EXHIBIT 10.2


 


SECURITY
AGREEMENT


 


This SECURITY AGREEMENT (this “Agreement”) is
made as of the 30th day of November, 2007, among the Grantors listed
on the signature pages hereof (collectively, jointly and severally, “Grantors”
and each individually “Grantor”), and GVEC RESOURCE IV INC., a company
organized and existing under the laws of the British Virgin Islands, in its
capacity as administrative agent for the Lender Group (together with its
successors, “Agent”).


 


W I T N E S S E T H:


 


WHEREAS, pursuant to that certain Credit Agreement of
even date herewith (as amended, restated, supplemented or otherwise modified
from time to time, including all schedules thereto, the “Credit Agreement”)
among EMRISE Corporation, a Delaware corporation (“Parent”), each of
Parent’s Subsidiaries identified on the signature pages thereto (such
Subsidiaries, together with Parent, are referred to hereinafter individually as
a “Borrower” and collectively, jointly and severally, as the “Borrowers”),
the lenders party thereto as “Lenders” (“Lenders”), and Agent, the
Lender Group is willing to make available to Borrowers a secured credit
facility of up to $23,000,000 from time to time pursuant to the terms and
conditions thereof;


 


WHEREAS, Agent has agreed to act as agent for the benefit
of the Lender Group in connection with the transactions contemplated by this
Agreement; and


 


WHEREAS, in order to induce the Lender Group to enter
into the Credit Agreement and the other Loan Documents and to induce the Lender
Group to make financial accommodations to Borrowers as provided for in the
Credit Agreement, Grantors have agreed to grant a continuing security interest
in and to the Collateral in order to secure the prompt and complete payment,
observance and performance of, among other things, (a) the obligations of
Grantors arising from this Agreement, the Credit Agreement, and the other Loan
Documents and (b) all Obligations of any Borrower (including, without
limitation, any interest, fees or expenses that accrue after the filing of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a
claim in any Insolvency Proceeding), plus reasonable attorneys fees and
expenses if the obligations represented thereunder are collected by law,
through an attorney-at-law, or under advice therefrom (clauses (a) and (b)
being hereinafter referred to as the “Secured Obligations”), by the
granting of the security interests contemplated by this Agreement.


 


NOW, THEREFORE, for and in consideration of the
recitals made above and other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:


 


1.             Defined
Terms. All capitalized terms used herein (including, without limitation, in
the preamble and recitals hereof) without definition shall have the meanings
ascribed thereto in the Credit Agreement. Any terms used in this Agreement that
are defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein or in the Credit Agreement; provided, however,
that to the extent that the Code is used to define any term herein and such
term is defined differently in different Articles of the Code, the definition
of such term contained in Article 9 of the Code shall govern. In addition to
those terms defined elsewhere in 


 


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this Agreement, as used in this Agreement, the
following terms shall have the following meanings:


 


(a)           “Accounts”
means accounts (as that term is defined in the Code).


 


(b)           “Code”
means the California Uniform Commercial Code, as in effect from time to time;
provided, however, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, priority, or remedies with
respect to Agent’s Lien on any Collateral is governed by the Uniform Commercial
Code as enacted and in effect in a jurisdiction other than the State of
California, the term “Code” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority, or remedies.


 


(c)           “Copyrights”
means all right, title and interest in and to copyrights in works of authorship
of any kind, and all registration applications, registrations and recordings
thereof in the Office of the United States Register of Copyrights, Library of
Congress, or in any similar office or agency of any country or political
subdivision thereof throughout the world, whether now owned or hereafter
acquired, including, but not limited to, those described in Schedule A
to the Copyright Security Agreement annexed 
hereto and made a part hereof, together with all extensions, renewals,
reversionary rights, and corrections thereof and all licenses thereof or
pertaining thereto.


 


(d)           “Copyright
Security Agreement” means each Copyright Security Agreement among Grantors,
or any of them, and Agent, for the benefit of the Lender Group, in
substantially the form of Exhibit A attached hereto, pursuant to which
Grantors have granted to Agent, for the benefit of the Lender Group, a security
interest in all their respective Copyrights.


 


(e)           “Deposit
Account” means a deposit account (as that term is defined in the Code).


 


(f)            “Equipment”
means equipment (as that term is defined in the Code).


 


(g)           “General
Intangibles” means general intangibles (as that term is defined in the Code
and, in any event, including, without limitation, payment intangibles, contract
rights, rights to payment, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill (including the goodwill
associated with any Trademark, Patent, or Copyright), Patents, Trademarks,
Copyrights, URLs and domain names, industrial designs, other industrial or intellectual
property or rights therein or applications therefor, whether under license or
otherwise, programs, programming materials, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension funds, route
lists, rights to payment and other rights under any royalty or licensing
agreements, including intellectual property licenses, infringement claims,
computer programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, pension plan refunds, pension plan refund
claims, insurance premium rebates, tax refunds, and tax refund claims,
uncertificated securities, and any other personal property other than
commercial tort claims, money, Accounts, Chattel Paper, Deposit Accounts,
goods, Investment Related Property, Negotiable Collateral, and oil, gas, or
other minerals before extraction).


 


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(h)           “Intellectual
Property Collateral” means the Copyrights, the Patents and the Trademarks.


 


(i)            “Inventory”
means inventory (as that term is defined in the Code).


 


(j)            “Investment
Related Property” means (i) investment property (as that term is defined in
the Code), and (ii) all of the following regardless of whether classified as
investment property under the Code:  all
Pledged Interests, Pledged Operating Agreements, and Pledged Partnership
Agreements.


 


(k)           “Patents”
means all right, title and interest in and to all inventions and letters patent
and registration applications therefor, and all registrations and recordings
thereof, including, without limitation, registration applications,
registrations and recordings in the United States Patent and Trademark Office
or in any similar office or agency of the United States or any state thereof,
or in any similar office or agency of any country or political subdivision
thereof throughout the world, whether now owned or hereafter acquired,
including, but not limited to, those described in Schedule A to the
Patent Security Agreement annexed hereto and made a part hereof, together with
all re-examinations, reissues, continuations, continuations-in-part, divisions,
improvements and extensions thereof and all licenses thereof or pertaining
thereto and all licenses of patent rights now in effect or hereafter entered
into and the rights to make, use and sell, and all other rights with respect
to, the inventions disclosed or claimed therein, all inventions, designs,
proprietary or technical information, know-how, other data or information,
software, databases, all embodiments or fixations thereof and related
documentation, all information having value in connection with the business
relating thereto and all other trade secret rights not described above.


 


(l)            “Patent
Security Agreement” means each Patent Security Agreement among Grantors, or
any of them, and Agent, for the benefit of the Lender Group, in substantially
the form of Exhibit B attached hereto, pursuant to which Grantors have
granted to Agent, for the benefit of the Lender Group, a security interest in
all their respective Patents.


 


(m)          “Pledged
Companies” means, each Person listed on Schedule 1 hereto as a “Pledged
Company”, together with each other Person, all or a portion of whose Stock, is
acquired or otherwise owned by a Grantor after the Closing Date.


