Exhibit 10.85






 


ALL
ASSETS DEBENTURE


 


GIVEN
BY


 


PASCALL
ELECTRONICS LIMITED


 


IN
FAVOUR OF


THE
COLLATERAL AGENT


 


 


 




    	 



    	 



    

 


THIS
DEBENTURE is made on 31s’ August 2010


 


(1)PASCALL
ELECTRONICS LIMITED (Company Number 01316674) whose registered office is at Brunswick Road, Cobbs Wood, Ashford, Kent, TN23 1EB;
(“the Chargor”); and


 


(3)CHARLES
S. BRAND of Boundary Road, Colts Neck, New Jersey 07722 (“Collateral Agent”).


 


WHEREAS


 


A)Emrise
Electronics 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
(“ACC”) owned by Custom Components, Inc., 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 owned all
of the capital stock of ACC.


 


B)Pursuant
to the terms of the Stock Purchase Agreement, on 20 August 2008 Borrower issued certain subordinated secured contingent promissory
notes (to the Lenders (together, as amended, the “Subordinated Contingent Notes”) to satisfy a portion of the aggregate
consideration to be paid by Borrower for the purchase of the Shares. The Subordinated Contingent Notes were amended in November
2009 to add additional payment amounts, and to modify the payment date and terms.


 


C)Capitalised
terms used but not otherwise defined herein shall have the meanings ascribed to them in the Subordinated Contingent Notes.


 


D)Emrise
Corporation, a Delaware corporation (“Parent”), the ultimate parent of Borower, delivered a Continuing Guaranty dated
August 20, 2008 (the “Guaranty”) in favour of the Lenders pursuant to which the obligations of Borrower to the Lenders
under the Subordinated Contingent Notes were guaranteed by Parent.


 


E)On
June 7, 2010, Borrower entered into an agreement to sell its direct and indirect interests in the Shares (the “Sale Transaction”).
In connection with the Sale Transaction, the Borrower, Parent and the Lenders entered into a Master Agreement, pursuant to which
the Lenders agreed to release their lien on all of the assets or property of ACC (the “Original Collateral”) and to
amend the Subordinated Contingent Notes.


 


F)In
consideration of the Lenders agreeing to release the Original Collateral, Parent, Borrower and the Borrower’s subsidiaries
including the Chargor have entered into an Amended and Restated Security Agreement of even date set out in Schedule 1 (“Amended
Security Agreement”) under which they have granted to the Collateral Agent, for the benefit of himself and the Lenders,
a security interest in the collateral (“New Collateral”) described in the Amended Security Agreement as substitute
collateral for the Original Collateral.


 


G)The
Chargor grants this Debenture to the Collateral Agent pursuant to the Charger’s Obligations (as defined in the Amended Security
Agreement) (herein, the “Secured Liabilities”).


 




    	 



    	 



    

 


NOW
IT IS AGREED AS FOLLOWS:


 


	1.	COVENANT
                                         TO PAY



 


	1.1	The
                                         Chargor agrees with Collateral Agent that it will pay and/or discharge the Secured Liabilities
                                         when the same are due and payable by it.



 


	2.	CHARGING
                                         PROVISIONS



 


	2.1	As
                                         continuing security for the payment and/or discharge of the Secured Liabilities, the
                                         Chargor with full title guarantee charges to Collateral Agent:



 


	 	2.1.1	by
                                         way of legal mortgage, the property (if any) described in Schedule 2



 


		2.1.2	by
                                         way of fixed charge any freehold or leasehold property (excluding any property
                                         charged by clause 2.1.1) now and in the future owned by the Chargor or in which the Chargor
                                         may have an interest;



 


		2.1.3	by
                                         way of fixed charge, all buildings, fixtures and fittings (including trade fixtures
                                         and fittings) from time to time in, on or attached to any of the Charger’s freehold
                                         or leasehold property;



 


		2.1.4	by
                                         way of fixed charge all the Chargor’s plant and machinery and other equipment
                                         listed in Schedule 3 and all spare parts, replacements, modifications and additions for
                                         or to such Equipment and the benefit of all manuals, instructions, warranties and maintenance
                                         agreements relating to such Equipment;



 


		2.1.5	by
                                         way of fixed charge, any other plant, machinery, vehicles, computer equipment,
                                         furniture, tools and other equipment not disposed of in the ordinary course of the Chargor’s
                                         business not listed in Schedule 3 and all spare parts, replacements, modifications and
                                         additions for or to such Equipment and the benefit of all manuals, instructions, warranties
                                         and maintenance agreements relating to such Equipment;



 


	 	2.1.6	by
                                         way of fixed charge, all Book Debts;



 


		2.1.7	by
                                         way of fixed charge, all monies from time to time standing to the credit of the
                                         Chargor’s accounts with any bank, financial institution or other person;



 


		2.1.8	by
                                         way of fixed charge, all the Chargor’s goodwill and uncalled capital present
                                         and future;



 


		2.1.9	by
                                         way of fixed charge, all the Chargor’s Intellectual Property from time to
                                         time not disposed of in the ordinary course of the Chargor’s business;



 


		2.1.10	by
                                         way of fixed charge, all Securities from time to time owned by the Chargor or
                                         in which it has an interest;



 


		2.1.11	by
                                         way of fixed charge, all loan capital, indebtedness or liabilities on any account
                                         or in any manner owing to the Chargor from any Subsidiary of the Chargor or a member
                                         of the Chargor’s group;



 


		2.1.12	by
                                         way of fixed charge, all the Chargor’s rights and claims (including to the
                                         return of premiums) under all insurance policies in which the Chargor has an interest
                                         from time to time;



 




    	 



    	 



    

 


	 	2.1.13	by
                                         way of floating charge, all the Charger’s property, assets and rights from
                                         time to time not subject to a fixed charge under this Debenture (including any property
                                         or assets situated in Scotland).



 


	2.2	The
                                         floating charge created by clause 2.1.13 is a qualifying floating charge in accordance
                                         with paragraph 14 of Schedule B1 Insolvency Act.



 


	2.3	The
                                         floating charge created by this Debenture will automatically without notice be converted
                                         into a fixed charge over those assets concerned:



  


		2.3.1	if,
                                         without Collateral Agent’s prior written consent, the Chargor creates or attempts
                                         to create any Security Interest (other than a Permitted Security Interest) over all or
                                         any of its assets charged by way of floating charge; or



 


		2.3.2	if
                                         any person levies or attempts to levy any distress, execution or other process against
                                         such assets; or



 


		2.3.3	if
                                         any person presents a petition to wind up the Chargor or applies for an administration
                                         order;



 


	 	2.3.4	upon
                                         the enforcement of this Debenture;



 


	 	2.3.5	immediately
                                         upon the occurrence or the deemed occurrence of a Default.



