Exhibit 10.5

 

EXECUTION COPY

 

THIS CONTINUING GUARANTY IS SUBJECT TO A SUBORDINATION
AGREEMENT OF EVEN DATE (THE “SUBORDINATION AGREEMENT”)

BETWEEN COLLATERAL AGENT AND THE HOLDER OF SENIOR INDEBTEDNESS

 

CONTINUING GUARANTY

 

THIS CONTINUING GUARANTY (the “Guaranty”) is made as of August 20, 2008 and is
executed by EMRISE Corporation, a Delaware corporation (“Guarantor”), in favor
of Thomas P. M. Couse, Joanne Couse, Michael Gaffney and Charles Brand (each, a
“Lender” and collectively, the “Lenders”).

 

R E C I T A L S

 

A.            EMRISE Electronics Corporation, a New Jersey 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 (the “Company”), owned by Thomas P. M. Couse, Joanne
Couse and Michael Gaffney, and (ii) Custom Components, Inc., a New Jersey
corporation, owned by Charles S. Brand.  Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to them in the Stock
Purchase Agreement.

 

B.            Pursuant to the terms of the Stock Purchase Agreement, upon the
happening of certain events Borrower is obligated to deliver certain Deferred
Purchase Price Payments to Lenders.

 

C.            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 Lenders to satisfy a portion of the aggregate
consideration to be paid by Borrower for the purchase of the Shares.

 

D.            Lenders require as a condition to the Stock Purchase Agreement,
the Subordinated Contingent Notes and the other Related Agreements, that a
guaranty in the form of this Guaranty be executed and delivered by Guarantor.

 

NOW, THEREFORE, for and in consideration of the recitals contained herein and to
induce Lenders to accept the terms of the Stock Purchase Agreement, the
Subordinated Contingent Notes and the other Related Agreements and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is agreed as follows:

 

1.             Guarantor hereby unconditionally, irrevocably and absolutely
guarantees to and for the benefit of Lenders or order, the full, prompt,
unconditional and faithful payment, when and as the same shall become due,
whether at the stated maturity date, by acceleration or otherwise and the full,
prompt, unconditional and faithful performance of all of Borrower’s and

 

--------------------------------------------------------------------------------

 

the Company’s present and future indebtedness and obligations, direct or
indirect, to Lenders and each and every term, condition and covenant arising
under or with respect to:  (i) the Stock Purchase Agreement, including, without
limitation, the Deferred Purchase Price Payments; (ii) the Subordinated
Contingent Notes and all extensions, renewals, replacements, substitutions,
amendments and modifications thereof, (iii) the Security Agreement of even date
herewith executed by Borrower and the Company in favor of Lenders; (iv) the
other Related Agreements, and (v) any other document or instrument contemplated
by or securing any obligation whatsoever of Borrower or the Company to any of
the Lenders (collectively, the “Obligations”).

 

2.             This Guaranty is a primary obligation of the Guarantor and shall
be a continuing, unconditional, inexhaustible Guaranty.  This Guaranty is, and
is intended to be, a guaranty of the Obligations, in addition to any other
guaranty, endorsement or collateral held by Lenders therefor, whether or not
furnished by Guarantor.  Guarantor shall have no right of subrogation with
respect to any payments made by Guarantor hereunder until all of the Obligations
are paid or performed in full.

 

3.             No delay or omission by Lenders in exercising any right or remedy
hereunder shall operate as a waiver thereof or of any other right or remedy, and
no single or partial exercise thereof shall preclude any other or further
exercise thereof or the exercise of any other right or remedy.  All rights and
remedies of Lenders hereunder are cumulative.  Guarantor waives the right to
marshalling of the Borrower’s or Company’s assets or any stay of execution and
the benefit of all exemption laws, to the extent permitted by law, and any other
protection granted by law to the Guarantor now or hereafter in effect with
respect to any action or proceeding brought against it.  No invalidity,
illegality or unenforceability of the Obligations shall release, diminish, or
extinguish the liability of Guarantor hereunder.  This Guaranty shall remain in
full force and effect until the date on which all Obligations shall be paid in
full.

 

4.             Guarantor agrees that in the event all or any part of the
liability of Borrower or the Company in respect of the Obligations hereafter
ceases as a result of a non-judicial foreclosure by Lenders of any or all of any
collateral delivered to secure the Obligations, Guarantor nevertheless expressly
assumes liability for the Obligations, notwithstanding that the effect of any
applicable statutes or other governing law, may limit or prohibit Guarantor’s
right to proceed or pursue any remedies against Borrower or the Company, and
notwithstanding that Guarantor may not be permitted to subrogate to Lenders’
position.  Guarantor hereby waives any defense to the obligations and
liabilities of Guarantor hereunder and any and all rights with respect thereto
that Guarantor may otherwise have under the provisions of applicable statutes or
other governing law as a result of Lenders’ election of any remedy which impairs
or alters the rights of Guarantor against Borrower or the Company or any
collateral held by Lenders, and Guarantor expressly acknowledges and agrees that
Lenders may, in their sole discretion, elect to foreclose upon any collateral
Lenders hold by non-judicial foreclosure rather than by judicial foreclosure
without impairing or affecting in any way whatsoever Lenders’ rights under this
Guaranty, including the right to proceed against Guarantor for any deficiency
following a non-judicial foreclosure sale.  Guarantor understands and agrees
that upon any foreclosure or assignment in lieu of foreclosure of any security
held by Lenders:  (i) such security will no longer exist and that any right that
Guarantor might otherwise have, upon full payment and performance of the
Obligations to Lenders by Guarantor, to participate in any such security or to
be subrogated to any rights of Lenders with respect to any such security, will
be nonexistent; and (ii) Guarantor shall be

