Document:

Exhibit 10.5

 

AMENDMENT NO. 2 TO

SUBORDINATED CONTINGENT SECURED PROMISSORY NOTE

 

THIS
AMENDMENT NO. 2 TO SUBORDINATED CONTINGENT SECURED PROMISSORY NOTE (the “Amendment”) is entered into as of August 31,
2010, by and between EMRISE Electronics Corporation, a New Jersey corporation
(the “Company”), and                                       (“Holder”) and amends that certain
Subordinated Continent Secured Promissory Note (the “Note”) dated August 20, 2008 by and between the Company
and Holder in the original principal amount of up to
                      
Dollars
($                          ),
as amended by Amendment No. 1 dated as of November 20, 2009.  All capitalized terms not otherwise defined
in this Amendment shall have the meanings set forth in the Note.

 

NOW,
THEREFORE, the Company and Holder do hereby agree as follows:

 

1.             Amendments.

 

(a)           Definition of Maturity Date.  The definition of “Maturity Date” in Section 1
is hereby replaced in its entirety with the following:

 

“Maturity Date” shall mean August 31,
2013; provided that if all of the outstanding stock of EMRISE Corporation or
substantially all of the assets of EMRISE Corporation and its subsidiaries are
sold in one transaction, then the Maturity Date shall be the date of the
closing of such transaction.

 

(b)           Definition of Senior Indebtedness.  The definition of “Senior Indebtedness” in Section 1
is hereby replaced in its entirety with the following:

 

“Senior Indebtedness” shall mean the
principal of and unpaid interest on all indebtedness of Parent or any
Subsidiary regardless of whether incurred on, before or after the date of this
Note (i) for money borrowed from any bank, savings and loan or other
financial institution (including without limitation money borrowed from GVEC
Resource IV Inc. and Lloyds TSB Commercial Finance Limited and their
participants, successors and assigns), and is evidenced by notes, bonds,
debentures or other written obligations in an amount not to exceed Fifteen
Million Dollars ($15,000,000) without the prior written approval of Noteholder
(which shall not be unreasonably withheld) and, in any event, shall not exceed
Twenty Million Dollars ($20,000,000); and (ii) any renewals or extensions
of any indebtedness described in (i) above; provided, however,
that the term shall not include (w) any lease financing arrangement
involving Parent or any Subsidiary, (x) trade debt of Parent or any
Subsidiary, (y) indebtedness which by the terms of the instrument creating
or evidencing it is subordinated to or on a parity with this Note, and (z) money
borrowed from Noel C. McDermott, as Trustee of the Noel C. McDermott Revocable
Living Trust dated December 18, 1995, or Warren P. Yost and Gail A. Yost,
as Co-Trustees Under Declaration of Trust dated March 9, 1988
(collectively referred to as “McDermott and Yost”) relating to the purchase by
Parent of all of the capital stock of Larus Corporation (except that the debt
owed to McDermott and Yost is secured by the assets of CXR Larus Corporation 

 

 

in
a position that has priority over the security interest position to be granted
to Noteholders).

 

(c)           Payments of Principal and Interest.

 

(i)            Section 3.1
is hereby replaced in its entirety with the following:

 

The Company shall make no principal payments during the period
commencing on the Issuance Date and ending on September 30, 2012.  On October 1, 2012 and on the first
business day of each of the three subsequent calendar quarters after such date,
the Company shall make principal payments on the Note in the amount of                      .

 

(ii)           Section 3.2
is hereby replaced in its entirety with the following:

 

Commencing on October 1, 2010, and on the first business day of
each calendar quarter thereafter until the Maturity Date, the Company shall
make quarterly payments of interest on the outstanding principal amount of the
Note.

 

(iii)          Section 3.3
is hereby replaced in its entirety with the following:

 

The outstanding principal amount, together with all accrued and unpaid
interest on this Note, shall be due and payable on the Maturity Date or such
earlier time as provided herein.

 

(iv)          As
of August 31, 2010, the principal balance of the Note is                        
and notwithstanding any provision to the contrary in the Note, as amended
through the date hereof, or the 2008 Stock Purchase Agreement, such principal
balance shall not decrease, except in the event of payment.

