Document:

Exhibit 10.2

 

NEITHER THESE SECURITIES
NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

EMRISE CORPORATION

 

SECOND AMENDED AND
RESTATED WARRANT

 

	
  Warrant No. PEM-1A

  	
  Original Issue Date: November 30, 2007

  

 

This Second Amended and
Restated Warrant (“Warrant”), dated as of February 12, 2009,
amends, restates and supersedes that certain Amended and Restated Warrant,
dated as of August 20, 2008 (the “First Amended Warrant”), granted to
Private Equity Management Group, LLC by EMRISE Corporation, a Delaware
corporation (the “Company”).  In
consideration of the surrender and cancellation of the First Amended Warrant,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company hereby certifies that, pursuant to
the terms of the Commitment Letter dated November 7, 2007 by and between
the Company and Private Equity Management Group, Inc., Holder is entitled
to purchase from the Company up to a total of 387,879 shares of Common Stock
(each such share, a “Warrant Share” and all such shares, the “Warrant
Shares”), at any time and from time to time from and after the Original
Issue Date and through and including November 30, 2014 (the “Expiration
Date”), and subject to the following terms and conditions:

 

1.             Definitions.  As used in this Warrant, the following terms
shall have the respective definitions set forth in this Section 1.

 

“Alternate
Consideration” shall have the meaning set forth in Section 9(b).

 

“Anti-Dilution
Excluded Securities” shall mean any of the following securities: (i) 
securities issued to employees, consultants, officers or directors of the
Company or Options granted by the Company to employees, consultants, officers
or directors of the Company pursuant to any option plan, agreement or other
arrangement duly adopted by the Company and the grant of which is approved by
the compensation committee of the Board of Directors; (ii) for the
avoidance of doubt, securities issued on the conversion of any Convertible
Securities or the exercise of any Options, in each case, outstanding on the
Original Issue Date; and (iii) for the 

 

 

avoidance of
doubt, securities issued in connection with a stock split, stock dividend,
combination, reorganization, recapitalization or other similar event for which
adjustment is made in accordance with the provisions of this Warrant.

 

“Business Day”
shall mean any day other than Saturday, Sunday or other day on which commercial
banks in the State of California are authorized or required by law to remain
closed.

 

“Common Stock”
shall mean the Company’s common stock, $0.0033
par value per share.

 

“Common Stock
Equivalents” shall mean Options and Convertible Securities.

 

“Convertible
Securities” shall mean any stock or securities (other than Options)
convertible into or exchangeable for Common Stock.

 

“Date of Exercise”
shall have the meaning set forth in Section 5(a).

 

“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended, or any successor
law, and regulations and rules issued pursuant to that Act or any
successor law.

 

“Exercise Price”
shall mean $1.99 per share, subject to adjustment in accordance with Section 9.

 

“Fundamental
Transaction” shall mean any of the following: (i) the Company effects
any merger or consolidation of the Company with or into another Person pursuant
to which the Company is not the surviving entity (other than a migratory merger
conducted for the purpose of changing the Company’s state of incorporation), (ii) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property.

 

“Holder” or
“Holders” shall mean the holder or holders, as the case may be, from
time to time, whether direct or beneficially, of Registrable Securities
pursuant to this Warrant, including, without limitation, Private Equity
Management Group LLC and any of its permitted transferees.

 

“Indemnified
Party” shall have the meaning set forth in Section 12(c)(iii).

 

“Indemnifying
Party” shall have the meaning set forth in Section 12(c)(iii).

 

“Losses”
shall have the meaning set forth in Section 12(c)(i).

 

“Person” shall
mean an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.

 

“New Warrant”
shall have the meaning set forth in Section 3.

 

2

 

“Options” shall
mean any outstanding rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.

 

“Original Issue Date”
shall mean the Original Issue Date first set forth on the first page of
this Warrant.

 

“Proceeding”
shall mean an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.

 

“Prospectus”
shall mean the final prospectus filed with respect to the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including one or more other final prospectuses
filed with respect to post-effective amendments, and all material incorporated
by reference in such Prospectus.

 

“Registrable
Securities” shall mean: (i) the Warrant Shares; and (ii) any
securities issued or issuable with respect to such Warrant Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization with respect to
any of the securities referenced above.

 

“Registration
Statement” shall mean the registration statements contemplated by Section 12,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.

 

“Rule 144”
shall mean Rule 144 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC having substantially the same effect as
such Rule.

 

“SEC” shall mean
the United States Securities and Exchange Commission.

 

“Securities Act”
shall mean the Securities Act of 1933, as amended, or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.

 

“Subsidiary” shall
mean any direct or indirect subsidiary of the Company.