 

2

--------------------------------------------------------------------------------

 

deemed to have waived any right, title, interest or claim under any
circumstances in or to any real or personal property held by Lenders or any
third party following any foreclosure or assignment in lieu of foreclosure of
any such security.

 

5.             Guarantor waives any right to require Lenders to:  (i) proceed
against Borrower or the Company; (ii) proceed against or exhaust any security
held from Borrower or the Company; or (iii) pursue any other remedy Lenders may
have whatsoever.  Until all Obligations of Borrower and the Company to Lenders
shall have been paid or performed in full, Guarantor shall have no right of
subrogation, and waives any right to enforce any remedy which Lenders now has or
may hereinafter have against Borrower or the Company, and waives any benefit of
and any right to participate in any security now or hereinafter held by Lender. 
Guarantor waives all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor and notices
of acceptance of this Guaranty and of the existence, creation or incurring of
new or additional Obligations.  Guarantor’s obligations and liabilities
hereunder shall be separate and distinct from those of Borrower and the
Company.  If Borrower or the Company defaults under any of the Obligations,
Lenders, at their option, may proceed directly against Guarantor, without having
commenced any action or obtained any judgment against Borrower or the Company or
any other guarantor, and without applying any property of Borrower or the
Company (or any other person) held as security for the payment and performance
of the Obligations.  The liability of Guarantor hereunder shall not be released,
diminished, or extinguished by Lenders’ failure or delay in enforcing any of
their rights.

 

6.             Any indebtedness of Borrower now or hereafter held by Guarantor
is hereby subordinated to the Obligations; and such indebtedness of Borrower to
Guarantor if Lenders so request, shall be collected, enforced and received by
Guarantor as trustee for Lenders, and be paid over to Lenders on account of the
Obligations but without reducing or affecting in any manner, the liability of
Guarantor under any other provision of this Guaranty.

 

7.             Guarantor further agrees to pay, as the principal obligor and not
as a guarantor only, all reasonable costs and expenses, including, without
limitation, reasonable attorneys’ fees, at any time paid or incurred by Lenders
in endeavoring to enforce this Guaranty.

 

8.             This Guaranty is absolute and unconditional and shall not be
affected by any act or thing whatsoever, except as herein provided.  This
Guaranty is not an accommodation, but rather a material consideration bargained
for by Lenders in agreeing to accept the terms of the Stock Purchase Agreement,
the Subordinated Contingent Notes, and the other Related Agreements.  No
modification or amendment of any provision of this Guaranty shall be effective
unless in writing and signed by Lenders.

 

9.             This Guaranty and the transactions evidenced hereby shall be
construed and interpreted under the laws of the State of New Jersey, without
regard to conflicts of laws principles.  Guarantor irrevocably submits to the
exclusive jurisdiction of any New Jersey State court sitting in Monmouth County,
New Jersey or the United States Federal Court for the District of New Jersey
over any action or proceeding arising out of or relating to this Guaranty, and
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New Jersey State or Federal court.  Guarantor
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by

 

3

--------------------------------------------------------------------------------

 

suit on the judgment or in any other manner provided by law.  Guarantor waives
any objection to venue in the State of New Jersey and any objection to an action
or proceeding in the State of New Jersey on the basis of forum non conveniens.

 

10.           Nothing herein shall be construed to constitute Guarantor as a
maker, co-maker or principal debtor.

 

11.           If any provision of this Guaranty or portion of such provision, or
the application thereof to any person or circumstance, shall, to any extent, be
held invalid or unenforceable, the remainder of this Guaranty or the remainder
of such provision and the application thereof to other persons or circumstances,
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Guaranty shall be valid
and be enforced to the fullest extent permitted by the law.  Unless the context
otherwise requires, the masculine, feminine and neuter genders and the singular
and the plural shall each be deemed to include one another, as appropriate.

 

12.           Lenders may, upon written notice to Guarantor, assign this
Guaranty in whole or in part.

 

[Signature Page Follows]

 

4

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, Guarantor has caused this Continuing Guaranty to be executed
as of the date first set forth above.

 

 

EMRISE CORPORATION,

 

a Delaware corporation

 

 

 

By: 

/s/ Carmine T. Oliva

 

Name: Carmine T. Oliva

 

Its: Chief Executive Officer

 

--------------------------------------------------------------------------------