Contract
Exhibit 10.13
The security interest granted pursuant to this instrument is subordinated to other security
interests pursuant to, and to the extent provided in, and is otherwise subject to the terms of, the
Intercreditor Agreement, dated as of June 30, 2008, between BHC Interim Funding III L.P., as Junior
Creditor, and PNC Bank, National Association, as Agent under the Revolving Credit and Security
Agreement, as Senior Creditor, as the same may be amended, restated, supplemented or otherwise
modified or extended or renewed from time to time.
THIS PATENT SECURITY AGREEMENT (as may be amended, restated, supplemented or otherwise
modified from time to time, the “Agreement”) is dated and made as of June 30, 2008 by
Digital Recorders, Inc., a North Carolina corporation (the “Grantor”), with its chief
executive office and principal place of business at 0000 Xxxxxxx Xxxxx, Xxxxxx, Xxxxx Xxxxxxxx
00000 in favor of BHC Interim Funding III, L.P., a Delaware limited partnership (the
“Lender”), with its office at 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
W I T N E S S E T H:
WHEREAS, TwinVision of North America, Inc., a North Carolina corporation (“TwinVision”), DRI
Corporation, a North Carolina corporation, Grantor and Lender are parties to that certain Loan and
Security Agreement, dated as of the date hereof (as amended, restated, supplemented or otherwise
modified from time to time, the “Loan and Security Agreement”), pursuant to which Lender is
concurrently making the Term Loan to Grantor and TwinVision; and
WHEREAS, it is a condition precedent to the effectiveness of the Loan and Security Agreement
that Grantor shall have executed this Agreement and granted a security interest in favor of Lender,
as contemplated hereby; and
WHEREAS, this Agreement is given and is intended to provide additional security for the
Obligations.
NOW, THEREFORE, in consideration of the premises and to induce Lender to enter into the Loan
and Security Agreement, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Grantor hereby agrees with Lender as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined shall have the
meanings assigned thereto in the Loan and Security Agreement. In addition, the following term has
the meaning set forth below:
“Patents” means all of Grantor’s now owned or existing or hereafter acquired or
arising, right, title and interest in and to any and all patents, including, without limitation,
the patents which are the subject of the registrations and applications listed on Exhibit A
and (a) all renewals, divisionals, continuations, and continuations-in-part of said application, or
reissues or extensions of said Letters Patent or Patents thereof, (b) all income, royalties,
damages and payments now or hereafter due and/or payable under or with respect thereto, including,
without limitation, payments under all licenses entered into in connection therewith and damages
and
payments for past, present or future infringements or dilutions thereof, (c) the right to xxx
for past, present and future infringements, (d) all other rights corresponding thereto throughout
the world, and (e) all proceeds and products thereof.
2. Security Interest. As collateral security for the Obligations, Grantor hereby
grants to Lender, a valid, continuing security interest in and Lien on the Patents, with power of
sale to the extent permitted by law (the “Security Interest”).
3. Representations, Warranties and Agreements. Grantor hereby represents, warrants
and agrees as follows (all of which representations, warranties and agreements shall survive the
execution and delivery of this Agreement and the closing of the transactions contemplated by the
Loan Documents):
(a) Patents. Exhibit A accurately lists all Patents owned by Grantor as of
the date hereof and accurately reflects the application or registration number thereof. Each of
the Patents listed on Exhibit A is subsisting, has not been adjudged invalid or
unenforceable, in whole or in part, and is valid and enforceable. If, before the Obligations shall
have been paid and satisfied in full, Grantor shall (a) become aware of any existing Patents of
which Grantor has not previously informed Lender, or (b) become entitled to the benefit of any
Patents, which benefit is not in existence on the date hereof, the provisions of this Agreement
above shall automatically apply thereto and Grantor shall give to Lender prompt written notice
thereof. Grantor hereby authorizes Lender to modify this Agreement by amending Exhibit A
by replacing it with any such amended schedule provided by Grantor under the provisions of this
paragraph.