 

“Trading Day” means (i) a day on which the
Common Stock is traded on a Trading Market, or (ii) if the Common Stock is
not quoted on any Trading Market, a day on which the Common Stock is quoted in
the over the counter market as reported by the Pink Sheets, LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as
set forth in (i) and (ii) hereof, then Trading Day shall mean a
Business Day.

 

3

 

“Trading Market” means whichever of NYSE Arca,
the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global
Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common
Stock is listed or quoted for trading on the date in question.

 

“Warrant Register”
shall have the meaning set forth in Section 2.

 

2.             Registration of Warrant.  The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.

 

3.             Registration of Transfers.  The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at its address specified herein.  Upon any such registration or transfer, a new
Warrant to purchase Common Stock, in substantially the form of this Warrant
(any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant
by the transferee thereof shall be deemed the acceptance by such transferee of
all of the rights and obligations of a holder of a Warrant.

 

4.             Exercise and Duration of Warrants.

 

(a)          This Warrant shall be
exercisable by the registered Holder at any time and from time to time on or
after the Original Issue Date through and including the Expiration Date.  At 5:00 p.m., California time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value.  The
Company may not call or redeem any portion of this Warrant without the prior
written consent of the affected Holder.

 

(b)          If at any time after November 30,
2008  there is no effective
Registration Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also be
exercised at such time by means of a “cashless exercise” in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the
Holder.

 

Y = the number of Warrant Shares with respect to which
this

Warrant is being exercised.

 

4

 

A = the average of the closing sale prices for the
five Business

Days immediately prior to (but not including) the Exercise Date.

 

B = the applicable Exercise Price.

 

5.             Delivery of Warrant Shares.

 

(a)          To effect exercises
hereunder, the Holder shall not be required to physically surrender this
Warrant unless the aggregate Warrant Shares represented by this Warrant is
being exercised.  Upon delivery of the
Exercise Notice (in the form attached hereto) to the Company (with the attached
Warrant Shares Exercise Log) at its address for notice set forth herein and
upon payment of the applicable Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, the Company shall
promptly (but in no event later than three (3) Business Days after the
Date of Exercise) issue and deliver to the Holder, a certificate for the
Warrant Shares issuable upon such exercise, which, shall contain the following
restrictive securities legend:

 

THESE SECURITIES HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY
APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.

 

The Company shall, upon
request of the Holder and subsequent to the date on which the Registration
Statement covering the resale of the Warrant Shares has been declared effective
by the SEC, use its reasonable best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if
its current transfer agent cannot deliver Warrant Shares electronically through
the Depository Trust Corporation.  A “Date
of Exercise” means the date on which the Holder shall have delivered to the
Company: (i) the Exercise Notice (with the Warrant Exercise Log attached
to it), appropriately completed and duly signed and (ii) if the Holder is
not utilizing the cashless exercise provisions set forth in Section 10(b),
payment of the applicable Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

 

5

 

(b)          If by the third (3rd) Business Day after a Date of
Exercise the Company fails to deliver the required number of Warrant Shares in
the manner required pursuant to Section 5(a), then the Holder will
have the right to rescind such exercise.

 

(c)          The Company’s
obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of Warrant Shares. 
Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing Warrant Shares
upon exercise of the Warrant as required pursuant to the terms hereof.

 

6.             Charges, Taxes and Expenses.  Issuance and delivery of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

 

7.             Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity (which shall not include a surety bond), if
requested.  Applicants for a New Warrant
under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe.  If a New
Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.

 

8.             Reservation of Warrant Shares.  The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant 

 

6

 

Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.

 

9.             Certain Adjustments.  The Exercise Prices and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.

 

(a)          Stock Dividends
and Splits.  If the Company, at any
time while this Warrant is outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines
outstanding shares of Common Stock into a smaller number of shares, then in
each such case the Exercise Prices shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding immediately
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of
this paragraph shall become effective immediately after the payment of the
dividend or the making of the distribution, and any adjustment pursuant to
clause (ii) or (iii) of this paragraph shall become effective
immediately after the effective date of such subdivision or combination.

 

(b)          Fundamental
Transactions.  If, at any time while
this Warrant is outstanding there is a Fundamental Transaction, then as a
condition to the Company consummating any such Fundamental Transaction, the
Holder shall have the right thereafter to receive, upon exercise of this
Warrant, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Prices shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Prices among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  At the Holder’s
option and request, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant substantially
in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the
aggregate Exercise Price upon exercise thereof. 
The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (b) and insuring
that the Warrant 

 

7

 

(or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

 

(c)          Number of Warrant
Shares.  Simultaneously with any
adjustment to the Exercise Prices pursuant to this Section 9, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Prices payable hereunder for the adjusted number of
Warrant Shares shall be the same as the aggregate Exercise Prices in effect
immediately prior to such adjustment.

