ALL ASSETS DEBENTURE

 

GIVEN BY

 

PASCALL ELECTRONICS LIMITED

 

IN FAVOUR OF

THE COLLATERAL AGENT

 

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THIS DEBENTURE is made on 31s’ August 2010

 

(1) PASCALL ELECTRONICS LIMITED (Company Number 01316674) whose registered
office is at Brunswick Road, Cobbs Wood, Ashford, Kent, TN23 1EB; (“the
Chargor”); and

 

(3) CHARLES S. BRAND of Boundary Road, Colts Neck, New Jersey 07722 (“Collateral
Agent”).

 

WHEREAS

 

A) Emrise Electronics Corporation (“Borrower”) and the Lenders are parties to
that certain Stock Purchase Agreement dated as of May 23, 2008 (the “Stock
Purchase Agreement”) relating to the purchase by Borrower of all of the issued
and outstanding shares of capital stock (collectively, the “Shares”) of (i)
Advanced Control Components, Inc., a New Jersey corporation (“ACC”) owned by
Custom Components, Inc., Thomas P. M, Couse. Joanne Couse and Michael Gaffney
and (ii) Custom Components, Inc. owned by Charles S. Brand. As a result of the
consummation of the Stock Purchase Agreement, Borrower beneficially owned all of
the capital stock of ACC.

 

B) Pursuant to the terms of the Stock Purchase Agreement, on 20 August 2008
Borrower issued certain subordinated secured contingent promissory notes (to the
Lenders (together, as amended, the “Subordinated Contingent Notes”) to satisfy a
portion of the aggregate consideration to be paid by Borrower for the purchase
of the Shares. The Subordinated Contingent Notes were amended in November 2009
to add additional payment amounts, and to modify the payment date and terms.

 

C) Capitalised terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Subordinated Contingent Notes.

 

D) Emrise Corporation, a Delaware corporation (“Parent”), the ultimate parent of
Borower, delivered a Continuing Guaranty dated August 20, 2008 (the “Guaranty”)
in favour of the Lenders pursuant to which the obligations of Borrower to the
Lenders under the Subordinated Contingent Notes were guaranteed by Parent.

 

E) On June 7, 2010, Borrower entered into an agreement to sell its direct and
indirect interests in the Shares (the “Sale Transaction”). In connection with
the Sale Transaction, the Borrower, Parent and the Lenders entered into a Master
Agreement, pursuant to which the Lenders agreed to release their lien on all of
the assets or property of ACC (the “Original Collateral”) and to amend the
Subordinated Contingent Notes.

 

F) In consideration of the Lenders agreeing to release the Original Collateral,
Parent, Borrower and the Borrower’s subsidiaries including the Chargor have
entered into an Amended and Restated Security Agreement of even date set out in
Schedule 1 (“Amended Security Agreement”) under which they have granted to the
Collateral Agent, for the benefit of himself and the Lenders, a security
interest in the collateral (“New Collateral”) described in the Amended Security
Agreement as substitute collateral for the Original Collateral.

 

G) The Chargor grants this Debenture to the Collateral Agent pursuant to the
Charger’s Obligations (as defined in the Amended Security Agreement) (herein,
the “Secured Liabilities”).

 

 

 

 

NOW IT IS AGREED AS FOLLOWS:

 

1.COVENANT TO PAY

 

1.1The Chargor agrees with Collateral Agent that it will pay and/or discharge
the Secured Liabilities when the same are due and payable by it.

 

2.CHARGING PROVISIONS

 

2.1As continuing security for the payment and/or discharge of the Secured
Liabilities, the Chargor with full title guarantee charges to Collateral Agent:

 

  2.1.1by way of legal mortgage, the property (if any) described in Schedule 2

 

2.1.2by way of fixed charge any freehold or leasehold property (excluding any
property charged by clause 2.1.1) now and in the future owned by the Chargor or
in which the Chargor may have an interest;

 

2.1.3by way of fixed charge, all buildings, fixtures and fittings (including
trade fixtures and fittings) from time to time in, on or attached to any of the
Charger’s freehold or leasehold property;

 

2.1.4by way of fixed charge all the Chargor’s plant and machinery and other
equipment listed in Schedule 3 and all spare parts, replacements, modifications
and additions for or to such Equipment and the benefit of all manuals,
instructions, warranties and maintenance agreements relating to such Equipment;

 

2.1.5by way of fixed charge, any other plant, machinery, vehicles, computer
equipment, furniture, tools and other equipment not disposed of in the ordinary
course of the Chargor’s business not listed in Schedule 3 and all spare parts,
replacements, modifications and additions for or to such Equipment and the
benefit of all manuals, instructions, warranties and maintenance agreements
relating to such Equipment;

 

  2.1.6by way of fixed charge, all Book Debts;

 

2.1.7by way of fixed charge, all monies from time to time standing to the credit
of the Chargor’s accounts with any bank, financial institution or other person;

 

2.1.8by way of fixed charge, all the Chargor’s goodwill and uncalled capital
present and future;

 

2.1.9by way of fixed charge, all the Chargor’s Intellectual Property from time
to time not disposed of in the ordinary course of the Chargor’s business;

 

2.1.10by way of fixed charge, all Securities from time to time owned by the
Chargor or in which it has an interest;

 

2.1.11by way of fixed charge, all loan capital, indebtedness or liabilities on
any account or in any manner owing to the Chargor from any Subsidiary of the
Chargor or a member of the Chargor’s group;

 

2.1.12by way of fixed charge, all the Chargor’s rights and claims (including to
the return of premiums) under all insurance policies in which the Chargor has an
interest from time to time;

 

 

 

 

  2.1.13by way of floating charge, all the Charger’s property, assets and rights
from time to time not subject to a fixed charge under this Debenture (including
any property or assets situated in Scotland).

 

2.2The floating charge created by clause 2.1.13 is a qualifying floating charge
in accordance with paragraph 14 of Schedule B1 Insolvency Act.

 

2.3The floating charge created by this Debenture will automatically without
notice be converted into a fixed charge over those assets concerned:

  

2.3.1if, without Collateral Agent’s prior written consent, the Chargor creates
or attempts to create any Security Interest (other than a Permitted Security
Interest) over all or any of its assets charged by way of floating charge; or

 

2.3.2if any person levies or attempts to levy any distress, execution or other
process against such assets; or

 

2.3.3if any person presents a petition to wind up the Chargor or applies for an
administration order;

 

  2.3.4upon the enforcement of this Debenture;

 

  2.3.5immediately upon the occurrence or the deemed occurrence of a Default.

 

2.4Collateral Agent may by notice to the Chargor at any time convert the
floating charge created by clause 2.1.13 into a fixed charge as regards any of
the assets specified in the notice.

 

3.RESTRICTIONS

 

3.1The Chargor agrees with Collateral Agent that it will not, without Collateral
Agent’s prior written consent:

 

3.1.1create or permit to subsist, in favour of any person other than Collateral
Agent, any Security Interest on the Charged Assets, except for any Permitted
Security Interest;

 

3.3.1Dispose or agree to Dispose of any Charged Assets charged by way of fixed
charge;

 

3.1.1Dispose of any Charged Assets charged by way of floating charge other than
for market value in the ordinary course of business.

 

4.COLLATERAL AGENT

 

4.1The Lenders have appointed Charles S. Brand as Collateral Agent for the
Lenders.

 

4.2The Collateral Agent is authorized by the Lenders to take such action and to
exercise such powers hereunder as provided herein for and on behalf of the
Lenders.