 


(n)           “Pledged
Interests” means all of each Grantor’s right, title and interest in and to
all of the Stock now or hereafter owned by such Grantor, regardless of class or
designation, including, without limitation, in each of the Pledged Companies,
and all substitutions therefor and replacements thereof, all proceeds thereof
and all rights relating thereto, including, without limitation, any
certificates representing the Stock, the right to request after the occurrence
and during the continuation of an Event of Default that such Stock be
registered in the name of Agent or any of its nominees, the right to receive
any certificates representing any of the Stock and the right to require that
such certificates be delivered to Agent together with undated powers or
assignments of investment securities with respect thereto, duly endorsed in
blank by such Grantor, all warrants, options, share appreciation rights and
other rights, contractual or otherwise, in respect thereof and of all
dividends, distributions of income, profits, surplus, or other compensation by
way of income or liquidating distributions, in cash or 


 


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in kind, and cash, instruments, and other property
from time to time received, receivable, or otherwise distributed in respect of
or in addition to, in substitution of, on account of, or in exchange for any or
all of the foregoing.


 


(o)           “Pledged
Interests Addendum” means a Pledged Interests Addendum substantially in the
form of Exhibit C to this Agreement.


 


(p)           “Pledged
Operating Agreements” means all of each Grantor’s rights, powers, and
remedies under the limited liability company operating agreements of the
Pledged Companies that are limited liability companies.


 


(q)           “Pledged
Partnership Agreements” means all of each Grantor’s rights, powers, and
remedies under the partnership agreements of each of the Pledged Companies that
are partnerships.


 


(r)            “Records”
means information that is inscribed on a tangible medium or which is stored in
an electronic or other medium and is retrievable in perceivable form.


 


(s)           “Securities
Accounts” means securities accounts (as that term is defined in the Code).


 


(t)            “Stock”
means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).


 


(u)           “Trademarks”
means all right, title and interest in and to trademarks, trade names, trade
styles, service marks, logos, emblems, prints and labels, all elements of
package or trade dress of goods, and all general intangibles of like nature,
now existing or hereafter adopted or acquired, together with the goodwill of
the business connected with the use thereof and symbolized thereby, and all
registration applications, registrations and recordings thereof, including,
without limitation, registration applications, registrations and recordings in
the United States Patent and Trademark Office or in any similar office or
agency of the United States or in any office of the Secretary of State (or
equivalent) of any state thereof, or in any similar office or agency of any
country or political subdivision thereof throughout the world, whether now
owned or hereafter acquired, including, but not limited to, those described in Schedule
A to the Trademark Security Agreement and made a part hereof, together with
all extensions, renewals and corrections thereof and all licenses thereof or
pertaining thereto.


 


(v)           “Trademark
Security Agreement” means each Trademark Security Agreement among Grantors,
or any of them, and Agent, for the benefit of the Lender Group, in
substantially the form of Exhibit D attached hereto, pursuant to which
Grantors have granted to Agent, for the benefit of the Lender Group, a security
interest in all their respective Trademarks.


 


(w)          “URL”
means “uniform recourse locator,” an internet web address.


 


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2.             Grant
of Security. Each Grantor hereby unconditionally grants, assigns and
pledges to Agent, for the benefit of the Lender Group, a continuing security
interest in all personal property of such Grantor whether now owned or
hereafter acquired or arising and wherever located (hereinafter referred to as
the “Security Interest”), including, without limitation, such Grantor’s
right, title, and interest in and to the following, whether now owned or
hereafter acquired or arising and wherever located (the “Collateral”):


 


(a)           all
of such Grantor’s Accounts;


 


(b)           all
of such Grantor’s books and records (including all of its Records indicating,
summarizing, or evidencing its assets (including the Collateral) or liabilities,
all of its Records relating to its business operations or financial condition,
and all of its goods or General Intangibles related to such information) (“Books”);


 


(c)           all
of such Grantor’s chattel paper (as that term is defined in the Code) and, in
any event, including, without limitation, tangible chattel paper and electronic
chattel paper (“Chattel Paper”);


 


(d)           all
of such Grantor’s interest with respect to any Deposit Account;


 


(e)           all
of such Grantor’s Equipment and fixtures;


 


(f)            all
of such Grantor’s General Intangibles;


 


(g)           all
of such Grantor’s Intellectual Property Collateral;


 


(h)           all
of such Grantor’s Inventory;


 


(i)            all
of such Grantor’s Investment Related Property;


 


(j)            all
of such Grantor’s letters of credit, letter of credit rights, instruments,
promissory notes, drafts, and documents (as such terms may be defined in the
Code) (“Negotiable Collateral”);


 


(k)           all
of such Grantor’s rights in respect of supporting obligations (as such term is
defined in the Code), including letters of credit and guaranties issued in
support of Accounts, Chattel Paper, documents, General Intangibles,
instruments, or Investment Related Property (“Supporting Obligations”);


 


(l)            all
of such Grantor’s interest with respect to any commercial tort claims (as that
term is defined in the Code), including, without limitation those commercial
tort claims listed on Schedule 2 attached hereto (“Commercial Tort
Claims”);


 


(m)          all
of such Grantor’s money, Cash Equivalents, or other assets of each such Grantor
that now or hereafter come into the possession, custody, or control of Agent or
any other member of the Lender Group or the Bank Product Provider;


 


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(n)           all
of the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance or commercial tort claims covering
or relating to any or all of the foregoing, and any and all Accounts, Books,
Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory,
Investment Related Property, Negotiable Collateral, Supporting Obligations,
money, or other tangible or intangible property resulting from the sale, lease,
license, exchange, collection, or other disposition of any of the foregoing,
the proceeds of any award in condemnation with respect to any of the property
of Grantors, any rebates or refunds, whether for taxes or otherwise, and all
proceeds of any such proceeds, or any portion thereof or interest therein, and
the proceeds thereof, and all proceeds of any loss of, damage to, or
destruction of the above, whether insured or not insured, and, to the extent
not otherwise included, any indemnity, warranty, or guaranty payable by reason
of loss or damage to, or otherwise with respect to any of the foregoing
Collateral (the “Proceeds”). Without limiting the generality of the
foregoing, the term “Proceeds” includes whatever is receivable or received when
Investment Related Property or proceeds are sold, exchanged, collected, or
otherwise disposed of, whether such disposition is voluntary or involuntary,
and includes, without limitation, proceeds of any indemnity or guaranty payable
to any Grantor or Agent from time to time with respect to any of the Investment
Related Property.


 


3.             Security
for Secured Obligations. This Agreement and the Security Interest created
hereby secures the payment and performance of all the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Obligations owed by Borrowers, or any of them, to Agent,
the Lender Group or any of them.


 


4.             Grantors
Remain Liable. Anything herein to the contrary notwithstanding, (a) each
of the Grantors shall remain liable under the contracts and agreements included
in the Collateral, including, without limitation, the Pledged Operating
Agreements and the Pledged Partnership Agreements, to perform all of the duties
and obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Agent or any other member of the Lender Group of
any of the rights hereunder shall not release any Grantor from any of its
duties or obligations under such contracts and agreements included in the
Collateral, and (c) none of the members of the Lender Group shall have any
obligation or liability under such contracts and agreements included in the
Collateral by reason of this Agreement, nor shall any of the members of the
Lender Group be obligated to perform any of the obligations or duties of any
Grantors thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder. Until an Event of Default shall occur and be
continuing, except as otherwise provided in this Agreement, the Credit Agreement,
or other Loan Documents, Grantors shall have the right to possession and
enjoyment of the Collateral for the purpose of conducting the ordinary course
of their respective businesses, subject to and upon the terms hereof and of the
Credit Agreement and the other Loan Documents. Without limiting the generality
of the foregoing, it is the intention of the parties hereto that record and
beneficial ownership of the Pledged Interests, including, without limitation,
all voting, consensual, and dividend rights, shall remain in the applicable
Grantor until the occurrence of an Event of Default and until Agent shall
notify the applicable Grantor of Agent’s exercise of voting, consensual, and/or
dividend rights with respect to the Pledged Interests pursuant to Section 15
hereof.