 

(d)          Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.

 

(e)          Notice of
Adjustments.  Upon the occurrence of
each adjustment pursuant to this Section 9, the Company at its
expense will promptly compute such adjustment in accordance with the terms of
this Warrant and prepare a certificate setting forth such adjustment, including
a statement of the adjusted Exercise Prices and adjusted number or type of
Warrant Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s transfer agent.

 

(f)            Notice of
Corporate Events.  If the Company (i) declares
a dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of
rights or warrants to subscribe for or purchase any capital stock of the
Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits shareholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction at least ten (10) calendar days prior to the applicable record
or effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however,
that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.

 

(g)          Subsequent Equity
Sales. If the Company at any time while this Warrant is outstanding, shall
offer, sell, grant any option to purchase or offer, sell or grant any right to
reprice its securities, or otherwise dispose of or issue (or announce any
offer, sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock, at an 

 

8

 

effective price
per share less than the then either Exercise Price (each such issuance, a “Dilutive
Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common
Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of
Common Stock at an effective price per share which is less than either Exercise
Price, such issuance shall be deemed to have occurred for less than the
Exercise Price), then each Exercise Price shall be reduced to such price and,
in each case, the number of Warrant Shares issuable hereunder shall be
increased such that the aggregate Exercise Prices payable hereunder, after
taking into account the decrease in the Exercise Prices, shall be equal to the
aggregate Exercise Prices prior to such adjustment.  Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of
the Exercise Prices in the case of the issuance or sale from and after the
Original Issue Date of Anti-Dilution Excluded Securities.  The Company shall notify the Holder in
writing, no later than the Business Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this section, indicating therein
the applicable issuance price, or if applicable, reset price, exchange price,
conversion price and other pricing terms.

 

10.           Payment of Exercise Price. Except in
connection with a cashless exercise as set forth in Section 4(b),
the Holder shall pay the Exercise Price by delivering to the Company
immediately available funds.

 

11.           No Fractional Shares.  No fractional shares of Warrant Shares will
be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing sale price of one Warrant Share as reported
by the applicable Trading Market on the date of exercise.

 

12.           Registration Rights.

 

(a)          Incidental
Registration. If at any time prior to the Expiration Date the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans (the “Registration
Statement”), then the Company shall send to Holder written notice of such
determination and, if within fifteen (15) days after receipt of such notice,
any such Holder shall so request in writing, the Company shall include in such
Registration Statement all or any part of such Registrable Securities such
holder requests to be registered.  The
Company will take all steps reasonably necessary in order to ensure that the
Holder is given the practical opportunity to exercise this Warrant prior to
such time so as to have its Warrant Shares included in the Registration
Statement.

 

9

 

(b)           Registration
Expenses. All fees and expenses incident to the performance of or
compliance with Section 12 this Agreement by the Company, except as
and to the extent specified in this Section 12(b), shall be borne
by the Company whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to
the Registration Statement.  The fees and
expenses referred to in the foregoing sentence shall include, without
limitation:  (A) all registration
and filing fees; (B) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the holders of a
majority of the Registrable Securities included in the Registration Statement);
(C) messenger, telephone and delivery expenses; (D) fees and
disbursements of counsel for the Company; (E) Securities Act liability
insurance, if the Company so desires such insurance; and (F) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Section 12,
including, without limitation, the Company’s independent public accountants
(including the expenses of any comfort letters or costs associated with the
delivery by independent public accountants of a comfort letter or comfort
letters).  Except as otherwise expressly
provided in this Agreement, any fees or expenses incurred by Holder or its
legal counsel or Holder’s other advisors or consultants in connection with any
review of the Registration Statement or with respect to any other matters
related to this Agreement shall be borne solely by Holder.

 

(c)          Indemnification.

 

(i)           Indemnification by the Company.  The Company shall, notwithstanding
any termination of this Warrant, indemnify and hold harmless the Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to perform
under a margin call of Common Stock), investment advisors and employees of each
of them, each Person who controls the Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, costs of
preparation and attorneys’ fees) and expenses (collectively, “Losses”)
(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in the Registration
Statement, any related Prospectus or any form of prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising solely out
of or based upon any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case
of any related Prospectus or form of prospectus or supplement thereto, in the
light of the circumstances under which they were made) not misleading, except
to the extent, but only to the extent, that such untrue statements or omissions
are based upon information regarding the Holder furnished in writing to the
Company by the Holder expressly for use therein.  The Company shall notify the Holder promptly
of the institution, 

 

10

 

threat or assertion of any  Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.