 

4.3In the event of the death or resignation of the Collateral Agent during the
term of this Debenture the Lenders shall appoint a successor collateral agent to
act under this Debenture where upon the rights of the Collateral Agent under
this Debenture shall be assigned to such new collateral agent. If no such
successor collateral agent shall have been so appointed by the Lenders and shall
have accepted such appointment within thirty (30) days after Collateral Agent’s
death or giving of notice of resignation as Collateral Agent, then Collateral
Agent shall be deemed to be Thomas P. M. Couse. Upon the acceptance of any
appointment as successor collateral agent hereunder by a successor collatera!
agent, such successor collateral agent shall thereupon succeed to and become
vested with all rights, powers, privileges, duties and obligations of Collateral
Agent hereunder and the Chargor and the Collateral Agent shall do such things
and execute and register such documents as may be necessary to give effect to
such transfer.

 

 

 

  

5.SECURITY INTERESTS

 

5.1The security interests granted pursuant to this Debenture are granted
pursuant to the Amended Security Agreement. Any rights and remedies set forth
herein are without prejudice to, and in addition to, those set forth in the
Amended Security Agreement.

 

6.GENERAL COVENANTS

 

6.1The Chargor agrees with Collateral Agent that it will:

 

CONDUCT OF BUSINESS

 

6.1.1immediately it becomes aware thereof, provide Collateral Agent with details
of any litigation, arbitration or administrative proceedings in progress,
pending or, to the knowledge of the Chargor, threatened against it, which might
have a material adverse effect on the Charged Assets or the Charger’s ability to
perform its obligations under this Debenture;

 

6.1.2conduct its business so that its centre of main interest is located at all
times in England and Wales and not move its centre of main interest to another
jurisdiction without Collateral Agent’s prior written consent.

 

6.1.3punctually pay those debts and liabilities which would, on the winding up
of the Chargor, have priority over the Security Interests created by this
Debenture;

 

6.1.4inform Collateral Agent if it acquires any Property, a subsidiary or any
other material asset;

 

6.1.5except pursuant to any Permitted Security Interest, not permit any person
to become entitled to any proprietary -right or interest which might affect the
value of the assets subject to the fixed charges or floating charges created by
this Debenture;

 

INSURANCE

 

6.1.6keep those Charged Assets that are of an insurable nature comprehensively
insured against loss (including loss of rent and profits) or damage by fire and
other risks usually insured against by prudent businesses or that Collateral
Agent reasonably requires to their full replacement: or reinstatement value with
insurers approved by Collateral Agent;

 

  6.1.7procure that Collateral Agent’s interest is noted on such insurance
policies and produce to Collateral Agent the receipts (or other evidence) for
each current premium on its request; failing such production Collateral Agent
may assume that such insurance has lapsed and exercise its rights under clause
5.3;

 

 

 

 

  6.1.8maintain third party and public liability insurance;

 

REAL PROPERTY

 

  6.1.9keep all Property in good and substantial repair;

 

  6.1.10comply in all material respects with all statutory and regulatory
obligations relating to the Property;

 

  6.1.11punctually pay all rent, rates, taxes, charges and any other outgoings
payable in respect of the Property and promptly produce the receipts for them to
Collateral Agent upon his request;

 

  6.1.12in relation to any Property, not, without Collateral Agent’s prior
written consent (such consent not to be unreasonably withheld or delayed):

 

  6.1.12.1part with or share possession or occupation:

 

  6.1.12.2grant any license or permission to any tenant, licensee or other
occupier to assign, underlet, part with possession or occupation;

 

  6.1.12.3forfeit, determine, accept or agree to accept the surrender of any
lease granted to it;

 

  6.1.12.4surrender (or agree to surrender), any leasehold interest held by it
or allow such interest to be forfeited;

 

  6.1.12.5create or permit to arise any interest having overriding effect;

 

  6.1.12.6permit any person to become entitled to any right, easement. covenant
or other matter which might adversely affect the use, value or marketability of
the Property;

 

EQUIPMENT

 

  6.1.13maintain the Equipment in good and substantial repair and serviceable
condition and (where applicable) ensure that is it properly and regularly
serviced in accordance with any relevant warranties or manuals;

 

  6.1.14obtain all necessary certificates, licenses, permits and authorisations
from time to time required for the use and/or operation of the Equipment and no!
to do or permit to be done any act or omission whereby the Equipment or its use
would contravene legislation or regulations for the time being in force;

 

  6.1.15notify Collateral Agent of any material loss, theft, damage or
destruction ol the Equipment;

 

  6.1.16inform Collateral Agent of any change in the location.

 

6.2If the Chargor fails to comply with any of its obligations under this
Debenture (including failing to insure or repair any Property or Equipment) the
Chargor irrevocably authorises the Collateral Agent (and any agent appointed by
him) to make good such failure on its behalf. All costs and expenses incurred by
the Collateral Agent pursuant to this authority shall be reimbursed by the
Chargor to the Collateral Agent on his demand

  

 

 

 

7.ACCOUNTS

 

7.1The Chargor shall from time to time supply to the Collateral Agent such
accounts or other information concerning the Charged Assets, liabilities and
affairs of the Chargor, its subsidiary or associated companies as the Collateral
Agent may reasonably require and without prejudice to the generality of the
foregoing shall on demand by the Collateral Agent furnish to the Collateral
Agent:

 

7.1.1a copy of audited consolidated and unconsolidated profit and loss accounts
and balance sheets of the Chargor and each of its subsidiaries (if any) in
respect of each financial year of the Chargor and of such subsidiaries together
with the directors’ and auditors’ reports thereon, forthwith upon the same
becoming available and in any event not later than the expiration of six months
from the end of such financial year; and

 

7.1.2a copy of every document issued by or on behalf of the Chargor or by or on
behalf of any of its subsidiaries to its members or debenture holders
concurrently with the issue thereof to such members or debenture holders as the
case may be.

 

8.FURTHER ASSURANCE

 

8.1The Chargor will, subject to the requirements of the holder of any prior
Permitted Security Interest, upon the Collateral Agent’s request and at the
Chargor’s own expense, grant itthe Collateral Agent such further Security
Interests in the Charged Assets in such form and on such terms as Collateral
Agent may require and do whatever other acts or things Collateral Agent may
require in relation to the Charged Assets in order to secure the Secured
Liabilities, to perfect or protect the Security Interests created by this
Debenture or to facilitate the realisation of the Charged Assets.

 

9.POWER OF ATTORNEY

 

9.1The Chargor hereby by way of security and in order more fully to secure the
performance of its obligations under this Debenture irrevocably appoints the
Collateral Agent and every Receiver or Administrator appointed under this
Debenture acting severally to be its attorney and on its behalf and in its name
or otherwise to execute and do all such assurances, acts and things which the
Chargor is required to do under this Debenture and generally in its name and on
its behalf to exercise all or any of the powers, authorities and discretions
conferred by or pursuant to this Debenture or by statute on the Collateral Agent
or any such Receiver or Administrator and to execute any deed, assurance,
agreement, instrument or act which it or he may deem proper in or for the
purpose of exercising any of such powers, authorities and discretions.

 

9.2The Chargor hereby ratifies and confirms and agrees to ratify and confirm
whatever any such attorney as is mentioned above shall do or purport to do in
the exercise or purported exercise of all or any of the powers, authorities and
discretions referred to in clause 8.1.