 


	2.4	Collateral
                                         Agent may by notice to the Chargor at any time convert the floating charge created by
                                         clause 2.1.13 into a fixed charge as regards any of the assets specified in the notice.



 


	3.	RESTRICTIONS



 


	3.1	The
                                         Chargor agrees with Collateral Agent that it will not, without Collateral Agent’s
                                         prior written consent:



 


		3.1.1	create
                                         or permit to subsist, in favour of any person other than Collateral Agent, any Security
                                         Interest on the Charged Assets, except for any Permitted Security Interest;



 


		3.3.1	Dispose
                                         or agree to Dispose of any Charged Assets charged by way of fixed charge;



 


		3.1.1	Dispose
                                         of any Charged Assets charged by way of floating charge other than for market value in
                                         the ordinary course of business.



 


	4.	COLLATERAL
                                         AGENT



 


	4.1	The
                                         Lenders have appointed Charles S. Brand as Collateral Agent for the Lenders.



 


	4.2	The
                                         Collateral Agent is authorized by the Lenders to take such action and to exercise such
                                         powers hereunder as provided herein for and on behalf of the Lenders.



 


	4.3	In
                                         the event of the death or resignation of the Collateral Agent during the term of this
                                         Debenture the Lenders shall appoint a successor collateral agent to act under this Debenture
                                         where upon the rights of the Collateral Agent under this Debenture shall be assigned
                                         to such new collateral agent. 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, then Collateral Agent shall be deemed to be Thomas P. M. Couse. Upon the acceptance
                                         of any appointment as successor collateral agent hereunder by a successor collatera!
                                         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 Chargor and the Collateral Agent shall do such things and execute and register
                                         such documents as may be necessary to give effect to such transfer.



 




    	 



    	 



    

  


	5.	SECURITY
                                         INTERESTS



 


	5.1	The
                                         security interests granted pursuant to this Debenture are granted pursuant to the Amended
                                         Security Agreement. Any rights and remedies set forth herein are without prejudice to,
                                         and in addition to, those set forth in the Amended Security Agreement.



 


	6.	GENERAL
                                         COVENANTS



 


	6.1	The
                                         Chargor agrees with Collateral Agent that it will:



 


CONDUCT
OF BUSINESS


 


		6.1.1	immediately
                                         it becomes aware thereof, provide Collateral Agent with details of any litigation, arbitration
                                         or administrative proceedings in progress, pending or, to the knowledge of the Chargor,
                                         threatened against it, which might have a material adverse effect on the Charged Assets
                                         or the Charger’s ability to perform its obligations under this Debenture;



 


		6.1.2	conduct
                                         its business so that its centre of main interest is located at all times in England and
                                         Wales and not move its centre of main interest to another jurisdiction without Collateral
                                         Agent’s prior written consent.



 


		6.1.3	punctually
                                         pay those debts and liabilities which would, on the winding up of the Chargor, have priority
                                         over the Security Interests created by this Debenture;



 


		6.1.4	inform
                                         Collateral Agent if it acquires any Property, a subsidiary or any other material asset;



 


		6.1.5	except
                                         pursuant to any Permitted Security Interest, not permit any person to become entitled
                                         to any proprietary -right or interest which might affect the value of the assets subject
                                         to the fixed charges or floating charges created by this Debenture;



 


INSURANCE


 


		6.1.6	keep
                                         those Charged Assets that are of an insurable nature comprehensively insured against
                                         loss (including loss of rent and profits) or damage by fire and other risks usually insured
                                         against by prudent businesses or that Collateral Agent reasonably requires to their full
                                         replacement: or reinstatement value with insurers approved by Collateral Agent;



 


	 	6.1.7	procure
                                         that Collateral Agent’s interest is noted on such insurance policies and produce
                                         to Collateral Agent the receipts (or other evidence) for each current premium on its
                                         request; failing such production Collateral Agent may assume that such insurance has
                                         lapsed and exercise its rights under clause 5.3;



 




    	 



    	 



    

 


	 	6.1.8	maintain
                                         third party and public liability insurance;



 


REAL
PROPERTY


 


	 	6.1.9	keep
                                         all Property in good and substantial repair;



 


	 	6.1.10	comply
                                         in all material respects with all statutory and regulatory obligations relating to the
                                         Property;



 


	 	6.1.11	punctually
                                         pay all rent, rates, taxes, charges and any other outgoings payable in respect of the
                                         Property and promptly produce the receipts for them to Collateral Agent upon his request;



 


	 	6.1.12	in
                                         relation to any Property, not, without Collateral Agent’s prior written consent
                                         (such consent not to be unreasonably withheld or delayed):



 


	 	6.1.12.1	part
                                         with or share possession or occupation:



 


	 	6.1.12.2	grant
                                         any license or permission to any tenant, licensee or other occupier to assign, underlet,
                                         part with possession or occupation;



 


	 	6.1.12.3	forfeit,
                                         determine, accept or agree to accept the surrender of any lease granted to it;



 


	 	6.1.12.4	surrender
                                         (or agree to surrender), any leasehold interest held by it or allow such interest to
                                         be forfeited;



 


	 	6.1.12.5	create
                                         or permit to arise any interest having overriding effect;



 


	 	6.1.12.6	permit
                                         any person to become entitled to any right, easement. covenant or other matter which
                                         might adversely affect the use, value or marketability of the Property;



 


EQUIPMENT


 


	 	6.1.13	maintain
                                         the Equipment in good and substantial repair and serviceable condition and (where applicable)
                                         ensure that is it properly and regularly serviced in accordance with any relevant warranties
                                         or manuals;



 


	 	6.1.14	obtain
                                         all necessary certificates, licenses, permits and authorisations from time to time required
                                         for the use and/or operation of the Equipment and no! to do or permit to be done any
                                         act or omission whereby the Equipment or its use would contravene legislation or regulations
                                         for the time being in force;



 


	 	6.1.15	notify
                                         Collateral Agent of any material loss, theft, damage or destruction ol the Equipment;



 


	 	6.1.16	inform
                                         Collateral Agent of any change in the location.