 

(ii)          Indemnification by Holder. 
The Holder shall indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review), as incurred, arising solely
out of or based solely upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any related
Prospectus, or any form of prospectus or form of prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising solely out
of or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any related
Prospectus or supplement thereto, in the light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent, that
such untrue statement or omission or alleged untrue statement or omission is
contained in information so furnished by the Holder in writing to the Company
expressly for inclusion in the Registration Statement or such related
Prospectus.  In no event shall the
liability of the Holder hereunder be greater in amount than the dollar amount
of the net proceeds received by the Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.

 

(iii)         Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment of
all fees and expenses incurred in connection with defense thereof; provided,
however, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except to the extent that such failure shall have
proximately and materially adversely prejudiced the Indemnifying Party.

 

An Indemnified Party
shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties unless: (x) the
Indemnifying Party has agreed in writing to pay such fees and expenses; or (y) the
Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to such Indemnified
Party in any such Proceeding; or (z) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been 

 

11

 

advised by counsel
that a conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.

 

All fees and expenses of
the Indemnified Party (including reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section 12(c))
shall be paid to the Indemnified Party, as incurred, within ten (10) Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, however, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined that
such Indemnified Party is not entitled to indemnification hereunder).

 

(iv)         Contribution.  If a
claim for indemnification under Section 12(c)(i) or Section 12(c)(ii) is
unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. 
The relative fault of such Indemnifying Party and Indemnified Party
shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission of a material fact, has been taken or made by,
or relates to information supplied by, such Indemnifying, Party or Indemnified
Party, and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 12(c)(iii), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms.

 

12

 

The parties hereto agree
that it would not be just and equitable if contribution pursuant to this Section 12(c)(iv) were
determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section 12(c)(iv),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount of the proceeds actually received by such Holder from the
sale of the Registrable Securities subject to the proceeding.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

 

The indemnity and
contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

 

13.           Notices.  Any and all notices or other communications
or deliveries hereunder (including, without limitation, any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 5:00 p.m.
(California time) on a Business Day, (ii) the next Business Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that
is not a Business Day or later than 5:00 p.m. (California time) on any
Business Day, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.  The addresses for such communications shall
be:  (i) if to the Company, to
EMRISE Corporation, 9485 Haven Avenue, Suite 100, Rancho Cucamonga,
California 91730, Attn: President, or to Facsimile No.: (909) 987-5186 (or such
other address as the Company shall indicate in writing in accordance with this
Section), or (ii) if to the Holder, to the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section.

 

14.           Warrant Agent.  The Company shall serve as warrant agent
under this Warrant.  Upon ten (10) days’
notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act.  Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed (by
first class mail, postage prepaid) to the Holder at the Holder’s last address
as shown on the Warrant Register.

 

15.           Holder Status.  The Holder is an “accredited investor” as
defined in Rule 501(a) under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities
Act.

 

13

 

16.           Miscellaneous.

 

(a)          This Warrant shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns.  Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. 
This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.

 

(b)          THE CORPORATE LAWS OF
THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF
THE COMPANY AND ITS SHAREHOLDERS.  ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.  THE
COMPANY AND HOLDER HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS SITTING IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA,
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR HOLDER HEREUNDER,
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF THIS WARRANT, AND HEREBY
IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING
BROUGHT BY THE COMPANY OR ANY HOLDER, ANY CLAIM THAT IT IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER.  EACH PARTY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY)
TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF
PROCESS AND NOTICE THEREOF.  NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW.  THE COMPANY AND HOLDER HEREBY WAIVE
ALL RIGHTS TO A TRIAL BY JURY.

 

(c)          The headings herein
are for convenience only, do not constitute a part of this Warrant and shall
not be deemed to limit or affect any of the provisions hereof.

 

(d)          In case any one or
more of the provisions of this Warrant shall be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and
upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

14

 

(e)          Prior to exercise of
this Warrant, the Holder hereof shall not, by reason of by being a Holder, be
entitled to any rights of a shareholder with respect to the Warrant Shares.

 

(f)           This Warrant may be
transferred by the original Holder to any other Person provided such Person is
an “accredited investor” as defined in Rule 501(a) under the
Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act.

 

[Signature Page Follows]

 

15

 

IN WITNESS WHEREOF, the
Company has caused this Warrant to be duly executed by its authorized officer
as of the date first indicated above.

 

	
   

  	
  EMRISE CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
   

  	
  Carmine T. Oliva,
  President and

  
	
   

  	
   

  	
  Chief Executive Officer

  

 

16

 

IN WITNESS WHEREOF, the
Holder has caused this Warrant to be duly executed by its authorized officer as
of the date first indicated above.

