Document:

EXHIBIT 10.11

 

GUARANTY

 

THIS GUARANTY (this “Guaranty”)
is executed and delivered as a deed as of November 30, 2007, by each of
the parties that are signatories hereto (such parties are referred to
hereinafter each individually as a “Guarantor,” and collectively, jointly and severally, as
the “Guarantors”), for the benefit of GVEC Resource IV Inc., as
Arranger and Agent (the “Agent”) and the Lenders (as defined below). All
capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Credit Agreement (as herein defined).

 

RECITALS:

 

A.                                   Pursuant
to that certain Credit Agreement of even date herewith (as amended, restated,
supplemented or otherwise modified from time to time, including all schedules
thereto, the “Credit Agreement”) between and among EMRISE Corporation, a
Delaware corporation (the “Parent”), each of Parent’s Subsidiaries
identified on the signature pages thereof (such Subsidiaries, together
with the Parent, the “Borrowers”), the Agent, and the Lenders from time
to time party thereto (the “Lenders”), the Lenders are willing to make
certain financial accommodations available to the Borrowers from time to time
pursuant to the terms and conditions thereof.

 

B.                                     The
Guarantors are direct or indirect wholly owned subsidiaries of the Parent and,
as such, will benefit by virtue of the financial accommodations extended to the
Parent by the Lenders.

 

C.                                     In
order to induce the Lenders to enter into the Credit Agreement and to extend
the financial accommodations to the Borrowers pursuant to the Credit Agreement,
and in consideration thereof, the Guarantors have agreed to guarantee the
Guaranteed Obligations.

 

NOW, THEREFORE, as an
inducement to the Lenders to enter into the Credit Agreement, and for other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:

 

ARTICLE I

NATURE AND SCOPE OF GUARANTY

 

Section 1.1.                                   Guaranty.
Each Guarantor hereby unconditionally, absolutely and irrevocably guarantees to
the Agent, for the benefit of the Lenders, and each Guarantor shall be jointly
and severally liable for (a) the due and punctual payment of all
Obligations including, without limitation, the principal of, and interest
(including any interest that, but for the commencement of any applicable
bankruptcy or insolvency proceeding, would have accrued) on, any and all
premium on, and any and all expenses incurred in connection with, the
Obligations pursuant to the terms of the Credit Agreement, and (b) the due
and punctual performance of all of the covenants and obligations owing to the
Agent and the Lenders (the “Guaranteed Obligations”).

 

Section 1.2.                                   Nature
of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty
of payment and not a guaranty of collection. This Guaranty may not be
revoked by any

 

 

Guarantor and shall continue to be effective with
respect to any Guaranteed Obligations arising or created after any attempted
revocation by any Guarantor. The fact that at any time or from time to time the
Guaranteed Obligations may be increased or reduced shall not release or
discharge the obligation of any Guarantor to the Agent or any Lender with
respect to the Guaranteed Obligations. This Guaranty may be enforced by the
Agent and any permitted assignee of the Agent and shall not be discharged by
the assignment or negotiation of all or part of the Agent’s or any Lender’s
rights under the Credit Agreement.

 

Section 1.3.                                   Payment
By the Guarantors. If all or any part of the Guaranteed Obligations
shall not be punctually paid when due, whether at demand, maturity,
acceleration or otherwise, the Guarantors shall, immediately upon demand by the
Agent, and without presentment, protest, notice of protest, notice of
non-payment, notice of intention to accelerate the maturity, notice of
acceleration of the maturity, or any other notice whatsoever, pay in lawful
money of the United States of America, the amount due on the Guaranteed
Obligations to the Agent at the Agent’s address as set forth herein. Such
demand(s) may be made at any time coincident with or after the time for
payment of all or part of the Guaranteed Obligations, and may be made
from time to time with respect to the same or different items of Guaranteed
Obligations. Such demand shall be deemed made, given and received in accordance
with the notice provisions hereof.

 

Section 1.4.                                   No
Duty To Pursue Others. The liability of each Guarantor shall be direct and
immediate as a primary and not a secondary obligation or liability. It shall
not be necessary for the Agent (and each Guarantor hereby waives any rights
which such Guarantor may have to require the Agent), in order to enforce
the obligations of each Guarantor hereunder, first to (a) institute suit
or exhaust its remedies against any Borrower or others liable on the Loans or
the Guaranteed Obligations or any other Person, (b) enforce the Agent’s
rights against any collateral which shall ever have been given to secure the
Loans, (c) enforce the Agent’s rights against any other guarantors of the
Guaranteed Obligations, (d) join the Borrowers or any others liable on the
Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust
any remedies available to the Agent or any Lender against any collateral which
shall ever have been given to secure the Loans, or (f) resort to any other
means of obtaining payment of the Guaranteed Obligations. Neither the Agent nor
the Lenders shall be required to mitigate damages or take any other action to
reduce, collect or enforce the Guaranteed Obligations.

 

Section 1.5.                                   Waivers.

 

(a)                                  Without
limitation to any other waivers contained in this Guaranty, each Guarantor
acknowledges and agrees to the provisions of the Loan Documents, and hereby
waives notice of: (i) any loans or advances made by the Lenders to any of
the Borrowers; (ii) acceptance of this Guaranty; (iii) any amendment
or extension of the Credit Agreement or of any other Loan Documents; (iv) the
execution and delivery by the Borrowers and the Agent or any Lender of any
other loan or credit agreement or of any Borrower’s execution and delivery of
any promissory notes or other documents arising under the Loan Documents or in
connection with the Collateral; (v) the occurrence of any breach by any
Borrower under any of the Loan Documents or an Event of Default; (vi) the
Agent’s or any Lender’s transfer or disposition of the Guaranteed Obligations,
or any part thereof; (vii) sale or foreclosure (or posting or
advertising for sale or foreclosure) of any collateral for the Guaranteed
Obligations; (viii) protest, proof of

 

2

 

non-payment or default by
any Borrower; and (ix) any other action at any time taken or omitted by
the Agent or any Lender, and, generally, all demands and notices of every kind
in connection with this Guaranty, the Loan Documents, any documents or
agreements evidencing, securing or relating to any of the Guaranteed
Obligations and/or the obligations hereby guaranteed.

 

(b)                                 Without
limitation to any other waivers contained in this Guaranty, each Guarantor
hereby waives, to the fullest extent permitted by law:  (i) presentment, demand, protest,
diligence, notice of demand, notice of protest, notice of dishonor, notice of
nonperformance, notice of non-payment, notice of acceptance and all other
notices and other formalities which may be required by statute, rule of
law or otherwise to preserve intact Agent’s rights against each Guarantor under
this Guaranty; (ii) all benefits and defenses under California Civil Code
(“CC”) Section 2849, including the right, if any, to the benefit of, or to
direct application of, any security hypothecated to, the Agent, until all the
Obligations, howsoever arising, shall have been paid and/or performed; (iii) all
benefits and defenses under CC Section 2845, including the right to
require the Agent to proceed against any Borrower or to pursue any other remedy
in the Agent’s power; (iv) all benefits and defenses under CC Section 2850,
including the right to require the Agent to proceed against or exhaust any
security or Collateral the Agent may hold; (v) any defense arising by
reason of any disability or other defense of any Borrower or by reason of the
cessation from any cause whatsoever of the liability of any Borrower other than
full payment of and full performance of the Obligations; (vi) all statutes
of limitations as a defense in any action or proceeding brought against any
Guarantor by the Agent, to the fullest extent permitted by law (and each
Guarantor agrees that any partial payment by any Borrower or other
circumstances which operate to toll any statute of limitations as to any
Borrower shall also operate to toll the statute of limitations as to any
Guarantor); (vii) any defense based upon Agent’s failure to perfect or
continue the perfection of any lien or security interest in Collateral that
secures the Obligations; (viii) any defense arising due to any failure by the
Agent to inform any Guarantor of any facts the Agent may now or
hereafter know about any Borrower or any Borrower’s financial condition; (ix) all
benefits and defenses under CC Section 2809 purporting to reduce a
guarantor’s obligations in proportion to the principal obligation, and each
Guarantor agrees that by doing so such Guarantors’ liability may be larger
in amount or more burdensome than that of the Borrowers; (x) all benefits and
defenses under CC Section 2810, and each Guarantor agrees that by doing so
such Guarantor is liable even if the Borrowers had no liability at the time of
execution of the Loan Documents or thereafter ceased to be liable; (xi) all
rights and benefits of CC Section 2819, and each Guarantor agrees that by
doing so such Guarantors’ liability shall continue even if the Agent alters any
Obligation in any respect or the Agent’s remedies or rights against any
Borrower are in any way impaired or suspended without such Guarantors’ consent,
whether or not due to the act or omission of the Agent; (xii) any defense based
on any action taken or omitted by the Agent in any bankruptcy or other voluntary
or involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships; and (xiii) all other rights and remedies now or
hereafter accorded by applicable law to sureties or guarantors.

 

(c)                                  Without
limiting the generality of the foregoing and without limitation to any other
waivers in this Guaranty, each Guarantor waives, to the fullest extent
permissible by law, all benefits and defenses under CC Sections 2847 and 2848
and agrees that each Guarantor shall have no right of subrogation or
reimbursement against any Borrower and no right of contribution against any
other guarantor or pledgor unless and until all Obligations have been satisfied
and

 

3

 

the Agent has released,
transferred or disposed of all of its right, title and interest in any
Collateral.

 

(d)                                 Without
limiting the generality of the foregoing or any other waivers in this Guaranty,
each Guarantor hereby waives, to the fullest extent permitted by law, any and
all rights and defenses a guarantor or surety would otherwise have under
applicable California law to the enforcement of this Guaranty, including, but
not limited to, all rights and defenses arising under or by virtue of or
pursuant to the provisions of CC Sections 2787 to 2855, inclusive, and CC
Sections 2899 and 3433, and any additional rights or defenses relating any of
the foregoing statutory provisions pursuant to any applicable judicial
decisions of the State of California.

 

(e)                                  Each
Guarantor acknowledges that the waivers made by such Guarantor in this Guaranty
are made knowing that their intent is to deprive the Guarantors of the benefits
and defenses that would or could otherwise be available to the Guarantors under
the statutory provisions referenced herein.

 

Section 1.6.                                   Payment
of Expenses. In the event that any Guarantor should breach or fail to
timely perform any provision of this Guaranty, the Guarantors shall pay on
demand to the Agent all costs and expenses (including court costs and
reasonable attorneys’ fees) incurred by the Agent in the enforcement hereof or
the preservation of the Agent’s rights hereunder. The covenant contained in
this Section 1.6 shall survive the payment of the Guaranteed
Obligations.

 

Section 1.7.                                   Effect
of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy,
reorganization, receivership, administration or other debtor relief law, or any
judgment, order or decision thereunder, the Agent or any Lender must rescind or
restore any payment, or any part thereof, received by the Agent or any
Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any
prior release or discharge from the terms of this Guaranty given to any
Guarantor by the Agent shall be without effect, and this Guaranty shall remain
in full force and effect. It is the intention of each Guarantor that such
Guarantor’s obligations hereunder shall not be discharged except by such
Guarantor’s performance of such obligations and then only to the extent of such
performance.

 

Section 1.8.                                   Waiver
of Subrogation, Reimbursement and Contribution. Notwithstanding anything to
the contrary contained in this Guaranty and without limitation to any other
waivers contained in this Guaranty, each Guarantor hereby unconditionally and
irrevocably waives, releases and abrogates any and all rights it may now
or hereafter have under any agreement, at law or in equity (including, without
limitation, any law subrogating such Guarantor to the rights of the Agent or
the Lenders), to assert any claim against or seek contribution, indemnification
or any other form of reimbursement from the Borrower or any other party
liable for payment of any or all of the Guaranteed Obligations for any payment
made by such Guarantor under or in connection with this Guaranty or otherwise
until ninety one (91) days after the Agent has received payment in full of
the Obligations.

 

4

 

ARTICLE II

EVENTS AND CIRCUMSTANCES NOT REDUCING OR 

DISCHARGING GUARANTOR’S OBLIGATIONS

 

Each Guarantor hereby
consents and agrees to each of the following, and agrees that such Guarantor’s
obligations under this Guaranty shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and without limitation
to any other waivers contained in this Guaranty waives any common law,
equitable, statutory or other rights (including without limitation rights to
notice) which the Guarantor might otherwise have as a result of or in
connection with any of the following:

 

Section 2.1.                                   Modifications.
Any renewal, extension, increase, modification, alteration or rearrangement of
all or any part of the Guaranteed Obligations, the Credit Agreement, the
other Loan Documents, or any other document, instrument, contract or
understanding between the Borrowers and the Agent or any Lender, or any other
parties, pertaining to the Guaranteed Obligations or any failure of the Agent
to notify the Guarantor of any such action.

 

Section 2.2.                                   Adjustment.
Any adjustment, indulgence, forbearance or compromise that might be granted or
given by the Agent or any Lender to any Borrower or any other guarantor.

 

Section 2.3.                                   Condition
of Borrowers or Guarantors. (a) The insolvency, bankruptcy,
reorganization, arrangement, adjustment, composition, liquidation, disability,
dissolution, administration, receivership or lack of power of any Borrower, any
Guarantor, any other guarantor or any other party at any time liable for the
payment of all or part of the Guaranteed Obligations; or any dissolution
of any Borrower or any Guarantor, (b) Agent’s or any Lender’s election, in
any proceeding instituted under (i) the United States Bankruptcy Code, of
the application of Section 1111(b)(2) of the United States Bankruptcy
Code or any successor statute or (ii) any equivalent or analogous
provision or procedure under the laws of any other applicable jurisdiction (an “Analogous
Provision”), (c) any borrowing or any grant of a security interest
under Section 364 of the United States Bankruptcy Code or an Analogous
Provision or (d) any action taken or omitted by the Agent or any Lender in
any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation, administration, receivership or other like proceeding
(each, an “Insolvency Proceeding”)
involving any Borrower, any Guarantor or any other guarantor, including any
election to have the Agent’s or any Lender’s claim allowed as being secured,
partially secured or unsecured, any extension of credit by the Agent or any Lender
to any Borrower, any Guarantor or any other guarantor in any Insolvency
Proceeding and the taking and holding by the Agent or any Lender of any
security for any such extension of credit, (d) any sale, lease or transfer
of any or all of the assets of any Borrower, any Guarantor or any other
guarantor, or (e) any changes in the shareholders, partners or members of any
Borrower, any Guarantor or any other guarantor; or any reorganization of any Borrower
or any Guarantor.