 


	6.2	If
                                         the Chargor fails to comply with any of its obligations under this Debenture (including
                                         failing to insure or repair any Property or Equipment) the Chargor irrevocably authorises
                                         the Collateral Agent (and any agent appointed by him) to make good such failure on its
                                         behalf. All costs and expenses incurred by the Collateral Agent pursuant to this authority
                                         shall be reimbursed by the Chargor to the Collateral Agent on his demand



  



    	 



    	 



    

 


	7.	ACCOUNTS



 


	7.1	The
                                         Chargor shall from time to time supply to the Collateral Agent such accounts or other
                                         information concerning the Charged Assets, liabilities and affairs of the Chargor, its
                                         subsidiary or associated companies as the Collateral Agent may reasonably require and
                                         without prejudice to the generality of the foregoing shall on demand by the Collateral
                                         Agent furnish to the Collateral Agent:



 


		7.1.1	a
                                         copy of audited consolidated and unconsolidated profit and loss accounts and balance
                                         sheets of the Chargor and each of its subsidiaries (if any) in respect of each financial
                                         year of the Chargor and of such subsidiaries together with the directors’ and auditors’
                                         reports thereon, forthwith upon the same becoming available and in any event not later
                                         than the expiration of six months from the end of such financial year; and



 


		7.1.2	a
                                         copy of every document issued by or on behalf of the Chargor or by or on behalf of any
                                         of its subsidiaries to its members or debenture holders concurrently with the issue thereof
                                         to such members or debenture holders as the case may be.



 


	8.	FURTHER
                                         ASSURANCE



 


	8.1	The
                                         Chargor will, subject to the requirements of the holder of any prior Permitted Security
                                         Interest, upon the Collateral Agent’s request and at the Chargor’s own expense,
                                         grant itthe Collateral Agent such further Security Interests in the Charged Assets in
                                         such form and on such terms as Collateral Agent may require and do whatever other acts
                                         or things Collateral Agent may require in relation to the Charged Assets in order to
                                         secure the Secured Liabilities, to perfect or protect the Security Interests created
                                         by this Debenture or to facilitate the realisation of the Charged Assets.



 


	9.	POWER
                                         OF ATTORNEY



 


	9.1	The
                                         Chargor hereby by way of security and in order more fully to secure the performance of
                                         its obligations under this Debenture irrevocably appoints the Collateral Agent and every
                                         Receiver or Administrator appointed under this Debenture acting severally to be its attorney
                                         and on its behalf and in its name or otherwise to execute and do all such assurances,
                                         acts and things which the Chargor is required to do under this Debenture and generally
                                         in its name and on its behalf to exercise all or any of the powers, authorities and discretions
                                         conferred by or pursuant to this Debenture or by statute on the Collateral Agent or any
                                         such Receiver or Administrator and to execute any deed, assurance, agreement, instrument
                                         or act which it or he may deem proper in or for the purpose of exercising any of such
                                         powers, authorities and discretions.



 


	9.2	The
                                         Chargor hereby ratifies and confirms and agrees to ratify and confirm whatever any such
                                         attorney as is mentioned above shall do or purport to do in the exercise or purported
                                         exercise of all or any of the powers, authorities and discretions referred to in clause
                                         8.1.



 


	10.	ENFORCEMENT



 


	10.1	At
                                         any time after a Default Collateral Agent may with or without further notice to the Chargor:



 


	 	10.1.1	appoint
                                         an Administrator of the Chargor in accordance with the Insolvency Act 1986; or



 




    	 



    	 



    

 


		10.1.2	appoint
                                         a Receiver to any of the Charged Assets, provided that they comprise less than the whole
                                         or substantially the whole of the Charger’s assets (within the meaning of section
                                         29 Insolvency Act); or



 


		10.1.3	exercise
                                         in respect of all or any of the Charged Assets all or any of the powers and remedies
                                         given to mortgagees by the LP A, including the power to take possession of, receive the
                                         benefit of, or sell any of the Charged Assets.






 


	10.2	At
                                         any time after a Default, the Collateral Agent may declare by written notice to the Chargor,
                                         the Secured Liabilities (or such of them as the Collateral Agent may specify in the relevant
                                         notice) immediately due and payable or (if the Collateral Agent so specifies) payable
                                         forthwith on demand and the security hereby conferred shall become immediately enforceable
                                         and the Collateral Agent’s statutory and other rights shall be immediately exercisable
                                         upon and at any time after the occurrence of any such event.



 


	10.3	After
                                         this security has become enforceable the Collateral Agent may in his absolute discretion
                                         enforce all or any part of this security in such manner as in his absolute discretion
                                         he shall determine.



 


	10.4	The
                                         Chargor hereby covenants that it will immediately notify the Collateral Agent of the
                                         occurrence of every event which would constitute a Default and of the occurrence of every
                                         event which with the lapse of time will or may constitute a Default.



 


	11.	APPOINTMENT
                                         OF A RECEIVER



 


	11.1	Collateral
                                         Agent may either under hand of any manager or by deed appoint any one or more than one
                                         person to act as Receiver of those Charged Assets specified in the appointment.



 


	11.2	Collateral
                                         Agent may from time to time fix the remuneration of any Receiver on such basis as it
                                         shall determine. This may include a fixed fee or an hourly rate or a commission depending
                                         upon the work and responsibilities assumed by the Receiver and the basis of charging
                                         applied by his firm. Section 109 LPA shall be varied accordingly.



 


	11.3	Collateral
                                         Agent may remove or replace any Receiver appointed by him.



 


	11.4	Collateral
                                         Agent may extend a Receiver’s appointment to include Charged Assets previously
                                         excluded from-his appointment.



 


	11.5	A
                                         Receiver will be the agent of the Chargor and the Chargor will be solely responsible
                                         for his acts, omissions, defaults and remuneration.



 


	1.2.	POWERS
                                         ON ENFORCEMENT



 


	12.1	An
                                         Administrator will- have all the powers given to him under the Insolvency Act.



 


	12.2	A
                                         Receiver may exercise in respect of the Charged Assets to which he is appointed:



 


		12.2.1	the
                                         same powers to do, or to omit to do, in the name of and on behalf of the Chargor, anything
                                         which the Chargor itself could have done or omitted to do with such Charged Assets were
                                         they not the subject of this Debenture and the Chargor were not in insolvency proceedings;



 


		12.2.2	all
                                         or any powers given to receivers by the LPA as if such Receiver had been duly appointed
                                         thereunder but without any of the restrictions imposed upon the exercise of those powers
                                         by the LPA; or



 


		12.2.3	notwithstanding
                                         that he is not an administrative receiver, all or any of the powers specified in Schedule
                                         1 to the Insolvency Act.



 




    	 



    	 



    

 


	12.3	If
                                         more than one person is appointed to act as Receiver, each person may act severally,
                                         independent of any other, except to the extent that Collateral Agent states to the contrary
                                         in the appointment. References in this Debenture to the Receiver are to each and all
                                         of them as appropriate.



 


	12.4	Except
                                         to the extent provided by law, none of the powers described in this Clause 12 will be
                                         affected by an insolvency event in relation to the Chargor.



 


	13.	COLLATERAL
                                         AGENT’S POWERS AND PROTECTIONS



 


	13.1	The
                                         powers and remedies conferred on Collateral Agent as a mortgagee by the LP A shall not
                                         be subject to any of the restrictions imposed by the LP A upon the exercise of those
                                         powers and remedies including those imposed by sections 103 and 109 LPA.



