Exhibit 10.2


 


FORBEARANCE AGREEMENT AND AMENDMENT NUMBER 3 TO LOAN DOCUMENTS


 


THIS
FORBEARANCE AGREEMENT AND AMENDMENT NUMBER 3 TO LOAN DOCUMENTS (this
“Third Amendment”), is entered into as of March 20, 2009 (the “Third
Amendment Effective Date”), by and among GVEC
RESOURCE IV INC. (“Agent”), as Agent and as a Lender, EMRISE CORPORATION,  a Delaware
corporation (“Parent”), and Parent’s Subsidiaries that are signatories
hereto (collectively with Parent, “Borrowers”).


 


W I T N E S S E T H


 


WHEREAS,
Borrowers, Agent and the Lenders named therein are parties to that certain
Credit Agreement, dated as of November 30, 2007, as amended by that
certain Amendment Number 1 to Loan Documents, dated August 20, 2008 (the “First
Amendment”), and that certain Amendment Number 2 to Loan Documents, dated February 12,
2009 (the “Second Amendment”) (as further amended, restated,
supplemented, or modified from time to time, the “Credit Agreement”);


 


WHEREAS,
pursuant to Section 5.21 of the Credit Agreement, on or prior to March 20,
2009, Borrowers are obligated to provide evidence to Agent that Borrowers shall
have received no less than $5,000,000 in net proceeds (after the payment of all
underwriting commissions, investment banking fees and other fees and expenses
associated therewith) from either (i) the sale of the Stock or assets of a
significant subsidiary or division of Borrowers or (ii) the sale of
Borrowers’ Stock on terms acceptable to Agent in its reasonable discretion;


 


WHEREAS,
concurrent with the execution of this Third Amendment by the parties hereto,
Parent and EEC are entering into that certain Asset and Stock Purchase
Agreement by and among Electro Switch Corp., ESC Worldwide, Inc., Parent
and EEC (the “Purchase Agreement”), a copy of which is attached hereto
as Exhibit A, pursuant to which
EEC and Parent, as applicable, are selling to (i) to Electro Switch Corp.,
substantially all of the assets of EEC’s Digitran division (collectively, the “Digitran
Assets”) and (ii) to ESC Worldwide, Inc., an affiliate of Electro
Switch Corp., all of the capital equity of XCEL Japan Ltd., a wholly-owned
Subsidiary of EEC (the “XCEL Japan Shares”), (collectively, the “Asset
and Stock Sale”);


 


WHEREAS,
pursuant to Section 2.4(c)(i) of the Credit Agreement, upon any sale
by Borrowers of property or assets, Borrowers are obligated to utilize the net
proceeds from such sale to prepay the outstanding Obligations, and, pursuant to
Section 2.4(d)(i) of the Credit Agreement, such prepayment must be
applied first against the outstanding balance of principal and interest of Term
Loan C and second against the remaining installments of principal of the Term
Loans (other than Term Loan C) in the inverse order of maturity;


 


WHEREAS, in
connection with the Asset and Stock Sale, Agent and Lenders desire that the
Borrowers prepay a portion of the outstanding Obligations in the aggregate
amount of $10,000,000, which amount consists of the net proceeds derived from
the Asset and Stock Sale together with additional proceeds of $750,000
(collectively, the “Sales Proceeds”);


 


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WHEREAS,
Borrowers desire to apply the Sales Proceeds first against the outstanding
balance of principal and interest of Term Loan C and second against the
aggregate principal balance of the Term Loan B;


 


WHEREAS,
pursuant to Section 6.3 of the Credit Agreement, without the prior written
consent of Agent, each Borrower is prohibited from (i) selling or
otherwise disposing of all or a substantial portion of its assets or (ii) suspending
or going out of a substantial portion of its business.