 

10.ENFORCEMENT

 

10.1At any time after a Default Collateral Agent may with or without further
notice to the Chargor:

 

  10.1.1appoint an Administrator of the Chargor in accordance with the
Insolvency Act 1986; or

 

 

 

 

10.1.2appoint a Receiver to any of the Charged Assets, provided that they
comprise less than the whole or substantially the whole of the Charger’s assets
(within the meaning of section 29 Insolvency Act); or

 

10.1.3exercise in respect of all or any of the Charged Assets all or any of the
powers and remedies given to mortgagees by the LP A, including the power to take
possession of, receive the benefit of, or sell any of the Charged Assets.

 

10.2At any time after a Default, the Collateral Agent may declare by written
notice to the Chargor, the Secured Liabilities (or such of them as the
Collateral Agent may specify in the relevant notice) immediately due and payable
or (if the Collateral Agent so specifies) payable forthwith on demand and the
security hereby conferred shall become immediately enforceable and the
Collateral Agent’s statutory and other rights shall be immediately exercisable
upon and at any time after the occurrence of any such event.

 

10.3After this security has become enforceable the Collateral Agent may in his
absolute discretion enforce all or any part of this security in such manner as
in his absolute discretion he shall determine.

 

10.4The Chargor hereby covenants that it will immediately notify the Collateral
Agent of the occurrence of every event which would constitute a Default and of
the occurrence of every event which with the lapse of time will or may
constitute a Default.

 

11.APPOINTMENT OF A RECEIVER

 

11.1Collateral Agent may either under hand of any manager or by deed appoint any
one or more than one person to act as Receiver of those Charged Assets specified
in the appointment.

 

11.2Collateral Agent may from time to time fix the remuneration of any Receiver
on such basis as it shall determine. This may include a fixed fee or an hourly
rate or a commission depending upon the work and responsibilities assumed by the
Receiver and the basis of charging applied by his firm. Section 109 LPA shall be
varied accordingly.

 

11.3Collateral Agent may remove or replace any Receiver appointed by him.

 

11.4Collateral Agent may extend a Receiver’s appointment to include Charged
Assets previously excluded from-his appointment.

 

11.5A Receiver will be the agent of the Chargor and the Chargor will be solely
responsible for his acts, omissions, defaults and remuneration.

 

1.2.POWERS ON ENFORCEMENT

 

12.1An Administrator will- have all the powers given to him under the Insolvency
Act.

 

12.2A Receiver may exercise in respect of the Charged Assets to which he is
appointed:

 

12.2.1the same powers to do, or to omit to do, in the name of and on behalf of
the Chargor, anything which the Chargor itself could have done or omitted to do
with such Charged Assets were they not the subject of this Debenture and the
Chargor were not in insolvency proceedings;

 

12.2.2all or any powers given to receivers by the LPA as if such Receiver had
been duly appointed thereunder but without any of the restrictions imposed upon
the exercise of those powers by the LPA; or

 

12.2.3notwithstanding that he is not an administrative receiver, all or any of
the powers specified in Schedule 1 to the Insolvency Act.

 

 

 

 

12.3If more than one person is appointed to act as Receiver, each person may act
severally, independent of any other, except to the extent that Collateral Agent
states to the contrary in the appointment. References in this Debenture to the
Receiver are to each and all of them as appropriate.

 

12.4Except to the extent provided by law, none of the powers described in this
Clause 12 will be affected by an insolvency event in relation to the Chargor.

 

13.COLLATERAL AGENT’S POWERS AND PROTECTIONS

 

13.1The powers and remedies conferred on Collateral Agent as a mortgagee by the
LP A shall not be subject to any of the restrictions imposed by the LP A upon
the exercise of those powers and remedies including those imposed by sections
103 and 109 LPA.

 

13.2Collateral Agent may grant or accept surrenders of leases at a premium or
otherwise and grant agreements or options for the same on such terms as it shall
consider expedient and without the need to observe sections 99 and 100 LPA.

 

1.3.3The restrictions on the right of consolidating mortgages contained in
section 93 LPA will not apply to this Debenture.

 

13.4Neither Collateral Agent nor any Receiver nor any Administrator will be
liable to account as mortgagee in possession of the Charged Assets or be liable
for any loss upon realisation or for any neglect or default of any nature
whatsoever for which a mortgagee may be liable.

 

13.5Neither Collateral Agent nor any Receiver is obliged to take any particular
action to collect the Chargor’s Book Debts and neither shall be liable to the
Chargor for the manner in which it collects or fails to collect an Book Debts.

 

14.APPLICATION OF MONIES

 

14.1All money received by Collateral Agent or any Receiver under this Debenture
will be applied in the following order:

 

14.1.1first, in or towards payment of liabilities having priority to the Secured
Liabilities;

 

14.1.2secondly, in or towards payment of all costs, charges and expenses
incurred in or incidental to the exercise or performance (or attempted exercise
or performance) by Collateral Agent of any of the powers or authorities
conferred by or in any other way connected with this Debenture;

 

14.1.3thirdly, in or towards payment to the Receiver of his remuneration fixed
in accordance with this Debenture;

 

14.1.4fourthly, in or towards payment to Collateral Agent on behalf of himself
and the Lenders of the Secured Liabilities on a pro rata basis;

 

  14.1.5fifthly, in payment to the Chargor of any surplus.

 

14.2Any surplus shall not carry interest. The Receiver or Collateral Agent shall
pay any surplus into any of the Chargor’s bank accounts. Collateral Agent shall
then have no further liability for such surplus.

 

14.3The application of money pursuant to clause 14.1 shall fully discharge the
Chargor’s liability to the Lenders in respect of the Secured Liabilities to the
extent of the money so applied and the Collateral Agent shall be solely
responsible to ensure that all money that is received by the Collateral Agent or
any Receiver that is applied pursuant to clause 14.1 is duly paid to the
Lenders. The Chargor shall have no further responsibility to the Lenders in the
event that such money is not properly applied by the Collateral Agent or any
Receiver.

 

 

 

 

14.4Subject to the rights of the holder of any prior ranking Permitted Security
Interest or any landlord, any money received by the Chargor under any insurance
of the Charged Assets will be treated as part of the Charged Assets, It will be
applied at the discretion of Collateral Agent either in reducing the Secured
Liabilities or towards making good the loss or damage for which the money became
payable. Any money received by the Chargor under any insurance of the Charged
Assets shall be held on trust for Collateral Agent pending such application.

 

15.PROTECTION OF THIRD PARTIES

 

15.1Any person dealing with Collateral Agent or a Receiver may assume, unless he
has actual knowledge to the contrary that:

 

  15.1.1Collateral Agent or such Receiver has the power to do the tilings which
they purport to do; and

 

  15.1.2they are exercising their powers properly.

 

15.2AH the protections to purchasers by sections 104 and 107 LPA shall apply to
any person purchasing from or dealing with any Receiver or Collateral Agent as
if the Secured Liabilities had become due and the statutory power of sale and
appointing a receiver in relation to the Charged Assets had arisen on the date
of this Debenture.

 

16.CONTINUING AND ADDITIONAL SECURITY

 

16.1This Debenture is a continuing security. It secures the ultimate balance of
the Secured Liabilities despite any interim settlement of account until a final
discharge of this Debenture is given by Collateral Agent to the Chargor.

 

16.2Collateral Agent’s rights under this Debenture are in addition to any other
rights the Lenders may have against the Chargor (or any other person in respect
of the Secured Liabilities) under any other document, the general law or
otherwise. They will not merge with or limit those other rights or be limited by
mem.

