Exhibit 10.4

 

EXECUTION COPY

 

THIS SECURITY AGREEMENT IS SUBJECT TO A SUBORDINATION AGREEMENT
OF EVEN DATE (THE “SUBORDINATION AGREEMENT”) BETWEEN
COLLATERAL AGENT AND THE HOLDER OF THE SENIOR INDEBTEDNESS

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the “Security Agreement”), is made as of August 20,
2008, by and among EMRISE Electronics Corporation, a New Jersey corporation
(“Borrower”), Advanced Control Components, Inc., a New Jersey corporation
(“ACC”), 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”).

 

R E C I T A L S

 

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) 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 owns 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 (which are defined in the Stock Purchase Agreement as well as
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.  Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Subordinated Contingent Notes.

 

C.                                     EMRISE Corporation, a Delaware
corporation and the ultimate parent of Borrower and ACC (“Parent”), is
delivering a Continuing Guaranty of even date herewith (the “Guaranty”) in favor
of the Lenders pursuant to which the obligations of Borrower to the Lenders
under the Subordinated Contingent Notes are guaranteed by Parent.

 

D.                                    In order to induce the Lenders to extend
the credit evidenced by the Subordinated Contingent Notes, Borrower and ACC have
agreed to enter into this Security Agreement to grant Collateral Agent, for the
benefit of itself and the Lenders, the security interest in the Collateral
described below.

 

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

 

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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.  TO SECURE
THE OBLIGATIONS AS DEFINED IN SECTION 3 HEREOF, ACC HEREBY GRANTS TO COLLATERAL
AGENT A CONTINUING SECURITY INTEREST AND LIEN IN AND TO  ALL OF THE ASSETS AND
PROPERTIES OF ACC, 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 ACC, 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.

 

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,
ACC SHALL HAVE POSSESSION OF THE 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 ACC’S PLACE OF BUSINESS AT 611
INDUSTRIAL WAY, EATONTOWN, NEW JERSEY 07724 (OR SUCH OTHER PLACES AS ACC
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 ACC MAY MAKE SALES OF INVENTORY ITEMS IN THE ORDINARY COURSE OF BUSINESS. 
ACC SHALL NOT 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, ACC SHALL EXECUTE AND DELIVER TO
COLLATERAL AGENT THE UCC-1 FINANCING STATEMENT PROVIDED BY COLLATERAL AGENT.

 

6.                                       TRANSFER, TAXES, LIENS AND
ENCUMBRANCES.  ACC HAS TITLE TO THE COLLATERAL FREE AND CLEAR OF ANY LIEN,
SECURITY INTEREST OR ENCUMBRANCE, EXCEPT FOR THE SECURITY INTERESTS OF THE
HOLDER OF THE SENIOR INDEBTEDNESS AND THE SECURITY INTEREST CREATED BY THIS
SECURITY AGREEMENT.  TITLE TO THE COLLATERAL WILL REMAIN IN AND CONTINUE TO BE
VESTED IN ACC.  ACC WILL DEFEND THE 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 ACC
MAY MAKE SALES OF INVENTORY ITEMS IN THE ORDINARY COURSE OF BUSINESS.  THE
CONSENT OF COLLATERAL AGENT REQUIRED HEREBY SHALL NOT BE UNREASONABLY WITHHELD. 
ACC SHALL PAY ALL TAXES, ASSESSMENTS AND OTHER CHARGES MADE AGAINST THE
COLLATERAL.

 

7.                                       RISK OF LOSS AND INSPECTION OF
COLLATERAL.  ACC SHALL HAVE ALL RISK OF LOSS OF THE COLLATERAL, AND ACC WILL
KEEP THE COLLATERAL IN GOOD ORDER AND REPAIR.  COLLATERAL AGENT SHALL

 

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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.  ACC 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 ACC 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 AND ACC HEREBY JOINTLY
AND SEVERALLY REPRESENT AND WARRANT TO COLLATERAL AGENT AND THE LENDERS THAT
EACH OF BORROWER AND ACC HAS FULL POWER AND AUTHORITY TO ENTER INTO THIS
SECURITY AGREEMENT 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 AGREEMENT.  THIS AGREEMENT IS VALID
AND BINDING UPON AND ENFORCEABLE AGAINST BORROWER AND ACC, EXCEPT AS SUCH
ENFORCEABILITY MAY BE LIMITED BY APPLICABLE INSOLVENCY, BANKRUPTCY,
REORGANIZATION, MORATORIUM OR OTHER SIMILAR LAWS AFFECTING CREDITORS’ RIGHTS
GENERALLY AND GENERAL PRINCIPLES OF EQUITY.  THE MAKING AND PERFORMANCE OF THIS
SECURITY AGREEMENT BY BORROWER AND ACC WILL NOT 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, ACC OR PARENT IS A PARTY,
OR BY WHICH ANY OF BORROWER, ACC OR PARENT IS BOUND.