 


WHEREAS,
pursuant to Section 6.4 of the Credit Agreement, without the prior written
consent of the Agent, each Borrower is prohibited from selling or otherwise
disposing of any of the assets of any Borrower or Subsidiary of Borrower;


 


WHEREAS,
pursuant to Section 6.6 of the Credit Agreement, without the prior written
consent of the Agent, each Borrower is prohibited from changing the principal
nature of its business;


 


WHEREAS,
Borrowers have requested that Agent and the Lender Group each (i) consent
to the consummation of the Asset and Stock Sale and the application of the
Sales Proceeds as described above, and (ii) waive the requirements and
prohibitions itemized in the recitals above with respect to the Asset and Stock
Sale and the application of the Sales Proceeds as described above, and Agent
and the Lender Group consent and agree to such request;


 


WHEREAS, as of
the date hereof, certain Events of Default identified on Exhibit B
hereto, have occurred and are continuing (collectively, the “Specified
Defaults”);


 


WHEREAS,
Borrowers have requested that Agent and Lenders waive any claims of breach or
default arising out of or relating to the occurrence of the Specified Defaults
and their continuation through the date hereof.


 


WHEREAS,
Borrowers have requested that during the Forbearance Period (as hereinafter
defined), Agent and Lenders agree to forbear from exercising certain of their
default-related rights and remedies against Borrowers with respect to the
Specified Defaults, notwithstanding the existence or continuation of the
Specified Defaults and subject to the terms and conditions set forth herein;
and


 


WHEREAS,
subject to the terms and conditions set forth herein, the Lenders and Agent
have agreed to (a) waive any claims of breach or default arising out of or
relating to the occurrence of the Specified Defaults and their continuation
through the date hereof, (b) forbear from exercising certain of their
default-related rights and remedies against Borrowers with respect to the
Specified Defaults during the Forbearance Period and (c) amend the Credit
Agreement in certain respects as set forth below.


 


NOW,
THEREFORE, in consideration of the foregoing, the terms, covenants and
conditions contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:


 


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1.                                       DEFINITIONS.  Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Credit
Agreement, as amended hereby.  As used
herein, the following terms shall have the respective meanings set forth below:


 


“Forbearance
Period” shall mean the period beginning on the Third Amendment Effective
Date and ending on the effective date of the Fourth Amendment (as defined
below).


 


2.                                       CONSENT TO ASSET AND STOCK SALE; RELEASE OF LIEN
AND SECURITY INTERESTS.


 


(a)                                  Agent
hereby approves and grants its consent to the approval, authorization,
execution, adoption and implementation of, and the consummation of transactions
contemplated by the Purchase Agreement, and acknowledges that such consent
satisfies the requirements of Sections 6.3, 6.4 and 6.6 of the Credit
Agreement.


 


(b)                                 Pursuant
to Section 14.2 of the Credit Agreement, Agent and the Required Lenders
hereby waive any claims of breach or default arising out of or relating to the
approval, authorization, adoption or implementation of, or the consummation of
transactions contemplated by, the Purchase Agreement under Sections 6.3, 6.4
and 6.6 of the Credit Agreement.  Agent
and the Required Lenders further acknowledge that no acceleration of any
Obligations or termination of any Commitments under the Credit Agreement shall
be triggered by the approval, authorization, adoption or implementation of, or
the consummation of transactions contemplated by, the Purchase Agreement by
Parent or EEC.


 


(c)                                  Agent
hereby (i) releases its Lien and Security Interests (as that term is
defined in the Security Agreement) in and to the Digitran Assets and the XCEL
Japan Shares such that the Digitran Assets and the XCEL Japan Shares may be
transferred to Electro Switch Corp. and ESC Worldwide, Inc., respectively,
in the manner contemplated by the Purchase Agreement, (ii) authorizes
Borrowers, Electro Switch Corp., ESC Worldwide, Inc. and their respective
attorneys to file termination statements and releases, including, without
limitation UCC-3 termination statements in appropriate Uniform Commercial Code
filing jurisdictions and amendments to filings made with the United States
Patent and Trademark Office, to evidence such release of Agent’s Lien and
Security Interests, (iii) delivers to Borrowers an Affidavit of Lost
Certificate and Indemnity with respect to the XCEL Japan Shares held by Agent
pursuant to the terms of the Security Agreement, in form and substance
acceptable to Borrowers, and (iv) terminates the Guaranty dated November 30,
2007 by XCEL Japan Ltd. for the benefit of Agent and the Lenders.