 


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5.             Representations
and Warranties. Each Grantor hereby represents and warrants as follows,
which representations and warranties shall be continuing until the Secured
Obligations are paid in full and the Commitments terminated:


 


(a)           The
exact legal name of each of the Grantors is set forth on the signature pages of
this Agreement or a written notice provided to Agent pursuant to Section 6.5
of the Credit Agreement.


 


(b)           Schedule
3 attached hereto sets forth all Real Property owned by Grantors as of the
Closing Date.


 


(c)           As
of the date hereof, no Borrower has any Trademarks, Patents or Copyrights
registered, or which are the subject of any pending application, in the United
States Patent and Trademark Office, or any similar office of the United States
or in any office of the Secretary of State (or equivalent) of any state
thereof, or the United States Register of Copyrights, or in any similar office
or agency of any country or political subdivision thereof throughout the world,
other than those identified in Schedule A to each of the Copyright Security
Agreement, the Patent Security Agreement and the Trademark Security Agreement. The
registrations of the Trademarks are valid and subsisting and in full force and
effect. No Grantor has granted a license or otherwise agreed to allow any third
party to use any Trademark (except as disclosed to Agent in writing prior to
the date of this Agreement). The Patents are valid and subsisting and in full
force and effect and have not been adjudged or, to such Grantor’s knowledge,
claimed invalid or unenforceable in whole or in part (except for Permitted
Liens). No Grantor has granted a license or otherwise agreed to allow any third
party to use any Patent (except as disclosed to Agent in writing prior to the
date of this Agreement). None of the Patents has been abandoned or dedicated.


 


(d)           This
Agreement creates a valid security interest in the Collateral of each of
Grantors, to the extent a security interest therein can be created under the
Code, securing the payment of the Secured Obligations. All filings and other
actions necessary or desirable to perfect and protect such security interest
have been duly taken or will have been taken upon the filing of financing
statements listing each applicable Grantor, as a debtor, and Agent, as secured
party, in the jurisdictions listed next to such Grantor’s name on Schedule 4
attached hereto or will have been taken upon: (i)  the filing of financing statements listing
each applicable Grantor, as a debtor, and Agent, as secured party, in the
jurisdictions listed next to such Grantor’s name on Schedule 4 attached hereto;
and (ii) the recording in the US Copyright Office and the US Patent and
Trademark Office of a notice of Agent’s security interest in pertinent
Intellectual Property. Upon the making of such filings, Agent shall have a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens) of each Grantor to the extent such security interest can be
perfected by the filing of a financing statement or recordation in the US
Copyright Office or the US Patent and Trademark Office.


 


(e)           Except
for the Security Interest created hereby, each Grantor is and will at all times
be the sole holder of record and the legal and beneficial owner, free and clear
of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule
1 as being owned by such Grantor and, when acquired by such Grantor, any
Pledged Interests acquired after the Closing Date; (i)  all of the Pledged Interests are duly
authorized, validly issued, fully paid 


 


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and nonassessable and the Pledged Interests constitute
or will constitute the percentage of the issued and outstanding equity
interests of the Pledged Companies of such Grantor identified on Schedule 1
hereto as supplemented or modified by any Pledged Interests Addendum or any
Supplement to this Agreement; (ii) such Grantor has the right and requisite
authority to pledge, the Investment Related Property pledged by such Grantor to
Agent as provided herein; (iii) all actions necessary or desirable to perfect,
establish the first priority (subject to Permitted Liens) of, or otherwise
protect, Agent’s Liens in the Investment Related Collateral, and the proceeds
thereof, have been duly taken, (a) upon the execution and delivery of this
Agreement; (b) upon the taking of possession by Agent of any certificates
constituting the Pledged Interests, to the extent such Pledged Interests are
represented by certificates, together with undated powers endorsed in blank by
the applicable Grantor; (c) upon the filing of financing statements in the
applicable jurisdiction set forth on Schedule 4 attached hereto for such
Grantor with respect to the Pledged Interests of such Grantor that are not
represented by certificates, and (d) with respect to any Securities Accounts,
upon the delivery of Control Agreements with respect thereto; and (iv) each
Grantor has delivered to and deposited with Agent (or, with respect to any
Pledged Interests created after the Closing Date, will deliver and deposit in
accordance with Sections 6 and 8 hereof) all certificates
representing the Pledged Interests owned by such Grantor to the extent such
Pledged Interests are represented by certificates, and undated powers endorsed
in blank with respect to such certificates.


 


(f)            Other
than the filing of financing statements, Mortgages and the security agreements
attached hereto as Exhibits A, B and D and any requirement under applicable law
to register Stock, no consent, approval, authorization, or other order or other
action by, and no notice to or filing with, any Governmental Authority or any
other Person is required (i) for the grant of a Security Interest by such
Grantor in and to the Collateral pursuant to this Agreement or for the
execution, delivery, or performance of this Agreement by such Grantor, or (ii)
for the exercise by Agent of the voting or other rights provided for in this
Agreement with respect to the Investment Related Property or the remedies in
respect of the Collateral pursuant to this Agreement, except (x) as may be
required in connection with such disposition of Investment Related Property by
laws affecting the offering and sale of securities generally; and (y) for
consents and approvals that have been obtained and that are still in force and
effect.


 


6.             Covenants.
Each Grantor, jointly and severally, covenants and agrees with Agent and the
Lender Group that from and after the date of this Agreement and until the date
of termination of this Agreement in accordance with Section 22 hereof:


 


(a)           Possession
of Collateral. In the event that any Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, Investment Related Property,
or Chattel Paper, and if and to the extent that perfection or priority of Agent’s
Security Interest is dependent on or enhanced by possession, the applicable
Grantor, immediately upon the request of Agent and in accordance with Section
8 hereof, shall execute such other documents as shall be reasonably
requested by Agent or, if applicable, endorse and deliver physical possession
of such Negotiable Collateral, Investment Related Property, or Chattel Paper to
Agent, together with such undated powers endorsed in blank as shall be requested
by Agent.


 


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(b)           Chattel
Paper.


 


(i)            Upon
the request of Agent, each Grantor shall take all steps reasonably necessary to
grant Agent control of all electronic Chattel Paper in accordance with the Code
and all “transferable records” as that term is defined in Section 16 of the
Uniform Electronic Transaction Act and Section 201 of the federal Electronic
Signatures in Global and National Commerce Act as in effect in any relevant
jurisdiction.


 


(ii)           If
any Grantor retains possession of any Chattel Paper or instruments (which
retention of possession shall be subject to the extent permitted hereby and by
the Credit Agreement), promptly upon the request of Agent, such Chattel Paper
and instruments shall be marked with the following legend: “This writing and
the obligations evidenced or secured hereby are subject to the Security
Interest of GVEC Resource IV Inc., as Agent for the benefit of the Lender Group”.