 

Section 2.4.                                   Invalidity
of Guaranteed Obligations. The invalidity, illegality or unenforceability
of all or any part of the Guaranteed Obligations, or any document or
agreement executed in connection with the Guaranteed Obligations, for any
reason whatsoever, including without limitation the fact that (a) the
Guaranteed Obligations, or any part thereof, exceed the amount permitted
by law, (b) the act of creating the Guaranteed Obligations or any part thereof
is

 

5

 

ultra vires, (c) the
officers or representatives executing the Credit Agreement or the other Loan
Documents or otherwise creating the Guaranteed Obligations acted in excess of
their authority, (d) the Guaranteed Obligations violate applicable usury
laws, (e) any Borrower has valid defenses, claims or offsets (whether at
law, in equity or by agreement) (other than a defense based upon the actual
payment of the Guaranteed Obligations sought to be enforced), which render the
Guaranteed Obligations wholly or partially uncollectible from such Borrower, (f) the
creation, performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument representing part of
the Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed Obligations) is
illegal, uncollectible or unenforceable, (g) the Credit Agreement or any
of the other Loan Documents have been forged or otherwise are irregular or not
genuine or authentic, (h) the failure of consideration for the granting of
this Guaranty, (i) the expiration of any statute of limitations affecting
the liability of any Guarantor hereunder, the liability of any Borrower or any
guarantor under the Loan Documents; it being agreed that each Guarantor shall
remain liable hereon regardless of whether any Borrower or any other Person be
found not liable on the Guaranteed Obligations or any part thereof for any
reason.

 

Section 2.5.                                   Release
of Obligors. Any full or partial release of the liability of any Borrower
on the Guaranteed Obligations, or any part thereof, or of any
co-guarantors, or any other Person now or hereafter liable, whether directly or
indirectly, jointly, severally, or jointly and severally, to pay, perform,
guarantee or assure the payment of the Guaranteed Obligations, or any part thereof,
it being recognized, acknowledged and agreed by each Guarantor that any Guarantor
may be required to pay the Guaranteed Obligations in full without
assistance or support of any other party, and each Guarantor has not been
induced to enter into this Guaranty on the basis of a contemplation, belief,
understanding or agreement that other Persons will be liable to pay the
Guaranteed Obligations, or that the Agent or the Lenders will look to other
Persons to pay the Guaranteed Obligations.

 

Section 2.6.                                   Other
Collateral. The taking or accepting of any other security, collateral or
guaranty, or other assurance of payment, for all or any part of the
Guaranteed Obligations.

 

Section 2.7.                                   Release
of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including without limitation
negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, property or security at any time existing in connection with, or
assuring or securing payment of, all or any part of the Guaranteed
Obligations, or the application by any Borrower of the proceeds of the Loans
for purposes other than the purposes represented by such Borrower to the Agent
and Lenders or intended or understood by the Agent and Lenders or Guarantors.

 

Section 2.8.                                   Care
and Diligence. The failure of the Agent or any Lender to diligently
exercise its rights and remedies under any of the Loan Documents, or to
exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of
such collateral, property or security, including but not limited to any
neglect, delay, omission, failure or refusal of the Agent or any Lender (a) to
take or prosecute any action for the collection of any of the Guaranteed
Obligations or (b) to foreclose, or initiate any action to foreclose, or,
once commenced, prosecute to completion any action to foreclose upon any
security therefor, or (c) to take or prosecute any action in connection
with any instrument or

 

6

 

agreement evidencing or
securing all or any part of the Guaranteed Obligations, (d) to take
any other acts or omissions of which vary, increase or decrease the risk on any
Guarantor, other than any loss, damage liability or cost arising from the Agent’s
or such Lender’s gross negligence or willful misconduct following the Agent’s
taking title to the Collateral.

 

Section 2.9.                                   Lender Disclosure. The failure of the
Agent or the Lenders to disclose to the Guarantors (a) any facts it may now
or hereafter know regarding any Borrower, regardless of whether the Agent or
the Lenders have reason to believe that any such facts materially increase the
risk beyond that which any Guarantor intends to assume or has reason to believe
that such facts are unknown to such Guarantor, each Guarantor acknowledging
that it is fully responsible for being and keeping informed of the financial
condition and affairs of the Borrowers, or (b) any default, demand of
performance or notice of acceleration to the Borrowers or any other Person with
respect to the Loans or the Guaranteed Obligations.

 

Section 2.10.                             Unenforceability.
The fact that any collateral, security, security interest or lien contemplated or
intended to be given, created or granted as security for the repayment of the
Guaranteed Obligations, or any part thereof, shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to any
other security interest or lien, it being recognized and agreed by each Guarantor
that such Guarantor is not entering into this Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectibility
or value of any of the collateral for the Guaranteed Obligations.

 

Section 2.11.                             Offset.
The Guaranteed Obligations and the liabilities and obligations of each Guarantor
to the Agent hereunder shall not be reduced, discharged or released by reason
of any existing or future right of offset, claim or defense (other than a
defense based upon the actual payment of the Guaranteed Obligations sought to
be enforced) of any Borrower against the Agent, any Lender or any other Person,
or against payment of the Guaranteed Obligations, whether such right of offset,
claim or defense arises in connection with the Guaranteed Obligations (or the
transactions creating the Guaranteed Obligations) or otherwise.

 

Section 2.12.                             Merger.
The reorganization, merger or consolidation of any Borrower into or with any
Person.

 

Section 2.13.                             Preference.
Any payment by any Borrower to the Agent or any Lender is held to constitute a
preference under bankruptcy laws, or for any reason the Agent or such Lender is
required to refund such payment or pay such amount to such Borrower or someone
else.

 

Section 2.14.                             Attempted Revocation. Any
revocation or repudiation hereof by any Guarantor or the revocation or
repudiation of any of the Loan Documents by any Borrower or any other Person,
including any right any Guarantor might have to revoke this Guaranty pursuant
to the terms of any of the Loan Documents.

 

Section 2.15.                             Surety Defenses. Any other
suretyship defense that might, but for the terms hereof, be available to any Guarantor,
including without limitation, any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in any
other aspects more burdensome than that of any Borrower.

 

7

 

Section 2.16.                             Other
Actions Taken or Omitted. Any other action taken or omitted to be taken
with respect to the Loan Documents, the Guaranteed Obligations, or the security
and collateral therefor, other than any loss, damage liability or cost arising
from the Agent’s gross negligence or willful misconduct following the Agent’s
taking title to the Collateral, whether or not such action or omission
prejudices any Guarantor or increases the likelihood that such Guarantor will
be required to pay the Guaranteed Obligations pursuant to the terms hereof, it
being the unambiguous and unequivocal intention of each Guarantor that such Guarantor
shall be obligated to pay the Guaranteed Obligations when due, notwithstanding
any occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise or particularly
described herein, which obligation shall be deemed satisfied only upon the full
and final payment and satisfaction of the Guaranteed Obligations.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

To induce the Agent and
the Lenders to enter into the Loan Documents and extend credit to the Borrowers,
each Guarantor jointly and severally represents and warrants to the Agent and
the Lenders as follows, as of the date hereof, and as of each date that the
Lenders make a Term Loan or Advance to any Borrower under the Credit Agreement:

 

Section 3.1.                                   Existence.
Each Guarantor is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation.

 

Section 3.2.                                   Benefit.
Each Guarantor is an Affiliate of the Parent and has received, or will receive,
direct or indirect benefit from the making of this Guaranty with respect to the
Guaranteed Obligations.

 

Section 3.3.                                   Familiarity
and Reliance. Each Guarantor is familiar with, and has independently
reviewed books and records regarding, the financial condition of the Borrowers
and is familiar with the value of any and all collateral intended to be created
as security for the payment of the Loans or Guaranteed Obligations; however, each
Guarantor is not relying on such financial condition or the collateral as an
inducement to enter into this Guaranty.

 

Section 3.4.                                   No
Representations by the Agent and Lenders. None of the Agent, the Lenders,
nor any other party has made any representation, warranty or statement to any Guarantor
in order to induce such Guarantor to execute this Guaranty.

 

Section 3.5.                                   Guarantors’
Financial Condition. As of the date hereof , and after giving effect to
this Guaranty and the contingent obligation evidenced hereby, each Guarantor
is, and will be, solvent, and has and will have assets which, fairly valued,
exceed its obligations, liabilities (including contingent liabilities) and
debts, and has and will have property and assets sufficient to satisfy and
repay its obligations and liabilities.

 

Section 3.6.                                   Legality.
This Guaranty has been duly authorized
by all necessary corporate action and the execution, delivery and
performance by each Guarantor of this Guaranty and the consummation of the
transactions contemplated hereunder do not, and will not, contravene or
conflict with its constitutional documents or any law, statute or regulation
whatsoever to which such Guarantor is subject or constitute a default (or an
event which with

 

8

 

notice or lapse of time
or both would constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or
other instrument to which such Guarantor is a party or which may be
applicable to such Guarantor. This Guaranty is a legal and binding obligation
of each Guarantor and is enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to the enforcement of creditors’ rights.

 

Section 3.7.                                   Financial
Statements. Any and all balance sheets, net worth statements and other
financial data that have been given or may be given to the Agent with
respect to each Guarantor did or will, at the time of such delivery, fairly and
accurately present the financial condition of such Guarantor in all material
respects.

 

Section 3.8.                                   Representations
and Warranties of Borrowers. All representations and warranties made by the
Borrowers with respect to the Guarantors in the Credit Agreement are true and
correct in all material respects.

 

All representations and
warranties made by each Guarantor herein shall survive the execution hereof.

 

ARTICLE IV

 

SUBORDINATION OF CERTAIN INDEBTEDNESS

 

Section 4.1.                                   Subordination
of All Guarantor Claims. As used herein, the term “Guarantor Claims”
shall mean all debts and liabilities of the Borrowers to any Guarantor, whether
such debts and liabilities now exist or are hereafter incurred or arise, or
whether the obligations of the Borrowers thereon be direct, contingent,
primary, secondary, several, joint and several, or otherwise, and irrespective
of whether such debts or liabilities be evidenced by note, contract, open
account, or otherwise, and irrespective of the Person or Persons in whose favor
such debts or liabilities may, at their inception, have been, or may hereafter
be created, or the manner in which they have been or may hereafter be
acquired by any Guarantor. The Guarantor Claims shall include without limitation
all rights and claims of any Guarantor against the Borrowers (arising as a
result of subrogation or otherwise) as a result of such Guarantors’ payment of
all or a portion of the Guaranteed Obligations. Upon the occurrence of a Default
or an Event of Default, no Guarantor shall receive or collect, directly or
indirectly, from any Borrower or any other party any amount upon the Guarantor
Claims.

 

Section 4.2.                                   Claims
in Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy,
reorganization, receivership, administration or other debtor relief law, or any
judgment, order or decision involving any Guarantor as debtor, the Agent shall
have the right to prove its claim in any such proceeding so as to establish its
rights hereunder and receive directly from the receiver, trustee or other court
custodian dividends and payments which would otherwise be payable upon
Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to
the Agent for the benefit of the Lenders. Should the Agent receive, for
application against the Guaranteed Obligations, any such dividend or payment which
is otherwise payable to any Guarantor, and which, as between such Borrower and
such Guarantor,

 

9

 

shall constitute a credit
against the Guarantor Claims, then upon payment to the Agent in full of the Guaranteed
Obligations, such Guarantor shall become subrogated to the rights of the Agent
to the extent that such payments to the Agent on the Guarantor Claims have
contributed toward the liquidation of the Guaranteed Obligations, and such
subrogation shall be with respect to that proportion of the Guaranteed
Obligations which would have been unpaid if the Agent had not received
dividends or payments upon the Guarantor Claims.

 

Section 4.3.                                   Payments
Held in Trust. Notwithstanding anything to the contrary in this Guaranty,
in the event that any Guarantor shall receive any funds, payments, claims or
distributions which are prohibited by this Guaranty, such Guarantor agrees to
hold in trust for the Agent, an amount equal to the amount of all funds,
payments, claims or distributions so received, and agrees that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions so received except to pay such funds, payments, claims and/or
distributions promptly to the Agent, and each Guarantor covenants promptly to
pay the same to the Agent.

 

Section 4.4.                                   Liens
Subordinate. Each Guarantor agrees that any liens, security interests,
judgment liens, charges or other encumbrances upon any Borrowers’ assets
securing payment of the Guarantor Claims shall be and remain inferior and
subordinate to any liens, security interests, judgment liens, charges or other
encumbrances upon such Borrowers’ assets securing payment of the Guaranteed
Obligations, regardless of whether such encumbrances in favor of any Guarantor
or the Agent presently exist or are hereafter created or attach. Until ninety
one (91) days after the Obligations shall have been paid in full and the
Guaranteed Obligations fully satisfied, without the prior written consent of
the Agent, no Guarantor shall (a) exercise or enforce any creditor’s right
it may have against any Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceedings (judicial
or otherwise, including without limitation the commencement of, or joinder in,
any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency
proceeding) to enforce any liens, mortgages, deeds of trust, security
interests, collateral rights, judgments or other encumbrances on assets of any
Borrower held by such Guarantor.

 

ARTICLE V

 

MISCELLANEOUS

 

Section 5.1.                                   No
Waiver; Cumulative Remedies; Compliance with Laws. No failure or delay by
the Agent or any Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the Loan
Documents. The remedies provided in the Loan Documents are cumulative and not
exclusive of any remedies provided by law. The Agent may comply with any
applicable state or federal law requirements in connection with a disposition
of the Collateral and such compliance will not be considered adversely to
affect the commercial reasonableness of any sale of the Collateral.

 

10

 

Section 5.2.                                   Enforcement.
The Agent shall have the right to enforce this Guaranty in separate actions
against any Guarantor, or by an action against any other Person liable for the
Guaranteed Obligations.

 

Section 5.3.                                   Severability
of Provisions. Any provision of this Guaranty which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.

 

Section 5.4.                                   Amendments.
This Guaranty may be amended only by an instrument in writing executed by
the party or an authorized representative of the party against whom such
amendment is sought to be enforced.

 

Section 5.5.                                   Parties
Bound; Assignment. This Guaranty shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
legal representatives; provided, however, that no Guarantor may, without the
prior written consent of the Agent, assign any of its rights, powers, duties or
obligations hereunder.

 

Section 5.6.                                   Headings.
Article, Section and subsection headings in this Guaranty are
included herein for convenience of reference only and shall not constitute a part of
this Guaranty for any other purpose.

 

Section 5.7.                                   Recitals.
The recital and introductory paragraphs hereof are a part hereof, form a
basis for this Guaranty and shall be considered prima facie evidence of the
facts and documents referred to therein.

 

Section 5.8.                                   Telefacsimile
Execution. Delivery of an executed signature page to this Guaranty by
telefacsimile shall be equally as effective as delivery of an original executed
signature page of this Guaranty. Any party delivering an executed signature
page of this Guaranty by telefacsimile also shall deliver an original
executed signature page of this Guaranty but the failure to deliver an
original executed signature page shall not affect the validity,
enforceability, and binding effect of this Guaranty.

