SUBSIDIARY SECURITY AGREEMENT
This SECURITY AGREEMENT is made and entered into as of this 27th day
of June, 2001, among TWINVISION OF NORTH AMERICA, INC., a North Carolina
corporation and DIGITAL AUDIO CORPORATION, a North Carolina corporation (each
a "Guarantor" and collectively, the "Guarantors"), and RENAISSANCE US GROWTH &
INCOME TRUST PLC ("RUSGIT"), BFSUS SPECIAL OPPORTUNITIES TRUST PLC, a public
limited company registered in England and Wales ("BFSUS") (RUSGIT and BFSUS
collectively referred to as "Lender"), and RENAISSANCE CAPITAL GROUP, INC., a
Texas corporation, as agent for the Secured Party (the "Agent").
WHEREAS, Lender, Agent and DIGITAL RECORDERS, INC. (the "Borrower"),
have entered into a Convertible Loan Agreement of even date herewith (the
"Loan Agreement"), pursuant to which Lender will lend to the Borrower the
aggregate principal amount of $3,000,000 evidenced by the Borrower's 8.00%
Convertible Debentures of even date herewith (the "Debentures");
WHEREAS, as a condition for entering into the Loan Agreement and
providing the Loan, Lender required that Guarantors, each a subsidiary of the
Borrower, guarantee the Obligations of the Borrower and grant a security
interest in the assets of Guarantors as collateral for such Guarantee; and
WHEREAS, Guarantors executed a Guarantee of even date herewith in
favor of Lender (the "Guarantee"), whereby Guarantors guaranteed the due
performance and full and prompt payment of all obligations and indebtedness of
the Borrower arising under the Loan Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. GRANT OF SECURITY INTEREST. In order to secure payment when
due of all Obligations now existing or hereafter incurred, Guarantors hereby
irrevocably grant to Lender a continuing security interest in the following
property of Guarantors (the "Collateral"), whether now owned or existing, or
hereafter acquired, owned, existing or arising (whether by contract or
operation of law), and wherever located, which shall be retained by Lender
until the Obligations have been paid in full and the Loan Agreement has been
terminated; PROVIDED, HOWEVER, that such Liens in the Collateral shall at all
times be subject and subordinate to the Liens granted by Guarantors to the
holder of Senior Obligations, on the terms set forth in the Subordination and
Intercreditor Agreement.
(a) All accounts (including inter-company receivables),
contract rights, chattel paper and rights of payment of every kind
(collectively, "Accounts") and instruments and general intangibles of
Guarantors.
(b) All bank accounts of Guarantors.
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(c) All monies, residues and property of any kind, now or at
any time or times hereafter, in the possession or under the control of
Lender, Agent or a bailee of Lender.
(d) All licenses, patents, patent applications, copyrights,
trademarks, trademark applications, trade names, assumed names, service
marks and service mark applications of Guarantors.
(e) All inventory, equipment (including any and all computer
hardware and components), machinery and fixtures of Guarantors in all
forms and wherever located, and all parts and products thereof, all
accessories thereto, and all documents therefor.
(f) All books and records (including, without limitation,
customer lists, credit files, tapes, ledger cards, computer software
and hardware, electronic data processing software, computer programs,
printouts and other computer materials and records) of Guarantors
evidencing or containing information regarding or otherwise pertaining
to any of the foregoing.
(g) All accessories to, substitutions for and all
replacements, products and proceeds of the foregoing including, without
limitation, proceeds of insurance policies insuring the Collateral
(including, but not limited to, claims paid and premium refunds).
2. INSURANCE ON COLLATERAL. Guarantors further warrant and
agree that in each case where the terms of any such Accounts require the
Guarantor or the account debtor named in such Account to place or carry
insurance in respect of the property to which such Account relates, the
Guarantor or the account debtor will pay for and maintain such insurance.
3. DELIVERY OF RECEIVABLES. Upon Lender's or Agent's request,
upon the occurrence of an Event of Default, the Guarantors will, at any
reasonable time and at Guarantor's own expense, physically deliver to Lender
or Agent all Accounts assigned to Lender at any reasonable place or places
designated by Lender or Agent. Failure to deliver any Account, or failure to
deliver physical possession of any instruments, documents or writings in
respect of any Account shall not invalidate Lender's Lien and security
interest therein, except to the extent that possession may be required by
applicable law for the perfection of said Lien or security interest, in which
latter case, the Account shall be deemed to be held by Guarantors as the
custodian agent of Lender, for the benefit of Lender. Failure of Lender or
Agent to demand or require Guarantors to include any Account in any schedule,
to execute any schedule, to assign and deliver any schedule or to deliver
physical possession of any instruments, documents or writings related to any
Account shall not relieve Guarantors of their duty so to do.
4. COLLECTION OF RECEIVABLES. Guarantors hereby agree that they
shall use commercially reasonable efforts, at their sole cost and expense and
in their own names, to promptly and diligently collect and enforce payment of
all Accounts and Guarantors will defend
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and hold Lender harmless from any and all loss, damage, penalty, fine or
expense arising from such collection or enforcement.