 


(d)                                 Agent
hereby acknowledges that Borrowers have complied with all obligations of
Borrowers under Section 5.21 of the Credit Agreement.


 


3.                                       APPLICATION OF SALES PROCEEDS.


 


(a)                                  Agent
hereby acknowledges that by delivering the Sales Proceeds to Agent, Borrowers
are in full compliance with the requirements of Section 2.4(c)(i) of
the Credit Agreement.


 


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(b)                                 Agent
hereby acknowledges that, notwithstanding the provisions of Section 2.4(d)(i) of
the Credit Agreement, the Sales Proceeds shall be applied first to the
outstanding balance of principal and interest of Term Loan C and second against
the principal balance of Term Loan B.


 


(c)                                  Pursuant
to Section 14.2 of the Credit Agreement, Agent and the Required Lenders
hereby waive any claims of breach or default arising out of or relating to the
application of the Sales Proceeds first to the outstanding balance of principal
and interest of Term Loan C and second against the principal balance of the
Term Loan B under Section 2.4(d)(i) of the Credit Agreement.  Agent and the Required Lenders further
acknowledge that no acceleration of any Obligations or termination of any
Commitments under the Credit Agreement shall be triggered by the approval, authorization,
adoption or implementation of, or the consummation of transactions contemplated
by, the application of the Sales Proceeds as described herein.


 


(d)                                 As
of the Third Amendment Effective Date, Agent hereby acknowledges that the
outstanding principal and all accrued and unpaid interest under the Term Loan C
has been paid in full.  Concurrently
herewith, Agent is returning the original Term Loan C Note to the Parent,
marked “Paid in Full.”  Agent and Lender
hereby irrevocably and permanently waives any rights to receive any further
payments with respect to the Term Loan C Note.


 


4.                                      ADDITIONAL
PROCEEDS FROM ASSET AND STOCK SALE.


 


(a)                                  Borrowers
agree to pay to Agent the amount by which the Closing Net Value (as defined in
the Purchase Agreement) exceeds the Target Net Value (as defined in the
Purchase Agreement), in immediately available funds, within three (3) business
days after the date that Borrowers receive such amount.


 


(b)                                 Borrowers
agree to pay to Agent the entire amount of the Deferred Cash Consideration (as
defined in the Purchase Agreement), if any, in immediately available funds,
within three (3) business days after the date that Borrowers receive the
Deferred Cash Consideration.


 


5.                                       WAIVER OF DEFAULTS AND FORBEARANCE.


 


(a)                                  Pursuant
to Section 14.2 of the Credit Agreement, Agent and Required Lenders hereby
waive any claims of breach or default arising out of or relating to the initial
occurrence of the Specified Defaults and the continuation of such Specified
Defaults through the Third Amendment Effective Date.  Agent and the Required Lenders further
acknowledge that no acceleration of any Obligations or termination of any
Commitments under the Credit Agreement shall be triggered by the initial
occurrence of the Specified Defaults and the continuation of such Specified
Defaults through the Third Amendment Effective Date.


 


(b)                                 Effective
as of the Third Amendment Effective Date, Agent and Lenders agree that until
the expiration of the Forbearance Period, it will forbear from exercising their
respective default-related rights and remedies against Borrowers, including,
but not limited, accelerating the Obligations or terminating any Commitments
under the Credit Agreement, 


 


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solely with respect to the
continuation of the Specified Defaults during the Forbearance Period.


 


(c)                                  Any
agreement to extend the Forbearance Period, if any, must be set forth in
writing and signed by a duly authorized signatory of each of the Agent and
Required Lenders.


 


(d)                                 The
parties hereto agree that the running of all statutes of limitation or doctrine
of laches applicable to all claims or causes of action that Agent or any Lender
may be entitled to take or bring in order to enforce their respective rights
and remedies against any Borrower is, to the fullest extent permitted by law,
tolled and suspended during the Forbearance Period.