(b) Title. Grantor has sole and absolute title to each of the Patents free and clear
of all Liens (subject only to the Security Interest and, to the extent applicable, Permitted
Encumbrances). Grantor (i) will have, at the time Grantor acquires any rights in Patents hereafter
arising, sole and absolute title to each such Patents free and clear of all Liens (subject only to
the Security Interest and, to the extent applicable, Permitted Encumbrances), and (ii) will keep
all Patents free and clear of all Liens (subject only to the Security Interest and, to the extent
applicable, Permitted Encumbrances). No other person has any rights in or to any Patents owned by
Grantor (as opposed to licensed to Grantor), except licensees which were granted written licenses
to the Patents prior to the date hereof and which constitute Permitted Encumbrances.
(c) Valid Security Interest. This Agreement creates a continuing, valid security
interest in favor of Lender in the Patents, as security for the Obligations. By its signature
hereto, Grantor hereby authorizes Lender to file against Grantor, one or more financing,
continuation or amendment statements pursuant to the UCC. Upon the filing of such financing,
continuation or amendment statement, the Security Interest will be a valid and perfected security
interest with priority over all other Liens (subject only to Permitted Encumbrances), to the extent
that the UCC is applicable to security interests in Patents.
To the extent that Federal patent laws are applicable to security interests in patents, the
recordation of this Agreement in the United States Patent and Trademark Office against the Patents
set forth on Exhibit A hereto within three (3) months of the date hereof will render
Lender’s Security Interest in the Patents effective against subsequent purchasers and mortgages of
such Patents.
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(d) No Notices or Approvals. No authorization or approval or other actions by, and no
notice to or filing with, any governmental authority or any other Person is required for (i) the
grant by Grantor, or the perfection of, the Security Interest purported to be created hereunder by
Grantor in the Patents or (ii) the exercise by Lender of any of its rights and remedies hereunder
except for the UCC filings and recordation of this Agreement in the United States Patent and
Trademark Office, as described in (c) of this Section. No shareholder agreements exist that would
require the approval or other action by any governmental authority or any Person for any of the
actions or events described in the preceding sentence.
(e) No Sale. Grantor will not sell, transfer, encumber, license or otherwise dispose
of any of the Patents, or any right, title or interest therein (including, without limitation,
pursuant to any agreement with respect thereto) without Lender’s prior written consent.
(f) Infringement; Defense. To the best of Grantor’s knowledge, no infringement,
violation or unauthorized use is presently being made of any of the Patents by any Person. The
past, present and contemplated future use of the Patents by Grantor has not, does not, and will not
infringe upon or violate any right, privilege or license of or with any other Person. Grantor will
at its own expense, and using its commercially reasonable efforts, protect and defend the Patents
against all claims or demands of all Persons other than Lender, the Senior Lien Lender and
licensees.
(g) Maintenance. Grantor will at its own expense maintain the Patents to the extent
reasonably advisable in its business including, but not limited to, payment of maintenance fees,
filing all applications to register and all affidavits and renewals possible with respect to issued
registrations. Grantor covenants that, except if it determines not to proceed with an application
or maintenance of a Patent for reasonable and legitimate business purposes (for example,
non-profitable), it will neither abandon nor fail to pay any maintenance or other fee due and
payable on any such Patent, nor fail to file any required affidavit in support thereof, without
first providing Lender: (i) sufficient written notice (in the manner and at the address set forth
in the Loan and Security Agreement) to allow Lender to timely pay any such maintenance or other
fees which may become due on any of the Patents, or to file any affidavit with respect thereto, and
(ii) without impairing or otherwise limiting the power of attorney in favor of Lender set forth
below, a separate written power of attorney or other authorization to pay such maintenance or other
fees, or to file such affidavit, should such be necessary or desirable.