 


(c)           Control
Agreements.


 


(i)            Except
to the extent otherwise permitted by the Credit Agreement, each Grantor shall
obtain an authenticated Control Agreement, from each bank holding a Deposit
Account for such Grantor.


 


(ii)           Except
to the extent otherwise permitted by the Credit Agreement, each Grantor shall
obtain authenticated Control Agreements, from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or
holding any financial assets or commodities to or for any Grantor.


 


(d)           Letter
of Credit Rights. Each Grantor that is or becomes the beneficiary of a
letter of credit in excess of $50,000 shall promptly (and in any event within 5
Business Days after becoming a beneficiary), notify Agent thereof and, upon the
request by Agent, enter into a tri-party agreement with Agent and the issuer
and/or confirmation bank with respect to letter-of-credit rights (as that term
is defined in the Code) assigning such letter-of-credit rights to Agent and
directing all payments thereunder to Agent’s Account, all in form and substance
satisfactory to Agent.


 


(e)           Commercial
Tort Claims. Each Grantor shall promptly (and in any event within 5
Business Days of receipt thereof), notify Agent in writing upon incurring or
otherwise obtaining a Commercial Tort Claim after the date hereof against any
third party in an amount exceeding $100,000 and, upon request of Agent,
promptly amend Schedule 2 to this Agreement, authorize the filing of
additional or amendments to existing financing statements and do such other
acts or things deemed necessary or desirable by Agent to give Agent a first
priority, perfected security interest in any such Commercial Tort Claim.


 


(f)            Investment
Related Property.


 


(i)            If
any Grantor shall receive or become entitled to receive any Pledged Interests
after the Closing Date, it shall promptly (and in any event within 5 Business
Days of receipt thereof) deliver to Agent a duly executed Pledged Interests
Addendum identifying such Pledged Interests.


 


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(ii)           Each
Grantor agrees that it will cooperate with Agent in obtaining all necessary
approvals and making all necessary filings under federal, state, local, or
foreign law in connection with the Security Interest on the Investment Related
Property or any sale or transfer thereof.


 


(iii)          As
to all limited liability company or partnership interests issued under any
Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor
hereby represents, warrants and covenants that the Pledged Interests issued
pursuant to such agreement (a) are not and shall not be dealt in or traded on
securities exchanges or in securities markets, (b) do not and will not
constitute investment company securities, and (c) are not and will not be
held by such Pledgor in a securities account. In addition, none of the Pledged
Operating Agreements, the Pledged Partnership Agreements, or any other
agreements governing any of the Pledged Interests issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, provide or shall provide
that such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction.


 


(g)           Real
Property; Fixtures. Each Grantor covenants and agrees that upon the acquisition
of any fee interest in Real Property it will promptly (and in any event within
10 Business Days of acquisition) notify Agent of the acquisition of such Real
Property and will grant to Agent, for the benefit of the Lender Group, a first
priority (subject to existing Liens) Mortgage on each fee interest in Real
Property now or hereafter owned by such Grantor and upon request of Agent shall
deliver such other documentation and opinions, in form and substance reasonably
satisfactory to Agent, in connection with the grant of such Mortgage as Agent
shall request in its Permitted Discretion, including, without limitation, title
insurance policies, financing statements, fixture filings and environmental
audits and such Grantor shall pay all recording costs, taxes and other fees and
costs (including reasonable attorneys fees and expenses) incurred in connection
therewith. Each Grantor acknowledges and agrees that, to the extent permitted
by applicable law, all of the Collateral shall remain personal property regardless
of the manner of its attachment or affixation to real property.


 


(h)           Transfers
and Other Liens. Grantors shall not (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to, any
of the Collateral, except expressly permitted by the Credit Agreement, or (ii)
create or permit to exist any Lien upon or with respect to any of the
Collateral of any of Grantors, except for Permitted Liens. The inclusion of
Proceeds in the Collateral shall not be deemed to constitute Agent’s consent to
any sale or other disposition of any of the Collateral except as expressly
permitted in this Agreement or the other Loan Documents.


 


(i)            Other
Actions as to Any and All Collateral. Each Grantor shall promptly (and in
any event within 5 Business Days of acquiring or obtaining such Collateral)
notify Agent in writing upon acquiring or otherwise obtaining any Collateral
after the date hereof consisting of Investment Related Property, Chattel Paper
(electronic, tangible or otherwise), documents (as defined in the Code), or
instruments (as defined in the Code) and, upon the request of Agent and in
accordance with Section 8 hereof, promptly execute such other documents,
or if applicable, deliver such Chattel Paper, other documents or certificates
evidencing any Investment Related Property in accordance with Section 6
hereof and do such other acts or things deemed necessary or desirable by Agent
to protect Agent’s Security Interest therein.


 


10

















 


(j)            Intellectual
Property Collateral.


 


(i)            Each
Grantor (either itself or through its licensees) will place appropriate notice
of Copyright on all copies embodying copyrighted works covered by the Copyright
which are publicly distributed and no Grantor will (and will not permit any
licensee thereof to) do any act or knowingly omit to do any act whereby any
Copyright may become invalidated or dedicated to the public domain. Each
Grantor will continue to use standards of quality in the manufacture of
products sold under the Trademarks that are at least equal to those standards
in effect as of the date of this Agreement. Each Grantor (either itself or
through its licensees) will continue to use the Trademarks on its current lines
of goods as reflected in its current catalogs, brochures and price lists in
order to maintain the Trademarks in full force and effect, in the ordinary
course of business, and no Grantor will (or will permit any licensee thereof
to) do any act or knowingly omit to do any act whereby any Trademark may become
invalidated. No Grantor will do any act, or omit to do any act, or permit any
licensee thereof to do any act whereby any Patent may become abandoned or
dedicated.


 


(ii)           Each
Grantor will promptly perform all acts and execute all documents, including,
without limitation, grants of security in forms acceptable to Agent and
suitable for recording with (a) the United States Patent and Trademark Office
and the United States Register of Copyrights, and (b) the appropriate offices
and agencies of foreign jurisdictions reasonably requested by Agent at any time
to evidence, perfect, maintain, record or enforce the Agent’s security interest
in the Intellectual Property Collateral or otherwise in furtherance of the
provisions of this Agreement. Each Grantor hereby authorizes Agent to execute
and file one or more financing statements (and any similar documents) or copies
thereof or of this Agreement with respect to the Intellectual Property
Collateral (with a copy sent to Administrative Borrower).