 


	13.2	Collateral
                                         Agent may grant or accept surrenders of leases at a premium or otherwise and grant agreements
                                         or options for the same on such terms as it shall consider expedient and without the
                                         need to observe sections 99 and 100 LPA.



 


	1.3.3	The
                                         restrictions on the right of consolidating mortgages contained in section 93 LPA will
                                         not apply to this Debenture.



 


	13.4	Neither
                                         Collateral Agent nor any Receiver nor any Administrator will be liable to account as
                                         mortgagee in possession of the Charged Assets or be liable for any loss upon realisation
                                         or for any neglect or default of any nature whatsoever for which a mortgagee may be liable.



 


	13.5	Neither
                                         Collateral Agent nor any Receiver is obliged to take any particular action to collect
                                         the Chargor’s Book Debts and neither shall be liable to the Chargor for the manner
                                         in which it collects or fails to collect an Book Debts.



 


	14.	APPLICATION
                                         OF MONIES



 


	14.1	All
                                         money received by Collateral Agent or any Receiver under this Debenture will be applied
                                         in the following order:



 


		14.1.1	first,
                                         in or towards payment of liabilities having priority to the Secured Liabilities;



 


		14.1.2	secondly,
                                         in or towards payment of all costs, charges and expenses incurred in or incidental to
                                         the exercise or performance (or attempted exercise or performance) by Collateral Agent
                                         of any of the powers or authorities conferred by or in any other way connected with this
                                         Debenture;



 


		14.1.3	thirdly,
                                         in or towards payment to the Receiver of his remuneration fixed in accordance with this
                                         Debenture;



 


		14.1.4	fourthly,
                                         in or towards payment to Collateral Agent on behalf of himself and the Lenders of the
                                         Secured Liabilities on a pro rata basis;



 


	 	14.1.5	fifthly,
                                         in payment to the Chargor of any surplus.



 


	14.2	Any
                                         surplus shall not carry interest. The Receiver or Collateral Agent shall pay any surplus
                                         into any of the Chargor’s bank accounts. Collateral Agent shall then have no further
                                         liability for such surplus.



 


	14.3	The
                                         application of money pursuant to clause 14.1 shall fully discharge the Chargor’s
                                         liability to the Lenders in respect of the Secured Liabilities to the extent of the money
                                         so applied and the Collateral Agent shall be solely responsible to ensure that all money
                                         that is received by the Collateral Agent or any Receiver that is applied pursuant to
                                         clause 14.1 is duly paid to the Lenders. The Chargor shall have no further responsibility
                                         to the Lenders in the event that such money is not properly applied by the Collateral
                                         Agent or any Receiver.



 




    	 



    	 



    

 


	14.4	Subject
                                         to the rights of the holder of any prior ranking Permitted Security Interest or any landlord,
                                         any money received by the Chargor under any insurance of the Charged Assets will be treated
                                         as part of the Charged Assets, It will be applied at the discretion of Collateral Agent
                                         either in reducing the Secured Liabilities or towards making good the loss or damage
                                         for which the money became payable. Any money received by the Chargor under any insurance
                                         of the Charged Assets shall be held on trust for Collateral Agent pending such application.



 


	15.	PROTECTION
                                         OF THIRD PARTIES



 


	15.1	Any
                                         person dealing with Collateral Agent or a Receiver may assume, unless he has actual knowledge
                                         to the contrary that:



 


	 	15.1.1	Collateral
                                         Agent or such Receiver has the power to do the tilings which they purport to do; and



 


	 	15.1.2	they
                                         are exercising their powers properly.



 


	15.2	AH
                                         the protections to purchasers by sections 104 and 107 LPA shall apply to any person purchasing
                                         from or dealing with any Receiver or Collateral Agent as if the Secured Liabilities had
                                         become due and the statutory power of sale and appointing a receiver in relation to the
                                         Charged Assets had arisen on the date of this Debenture.



 


	16.	CONTINUING
                                         AND ADDITIONAL SECURITY



 


	16.1	This
                                         Debenture is a continuing security. It secures the ultimate balance of the Secured Liabilities
                                         despite any interim settlement of account until a final discharge of this Debenture is
                                         given by Collateral Agent to the Chargor.



 


	16.2	Collateral
                                         Agent’s rights under this Debenture are in addition to any other rights the Lenders
                                         may have against the Chargor (or any other person in respect of the Secured Liabilities)
                                         under any other document, the general law or otherwise. They will not merge with or limit
                                         those other rights or be limited by mem.



 


	16.3	Neither
                                         Collateral Agent nor the Lenders is obliged to make any claim or demand on the Chargor
                                         or any other person or to enforce any guarantee, mortgage or other security now or in
                                         future held by it before enforcing this Debenture and no action taken or omitted in connection
                                         with any such right or instrument shall discharge, reduce or affect the Chargor’s
                                         liability to the Lenders. Neither Collateral Agent nor the Lenders have to account for
                                         any money or other asset received pursuant to any such right or instrument.



 


	17.	EXPENSES
                                         AND INDEMNITIES



 


	17.1	The
                                         Chargor will on demand pay all professionals’ fees (including VAT) and any other
                                         costs, charges or expenses (on a full indemnity basis) incurred by Collateral Agent and
                                         any Administrator or Receiver in connection with the actual or attempted perfection,
                                         preservation, defence or enforcement of this Debenture or the preservation or disposal
                                         of any Charged Assets or the exercise of any power under this Debenture or any amendment,
                                         waiver, consent or release of this Debenture.



 


	17.2	The
                                         Chargor will on demand indemnify any Administrator and any Receiver and any of its and
                                         their officers and employees and any attorney, agent or other person appointed by Collateral
                                         Agent under this Debenture (each an “Indemnified Party”) in respect of all
                                         costs, losses, actions, claims, expenses, demands or liabilities whether in contract,
                                         tort, or otherwise and whether arising at common law, in equity or by statute which may
                                         be incurred by, or made against any of them at any time relating to or arising directly
                                         or indirectly out of:



 




    	 



    	 



    

 


		17.2.1	anything
                                         done or omitted to be done in the exercise or purported exercise of the powers contained
                                         in this Debenture; or



 


		17.2.2	a
                                         claim of any kind (including one relating to the environment) made or asserted against
                                         any Indemnified Party which would not have arisen if this Debenture had not been executed;



 


		17.2.3	any
                                         breach by the Chargor of any of its obligations under this Debenture; unless, in the
                                         case of 17.2.1 and J 7.2.2 it was caused by the gross negligence or wilful misconduct
                                         of the Indemnified Party.



