shares of Common Stock issuable
upon exercise of employee or director stock options to be granted
in the future at less than the initial Conversion Price.
(c) ADJUSTMENT FOR MERGERS AND CONSOLIDATIONS. In the event of
any consolidation or merger of the Company with or into, or the sale of
all or substantially all of the properties and assets of the Company,
to any person, and in connection therewith, consideration is payable to
holders of Common Stock in cash, securities or other property, then as
a condition of such consolidation, merger or sale, lawful provision
shall be made, and duly executed documents evidencing the same shall be
delivered to the Holder, so that the Holder shall have the right at any
time prior to the maturity of this Debenture to purchase, at a total
price equal to the Conversion Price immediately prior to such event,
the kind and amount of cash, securities or other property receivable in
connection with such consolidation, merger or sale, by a holder of the
same number of shares of Common Stock as were convertible by the Holder
immediately prior to such consolidation, merger or sale. In any such
case, appropriate provisions shall be made with respect to the rights
and interest of the Holder so that the provisions hereof shall
thereafter be applicable with respect to any cash, securities or
property deliverable upon exercise hereof. Notwithstanding the
foregoing, (i) if the Company merges or consolidates with, or sells all
or substantially all of its property and assets to, any other person,
and consideration is payable to holders of Common Stock in exchange for
their Common Stock in connection with such merger, consolidation or
sale which consists solely of cash, or (ii) in the event of the
dissolution, liquidation or winding up of the Company, then the Holder
shall be entitled to receive distributions on the date of such event on
the same basis with holders of Common Stock as if this Debenture had
been converted immediately prior to such event, less the Conversion
Price. Upon receipt of such payment, if any, the rights of the Holder
shall terminate and cease and this Debenture shall expire. In case of
any such merger, consolidation or sale of assets, the surviving or
acquiring person and, in the event of any dissolution, liquidation or
winding up of the Company, the Company shall promptly, after receipt of
this surrendered Debenture, make payment by delivering a check in such
amount as is appropriate (or, in the case of consideration other than
cash, such other consideration as is appropriate) to such person as it
may be directed in writing by the Holder surrendering this Debenture.
(d) DISTRIBUTIONS. In the event of distribution to all Common
Stock holders of any securities, cash or properties or assets or other
rights to purchase securities or assets, then, after such event, this
debenture will also be convertible into the kind and amount of
securities, cash and other property which the Holder would have been
entitled to receive if the Holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such
event.
(e) CAPITAL REORGANIZATION AND RECLASSIFICATION. In case of
any capital reorganization or reclassification of the Common Stock of
Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of
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shares), this Debenture shall be convertible into the kind and
number of shares of stock or other securities or property of
Borrower to which the Holder of the Debenture would have been
entitled to receive if the Holder owned the Common Stock issuable
upon conversion of the Debenture immediately prior to the occurrence
of such event. The provisions of the immediately foregoing sentence
shall similarly apply to successive reorganizations, reclassifications,
consolidations, exchanges, leases, transfers or other dispositions
or other share exchanges.
(f) NOTICE. In the event Borrower shall propose to take any
action which shall result in an adjustment in the Conversion Price,
Borrower shall give notice to the Holder of this Debenture, which
notice shall specify the record date, if any, with respect to such
action and the date on which such action is to take place. Such notice
shall be given on or before the earlier of 10 days before the record
date or the date which such action shall be taken. Such notice shall
also set forth all facts (to the extent known) material to the effect
of such action on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon
conversion of this Debenture.
(g) CERTIFICATE. Following completion of an event which
results in an adjustment to the Conversion Price, Borrower shall
furnish to the Holder of this Debenture a statement, signed by the
Chief Executive Officer and the Secretary of the Borrower, of the
facts creating such adjustment and specifying the resultant adjusted
Conversion Price then in effect, which statement shall constitute an
amendment to this Debenture.
(h) In the event of an adjustment to the Conversion Price due
to a sale of securities by the Borrower below the Conversion Price
which would result in the holders of all debentures evidencing the Loan
having the right to acquire more than 20% of the then outstanding
shares of Common Stock, the Borrower agrees to hold a vote of the
shareholders within 120 days to authorize such an adjustment. In the
event the shareholders reject the authorization, the Holder shall have
the right to cause the Company to redeem the Debenture in accordance
with the provisions of Section 4.