(h) Lender’s Right to Take Action. If Grantor fails to perform or observe any of the
covenants or agreements set forth in this Section 3, and if such failure continues for a
period of ten (10) calendar days after Lender gives Grantor written notice thereof (or, in the case
of the agreements contained in subsections (b)(ii), (e), or (g), immediately upon the occurrence of
such failure, without notice or lapse of time), or if Grantor notifies Lender that it intends to
abandon any of the Patents, Lender may (but need not) perform or observe such covenant or agreement
on behalf and in the name, place and stead of Grantor (or, at Lender’s option, in Lender’s own
name) and may (but need not) take any and all other actions which Lender may reasonably deem
necessary to cure or correct such failure. Lender shall not have any duty with respect to the
Patents. Without limiting the generality of the foregoing, Lender shall not be under any
obligation to take any steps to preserve rights in the Patents against any other parties, but
Lender may do so at its option as provided in this Agreement.
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(i) Costs and Expenses. Grantor shall pay Lender on demand the amount of all moneys
expended and all out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred
by Lender in connection with or as a result of Lender taking action under subsection (h) or
exercising its rights under Section 7 hereof, together with interest thereon after the date
demanded by Lender at the highest rate then applicable to any of the Obligations if not otherwise
paid by Grantor on demand.
(j) Power of Attorney. To facilitate Lender’s taking action under subsection (h) and
exercising its rights under Section 7 hereof, after and during the continuance of an Event
of Default, Grantor hereby irrevocably appoints (which appointment is coupled with an interest)
Lender, or its delegate, as the attorney-in-fact of Grantor with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on
behalf of Grantor, any and all instruments, documents, applications, financing statements, and
other agreements and writings required to be obtained, executed, delivered or endorsed by Grantor
under this Section 3, or, necessary for Lender, after and during the continuance of an
Event of Default, to exercise its remedies under Section 7 hereof. Grantor hereby ratifies
all that such attorneys-in-fact shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted herein is coupled with an interest and shall be irrevocable until the
indefeasible payment and performance in full of all Obligations.
4. Grantor’s Use of the Patents. Grantor and its related parties and affiliates shall
be permitted to control and manage the Patents, including the right to exclude others from making,
using, offering for sale or selling items covered by the Patents and any licenses thereunder and
specifically including any right to enter into any licenses, in the same manner and with the same
effect as if this Agreement had not been entered into, so long as no Event of Default exists.
5. No Royalties. Grantor hereby agrees that Lender’s right to use the Patents as
authorized hereunder in connection with Lender’s exercise of its rights and remedies under
Section 7 hereof or under the Loan and Security Agreement shall be co-extensive with
Grantor’s rights in and to such Patents and Lender shall have no liability to Grantor for royalties
or other related charges on account of any such use.
6. Events of Default. Each of the following occurrences shall constitute an event of
default under this Agreement (herein called “Event of Default”): (a) an Event of Default,
as defined in the Loan and Security Agreement, shall occur; or (b) Grantor shall fail to observe or
perform any covenant or agreement herein binding on it which is not cured within ten (10) days
after notice to Grantor by Lender of the occurrence of such failure; or (c) any of the
representations or warranties contained in Section 3 hereof shall prove to have been
incorrect in any material respect when made.
7. Remedies. Upon the occurrence and during the continuation of an Event of Default,
Lender may, at its option, take any or all of the following actions:
(a) Lender may exercise any or all remedies available under the Loan and Security Agreement.
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(b) Lender may sell, assign, transfer, pledge, encumber, license or otherwise dispose of the
Patents.
(c) Lender may enforce the Patents and any licenses thereunder, and if Lender shall commence
any suit for such enforcement, Grantor shall, at the request of Lender, do any and all lawful acts
and execute any and all proper documents required by Lender in aid of such enforcement.
(d) Lender shall have, in addition to all of the rights and remedies hereunder, all rights and
remedies allowed by law and the rights and remedies of Lender under the UCC.