 

2.             Covenants, Asset Dispositions.  Section 8.2(a) shall be amended to
substitute the words “any Subsidiary” (with the meaning of Subsidiary as
defined in the Security Agreement) for “ACC” in each instance.

 

3.             Further Assurances.  Each of the parties hereby agrees that it
shall execute and deliver all additional documents and take such further
actions reasonably required to implement the terms and intent of this Amendment.

 

4.             Remaining Provisions of the Note.  All sections and/or paragraphs of the Note
not otherwise amended, modified or restated in this Amendment shall remain in
full force and effect and as set forth in the Note; provided, however,
that in the event of any discrepancy or inconsistency between the Note and this
Amendment, this Amendment shall control.

 

2

 

IN
WITNESS WHEREOF, the undersigned have executed and acknowledge this Amendment
as of the date first written above.

 

 

	
  THE
  COMPANY:

  	
  EMRISE
  Electronics Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine
  T. Oliva

  
	
   

  	
  Its:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  HOLDER:Exhibit 10.6

 

STOCK ISSUANCE AGREEMENT

 

This
Stock Issuance Agreement (this “Agreement”) is dated August 31,
2010, by and between Charles Brand (the “Investor”) and EMRISE
Corporation, a Delaware corporation (the “Company”), whereby the parties
agree as set forth herein.  Certain terms
are defined in Section 9 of this Agreement.

 

WHEREAS, the Company’s wholly owned subsidiary, Emrise
Electronics Corporation (“EEC”) owes a
debt obligation under a Subordinated Contingent Secured Promissory Note, dated August 20,
2008, as amended on November 20, 2009 and August 31, 2010 (the “Note”); and

 

WHEREAS, in connection with the anticipated sale of the
stock of EEC’s indirect wholly owned subsidiary Advanced Control Components, Inc.
(the “Sale Transaction”), Investor has
agreed to accept receipt of the shares of Common Stock to be issued under this
Agreement as partial payment of the Note, in accordance with the terms and
conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.

 

1.             Issuance
of Stock.

 

(a)           Issuance of Common Stock. 
Investor agrees to accept and the Company agrees to issue to Investor
that number of shares (the “Shares”)
of the Company’s common stock, $0.01 par value per share (the “Common Stock”), that equals the quotient of
$450,000 divided by 115% of the Volume Weighted Average per share price for the
day of the public announcement by Company of the Sale Transaction and the two
trading days immediately thereafter; provided, however, no fractional shares
shall be issued and in no event shall Company issue more than 19.9% of the
currently outstanding number of shares of Common Stock.

 

(b)           Shares Closing.  The
closing for the purchase and sale of the Shares (the “Shares Closing”) shall
take place on the date on which the conditions set forth in Section 4
shall be satisfied or duly waived, or if Company and Investor mutually agree on
a different date, the date upon which they have mutually agreed (the “Shares Closing Date”).  At the Closing, Company shall deliver a
certificate registered in the name of Investor representing the Shares, against
delivery to Company by Investor of evidence of application of $450,000 toward
the principal of the Note (the “Receipt”).

 

2.             Representations,
Warranties and Covenants of Company.  The Company hereby represents and warrants to
Investor as of the date hereof that:

 

(a)           Corporate Status.  Company is
a corporation duly incorporated and validly subsisting under the laws of the
State of Delaware and has all requisite corporate power and authority under its
Certificate of Incorporation, as amended (the “Certificate”), and corporate bylaws, as amended, to own and
operate its properties and assets and to carry on its business as now
conducted.

 

1

 

(b)           Authorization.  Company
has all requisite corporate power and authority to execute, deliver and perform
this Agreement and all of its obligations hereunder.  The execution, delivery and performance by
Company of this Agreement and the issuance and delivery of the Shares have been
duly authorized by all requisite corporate action on the part of Company.  Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so
to qualify would have a material adverse effect on its business, properties or
financial condition.  This Agreement
constitutes a valid and legally binding obligation of Company, enforceable
against Company in accordance with its terms, except as such may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors’ rights in general and by general principles of equity.