5. FINANCING STATEMENTS. Guarantors agree to execute all
financing statements and amendments thereto as Lender or Agent may request
from time to time to evidence the security interest granted to Lender
hereunder and will pay all filing fees and taxes, if any, necessary to effect
the filing thereof. Wherever permitted by law, Guarantors authorize Lender or
Agent to file financing statements with respect to the Collateral without the
signature of Guarantors, and shall give notice thereof to the Guarantors.
Without the written consent of Lender or Agent, Guarantors will not allow any
financing statement or notice of assignment to be on file in any public office
covering any Collateral, proceeds thereof or other matters subject to the
security interest granted to Lender herein, unless such financing statement
relates to a Permitted Lien.
6. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole
discretion, discharge or obtain the release of any security interest, lien,
claim or encumbrance asserted by any Person against the Collateral, other than
a Permitted Lien. All sums paid by Lender in respect thereof shall be payable,
on demand, by Guarantors to such Lender and shall be a part of the Obligations.
7. DEFAULT AND REMEDIES.
(a) Guarantors shall be in default hereunder upon the
occurrence of an Event of Default, as set forth in the Loan Agreement.
(b) Upon the occurrence of any Event of Default which shall
be continuing, (i) unless Lender or Agent shall elect otherwise, the
entire unpaid amount due under the Guarantee as are not then otherwise
due and payable shall become immediately due and payable without notice
to Guarantors or demand by Lender or Agent and (ii) either Lender or
Agent may at its or their option exercise from time to time any and all
rights and remedies available to them under the Uniform Commercial Code
or otherwise, including the right to foreclose or otherwise realize
upon the Collateral and to dispose of any of the Collateral at one or
more public or private sales or other proceedings, and Guarantors agree
that any of Lender, Agent or their nominee may become the purchaser at
any such sale or sales. Guarantors agree that ten (10) days shall be
reasonable prior notice of the date of any public sale or other
disposition, if the same may be made. All rights and remedies granted
Lender hereunder or under any other agreement between Lender and
Guarantors shall be deemed concurrent and cumulative and not
alternative, and Lender, or Agent on its behalf, may proceed with any
number of remedies at the same time or at different times until all the
Obligations are fully satisfied. The exercise of any one right or
remedy shall not be deemed a waiver or release of or an election
against any other right or remedy. Guarantors shall pay to Lender or
Agent, on demand, any and all expenses (including reasonable attorneys'
fees and legal expenses) which may have been incurred by Lender or
Agent (i) in the prosecution or defense of any action growing out of or
connected with the subject matter of this Agreement, the Guarantee, the
Collateral or any of Lender's rights therein or thereto; or (ii) in
connection with the custody, preservation, use, operation, preparation
for sale or sale of the Collateral, the
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incurring of all of which are hereby authorized to the extent Lender or
Agent deem the same advisable. Guarantors' liability to Lender or Agent
for any such payment shall be included in the Obligations. The proceeds
of any Collateral received by Lender or Agent at any time before or
after default, whether from a sale or other disposition of Collateral
or otherwise, or the Collateral itself, may be applied to the payment
in full or in part of such of the Obligations and in such order and
manner as Lender or Agent may elect.
8. REPRESENTATIONS AND COVENANTS OF GUARANTORS. Guarantors
hereby represent to and agree with Lender as follows:
(a) Except as referred to in Section 1, Guarantors own the
Collateral as sole owners, free and clear of any Liens, other than
Permitted Liens.
(b) So long as any amounts due pursuant to the Loan
Agreement remain unpaid, Guarantors agree not to sell, assign or
transfer the Collateral, other than the sale of Collateral in the
ordinary course of business, and to maintain it free and clear of any
Liens, other than Permitted Liens.
9. MISCELLANEOUS.
(a) This Agreement shall bind and inure to the benefit of
the parties and their respective heirs, personal representatives,
successors and assigns, except that Guarantors shall not assign any of
their rights hereunder without Lender's and Agent's prior written
consent.
(b) Any provision hereof which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without affecting the validity or enforceability of the remainder of
this Agreement or the validity or enforceability of such provision in
any other jurisdiction.
(c) All issues arising hereunder shall be governed by the
laws of the State of Texas.
(d) Guarantors hereby consent to the jurisdiction of the
courts of the State of Texas in any action or proceeding which may be
brought against them under or in connection with this Agreement or any
transaction contemplated hereby or to enforce any agreement contained
herein, and in the event any such action or proceeding shall be brought
against one or both of them, Guarantors agree not to raise any
objection to such jurisdiction or to the laying of venue in Dallas
County, Texas or, if applicable, any other county in any state in which
Collateral is located.
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(e) 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 Guarantors to:
c/o 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
Facsimile: (704) 866-8010
If to Lender to:
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
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
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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 Agent to:
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
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.
(f) Capitalized terms used herein, unless otherwise defined
herein, have the definitions given them in the Loan Agreement and in
the Intercreditor Agreement among TwinVision Corp. of North America,
Inc., a North Carolina corporation, Digital Audio Corporation, a North
Carolina corporation, Borrower, Lender, Agent, and Guaranty Business
Credit Corporation, a Delaware corporation.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK; SIGNATURE
PAGE FOLLOWS.]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date and year written above.
GUARANTORS:
TWINVISION OF NORTH AMERICA, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
DIGITAL AUDIO CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
LENDER:
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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