 

16.3Neither Collateral Agent nor the Lenders is obliged to make any claim or
demand on the Chargor or any other person or to enforce any guarantee, mortgage
or other security now or in future held by it before enforcing this Debenture
and no action taken or omitted in connection with any such right or instrument
shall discharge, reduce or affect the Chargor’s liability to the Lenders.
Neither Collateral Agent nor the Lenders have to account for any money or other
asset received pursuant to any such right or instrument.

 

17.EXPENSES AND INDEMNITIES

 

17.1The Chargor will on demand pay all professionals’ fees (including VAT) and
any other costs, charges or expenses (on a full indemnity basis) incurred by
Collateral Agent and any Administrator or Receiver in connection with the actual
or attempted perfection, preservation, defence or enforcement of this Debenture
or the preservation or disposal of any Charged Assets or the exercise of any
power under this Debenture or any amendment, waiver, consent or release of this
Debenture.

 

17.2The Chargor will on demand indemnify any Administrator and any Receiver and
any of its and their officers and employees and any attorney, agent or other
person appointed by Collateral Agent under this Debenture (each an “Indemnified
Party”) in respect of all costs, losses, actions, claims, expenses, demands or
liabilities whether in contract, tort, or otherwise and whether arising at
common law, in equity or by statute which may be incurred by, or made against
any of them at any time relating to or arising directly or indirectly out of:

 

 

 

 

17.2.1anything done or omitted to be done in the exercise or purported exercise
of the powers contained in this Debenture; or

 

17.2.2a claim of any kind (including one relating to the environment) made or
asserted against any Indemnified Party which would not have arisen if this
Debenture had not been executed;

 

17.2.3any breach by the Chargor of any of its obligations under this Debenture;
unless, in the case of 17.2.1 and J 7.2.2 it was caused by the gross negligence
or wilful misconduct of the Indemnified Party.

 

17.3Neither Collateral Agent nor any Receiver nor any officer nor employee of
either of them shall in any way be liable or responsible to the Chargor for any
loss or liability of any kind arising from any act or omission by him or it of
any kind (whether as mortgagee in possession or otherwise) in relation to the
Charged Assets, except to the extent caused by his or its own gross negligence
or wilful misconduct.

 

18.PAYMENTS

 

18.1Collateral Agent or any Receiver may convert any money received, recovered
or realised under this Debenture (including the proceeds of any previous
conversion) into such currency as Collateral Agent or such Receiver may think
fit in order to discharge the Secured Liabilities. Any such conversion shall be
effected at the then prevailing spot selling rate of exchange of Collateral
Agent’s bankers for such other currency against the existing currency.

 

18.22If the amount of the currency so converted is less than the amount of the
Secured Liability concerned, the Chargor will indemnify Collateral Agent in
respect of that shortfall.

 

18.3Any certificate signed by Collateral Agent as to any amount payable under
this Debenture at the date of such certificate shall, in the absence of manifest
error, be conclusive evidence of such amount and be binding on the Chargor.

 

184All amounts payable by the Chargor under this Debenture will be paid in full
without set off or other deduction.

 

18.5Collateral Agent may at any time witliout notice set off against any Secured
Liabilities any amount owed by it to the Chargor. Collateral Agent may effect
such set off by transferring all or any part of any balance standing to the
credit of any of the Ghargor’s accounts with it to any other account or by
combining or consolidating such accounts.

 

19.DISCHARGE

 

19.1Upon the Secured Liabilities being irrevocably and unconditionally paid or
discharged in full, Collateral Agent will, at the request of the Chargor,
release this Debenture. Collateral Agent will also transfer to the Chargor any
Charged Assets which have been assigned or transferred to Collateral Agent.

 

19.2If any payment by the Chargor or any other person or any release given by
Collateral Agent is avoided or adjusted pursuant to the Insolvency Act:

 

  19.2.1the Chargor’s liability for the Secured Liabilities will continue as if
the payment, release, avoidance or adjustment had not occurred; and

 

  19.2.2Collateral Agent will be entitled to recover the value or amount of that
payment or security from the Chargor as if the payment, release, avoidance or
adjustment had not occurred.

 

 

 

  

20.TRANSFERS AND DISCLOSURES

 

20.1Collateral Agent may not novate or assign this Debenture or sub-contract or
delegate his obligations or duties under it save as expressly provided in this
Debenture.

 

20.2The Chargor may not assign, transfer, delegate or make any declaration of
trust of any of its rights or obligations under this Debenture.

 

21.MISCELLANEOUS

 

21.1No delay or failure by Collateral Agent to exercise any right or remedy
under this Debenture shall impair or operate as a waiver of that right or
remedy. Any single, partial or defective exercise of any such power, right or
remedy shall not prevent the further exercise of that or any other right or
remedy.

 

21.2Any waiver, consent or approval given by Collateral Agent of or under this
Debenture will only be effective if given in writing. Such waiver, consent or
approval shall then only apply for the purpose stated and be subject to any
written terms and conditions imposed by Collateral Agent.

 

21.3If at any time any one or more of the provisions of this Debenture is or
becomes illegal, invalid or unenforceable in any respect under the law of any
jurisdiction then neither the legality, validity or enforceability of the
remaining provisions of this Debenture nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
be in any way affected or impaired as a result.

 

21.4Each Indemnified Party may enforce the terms of this Debenture in accordance
with the Contracts (Rights of Third Parties) Act 1999. Apart from the
Indemnified Parties and the parties to this Debenture, no other person may
enforce its terms.

 

21.5Coilateral Agent may grant releases of or waivers under this Debenture and
he and the Chargor may agree variations to its terms without either notifying
the Indemnified Parties or obtaining their consent.

 

22.SERVICE OF NOTICES AND PROCESS

 

22.1Any notice, request, demand, consent, approval, notification, instruction,
proceedings or other communication from Collateral Agent to the Chargor under
this Debenture shall be in writing and may be sent by post or courier. Any such
communication shall be addressed to the Chargor at its address given in this
Debenture, its registered office or the address last known to Collateral Agent
at which it carried on business and shall be treated as served:

 

  22.1.1if delivered by courier or personally: at the time of delivery;

 

  22.1.2if posted: 48 hours after posting or upon receipt (whichever is
earlier).

 

22.2Any notice, request or other communication under this Debenture from the
Chargor to Collateral Agent must be in writing and sent by first class post to
Collateral Agent’s registered office or such other address as Collateral Agent
advises the Chargor in writing for this purpose and will be treated as served.

 

  22.2.1if it is received during business hours on a Working Day; on receipt; or

 

  22.2.2if it is received outside business hours or on a day which is not a
Working Day: on the first Working Day after receipt.

 

 

 

 

23.JURISDICTION

 

23.1This Debenture shall be governed by and construed in accordance with the
iaws of England. The Chargor accepts the non-exclusive jurisdiction of the
English Courts in connection with any matter arising under this Debenture.

 

24.DEFINITIONS AND INTERPRETATION

 

24.1Any word whose meaning is defined in the Receivables Finance Agreement has
the same meaning in this Debenture.