 

(c)           Valid Issuance.  The
Shares, when issued, sold, delivered and paid for in accordance with the terms
hereof, will be duly and validly issued, fully paid and nonassessable, free of
all liens, charges and encumbrances and not subject to any preemptive rights,
and will not be subject to restrictions on transfer except as provided by
Sections 3(f) and 3(g).

 

(d)           Litigation.  As of the
date of this Agreement, there is no action, suit, proceeding or investigation
pending or currently threatened against Company which questions the validity of
this Agreement or the right of Company to enter into it or to consummate the
transactions contemplated hereby.  Except
as disclosed in the SEC Filings (as defined in Section 2(f), as of the
date of this Agreement there is no action, suit, proceeding or investigation
pending or currently threatened which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business, properties, operations, or financial condition
of Company and its subsidiaries, taken as a whole, as presently being
conducted.

 

(e)           Compliance with Other Instruments.  The
execution, delivery and performance of this Agreement by Company and the
consummation by Company of the transactions contemplated hereby will not
conflict with, or result in any violation of, or constitute, with or without
the passage of time and giving of notice, either a default under any provision
of its Certificate or bylaws or of any instrument, judgment, order, writ,
decree or material contract or an event which results in the creation of any
lien, charge or encumbrance upon any assets of Company.  Company is not in violation of its
Certificate or bylaws, or in default in the performance or observance of any
material provision of any material instrument or contract to which it is a
party or by which it is bound.  No third
party has any pre-emptive rights, or rights of first refusal or first
opportunity or similar rights to purchase, or to offer to purchase, all or any
part of the Shares.

 

(f)            Disclosure.  Investor
acknowledges that all of the Company’s annual, quarterly and current reports
that were required to be filed with the Securities and Exchange Commission (the
“SEC”) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) from January 1, 2009 through and including June 7, 2010 (the “SEC
Filings”) are available at the Company’s website or the website of the
SEC.  As of their respective dates, the
SEC Filings (including all documents incorporated by reference therein) do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except, in the case of any SEC Filing, any statement or omission therein which
has been corrected or otherwise disclosed or updated in a subsequent SEC
Filing.  The audited consolidated financial
statements of Company included or incorporated by reference in the Annual
Report for the Fiscal Year Ended December 31, 2009 as filed on Form

 

2

 

10-K
and the unaudited consolidated financial statements contained in the Quarterly
Report for the Quarter ended March 31, 2010 as filed on Form 10-Q
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (“GAAP”) and with each other, except as may be indicated therein or
in the notes thereto and except that the unaudited financial statements may not
contain all footnotes and adjustments required by GAAP, and fairly and
accurately present the financial position of Company and its consolidated
subsidiaries as at the dates thereof and the results of their operations and
statements of cash flows for the periods then ended, subject, in the case of
the unaudited interim consolidated financial statements, to normal year-end
adjustments, and recognizing that the results of operations for interim periods
are not necessarily indicative of Company’ operations for any other interim
period or full fiscal year.

 

(g)           For purposes of this Agreement the term “Affiliate”
means any individual or entity directly or indirectly controlling, controlled
by or under common control with, a party to this Agreement. Without limiting
the foregoing, the direct or indirect ownership of 50% or more of the
outstanding voting securities of an entity, or the right to receive 50% or more
of the profits or earnings of an entity, shall be deemed to constitute control.

 

3.             Representations,
Warranties and Covenants of Investor.  Investor hereby represents and warrants to
Company that:

 

(a)           Investor is an individual with full power,
authority and competence to execute and deliver this Agreement and perform his
obligations hereunder.  This Agreement
constitutes Investor’s valid and legally binding obligation, enforceable
against Investor in accordance with its terms, except as such may be limited by
bankruptcy, insolvency or other similar laws effecting the enforcement of
creditors’ rights in general or by general principles of equity.

 

(b)           Compliance with Other Instruments.  The
execution, delivery and performance of this Agreement by Investor and the
consummation by Investor of the transactions contemplated hereby will not
conflict with, or result in any violation of, or constitute, with or without
the passage of time and giving of notice, either a default under any provision
of any instrument, judgment, order, writ, decree or material contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of Investor.