 

Section 5.9.                                   Rights
and Remedies. If any Guarantor becomes liable for any indebtedness owing by
any Borrower to the Agent or Lenders, by endorsement or otherwise, other than
under this Guaranty, such liability shall not be in any manner impaired or
affected hereby and the rights of the Agent hereunder shall be cumulative of
any and all other rights that the Agent and the Lenders may ever have
against such Guarantor. The exercise by the Agent of any right or remedy
hereunder or under any other instrument, or at law or in equity, shall not
preclude the concurrent or subsequent exercise of any other right or remedy.

 

Section 5.10.                             Complete
Agreement. This Guaranty, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof.

 

Section 5.11.                             Cooperation.
Each Guarantor acknowledges that the Agent and its successors and assigns may,
subject to any applicable limitations set forth in the Credit Agreement assign,
or sell participations in, its rights under the Credit Agreement pursuant to
the

 

11

 

terms thereof. Each Guarantor
shall reasonably cooperate with the Agent and Lenders in effecting any such assignment
or participation.

 

Section 5.12.                             Reinstatement
in Certain Circumstances. If at any time any payment of the principal of or
interest on the Term Loans, any amount payable on the Advances or any other
amount payable by any Borrower under the Loan Documents relating to the Term
Loans or the Advances is rescinded or must be otherwise restored or returned
upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise,
each Guarantors’ obligations hereunder with respect to such payment shall be
reinstated as though such payment has been due but not made at such time.

 

Section 5.13.                             Survival.
Notwithstanding anything to the contrary contained in this Guaranty or in any
other Loan Document, this Guaranty shall continue in full force and effect
until full indefeasible payment of the Guaranteed Obligations.

 

Section 5.14.                             Choice
of Law and Venue; Judicial Reference; Waiver of Jury Trial; Service of Process.

 

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

 

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

 

12

 

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

 

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

 

(e)                                  OTHER
THAN WITH RESPECT TO ANY PROCEEDING IN THE STATE COURTS OF CALIFORNIA, EACH
GUARANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH GUARANTOR CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER.

 

(f)                                    EACH
GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS THE
ADMINISTRATIVE BORROWER, AS ITS DESIGNEE,

 

13

 

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

 

Section 5.15.                             Notices.
All notices and other communications hereunder to Agent shall be in writing and
shall be mailed, sent or delivered in accordance with the Credit Agreement. All
notices and other communications hereunder to any Guarantor shall be in writing
and shall be (a) personally
delivered, (b) sent by overnight courier of international reputation, (c) transmitted
by telecopy, or (d) sent as electronic mail, to the following (or at such
other business address, telecopier number, or e-mail address as the Guarantor may hereafter
designate in writing to the other parties hereto):

 

	
   

  	
  EMRISE Electronics Ltd.

  
	
   

  	
  Brunswick Road, Cobbs Wood

  
	
   

  	
  Ashford, Kent TN23 1EH

  
	
   

  	
  United Kingdom

  
	
   

  	
  Attn: D. John Donovan

  
	
   

  	
   

  
	
  With a copy to:

  	
  Emrise Corporation

  
	
   

  	
  9485 Haven Avenue, Suite 100

  
	
   

  	
  Rancho Cucamonga, CA 91730

  
	
   

  	
  Attn: D. John Donovan

  
	
   

  	
   

  
	
   

  	
  Rutan & Tucker, LLP

  
	
   

  	
  611 Anton Blvd., Suite 1400

  
	
   

  	
  Costa Mesa, CA 92626

  
	
   

  	
  Attn: Larry A. Cerutti, Esq.

  
	
   

  	
  Fax No.: (714) 546-9035

  

 

14

 

Section 5.16.                             Severability.
Any provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
portions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]

 

15

 

IN WITNESS WHEREOF, each Guarantor
has executed and delivered this Guaranty as a deed as of the date first set
forth above.

 

	
   

  	
   

  	
  GUARANTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EMRISE ELECTRONICS LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ G.M.J. JEFFRIES

  	
   

  
	
   

  	
   

  	
  Name:

  	
  G.M.J Jeffries

  	
   

  
	
   

  	
   

  	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ CARMINE T. OLIVA

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Title

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  XCEL POWER SYSTEMS, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ G.M.J. JEFFRIES

  	
   

  
	
   

  	
   

  	
  Name:

  	
  G.M.J Jeffries

  	
   

  
	
   

  	
   

  	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ CARMINE T. OLIVA

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Title

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PASCALL ELECTRONIC (HOLDINGS)

  LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ G.M.J. JEFFRIES

  	
   

  
	
   

  	
   

  	
  Name:

  	
  G.M.J Jeffries

  	
   

  
	
   

  	
   

  	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ CARMINE T. OLIVA

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Title

  	
   Director

  	
   

  
							

 

 

16

 

	
   

  	
   

  	
  PASCALL ELECTRONICS LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ G.M.J. JEFFRIES

  	
   

  
	
   

  	
   

  	
  Name:

  	
  G.M.J Jeffries

  	
   

  
	
   

  	
   

  	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ CARMINE T. OLIVA

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Title

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BELIX WOUND COMPONENTS LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ G.M.J. JEFFRIES

  	
   

  
	
   

  	
   

  	
  Name:

  	
  G.M.J Jeffries

  	
   

  
	
   

  	
   

  	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ CARMINE T. OLIVA

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Title

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE BELIX COMPANY LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ G.M.J. JEFFRIES

  	
   

  
	
   

  	
   

  	
  Name:

  	
  G.M.J Jeffries

  	
   

  
	
   

  	
   

  	
  Title:

  	
   Director

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /S/ CARMINE T. OLIVA

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Title

  	
   Director

  	
   

  
							

 

17

 

	
  Acknowledged and agreed:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AGENT AND ARRANGER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GVEC RESOURCE IV INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /S/ ROBERT J. ANDERSON

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Robert J. Anderson

  	
   

  	
   

  	
   

  
	
  Title:

  	
   Authorized Signatory

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /S/ PETER PAUL MENDEL

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Peter Paul Mendel

  	
   

  	
   

  	
   

  
	
  Title:

  	
   Authorized SignatoryEXHIBIT 10.12

 

 

Dated 30 November 2007

 

 

(1)  THE COMPANIES
NAMED IN THIS DEED AS CHARGING COMPANIES

 

 

- and –

 

 

(2) GVEC RESOURCE IV INC.

(as Collateral Agent)

 

 

COMPOSITE
DEBENTURE

 

 

 

CONTENTS

 

	
  Clause

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS AND INTERPRETATION

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  COVENANT TO PAY

  	
  5

  
	
   

  	
   

  	
   

  
	
  3.

  	
  GRANT OF SECURITY INTEREST

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.

  	
  CONVERSION OF FLOATING CHARGE

  	
  8

  
	
   

  	
   

  	
   

  
	
  5.

  	
  CONTINUING SECURITY

  	
  8

  
	
   

  	
   

  	
   

  
	
  6.

  	
  NEGATIVE PLEDGE

  	
  8

  
	
   

  	
   

  	
   

  
	
  7.

  	
  FURTHER ASSURANCE

  	
  9

  
	
   

  	
   

  	
   

  
	
  8.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  10

  
	
   

  	
   

  	
   

  
	
  9.

  	
  COVENANTS OF THE CHARGING
  COMPANIES

  	
  11

  
	
   

  	
   

  	
   

  
	
  10.

  	
  DEBTS AND ACCOUNTS

  	
  15

  
	
   

  	
   

  	
   

  
	
  11.

  	
  ENFORCEMENT OF SECURITY

  	
  16

  
	
   

  	
   

  	
   

  
	
  12.

  	
  APPOINTMENT AND POWERS OF
  RECEIVER OR ADMINISTRATOR

  	
  16

  
	
   

  	
   

  	
   

  
	
  13.

  	
  APPLICATION OF PROCEEDS

  	
  19

  
	
   

  	
   

  	
   

  
	
  14.

  	
  POWER OF ATTORNEY

  	
  19

  
	
   

  	
   

  	
   

  
	
  15.

  	
  PROTECTION OF THIRD PARTIES

  	
  20

  
	
   

  	
   

  	
   

  
	
  16.

  	
  NOTICE OF SUBSEQUENT SECURITY
  INTEREST

  	
  20

  
	
   

  	
   

  	
   

  
	
  17.

  	
  CONSOLIDATION OF ACCOUNTS AND
  SET-OFF

  	
  20

  
	
   

  	
   

  	
   

  
	
  18.

  	
  CURRENCY AND THE EURO

  	
  21

  
	
   

  	
   

  	
   

  
	
  19.

  	
  APPROPRIATION AND SUSPENSE
  ACCOUNT

  	
  21

  
	
   

  	
   

  	
   

  
	
  20.

  	
  PAYMENTS

  	
  22

  
	
   

  	
   

  	
   

  
	
  21.

  	
  DELAY, OMISSION, AMENDMENTS AND
  CONSENTS

  	
  22

  
	
   

  	
   

  	
   

  
	
  22.

  	
  COSTS AND EXPENSES

  	
  22

  
	
   

  	
   

  	
   

  
	
  23.

  	
  MISCELLANEOUS

  	
  23

  
	
   

  	
   

  	
   

  
	
  24.

  	
  ASSIGNMENT

  	
  23

  
	
   

  	
   

  	
   

  
	
  25.

  	
  NOTICES

  	
  23

  
	
   

  	
   

  	
   

  
	
  26.

  	
  THIRD PARTY RIGHTS

  	
  24

  
	
   

  	
   

  	
   

  
	
  27.

  	
  TERMINATION; RELEASE

  	
  25

  
	
   

  	
   

  	
   

  
	
  28.

  	
  GOVERNING LAW AND JURISDICTION

  	
  25

  

 

i

 

	
  SCHEDULE 1

  	
  The Original
  Charging Companies

  
	
  SCHEDULE 2

  	
  Group Shares

  
	
  SCHEDULE 3

  	
  Special
  Provisions Relating To The Security Shares

  
	
  SCHEDULE 4

  	
  Form Of
  Notice To Bank Operating Collections Accounts

  
	
  SCHEDULE 5

  	
  Intellectual
  Property Rights

  
	
  SCHEDULE 6

  	
  Deed Of
  Accession

  

 

ii

 

THIS COMPOSITE DEBENTURE (such
agreement, as the same may from time to time be amended, supplemented,
restated, replaced or otherwise modified herein referred to as this “Composite Debenture”) is made as a
deed on      November 2007.

 

BETWEEN

 

(1)                                  EACH OF THE PARTIES THAT ARE SIGNATORIES HERETO, each a
company organized and existing under the laws of England and Wales (the “Original Charging Companies”); and

 

(2)                                  GVEC RESOURCE IV INC., a company organized and existing
under the laws of the British Virgin Islands, acting as collateral agent (such
entity, acting in such capacity, together with it successors and assigns,
herein referred to as the “Collateral Agent”)
for the benefit of the Lenders that are from time to time parties to the Credit
Agreement (as defined below), the “Lenders”).

 

RECITALS

 

(A)                              On
or about the date hereof, a Credit Agreement has been entered into between
EMRISE Corporation, a company organized and existing under the laws of the
State of Delaware (the “Parent”),
each of the Parent’s Subsidiaries identified on the signature pages thereof
(such Subsidiaries, together with the Parent, herein collectively referred to
as the “Borrowers”), the Collateral
Agent and the Lenders (such agreement, as the same may from time to time be
amended, supplemented, restated, replaced or otherwise modified herein referred
to as the “Credit Agreement”).

 

(B)                                Each
Charging Company shares an identity of interest as a member of a combined group
of companies ultimately owned (directly or indirectly) by the Parent and
certain of its affiliates and, as a member of such group, each Charging Company
will derive substantial direct and indirect economic and other benefits from
the extensions of credit under the Credit Agreement. It is also a condition
precedent to the effectiveness of the Credit Agreement and the making of the
Loans thereunder that each Charging Company shall have entered into this
Composite Debenture.

 

IT IS AGREED as follows:

 

In consideration of the execution, delivery and
performance by the Lenders of the agreements referred to above, each Charging
Company hereby agrees with the Collateral Agent (acting for the benefit of
itself and the Lenders as follows:

 

1.             DEFINITIONS
AND INTERPRETATION

 

1.1                                 Terms
Defined Above

 

Terms defined
above shall have their specified meanings.

 

1

 

1.2                                 References
to Collateral Agent

 

When references
are made herein to the Collateral Agent, unless otherwise indicated, it is
understood that such references refer to the Collateral Agent, acting as agent
for the benefit of itself and the Lenders in accordance with the provisions of
the Credit Agreement.