 


	17.3	Neither
                                         Collateral Agent nor any Receiver nor any officer nor employee of either of them shall
                                         in any way be liable or responsible to the Chargor for any loss or liability of any kind
                                         arising from any act or omission by him or it of any kind (whether as mortgagee in possession
                                         or otherwise) in relation to the Charged Assets, except to the extent caused by his or
                                         its own gross negligence or wilful misconduct.



 


	18.	PAYMENTS



 


		18.1	Collateral
                                         Agent or any Receiver may convert any money received, recovered or realised under this
                                         Debenture (including the proceeds of any previous conversion) into such currency as Collateral
                                         Agent or such Receiver may think fit in order to discharge the Secured Liabilities. Any
                                         such conversion shall be effected at the then prevailing spot selling rate of exchange
                                         of Collateral Agent’s bankers for such other currency against the existing currency.



 


		18.22	If
                                         the amount of the currency so converted is less than the amount of the Secured Liability
                                         concerned, the Chargor will indemnify Collateral Agent in respect of that shortfall.



 


		18.3	Any
                                         certificate signed by Collateral Agent as to any amount payable under this Debenture
                                         at the date of such certificate shall, in the absence of manifest error, be conclusive
                                         evidence of such amount and be binding on the Chargor.



 


		184	All
                                         amounts payable by the Chargor under this Debenture will be paid in full without set
                                         off or other deduction.



 


		18.5	Collateral
                                         Agent may at any time witliout notice set off against any Secured Liabilities any amount
                                         owed by it to the Chargor. Collateral Agent may effect such set off by transferring all
                                         or any part of any balance standing to the credit of any of the Ghargor’s accounts
                                         with it to any other account or by combining or consolidating such accounts.



 


	19.	DISCHARGE



 


		19.1	Upon
                                         the Secured Liabilities being irrevocably and unconditionally paid or discharged in full,
                                         Collateral Agent will, at the request of the Chargor, release this Debenture. Collateral
                                         Agent will also transfer to the Chargor any Charged Assets which have been assigned or
                                         transferred to Collateral Agent.



 


		19.2	If
                                         any payment by the Chargor or any other person or any release given by Collateral Agent
                                         is avoided or adjusted pursuant to the Insolvency Act:



 


	 	19.2.1	the
                                         Chargor’s liability for the Secured Liabilities will continue as if the payment,
                                         release, avoidance or adjustment had not occurred; and



 


	 	19.2.2	Collateral
                                         Agent will be entitled to recover the value or amount of that payment or security from
                                         the Chargor as if the payment, release, avoidance or adjustment had not occurred.



 




    	 



    	 



    

  


	20.	TRANSFERS
                                         AND DISCLOSURES



 


		20.1	Collateral
                                         Agent may not novate or assign this Debenture or sub-contract or delegate his obligations
                                         or duties under it save as expressly provided in this Debenture.



 


		20.2	The
                                         Chargor may not assign, transfer, delegate or make any declaration of trust of any of
                                         its rights or obligations under this Debenture.



 


	21.	MISCELLANEOUS



 


		21.1	No
                                         delay or failure by Collateral Agent to exercise any right or remedy under this Debenture
                                         shall impair or operate as a waiver of that right or remedy. Any single, partial or defective
                                         exercise of any such power, right or remedy shall not prevent the further exercise of
                                         that or any other right or remedy.



 


		21.2	Any
                                         waiver, consent or approval given by Collateral Agent of or under this Debenture will
                                         only be effective if given in writing. Such waiver, consent or approval shall then only
                                         apply for the purpose stated and be subject to any written terms and conditions imposed
                                         by Collateral Agent.



 


		21.3	If
                                         at any time any one or more of the provisions of this Debenture is or becomes illegal,
                                         invalid or unenforceable in any respect under the law of any jurisdiction then neither
                                         the legality, validity or enforceability of the remaining provisions of this Debenture
                                         nor the legality, validity or enforceability of such provision under the law of any other
                                         jurisdiction shall be in any way affected or impaired as a result.



 


		21.4	Each
                                         Indemnified Party may enforce the terms of this Debenture in accordance with the Contracts
                                         (Rights of Third Parties) Act 1999. Apart from the Indemnified Parties and the parties
                                         to this Debenture, no other person may enforce its terms.



 


		21.5	Coilateral
                                         Agent may grant releases of or waivers under this Debenture and he and the Chargor may
                                         agree variations to its terms without either notifying the Indemnified Parties or obtaining
                                         their consent.



 


	22.	SERVICE
                                         OF NOTICES AND PROCESS



 


		22.1	Any
                                         notice, request, demand, consent, approval, notification, instruction, proceedings or
                                         other communication from Collateral Agent to the Chargor under this Debenture shall be
                                         in writing and may be sent by post or courier. Any such communication shall be addressed
                                         to the Chargor at its address given in this Debenture, its registered office or the address
                                         last known to Collateral Agent at which it carried on business and shall be treated as
                                         served:



 


	 	22.1.1	if
                                         delivered by courier or personally: at the time of delivery;



 


	 	22.1.2	if
                                         posted: 48 hours after posting or upon receipt (whichever is earlier).



 


		22.2	Any
                                         notice, request or other communication under this Debenture from the Chargor to Collateral
                                         Agent must be in writing and sent by first class post to Collateral Agent’s registered
                                         office or such other address as Collateral Agent advises the Chargor in writing for this
                                         purpose and will be treated as served.



 


	 	22.2.1	if
                                         it is received during business hours on a Working Day; on receipt; or



 


	 	22.2.2	if
                                         it is received outside business hours or on a day which is not a Working Day: on the
                                         first Working Day after receipt.



 




    	 



    	 



    

 


	23.	JURISDICTION



 


	23.1	This
                                         Debenture shall be governed by and construed in accordance with the iaws of England.
                                         The Chargor accepts the non-exclusive jurisdiction of the English Courts in connection
                                         with any matter arising under this Debenture.



 


	24.	DEFINITIONS
                                         AND INTERPRETATION



 


	24.1	Any
                                         word whose meaning is defined in the Receivables Finance Agreement has the same meaning
                                         in this Debenture.



 


	24.2	In
                                         this Debenture the following words have the meanings set out opposite them:



 


	“Administrator”	any
    person appointed under the Insolvency Act 1986 to manage the Charger’s business and assets.
	 	 
	“Book
    Debts”	all
    present and future book and other debts and monetary claims due or owing to the Chargor, and the benefit of all security,
    guarantees and other rights of any nature enjoyed or held by the Chargor in relation to any of them;
	 	 
	“Charged
    Assets”	the
    subject matter of the mortgages and charges created by this Debenture and set out at clause 2.
	 	 
