Outstanding Equity Awards at December 31, 2009

        The following table sets forth information about outstanding equity awards held by our named executive officers as of December 31, 2009. The information below has been adjusted to reflect a 1 for 3.75 reverse split of our common stock that we completed in November 2008.

Director Compensation—2009

        Each non-employee director is entitled to receive $1,000 per month as compensation for his services. In addition, each board member chairing a standing committee is entitled to receive $500 per month as additional compensation for his services. We reimburse all directors for out-of-pocket expenses incurred in connection with attendance at board and committee meetings. We may periodically award options or warrants to our directors under our existing option and incentive plans.

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        The following table provides information concerning the compensation of our non-employee directors for the year ended December 31, 2009:

INFORMATION ABOUT OUR BOARD OF DIRECTORS,
BOARD COMMITTEES AND RELATED MATTERS

Board Composition, Responsibilities and Leadership Structure

        Our business, property and affairs are managed under the direction of our Board of Directors. Directors are kept informed of our business through discussions with our executive officers, by reviewing materials provided to them and by participating in meetings of our board and its committees.

        Our bylaws provide that our Board of Directors shall consist of at least four directors. Our board is divided into three classes of directors: Class I, Class II and Class III. The term of office of each class of directors is three years, with one class expiring each year at our annual meeting of stockholders. We currently have four directors on our board, with no vacancies. Our current board consists of one Class I director whose term expires at our 2012 annual meeting, one Class II director whose term expires at our 2010 annual meeting, and two Class III directors whose terms expire at our 2011 annual meeting.

        During 2009, our board held 10 meetings. During 2009, none of our directors attended fewer than 75% of the aggregate of: (1) the total number of meetings of the Board of Directors (held during the period for which he has been a director); and (2) the total number of meetings held by all committees of the board on which he served (during the periods that he served).

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        The independent members of our Board of Directors are selected because of their independence from management; depth of understanding of technology, manufacturing, sales and marketing, finance and/or other elements directly relevant to the technology and business of EMRISE; education and professional background; and judgment, skill, integrity and reputation.

        The leadership of our Company and our board is split between the executive and chairman leadership of Mr. Oliva, our founder, on the one hand and our independent directors, which make up 75% of the board, on the other hand. Mr. Oliva has over 40 years of experience in the electronics and communications industry. His in-depth knowledge of each of our businesses and the competitive challenges each business faces, as well as his extensive experience as a director and senior member of management, make him the best qualified director to serve as chairman. Our independent directors are strong leaders with diverse educations, skills and backgrounds. They are appropriately skeptical, leading to thorough review and oversight of the strategies and actions proposed by the chairman and management. The independent members meet regularly in executive session, with the most qualified member taking the lead in such sessions based on the issues being discussed. The board may subsequently decide to change its leadership structure, as there is no formal policy that requires the chief executive and chairman to be served by one person.

        We believe the combination of Mr. Oliva as our Chief Executive Officer and Chairman in combination with our strong independent board members has been an effective leadership structure for EMRISE. The division of duties and the level of communication between the board and our management provides the basis for the proper functioning of our board and its oversight of management.

Risk Oversight

        Our Board of Directors is responsible for consideration and oversight of risks facing EMRISE and its subsidiaries in the ordinary course of operating the businesses. Together with the Board's standing committees, the Board is responsible for ensuring that material risks are identified and managed appropriately. The Board and its committees regularly review material strategic, operational, financial, compensation and compliance risks with senior management and discuss the key risks to our business. The committees communicate the risks they oversee with the other committees and the Board, as a whole. The Audit Committee is responsible for discussing overall risk assessment and risk management practices, as set forth in the Audit Committee's charter. For example, the Audit Committee assists the Board in its risk oversight function by reviewing and discussing with management our system of disclosure controls and our internal controls over financial reporting. The Audit Committee also performs a central oversight role with respect to financial and compliance risks and meets at least quarterly with our independent auditor, BDO USA, LLP. The Nominating and Corporate Governance Committee assists the board in its risk oversight function by periodically reviewing and discussing with management important compliance and quality issues. The Compensation Committee considers risk in connection with its design of compensation programs for our executives. At this time, the Compensation Committee does not believe that the risks arising from the Company's compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Company.

Code of Ethics

        Our Board of Directors has adopted an Amended and Restated Code of Business Conduct and Ethics that applies to all of our directors, officers and employees and an additional Code of Business Ethics that applies to our Chief Executive Officer and senior financial officers. These codes are available on our Internet website, located at http://www.emrise.com.

        We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from provision of these codes that relate to one or more of the items set forth in Item 406(b) of Regulation S-K, by describing on our Internet website within four business days

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following the date of a waiver or a substantive amendment, the date of the waiver or amendment, the nature of the amendment or waiver, and the name of the person to whom the waiver was granted.

        Information on our Internet website is not, and shall not be deemed to be, a part of this proxy statement or incorporated into any filings we make with the SEC.

Board Committees

        Our Board of Directors currently has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

Audit Committee

        The Audit Committee selects our independent registered public accountants; reviews the results and scope of the audit and other services provided by our independent registered public accountants; reviews our financial statements for each interim period and for our year end and our internal financial and accounting controls; and recommends, establishes and monitors our disclosure controls and procedures. Our three independent directors, Messrs. Finnegan, Baskin, and Mahmarian, served on our audit committee throughout 2009, with Mr. Finnegan serving as chairman. Our Board of Directors has determined that Messrs. Finnegan and Mahmarian are audit committee financial experts. The Audit Committee operates pursuant to a charter approved by our Board of Directors and Audit Committee, according to the rules and regulations of the SEC. The Audit Committee held five meetings in 2009.