 

1.3                                 Other
Defined Terms

 

Words and
expressions defined in the Credit Agreement shall, save as otherwise defined
herein, bear the same meanings in this Composite Debenture but so that, so far
as the context admits, the following expressions shall have the respective
meanings ascribed to them:

 

“Accounts” means all accounts or sub-accounts opened or
maintained by any Charging Company with any bank, financial institution or
other person (including any Collection Account (if any) opened or maintained by
such Charging Company under Clause 10.1.2;

 

“Act” means the Law of Property Act 1925;

 

“Administrator” means an administrator appointed pursuant to
Schedule B1 to the Insolvency Act 1986 by the Collateral Agent as holder of
this Composite Debenture;

 

“Beneficiaries” means the Collateral Agent and the Lenders,
and “Beneficiary” means each or any of them;

 

“Charged Shares”
means the Group Shares;

 

“Charging Companies” means the Original Charging Companies
and any other company which accedes to the terms of this Composite Debenture
pursuant to the terms of a duly executed Deed of Accession (each a “Charging Company”);

 

“Claims” means all present and future book and other debts
and monetary claims and any rights and claims to which the relevant Charging
Company is now or may hereafter become entitled in relation to (i) securities
to the extent held by way of temporary investment; (ii) royalties, fees and
income of the like nature in respect of any Intellectual Property owned by it,
or (iii) the Insurances;

 

“Collateral” means all assets or property (whether real,
personal, mixed, tangible or intangible), including, without limitation, cash,
securities, accounts and contract rights, and all of any Charging Company’s
right, title and interest therein and thereto, charged, mortgaged or assigned
pursuant to the provisions of this Composite Debenture;

 

“Collections Account” has the meaning ascribed to that term
in Clause 10.1.2;

 

“Deed of Accession” means a deed of accession to this
Composite Debenture in the form set out in Schedule 6;

 

“Default Rate” bears the same meaning ascribed to it in
Section 2.6(b) of the Credit Agreement;

 

2

 

“Event of Default” has the meaning given to that expression
in the Credit Agreement;

 

“Group Shares” means all shares specified in Schedule 2,
together with all other stocks, shares, debentures, bonds, warrants, coupons or
other securities and Investments owned by any Charging Company;

 

“Insurances” means the policies of insurance in which a
Charging Company has an interest from time to time;

 

“Intellectual Property Rights” means know-how, patents,
trademarks, service marks, designs, business names, topographical or similar
rights, copyrights or other intellectual property monopoly rights, and any
license or other interest in any such rights including, without prejudice to
the generality of the foregoing, those (if any) listed in Schedule 5 and “Intellectual
Property” shall be construed accordingly;

 

“Investments” means shares, certificates of deposit,
debentures, bonds, warrants, coupons, securities and other investments as
defined in part II of schedule II of the Financial Services and Markets Act
2000;

 

“Lien” has the meaning given to that expression in the Credit
Agreement;

 

“Loan Documents” has the meaning given to that expression in
the Credit Agreement;

 

“Obligors” means, collectively, (a) the Borrowers; (b) each
of the Charging Companies; (c) each other entity that is now or may hereafter
be a party to the UK Guaranty (as such term is defined in the Credit
Agreement); (d) each other entity that is now or may hereafter be a party to
the French Guaranty (as such term is defined in the Credit Agreement) and (e)
each other entity that is now or may hereafter be a party to the Japanese
Guaranty (as such term is defined in the Credit Agreement);

 

“Permitted Liens” has the meaning given to that expression in
the Credit Agreement;

 

“Planning Acts” means the Town and Country Planning Acts 1990
and the Planning (Listed Buildings and Conservation Areas) Act 1990, the
Planning (Hazardous Substances) Act 1990, the Planning (Consequential
Provisions) Act 1990, the Planning and Compensation Act 1991 and any
regulations made pursuant thereto;

 

“Plant and Machinery” means all plant and machinery owned by
the Charging Companies or any of them now or in the future;

 

“Receiver” means so far as the law allows any administrative
receiver, receiver and manager, or (if the Collateral Agent so specifies in
their relevant appointment) a receiver, in each case appointed by the
Collateral Agent under this Composite Debenture but, for the avoidance of
doubt, does not include an administrator (as defined in the Insolvency Act
1986);

 

“Related Rights” means, in relation to any Investments or
Charged Shares, all dividends, distributions, and other income paid or payable
on the relevant Investment or Charged

 

3

 

Shares (as the
case may be), together with (a) all shares or other property derived from the
relevant Investment or Charged Shares (as the case may be) and (b) all other
allotments, accretions, rights, benefits and advantages of all kinds accruing,
offered or otherwise derived from or incidental to the relevant Investment or
Charged Shares (whether by way of conversion, redemption, bonus, preference,
option or otherwise);

 

“Security Interest” means, with respect to any asset, any
mortgage, charge, pledge, lien, hypothecation, encumbrance, assignment, trust
arrangement, title retention or other security interest or arrangement of any
kind whatsoever in respect of such assets, whether or not filed, recorded or
otherwise perfected under applicable law (including, for the avoidance of
doubt, any Lien);

 

“Secured Obligations” means (a) all principal, interest,
premium, fees, reimbursements, indemnifications, and other amounts now or
thereafter owed by the Obligors under the Credit Agreement and the Loan
Documents  and all present and future obligations
and liabilities of any kind hereunder (whether actual or contingent and whether
owed jointly or severally or in any other capacity whatsoever); (b) all
amounts, obligations, or liabilities of any kind now or hereafter owed by a
Charging Company under this Composite Debenture and the Loan Documents; and (c)
any increases, extensions, renewals, replacements, and rearrangements of the
foregoing obligations under any amendments, supplements, restatements,
replacements and other modifications of the agreements creating the foregoing
obligations, in each case, whether direct or indirect, absolute or contingent;
provided that no obligation or liability shall be included in the definition of
“Secured Obligations” to the extent that, if it were so included, this
Composite Debenture (or any part of it) would constitute unlawful financial
assistance within the meaning of sections 151 and 152 of the Companies Act 1985;

 

“Security Shares” means the Charged Shares and the Related
Rights accruing to all or any of the Charged Shares; and

 

“Taxes” has the meaning given to that expression in the
Credit Agreement.

 

1.4                                 Interpretation

 

1.4.1                        References
to Clauses, sub-clauses, paragraphs and Schedules are to be construed, unless
otherwise stated, as references to clauses, sub-clauses, paragraphs and
schedules of this Composite Debenture.

 

1.4.2                        References
in this Composite Debenture to any enactment shall be deemed to include
references to such enactment as re-enacted, amended or extended for the time
being.

 

1.4.3                        Clause
headings are for convenience only and shall in no way affect the construction
of this Composite Debenture.

 

1.4.4                        Section 61
of the Act shall govern the construction of this Composite Debenture.

 

4

 

1.4.5                        References
to the “Charging Companies” and the “Collateral Agent” shall be construed so as to include their
respective successors or permitted assignees (whether immediate or derivative).

 

1.4.6                        References
in this Composite Debenture to the singular include references to the plural
and vice versa.

 

1.4.7                        Any
reference to this Composite Debenture, this security or any document shall,
save as otherwise expressly provided herein, be construed as a reference to
this Composite Debenture, this security or such other document as amended,
varied, supplemented, novated and/or replaced in any manner from time to time
and, for the avoidance of doubt, shall be deemed to incorporate the provisions
of any Deed of Accession entered into by any company, from time to time.

 

1.4.8                        The terms
of the other Loan Documents, and of any side letters between the parties
thereto in relation to any of such documents are incorporated in this Composite
Debenture to the extent required to ensure that any disposition of the
Collateral contained in this Composite Debenture is a valid disposition in
accordance with Section 2(1) of the Law of Property (Miscellaneous Provisions)
Act 1989 or Section 2 of the Statute of Frauds (Ireland) 1695.

 

1.4.9                        The
obligations of any person being “enforceable” and “binding” shall be construed
subject to the principle that equitable remedies are available at the
discretion of the courts, the limitation on enforcement by laws relating to the
insolvency, liquidation, administration and other laws affecting the rights of
creditors, the time barring of claims, defences of set-off and counterclaim
(save as expressly excluded in this Composite Debenture) and that which the courts
hold to be matters of public policy.

 

1.4.10                  References to
the “euro” shall be construed as a reference to the single currency of
participating member states of the European Union.

 

2.             COVENANT
TO PAY

 

Each of the
Charging Companies covenants with the Collateral Agent on behalf of the
Beneficiaries that it will pay or discharge on demand the Secured Obligations
as and when they fall due in the manner provided in the relevant Loan Documents
and this Composite Debenture. Any such amount not paid when due shall bear
interest (as well after as before judgment and payable on demand) at the
Default Rate from the due date until the date such amount is unconditionally
and irrevocably paid and discharged in full.

 

3.             GRANT
OF SECURITY INTEREST

 

3.1                                 Fixed
charges

 

As a continuing
security for the payment and performance of the Secured Obligations, each
Charging Company hereby, with full title guarantee, charges, and agrees to
charge, in favour of the Collateral Agent (acting for the benefit of itself and
the Lenders pursuant

 

5

 

to the
provisions of the Credit Agreement) the following assets and property which are
at any time owned by such Charging Company, or in which such Charging Company
is from time to time interested:

 

3.1.1                        by way of
fixed charge all interests in any freehold or leasehold property vested in or
charged to such Charging Company, the buildings and fixtures (including trade
fixtures) at any time thereon, all proceeds of sale derived therefrom and the
benefit of all covenants given in respect thereof and any monies paid or
payable in respect of such covenant and all licences to enter upon or use land
and the benefit of all other agreements relating to land;

 

3.1.2                        by way of
fixed charge all Plant and Machinery and its interest in any plant and
machinery in its possession;

 

3.1.3                        by way of
fixed charge all Investments, together with all Related Rights from time to
time accruing thereto;

 

3.1.4                        by way of
fixed charge all rights and interests of such Charging Company in, and claims
under, the Insurances and all proceeds thereof held by, or written in favour
of, such Charging Company or in which such Charging Company is otherwise
interested and all claims and returns of premium in respect of them;

 

3.1.5                        by way of
fixed charge all the right, title, interest and benefit of such Charging
Company in and to the Accounts, all monies standing to the credit thereof, all
interest accrued on any such monies, all debts owed to such Charging Company
represented by any such Account and all rights of such Charging Company to
repayment of any of the foregoing;

 

3.1.6                        all of
such Charging Company’s present and future book and other debts, the proceeds
of the same and all other moneys due and owing to it or which may become due
and owing to it or which may become due and owing to it at any time in the
future, and the benefit of all rights, securities and guarantees of any nature
now or at any time enjoyed or held by it in relation to any of the foregoing;

 

3.1.7                        by way of
fixed charge all Intellectual Property Rights;

 

3.1.8                        by way of
fixed charge the benefit of all present or future licences, consents,
agreements and authorisations held or utilised by such Charging Company in
connection with its business or the use of any of its assets;

 

3.1.9                        by way of
fixed charge all the present and future goodwill and uncalled capital of such
Charging Company; and

 

3.1.10                  by way of fixed
charge all the Charged Shares together with all the Related Rights from time to
time accruing thereto.

 

6

 

3.2                                 Assignment

 

(a)                                  As
a continuing security for the payment of the Secured Obligations, each Charging
Company hereby, with full title guarantee, assigns and/or agrees to assign
absolutely in favour of the Collateral Agent (acting for the benefit of itself
and the Lenders pursuant to the provisions of the Credit Agreement) all the
rights, title, interest and benefit of such Charging Company in and to:

 

(i)                                     all
contracts and agreements to which such Charging Company is a party and/or that
confer any rights upon such Charging Company, including all moneys which at any
time may be or become payable to such Charging Company pursuant thereto and the
proceeds of any claims, awards and judgments which may at any time be
receivable or received by such Charging Company pursuant thereto;

 

(ii)                                  the
Insurances and all proceeds in respect of such Insurances and all benefits
thereof (including all Claims and returns of premium relating thereto); and

 

(iii)                               each
Account charged by such Company pursuant to Clause 3.1.5, including all moneys
standing to the credit of each such Account, all interest accrued on any such
Account and all the debts represented by any of the foregoing.

 

(b)                                 To
the extent that any right, title and interest described in paragraph (a) above
is not assignable or capable of assignment without the consent of a third
party, each Charging Company shall, if required to do so by the Collateral
Agent use its reasonable endeavours to obtain any relevant consent to
assignment and, pending such consent being granted, the assignment thereof
purported to be effected by paragraph (a) shall only operate as an assignment
of all proceeds, damages, compensation, remuneration, profit, rent or income
which such Charging Company may derive therefrom or be awarded or entitled to
in respect thereof in each case as continuing security for the payment,
discharge and performance of the Secured Obligations.

 

3.3                                 Floating
charge

 

3.3.1                        As further
continuing security for the payment and performance of the Secured Obligations,
each Charging Company hereby charges as beneficial owner and with full title
guarantee in favour of the Collateral Agent (acting for the benefit of itself
and the Lenders pursuant to the provisions of the Credit Agreement) by way of
floating charge all its assets and undertaking whatsoever and wheresoever
situated both present and future not effectively charged by way of first fixed
mortgage or charge pursuant to the provisions of Clause 3.1, including, without
prejudice to the generality of the foregoing, heritable property and all other
property and assets in Scotland.

 

3.3.2                        The
floating charge created by this Clause 3.3 is a qualifying floating charge for
the purposes of paragraph 14 of Schedule Bl to the Insolvency Act 1986.

 

7

 

3.4                                 If
any lease, agreement or other asset (each a “Non
Assignable Asset”) of any Charging Company cannot be validly
mortgaged, charged or assigned in accordance with the terms of this Composite
Debenture for any reason (including any prohibition on mortgaging, charging or
assigning the Non Assignable Asset without the consent of a third party), then:

 

(a)                                  to
the extent that the Non Assignable Asset cannot be validly mortgaged, charged
or assigned by way of fixed or floating security it shall not be subject to any
fixed or floating mortgage, charge or assignment under this Composite
Debenture; and

 

(b)                                 the
relevant Charging Company shall, at the request of the Collateral Agent, use
all reasonable endeavours to obtain any consent required for mortgaging,
charging or assigning the Non Assignable Asset in accordance with the terms of
this Composite Debenture.

 

3.5                                 Until
such time as a Non Assignable Asset is validly mortgaged, charged or assigned
to the Collateral Agent in accordance with the terms of this Composite
Debenture:

 

(a)                                  the
relevant Charging Company shall hold the benefit of the Non Assignable Asset on
trust for the Collateral Agent unless the Non Assignable Asset cannot validly
be held on trust for the Collateral Agent;

 

(b)                                 if
the Non Assignable Asset cannot be validly held on trust for the Collateral
Agent, the relevant Charging Company shall, during the continuance of any Event
of Default, and to the extent that it can lawfully do so, deal with the Non
Assignable Asset in such manner as the Collateral Agent or any Receiver shall
direct.

 

4.             CONVERSION
OF FLOATING CHARGE

 

4.1                                 Conversion
of floating charge

 

Without
prejudice to the security constituted or intended to be constituted by this
Composite Debenture (and subject to the provisions of paragraph 43 of Schedule
Al to the Insolvency Act 1986), the Collateral Agent may by written notice to a
Charging Company convert the floating charge created by this Composite
Debenture into a fixed charge as regards all or any of that Charging Company’s
assets specified in the notice if an Event of Default has occurred and is
continuing.

 

4.2                                 Automatic
conversion of floating charge

 

The floating
charge created by a Charging Company under this Composite Debenture shall (in
addition to the circumstances in which the same will occur under general law
but subject to the provisions of paragraph 43 of Schedule Al to the Insolvency
Act 1986) automatically be converted into a fixed charge in relation to any of
the Collateral subject to the floating charge created by Clause 3.3 (a “Floating Charge Asset”) if such Charging Company creates (or
purports to create) a Security Interest (other than a Permitted Lien) on or
over the relevant Floating Charge Asset without the prior consent

 

8

 

in writing of
the Collateral Agent or if any third party levies any distress, execution,
attachment or other legal process against any such Floating Charge Asset or
attempts to do so and such attempt, in the opinion of leading counsel, has a
reasonable prospect of success.

 

4.3                                 No
waiver

 

The giving by
the Collateral Agent of a notice pursuant to Clause 4.1 in relation to any
class of assets of any Charging Company shall not be construed as a waiver or
abandonment of the rights of the Collateral Agent to serve similar notices in
respect of any other class of assets or of any of the other rights of the
Collateral Agent.

 

5.             CONTINUING
SECURITY

 

5.1                                 This
Composite Debenture shall be in addition to, and without prejudice to and shall
not merge with, any other right, remedy, guarantee, mortgage or other security
which the Collateral Agent may at any time hold for any of the Secured
Obligations and this Composite Debenture may be enforced against each or any
Charging Company without the Collateral Agent first having recourse to any
other right, remedy, guarantee, mortgage or other security held or available to
it.

