Exhibit 10.3

 

This SUBORDINATION AGREEMENT, dated as of November 8, 2010, is between GVEC
RESOURCE IV INC. and PRIVATE EQUITY MANAGEMENT GROUP LLC (collectively,
“Creditor”), on the one hand, and BRIDGE BANK, NATIONAL ASSOCIATION, (“Lender”),
on the other hand.

 

R E C I T A L S

 

A.    CXR LARUS CORPORATION (“Borrower”) has requested and/or obtained certain
credit accommodations from Lender which are or may be from time to time secured
by assets and property of Borrower.  EMRISE CORPORATION (“Guarantor”) is
guarantying such credit accommodations.

 

B.    Creditor has extended loans or other credit accommodations to Borrower and
Guarantor, and/or may extend loans or other credit accommodations to Borrower
from time to time.

 

C.    In order to induce Lender to extend credit to Borrower and, at any time or
from time to time, at Lender’s option, to make such further loans, extensions of
credit, or other accommodations to or for the account of Borrower, or to extend
credit upon any instrument or writing in respect of which Borrower may be liable
in any capacity, or to grant such renewals or extension of any such loan,
extension of credit, or other accommodation as Lender may deem advisable,
Creditor is willing to subordinate: (i) all of Borrower’s and Guarantor’s
indebtedness and obligations to Creditor arising under or relating to that
certain Credit Agreement, dated as of November 30, 2007, as amended, or that
certain Term Loan A Note dated August 31, 2010 in the original principal amount
of $1,000,000 (collectively, the “Subordinated Debt”) to all of Borrower’s and
Guarantor’s indebtedness and obligations to Lender under the Business Finance
Agreement (as defined herein) as provided in Section 2.2; and (ii) all of
Creditor’s security interests, if any, in the property of Borrower and Guarantor
securing the Subordinated Debt to all of Lender’s security interests in the
property of Borrower or Guarantor securing the Senior Debt (as defined herein).

 

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

 

1.     Creditor subordinates to Lender any security interest or lien that
Creditor may have in any property of Borrower or Guarantor.  Notwithstanding the
respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Lender, the security interest of Lender in
the accounts, including health care receivables, chattel paper, general
intangibles, inventory, equipment, instruments, including promissory notes,
deposit accounts, investment property, documents, letter of credit rights, any
commercial tort claim of Borrower or Guarantor which is now or hereafter
identified by Borrower or Lender, and other property of the Borrower or
Guarantor (the “Collateral”) shall at all times be prior to the security
interest of Creditor.

 

2.     All Subordinated Debt is subordinated pursuant to the terms of this
Agreement in right of payment to all obligations of Borrower or Guarantor to
Lender under that certain Business Financing Agreement dated as of October 23,
2010 by and among Lender and Borrower (the “Business Finance Agreement”), now
existing or hereafter arising, together with all costs of collecting such
obligations (including attorneys’ fees), including, without limitation, all
interest accruing after the commencement by or against Borrower or

 

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Guarantor of any bankruptcy, reorganization or similar proceeding (the “Senior
Debt”); provided, however, that in no event shall the principal amount of such
Senior Debt exceed $1,000,000.

 

3.     Creditor will not demand or receive from Borrower (and Borrower will not
pay to Creditor) all or any part of the Subordinated Debt, by way of payment,
prepayment, setoff, lawsuit or otherwise, nor will Creditor exercise any remedy
with respect to the Collateral, nor will Creditor accelerate the Subordinated
Debt as against Borrower, or commence, or cause to commence, prosecute or
participate in any administrative, legal or equitable action against Borrower,
until such time as all the Senior Debt is fully paid in cash.  Nothing in the
foregoing paragraph shall prohibit Creditor from (i) demanding or receiving from
Guarantor all or any part of the Subordinated Debt, (ii) accelerating or
otherwise enforcing the Subordinated Debt against Guarantor, otherwise enforcing
any rights and remedies against Guarantor, (iii) converting all or any part of
the Subordinated Debt into equity securities of Borrower or Guarantor, or
(iv) receiving from Borrower payment of reasonable management fees to the extent
permitted under the Business Finance Agreement if no Event of Default exists
thereunder or would arise from any such payment.

 

4.     Creditor shall promptly deliver to Lender in the form received (except
for endorsement or assignment by Creditor where required by Lender) for
application to the Senior Debt any payment, distribution, security or proceeds
received by Creditor with respect to the Subordinated Debt other than in
accordance with this Agreement.

 

5.     In the event of Borrower’s insolvency, reorganization or any case or
proceeding under any bankruptcy or insolvency law or laws relating to the relief
of debtors (a “Proceeding”), these provisions shall remain in full force and
effect, and Lender’s claims against Borrower and the estate of Borrower shall be
paid in full before any payment is made to Creditor (other than distribution of
debt or equity securities issued in a Proceeding in substitution of all or any
portion of the Subordinated Debt, in each case that are subordinated to the
Senior Debt on comparable terms).

 

6.     Until the Senior Debt is fully paid in cash, Creditor irrevocably
appoints Lender as Creditor’s attorney-in-fact, and grants to Lender a power of
attorney with full power of substitution, in the name of Creditor or in the name
of Lender, for the use and benefit of Lender, without notice to Creditor, to
perform at Lender’s option the following acts in any bankruptcy, insolvency or
similar proceeding involving Borrower:  (i) to file the appropriate claim or
claims in respect of the Subordinated Debt on behalf of Creditor if Creditor
does not do so prior to 20 days before the expiration of the time to file claims
in such proceeding and if Lender elects, in its sole discretion, to file such
claim or claims; and (ii) to accept or reject any plan of reorganization or
arrangement on behalf of Creditor and to otherwise vote Creditor’s claims in
respect of any Subordinated Debt in any manner that Lender deems appropriate for
the enforcement of its rights hereunder.