	“Default”	Any
    of the following:
	 	 
	 	(i)
    any event or circumstance which would constitute an “Event of Default” (as defined in any of the Subordinated
    Contingent Notes.) under any such Subordinated Contingent Note;
	 	 
	 	(ii)
    the Chargor requesting the Collateral Agent to appoint an Administrator or Receiver or to take possession;
	 	
	 	(iii)
    the Chargor breaching (or being found to have breached) any of the covenants or warranties given by it to the Collateral Agent
    in this Debenture.
	 	 
	“Dispose”
    or “Disposal”	includes
    sale, transfer, lease, licence, or parting with possession or granting any interest in.
	 	 
	“Equipment”	any
    plant, machinery and/or other equipment charged to Collateral Agent by this Debenture.
	 	 
	“Expenses”	those
    fees, cost, charges and expenses covenanted to be paid by the Chargor in clause 17.1.
	 	 
	“Indemnified
    Events”	those
    matters and events in respect of which the Chargor is liable to indemnify or reimburse Collateral Agent, including those referred
    to in clauses 5.2 and 16.
	 	 
	“Insolvency
    Act”	Insolvency
    Act 1986 and any secondary legislation made under it.


 




    	 



    	 



    

 


	“Intellectual
    Property”	all
    patents (including applications, improvements, prolongations, extensions and right to apply therefor), design rights., trade
    marks and service marks (whether registered or unregistered) and applications for the same, copyright, trade, brand, domain
    and business names, know-how, confidential information, trade secrets, databases and computer software programs and systems
    and all other intellectual or intangible property (including the benefit of any licences or consents relating to any of the
    above) and all fees, royalties or other rights derived therefrom or incidental thereto in any part of the world.
	 	 
	“Lenders”	means
    the persons listed in Schedule 5 (each, a “Lender”)
	 	 
	“LPA”	Law
    of Property Act 1925.
	 	 
	“Permitted
    Security Interest”	any
    Security Interest specified in Schedule 4 and any lien arising by operation of law in the ordinary course of trading over
    property other than land.
	 	 
	“Property”	any
    freehold or leasehold property owned or occupied by the Chargor.
	 	 
	“Receiver”	any
    receiver or receiver and manager who is not an administrative receiver (within the meaning of section 29(2) Insolvency Act)
    appointed under this Debenture.
	 	 
	“Remittances”	cash,
    cheques, bills of exchange, negotiable and non-negotiable instruments, letters of credit, orders, drafts, promissory notes,
    electronic payments and any other instruments, methods or forms of payment or engagement.
	 	 
	“Security
    Interest”	any
    mortgage, charge, pledge, trust, preferential right, assignment by way of security, hypothecation, lien, or any other arrangement
    for the purpose of or having a similar effect to creating security or any title retention rights or any set off rights created
    by agreement.
	 	 
	“Securities”.	all
    stocks, shares, bonds and securities of any kind whatsoever (including warrants and options to acquire or subscribe for any
    of the same) and whether marketable or not, held by the Chargor now or at any time in the future including all allotments,
    rights and benefits at any time accruing, offered or arising in respect of or incidental to the same and all money or property
    accruing or offered at any time by way of dividend, distribution, conversion, redemption, bonus, preference, option, interest
    or otherwise in respect thereof.


 




    	 



    	 



    

  


	21.3	in
                                         this Debenture:



 


		21.3.1	unless
                                         the context requires otherwise, the singular includes the plural and vice versa and any
                                         reference to a gender includes any other gender;



 


		21.3.2	headings
                                         to clauses are for reference only and shall not affect the interpretation of this Debenture;



 


		21.3.3	references
                                         to clauses and to Schedules are to the clauses of and schedules to this Debenture;



 


		21.3.4	references
                                         to a “person”, include individuals, firms, partnerships, corporations, unincorporated
                                         bodies and government entities;



 


		21.3.5	references
                                         to any Act of Parliament include that Act as amended, modified or re-enacted from time
                                         to time and all rules, regulations, orders and subordinate legislation made pursuant
                                         to it; any provision of this Debenture which refers to an Act which is amended, may itself
                                         be amended in such manner as Collateral Agent may determine to preserve the intended
                                         effect of this Debenture;



 


		21.3.6	references
                                         to this “Debenture” or any other document are to this Debenture or that document
                                         as from time to time amended, supplemented, restated, novated or replaced, however fundamentally;



 


		21.3.7	references
                                         to the “Charged Assets” are to the whole or any part of such property or
                                         assets, as the context requires;



 


		21.3.8	whenever
                                         the Chargor is obliged to do something if required or requested by Collateral Agent,
                                         it shall do that thing promptly;



 


		21.3.9	the
                                         meaning of general words introduced by the word “other” or (followed by the
                                         word “including”) shall not be limited by reference to any preceding (or
                                         following) word or enumeration indicating a particular class of acts, matters or things.



 


	21.4	It
                                         is intended that this Debenture takes effect as a deed even though Collateral Agent may
                                         only execute it under hand.



 


	21.5	This
                                         Debenture may be executed in counterparts.



 


	21.6	Any
                                         term or phrase defined in the Companies Act 1985 and 2006 (whether capitalised or not)
                                         bears the same meaning in this Debenture.



 




    	 



    	 



    

  


SCHEDULE
1


Amended
and Restated Security Agreement


 




    	 



    	 



    

 


THIS
SECURITY AGREEMENT IS OR WILL BE SUBJECT TO SUBORDINATION 

AGREEMENTS BETWEEN COLLATERAL AGENT AND THE HOLDERS OF THE


SENIOR
INDEBTEDNESS


 


AMENDED
AND RESTATED SECURITY AGREEMENT


 


THIS
AMENDED AND RESTATED SECURITY AGREEMENT (the “Security Agreement”), is made as of August 31, 2010, by and among
EMRISE Electronics Corporation, a New Jersey corporation (“Borrower”), EMRISE Corporation, a Delaware corporation
(“Parent”), the Subsidiaries (as listed on Exhibit A), 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”).


 


RECITALS


 


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) Advanced Control Components, Inc., a New Jersey corporation (“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 owned 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 (as amended,
are referred to 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. The Subordinated Contingent Notes were amended in November
2009 to add additional payment amounts, and to modify the payment date and terms. The Subordinated Contingent Notes have been
amended by Amendment No. 2 of even date herewith.


 


C.Parent,
the ultimate parent of Borrower, delivered a Continuing Guaranty dated August 20, 2008 (the “Guaranty”) in
favor of the Lenders pursuant to which the obligations of Borrower to the Lenders under the Subordinated Contingent Notes were
guaranteed by Parent.


 


D.The
Lenders subordinated the indebtedness owed to them under the Subordinated Contingent Notes to the holder of the Senior Indebtedness
pursuant to that certain Subordination Agreement between the Collateral Agent and GVEC Resource IV Inc. dated as of August 20,
2008 (the “GVEC Subordination Agreement”).