 

5.2                                 This
Composite Debenture shall remain in full force and effect as a continuing
security until the Collateral Agent shall have certified in writing that the
Secured Obligations have been discharged in full.

 

6.             NEGATIVE
PLEDGE

 

Save as
permitted by the terms of the Credit Agreement, each Charging Company severally
covenants with the Collateral Agent that, during the continuance of the
security created by this Composite Debenture, it shall not without the prior
written consent of the Collateral Agent:

 

6.1                                 Create
or permit to subsist any Security Interest (other than a Permitted Lien) upon
any of the Collateral;

 

6.2                                 Sell,
transfer, assign, lease, lend or otherwise dispose of, whether by a single
transaction or a number of transactions and whether related or not, the whole
or any part of the Collateral except in the ordinary course of business in the
case of Collateral that is a Floating Charge Asset.

 

7.             FURTHER
ASSURANCE

 

7.1                                 Subject
and without prejudice to the terms of the Credit Agreement, each Charging
Company will, whenever requested by the Collateral Agent and at its own expense,
promptly execute such deeds or documents and take any action reasonably
required by the Collateral Agent to perfect and protect the security created
(or intended to be created) by this Composite Debenture or to facilitate the
realisation thereof or otherwise to

 

9

 

enforce the same or exercise any of the
rights of the Collateral Agent hereunder. In particular, but without
limitation, each Charging Company will:

 

7.1.1                        execute a
valid legal mortgage or, in the case or property situated in Scotland, a
standard security, in such form as the Collateral Agent shall reasonably
require, of any freehold, leasehold or heritable property now or in the future
belonging to such Charging Company which is not hereby effectively charged by
way of legal mortgage or, in the case of property situated in Scotland, by way
of standard security;

 

7.1.2                        execute a
legal assignment in such form as the Collateral Agent may reasonably require
over all or any of the Accounts or debts, proceeds or moneys referred to in
Clause 3.1.6 and/or the contracts relating thereto and give notice of such
assignment to the relevant debtors and/or counterparties thereto;

 

7.1.3                        execute a
valid fixed charge in such form as the Collateral Agent may reasonably require
over any asset the subject of the floating charge hereunder at any time after
conversion under Clause 4.1 or 4.2; and

 

7.1.4                        otherwise
execute all transfers, assignments, conveyances and assurances whatsoever and
give all notices, orders, instructions and directions whatsoever which the
Collateral Agent may reasonably think expedient.

 

7.2                                 Any
security document required to be executed by a Charging Company pursuant to
Clause 7.1 will be prepared at the cost of such Charging Company and will
contain terms and conditions which are no more onerous than those contained
herein.

 

7.3                                 Each
Charging Company as registered proprietor hereby appoints the Collateral Agent
as its agent to apply for the particulars of this Composite Debenture and of the
interest of the Collateral Agent in the Intellectual Property and any other or
future trade marks or trade mark applications registered or to be registered in
the United Kingdom in the name of each Charging Company to be made on the
Register of Trade Marks under section 25(1) of the Trade Marks Act 1994 and
each Charging Company hereby agrees to execute all documents and forms required
to enable such particulars to be entered on the Register of Trade Marks.

 

8.             REPRESENTATIONS
AND WARRANTIES

 

8.1                                 Each
Charging Company represents and warrants to the Collateral Agent that:

 

8.1.1                        Incorporation

 

It is a limited company duly organised, validly
existing and registered under relevant laws of the jurisdiction in which it is
incorporated and has the power and all necessary governmental and other
consents, approvals, licences and authorities to own its property and assets
and carry on its business;

 

10

 

8.1.2                        Authority

 

It is empowered
to enter into and perform its obligations contained in this Composite Debenture
and has taken all necessary action to authorise the execution, delivery and
performance of this Composite Debenture, to observe and perform its obligations
hereunder and (in the case only of each Charging Company) to create the
security to be constituted hereby;

 

8.1.3                        Obligations
binding

 

This Composite
Debenture as executed and delivered constitutes and will constitute its legal,
valid and binding obligations (subject to laws affecting the rights of
creditors generally);

 

8.1.4                        No
contravention

 

Neither the
execution and delivery nor the performance of its obligations under and
compliance with the provisions of this Composite Debenture, nor (in the case
only of each Charging Company) the creation of the security constituted by it,
does or will contravene, conflict with or breach any provisions of any law,
regulation or statute to which it is subject, or any agreement, undertaking or
other instrument in respect of, or binding on such Charging Company or on any of
its assets, or any provision of its memorandum and articles of association, or,
as the case may be, other constitutional documentation;

 

8.1.5                        Charged
Shares

 

In the case only of each relevant Charging
Company, it is the legal and beneficial owner of the Group Shares identified
against its name in Schedule 2 (save in relation to those Group Shares held by
a nominee for any such Charging Company in which case such Charging Company is
the beneficial owner of such Group Shares).

 

8.1.6                        Centre of
main interests

 

Its centre of
main interests (for the purpose of the EC Regulation on Insolvency Proceedings
2000) is in England and Wales.

 

8.2                                 Matters
represented

 

Each of the
representations and warranties in Clauses 8.1.1 to 8.1.6 (inclusive) will be
correct and complied with in all material respects at all times during the
continuance of this security.

 

9.             COVENANTS
OF THE CHARGING COMPANIES

 

Each of the
Charging Companies hereby covenants with the Collateral Agent and covenants to
procure that each other Charging Company will:

 

11

 

9.1                                 Insurance

 

Effect and
maintain insurance at its own expense in respect of all its assets and business
in accordance with all the requirements of the Credit Agreement. Such insurance
shall, in accordance with the requirements of the Credit Agreement, have the
interest of the Collateral Agent as mortgagee and/or additional insured (for
the benefit of the Lenders) noted on the policies with effect from the date of
this Composite Debenture, and each Charging Company shall promptly supply to
the Collateral Agent on request copies of each policy of insurance required to
be maintained in accordance with this Clause 9.1, together with the current
premium receipts relating thereto;

 

9.2                                 Maintenance

 

Keep all
buildings and erections forming part of the Collateral in a good state of
repair, and keep all plant, machinery, fixtures, fittings and other effects for
the time being owned by it in working order and condition;

 

9.3                                 Outgoings

 

Duly and punctually
pay all rates, rents, taxes, and other outgoings due by it in respect of the
Collateral (or any of them);

 

9.4                                 Inspection

 

Permit the
Collateral Agent or its designated representatives to have, on reasonable
notice, access during normal office hours to its accounts and accounting
records and to any books and records relating to the Collateral, to inspect and
take extracts from the same and make photocopies thereof and the relevant
Charging Company shall provide, at its cost and expense, such clerical and
other assistance as the Collateral Agent may reasonably request with regard
thereto;

 

9.5                                 Comply
with statutes

 

In relation to
the Collateral, comply with all obligations under any present or future
statute, regulation, order and instrument or under any bye-laws, regulations or
requirements of any competent authority or other approvals, licenses or
consents and, if requested by the Collateral Agent, produce to the Collateral
Agent, within 14 days of receipt of the same, every material notice, order or proposal
given or made in relation to the Collateral by any competent authority and
either comply with the same or make such objections and representations against
the same as the Collateral Agent may require or approve;

 

9.6                                 Comply
with covenants

 

Observe and
perform all covenants and stipulations from time to time affecting any part of
the Collateral, or the manner of use or the enjoyment of the same and shall
not, except with the prior written consent of the Collateral Agent, such
consent not to be unreasonably withheld or delayed, enter into any onerous or
restrictive obligations affecting any part thereof;

 

12

 

9.7                                 Licenses

 

Not, except
with the prior written consent of the Collateral Agent, confer on any person
any right or license to occupy any land or building forming part of the
Collateral or any license to assign or sub-let part of the Collateral;

 

9.8                                 Planning
Acts

 

Not carry out
any development within the meaning of the Planning Acts in or upon the Collateral
or any part thereof without first obtaining such permissions as may be required
under or by virtue of the Planning Acts and, in the case of development
involving a substantial change in the structure or a change of use of the
Collateral or any part thereof, without first obtaining the written consent of
the Collateral Agent;

 

9.9                                 Deposit
of documents

 

Deposit with
the Collateral Agent any deeds and documents of title relating to the
Collateral which are required by the Collateral Agent by way of perfection of
the Security Interests created by this Debenture;

 

9.10                           Intellectual
Property

 

Ensure that
each Charging Company will (subject and without prejudice to the terms of the
Credit Agreement):

 

(i)                                     observe
and comply with all material obligations and laws to which it is subject in its
capacity as registered proprietor, beneficial owner, user, licensor or licensee
of its material Intellectual Property or any part thereof;

 

(ii)                                  do
all acts as are reasonably practicable to maintain, protect and safeguard its
material Intellectual Property and not discontinue the use of any of its
material Intellectual Property, nor allow it to be used in such a way that it
is put at risk by becoming generic or by being identified as disreputable in
any material

 

(iii)                               duly
register in such register(s), or with such authorities as may be available for
the purpose, and in such name(s) as may be required by the law and practice of
the place of registration, such of its material Intellectual Property and all
assignments, licenses and mortgages thereof as may be capable of registration
in such place(s);

 

(iv)                              pay
all fees necessary to maintain, protect and safeguard its material Intellectual
Property and the registrations required to be made under Clause 9.10(iii) prior
to the latest time provided for payment thereof;

 

(v)                                 take
all such reasonable steps, including the commencement of legal proceedings, as
may be necessary to safeguard and maintain the validity, reputation, integrity,
registration or subsistence of its material Intellectual Property;

 

13

 

(vi)                              not
change the specification referred to in any of its registration of any material
Intellectual Property or permit any disclaimer, condition, restriction,
memorandum or other thing to be entered on the registration of any of the trade
marks comprised within such material Intellectual Property, the effect of which
will be to materially and adversely affect the value of such trade marks;

 

(vii)                           not
assign, sever, dispose of, or otherwise part with control of its material
Intellectual Property, or create or permit to subsist any Security Interest
thereon (other than a Permitted Lien), or grant any license to any person to
use the same in any manner which will materially and adversely affect the value
of such material Intellectual Property, provided that nothing contained in this
Clause 9.10 (vii) shall have the effect of preventing the exploitation of
Intellectual Property by the Charging Companies in the ordinary course of business;

 

(viii)                        maintain a
comprehensive, detailed and up-to-date centralized record of all its material
Intellectual Property (including details of agents engaged in relation to
registration thereof); and

 

(ix)                                as
and when reasonably requested by the Collateral Agent, promptly provide the
Collateral Agent with a copy of the record described in Clause 10.01(viii)
and/or a written summary of all its Intellectual Property created or acquired
since the date of this Composite Debenture or the date of the last notification,
in accordance with the provisions of this Clause 9.10(ix).

 

9.11                           Property
Acquisitions

 

9.11.1                                  Notifications

 

Notify the
Collateral Agent forthwith upon the acquisition by that Charging Company of any
freehold or leasehold property; and

 

9.11.2                                  Security

 

On demand made
to such Charging Company by the Collateral Agent, execute and deliver to the
Collateral Agent any legal mortgage or, in the case of property situated in
Scotland, a standard security, in favour of the Collateral Agent of any
freehold, leasehold or heritable property which becomes vested in it after the
date of this Composite Debenture and all fixtures and fittings thereon to
secure the payment or discharge of the Secured Obligations, such legal mortgage
or standard security to be in such form as the Collateral Agent may reasonably
require. Any security document required to be executed by a Charging Company
pursuant to this Clause 9.11.2 will be prepared at the cost of such Charging
Company and will contain terms and conditions that are no more onerous than
those contained herein. In the case of any leasehold property in relation to
which the consent of the landlord in whom the reversion of that lease is vested
in required in order for the Charging Company to perform any of its obligations
under this Clause 9.11.2, the Charging Company shall not be required to perform
that particular obligation unless and until it has

 

14

 

obtained the
landlord’s consent (which it shall use all reasonable endeavours to do).

 

9.12                           HM Land
Registry

 

In respect of
any freehold or leasehold land which it may hereafter acquire and which is
registered land (or unregistered land subject to compulsory first
registration), give the. Land Registry written notice of this Debenture and
apply to the Chief Land Registrar for the registration of a Restriction against
the registered titles in the following terms:

 

“No disposition
of the registered estate by the proprietor of the registered estate is to be
registered without a written consent by the proprietor for the time being of
the charge dated November 30, 2007 in favour of GVEC RESOURCE IV INC. referred
to in the charges register.”

 

9.13                           Collateral
Agent May Insure

 

If default
shall at any time be made by any Charging Company in effecting or keeping up
the insurance referred to in Clause 9.1, or in producing any such policy or
receipt to the Collateral Agent may take out or renew such policies of
insurance in any sum which the Collateral Agent may reasonably think expedient
and all monies expended by the Collateral Agent in respect thereof shall be
deemed to be property paid by the Collateral Agent, and shall be reimbursed by
the relevant Charging Company on demand and shall bear interest at the Default
Rate from the date of payment until the date of reimbursement. This Composite
Debenture shall be a security for the reimbursement to the Collateral Agent of
such monies together with such interest as aforesaid.

 

9.14                           Application
of Monies

 

All claims and
monies received or receivable under any insurances referred to in Clause 9.1
shall (subject to the rights or claims of any lessor or landlord of any part of
the Collateral) be applied, in repairing, replacing, restoring or rebuilding
any property damaged or destroyed in respect of which such insurances are
payable or, after the occurrence of an Event of Default which is continuing, in
permanent reduction of the Secured Obligations in such order as the Collateral
Agent sees fit.

 

10.          DEBTS AND ACCOUNTS

 

10.1                           Books
debts and receipts

 

Each Charging
Company will:

 

10.1.1                  Get in and
realise all claims and book and other debts charged to the Collateral Agent
under this Deed in the ordinary and usual course of business on behalf of the
Collateral Agent;

 

10.1.2                  Open and
maintain a current or other separately designated account in the name of such
charging company (“Collections Account”),
either with the Collateral Agent

 

15

 

or with any
other bank designated by the Collateral Agent for this purpose, and thereafter
pay the proceeds of any such getting in and realisation into the Collections
Account forthwith on receipt; and

 

10.1.3                  Where any
Collections Account is not maintained with the Collateral Agent, promptly
following the opening of the same, deliver to the bank with which the relevant
Collections Account is maintained, a notice, and procure that such bank signs
and delivers to the Collateral Agent a letter or other acknowledgement, in each
case substantially in the form set out in Schedule 4 [Form of
Notice to Bank Operating Collections Account].