 

24.2In this Debenture the following words have the meanings set out opposite
them:

 

“Administrator” any person appointed under the Insolvency Act 1986 to manage the
Charger’s business and assets.     “Book Debts” all present and future book and
other debts and monetary claims due or owing to the Chargor, and the benefit of
all security, guarantees and other rights of any nature enjoyed or held by the
Chargor in relation to any of them;     “Charged Assets” the subject matter of
the mortgages and charges created by this Debenture and set out at clause 2.    
“Default” Any of the following:       (i) any event or circumstance which would
constitute an “Event of Default” (as defined in any of the Subordinated
Contingent Notes.) under any such Subordinated Contingent Note;       (ii) the
Chargor requesting the Collateral Agent to appoint an Administrator or Receiver
or to take possession;     (iii) the Chargor breaching (or being found to have
breached) any of the covenants or warranties given by it to the Collateral Agent
in this Debenture.     “Dispose” or “Disposal” includes sale, transfer, lease,
licence, or parting with possession or granting any interest in.     “Equipment”
any plant, machinery and/or other equipment charged to Collateral Agent by this
Debenture.     “Expenses” those fees, cost, charges and expenses covenanted to
be paid by the Chargor in clause 17.1.     “Indemnified Events” those matters
and events in respect of which the Chargor is liable to indemnify or reimburse
Collateral Agent, including those referred to in clauses 5.2 and 16.    
“Insolvency Act” Insolvency Act 1986 and any secondary legislation made under
it.

 

 

 

 

“Intellectual Property” all patents (including applications, improvements,
prolongations, extensions and right to apply therefor), design rights., trade
marks and service marks (whether registered or unregistered) and applications
for the same, copyright, trade, brand, domain and business names, know-how,
confidential information, trade secrets, databases and computer software
programs and systems and all other intellectual or intangible property
(including the benefit of any licences or consents relating to any of the above)
and all fees, royalties or other rights derived therefrom or incidental thereto
in any part of the world.     “Lenders” means the persons listed in Schedule 5
(each, a “Lender”)     “LPA” Law of Property Act 1925.     “Permitted Security
Interest” any Security Interest specified in Schedule 4 and any lien arising by
operation of law in the ordinary course of trading over property other than
land.     “Property” any freehold or leasehold property owned or occupied by the
Chargor.     “Receiver” any receiver or receiver and manager who is not an
administrative receiver (within the meaning of section 29(2) Insolvency Act)
appointed under this Debenture.     “Remittances” cash, cheques, bills of
exchange, negotiable and non-negotiable instruments, letters of credit, orders,
drafts, promissory notes, electronic payments and any other instruments, methods
or forms of payment or engagement.     “Security Interest” any mortgage, charge,
pledge, trust, preferential right, assignment by way of security, hypothecation,
lien, or any other arrangement for the purpose of or having a similar effect to
creating security or any title retention rights or any set off rights created by
agreement.     “Securities”. all stocks, shares, bonds and securities of any
kind whatsoever (including warrants and options to acquire or subscribe for any
of the same) and whether marketable or not, held by the Chargor now or at any
time in the future including all allotments, rights and benefits at any time
accruing, offered or arising in respect of or incidental to the same and all
money or property accruing or offered at any time by way of dividend,
distribution, conversion, redemption, bonus, preference, option, interest or
otherwise in respect thereof.

 

 

 

  

21.3in this Debenture:

 

21.3.1unless the context requires otherwise, the singular includes the plural
and vice versa and any reference to a gender includes any other gender;

 

21.3.2headings to clauses are for reference only and shall not affect the
interpretation of this Debenture;

 

21.3.3references to clauses and to Schedules are to the clauses of and schedules
to this Debenture;

 

21.3.4references to a “person”, include individuals, firms, partnerships,
corporations, unincorporated bodies and government entities;

 

21.3.5references to any Act of Parliament include that Act as amended, modified
or re-enacted from time to time and all rules, regulations, orders and
subordinate legislation made pursuant to it; any provision of this Debenture
which refers to an Act which is amended, may itself be amended in such manner as
Collateral Agent may determine to preserve the intended effect of this
Debenture;

 

21.3.6references to this “Debenture” or any other document are to this Debenture
or that document as from time to time amended, supplemented, restated, novated
or replaced, however fundamentally;

 

21.3.7references to the “Charged Assets” are to the whole or any part of such
property or assets, as the context requires;

 

21.3.8whenever the Chargor is obliged to do something if required or requested
by Collateral Agent, it shall do that thing promptly;

 

21.3.9the meaning of general words introduced by the word “other” or (followed
by the word “including”) shall not be limited by reference to any preceding (or
following) word or enumeration indicating a particular class of acts, matters or
things.

 

21.4It is intended that this Debenture takes effect as a deed even though
Collateral Agent may only execute it under hand.

 

21.5This Debenture may be executed in counterparts.

 

21.6Any term or phrase defined in the Companies Act 1985 and 2006 (whether
capitalised or not) bears the same meaning in this Debenture.

 

 

 

  

SCHEDULE 1

Amended and Restated Security Agreement

 

 

 

 

THIS SECURITY AGREEMENT IS OR WILL BE SUBJECT TO SUBORDINATION
AGREEMENTS BETWEEN COLLATERAL AGENT AND THE HOLDERS OF THE

SENIOR INDEBTEDNESS

 

AMENDED AND RESTATED SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED SECURITY AGREEMENT (the “Security Agreement”), is made
as of August 31, 2010, by and among EMRISE Electronics Corporation, a New Jersey
corporation (“Borrower”), EMRISE Corporation, a Delaware corporation (“Parent”),
the Subsidiaries (as listed on Exhibit A), Charles S. Brand, an individual
(“Collateral Agent”), and the persons and entities listed on the Schedule of
Lenders attached hereto as Exhibit A (each, a “Lender” and collectively, the
“Lenders”).

 

RECITALS

 

A. Borrower and the Lenders are parties to that certain Stock Purchase Agreement
dated as of May 23, 2008 (the “Stock Purchase Agreement”) relating to the
purchase by Borrower of all of the issued and outstanding shares of capital
stock (collectively, the “Shares”) of (i) Advanced Control Components, Inc., a
New Jersey corporation (“ACC”) owned by Thomas P. M. Couse, Joanne Couse and
Michael Gaffney and (ii) Custom Components, Inc. owned by Charles S, Brand. As a
result of the consummation of the Stock Purchase Agreement, Borrower
beneficially owned all of the capital stock of ACC.

 

B. Pursuant to the terms of the Stock Purchase Agreement, Borrower issued
certain subordinated secured contingent promissory notes (as amended, are
referred to herein as the “Subordinated Contingent Notes”) to the Lenders to
satisfy a portion of the aggregate consideration to be paid by Borrower for the
purchase of the Shares. The Subordinated Contingent Notes were amended in
November 2009 to add additional payment amounts, and to modify the payment date
and terms. The Subordinated Contingent Notes have been amended by Amendment No.
2 of even date herewith.

 

C. Parent, the ultimate parent of Borrower, delivered a Continuing Guaranty
dated August 20, 2008 (the “Guaranty”) in favor of the Lenders pursuant to which
the obligations of Borrower to the Lenders under the Subordinated Contingent
Notes were guaranteed by Parent.

 

D. The Lenders subordinated the indebtedness owed to them under the Subordinated
Contingent Notes to the holder of the Senior Indebtedness pursuant to that
certain Subordination Agreement between the Collateral Agent and GVEC Resource
IV Inc. dated as of August 20, 2008 (the “GVEC Subordination Agreement”).