 


E.On
June 7, 2010, Borrower entered into an agreement to sell its direct and indirect interests in the Shares (the “Sale Transaction”).
In connection with the Sale Transaction, the Borrower, Parent and the Lenders entered into a Master Agreement, pursuant to
which the Lenders agreed to release their lien on all of the assets or property of ACC (the “Original Collateral”).


 




    	 



    	 



    

 


F.The
parties desire to enter into this Amended and Restated Security Agreement to grant the Collateral Agent, for the benefit of himself
and the Lenders, a security interest in the collateral described below as substitute collateral for the Original Collateral.


 


G.To
perfect their grant of a security interest hereunder, each of XCEL Power Systems, Ltd. and Pascall Electronies Limited will enter
into an AH Assets Debenture dated as of the date hereof in favor of the Collateral Agent (each, a “UK Debenture”).


 


H.The
Collateral Agent will enter into that certain Deed of Priorities dated as of the date hereof between Lloyds TSB Commercial Finance
Limited, GVEC Resource IV, Inc., Collateral Agent and XCEL Power Systems, Ltd. (the “XCEL Deed”) and that certain
Deed of Priorities dated as of the date hereof between Lloyds TSB Commercial Finance Limited, GVEC Resource IV, Inc., Collateral
Agent and Pascall Electronics Limited (the “Pascall Deed” and collectively with the GVEC Subordination Agreement
and the XCEL Deed, the “Subordination Agreements”).


 


I.
The Subordinated Contingent Note held by Michael Gaffney has been paid in full and he is no longer a “Lender” hereunder.


 


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 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.


 


2.1To
secure the Obligations as defined in Section 3 hereof, each of the Subsidiaries hereby grants to Collateral Agent a continuing
security interest and lien in and to all of the assets and properties of the Subsidiaries, 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 the Subsidiaries, 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.


 


2.2Borrower,
Parent and each of the Subsidiaries hereby jointly and severally warrant and represent to and covenant and agree with the Collateral
Agent and the Lenders that the continuing security interest and lien granted pursuant to this Security Agreement is and shall
at ail times be a priority security interest in the assets of each Subsidiary, subordinate only to Senior Indebtedness.


 




    	 



    	 



    

 


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, each
of the Subsidiaries shall have possession of its 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 any of Parent’s place of business
or the place of business of any of the Subsidiaries (or such other places as any of Parent or the Subsidiaries 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 Parent and the Subsidiaries may make sales of inventory items in the ordinary course of business. No Subsidiary
shall 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, each of the Subsidiaries shall execute and deliver
to Collateral Agent (a) the UCC-1 financing statement, or its foreign equivalent, provided by Collateral Agent evidencing the
Collateral Agent’s interest in the Collateral and (b) a UCC-3 financing statement provided by Collateral Agent evidencing
Collateral Agent’s release of its lien on the Original Collateral. Collateral Agent hereby authorizes and directs each of
Borrower and Parent to file or cause to be filed the UCC-3 financing statement.


 


6.Transfer,
Taxes, Liens and Encumbrances. Each of the Subsidiaries represents and warrants that it has title to its respective Collateral
free and clear of any lien, security interest or encumbrance, except for the security interests of the holders of the Senior Indebtedness
and the security interest created by this Security Agreement, and if such Subsidiary is party to a UK Debenture, the applicable
UK Debenture. Title to the Collateral will remain in and continue to be vested in each respective Subsidiary. Each of the Subsidiaries
will defend its 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 Parent and Subsidiaries may make sales of
inventory items in the ordinary course of business. The consent of Collateral Agent required hereby shall not be unreasonably
withheld. As applicable, Parent, Borrower or the Subsidiaries shall pay ail taxes, assessments and other charges made against
the Collateral.


 


7.Risk
of Loss and Inspection of Collateral. As applicable, Parent or the Subsidiaries shall have all risk of loss of the Collateral,
and each Subsidiary will keep its Collateral in good order and repair. Collateral Agent shall 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.
As applicable, Parent or the Subsidiaries 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 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, Parent and each of the Subsidiaries hereby jointly and severally represent and warrant
to Collateral Agent and the Lenders that: (i) each of Borrower, Parent and the Subsidiaries has full power and authority to enter
into this Security Agreement (and, if party to a UK Debenture, such UK Debenture) 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 Security Agreement (and, if party to a UK Debenture, such UK Debenture); (ii) that the Parent owns one hundred percent (100%)
of the issued and outstanding capital stock, directly or indirectly, of the Borrower and each of the Subsidiaries; (Hi) this Agreement
is valid and binding upon and enforceable against Borrower, Parent and Subsidiaries, except as such enforceability may be limited
by applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally
and genera! principles of equity; and (iv) the making and performance of this Security Agreement (and if a party to a UK Debenture,
such UK Debenture) by Borrower, Parent and the Subsidiaries will not conflict with their respective certificates of incorporation,
bylaws, or other organizational documents, 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, Parent or the
Subsidiaries, as applicable, is a party, or by which any of Borrower, Parent or the Subsidiaries is bound.


 


10.Covenants.
Borrower, Parent and each of the Subsidiaries hereby agree as follows:


 


 


10.1(Liens
on Collateral) 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; provided that no additional liens or security interest will be
granted in favor of MeDermott and Yost as defined in the Note;


 


10.2(Further
Assurances) that at any time and from time to time, at Parent’s expense, Parent, Borrower and the Subsidiaries
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(Parent
Financial Statements) from and after the date hereof until the Notes are paid in full, 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 or Form 10-K, as applicable, with the Securities and Exchange Commission, Parent will
provide Collateral Agent with copies of Parent’s quarterly and annual financial statements and any related notes;


 


10.4(Parent,
Borrower and Subsidiary Financial Statements) from and after the date hereof until the Notes are paid in full,
on a quarterly basis within forty-five (45) days after the end of each fiscal quarter, and within sixty (60) days after the end
of each fiscal year, Parent Borrower and each Subsidiary will provide Collateral Agent with copies of separate company quarterly
and annual financial statements and any related notes for each of Parent (only to the extent such separate company financial statements
may no be longer required to be filed with the Securities and Exchange Commission), Borrower and each Subsidiary;


 




    	 



    	 



    

 


10.5(Sale
of Parent, Borrower or Subsidiaries), in the event that Parent, Borrower or any of the Subsidiaries or any assets of the
Subsidiaries (other than assets of the Subsidiaries sold in the ordinary course of business) is proposed to be sold, including
by way of stock sale, merger or otherwise, the Parent shall provide notice to the Collateral Agent of such proposed sale promptly
and to the extent possible at least thirty (30) days prior to the consummation thereof and in no event less than fourteen (14)
days prior to the consummation thereof; and


 


10.6(Senior
Indebtedness), on an aggregate basis, not to incur Senior Indebtedness in an amount outstanding exceeding Fifteen Million
Dollars ($15,000,000) without the prior written approval of the Lenders (which shall not be unreasonably withheld) and, in no
event, in an amount outstanding exceeding Twenty Million Dollars ($20,000,000).