 

 

	
   

  	
  PRIVATE EQUITY
  MANAGEMENT GROUP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Anderson

  
	
   

  	
  Name: Robert Anderson

  
	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter Paul Mendel

  
	
   

  	
  Name:  Peter Paul Mendel

  
	
   

  	
  Title: Director

  
					

 

17Exhibit 10.3

 

NEITHER THESE SECURITIES
NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

EMRISE CORPORATION

 

SECOND AMENDED AND
RESTATED WARRANT

 

Warrant No. PEM-1B                                                                                                     Original
Issue Date: November 30, 2007

 

This Second Amended and
Restated Warrant (“Warrant”), dated as of February 12, 2009,
amends, restates and supersedes that certain Amended and Restated Warrant,
dated as of August 20, 2008 (the “First Amended Warrant”), granted to
Private Equity Management Group, LLC by EMRISE Corporation, a Delaware
corporation (the “Company”).  In
consideration of the surrender and cancellation of the First Amended Warrant,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company hereby certifies that, pursuant to
the terms of the Commitment Letter dated November 7, 2007 by and between
the Company and Private Equity Management Group, Inc., Holder is entitled
to purchase from the Company up to a total of 387,879 shares of Common Stock
(each such share, a “Warrant Share” and all such shares, the “Warrant
Shares”), at any time and from time to time from and after the Original
Issue Date and through and including November 30, 2014 (the “Expiration
Date”), and subject to the following terms and conditions:

 

1.             Definitions.  As used in this Warrant, the following terms
shall have the respective definitions set forth in this Section 1.

 

“Alternate
Consideration” shall have the meaning set forth in Section 9(b).

 

“Anti-Dilution
Excluded Securities” shall mean any of the following securities: (i) 
securities issued to employees, consultants, officers or directors of the
Company or Options granted by the Company to employees, consultants, officers
or directors of the Company pursuant to any option plan, agreement or other
arrangement duly adopted by the Company and the grant of which is approved by
the compensation committee of the Board of Directors; (ii) for the
avoidance of doubt, securities issued on the conversion of any Convertible
Securities or the exercise of any Options, in each case, outstanding on the
Original Issue Date; and (iii) for the 

 

 

avoidance of
doubt, securities issued in connection with a stock split, stock dividend,
combination, reorganization, recapitalization or other similar event for which
adjustment is made in accordance with the provisions of this Warrant.

 

“Business Day”
shall mean any day other than Saturday, Sunday or other day on which commercial
banks in the State of California are authorized or required by law to remain
closed.

 

“Common Stock”
shall mean the Company’s common stock, $0.0033
par value per share.

 

“Common Stock
Equivalents” shall mean Options and Convertible Securities.

 

“Convertible
Securities” shall mean any stock or securities (other than Options)
convertible into or exchangeable for Common Stock.

 

“Date of Exercise”
shall have the meaning set forth in Section 5(a).

 

“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended, or any successor
law, and regulations and rules issued pursuant to that Act or any
successor law.

 

“Exercise Price”
shall mean $1.80 per share, subject to adjustment in accordance with Section 9.

 

“Fundamental
Transaction” shall mean any of the following: (i) the Company effects
any merger or consolidation of the Company with or into another Person pursuant
to which the Company is not the surviving entity (other than a migratory merger
conducted for the purpose of changing the Company’s state of incorporation), (ii) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property.

 

“Holder” or
“Holders” shall mean the holder or holders, as the case may be, from
time to time, whether direct or beneficially, of Registrable Securities
pursuant to this Warrant, including, without limitation, Private Equity
Management Group LLC and any of its permitted transferees.

 

“Indemnified
Party” shall have the meaning set forth in Section 12(c)(iii).

 

“Indemnifying
Party” shall have the meaning set forth in Section 12(c)(iii).

 

“Losses”
shall have the meaning set forth in Section 12(c)(i).

 

“Person” shall
mean an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.

 

“New Warrant”
shall have the meaning set forth in Section 3.

 

2

 

“Options” shall
mean any outstanding rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.

 

“Original Issue Date”
shall mean the Original Issue Date first set forth on the first page of
this Warrant.

 

“Proceeding”
shall mean an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.

 

“Prospectus”
shall mean the final prospectus filed with respect to the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including one or more other final prospectuses
filed with respect to post-effective amendments, and all material incorporated
by reference in such Prospectus.

 

“Registrable
Securities” shall mean: (i) the Warrant Shares; and (ii) any
securities issued or issuable with respect to such Warrant Shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization with respect to
any of the securities referenced above.

 

“Registration
Statement” shall mean the registration statements contemplated by Section 12,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.

 

“Rule 144”
shall mean Rule 144 promulgated by the SEC pursuant to the Securities Act,
as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC having substantially the same effect as
such Rule.

 

“SEC” shall mean
the United States Securities and Exchange Commission.

 

“Securities Act”
shall mean the Securities Act of 1933, as amended, or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.

 

“Subsidiary” shall
mean any direct or indirect subsidiary of the Company.