 


(iii)          In
the event that any Grantor, either itself or through any subsidiary, affiliate,
agent, employee, licensee or designee, shall file an application for the
issuance of any Patent or registration of any Trademark with the United States
Patent and Trademark Office, or any similar office of the United States or in
any office of the Secretary of State (or equivalent) of any state thereof, or
for the registration of any Copyright with the United States Register of
Copyrights, or for the registration of any Patent, Trademark or Copyright in
any similar office or agency of any country or political subdivision thereof
throughout the world, or shall obtain issuance of any Patent or registration of
any Trademark or Copyright previously applied for, or shall adopt, acquire or
obtain rights to any new trademark, patent application or work for which a
copyright application has been or is expected to be filed, or become entitled
to the benefit of any patent application or any patent or any part thereof for
reissue, re-examination, continuation, continuation-in-part, division,
improvement or extension, the applicable Grantor shall (a) inform Agent of any
such event or action in semi-annual reports which Borrowers shall deliver to
Agent concurrently with the delivery to Agent of the quarterly financial
information of Borrower pursuant to the Credit Agreement, and (b) execute and
deliver any and all assignments, agreements, instruments, documents and papers
as are necessary or appropriate or as Agent may reasonably request to evidence
the Agent’s security interest in such Trademark, Patent or Copyright and the
goodwill and general intangibles of Grantors relating thereto or represented
thereby. Each Grantor hereby constitutes Agent, or Agent’s agent, its attorney-in-fact
to execute and file all such writings for the foregoing purposes, all acts of
such attorney being hereby 


 


11

















 


ratified and confirmed; such power being coupled with
an interest is irrevocable until the Secured Obligations are indefeasibly paid
in full and the Commitments terminated. Each Grantor authorizes the amendment
of the schedules hereto to include any future Intellectual Property Collateral
registrations or applications which may be acquired or made by such Grantor.


 


(iv)          Each
Grantor has the authority, right and power to enter into this Agreement and to
perform its terms and to grant the security interest herein granted, and has
not entered and will not enter into any oral or written agreements which would
prevent such Grantor from complying with the terms hereof, provided, however,
each Grantor may enter into or maintain in effect such non-exclusive license
agreements with respect to the Intellectual Property Collateral as such Grantor
believes in its reasonable business judgment are in the best interest of such
Grantor’s business, so long as any such license agreement does not prohibit the
assignment thereof to Agent, for the benefit of the Lender Group. The
Intellectual Property Collateral is not now, and at all times will not be,
subject to any Liens (other than Permitted Liens); provided, however, each
Grantor may enter into such non-exclusive license agreements with respect to
the Intellectual Property Collateral as such Grantor believes in its reasonable
business judgment are in the best interest of such Grantor’s business, so long
as any such license agreement does not prohibit the assignment thereof to
Agent, for the benefit of the Lender Group. To the best knowledge of each
Grantor, none of the Intellectual Property Collateral is subject to any claims
of any other party.


 


(v)           Except
for Permitted Liens, or to the extent that Agent upon prior written notice from
Grantor, shall consent in writing, no Grantor will assign, sell, mortgage, lease,
transfer, pledge, hypothecate, grant a security interest in or lien upon, grant
an exclusive license, or otherwise dispose of any of the Intellectual Property
Collateral, and nothing in this Agreement shall be deemed a consent by Agent to
any such action except as expressly permitted herein.


 


(vi)          Each
Grantor will take commercially reasonable steps in any proceeding before the
United States Patent and Trademark Office, United States Register of Copyrights
or similar office or agency of the United States or any office of the Secretary
of State (or equivalent) of any state thereof, or in any similar office or
agency of any country or political subdivision thereof throughout the world, to
maintain each registration application and registration of the Intellectual
Property Collateral, including, without limitation, filing of renewals,
extensions, affidavits of use and incontestability, and opposition,
interference and cancellation proceedings. Each Grantor shall notify Agent
promptly in writing if any registration application or registration relating to
any Intellectual Property Collateral may become abandoned or dedicated or
subject to an adverse final determination in any proceeding in the United
States Patent and Trademark Office or United States Register of Copyrights or
in any similar office or agency of any country or political subdivision thereof
throughout the world or in any court regarding such Grantor’s ownership of such
Intellectual Property Collateral, its right to register same, or to keep or maintain
the validity of same.


 


(vii)         In
the event that any Grantor acquires actual knowledge that any Trademark, Patent
or Copyright is infringed, misappropriated or diluted by a third party, such
Grantor shall promptly sue for infringement, misappropriation and/or dilution
and to obtain injunctive relief and recover damages therefor, unless such
Grantor shall determine in its 


 


12

















 


reasonable business judgment that such suit is not in
the best interest of such Grantor’s business, and the applicable Grantor shall
take such other actions reasonably required to protect such Trademark, Patent
or Copyright as such Grantor shall deem appropriate in its reasonable business
judgment under the circumstances. Upon and during the continuation of an Event
of Default, Agent shall have the right, but in no way shall be obligated, to
bring suit in its own name to enforce the Trademarks, Patents and Copyrights
and any licenses thereunder, in which event the applicable Grantor shall, at
the request of Agent, do any and all lawful acts requested by Agent and execute
any and all documents required by Agent to aid such enforcement, and the
applicable Grantor shall, upon demand, promptly reimburse and indemnify Agent
for all costs and expenses incurred in such enforcement.


 


7.             Relation
to Other Loan Documents. The provisions of this Agreement shall be read and construed with
the other Loan Documents referred to below in the manner so indicated. In
the event of any conflict between any provision in this Agreement and a
provision in the Credit Agreement, such provision of the Credit Agreement shall
control.


 


8.             Further Assurances.


 


(a)           Each
Grantor agrees that from time to time, at its own expense, such Grantor will
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary or that Agent may reasonably request,
in order to perfect and protect any Security Interest granted or purported to
be granted hereby or to enable Agent to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral.


 


(b)           Each
Grantor authorizes the filing of such financing or continuation statements, or
amendments thereto, and such Grantor will execute and deliver to Agent such
other instruments or notices, as may be necessary or as Agent may reasonably
request, in order to perfect and preserve the Security Interest granted or
purported to be granted hereby.


 


(c)           Each
Grantor authorizes Agent to file, transmit, or communicate, as applicable,
financing statements and amendments describing the Collateral as “all personal
property of debtor” or “all assets of debtor” or words of similar effect, in
order to perfect Agent’s security interest in the Collateral without such
Grantor’s signature. Each Grantor also hereby ratifies its authorization for
Agent to have filed in any jurisdiction any financing statements filed prior to
the date hereof.


 


(d)           Each
Grantor acknowledges that it is not authorized to file any financing statement
or amendment or termination statement with respect to any financing statement
filed in connection with this Agreement without the prior written consent of
Agent, subject to such Grantor’s rights under Section 9509(d)(2) of the Code.


 


9.             Agent’s
Right to Perform Contracts. Upon the occurrence and continuation of an
Event of Default, Agent (or its designee) may proceed to perform any and all of
the obligations of any Grantor contained in any contract, lease, or other
agreement and exercise any and all rights of any Grantor therein contained as
fully as such Grantor itself could.