 

(c)           Purchase Entirely for Own Account.  The
Shares will be acquired for Investor’s own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same and will not effect any such transaction except
in compliance with the registration requirements of the Securities Act of 1933,
as amended (the “1933 Act”) or pursuant to an exemption therefrom such as SEC Rule 144
promulgated under the 1933 Act (“Rule 144”).  Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Shares.

 

(d)           Investment Experience. 
Investor acknowledges that he can bear the economic risk of his
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares.  Investor also represents
he is an “accredited investor” as that term is defined in Regulation D under
the 1933 Act.

 

3

 

(e)           Information Provided.  Investor
has had full opportunity to ask any and all questions of the officers of
Company and to examine certain documents of Company, including the SEC Filings.

 

(f)            Restricted Securities. 
Investor understands that the Shares have not been registered under the
1933 Act and therefore are “restricted securities” under the federal securities
laws and that under such laws and applicable regulations, such Shares may be
resold without registration under the 1933 Act only in certain limited
circumstances.  In this connection, Investor
represents that he is familiar with Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act.

 

(g)           Legend.  It is
understood that the certificates evidencing the Shares may bear the following
legend:  “The Securities evidenced by
this certificate have not been registered under the Securities Act of 1933, as
amended (the “Act”), and are “restricted securities” as defined in Rule 144
promulgated under the Act.  The
securities may not be sold or offered for sale or otherwise distributed except (i) pursuant
to an effective registration statement for the securities under the Act; (ii) in
compliance with Rule 144; or (iii) after receipt of an opinion of
counsel reasonably satisfactory to Company that such registration or compliance
is not required as to said sale, offer or distribution.”

 

4.             Conditions
to Shares Closing.

 

(a)           Conditions of Investor’s Obligations at the Shares
Closing.  The obligations of Investor to Company at the
Shares Closing are subject to the fulfillment on or before the Shares Closing
of each of the following conditions by Company:

 

(i)            Representations
and Warranties.  The representations and warranties of Company
contained in Section 2 hereof shall be true and correct on and as of the
Shares Closing Date with the same effect as though such representations and
warranties had been made on and as of the Shares Closing Date, except for
representations and warranties that speak as of a specific date or time other
than the Shares Closing Date (which need only be true and correct in all
material respects as of such date and time).

 

(ii)           Performance.  Company shall have performed and
complied with all covenants, agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on
or before the Shares Closing.

 

(iii)          Compliance
Certificate.  The Chief Executive Officer, the President or
the Chief Financial Officer of Company shall deliver to Investor at the Shares
Closing a certificate, in the form attached as Exhibit A hereto,
certifying that the conditions specified in Sections 4(a)(i) and (ii) have
been fulfilled.

 

(iv)          Consummation
of the Sale Transaction.  The Company and EEC shall have completed the
Sale Transaction.

 

(v)           Tender
of Shares.  Company shall have issued and tendered for
delivery to Investor a certificate representing the Shares, subject only to delivery
of the Receipt in accordance with Section 1(b).

 

(vi)          Opinion
of Counsel.  Investor shall have received an opinion of
counsel to Company in substantially the form attached hereto as Exhibit C.

 

4

 

(b)           Conditions of Company’ Obligations at the Shares
Closing.  The obligations of Company to Investor at the
Shares Closing are subject to the fulfillment on or before the Shares Closing
of each of the following conditions by Investor:

 

(i)            Representations
and Warranties.  The representations and warranties of
Investor contained in Section 3 hereof shall be true and correct on and as
of the Shares Closing Date with the same effect as though such representations
and warranties had been made on and as of the Shares Closing Date.

 

(ii)           Performance.  Investor shall have performed
and complied with all covenants, agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Shares Closing.

 

(iii)          Compliance
Certificate.  Investor shall deliver to Company at the
Shares Closing a certificate, in the form attached as Exhibit D hereto,
certifying that the conditions specified in Sections 4(b)(i) and (ii) hereof
have been fulfilled.

 

(iv)          Consummation
of the Sale Transaction.  The Company and EEC shall have completed the
Sale Transaction.

 

(v)           Payment
of Purchase Price.  Investor shall have delivered to Company the
Receipt in accordance with Section 1(b), subject only to the delivery by
Company of a certificate representing the Shares.