 

7.     Creditor shall immediately affix a legend to the Term Loan A Note and any
other instruments evidencing the Subordinated Debt stating that the instruments
are subject to the terms of this Agreement. No amendment of the documents
evidencing or relating to the Subordinated Debt shall directly or indirectly
modify the provisions of this Agreement in any manner which might terminate or
impair the subordination of the Subordinated Debt or the subordination of the
security interest or lien that Creditor may have in any property of

 

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Borrower or Guarantor. By way of example, such instruments shall not be amended
to (i) increase the rate of interest with respect to the Subordinated Debt, or
(ii) increase the principal amount or shorten the maturity date with respect to
the Subordinated Debt, in each case as applied to Borrower and Guarantor.

 

8.     This Agreement shall remain effective for so long as Borrower or
Guarantor owes any amounts of Senior Debt to Lender.  Lender and Borrower hereby
agree that the maturity date of the Senior Debt and the Business Finance
Agreement shall not be extended to a date later than three months prior to the
maturity date (as of the date hereof) of the Subordinated Debt.  If at any time
after payment in full of the Senior Debt, any payments of the Senior Debt must
be disgorged by Lender for any reason (including, without limitation, the
bankruptcy of Borrower or Guarantor), this Agreement and the relative rights and
priorities set forth herein shall be reinstated as to all such disgorged
payments as though such payments had not been made and Creditor shall
immediately pay over to Lender all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Creditor, Lender
may take such actions with respect to the Senior Debt as Lender, in its sole
discretion, may deem appropriate, including, without limitation, terminating
advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or Guarantor or any other person. No such action or
inaction shall impair or otherwise affect Lender’s rights hereunder. Creditor
waives the benefits, if any, of California Civil Code Sections 2809, 2810, 2819,
2845, 2847, 2848, 2849, 2850, 2899 and 3433.

 

9.     This Agreement shall bind any successors or assignees of Creditor and
shall benefit any successors or assigns of Lender. This Agreement is solely for
the benefit of Creditor and Lender and not for the benefit of Borrower or
Guarantor or any other party.  Creditor further agrees that if Borrower is in
the process of refinancing a portion of the Senior Debt with a new lender, and
if Lender makes a request of Creditor, Creditor shall agree to enter into a new
subordination agreement with the new lender on substantially the terms and
conditions of this Agreement.

 

10.   This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.

 

11.   This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to conflicts of law
principles. Creditor and Lender submit to the exclusive jurisdiction of the
state and federal courts located in Santa Clara County, California. CREDITOR AND
LENDER WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN.  If the jury waiver set forth in this Section is not
enforceable, then any dispute, controversy or claim arising out of or relating
to this Subordination Agreement, or any of the transactions contemplated therein
shall be settled by judicial reference pursuant to Code of Civil Procedure
Section 638 et seq. before a referee sitting without a jury, such referee to be
mutually acceptable to the parties or, if no agreement is reached, by a referee
appointed by the Presiding Judge of the California Superior Court for Santa
Clara County.

 

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This Section shall not restrict a party from exercising remedies under the Code
or from exercising pre-judgment remedies under applicable law.

 

12.   This Agreement represents the entire agreement with respect to the subject
matter hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Lender or
Borrower in entering into this Agreement, and Creditor has kept and will
continue to keep itself fully apprised of the financial and other condition of
Borrower. This Agreement may be amended only by written instrument signed by
Creditor and Lender.

 

13.   In the event of any legal action to enforce the rights of a party under
this Agreement, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys’ fees, incurred in such action.

 

~~Signatures Follow~~

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.

 

CREDITOR:

 

LENDER:

 

 

 

PRIVATE EQUITY MANAGEMENT GROUP LLC

 

BRIDGE BANK, NATIONAL ASSOCIATION

 

 

 

 

 

 

By:

/s/ Jim LeSieur

 

By:

/s/ Larry La Croix

Name:

Jim LeSieur

 

Name:

Larry La Croix

Title:

Chief Operating Officer

 

Title:

Senior Vice President

 

 

 

GVEC RESOURCE IV INC.

 

 

 

 

 

 

 

 

By:

/s/ Robert A. Mosier

 

 

Name:

Robert A. Mosier

 

 

Title:

Authorized Signatory

 

 

 

 

 

Address for Notices to Creditor:

 

Address for Notices to Lender:

 

 

 

Attn: Jim LeSieur

 

Attn: Karla Schrader

One Park Plaza, Suite 390

 

55 Almaden Blvd

Irvine, CA 92614

 

San Jose, CA 95113

Tel:

 

Tel: (408) 556-8633

Fax:

 

Fax: (408) 423-8514

 

 

The undersigned approve of the terms of this Agreement.

 

BORROWER:  CXR LARUS CORPORATION

 

By:

/s/ Larry Taillie

 

 

Name:

Larry Taillie

 

 

Title:

President

 

 

 

 

 

 

GUARANTOR: EMRISE CORPORATION

 

 

 

 

 

 

By:

/s/ Carmine Oliva

 

 

Name:

Carmine Oliva

 

 

Title:

Chief Executive Officer

 

 

 

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