 


10.           Agent
Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints Agent
its attorney-in-fact, with full authority in the place and stead of such
Grantor and in the 


 


13

















 


name of such Grantor or otherwise, to take any action
and to execute any instrument which Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, without notice to any
Grantor or Borrower, including, without limitation:


 


(a)           at
such time as an Event of Default has occurred and is continuing under the
Credit Agreement, to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in connection with the Accounts or any other Collateral of such
Grantor;


 


(b)           at
such time as an Event of Default has occurred and is continuing under the
Credit Agreement, to receive and open all mail addressed to such Grantor and to
notify postal authorities to change the address for the delivery of mail to
such Grantor to that of Agent;


 


(c)           to
receive, indorse, and collect any drafts or other instruments, documents,
Negotiable Collateral or Chattel Paper;


 


(d)           at
such time as an Event of Default has occurred and is continuing under the
Credit Agreement, to file any claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the collection of
any of the Collateral of such Grantor or otherwise to enforce the rights of
Agent with respect to any of the Collateral;


 


(e)           at
such time as an Event of Default has occurred and is continuing under the
Credit Agreement, to repair, alter, or supply goods, if any, necessary to
fulfill in whole or in part the purchase order of any Person obligated to such
Grantor in respect of any Account of such Grantor;


 


(f)            at
such time as an Event of Default has occurred and is continuing under the
Credit Agreement, to use any labels, Patents, Trademarks, trade names, URLs,
domain names, industrial designs, Copyrights, advertising matter or other
industrial or intellectual property rights, in advertising for sale and selling
Inventory and other Collateral and to collect any amounts due under Accounts,
contracts or Negotiable Collateral of such Grantor; and


 


(g)           at
such time as an Event of Default has occurred and is continuing under the
Credit Agreement, Agent on behalf of the Lender Group shall have the right, but
shall not be obligated, to bring suit in its own name to enforce the
Trademarks, Patents, Copyrights and any intellectual property licenses included
within the Collateral and, if Agent shall commence any such suit, the
appropriate Grantor shall, at the request of Agent, do any and all lawful acts
and execute any and all proper documents reasonably required by Agent in aid of
such enforcement.


 


To the extent
permitted by law, each Grantor hereby ratifies all that such attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is coupled with an interest and shall be irrevocable until this Agreement is
terminated.


 


11.           Agent
May Perform. If any of Grantors fails to perform any agreement contained
herein, Agent may itself perform, or cause performance of, such agreement, and
the reasonable expenses of Agent incurred in connection therewith shall be
payable, jointly and severally, by Grantors.


 


14

















 


12.           Agent’s
Duties. The powers conferred on Agent hereunder are solely to protect Agent’s
interest in the Collateral, for the benefit of the Lender Group, and shall not
impose any duty upon Agent to exercise any such powers. Except for the safe
custody of any Collateral in its actual possession and the accounting for
moneys actually received by it hereunder, Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its actual possession if such Collateral is
accorded treatment substantially equal to that which Agent accords its own
property.


 


13.           Collection
of Accounts, General Intangibles and Negotiable Collateral; Control Agreements.
At any time upon the occurrence and during the continuation of an Event of
Default, Agent or Agent’s designee may (a) notify Account Debtors of any
Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable
Collateral have been assigned to Agent, for the benefit of the Lender Group, or
that Agent has a security interest therein, and (b) collect the Accounts,
General Intangibles and Negotiable Collateral directly, and any collection
costs and expenses shall constitute part of such Grantor’s Secured Obligations
under the Loan Documents. With respect to each Control Agreement delivered
pursuant to Section 6(c), at any time upon the occurrence and during the
continuation of an Event of Default, Agent shall be entitled to give any bank
or securities intermediary holding the relevant deposit or securities account
instructions as to the withdrawal or disposition of funds or assets held
therein, all without further consent of any Grantor; provided that Agent agrees
it shall not give any bank or securities intermediary such instructions unless
an Event of Default has occurred and is continuing.


 


14.           Disposition
of Pledged Interests by Agent. None of the Pledged Interests existing as of
the date of this Agreement are, and none of the Pledged Interests hereafter
acquired on the date of acquisition thereof will be, registered or qualified
under the various federal or state securities laws of the United States and
disposition thereof after an Event of Default may be restricted to one or more
private (instead of public) sales in view of the lack of such registration. Each
Grantor understands that in connection with such disposition, Agent may
approach only a restricted number of potential purchasers and further
understands that a sale under such circumstances may yield a lower price for
the Pledged Interests than if the Pledged Interests were registered and
qualified pursuant to federal and state securities laws and sold on the open
market. Each Grantor, therefore, agrees that: 
(a) if Agent shall, pursuant to the terms of this Agreement, sell or
cause the Pledged Interests or any portion thereof to be sold at a private
sale, Agent shall have the right to rely upon the advice and opinion of any
nationally recognized brokerage or investment firm (but shall not be obligated
to seek such advice and the failure to do so shall not be considered in
determining the commercial reasonableness of such action) as to the best manner
in which to offer the Pledged Interest for sale and as to the best price
reasonably obtainable at the private sale thereof; and (b) such reliance shall
be conclusive evidence that Agent has handled the disposition in a commercially
reasonable manner.


 


15.           Voting
Rights.


 


(a)           Upon
the occurrence and during the continuation of an Event of Default, (i) Agent
may, at its option, and with 5 Business Days prior notice to any Grantor, and
in 


 


15

















 


addition to all rights and remedies available to Agent
under any other agreement, at law, in equity, or otherwise, exercise all voting
rights, and all other ownership or consensual rights in respect of the Pledged
Interests owned by such Grantor, but under no circumstances is Agent obligated
by the terms of this Agreement to exercise such rights, and (ii) if Agent duly
exercises its right to vote any of such Pledged Interests, each Grantor hereby
appoints Agent, such Grantor’s true and lawful attorney-in-fact and IRREVOCABLE
PROXY to vote such Pledged Interests in any manner Agent deems advisable for or
against all matters submitted or which may be submitted to a vote of
shareholders, partners or members, as the case may be. The power-of-attorney
granted hereby is coupled with an interest and shall be irrevocable.


 


(b)           For
so long as any Grantor shall have the right to vote the Pledged Interests owned
by it, such Grantor covenants and agrees that it will not, without the prior
written consent of Agent, vote or take any consensual action with respect to
such Pledged Interests which would materially adversely affect the rights of
Agent and the other members of the Lender Group or the value of the Pledged
Interests.


 


16.           Remedies.
Upon the occurrence and during the continuation of an Event of Default:


 


(a)           Agent
may exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein, in the other Loan Documents, or otherwise
available to it, all the rights and remedies of a secured party on default
under the Code or any other applicable law. Without limiting the generality of
the foregoing, each Grantor expressly agrees that, in any such event, Agent
without demand of performance or other demand, advertisement or notice of any
kind (except a notice specified below of time and place of public or private
sale) to or upon any of Grantors or any other Person (all and each of which
demands, advertisements and notices are hereby expressly waived to the maximum
extent permitted by the Code or any other applicable law), may take immediate
possession of all or any portion of the Collateral and (i) require Grantors to,
and each Grantor hereby agrees that it will at its own expense and upon request
of Agent forthwith, assemble all or part of the Collateral as directed by Agent
and make it available to Agent at one or more locations which are reasonably
convenient to Grantors, and (ii) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any of Agent’s offices or elsewhere, for cash, on credit, and upon
such other terms as Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale shall be required by law, at least 10 days
notice to any of Grantors of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification and specifically such notice shall constitute a reasonable “authenticated
notification of disposition” within the meaning of Section 9611 of the Code. Agent
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. Agent may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned.


 


(b)           Agent
is hereby granted a non-exclusive license or other right to use, without
liability for royalties or any other charge, each Grantor’s labels, Patents,
Copyrights, rights of use of any name, trade secrets, trade names, Trademarks,
service marks and advertising matter, URLs, domain names, industrial designs,
other industrial or intellectual property or any 


 


16

















 


property of a similar nature, whether owned by any of
Grantors or with respect to which any of Grantors have rights under license,
sublicense, or other agreements, as it pertains to the Collateral, in preparing
for sale, advertising for sale and selling any Collateral, and each Grantor’s
rights under all licenses and all franchise agreements shall inure to the
benefit of Agent.