 

E. On June 7, 2010, Borrower entered into an agreement to sell its direct and
indirect interests in the Shares (the “Sale Transaction”). In connection with
the Sale Transaction, the Borrower, Parent and the Lenders entered into a Master
Agreement, pursuant to which the Lenders agreed to release their lien on all of
the assets or property of ACC (the “Original Collateral”).

 

 

 

 

F. The parties desire to enter into this Amended and Restated Security Agreement
to grant the Collateral Agent, for the benefit of himself and the Lenders, a
security interest in the collateral described below as substitute collateral for
the Original Collateral.

 

G. To perfect their grant of a security interest hereunder, each of XCEL Power
Systems, Ltd. and Pascall Electronies Limited will enter into an AH Assets
Debenture dated as of the date hereof in favor of the Collateral Agent (each, a
“UK Debenture”).

 

H. The Collateral Agent will enter into that certain Deed of Priorities dated as
of the date hereof between Lloyds TSB Commercial Finance Limited, GVEC Resource
IV, Inc., Collateral Agent and XCEL Power Systems, Ltd. (the “XCEL Deed”) and
that certain Deed of Priorities dated as of the date hereof between Lloyds TSB
Commercial Finance Limited, GVEC Resource IV, Inc., Collateral Agent and Pascall
Electronics Limited (the “Pascall Deed” and collectively with the GVEC
Subordination Agreement and the XCEL Deed, the “Subordination Agreements”).

 

I. The Subordinated Contingent Note held by Michael Gaffney has been paid in
full and he is no longer a “Lender” hereunder.

 

NOW, THEREFORE, in consideration of the foregoing premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

 

1. Definitions and Interpretation. Unless otherwise defined herein, all other
capitalized terms used herein and defined in the Subordinated Contingent Notes
shall have the respective meanings given to those terms in the Subordinated
Contingent Notes, and all terms defined in the New Jersey Uniform Commercial
Code (the “UCC”) shall have the respective meanings given to those terms in the
UCC.

 

2. Grant of Security Interest.

 

2.1 To secure the Obligations as defined in Section 3 hereof, each of the
Subsidiaries hereby grants to Collateral Agent a continuing security interest
and lien in and to all of the assets and properties of the Subsidiaries, whether
now owned or existing or hereafter acquired or arising and regardless of where
located and all additions and accessions thereto, substitutions and replacements
therefor, and all proceeds thereof (the “Collateral”), including, without
limitation, the following property: all tangible and intangible assets of the
Subsidiaries, including, but not limited to, all existing and future inventory,
accounts, deposit accounts, accounts receivable, furniture, fixtures, equipment,
general intangibles, books and records, patents, patent applications,
trademarks, copyrights, trade secrets, and any other property interest or
proprietary right, as well as any document, instrument or drawings embodying the
same.

 

2.2 Borrower, Parent and each of the Subsidiaries hereby jointly and severally
warrant and represent to and covenant and agree with the Collateral Agent and
the Lenders that the continuing security interest and lien granted pursuant to
this Security Agreement is and shall at ail times be a priority security
interest in the assets of each Subsidiary, subordinate only to Senior
Indebtedness.

 

 

 

 

3. Security for Obligations. The obligations secured by this Security Agreement
(the “Obligations”) shall mean and include all obligations of Borrower as
provided in (i) the Subordinated Contingent Notes, (ii) the Stock Purchase
Agreement, and (iii) all of the other Related Agreements (as such term is
defined in the Stock Purchase Agreement).

 

4. Possession and Location of Collateral. Unless and until any default occurs
hereunder as set forth in Section 11 hereof, each of the Subsidiaries shall have
possession of its Collateral for its use and enjoyment in any lawful manner not
inconsistent with this Security Agreement or the Subordinated Contingent Notes,
The Collateral will be kept at any of Parent’s place of business or the place of
business of any of the Subsidiaries (or such other places as any of Parent or
the Subsidiaries customarily keeps the Collateral) with respect to such
Collateral and will not be moved therefrom without the prior written consent of
Collateral Agent, except that Parent and the Subsidiaries may make sales of
inventory items in the ordinary course of business. No Subsidiary shall replace
or make material alterations in the Collateral without the prior written consent
of Collateral Agent. The consent of Collateral Agent required hereby shall not
be unreasonably withheld.

 

5. Financing Statements. Concurrently with the execution of this Security
Agreement, each of the Subsidiaries shall execute and deliver to Collateral
Agent (a) the UCC-1 financing statement, or its foreign equivalent, provided by
Collateral Agent evidencing the Collateral Agent’s interest in the Collateral
and (b) a UCC-3 financing statement provided by Collateral Agent evidencing
Collateral Agent’s release of its lien on the Original Collateral. Collateral
Agent hereby authorizes and directs each of Borrower and Parent to file or cause
to be filed the UCC-3 financing statement.

 

6. Transfer, Taxes, Liens and Encumbrances. Each of the Subsidiaries represents
and warrants that it has title to its respective Collateral free and clear of
any lien, security interest or encumbrance, except for the security interests of
the holders of the Senior Indebtedness and the security interest created by this
Security Agreement, and if such Subsidiary is party to a UK Debenture, the
applicable UK Debenture. Title to the Collateral will remain in and continue to
be vested in each respective Subsidiary. Each of the Subsidiaries will defend
its Collateral and will not sell, offer to sell or otherwise transfer the
Collateral, any portion thereof, or any interest therein, without the prior
written consent of Collateral Agent, except that Parent and Subsidiaries may
make sales of inventory items in the ordinary course of business. The consent of
Collateral Agent required hereby shall not be unreasonably withheld. As
applicable, Parent, Borrower or the Subsidiaries shall pay ail taxes,
assessments and other charges made against the Collateral.

 

7. Risk of Loss and Inspection of Collateral. As applicable, Parent or the
Subsidiaries shall have all risk of loss of the Collateral, and each Subsidiary
will keep its Collateral in good order and repair. Collateral Agent shall have
the right, at any reasonable time, to enter upon the premises where the
Collateral is located to examine and inspect the Collateral in person or by
agent. Any refusal to permit such entry shall be a breach of this Security
Agreement.

 

8. Insurance. As applicable, Parent or the Subsidiaries shall keep the
Collateral insured, at its own expense, in an amount not less than its full
insurable value, against loss by fire, theft, vandalism and malicious mischief,
storm, earthquake and extended coverage, and shall cause the Lenders to be named
as additional insured parties and loss payees in such insurance, and furnish to
Collateral Agent written evidence thereof.

 

 

 

  

9. Representations and Warranties. Borrower, Parent and each of the Subsidiaries
hereby jointly and severally represent and warrant to Collateral Agent and the
Lenders that: (i) each of Borrower, Parent and the Subsidiaries has full power
and authority to enter into this Security Agreement (and, if party to a UK
Debenture, such UK Debenture) and to grant the security interest and lien in and
to the Collateral and has taken all proper and necessary actions to authorize
the execution, delivery and performance of this Security Agreement (and, if
party to a UK Debenture, such UK Debenture); (ii) that the Parent owns one
hundred percent (100%) of the issued and outstanding capital stock, directly or
indirectly, of the Borrower and each of the Subsidiaries; (Hi) this Agreement is
valid and binding upon and enforceable against Borrower, Parent and
Subsidiaries, except as such enforceability may be limited by applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors’ rights generally and genera! principles of equity; and (iv)
the making and performance of this Security Agreement (and if a party to a UK
Debenture, such UK Debenture) by Borrower, Parent and the Subsidiaries will not
conflict with their respective certificates of incorporation, bylaws, or other
organizational documents, breach or violate any law, statute, rule or regulation
of, or any judgment, order, decree, writ, injunction or award issued by any
governmental authority or violate or result in a default (immediately or with
the passage of time or notice or both) under any contract, indenture, agreement
or instrument to which Borrower, Parent or the Subsidiaries, as applicable, is a
party, or by which any of Borrower, Parent or the Subsidiaries is bound.