 

10.           COVENANTS.  BORROWER AND ACC HEREBY AGREE AS FOLLOWS:

 

10.1                           LIENS ON COLLATERAL.  BORROWER AND ACC AGREE 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.

 

10.2                           FURTHER ASSURANCES.  BORROWER AND ACC AGREE THAT
AT ANY TIME AND FROM TIME TO TIME, AT ACC’S EXPENSE, ACC 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                           FINANCIAL STATEMENTS.  FROM AND AFTER THE DATE
HEREOF, 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 WITH THE SECURITIES AND EXCHANGE
COMMISSION, ACC WILL PROVIDE COLLATERAL AGENT WITH COPIES OF ACC’S QUARTERLY
FINANCIAL STATEMENTS AND ANY RELATED NOTES.

 

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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 OTHERWISE BY LAW, SUBJECT TO THE SUBORDINATION
AGREEMENT, 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 AGREEMENT, 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 AGREEMENT,
AT THE REQUEST OF COLLATERAL AGENT, ACC SHALL ASSEMBLE AND MAKE AVAILABLE TO
COLLATERAL AGENT ALL OF THE COLLATERAL AT A PLACE OR PLACES REASONABLY
CONVENIENT TO BOTH BORROWER AND COLLATERAL AGENT.

 

11.5                           APPLICATION OF COLLATERAL PROCEEDS.  SUBJECT TO
THE SUBORDINATION AGREEMENT, 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 original outstanding principal amount of such Lender’s
Subordinated Contingent Note and (ii) the

 

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denominator of which is the original aggregate outstanding principal amount of
all Subordinated Contingent Notes issued under the Stock Purchase Agreement.  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 holders upon demand by such holders.

 

12.           AUTHORIZED ACTION BY COLLATERAL AGENT.

 

(A)                                  EACH OF BORROWER AND ACC HEREBY APPOINT
COLLATERAL AGENT AS ATTORNEY-IN-FACT FOR EACH OF BORROWER AND ACC, WITH FULL
AUTHORITY IN THE PLACE AND STEAD OF BORROWER AND ACC AND IN THE NAME OF BORROWER
AND ACC 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 OR ACC 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 OR ACC 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,

 

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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
PERSONAL DELIVERY AT THE RESPECTIVE ADDRESSES OF THE PARTIES AS SET FORTH IN THE
STOCK PURCHASE AGREEMENT OR ON THE REGISTER MAINTAINED BY THE COMPANY.  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, ACC,
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.

 

14.3                           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, ACC 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, ACC AND
BORROWER AND THEIR RESPECTIVE SUCCESSORS, ASSIGNS, HEIRS, BENEFICIARIES AND
LEGAL REPRESENTATIVES; PROVIDED, HOWEVER, THAT BORROWER AND ACC MAY NOT 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, 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 AND ACC 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.

 

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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.  BORROWER SHALL 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 BORROWER 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 OR THE OBLIGATIONS OR
ANY BANKRUPTCY OR SIMILAR PROCEEDING INVOLVING BORROWER).

 

14.8                           GOVERNING LAW.  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).

 

14.9                           JURY TRIAL.  BORROWER, ACC, 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.]

 

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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:

/s/ Carmine T. Oliva

 

Name: 

Carmine T. Oliva

 

Its:

Chief Executive Officer

 

 

 

 

 

ADVANCED CONTROL COMPONENTS, INC.,
a New Jersey corporation

 

 

 

By:

/s/ Charles S. Brand

 

Name: 

Charles S. Brand

 

Its:

President

 

 

 

 

 

/s/ Charles S. Brand

 

Charles S. Brand, as Collateral Agent

 

 

 

See Schedule of Lenders on Exhibit A for signatures of Lenders.

 

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EXHIBIT A

 

Schedule of Lenders

 

Lender’s Name and Address

 

Principal
Amount
of Note

 

Lender’s Signature

 

 

 

 

 

 

 

 

 

 

Charles S. Brand

 

Up to $1,584,000

 

/s/ Charles S. Brand

 

 

 

 

Charles S. Brand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thomas P. M. Couse

 

Up to $198,000

 

/s/ Thomas P.M. Couse

 

 

 

 

Thomas P.M. Couse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joanne Couse

 

Up to $198,000

 

/s/ Joanne Couse

 

 

 

 

Joanne Couse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Gaffney

 

Up to $20,000

 

/s/ Michael Gaffney

 

 

 

 

Michael Gaffney

 

 

 

 

 

 

A-1

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