 


(c)           Any
cash held by Agent as Collateral and all cash proceeds received by Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral shall be applied against the Secured Obligations in the
order set forth in the Credit Agreement. In the event the proceeds of
Collateral are insufficient to satisfy all of the Secured Obligations in full,
each Grantor shall remain jointly and severally liable for any such deficiency.


 


(d)           Each
Grantor hereby acknowledges that the Secured Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur and
be continuing Agent shall have the right to an immediate writ of possession
without notice of a hearing. Agent shall have the right to the appointment of a
receiver for the properties and assets of each of Grantors, and each Grantor
hereby consents to such rights and such appointment and hereby waives, to the
fullest extent permitted by law, any objection such Grantors may have thereto
or the right to have a bond or other security posted by Agent.


 


17.           Remedies
Cumulative. Each right, power, and remedy of Agent as provided for in this
Agreement or in the other Loan Documents or now or hereafter existing at law or
in equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power, or remedy provided for in
this Agreement or in the other Loan Documents or now or hereafter existing at
law or in equity or by statute or otherwise, and the exercise or beginning of
the exercise by Agent, of any one or more of such rights, powers, or remedies
shall not preclude the simultaneous or later exercise by Agent of any or all
such other rights, powers, or remedies.


 


18.           Marshaling.
Agent  shall not be required to marshal
any present or future collateral security (including but not limited to the
Collateral) for, or other assurances of payment of, the Secured Obligations or
any of them or to resort to such collateral security or other assurances of
payment in any particular order, and all of its rights and remedies hereunder
and in respect of such collateral security and other assurances of payment
shall be cumulative and in addition to all other rights and remedies, however
existing or arising. To the extent that it lawfully may, each Grantor hereby
agrees that it will not invoke any law relating to the marshaling of collateral
which might cause delay in or impede the enforcement of Agent’s rights and
remedies under this Agreement or under any other instrument creating or
evidencing any of the Secured Obligations or under which any of the Secured
Obligations is outstanding or by which any of the Secured Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each Grantor hereby irrevocably waives the benefits of all such
laws.


 


19.           Indemnity
and Expenses.


 


(a)           Each
Grantor agrees to indemnify Agent and the other members of the Lender Group
from and against all claims, lawsuits and liabilities (including reasonable 


 


17

















 


attorney’s fees) growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement) or any
other Loan Document to which such Grantor is a party, except claims, losses or
liabilities resulting from the gross negligence or willful misconduct of the
party seeking indemnification as determined by a final non-appealable order of
a court of competent jurisdiction. This provision shall survive the termination
of this Agreement and the Credit Agreement and the repayment of the Secured
Obligations.


 


(b)           Grantors,
jointly and severally, shall, upon demand, pay to Agent (or Agent, may charge
to the Loan Account) all the Lender Group Expenses which Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or, upon an Event of Default, the sale of,
collection from, or other realization upon, any of the Collateral in accordance
with this Agreement and the other Loan Documents, (iii) the exercise or
enforcement of any of the rights of Agent hereunder or (iv) the failure by any
of Grantors to perform or observe any of the provisions hereof.


 


(c)           Grantors, jointly and severally, agree to
pay, and to save Agent and the other members of the Lender Group harmless from,
any and all liabilities with respect to, or resulting from any delay in paying,
any and all stamp, excise, property, sales, value added, recording, document or
other taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions
contemplated by this Agreement.


 


20.           Merger,
Amendments; Etc. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES. No waiver of any provision of this Agreement, and no consent to any
departure by any of Grantors herefrom, shall in any event be effective unless
the same shall be in writing and signed by Agent, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No amendment of any provision of this Agreement shall
be effective unless the same shall be in writing and signed by Agent and each
of Grantors to which such amendment applies.


 


21.           Addresses
for Notices. All notices and other communications provided for hereunder
shall be given in the form and manner and delivered to Agent at its address
specified in the Credit Agreement, and to any of the Grantors at their
respective addresses specified in the Credit Agreement or, as to any party, at
such other address as shall be designated by such party in a written notice to
the other party.


 


22.           Continuing
Security Interest: Assignments under Credit Agreement. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain in
full force and effect until the Obligations have been paid in full in cash in
accordance with the provisions of the Credit Agreement and the Commitments have
expired or have been terminated, (b) be binding upon each of Grantors, and
their respective successors and assigns, and (c) inure to the benefit of, and
be enforceable by, Agent, and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), any Lender may, in
accordance with 


 


18

















 


the provisions of the Credit Agreement, assign or
otherwise transfer all or any portion of its rights and obligations under the
Credit Agreement to any eligible assignee of Lender, and such assignee of
Lender shall thereupon become vested with all the benefits in respect thereof
granted to such Lender herein or otherwise. Upon payment in full in cash of the
Obligations in accordance with the provisions of the Credit Agreement and the
expiration or termination of the Commitments, the Security Interest granted
hereby shall terminate and all rights to the Collateral shall revert to
Grantors or any other Person entitled thereto. At such time, Agent will
authorize the filing of appropriate termination statements to terminate such
Security Interests. No transfer or renewal, extension, assignment, or
termination of this Agreement or of the Credit Agreement, any other Loan
Document, or any other instrument or document executed and delivered by any
Grantor to Agent nor any additional Loans made by any of the Lender Group to
Borrowers, nor the taking of further security, nor the retaking or re-delivery
of the Collateral to Grantors, or any of them, by Agent, nor any other act of
the Lender Group, or any of them, shall release any of Grantors from any
obligation, except a release or discharge executed in writing by Agent in
accordance with the provisions of the Credit Agreement. Agent shall not by any
act, delay, omission or otherwise, be deemed to have waived any of its rights
or remedies hereunder, unless such waiver is in writing and signed by Agent and
then only to the extent therein set forth. A waiver by Agent of any right or
remedy on any occasion shall not be construed as a bar to the exercise of any
such right or remedy which Agent would otherwise have had on any other
occasion.


 


23.           CHOICE
OF LAW AND VENUE; JUDICIAL REFERENCE; WAIVER OF JURY TRIAL; SERVICE OF PROCESS.


 


(a)           THE
VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD
TO ITS CONFLICTS OF LAWS PRINCIPLES.


 


(b)           EACH
GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA LOCATED IN LOS ANGELES COUNTY AND OF THE FEDERAL COURTS LOCATED IN
THE CENTRAL DISTRICT OF CALIFORNIA, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND
EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
CALIFORNIA STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH
GRANTOR HEREBY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND BINDING UPON IT AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING
IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT THE AGENT OR ANY LENDER MAY 


 


19

















 


OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY LOAN DOCUMENT AGAINST ANY GRANTOR
OR ITS ASSETS OR PROPERTIES IN THE COURTS OF ANY JURISDICTION WHERE SUCH GRANTOR
OR ITS ASSETS OR PROPERTIES MAY BE LOCATED OR IN WHICH IT OTHERWISE MAY BE
SUBJECT TO JURISDICTION.