 

“Trading Day” means (i) a day on which the
Common Stock is traded on a Trading Market, or (ii) if the Common Stock is
not quoted on any Trading Market, a day on which the Common Stock is quoted in the
over the counter market as reported by the Pink Sheets, LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as
set forth in (i) and (ii) hereof, then Trading Day shall mean a
Business Day.

 

3

 

“Trading Market” means whichever of NYSE Arca,
the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global
Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common
Stock is listed or quoted for trading on the date in question.

 

“Warrant Register”
shall have the meaning set forth in Section 2.

 

2.             Registration of Warrant.  The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.

 

3.             Registration of Transfers.  The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at its address specified herein.  Upon any such registration or transfer, a new
Warrant to purchase Common Stock, in substantially the form of this Warrant
(any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant
by the transferee thereof shall be deemed the acceptance by such transferee of
all of the rights and obligations of a holder of a Warrant.

 

4.             Exercise and Duration of Warrants.

 

(a)           This
Warrant shall be exercisable by the registered Holder at any time and from time
to time on or after the Original Issue Date through and including the
Expiration Date.  At 5:00 p.m.,
California time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value.  The Company may not call or redeem any
portion of this Warrant without the prior written consent of the affected
Holder.

 

(b)           If at any
time after November 30, 2008  there
is no effective Registration Statement registering, or no current prospectus
available for, the resale of the Warrant Shares by the Holder, then this
Warrant may also be exercised at such time by means of a “cashless exercise” in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the
Holder.

 

Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.

 

4

 

A = the average of the closing sale prices for the
five Business Days immediately prior to (but not including) the Exercise Date.

 

B = the applicable Exercise Price.

 

5.             Delivery of Warrant Shares.

 

(a)           To effect
exercises hereunder, the Holder shall not be required to physically surrender
this Warrant unless the aggregate Warrant Shares represented by this Warrant is
being exercised.  Upon delivery of the
Exercise Notice (in the form attached hereto) to the Company (with the attached
Warrant Shares Exercise Log) at its address for notice set forth herein and
upon payment of the applicable Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, the Company shall
promptly (but in no event later than three (3) Business Days after the
Date of Exercise) issue and deliver to the Holder, a certificate for the
Warrant Shares issuable upon such exercise, which, shall contain the following
restrictive securities legend:

 

THESE SECURITIES HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY
APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.

 

The Company shall, upon
request of the Holder and subsequent to the date on which the Registration
Statement covering the resale of the Warrant Shares has been declared effective
by the SEC, use its reasonable best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if
its current transfer agent cannot deliver Warrant Shares electronically through
the Depository Trust Corporation.  A “Date
of Exercise” means the date on which the Holder shall have delivered to the
Company: (i) the Exercise Notice (with the Warrant Exercise Log attached
to it), appropriately completed and duly signed and (ii) if the Holder is
not utilizing the cashless exercise provisions set forth in Section 10(b),
payment of the applicable Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

 

5

 

(b)           If by the
third (3rd) Business
Day after a Date of Exercise the Company fails to deliver the required number
of Warrant Shares in the manner required pursuant to Section 5(a),
then the Holder will have the right to rescind such exercise.

 

(c)           The
Company’s obligations to issue and deliver Warrant Shares in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation
of law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing Warrant Shares upon exercise of the Warrant as
required pursuant to the terms hereof.

 

6.             Charges, Taxes and Expenses.  Issuance and delivery of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

 

7.             Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity (which shall not include a surety bond), if
requested.  Applicants for a New Warrant
under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe.  If a New
Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.

 

8.             Reservation of Warrant Shares.  The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant 

 

6

 

Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.

 

9.             Certain Adjustments.  The Exercise Prices and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.

 

(a)           Stock
Dividends and Splits.  If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii) combines
outstanding shares of Common Stock into a smaller number of shares, then in
each such case the Exercise Prices shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding immediately
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of
this paragraph shall become effective immediately after the payment of the
dividend or the making of the distribution, and any adjustment pursuant to
clause (ii) or (iii) of this paragraph shall become effective
immediately after the effective date of such subdivision or combination.

 

(b)           Fundamental
Transactions.  If, at any time while
this Warrant is outstanding there is a Fundamental Transaction, then as a
condition to the Company consummating any such Fundamental Transaction, the
Holder shall have the right thereafter to receive, upon exercise of this
Warrant, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Prices shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Prices among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  At the Holder’s
option and request, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant substantially
in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the
aggregate Exercise Price upon exercise thereof. 
The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (b) and insuring
that the Warrant

 

7

 

(or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

 

(c)           Number
of Warrant Shares.  Simultaneously
with any adjustment to the Exercise Prices pursuant to this Section 9,
the number of Warrant Shares that may be purchased upon exercise of this
Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Prices payable hereunder for the adjusted
number of Warrant Shares shall be the same as the aggregate Exercise Prices in
effect immediately prior to such adjustment.