 


6.                                       AMENDMENT TO CREDIT AGREEMENT.


 


(a)                                  Section 2.2(d) of
the Credit Agreement is amended and restated as follows:


 


“(d) Subject
to subsection (c) above, the principal of Term Loan A shall be repaid in
installments as follows:


 


(i) commencing
December 1, 2008, and continuing on the first day of each of until March 1,
2009, equal installments of $50,000;


 


(ii) commencing
on September 1, 2009, and continuing on the first day of each of until November 1,
2009, equal installments of $50,000; and


 


(iiii)
commencing on December 1, 2009, and continuing on the first day of each of
the 11 consecutive months thereafter, equal installments of $120,000.”


 


(b)                                 Section 2.2(e) of
the Credit Agreement is amended and restated as follows:


 


“(e) Subject
to subsection (c) above, the principal of Term Loan B shall be repaid in
installments as follows: commencing on September 1, 2009, and continuing
on the first day of each of the 15 consecutive months thereafter, equal
installments of $166,666.67.”


 


(c)                                  All
references to “XCEL Japan Ltd.” contained in the Loan Documents are hereby
deleted from such Loan Documents.


 


7.                                       FOURTH AMENDMENT TO LOAN DOCUMENTS.  On or prior to April 10, 2009, the
parties to the Credit Agreement shall enter into an amendment to the Credit
Agreement to amend the financial covenants set forth in Sections 6.16(a), (b),
and (c) of the Credit Agreement (the “Fourth Amendment”).  The parties to the Credit Agreement agree to
engage in a good faith negotiation of the terms of the Amendment, to ensure,
among other things, that the terms of the financial covenants shall be
commercially reasonable to Lenders.  On
the Third Amendment Effective Date, Borrowers shall pay to the Lenders a fee of
$150,000, in consideration of the Lenders’ actions taken in connection with
this Third Amendment and the Fourth Amendment (the “Forbearance and
Amendment Fee”).  Agent and Lenders
agree that except for the Forbearance Amendment Fee, no fees, including
non-cash or any other form of consideration, will be payable to Agent or
Lenders in connection with this Third Amendment and/or the Fourth Amendment.


 


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8.                                       SATISFACTION OF CERTAIN CONDITIONS PRECEDENT TO
THIS THIRD AMENDMENT.  The
parties hereto acknowledge and agree that each of the following conditions
precedent to the effectiveness of this Third Amendment have been satisfied as
of the date hereof:


 


(a)                                                  Except
as contemplated herein, the representations and warranties in the Credit
Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date hereof (except to the extent that such
representations and warranties relate solely to an earlier date);


 


(b)                                                 Except
for the Specified Defaults, no Default or Event of Default has occurred or is
continuing on the date hereof;


 


(c)                                                  No
injunction, writ, restraining order, or other order of any nature prohibiting,
directly or indirectly, the consummation of the transactions contemplated
herein has been issued and remains in force by any Governmental Authority
against any Borrower, Agent, any Lender or any of their Affiliates;


 


(d)                                                 No
Material Adverse Change has occurred;


 


(e)                                                  Borrowers
have executed and delivered this Third Amendment to Agent on the date hereof;


 


(f)                                    Borrowers
have paid to Agent, in immediately available funds, an amount equal to the
Sales Proceeds;


 


(g)                                 Borrowers
have paid to Agent, in immediately available funds, an amount equal to the
Forbearance and Amendment Fee;


 


(h)                                 With
respect to the Asset and Stock Sale:


 


(i)                                     Agent
and Lenders have entered into the Side Letter Agreement with Parent, EEC and
Electro Switch Corp., in the form attached as Exhibit C
hereto.


 


(ii)                                  Borrowers
have delivered to Agent a true and correct copy of the Purchase Agreement
(including all schedules and Disclosure Schedules thereto), which is in form
and substance reasonably satisfactory to Agent;


 


(iii)                               Borrowers
have delivered to Agent a certification by an officer of ECC that the Asset and
Stock Sale is being consummated concurrent with the effectiveness of this
Agreement pursuant to the terms of the Purchase Agreement;


 


(iv)                              no
Default or Event of Default has occurred that has not been waived by Agent and
Lender pursuant to Section 5 of this Third Amendment and is
continuing or would result after giving effect to the Asset and Stock Sale;


 


(v)                                 the
Asset and Stock Sale has been undertaken in accordance with all applicable
requirements of law; and


 


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(i)                                     Agent
has received such other documents and instruments as Agent in its reasonable
discretion required.