 


(c)           EACH
GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT
MAY LEGALLY AND EFFECTIVELY DO SO (i) ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS IN ANY COURT
REFERRED TO IN PARAGRAPH (b) OF THIS SECTION; (ii) THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT; AND (iii) ANY RIGHT IT MAY HAVE, HOWEVER ARISING, TO REMOVE OR TRANSFER
ANY SUIT, ACTION OR PROCEEDING BROUGHT AGAINST IT IN CONNECTION WITH OR ARISING
OUT OF THIS AGREEMENT OR ANY LOAN DOCUMENT IN A STATE COURT OF THE UNITED
STATES OF AMERICA TO ANY FEDERAL COURT OF THE UNITED STATES OF AMERICA IF SUCH
FEDERAL COURT OF THE UNITED STATES OF AMERICA WOULD NOT HAVE OR ACCEPT
JURISDICTION THEREOF.


 


(d)           ALL
CLAIMS, CAUSES OF ACTION OR OTHER DISPUTES CONCERNING THIS AGREEMENT AND THE
MATTERS CONTEMPLATED HEREBY (EACH A “CLAIM”), ARISING IN A PROCEEDING IN
CALIFORNIA STATE COURT INCLUDING ANY AND ALL QUESTIONS OF LAW OR FACT RELATING
THERETO, SHALL, AT THE WRITTEN REQUEST OF THE AGENT, BE DETERMINED BY JUDICIAL
REFERENCE PURSUANT TO THE CALIFORNIA CODE OF CIVIL PROCEDURE (“REFERENCE”).
THE PARTIES SHALL SELECT A SINGLE NEUTRAL REFEREE, WHO SHALL BE A RETIRED STATE
OR FEDERAL JUDGE. IN THE EVENT THAT THE PARTIES CANNOT AGREE UPON A REFEREE,
THE REFEREE SHALL BE APPOINTED BY THE COURT. THE REFEREE SHALL REPORT A
STATEMENT OF DECISION TO THE COURT. NOTHING IN THIS PARAGRAPH SHALL LIMIT THE
RIGHT OF ANY PARTY AT ANY TIME TO EXERCISE SELF-HELP REMEDIES, FORECLOSE AGAINST
COLLATERAL OR OBTAIN PROVISIONAL REMEDIES. THE PARTIES SHALL BEAR THE FEES AND
EXPENSES OF THE REFEREE EQUALLY UNLESS THE REFEREE ORDERS OTHERWISE. THE
REFEREE SHALL ALSO DETERMINE ALL ISSUES RELATING TO THE APPLICABILITY,
INTERPRETATION, AND ENFORCEABILITY OF THIS PARAGRAPH. THE PARTIES ACKNOWLEDGE
THAT THE CLAIMS WILL NOT BE ADJUDICATED BY A JURY.


 


(e)           OTHER
THAN WITH RESPECT TO ANY PROCEEDING IN THE STATE COURTS OF CALIFORNIA, EACH GRANTOR
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH GRANTOR
CERTIFIES THAT NO REPRESENTATIVE, 


 


20

















 


AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.


 


(f)            EACH
GRANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS THE ADMINISTRATIVE
BORROWER, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND
ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED
IN ANY ACTION OR PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE
LOAN DOCUMENTS. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL
CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH GRANTOR AGREES TO DESIGNATE A NEW
DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND FOR THE PURPOSES OF THIS
PROVISION SATISFACTORY TO THE AGENT. EACH GRANTOR WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE BY HAND DELIVERY TO THE ADMINISTRATIVE BORROWER AT ITS ADDRESS SET
FORTH IN THE CREDIT AGREEMENT. EACH GRANTOR SHALL TAKE SUCH ACTIONS AS ARE
REASONABLE, INCLUDING THE EXECUTION AND FILING OF ANY AND ALL FURTHER
AGREEMENTS, INSTRUMENTS AND OTHER DOCUMENTS AS MAY BE NECESSARY, TO FULLY
IMPLEMENT AND EFFECT SUCH APPOINTMENTS AND TO CONTINUE THEM IN FULL FORCE AND
EFFECT. EACH GRANTOR HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING
IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH GRANTOR IRREVOCABLY AGREES
AND UNDERTAKES TO ENTER ITS UNCONDITIONAL APPEARANCE WITHIN FORTY-FIVE (45)
DAYS AFTER THE COMPLETION OF SERVICE ON THE AUTHORIZED AGENT AS PROVIDED IN
THIS SECTION.


 


24.           New
Subsidiaries. Pursuant to Section 5.18 of the Credit Agreement, any
new direct or indirect Subsidiary (whether by acquisition or creation) of
Parent is required to enter into this Agreement by executing and delivering in
favor of Agent an instrument in the form of Annex 1 attached hereto. Upon
the execution and delivery of Annex 1 by such new Subsidiary, such
Subsidiary shall become a Grantor hereunder with the same force and effect as
if originally named as a Grantor herein. The execution and delivery of any
instrument adding an additional Grantor as a party to this Agreement shall not
require the consent of any Grantor hereunder. The rights and obligations of
each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor hereunder.


 


25.           Agent.
Each reference herein to any right granted to, benefit conferred upon or power
exercisable by the “Agent” shall be a reference to Agent, for the benefit of
the Lender Group.


 


21

















 


26.           Miscellaneous.


 


(a)           This
Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile or other electronic method of transmission
shall be equally as effective as delivery of an original executed counterpart
of this Agreement. Any party delivering an executed counterpart of this
Agreement by telefacsimile or other electronic method of transmission also
shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement. The foregoing
shall apply to each other Loan Document mutatis
mutandis.


 


(b)           Any
provision of this Agreement which is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other jurisdiction.


 


(c)           Headings
used in this Agreement are for convenience only and shall not be used in
connection with the interpretation of any provision hereof.


 


(d)           The
pronouns used herein shall include, when appropriate, either gender and both
singular and plural, and the grammatical construction of sentences shall
conform thereto.


 


(e)           The
representation, warranties and covenants of each Grantor hereunder are joint
and several.


 


(f)            All
exhibits and schedules hereto are incorporated into this Agreement.


 


[SIGNATURE PAGE FOLLOWS]


 


22

















 


IN WITNESS WHEREOF, the undersigned parties hereto
have executed this Agreement by and through their duly authorized officers, as
of the day and year first above written.


 


 


	
  GRANTORS:

  	
  EMRISE CORPORATION,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /S/ D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
    D. JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
  V.P. of Finance & Administration

  	
   

  
	
   

  	
   

  
	
   

  	
  EMRISE ELECTRONICS 

  CORPORATION,

  
	
   

  	
  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /S/ D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
    D. JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
  Secretary & Treasurer

  	
   

  
	
   

  	
   

  
	
   

  	
  CXR LARUS CORPORATION,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /S/ D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
    D. JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
  Secretary & Treasurer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RO ASSOCIATES INCORPORATED,

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /S/ D. JOHN DONOVAN

  	
   

  
	
   

  	
  Name:

  	
    D. JOHN DONOVAN

  	
   

  
	
   

  	
  Title:

  	
  Secretary & Treasurer

  	
   

  
								



 


23

















 


	
  AGENT:

  	
  GVEC
  RESOURCE IV INC., as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /S/ ROBERT J. ANDERSON

  	
   

  
	
   

  	
  Name:

  	
    Robert J. Anderson

  	
   

  
	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /S/ PETER PAUL MENDEL

  	
   

  
	
   

  	
  Name:

  	
    Peter Paul Mendel

  	
   

  
	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
								



 


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