 

(d)           Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.

 

(e)           Notice
of Adjustments.  Upon the occurrence
of each adjustment pursuant to this Section 9, the Company at its
expense will promptly compute such adjustment in accordance with the terms of
this Warrant and prepare a certificate setting forth such adjustment, including
a statement of the adjusted Exercise Prices and adjusted number or type of
Warrant Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s transfer agent.

 

(f)            Notice
of Corporate Events.  If the Company (i) declares
a dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of
rights or warrants to subscribe for or purchase any capital stock of the
Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits shareholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction at least ten (10) calendar days prior to the applicable record
or effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however,
that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.

 

(g)           Subsequent
Equity Sales. If the Company at any time while this Warrant is outstanding,
shall offer, sell, grant any option to purchase or offer, sell or grant any
right to reprice its securities, or otherwise dispose of or issue (or announce
any offer, sale, grant or any option to purchase or other disposition) any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock, at an

 

8

 

effective price
per share less than the then either Exercise Price (each such issuance, a “Dilutive
Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common
Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of
Common Stock at an effective price per share which is less than either Exercise
Price, such issuance shall be deemed to have occurred for less than the
Exercise Price), then each Exercise Price shall be reduced to such price and,
in each case, the number of Warrant Shares issuable hereunder shall be
increased such that the aggregate Exercise Prices payable hereunder, after
taking into account the decrease in the Exercise Prices, shall be equal to the
aggregate Exercise Prices prior to such adjustment.  Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of
the Exercise Prices in the case of the issuance or sale from and after the
Original Issue Date of Anti-Dilution Excluded Securities.  The Company shall notify the Holder in
writing, no later than the Business Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this section, indicating therein
the applicable issuance price, or if applicable, reset price, exchange price,
conversion price and other pricing terms.

 

10.           Payment of Exercise Price. Except in
connection with a cashless exercise as set forth in Section 4(b),
the Holder shall pay the Exercise Price by delivering to the Company
immediately available funds.

 

11.           No Fractional Shares.  No fractional shares of Warrant Shares will
be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing sale price of one Warrant Share as reported
by the applicable Trading Market on the date of exercise.

 

12.           Registration Rights.

 

(a)           Incidental
Registration. If at any time prior to the Expiration Date the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans (the “Registration
Statement”), then the Company shall send to Holder written notice of such
determination and, if within fifteen (15) days after receipt of such notice,
any such Holder shall so request in writing, the Company shall include in such
Registration Statement all or any part of such Registrable Securities such
holder requests to be registered.  The
Company will take all steps reasonably necessary in order to ensure that the
Holder is given the practical opportunity to exercise this Warrant prior to
such time so as to have its Warrant Shares included in the Registration
Statement.

 

9

 

(b)           Registration
Expenses. All fees and expenses incident to the performance of or
compliance with Section 12 this Agreement by the Company, except as
and to the extent specified in this Section 12(b), shall be borne
by the Company whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to
the Registration Statement.  The fees and
expenses referred to in the foregoing sentence shall include, without
limitation:  (A) all registration
and filing fees; (B) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the holders of a
majority of the Registrable Securities included in the Registration Statement);
(C) messenger, telephone and delivery expenses; (D) fees and
disbursements of counsel for the Company; (E) Securities Act liability
insurance, if the Company so desires such insurance; and (F) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Section 12, including,
without limitation, the Company’s independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters).  Except as otherwise expressly provided in
this Agreement, any fees or expenses incurred by Holder or its legal counsel or
Holder’s other advisors or consultants in connection with any review of the
Registration Statement or with respect to any other matters related to this Agreement
shall be borne solely by Holder.

 

(c)           Indemnification.

 

(i)            Indemnification by the Company.  The
Company shall, notwithstanding any termination of this Warrant,
indemnify and hold harmless the Holder, the officers, directors, agents,
brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and employees of each of them, each
Person who controls the Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of
preparation and attorneys’ fees) and expenses (collectively, “Losses”)
(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any related Prospectus or any form of prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or
arising solely out of or based upon any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any related Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based upon information regarding the Holder
furnished in writing to the Company by the Holder expressly for use
therein.  The Company shall notify the
Holder promptly of the institution, 

 

10

 

threat or assertion of
any  Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.