 

10.2                           Dealings
with Accounts

 

10.2.1                  Without
prejudice to Clause 3.1.5 and any legal assignment required hereunder, until
the Collateral Agent gives notice to the contrary during the continuance of an
Event of Default, each Charging Company shall be entitled to withdraw the
proceeds of any book and other debts standing to the credit of the Accounts
(other than any Collections Account) held by the Chargor for use in the
ordinary course of its business.

 

10.2.2                  Without
prejudice to Clause 3.1.5 and any legal assignment required hereunder, each
Charging Company shall deal with the proceeds of any book and other debts
standing to the credit of any Collection Account (if any) opened pursuant to
Clause 10.1.2, in accordance with any directions from time to time given in
writing by the Collateral Agent (but subject always to the terms of Clause
10.1.2).

 

10.2.3                  If, as a result
of any right to withdraw from any Account any proceeds referred to in this Clause
10.2, any such proceeds are in any way released or deemed to be released from
the fixed charge created pursuant to Clause 3.1.5 and stand subject to the
floating charge created pursuant to Clause 3.3, the release will in no way
derogate from the subsistence and continuance of the fixed charge on all other
outstanding book and other debts of the relevant charging company and the
proceeds of those debts.

 

10.3                           Particulars
of Book Debts and Accounts

 

Each Charging
Company will deliver to the Collateral Agent such information as to the amount
and nature of its book and other debts, claims and/or financial statements
relating to any of its Accounts as the Collateral Agent may from time to time
require, taking into account the requirements of the Loan Documents.

 

11.          ENFORCEMENT OF SECURITY

 

11.1                           The
security constituted by this Composite Debenture shall become immediately
enforceable upon (i) notice to that effect given in accordance with the Credit
Agreement; or (ii) the occurrence of an Event of Default which is continuing
and the power of sale and other powers conferred by section 101 of the Act, as
varied or amended by this Composite Debenture, shall be immediately exercisable
upon and at any time after the

 

16

 

occurrence of any Event of Default which is
continuing. After the security constituted by this Composite Debenture has
become enforceable, the Collateral Agent may in its absolute discretion enforce
all or any part of this security in such manner as it sees fit.

 

11.2                           For the
purposes of all powers implied by statute, the Secured Obligations shall be
deemed to have become due and payable on the date of this Composite Debenture
and sections 93 and 103 of the Act shall not apply to this security. The statutory
powers of leasing conferred on the Collateral Agent shall be extended so as to
authorize the Collateral Agent to lease, make agreements for leases, accept
surrenders of leases and grant options as the Collateral Agent shall think fit
and without the need to comply with any of the provisions of sections 99 and
100 of the Act.

 

12.          APPOINTMENT AND POWERS OF RECEIVER OR ADMINISTRATOR

 

12.1                           Except
as provided below, at any time after this security becomes enforceable, or if
so requested by any Charging Company by written notice at any time, the
Collateral Agent may without further notice appoint any person (or persons) to
be a Receiver of all or any part of the Collateral and/or of the income thereof
and of the rights of the Collateral Agent contained in this Composite Debenture
or may, at its sole and absolute discretion, appoint (or may apply to Court to
appoint) any person or persons to be an administrator of the Charging Company
pursuant to Schedule Bl of the Insolvency Act 1986. This Clause 13.1 shall operate
subject to the provisions of paragraph 43 of Schedule Al of the Insolvency Act
1986.

 

12.2                           The
Collateral Agent may remove from time to time any Receiver appointed by it
(subject to the provisions of section 45 of the Insolvency Act 1986 in the case
of an administrative receivership) and, whenever it may deem appropriate,
appoint a new Receiver in the place of any Receiver whose appointment has
terminated for whatever reason.

 

12.3                           If at
any time and by virtue of any such appointment there is more than one Receiver
of all or any part of the Collateral and/or the income thereof, such persons
shall have power to act individually (unless the contrary shall be stated in
the deed(s) or other instrument(s) appointing them).

 

12.4                           Any
Receiver shall (in addition to the powers conferred by the Act and the
Insolvency Act 1986 or any other statute from time to time in force) have the
following powers:

 

12.4.1                                          To
take possession of, collect and get in all or any part of the Collateral and/or
income in respect of which he was appointed;

 

12.4.2                                          To
manage the Collateral and the business of any of the Charging Companies;

 

12.4.3                                          To
redeem any security and to borrow or raise any money and secure the payment of
any money in priority to the Secured Obligations for the purpose of the
exercise of his powers and/or defraying any costs or liabilities incurred by
him in such exercise;

 

17

 

12.4.4                                          To
alter, improve, develop, complete, construct, modify, refurbish or repair any
building or land and to complete or undertake or concur in the completion or
undertaking (with or without modification) of any project in which any of the
Charging Companies were concerned or interested prior to his appointment, being
a project for the alteration, improvement, development, completion,
construction, modification, refurbishment or repair of any building or land;

 

12.4.5                                          To
sell or concur in selling, leasing or otherwise disposing of all or any part of
the Collateral in respect of which he was appointed without the need to observe
the restriction imposed by Section 103 of the Act;

 

12.4.6                                          To
carry out any sale, lease or other disposal of all or any part of the
Collateral by conveying, transferring, assigning or leasing the same in the
name of any of the Charging Companies and, for that purpose, to enter into
covenants and other contractual obligations in the name of, and so as to bind,
any of the Charging Companies;

 

12.4.7                                          To
take any such proceedings, in the name of any of the Charging Companies or
otherwise, as he shall think fit in respect of the Collateral and/or income in
respect of which he was appointed, including proceedings for recovery of rent
or other monies in arrears at the date of his appointment;

 

12.4.8                                          To
enter into or make any such agreement, arrangement or compromise as he shall
think fit;

 

12.4.9                                          To
insure, and renew any insurances in respect of, the Collateral as he shall
think fit, or as the Collateral Agent shall direct;

 

12.4.10                                    To
appoint and employ such managers, officers and workmen and engage such
professional advisers as he shall think fit, including, without prejudice to
the generality of the foregoing power, to employ his partners and firm;

 

12.4.11                                    To
operate any rent review clause in respect of any property in respect of which
he was appointed or any part thereof and to apply for any new or extended
lease; and

 

12.4.12                                    To
do all such other things as may seem to him to be incidental or conducive to
any other power vested in him in the realization of this security.

 

12.5                           In
making any sale or other disposal in the exercise of their respective powers,
the Receiver, Administrator or the Collateral Agent may accept, as and by way
of consolidation for such sale or other disposal, cash, shares, loan capital or
other obligations, including, without limitation, consideration fluctuating
according to or dependent upon profit or turnover and consideration the amount
whereof is to be determined by a third party. Any such consideration may be
receivable in a lump sum or by installments and upon receipt by the Receiver,
shall ipso facto be and become charged with
the payment of the Secured Obligations. Any contract for any such sale or other

 

18

 

disposal by the Receiver or the Collateral
Agent may contain conditions excluding or restricting the personal liability of
the Receiver and the Collateral Agent.

 

12.6                           Any
Receiver or Administrator appointed hereunder shall so far as the law allows,
be the agent of the Charging Companies and (subject to the provisions of the
Companies Act 1985 and the Insolvency Act 1986) the Charging Companies shall be
solely responsible for his acts and defaults and for his remuneration and the
Collateral Agent shall not be under any liability whatsoever in such regard.

 

12.7                           Any
Receiver or Administrator shall be entitled to remuneration for his services at
a rate to be fixed by agreement between him and the Collateral Agent (or,
failing such agreement, to be fixed by the Collateral Agent).

 

12.8                           Only
monies actually paid by a Receiver or Administrator to the Collateral Agent in
satisfaction or discharge of the Secured Obligations shall be capable of being
applied by the Collateral Agent in satisfaction thereof.

 

12.9                           Neither
the Collateral Agent nor any Receiver or Administrator shall be liable in
respect of all or any part of the Collateral or for any loss or damage which
arises out of the exercise or the attempted or purported exercise of, or the
failure to exercise any of, their respective powers, unless such loss or damage
is caused by its or his gross negligence or willful default.

 

12.10                     Without
prejudice to the generality of Clause 12.9, entry into possession of the
Collateral shall not render the Collateral Agent or the Receiver or
Administrator liable to account as mortgagee in possession and if and whenever
the Collateral Agent enters into possession of the Collateral, it shall be
entitled to any time at its discretion to go out of such possession.

 

12.11                     All or any of
the powers which are conferred by this Composite Debenture on a Receiver or
Administrator may be exercised by the Collateral Agent without first appointing
a Receiver or Administrator or notwithstanding the appointment of any Receiver
or Administrator.

 

12.12                     The
Collateral Agent may not appoint an administrative receiver (as defined in
section 29(2) of the Insolvency Act 1986) over the Collateral if the Collateral
Agent is prohibited from so doing by section 72A of the Insolvency Act 1986 and
no exception to the prohibition on appointing an administrative receiver
applies.

 

13.          APPLICATION OF PROCEEDS

 

13.1                           All
monies received by the Collateral Agent, any Receiver or any Administrator
appointed under this Composite Debenture shall be applied in the following
order:

 

13.1.1                  In payment of
the costs, charges and expenses of and incidental to the appointment of the
Receiver or Administrator and the payment of his remuneration;

 

19

 

13.1.2                  In payment and
discharge of any liabilities incurred by the Receiver or Administrator on
behalf of me Charging Companies in the exercise of any of the powers of the
Receiver or Administrator;

 

13.1.3                  In providing for
the matters (other than the remuneration of the Receiver or Administrator)
specified in the first three paragraphs of Section 109(g) of the Act;

 

13.1.4                  In or towards
the satisfaction of the Secured Obligations; and

 

13.1.5                  Any surplus
shall be paid to the Charging Companies or other person entitled to it.

 

13.2                           The
provisions of Clause 14 shall take effect as and by way of variation and
extension to the provisions of Section 109 of the Act, which provisions as so
varied and extended shall be deemed incorporated in this Composite Debenture.

 

14.          POWER OF ATTORNEY

 

Each Charging
Company, by way of security, irrevocably appoints the Collateral Agent and
every Receiver or Administrator of the Collateral (or any part thereof)
appointed hereunder and any person nominated for the purpose by the Collateral
Agent or any Receiver or Administrator (in writing under hand signed by an
officer of the Collateral Agent or any Receiver or Administrator) severally as
its attorney (with full power of substitution and delegation) in its name and
on its behalf and as its act and deed to sign or execute (using the company
seal where appropriate) any deed, document, agreement and instrument required
under the terms of this Composite Debenture and, following the occurrence of an
Event of Default and for as long as the same is continuing, to do all such acts
or things as may be required by the Collateral Agent or any Receiver or
Administrator hereunder or in the exercise of any of their power, and each
Charging Company hereby covenants with the Collateral Agent to ratify and
confirm all acts or things made, done or executed by such attorney as
aforesaid.

 

15.          PROTECTION OF THIRD PARTIES

 

No purchaser
from or other person dealing with the Collateral Agent, with any Receiver or
with any Administrator shall be obliged or concerned to enquire whether the
right of the Collateral Agent to appoint a Receiver or Administrator or the
right of the Collateral Agent or any Receiver to exercise any of the powers
conferred by this Composite Debenture in relation to the Collateral or any part
thereof have arisen or become exercisable by the Collateral Agent or by any
such Receiver or Administrator, nor be concerned with notice to the contrary,
nor with the propriety of the exercise or purported exercise of any such powers
and the title of such a purchase and the position of such a person shall not be
impeachable by reference to any of those matters.

 

16.          NOTICE OF SUBSEQUENT SECURITY INTEREST

 

If the
Collateral Agent receives notice (whether actual or otherwise) of any
subsequent Security Interest, other than a Permitted Lien, affecting any part
of the Collateral and/or

 

20

 

the proceeds of
sale thereof, it may open a new account or accounts for any of the Charging
Companies in its books and if it does not do so then, as from the time of
receipt of such notice by the Collateral Agent, all payments made by such
Charging Company to the Collateral Agent shall be treated as having been
credited to the new account of such Charging Company and not as having been
applied in reduction of the Secured Obligations.

 

17.          CONSOLIDATION OF ACCOUNTS AND SET-OFF

 

17.1                           The
Collateral Agent shall be entitled, at any time or times after the occurrence
of an Event of Default which is continuing and without prior notice to the
Charging Companies (both before and after demand);

 

17.1.1                  To combine or
consolidate all or any sums of money now or hereafter standing to the credit of
the then existing Accounts (including any of the Collections Accounts (if any))
of any of the Charging Companies with the Collateral Agent with the liabilities
to the Collateral Agent of any of the Charging Companies; and

 

17.1.2                  To set-off or
transfer any sum or sums standing to the credit of any one or more of such
Accounts (including any of the Collections Accounts (if any)) in or towards
satisfaction of any of the liabilities of all or any of the Charging Companies
to the Collateral Agent on any other account or in any other respect.

 

The liabilities
referred to in this Clause 17 may be actual, primary, collateral, several or
joint liabilities, and the accounts, sums and liabilities referred to in this
Clause 17 may be denominated in any currency.

 

17.2                           If the
amounts concerned are expressed in a different currency then the Collateral
Agent may exercise all such rights and is authorized to effect any necessary
conversions at a market rate of exchange selected by it.

 

17.3                           If the
relevant obligation or liability is unliquidated or unascertained the
Collateral Agent may set-off the amount it estimates (in good faith) will be
the final amount of such obligation or liability once it becomes liquidated or
ascertained.

 

18.          CURRENCY AND THE EURO

 

18.1                           All
monies received or held by the Collateral Agent, any Receiver or any
Administrator under this Composite Debenture may be converted from their
existing currency into such other currency as the Collateral Agent considers
necessary or desirable to cover the obligations and liabilities comprised in
the Secured Obligations in that other currency at the spot rate of exchange.

 

18.2                           No
payment to the Collateral Agent (whether under any judgment or court order or
in the liquidation or dissolution of any of the Charging Companies or
otherwise) shall discharge the obligation or liability of any Charging Company
in respect of which it was made, unless and until the Collateral Agent shall
have received payment in full in the currency in which the obligation or
liability was incurred and, to the extent that the amount of any

 

21

 

such payment shall on actual conversion into
such currency fall short of such obligation or liability expressed in that
currency, the Collateral Agent shall have a further separate cause of action
against such Charging Company and shall be entitled to enforce the security
constituted by this Composite Debenture to recover the amount of the shortfall.

 

18.3                           If
sterling is, or is to be replaced by the euro, the Collateral Agent may notify
the Charging Companies of any amendments to this Composite Debenture which the
Collateral Agent reasonably considers necessary to reflect that replacement and
to put the Collateral Agent in the same position, so far as possible, that it
would have been in if no such replacement had occurred. Upon such notification
this Composite Debenture shall be deemed to be amended in accordance with such
notification.

 

19.          APPROPRIATION AND SUSPENSE ACCOUNT

 

19.1                           Subject
to Clause 18.2, the Collateral Agent may apply all payments received for the
Secured Obligations to reduce any part of those liabilities as it thinks fit.