7. ONE-TIME ADJUSTMENT TO CONVERSION PRICE.
(a) Notwithstanding the provisions of Section 6 hereof, if the
Company does not achieve operating income of at least $2,438,000 in
fiscal year 2001 and the market price of the Common Stock is below the
conversion price at the time of publication of the Company's results
for that period, then the Conversion Price shall be automatically
adjusted downward to an amount equal to volume-weighted average closing
bid price of the Common Stock, as reported in THE WALL STREET JOURNAL,
for the ten consecutive trading days (the "Trading Period") following
Borrower's public press release of its fiscal year 2001 financial
results; provided that the Conversion Price as adjusted shall not be
less than $1.50 per share. If an adjustment occurs pursuant to this
Section 7, then the Borrower shall furnish to the holder of this
Debenture a statement, within ten days of the occurrence thereof,
signed by the Chief Financial Officer and the Secretary of Borrower,
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of the facts creating such adjustment and specifying the adjusted
Conversion Price then in effect. The Holder shall not convert this
Debenture or sell any shares of Common Stock during the Trading Period,
as well as nine days prior to the commencement of the Trading Period.
This restriction also extends to any short selling of the shares of
Common Stock by the Holder or any affiliate.
(b) Under no circumstance will this adjustment to the
Conversion Price cause the holders of all debentures evidencing the
Loan to acquire greater than 20% of the Borrower's then outstanding
shares of Common Stock. In the event that this adjustment to the
Conversion Price allows the holders of all debentures evidencing the
Loan to acquire greater than 20% of the Borrower's then outstanding
shares of Common Stock, then the debenture holders will be entitled to
decrease the Conversion Price, so that their potential and actual
ownership is equal to twenty percent (20%) of the issued and
outstanding Common Stock at the time this adjustment becomes effective.
8. RESERVATION OF SHARES. Borrower warrants and agrees that it
shall at all times reserve and keep available, free from preemptive rights,
sufficient authorized and unissued shares of Common Stock or treasury shares
of Common Stock necessary to effect conversion of this Debenture.
9. TAXES. The Company shall pay any documentary or other
transactional taxes attributable to the issuance or delivery of this
Debenture or the shares of Common Stock issued upon conversion by the Holder
(excluding any federal, state or local income taxes and any franchise taxes
or taxes imposed upon the Holder by the jurisdiction, or any political
subdivision thereof, under which such Holder is organized or is qualified to
do business).
10. DEFAULT.
(a) EVENT OF DEFAULT. An "Event of Default" shall exist if an
"Event of Default" (as defined in the Loan Agreement) shall occur and
be continuing.
(b) REMEDIES UPON EVENT OF DEFAULT. If an Event of Default
shall have occurred and be continuing, then the Holder may exercise any
one or more of the rights and remedies provided in the Loan Documents,
as the Holder, in its sole discretion, may deem necessary or
appropriate.
(c) REMEDIES NONEXCLUSIVE. Each right, power or remedy of the
Holder hereof upon the occurrence of any Event of Default as provided
for in this Debenture or now or hereafter existing at law or in equity
or by statute shall be cumulative and concurrent and shall be in
addition to every other right, power or remedy provided for in this
Debenture or now or hereafter existing at law or in equity or by
statute, and the exercise or beginning of the exercise by the Holder or
transferee hereof of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise by the Holder of
any or all such other rights, powers or remedies.
(d) EXPENSES. Upon the occurrence of a Default or an Event of
Default, which occurrence is not cured within the notice provisions, if
any provided therefore, Borrower
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agrees to pay and shall pay all reasonable costs and expenses
(including attorneys' fees and expenses) incurred by the Holder in
connection with the preservation and enforcement of Holder's rights
under the Convertible Loan Agreement, the Debenture, or any other
Loan Document.
11. FAILURE TO ACT AND WAIVER. No failure or delay by the Holder
hereof to require the performance of any term or terms of this Debenture or
not to exercise any right or any remedy shall constitute a waiver of any such
term or of any right or of any default, nor shall such delay or failure
preclude the Holder hereof from exercising any such right, power or remedy at
any later time or times. By accepting payment after the due date of any
amount payable under this Debenture, the Holder hereof shall not be deemed to
waive the right either to require payment when due of all other amounts
payable, or to later declare a default for failure to effect such payment of
any such other amount. The failure of the Holder of this Debenture to give
notice of any failure or breach of the Borrower under this Debenture shall
not constitute a waiver of any right or remedy in respect of such continuing
failure or breach or any subsequent failure or breach.
12. CONSENT TO JURISDICTION. The Company hereby agrees and consents
that any action, suit or proceeding arising out of this Debenture may be brought
in any state or federal court in the State of Texas, including the United States
District Court for the Northern District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder
hereof, and by the issuance and execution of this Debenture, the Borrower
irrevocably consents to the jurisdiction of each such court. The Company hereby
irrevocably appoints CT Corporation System, Dallas, Texas, as agent for the
Borrower to accept service of process for and on behalf of the Borrower in any
action, suit or proceeding arising out of this Debenture. Except for default in
payment of interest or principal when and as they become due, and except as
otherwise specifically set forth herein or otherwise agreed to in writing by the
parties, any action, dispute, claim or controversy (all such herein called
"Dispute") between or among the parties as to the facts or the interpretation of
the Debenture shall be resolved by arbitration as set forth in the Loan
Agreement.