 

10. Covenants. Borrower, Parent and each of the Subsidiaries hereby agree as
follows:

 

 

10.1 (Liens on Collateral) not to create, incur, assume or suffer to exist any
lien or security interest of any kind upon the Collateral other than in favor of
the holders of any Senior Indebtedness; provided that no additional liens or
security interest will be granted in favor of MeDermott and Yost as defined in
the Note;

 

10.2 (Further Assurances) that at any time and from time to time, at Parent’s
expense, Parent, Borrower and the Subsidiaries will promptly execute and deliver
all further instruments and documents and take all further action, that may be
necessary or desirable, or that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Collateral Agent to exercise and enforce Collateral
Agent’s rights and remedies hereunder with respect to any Collateral;

 

10.3 (Parent Financial Statements) from and after the date hereof until the
Notes are paid in full, on a quarterly basis within five (5) business days after
the scheduled filing date (including any extensions pursuant to Rule 12b-25 of
the Securities Exchange Act of 1934) for Parent’s Form 10-Q or Form 10-K, as
applicable, with the Securities and Exchange Commission, Parent will provide
Collateral Agent with copies of Parent’s quarterly and annual financial
statements and any related notes;

 

10.4 (Parent, Borrower and Subsidiary Financial Statements) from and after the
date hereof until the Notes are paid in full, on a quarterly basis within
forty-five (45) days after the end of each fiscal quarter, and within sixty (60)
days after the end of each fiscal year, Parent Borrower and each Subsidiary will
provide Collateral Agent with copies of separate company quarterly and annual
financial statements and any related notes for each of Parent (only to the
extent such separate company financial statements may no be longer required to
be filed with the Securities and Exchange Commission), Borrower and each
Subsidiary;

 

 

 

 

10.5 (Sale of Parent, Borrower or Subsidiaries), in the event that Parent,
Borrower or any of the Subsidiaries or any assets of the Subsidiaries (other
than assets of the Subsidiaries sold in the ordinary course of business) is
proposed to be sold, including by way of stock sale, merger or otherwise, the
Parent shall provide notice to the Collateral Agent of such proposed sale
promptly and to the extent possible at least thirty (30) days prior to the
consummation thereof and in no event less than fourteen (14) days prior to the
consummation thereof; and

 

10.6 (Senior Indebtedness), on an aggregate basis, not to incur Senior
Indebtedness in an amount outstanding exceeding Fifteen Million Dollars
($15,000,000) without the prior written approval of the Lenders (which shall not
be unreasonably withheld) and, in no event, in an amount outstanding exceeding
Twenty Million Dollars ($20,000,000).

 

11. Events of Default; Remedies.

 

11.1 Event of Default. An Event of Default shall be deemed to have occurred
under this Security Agreement upon the occurrence and during the continuance of
an Event of Default (as defined in the Subordinated Contingent Notes).

 

11.2 Rights Under the UCC. In addition to all other rights granted hereby and by
the UK Debentures, and otherwise by law, subject to the Subordination
Agreements, Collateral Agent shall have, with respect to the Collateral, the
rights and obligations of a secured party under the UCC.

 

11.3 Notice, Etc. In any case where notice of sale is required, ten (10) days
notice shall be deemed reasonable notice. Subject to the Subordination
Agreements, Collateral Agent may have resort to the Collateral or any portion
thereof with no requirement on the part of Collateral Agent to proceed first
against any other Person (as defined in the Subordinated Contingent Notes) or
property.

 

11.4 Other Remedies. Upon the occurrence and during the continuance of an Event
of Default, subject to the Subordination Agreements, at the request of
Collateral Agent, Parent, Borrower and each Subsidiary, as applicable, shall
assemble and make available to Collateral Agent all of the Collateral at a place
or places reasonably convenient to each of Borrower, Parent and the
Subsididaries, as applicable, and Collateral Agent; provided, however, that none
of Parent, Borrower or any Subsidiary shall be obligated under this Agreement to
ship any Collateral internationally.

 

11.5 Application of Collateral Proceeds. Subject to the Subordination
Agreements, the proceeds and/or avails of the Collateral, or any part thereof,
and the proceeds and the avails of any remedy hereunder (as well as any other
amounts of any kind held by Collateral Agent at the time of, or received by
Collateral Agent after, the occurrence of an Event of Default) shall be paid to
and applied as follows:

 

 

 

  

(a) first, to the payment of reasonable costs and expenses, including all
amounts expended to preserve the value of the Collateral, of foreclosure or
suit, if any, and of such sale and the exercise of any other rights or remedies,
and of all proper fees, expenses, liability and advances, including reasonable
legal expenses and attorneys’ fees, incurred or made hereunder by Collateral
Agent;

 

(b) second, to the payment to each Lender of the amount then owing or unpaid on
such Lender’s Subordinated Contingent Note, and in case such proceeds shall be
insufficient to pay in full the whole amount so due, owing or unpaid upon such
Subordinated Contingent Note, then its Pro Rata Share of the amount remaining to
be distributed (to be applied first to accrued interest and second to
outstanding principal); and

 

(c) third, to the payment of the surplus, if any, to Borrower, its successors
and assigns, or to whomsoever may be lawfully entitled to receive the same.

 

For purposes of this Security Agreement the term “Pro Rata Share” shall mean,
when calculating a Lender’s portion of any distribution or amount, that
distribution or amount (expressed as a percentage) equal to a fraction (i) the
numerator of which is the outstanding principal amount of such Lender’s
Subordinated Contingent Note as set forth on Exhibit A hereto, and (ii) the
denominator of which is the aggregate outstanding principal amount of all
Subordinated Contingent Notes issued under the Stock Purchase Agreement as set
forth on Exhibit A hereto. In the event that a Lender receives payments or
distributions in excess of its Pro Rata Share, then such Lender shall hold in
trust all such excess payments or distributions for the benefit of the other
Lenders and shall pay such amounts held in trust to such other Lenders upon
demand by such Lenders.

 

12. Authorized Action by Collateral Agent.

 

(a) Borrower, Parent and each of the Subsidiaries each hereby appoint Collateral
Agent as attorney-in-fact for each of Borrower, Parent and each Subsidiary,
respectively, with full authority in the place and stead of Borrower, Parent and
each Subsidiary, respectively, and in the name of Borrower, Parent and each
Subsidiary, as applicable, or otherwise, from time to time in Collateral Agent’s
discretion and to the full extent permitted by law to take any action and to
execute any instrument which Collateral Agent may deem reasonably necessary or
advisable to accomplish the purposes of this Security Agreement in accordance
with the terms and provisions hereof, including without limitation, to receive,
endorse and collect all instruments made payable to Borrower, Parent or any
Subsidiary representing any dividend, interest payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same.

 

(b) This power of attorney is a power coupled with an interest and shall be
irrevocable. The powers conferred on Collateral Agent hereunder are solely to
protect the Collateral Agent and Lenders’ interests in the Collateral and shall
not impose any duty upon Collateral Agent to exercise any such powers.
Collateral Agent shall be accountable only for amounts that he actually receives
as a result of the exercise of such powers and in no event shall Collateral
Agent or any of his employees or agents be responsible to Borrower, Parent or
any Subsidiary for any act or failure to act, except for gross negligence or
willful misconduct.