 

19.2                           All
monies received, recovered or realized by the Collateral Agent under this
Composite Debenture may, at the direction of the Collateral Agent, be credited
to any suspense account for so long as the Collateral Agent determines (with
interest accruing thereon at such rate, if any, as the Collateral Agent may
determine for the account of the relevant Charging Company) pending application
by the Collateral Agent (as it may determine) in or towards the discharge of
any of the Secured Obligations.

 

20.          PAYMENTS

 

20.1                           Subject
to Clause 20.2, all payments to be made by any Charging Company in respect of
this Composite Debenture, shall be made in immediately available funds to the
credit of such account as the Collateral Agent may designate. All such payments
shall be made free and clear of, and without any deduction for, or on account
of, any set-off or counterclaim or, except to the extent compelled by law, any
deduction on account of any Taxes.

 

20.2                           If any
Charging Company is compelled by law to withhold or deduct any Taxes from any
sum payable hereunder to the Collateral Agent, the sum so payable by such
Charging Company shall be increased so as to result in the receipt by the
Collateral Agent of a net amount equal to the full amount expressed to be
payable hereunder and such Charging Company will supply the Collateral Agent
promptly with evidence satisfactory to the Collateral Agent that such Charging
Company has accounted to the relevant authority for the sum withheld or
deducted.

 

21.          DELAY, OMISSION, AMENDMENTS AND CONSENTS

 

21.1                           No
failure to exercise, nor any delay in exercising on the part of the Collateral
Agent any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof, or the exercise of
any other power or right. The rights and remedies

 

22

 

herein provided are cumulative and not
exclusive of any rights or remedies provided by law.

 

21.2                           Any
provisions of this Composite Debenture may be amended only if the Collateral
Agent, the Charging Companies so agree in writing and any breach hereof may be
waived before or after it occurs only if the Collateral Agent so agrees in
writing. A waiver given or consent granted by the Collateral Agent under this
Composite Debenture will be effective only if given in writing and then only in
the instance and for the purpose for which it is given.

 

22.          COSTS AND EXPENSES

 

22.1                           Each
Charging Company shall reimburse the Collateral Agent and any Receiver or
Administrator in respect of all reasonable expenses, including, without
limitation, reasonable legal, valuation, accountancy and consultancy fees (and
any value added or similar tax thereon) incurred by the Collateral Agent in
connection with:

 

22.1.1                  The negotiation,
preparation, execution and completion of this Composite Debenture, or any of
the documents referred to herein; and

 

22.1.2                  Any actual or
proposed amendment or extension of, or any waiver or consent under, this
Composite Debenture.

 

22.2                           Each
Charging Company shall reimburse the Collateral Agent and any Receiver or
Administrator for all costs and expenses, including, without limitation, legal
fees (and any value added or similar tax thereon) incurred in connection with
the enforcement or preservation of any of their respective rights under this
Composite Debenture, or any of the documents referred to herein.

 

22.3                           The amounts
payable under Clauses 22.1 and 22.2 shall carry interest at the Default Rate
(as well after as before any judgment) from the dates on which they were
demanded by the Collateral Agent or the Receiver or Administrator (as the case
may be) and shall form part of the Secured Obligations and accordingly be
secured on the Collateral under the charges contained in this Composite
Debenture.

 

22.4                           Each
Charging Company shall pay all present and future stamp, registration and
similar taxes or charges which may be payable, or determined to be payable, in
connection with the execution, delivery, performance or enforcement of this
Composite Debenture or any judgment given in connection therewith and shall
indemnify the Collateral Agent and the Receiver or Administrator against any
and all liabilities, including, without limitation, penalties with respect to,
or resulting from its delay or omission to pay any such stamp, registration and
similar taxes or charges.

 

23.          MISCELLANEOUS

 

23.1                           All of
the provisions of this Composite Debenture are severable and distinct from one
another and the illegality, invalidity or unenforceability of any provision of
this Composite Debenture under the law of any jurisdiction shall not affect the
validity or

 

23

 

enforceability of such provision under the
law of any other jurisdiction, nor the legality, validity or enforceability of
any other provision of this Composite Debenture.

 

23.2                           This
Composite Debenture may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered to any party shall be an original, but all the
counterparts shall constitute one and the same instrument.

 

24.          ASSIGNMENT

 

The Collateral
Agent and each other Beneficiary may assign or transfer all or any part of its
rights under this Composite Debenture in accordance with and subject to the
provisions of the Credit Agreement.

 

25.          NOTICES

 

25.1                           All
communications to be made hereunder shall be made in writing and (unless
otherwise stated) by letter or facsimile.

 

Subject and
without prejudice to any other requirements of the Credit Agreement, any
notices, proceedings or other documents to be served on any of the Charging
Companies pursuant to this Composite Debenture shall be made or delivered to it
at the address and/or facsimile number set out below or at such other address
and/or facsimile number as a Charging Company may hereafter advise to the
Collateral Agent in writing.

 

	
  To the Collateral Agent:

  
	
   

  
	
  GVEC Resource IV Inc.

  
	
  1 Park Plaza, Suite 550

  
	
  Irvine, California 92614

  
	
  Attention: Peter Paul Mendel, Esq., General Counsel

  
	
  Fax No.: +1 (949) 757-0978

  
	
   

  
	
  To any Charging Company:

  
	
   

  
	
  EMRISE
  Electronics, Ltd.

  
	
  Brunswick
  Road, Cobbs Wood

  
	
  Ashford,
  Kent TN23 1EH

  
	
  United
  Kingdom

  
	
  Attn:
  D. John Donovan

  
	
   

  
	
  With a copy to:

  
	
   

  
	
  Emrise Corporation

  
	
  9485 Haven Avenue, Suite 100

  
	
  Rancho Cucamonga, CA 91730

  
	
  Attn: D. John Donovan

  

 

24

 

	
  Rutan & Tucker, LLP

  
	
  611 Anton Blvd., Suite 1400

  
	
  Costa Mesa, CA 92626

  
	
  Attn: Larry A. Cerutti, Esq.

  
	
  Fax No.: (714) 546-9035

  

 

25.2                           Any
notice to any Charging Company shall be deemed to have been given:

 

25.2.1                  If delivered
personally, at the time of such delivery;

 

25.2.2                  If posted, on
the second Business Day following the day on which it was dispatched by first
class, registered or recorded delivery post (airmail, if appropriate) postage
prepaid; and

 

25.2.3                  If sent by
facsimile transmission, when transmitted (provided a correct transmission
report is generated),

 

provided that
any communication that, by virtue of any provision of this Clause 25.2, would
be deemed to be given on a day that is not a Business Day, or after 5:30 pm
(local time) on a Business Day, shall be deemed to have been given at 9:00 am
(local time) on the next succeeding Business Day.

 

25.3                           Any
notice to the Collateral Agent shall be deemed to have been given only on
actual receipt by the Collateral Agent.

 

26.          THIRD PARTY RIGHTS

 

A person who is
not a party to this Composite Debenture shall have no right under the Contracts
(Rights of Third Parties) Act 1999 to enforce any term of this Composite
Debenture. This Clause does not affect any right or remedy of any person which
exists or is available otherwise than pursuant to that Act.

 

27.          TERMINATION; RELEASE

 

27.1                           Termination

 

This Composite
Debenture and the security interest created hereby shall terminate when all the
Secured Obligations have been indefeasibly paid in full in cash, at which time
the Lenders shall direct the Collateral Agent to execute and deliver to each
Charging Company or the Charging Company’s designee, at the relevant Charging
Company’s expense, all documents which such Charging Company shall reasonably
request from time to time to evidence such termination. Any execution and
delivery of termination documents pursuant to this Clause 27.1 shall be without
recourse to or warranty by the Collateral Agent or the Lenders.

 

27.2                           Release

 

25

 

If any of the
Collateral shall be sold, transferred or otherwise disposed of by a Charging
Company in a transaction permitted by the Loan Documents, the security interest
created hereby in any Collateral that is so sold, transferred or otherwise
disposed of shall automatically terminate and be released upon the closing of
such sale, transfer or other disposition, and such Collateral shall be sold
free and clear of the lien and security interest created hereby; provided,
however, that such security interest will continue to attach to all proceeds of
such sales or other dispositions. In connection with any of the foregoing, the
Lenders shall direct the Collateral Agent to execute and deliver to each
Charging Company or the Charging Company’s designee, at the relevant Charging
Company’s expense, all documents that such Charging Company shall reasonably
request from time to time to evidence such termination. Any execution and
delivery of termination documents pursuant to this Clause 27.2 shall be without
recourse to or warranty by the Collateral Agent or the Lenders.

 

28.          GOVERNING LAW AND JURISDICTION

 

28.1                           Law

 

This Composite
Debenture shall be governed by, and construed in accordance with, the laws of
England.

 

28.2                           Jurisdiction

 

28.2.1                  Submission

 

Each of the
parties of this Composite Debenture irrevocably agrees that the courts of
England shall have jurisdiction to hear and determine any suit, action or
proceeding, and to settle any disputes which may arise out of, or in connection
with, this agreement and, for the purposes, irrevocably submits to the
jurisdiction of such courts.

 

28.2.2                  Forum

 

Each of the
parties irrevocably waives any objection which it might now or hereafter have
to the courts referred to in Clause 28.2.1 being nominated as the forum to hear
and determine any suit, action or proceeding, and to settle any disputes which
may arise out of, or in connection with, this Composite Debenture and agreed
not to claim that any such court is not a convenient or appropriate forum.

 

28.2.3                  Other competent
jurisdictions

 

The submission
to the jurisdiction of the courts referred to in Clause 28.2.1 shall not (and
shall not be construed so as to) limit the right of the Collateral Agent to
take proceedings against any Charging Company in any other court of competent
jurisdiction (including without limitation and for the avoidance of doubt, in
accordance with the terms of the Credit Agreement) nor shall the taking of

 

26

 

proceedings in
any one or more jurisdictions preclude the taking of proceedings in any other
jurisdiction, whether concurrently or not.

 

28.2.4                  Consent to
enforcement

 

Each of the
Charging Companies hereby consents in respect of any legal action or proceeding
arising out of, or in connection with, this Composite Debenture, to the giving
of any relief, or the issue of any process in connection with such action or
proceeding including, without limitation, the making, enforcement or execution
against any property whatsoever (irrespective of its use or intended use) of
any order or judgment which may be made or given in such action or proceeding.

 

28.2.5                  Waiver of
Indemnity

 

To the extent
that any of the Charging Companies may in any jurisdiction claim for itself or
its assets, immunity from suit, execution, attachment (whether in aid of
execution, before judgment or otherwise) or other legal process and, to the
extent that in any such jurisdiction there may be attributed to itself or its
assets such immunity (whether or not claimed), the Charging Companies hereby
irrevocably agree that they shall not claim and hereby irrevocably waive such
immunity to the full extent permitted by the law of such jurisdiction.

 

27

 

IN WITNESS
WHEREOF the parties have each duly executed this Composite Debenture as a deed
the day and year first before written.

 

	
  EMRISE ELECTRONICS LTD.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed and delivered as

  	
  )

  	
   

  	
   

  
	
  a deed on behalf of

  	
  )

  	
  /s/ G.M.J. Jeffries

  	
   

  
	
  EMRISE ELECTRONICS LTD.

  	
  )

  	
  Director

  	
   

  
	
  acting by two directors/

  	
  )

  	
   

  	
   

  
	
  a director and the secretary

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Director

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XCEL POWER SYSTEMS, LTD.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed and delivered as

  	
  )

  	
   

  	
   

  
	
  a deed on behalf of

  	
  )

  	
  /s/ G.M.J. Jeffries

  	
   

  
	
  XCEL POWER SYSTEMS, LTD.

  	
  )

  	
  Director

  	
   

  
	
  acting by two directors/

  	
  )

  	
   

  	
   

  
	
  a director and the secretary

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Director

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BELIX WOUND COMPONENTS LTD.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed and delivered as

  	
  )

  	
  /s/ G.M.J. Jeffries

  	
   

  
	
  a deed on behalf of

  	
  )

  	
  Director

  	
   

  
	
  BELIX WOUND COMPONENTS LTD.

  	
  )

  	
   

  	
   

  
	
  acting by two directors/

  	
  )

  	
   

  	
   

  
	
  a director and the secretary

  	
  )

  	
  /s/ Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Director

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  THE BELIX COMPANY LTD.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed and delivered as

  	
  )

  	
  /s/ G.M.J. Jeffries

  	
   

  
	
  a deed on behalf of

  	
  )

  	
  Director

  	
   

  
	
  THE BELIX COMPANY LTD.

  	
  )

  	
   

  	
   

  
	
  acting by two directors/

  	
  )

  	
   

  	
   

  
	
  a director and the secretary

  	
  )

  	
  /s/ Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Director

  	
   

  
					

 

28

 

	
   

  	
   

  	
   

  	
   

  
	
  PASCALL ELECTRONIC (HOLDINGS )

  	
   

  	
   

  
	
  LIMITED

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ G.M.J. Jeffries

  	
   

  
	
  Executed and delivered as

  	
  )

  	
  Director

  	
   

  
	
  a deed on behalf of

  	
  )

  	
   

  	
   

  
	
  PASCALL ELECTRONIC (HOLDINGS)

  	
  )

  	
   

  	
   

  
	
  LIMITED

  	
  )

  	
  /s/ Carmine T. Oliva

  	
   

  
	
  acting by two directors/

  	
  )

  	
  Director

  	
   

  
	
  a director and the secretary

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  PASCALL ELECTRONICS LIMITED

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed and delivered as

  	
  )

  	
  /s/ G.M.J. Jeffries

  	
   

  
	
  a deed on behalf of

  	
  )

  	
  Director

  	
   

  
	
  PASCALL ELECTRONICS LIMITED

  	
  )

  	
   

  	
   

  
	
  acting by two directors/

  	
  )

  	
   

  	
   

  
	
  a director and the secretary

  	
  )

  	
  /s/ Carmine T. Oliva

  	
   

  
	
   

  	
   

  	
  Director

  	
   

  

 

 

29

 

	
   

  	
   

  	
   

  
	
  GVEC RESOURCE IV INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Executed and delivered as a deed on behalf

  	
  )

  	
   

  
	
  of GVEC RESOURCE IV INC. in its

  	
  )

  	
   

  
	
  capacity as Collateral Agent, a

  	
  )

  	
   

  
	
  company incorporated in the British Virgin

  	
  )

  	
  /s/ Robert J. Anderson

  
	
  Islands by Robert J. Anderson

  	
  )

  	
   

  
	
  being a person who in accordance with

  	
  )

  	
  Robert J. Anderson

  
	
  the laws of that territory is acting under

  	
  )

  	
   

  
	
  the authority of 
  the director 

  	
  )

  	
  Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Executed and delivered as a deed on behalf

  	
  )

  	
   

  
	
  of GVEC RESOURCE IV INC. in its

  	
  )

  	
   

  
	
  capacity as Collateral Agent, a

  	
  )

  	
   

  
	
  company incorporated in the British Virgin

  	
  )

  	
  /s/ Peter Paul Mendel

  
	
  Islands by Peter Paul Mendel

  	
  )

  	
   

  
	
  being a person who in accordance with

  	
  )

  	
  Peter Paul Mendel

  
	
  the laws of that territory is acting under

  	
  )

  	
   

  
	
  the authority of  the director  

  	
  )

  	
  Authorized Signatory

  
	
   

  	
   

  	
   

  

 

30

 

SCHEDULE 1

The Original Charging Companies

 

	
  Name

  	
   

  	
  Company Number

  	
   

  	
  Registered Office

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE Electronics Ltd.