 

5.             On
the closing date, which is expected to occur on or about [July 6,] 2010 (the “Shares Closing
Date”), upon satisfaction or waiver of all the conditions to closing set
forth in this Agreement, (i) the Receipt for the Shares will be delivered
by the Investor to the Company against delivery of the Shares, and (ii) the
Company shall cause its transfer agent to release to the Investor the number of
Shares being purchased by the Investor (such release shall be made through the
facilities of The Depository Trust Company’s DWAC system).  The provisions set forth in Exhibit B
hereto shall be incorporated herein by reference as if set forth fully herein.

 

6.             Miscellaneous.

 

(a)           This Agreement constitutes the entire understanding
and agreement between the parties with respect to the subject matter hereof,
and there are no agreements or understandings with respect to the subject
matter hereof which are not contained in this Agreement.  This Agreement
may be modified only in writing signed by the parties hereto.

 

(b)           The provisions of this Agreement are severable and,
in the event that any court or officials of any regulatory agency of competent
jurisdiction shall determine that any one or more of the provisions or part of
the provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a provision
of this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible, so long as such construction does
not materially adversely effect the economic rights of either party hereto.

 

5

 

(c)           All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and shall be
mailed, hand delivered, sent by a recognized overnight courier service such as
Federal Express, or sent via facsimile and confirmed by letter, to the party to
whom it is addressed at the addresses set forth on the signature page hereto
or such other address as such party may advise the other in writing.

 

(d)           This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. To the extent determined by such court,
the prevailing party shall reimburse the other party for any reasonable legal
fees and disbursements incurred in enforcement of, or protection of any of its
rights under this Agreement.

 

6

 

If
the foregoing correctly sets forth our agreement, please confirm this by
signing and returning to us the duplicate copy of this Agreement.

 

 

	
   

  	
   

  	
  EMRISE CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Carmine T. Oliva

  
	
   

  	
   

  	
  Name:

  	
  Carmine
  T. Oliva

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Address
  for Notice:

  
	
   

  	
   

  	
   

  	
  Emrise
  Corporation

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Eatontown,
  NJ

  
	
   

  	
   

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
   

  	
  Email:
  

  
	
   

  	
   

  	
   

  	
  Attention:
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
  INVESTOR:

  	
   

  	
   

  	
   

  	
   

  
					

 

 

	
   

  	
  /s/
  Charles Brand

  	
   

  	
   

  
	
   

  	
  Charles
  Brand

  	
   

  	
   

  

 

 

Address for Notice:

Charles Brand

 

 

 

Facsimile:

Email:

Taxpayer Identification Number:

 

7

 

EXHIBIT A

 

Not applicable

 

 

EXHIBIT B

 

FORM OF LEGAL OPINION

(subject to assumptions, qualifications and opinion committee review)

 

1.             The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware with corporate power and
authority to own its properties and assets, to carry on its business as
described in the Prospectus, and to perform its obligations under the
Agreement.

 

2.             The
Shares to be issued and sold by the Company pursuant to the Agreement have been
duly authorized and reserved for issuance and, when issued and paid for in
accordance with the provisions of the Agreement, will be duly and validly
issued and fully paid and non assessable.

 

3.             The
Stock Issuance Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company.  The Agreement is a legal,
valid and binding obligation of the Company enforceable against it in
accordance with its terms, except as the enforceability thereof may be subject
to or limited by (a) bankruptcy, insolvency, reorganization, arrangement,
moratorium, or other similar laws relating to or affecting the rights of
creditors, and (b) general equitable principles, regardless of whether the
issue of enforceability is considered in a proceeding in equity or law.

 

4.             The
execution and delivery of the Agreement and the performance by the Company of
its terms, including the issuance and sale of the Shares being delivered on the
date hereof, do not and will not, to our knowledge, conflict with and do not
and will not result in a material breach or violation by the Company of any of
the terms or provisions of, or constitute a default under, any agreement of the
Company identified in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2009 and the Company’s other reports filed with
the Commission pursuant to the Securities Exchange Act of 1934, as amended, nor
will such actions result in any violation by the Company of the Certificate of
Incorporation or the Bylaws.

 

5.             Exempt
from registration under the 1933 Act

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