 

 

 

  

13. Collateral Agent.

 

13.1 Appointment. The Lenders hereby appoint Charles S. Brand as Collateral
Agent for the Lenders under this Security Agreement (in such capacity, the
“Collateral Agent”) to serve from the date hereof until the termination of this
Security Agreement.

 

13.2 Powers and Duties of Collateral Agent Indemnity by Lenders.

 

 

(a) Each Lender hereby irrevocably authorizes the Collateral Agent to take such
action and to exercise such powers hereunder as provided herein, together with
such powers as are reasonably incidental thereto. Collateral Agent may execute
any of his duties hereunder by or through agents or employees at his discretion.

 

(b) Upon the death or resignation of the Collateral Agent, the Lenders shall
appoint a successor collateral agent to act under the Subordinated Contingent
Notes and this Security Agreement. If no such successor collateral agent shall
have been so appointed by the Lenders and shall have accepted such appointment
within thirty (30) days after Collateral Agent’s death or giving of notice of
resignation as Collateral Agent, then Collateral Agent shall be deemed to be
Thomas P. M. Couse or his successor-in-interest to his Subordinated Contingent
Note. Upon the acceptance of any appointment as successor collateral agent
hereunder by a successor collateral agent, such successor collateral agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
duties and obligations of Collateral Agent hereunder, and the Collateral Agent
shall be discharged from his duties and obligations. After Collateral Agent’s
death or resignation hereunder as the Collateral Agent, the provisions of this
Section 13 shall continue in effect for his benefit in respect of any actions
taken or omitted to be taken by him while he was acting as such Collateral
Agent.

 

14. Miscellaneous.

 

14.1 Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or mailed by registered or certified mail, postage prepaid,
or by recognized overnight courier or persona! delivery at the respective
addresses of the parties as set forth on Exhibit A hereto or on the register
maintained by the Parent. Any party hereto may by notice so given change its
address for future notice hereunder. Notice shall conclusively be deemed to have
been given when received.

 

14.2 Nonwaiver. No failure or delay on Borrower, Parent, a Subsidiary,
Collateral Agent or Lenders’ part in exercising any right hereunder shall
operate as a waiver thereof or of any other right nor shall any single or
partial exercise of any such right preclude any other further exercise thereof
or of any other right.

 

 

 

 

 

1.4.3 Amendments and Waivers. This Security Agreement may not be amended or
modified, nor may any of its terms be waived, except by written instruments
signed by Borrower, Parent, each Subsidiary and Collateral Agent. Each waiver or
consent under any provision hereof shall be effective only in the specific
instances for the purpose for which given.

 

14.4 Assignments. This Security Agreement shall be binding upon and inure to the
benefit of Lenders, Collateral Agent, Parent, Borrower and each Subsidiary and
their respective successors, assigns, heirs, beneficiaries and legal
representatives; provided, however, that none of Borrower, Parent and any
Subsidiary may assign their respective rights and duties hereunder without the
prior written consent of Collateral Agent.

 

14.5 Cumulative Rights, etc. The rights, powers and remedies of Lenders and
Collateral Agent under this Security Agreement shall be in addition to all
rights, powers and remedies given to Lenders and Collateral Agent by virtue of
any applicable law, rule or regulation of any governmental authority, the Stock
Purchase Agreement, the Subordinated Contingent Notes, the Guaranty, the UK
Debentures, the XCEL Deeed, the Pascal! Deed or any other agreement, all of
which rights, powers, and remedies shall be cumulative and may be exercised
successively or concurrently without impairing Collateral Agent’s rights
hereunder. Each of Borrower, Parent and each Subsidiary waive any right to
require Collateral Agent or Lenders to proceed against any Person or to exhaust
any collateral or to pursue any remedy in Collateral Agent or Lenders’ power.

 

14.6 Partial Invalidity. If at any time any provision of this Security Agreement
is or becomes illegal, invalid or unenforceable in any respect under the law or
any jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Security Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.

 

14.7 Expenses. Parent, Borrower and each Subsidiary, jointly and severally.
agree to pay on demand all reasonable fees and expenses, including reasonable
attorneys’ fees and expenses, incurred by Collateral Agent with respect to any
amendments or waivers hereof requested by Parent, Borrower or a Subsidiary or in
the enforcement or attempted enforcement of any of the Obligations or in
preserving any of Collateral Agent’s or Lenders’ rights and remedies (including,
without limitation, all such fees and expenses incurred in connection with any
“workout” or restructuring affecting this Security Agreement, the Subordinated
Contingent Notes, the Guaranty, the UK Debentures, the XCEL Deeed, the Paseall
Deed or the Obligations or any bankruptcy or similar proceeding involving
Parent, Borrower or any Subsidiary).

 

14.8 Governing Law; Jurisdiction. This Security Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey without
reference to conflicts of law rules (except to the extent governed by the UCC).
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Security Agreement, may be brought against any party
to this Security Agreement in the courts of the State of New Jersey, Monmouth
County, or, if it has or can acquire jurisdiction, the United States

 

 

 

  

District Court for the District of New Jersey, and each of the parties hereto
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.

 

14.9 Jury Trial. BORROWER, PARENT, EACH SUBSIDIARY, LENDERS AND COLLATERAL
AGENT, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY
WAIVE ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY
AGREEMENT.

 

[Signature page follows.]

 

 

 

  

IN WITNESS WHEREOF, the parties have caused this Security Agreement to be
executed as of the day and year first above written.

 

  EMRISE ELECTRONICS CORPORATION,   a New Jersey corporation         By:   Name:
    Its:           EMRISE CORPORATION,   a Delaware corporation         By:    
Name:     Its:           CXR LARUS CORPORATION,   a Delaware corporation        
By:     Name:     Its:           PASCALL ELECTRONICS LIMITED,   a United Kingdom
corporation         By:     Name:     Its:           XCEL POWER SYSTEMS, LTD.,  
a United Kingdom corporation         By:   Name:     Its:           Charles S.
Brand, as Collateral Agent         See Schedule of Lenders on Exhibit A for
signatures of Lenders.

 

Amended and Restated Security Agreement

 

 

 

 

EXHIBIT A

 

Schedule of Subsidiaries

 

  ● CXR Larus Corporation, a Delaware corporation         ● Pascall Electronics
Limited, a United Kingdom company         ● XCEL Power Systems, Ltd., a United
Kingdom company

 

Schedule of Lenders

 

Lender’s Name and Address   Principal Amount of
Note outstanding on
August 31, 2010   Lender’s Signature          Charles S. Brand
175 Boundary Road        Colts Neck, NJ 07722
  $2,211,766.43   Charles S. Brand           Thomas P. M. Couse        1 Waltham
Way
Jackson, NJ 08527
  $332,720.81   Charles S. Brand, as attorney in feet for Thomas P.M. Couse   
       Joanne Couse 1         Waltham Way
Jackson, NJ 08527  $332,720.81   Charles S. Brand, as attorney in fact for
Joanne Couse           Aggregate Principal Amount:  $2,877,208.05    

 

Amended and Restated Security Agreement

 

 

 

 

SCHEDULE 2

 

Registered Land

 

Description

 

All freehold property known as Cothey Way, Ryde, Isle of Wight, P033 1QT

 

 

 

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