 


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).


 


11.2Rights
Under the UCC. In addition to all other rights granted hereby and by the UK Debentures, and otherwise by law, subject
to the Subordination Agreements, Collateral Agent shall have, with respect to the Collateral, the rights and obligations of a
secured party under the UCC.


 


11.3Notice,
Etc. In any case where notice of sale is required, ten (10) days notice shall be deemed reasonable notice. Subject to
the Subordination Agreements, 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.


 


11.4Other
Remedies. Upon the occurrence and during the continuance of an Event of Default, subject to the Subordination Agreements,
at the request of Collateral Agent, Parent, Borrower and each Subsidiary, as applicable, shall assemble and make available
to Collateral Agent all of the Collateral at a place or places reasonably convenient to each of Borrower, Parent and the Subsididaries,
as applicable, and Collateral Agent; provided, however, that none of Parent, Borrower or any Subsidiary shall be obligated under
this Agreement to ship any Collateral internationally.


 


11.5Application
of Collateral Proceeds. Subject to the Subordination Agreements, 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 outstanding principal amount of such Lender’s Subordinated Contingent Note as set forth on Exhibit A hereto,
and (ii) the denominator of which is the aggregate outstanding principal amount of all Subordinated Contingent Notes issued under
the Stock Purchase Agreement as set forth on Exhibit A hereto. 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 Lenders upon demand by such Lenders.


 


12.
Authorized Action by Collateral Agent.


 


(a)Borrower,
Parent and each of the Subsidiaries each hereby appoint Collateral Agent as attorney-in-fact for each of Borrower, Parent and
each Subsidiary, respectively, with full authority in the place and stead of Borrower, Parent and each Subsidiary, respectively,
and in the name of Borrower, Parent and each Subsidiary, as applicable, 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, Parent
or any Subsidiary 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,
Parent or any Subsidiary for any act or failure to act, except for gross negligence or willful misconduct.


 




    	 



    	 



    

  


13.
Collateral Agent.


 


13.1Appointment.
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.


 


13.2Powers
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, 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.


 


14.1Notices.
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 persona! delivery at the respective addresses of the parties as set forth on Exhibit A hereto or on the register
maintained by the Parent. 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.


 


14.2Nonwaiver.
No failure or delay on Borrower, Parent, a Subsidiary, 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.


 


 




    	 



    	 



    

 





1.4.3
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, Parent, each Subsidiary 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.


 


14.4Assignments.
This Security Agreement shall be binding upon and inure to the benefit of Lenders, Collateral Agent, Parent, Borrower and each
Subsidiary and their respective successors, assigns, heirs, beneficiaries and legal representatives; provided, however,
that none of Borrower, Parent and any Subsidiary may assign their respective rights and duties hereunder without the prior written
consent of Collateral Agent.


 


14.5Cumulative
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, the UK Debentures,
the XCEL Deeed, the Pascal! Deed 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, Parent
and each Subsidiary 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.


 


14.6Partial
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.


 


14.7Expenses.
Parent, Borrower and each Subsidiary, jointly and severally. agree to 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 Parent, Borrower or a Subsidiary 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, the UK Debentures, the XCEL Deeed, the Paseall Deed or the Obligations or any bankruptcy or similar proceeding
involving Parent, Borrower or any Subsidiary).


 


14.8Governing
Law; Jurisdiction. 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). Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this Security Agreement, may be brought against any party to
this Security Agreement in the courts of the State of New Jersey, Monmouth County, or, if it has or can acquire jurisdiction,
the United States


 




    	 



    	 



    

  


District
Court for the District of New Jersey, and each of the parties hereto consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the world.


 


14.9
Jury Trial. BORROWER, PARENT, EACH SUBSIDIARY, 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.]


 




    	 



    	 



    

  


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:	
	 	Name:
    	 
	 	Its:	 
	 	 	 
	 	EMRISE
    CORPORATION,
	 	a
    Delaware corporation
	 	 	 
	 	By:	 
	 	Name:	 
	 	Its:	 
	 	 	 
	 	CXR
    LARUS CORPORATION,
	 	a
    Delaware corporation
	 	 	 
	 	By:	 
	 	Name:	 
	 	Its:	 
	 	 	 
	 	PASCALL
    ELECTRONICS LIMITED,
	 	a
    United Kingdom corporation
	 	 	 
	 	By:	 
	 	Name:
    	 
	 	Its:	 
	 	 	 
	 	XCEL
    POWER SYSTEMS, LTD.,
	 	a
    United Kingdom corporation
	 	 	 
	 	By:	
	 	Name:	 
	 	Its:	 
	 	 	 
	 	Charles
    S. Brand, as Collateral Agent
	 	 	 
	 	See
    Schedule of Lenders on Exhibit A for signatures of Lenders.


 


Amended
and Restated Security Agreement


 




    	 



    	 



    

 


EXHIBIT
A


 


Schedule
of Subsidiaries


 


	 	●	CXR
    Larus Corporation, a Delaware corporation
	 	 	 
	 	●	Pascall
    Electronics Limited, a United Kingdom company
	 	 	 
	 	●	XCEL
    Power Systems, Ltd., a United Kingdom company


 


Schedule
of Lenders


 





	Lender’s
    Name and Address 	 	Principal
    Amount of 
 Note outstanding on 
 August 31, 2010	 	 	Lender’s
    Signature
	 	 	 	 	 	 
	Charles
    S. Brand 
175 Boundary Road	 	 	 	 	 
	Colts
    Neck, NJ 07722 
	 	$	2,211,766.43	 	 	Charles
    S. Brand
	 	 	 	 	 	 	 
	Thomas
    P. M. Couse 	 	 	 	 	 	
	1
    Waltham Way

    Jackson, NJ 08527 
	 	$	332,720.81	 	 	Charles
    S. Brand, as attorney in feet for Thomas P.M. Couse
	 	 	 	 	 	 	 
	Joanne
    Couse 1	 	 	 	 	 	 
	Waltham
    Way 

    Jackson, NJ 08527	 	$	332,720.81	 	 	Charles
    S. Brand, as attorney in fact for Joanne Couse
	 	 	 	 	 	 	 
	Aggregate
    Principal Amount:	 	$	2,877,208.05	 	 	 





 


Amended
and Restated Security Agreement


 




    	 



    	 



    

 


SCHEDULE
2


 


Registered
Land


 


Description


 


All
freehold property known as Cothey Way, Ryde, Isle of Wight, P033 1QT