13. HOLDER'S RIGHT TO REQUEST MULTIPLE DEBENTURES. The Holder shall,
upon written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
instruments, each of such to be in such amounts as shall be requested; provided
however, that no Debenture shall be issued in denominations of face amount less
than $100,000.
14. TRANSFER. Subject to Section 12.08 of the Loan Agreement, this
Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, in multiples
of $100,000 only upon (i) delivery to the Borrower of a duly executed assignment
of the Debenture, or part thereof, to the proposed new Holder, along with a
current notation of the amount of payments received and net Principal Amount yet
unfunded, and presentment of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new Holder, (ii) the
designation by the new Holder of the Lender's agent for notice, such agent to be
the sole party to whom Borrower shall be required to provide notice when notice
to Holder is required hereunder and who shall be the sole
8
party authorized to represent Lender in regard to modification or waivers
under the Debenture, the Loan Agreement, or other Loan Documents; and any
action, consent or waiver (other than a compromise of principal and interest)
when given or taken by Lender's agent for notice, shall be deemed to be the
action of the holders of a majority in amount of the Principal Amount of the
Debenture, as such holders are recorded on the books of the Borrower, and
(iii) in compliance with the legend to read as follows:
"This Debenture has not been registered under the Securities Act of
1933, as amended ("Act"), or applicable state securities laws ("State
Acts"), and shall not be sold, hypothecated, or otherwise transferred,
unless such transfer is made in compliance with the Act and the State
Acts."
The Company shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
15. NOTICES. All notices and communications under this Debenture
shall be in writing and shall be either delivered in person or by overnight
service, such as FedEx, and accompanied by a signed receipt therefor; or
mailed first-class United States certified mail, return receipt requested,
postage prepaid, and addressed as follows: (i) if to the Borrower at its
address for notice as stated in the Loan Agreement; and (ii) if to the Holder
of this Debenture, to the address (a) of such Holder as it appears on the
books of the Borrower or (b) in the case of a partial assignment to one or
more Holders, to the Lender's agent for notice, as the case may be. Any
notice of communication shall be deemed given and received as of the date of
such delivery if delivered; or if mailed, then three days after the date of
mailing.
16. MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in this Debenture,
Lender shall never be entitled to receive, collect or apply as interest
on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and, in the event that Lender ever receives, collects or
applies as interest any such excess, the amount which would be
excessive interest shall be deemed to be a partial prepayment of
principal and treated hereunder as such; and, if the principal amount
of the Debenture is paid in full, any remaining excess shall forthwith
be paid to Borrower. In determining whether or not the interest paid or
payable under any specific contingency exceeds interest calculated at
the Maximum Rate, Borrower and Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any non principal
payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii)
amortize, pro rate, allocate and spread, in equal parts, the total
amount of interest throughout the entire contemplated term of the
Debenture; provided that, if the Debenture is paid and performed in
full prior to the end of the full contemplated term thereof, and if the
interest received for the actual period of existence thereof exceeds
interest calculated at the Maximum Rate, Lender shall refund to
Borrower the amount of such excess or credit the amount of such excess
against the principal amount of the Debenture and, in
9
such event, Lender shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or receiving
interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest
nonusurious rate of interest (if any) permitted by applicable law on
such day that, at any time or from time to time, may be contracted for,
taken, reserved, charged or received on the Indebtedness evidenced by
the Debenture under the laws which are presently in effect of the
United States of America or by the laws of any other jurisdiction which
are or may be applicable to the Holders of the Debenture and such
Indebtedness or, to the extent permitted by law, under such applicable
laws of the United States of America or by the laws of any other
jurisdiction which are or may be applicable to the Holder of the
Debenture and which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
17. LOAN AGREEMENT, GUARANTY AND SECURITY AND PLEDGE AGREEMENTS. This
Debenture is issued pursuant to the Convertible Loan Agreement dated of even
date herewith among the Company and the other parties thereto, and the Holder is
entitled to all the rights and benefits thereunder. Both Borrower and the Holder
have participated in the negotiation and preparation of the Convertible Loan
Agreement and of this Debenture. Borrower agrees that a copy of the Loan
Agreement with all amendments, additions and substitutions therefor shall be
available to the Holder at the offices of Borrower. The indebtedness evidenced
by this Debenture is secured pursuant to the Security and Pledge Agreements
dated of even date herewith among the Company, its subsidiaries and the Holder,
and the Holder is entitled to all rights and benefits of a secured party
thereunder. The payment and performance of this Debenture is guaranteed by the
Company's subsidiaries pursuant to their Guaranty dated of even date herewith.
18. DEFINED TERMS. Capitalized terms used but not defined herein shall
have the meaning given them in the Loan Agreement.
19. GOVERNING LAW. This Debenture 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 lie in the federal or
state courts of Dallas County, Texas.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
issued, executed and delivered on the date and year above stated.
DIGITAL RECORDERS, INC.
By:
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Name:
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Title:
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