  	
   

  	
  1969006

  	
   

  	
  Brunswick Road, Cobbs Wood Ashford, Kent TN23 1EH,
  UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  XCEL Power Systems, Ltd.

  	
   

  	
  575679

  	
   

  	
  Brunswick Road, Cobbs Wood Ashford, Kent TN23 1EH,
  UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Belix Wound Components Ltd.

  	
   

  	
  1537636

  	
   

  	
  Brunswick Road, Cobbs Wood Ashford, Kent TN23 1EH,
  UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Belix Company Ltd.

  	
   

  	
  1567245

  	
   

  	
  Brunswick Road, Cobbs Wood Ashford, Kent TN23 1EH,
  UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pascall Electronic (Holdings) Limited

  	
   

  	
  1756274

  	
   

  	
  Brunswick Road, Cobbs Wood Ashford, Kent TN23 1EH,
  UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pascall Electronics Limited

  	
   

  	
  1316674

  	
   

  	
  Brunswick Road, Cobbs Wood Ashford, Kent TN23 1EH,
  UK

  

 

31

 

SCHEDULE 2

Group Shares

	
  Name

  	
   

  	
  Subsidiary

  	
   

  	
  Charged Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE Electronics Ltd.

  	
   

  	
  XCEL Power Systems Ltd.

  	
   

  	
  10,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE
  Electronics Ltd.

  	
   

  	
  Pascall
  Electronic (Holdings Limited)

  	
   

  	
  140,320 10% non-cumulative preferred shares and 224,931 ordinary
  shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE
  Electronics Ltd.

  	
   

  	
  CXR Anderson
  Jacobson Ltd.

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE
  Electronics Ltd.

  	
   

  	
  Abbot
  Electronics Ltd.

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE
  Electronics Ltd.

  	
   

  	
  Digitran
  Ltd.

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pascall
  Electronic (Holdings) Limited

  	
   

  	
  Pascall
  Electronics Limited

  	
   

  	
  53,822

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  XCEL
  Power Systems, Ltd.

  	
   

  	
  The Belix
  Company Ltd.

  	
   

  	
  100,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  XCEL
  Power Systems, Ltd.

  	
   

  	
  Belix Wound
  Components Ltd.

  	
   

  	
  100

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The
  Belix Company Ltd.

  	
   

  	
  Belix Power
  Conversions Ltd.

  	
   

  	
  30,000

  

 

32

 

SCHEDULE 3

Special Provisions Relating To The Security Shares

 

1.             Certificated
Charged Shares

 

Each Charging Company shall, by way of security for
the Secured Obligations, in respect of all Charged Shares which are in
certificated form:

 

1.1                                 immediately
deliver to the Collateral Agent (or as it shall direct) all certificates and
other documents of title to such Charged Shares together with instruments of
transfer executed in blank in respect of such Charged Shares and left undated;
and

 

1.2                                 immediately
on receipt of any certificate and other documents of title to any further or
other Charged Shares deliver them to the Collateral Agent together with
instruments of transfer executed in blank and left undated.

 

2.                                       The
Collateral Agent may, at any time following the occurrence of an Event of
Default which is continuing, complete the instruments of transfer on behalf of
the relevant Charging Company in favour of itself or such other person as it
shall select.

 

3.                                       Until
an Event of Default occurs:

 

3.1                                 each
Charging Company will be entitled to receive and retain all dividends,
distributions and other monies paid on or derived from the Charged Shares; and

 

3.2                                 each
Charging Company will be entitled to exercise all voting and other rights and
powers attaching to the Charged Shares, provided that it will not exercise any
such voting rights or powers in a manner prejudicial to the interests of the
Collateral Agent under this Composite Debenture including, without limitation,
to have the effect of changing the terms of the Charged Shares (or any class of
them or any Related Rights), save with the prior written consent of the
Collateral Agent, such consent not to be unreasonably withheld.

 

4.                                       At
any time when any Charged Shares are registered in the name of the Collateral
Agent or its nominee, the Collateral Agent will not be under any duty to ensure
that any dividends, distributions or other monies payable in respect of those
Charged Shares are duly and promptly paid or received by it or its nominee or
to verify that the correct amounts are paid or received or to take any action
in connection with the taking up of any (or any offer of any) stocks, shares,
rights, monies or other property paid, distributed, accruing or offered at any
time by way of interest, dividend, redemption, bonus, rights, preference,
option, warrant or otherwise on or in respect of or in substitution for, any of
those Charged Shares.

 

5.                                       It
is expressly agreed that, notwithstanding anything to the contrary contained in
this Deed, each Charging Company shall remain liable to observe and perform all
of the conditions and obligations assumed by it in respect of the Security
Shares.

 

33

 

SCHEDULE 4

Form Of Notice To Bank Operating Collections Accounts

 

To:          [•insert name
and address of Account Bank]

 

Dated: • 20    

 

Dear Sirs,

 

Re:                               Account Holder: [•insert name
of Charging Companies]

Collections Account Nos: [•insert number] (the “Collections Account[s]”)

Account Branch: [•insert branch address]

 

We give you notice that [•insert names of Charging Companies]
(the “Companies”) have charged to[•] (“[•]”),
as Collateral Agent (“Collateral  Agent”) for itself and certain
other parties all their right, title, interest and benefit in and to the monies
from time to time standing to the credit of the Collections Accounts and any
other accounts from time to time maintained with you by the Companies (the “Charged Accounts”) and to all interest
accrued or in the future accruing on the Charged Accounts.

 

We advise you that under (and subject to) the terms of our agreement(s)
with the Collateral Agent, we can only withdraw any monies from the Collections
Accounts in accordance with any directions of the Collateral Agent.

 

We irrevocably authorise and instruct you from time to time:

 

(a)                                  if at anytime the
Collateral Agent so instructs you, not to permit withdrawals from the
Collections Accounts and/or to comply with any other directions of the
Collateral Agent in relation to any such withdrawals;

 

(b)                                 to hold all monies
from time to time standing to the credit of the Charged Accounts to the order
of the Collateral Agent and accordingly to pay all or any part of those monies
to the Collateral Agent (or as it may direct) promptly following receipt of
written instructions from the Collateral Agent to that effect; and

 

(c)                                  to disclose to the
Collateral Agent such information relating to the Companies and the Charged
Accounts as the Collateral Agent may from time to time request you to provide.

 

We also advise you that the provisions of this notice
may only be revoked or varied with the prior written consent of the Collateral
Agent.

 

Please confirm by completing the enclosed copy of this
notice and returning it to the Collateral Agent (with a copy to each Company)
that:

 

1.             you
agree to act in accordance with the provisions of this notice;

 

34

 

2.                                       you
have not, at the date this notice is returned to the Collateral Agent, received
notice of any assignment or charge of or claim to the monies standing to the
credit of the Charged Accounts or the grant of any security or other interest
over those monies in favour of any third party and that you will notify us
promptly if you should do so in the future; and

 

3.                                       you
do not now and will not in the future exercise any right to combine accounts or
any rights of set-off or lien or any similar rights in relation to the monies
standing to the credit of the Charged Accounts.

 

This notice shall be governed by and construed in
accordance with the laws of England.

 

Yours faithfully,

 

	
   

  	
   

  
	
  for and on behalf of

  	
   

  
	
  [•Insert
  name of Charging Company]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  for and on behalf of

  	
   

  
	
  [•Insert
  name of Charging Company]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  for and on behalf of

  	
   

  
	
  [•Insert
  name of Charging Company]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Counter-signed by

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  for and on behalf of

  	
   

  
	
  [•NAME OF
  BANK]

  	
   

  
			

 

35

 

[On Copy]

 

To:  [COLLATERAL AGENT]

 

Copy to:       [•Insert name of each
Charging Company]

 

We hereby acknowledge receipt of the above notice. We confirm:

 

(1)                                  that the matters
referred to in it do not conflict with the terms which apply to the Charged
Accounts; and

 

(2)           the matters set out
in paragraphs 1 to 3 in the above notice.

 

 

	
   

  	
   

  
	
  for and on behalf of

  
	
  [•Insert name of Account Bank]

  

 

Dated: •      200•

 

36

 

SCHEDULE 5

Intellectual Property Rights

 

TRADEMARK REGISTRATIONS AND APPLICATIONS

 

	
  Trademark

  	
   

  	
  Country
  or Jurisdiction

  	
   

  	
  Reg.
  No.-

  (App. No.)

  	
   

  	
  Record
  Owner/Liens

  	
   

  	
  Status

  
	
  Pascall

  	
   

  	
  United Kingdom

  	
   

  	
  2391280

  	
   

  	
  Pascall Electronics Limited

  	
   

  	
  Issued

  

 

37

 

SCHEDULE 6

 

Deed Of Accession

 

THIS SUPPLEMENTAL DEED is made
on                                                                 200[
]

 

BETWEEN:

 

(1)                                  THE COMPANIES LISTED IN SCHEDULE 1 (each in “Acceding Company”, together
the “Acceding Companies”);

 

(2)                                  THE COMPANIES LISTED IN SCHEDULE 2 (together the “Existing Charging Companies”); and

 

(3)                                  [•] (“[•]”) in its capacity as trustee (“Collateral
Agent”) for the Beneficiaries.

 

WHEREAS,

 

This Supplemental Deed is supplemental to a composite
debenture dated [                               ]
2007 and made between, inter alia,
the Existing Charging Companies (1) and the Collateral Agent (2) (the “Composite
Debenture”).

 

IT IS AGREED and declared as
follows:

 

1.             DEFINITIONS

 

1.1                                 Words
or expressions defined (including by reference) in the Composite Debenture
shall, unless otherwise defined herein, bear the same meaning in this
Supplemental Deed (including the recital hereto).

 

1.2                                 The
principles of construction set out in Clause 1.2 of the Composite Debenture
shall apply mutatis mutandis to this Supplemental
Deed as if the same were set out in lull herein.

 

2.                                      ACCESSION
OF THE ACCEDING COMPANY

 

2.1                                 By
its execution of this Supplemental Deed, each of the Acceding Companies
unconditionally and irrevocably undertakes to and agrees with the Collateral
Agent to observe and be bound by the terms and provisions of the Composite
Debenture as if it were an original party thereto as one of the Charging
Companies.

 

2.2                                 Without
prejudice to the generality of sub-clause 2.1, each Acceding Company hereby:

 

2.2.1                        (jointly and severally with the
other Charging Companies) covenants in the terms set out in Clause 3 of the
Composite Debenture; and

 

2.2.2                        with full title guarantee,
charges and assigns to the Collateral Agent for the payment and discharge of
all monies and liabilities hereby, or by the Composite

 

38

 

Debenture, covenanted to be paid or discharged by it,
all its property, assets and undertaking on the terms set out in Clause 4 of
the Composite Debenture.

 

2.3                                 The
Existing Charging Companies hereby consent to the succession of the Acceding
Companies to the Composite Debenture on the terms of clauses 2.1 and 2.2 of
this Supplemental Deed and agree that the Composite Debenture shall hereafter
be read and construed as if the Acceding Companies had been named therein as
Charging Companies.

 

3.                                      INTERPRETATION

 

This Supplemental Deed shall hereafter be read as one
with the Composite Debenture, so that all references in the Composite Debenture
to “this Deed”, “herein” and similar expressions shall include references to
this Supplemental Deed.

 

4.             DELIVERY

 

This Supplemental Deed shall be treated as having been
executed and delivered as a deed only upon being dated.

 

5.             COUNTERPARTS

 

This Supplemental Deed may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered to any party shall be an original,
but all the counterparts shall constitute one and the same instrument.

 

6.             THIRD
PARTY RIGHTS

 

A person who is not a party to this Supplemental Deed
shall have no right under the Contracts (Rights of Third Parties) Act of 1999
to enforce any term of this Supplemental Deed. This clause does not affect any
right or remedy of any person which exists or is available otherwise than
pursuant to that Act.

 

7.             GOVERNING
LAW AND JURISDICTION

 

7.1                                 This
Supplemental Deed shall be governed by, and construed in accordance with, the
laws of England.

 

7.2                                 Each
of the parties to this Supplemental Deed irrevocably agree that the provision
of Clause 28.2 of the Composite Debenture shall apply mutatis mutandis to this
Supplemental Deed.

 

IN WITNESS whereof each of the
parties to this Supplemental Deed have duly executed this deed the day and year
first above written.

 

39

 

SCHEDULE 1

 

The Acceding Companies

 

	
  [•]

  	
  [•]

  	
  [•]

  
	
  [•]

  	
  [•]

  	
  [•]

  
	
  [•]

  	
  [•]

  	
  [•]

  

 

40

 

SCHEDULE 2

 

The Existing Charging Companies

 

	
  Name

  	
   

  	
  Company Number

  	
   

  	
  Registered Office

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMRISE Electronics Ltd.

  	
   

  	
  1969006

  	
   

  	
  Brunswick Road, Cobbs Wood

  Ashford, Kent TN23 1EH, UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  XCEL Power Systems, Ltd.

  	
   

  	
  575679

  	
   

  	
  Brunswick Road, Cobbs Wood

  Ashford, Kent TN23 1EH, UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Belix Wound Components Ltd.

  	
   

  	
  1537636

  	
   

  	
  Brunswick Road, Cobbs Wood

  Ashford, Kent TN23 1EH, UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Belix Company Ltd.

  	
   

  	
  1567245

  	
   

  	
  Brunswick Road, Cobbs Wood

  Ashford, Kent TN23 1EH, UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pascall Electronic (Holdings) Limited

  	
   

  	
  1756274

  	
   

  	
  Brunswick Road, Cobbs Wood

  Ashford, Kent TN23 1EH, UK

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pascall Electronics Limited

  	
   

  	
  1316674

  	
   

  	
  Brunswick Road, Cobbs Wood

  Ashford, Kent TN23 1EH, UK

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00133-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00133-of-00352.parquet"}]]