Upon the occurrence and during the continuation of an Event of Default, upon Lender’s demand,
Grantor agrees to assign, convey and otherwise transfer title in and to the Patents to Lender or
any transferee of Lender and to execute and deliver to Lender or any such transferee all such
agreements, documents and instruments as may be necessary, in the exercise of Lender’s commercially
reasonable judgment, to effect such assignment, conveyance and transfer.
8. Miscellaneous. The execution, delivery and performance of this Agreement is within
Grantor’s corporate powers, has been duly authorized by all necessary corporate action, is not in
contravention of law or the terms of Grantor’s by-laws or certificate of incorporation or other
applicable documents relating to Grantor’s formation or to the conduct of Grantor’s business or of
any material agreement or undertaking to which Grantor is a party or by which Grantor is bound.
This Agreement can be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by Lender. A waiver signed by Lender
shall be effective only in the specific instance and for the specific purpose given. Mere delay or
failure to act shall not preclude the exercise or enforcement of any of Lender’s rights or
remedies. All rights and remedies of Lender whether established hereby, by the Loan and Security
Agreement, by any other document or by law, shall be cumulative and may be exercised singularly or
concurrently, at Lender’s option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any other right. Lender
shall not be obligated to preserve any rights Grantor may have against prior parties, to realize on
the Patents at all or in any particular manner or order, or to apply any cash proceeds of the
Patents in any particular order of application. This Agreement shall be binding upon and inure to
the benefit of Grantor and Lender and their respective participants, successors and permitted
assigns (provided that Grantor shall not assign its rights and obligations under this Agreement
without Lender’s prior written consent) and shall take effect when signed by Grantor and delivered
to Lender, and Grantor waives notice of Lender’s acceptance hereof. Lender may execute this
Agreement if appropriate for the purpose of filing, but the failure of Lender to execute this
Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon,
photographic or other reproduction of this Agreement or of any financing statement shall have the
same force and effect as the original for all purposes of a financing statement. If any provision
or application of this Agreement is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect other provisions or applications which can be given effect and
this Agreement shall be construed as if the unlawful or unenforceable provision or application had
never been contained herein or prescribed hereby. All representations and warranties contained in
this Agreement shall survive
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the execution, delivery and performance of this Agreement and the creation and payment of the
Obligations.
9. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
10. WAIVER OF JURY TRIAL. GRANTOR AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. GRANTOR AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO
THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
GRANTOR AND LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
11. CONSENT TO JURISDICTION. GRANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND IRREVOCABLY AGREES
THAT, SUBJECT TO LENDER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, SHALL BE LITIGATED IN SUCH COURTS. GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. GRANTOR HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON GRANTOR
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO GRANTOR, AT GRANTOR’S
ADDRESS AS SET FORTH IN THE LOAN AND SECURITY AGREEMENT (OR AS MOST RECENTLY NOTIFIED BY GRANTOR IN
WRITING IN ACCORDANCE WITH THE LOAN AND SECURITY AGREEMENT) AND SERVICE SO MADE SHALL BE COMPLETE
TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID.
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IN WITNESS WHEREOF, the parties have executed this Patent Security Agreement as of the date
written above.
| GRANTOR: | ||||||
| DIGITAL RECORDERS, INC. | ||||||
| By: | /S/ XXXXX X. XXXXXX
|
|||||
| Name: | Xxxxx X. Xxxxxx | |||||
| Title: | CEO/President | |||||
| LENDER: | ||||||
| BHC INTERIM FUNDING III, L.P. | ||||||
| By: BHC Interim Funding Management III, L.P., its General Partner |
||||||
| By: BHC Investors III, L.L.C., its Managing Member |
||||||
| By: GHH Holdings III, L.L.C. | ||||||
| By: | /S/ XXXXXX X. XXXXXXXX | |||||
| Name: | Xxxxxx X. Xxxxxxxx | |||||
| Title: | Managing Member | |||||
EXHIBIT A
REGISTERED PATENTS
