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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