 

(ii)           Indemnification by Holder.  The Holder shall indemnify and hold harmless
the Company, the directors, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses (as determined by a
court of competent jurisdiction in a final judgment not subject to appeal or
review), as incurred, arising solely out of or based solely upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any related Prospectus, or any form of prospectus or
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising solely out of or based solely upon any
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any related Prospectus or supplement
thereto, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement
or omission or alleged untrue statement or omission is contained in information
so furnished by the Holder in writing to the Company expressly for inclusion in
the Registration Statement or such related Prospectus.  In no event shall the liability of the Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by the Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

 

(iii)          Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment of
all fees and expenses incurred in connection with defense thereof; provided,
however, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except to the extent that such failure shall have
proximately and materially adversely prejudiced the Indemnifying Party.

 

An Indemnified Party
shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties unless: (x) the
Indemnifying Party has agreed in writing to pay such fees and expenses; or (y) the
Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to such Indemnified
Party in any such Proceeding; or (z) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been 

 

11

 

advised by counsel
that a conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

 

All fees and expenses of
the Indemnified Party (including reasonable fees and expenses to the extent
incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section 12(c))
shall be paid to the Indemnified Party, as incurred, within ten (10) Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, however, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).

 

(iv)          Contribution.  If a claim for indemnification under Section 12(c)(i) or
Section 12(c)(ii) is unavailable to an Indemnified Party (by
reason of public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying, Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 12(c)(iii),
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.

 

12

 

The parties hereto agree
that it would not be just and equitable if contribution pursuant to this Section 12(c)(iv) were
determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section 12(c)(iv),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount of the proceeds actually received by such Holder from the
sale of the Registrable Securities subject to the proceeding.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

 

The indemnity and
contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

 

13.           Notices.  Any and all notices or other communications
or deliveries hereunder (including, without limitation, any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 5:00 p.m.
(California time) on a Business Day, (ii) the next Business Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section on a day that is not a
Business Day or later than 5:00 p.m. (California time) on any Business
Day, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.  The addresses for such communications shall
be:  (i) if to the Company, to
EMRISE Corporation, 9485 Haven Avenue, Suite 100, Rancho Cucamonga,
California 91730, Attn: President, or to Facsimile No.: (909) 987-5186 (or such
other address as the Company shall indicate in writing in accordance with this
Section), or (ii) if to the Holder, to the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section.

 

14.           Warrant Agent.  The Company shall serve as warrant agent
under this Warrant.  Upon ten (10) days’
notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act.  Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed (by
first class mail, postage prepaid) to the Holder at the Holder’s last address
as shown on the Warrant Register.

 

15.           Holder Status.  The Holder is an “accredited investor” as
defined in Rule 501(a) under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities
Act.

 

13

 

16.           Miscellaneous.

 

(a)           This
Warrant shall be binding on and inure to the benefit of the parties hereto and
their respective successors and assigns. 
Subject to the preceding sentence, nothing in this Warrant shall be
construed to give to any Person other than the Company and the Holder any legal
or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing
signed by the Company and the Holder and their successors and assigns.

 

(b)           THE
CORPORATE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE
RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS.  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.  THE COMPANY AND HOLDER HEREBY IRREVOCABLY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, FOR THE ADJUDICATION OF
ANY DISPUTE BROUGHT BY THE COMPANY OR HOLDER HEREUNDER, IN CONNECTION HEREWITH
OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH
RESPECT TO THE ENFORCEMENT OF THIS WARRANT, AND HEREBY IRREVOCABLY WAIVE, AND
AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR
ANY HOLDER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE
SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF.  NOTHING CONTAINED HEREIN SHALL
BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW.  THE COMPANY AND HOLDER HEREBY WAIVE
ALL RIGHTS TO A TRIAL BY JURY.

 

(c)           The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

 

(d)           In case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

14

 

(e)           Prior to
exercise of this Warrant, the Holder hereof shall not, by reason of by being a
Holder, be entitled to any rights of a shareholder with respect to the Warrant
Shares.

 

(f)            This
Warrant may be transferred by the original Holder to any other Person provided
such Person is an “accredited investor” as defined in Rule 501(a) under
the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act.

 

[Signature Page Follows]

 

15

 

IN WITNESS WHEREOF, the
Company has caused this Warrant to be duly executed by its authorized officer
as of the date first indicated above.

 

	
   

  	
  EMRISE CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Carmine T. Oliva

  
	
   

  	
   

  	
  Carmine T. Oliva,
  President and

  
	
   

  	
   

  	
  Chief Executive Officer

  

 

16

 

IN WITNESS WHEREOF, the
Holder has caused this Warrant to be duly executed by its authorized officer as
of the date first indicated above.

 

	
   

  	
  PRIVATE EQUITY
  MANAGEMENT GROUP,

  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert Anderson

  
	
   

  	
  Name: Robert Anderson

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Peter Paul Mendel

  
	
   

  	
  Name: Peter Paul Mendel

  
	
   

  	
  Title: Director

  

 

17

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