 


9.                                       DISCLOSURE SCHEDULES.  Effective as of the Third Amendment Effective
Date, (i) Schedules 4.5, 4.7(a), 4.7(b), 4.7(c), 4.8(c), 4.15, 4.16, 4.17
and 4.28 to the Credit Agreement are hereby updated by deleting the information
provided on the similarly numbered Schedules attached to this Third Amendment
and (ii) all references to XCEL Japan Ltd. (including all information
provided with respect to XCEL Japan Ltd.) are hereby deleted from the
Disclosure Schedules to the Credit Agreement.


 


10.                                 AMENDMENT TO SECURITY AGREEMENTS.  Effective as of the Third Amendment Effective
Date, (i) XCEL Japan shall not be a Pledged Company, and the reference to
XCEL Japan as a Pledged Company on Schedule 1 to the Security Agreement,
together with any information relating to XCEL Japan on such schedule, shall be
deleted, (ii) all Intellectual Property Collateral listed under the
heading “EMRISE Corporation” on Schedule A to the Patent Security Agreement,
together with any information relating to such Intellectual Property Collateral
on such schedule, shall be deleted, and (iii) all Intellectual Property
Collateral titled “VLP” and all Intellectual Property Collateral listed under
the heading “EMRISE Electronics Corporation” on Schedule A to the Trademark
Security Agreement, together with any information relating to such Intellectual
Property Collateral on such schedule, shall be deleted.


 


11.                                 CONSTRUCTION.  THIS THIRD AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF CALIFORNIA.


 


12.                                 ENTIRE AMENDMENT; EFFECT OF THIRD AMENDMENT.  This Third Amendment, and the terms and
provisions hereof, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes any and all prior or
contemporaneous amendments relating to the subject matter hereof.  Except as expressly set forth in this Third
Amendment, the Credit Agreement and other Loan Documents shall remain unchanged
and in full force and effect.  To the
extent any terms or provisions of this Third Amendment conflict with those of
the Credit Agreement or other Loan Documents, the terms and provisions of this
Third Amendment shall control.  This
Third Amendment is a Loan Document.


 


13.                                 COUNTERPARTS; TELEFACSIMILE EXECUTION.  This Third Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Third
Amendment by signing any such counterpart. 
Delivery of an executed counterpart of this Third Amendment by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Third Amendment.  Any
party delivering an executed counterpart of this Third Amendment by
telefacsimile also shall deliver an original executed counterpart of this Third
Amendment, but the failure to deliver an original executed counterpart shall
not affect the validity, enforceability, and binding effect of this Third
Amendment.


 


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14.                                 MISCELLANEOUS.


 


(a)                                  Upon
the effectiveness of this Third Amendment, each reference in the Credit
Agreement to “this Agreement,” “hereunder,” “herein,” “hereof”
or words of like import referring to the Credit Agreement shall mean and refer
to the Credit Agreement as amended by this Third Amendment.


 


(b)                                 Upon
the effectiveness of this Third Amendment, each reference in the Loan Documents
to the “Credit Agreement,” “thereunder,” “therein,” “thereof”
or words of like import referring to the Credit Agreement shall mean and refer
to the Credit Agreement as amended by this Third Amendment.


 


[signatures on next page]


 


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IN WITNESS
WHEREOF, the parties have caused this Third Amendment to be executed and
delivered on the date first written above.


 


	
  EMRISE
  CORPORATION

  	
   

  	
  EMRISE
  ELECTRONICS CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carmine T. Oliva

  	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CXS
  LARUS CORPORATION

  	
   

  	
  RO
  ASSOCIATES INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carmine T. Oliva

  	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CUSTOM
  COMPONENTS, INC.

  	
   

  	
  ADVANCED
  CONTROL COMPONENTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Carmine T. Oliva

  	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GVEC
  RESOURCE IV INC., as Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Wilbur Quon

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  [Illegible]

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  



 


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