Compensation Committee

        The Compensation Committee is responsible for establishing and administering our policies involving the compensation of all of our executive officers and establishing and recommending to our Board of Directors the terms and conditions of all employee and consultant compensation and benefit plans. Our entire Board of Directors also may perform these functions with respect to our employee stock option plans. Messrs. Finnegan and Mr. Baskin have served on the Compensation Committee throughout 2009, with Mr. Baskin serving as chairman. Mr. Mahmarian was appointed to the Compensation Committee in March 2008. The Compensation Committee operates pursuant to a charter approved by our Board of Directors and Compensation Committee. The Compensation Committee held two meetings in 2009.

Compensation Committee Interlocks and Insider Participation

        The Compensation Committee of EMRISE's Board of Directors for the year ended December 31, 2009 consisted of Messrs. Finnegan, Baskin and Mahmarian, none of whom have served as an officer or employee of EMRISE. No executive officer of EMRISE served as a director or Compensation Committee member of any entity in which the members of the Compensation Committee or the Board of Directors were an executive officer or director.

Nominating and Corporate Governance Committee

        The Nominating and Corporate Governance Committee reviews and provides oversight with regard to our corporate governance related policies and procedures and also recommends nominees to our Board of Directors and committees of our Board of Directors, develops and recommends to our Board of Directors corporate governance principles, and oversees the evaluation of the Board of Directors and management. Messrs. Baskin, Mahmarian and Finnegan have served on the Nominating and Corporate Governance Committee throughout 2009. Mr. Mahmarian serves as chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director, including

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candidates that may be referred by stockholders. The Nominating and Corporate Governance Committee held one meeting in 2009.

        The Nominating and Corporate Governance Committee will consider candidates for director recommended by any stockholder that is the beneficial owner of shares representing more than 1.0% of the then-outstanding shares of our common stock and that has beneficially owned those shares for at least one year. The Nominating and Corporate Governance Committee will evaluate those recommendations by applying its regular nominee criteria and considering the additional information described in the Nominating and Corporate Governance Committee's below-referenced charter. Stockholders that desire to recommend candidates for the board for evaluation may do so by contacting EMRISE in writing, identifying the potential candidate and providing background and other information in the manner described in the Nominating and Corporate Governance Committee's charter. Candidates may also come to the attention of the Nominating and Corporate Governance Committee through current board members, professional search firms and other persons. In evaluating potential candidates, the Nominating and Corporate Governance Committee will take into account a number of factors, including, among others, the following:

•

independence from management;



•

depth of understanding of technology, manufacturing, sales and marketing, finance and/or other elements directly relevant to the technology and business of our company;



•

education and professional background;



•

judgment, skill, integrity and reputation;



•

existing commitments to other businesses as a director, executive or owner;



•

personal conflicts of interest, if any; and



•

the size and composition of the Board of Directors.

        In addition, prior to nominating a sitting director for re-election at an annual meeting of stockholders, the Nominating and Corporate Governance Committee considers the director's past attendance at, and participation in, meetings of our Board of Directors and its committees and the director's formal and informal contributions to their respective activities.

        The Nominating and Corporate Governance Committee strives to maintain a Board of Directors with a diverse set of skills and qualifications, to ensure that the Board of Directors is adequately serving the needs of our stockholders. Before evaluating director candidates, the committee reviews the skills and qualifications of the directors currently serving on the board and identifies any areas of weakness or skills of particular importance. On the basis of that review, the committee will evaluate director candidates with those identified skills. While the Nominating and Corporate Governance Committee does not have a formal policy on board diversity, the committee takes into account a broad range of diversity considerations when assessing director candidates, including individual backgrounds and skill sets, professional experiences and other factors that contribute to our board having an appropriate range of expertise, talents, experiences and viewpoints, and considers those diversity considerations, in view of the needs of the board as a whole, when making decisions on director nominations.

        The Nominating and Corporate Governance Committee operates pursuant to a charter approved by our Board of Directors and the Nominating and Corporate Governance Committee.

Committee Charters

        The charters of our audit, compensation and nominating committees, and our codes of business conduct and ethics, are included on our website at http://www.emrise.com. The foregoing information is

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also available in print to any stockholder who requests it. All such requests should be in writing and should be sent to "c/o Secretary" at 611 Industrial Way, Eatontown, New Jersey 07724 or jdonovan@emrise.com.

Stockholder Communications with the Board of Directors

        The Board of Directors has established a process to receive communications from stockholders. Stockholders and other interested parties may contact any member (or all members) of the Board of Directors, or the independent directors as a group, any committee of the Board of Directors or any chair of any such committee, by mail or electronically. To communicate with the Board of Directors, any individual directors or any group or committee of directors, correspondence should be addressed to the Board of Directors or any such individual directors or group or committee of directors by either name or title. All such correspondence should be sent "c/o Secretary" at 611 Industrial Way, Eatontown, New Jersey 07724. To communicate with any of our directors electronically, stockholders should send an email to our Secretary, D. John Donovan, at: jdonovan@emrise.com.

        All communications received as set forth in the preceding paragraph will be opened by the Secretary for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, patently offensive material or matters deemed inappropriate for the Board of Directors will be forwarded promptly to the addressee. In the case of communications to the Board of Directors or any group or committee of directors, our Secretary will make sufficient copies (or forward such information in the case of e-mail) of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail is addressed.

Policy With Regard to Board Members' Attendance at Annual Meetings

        It is our policy that our directors are invited and encouraged to attend all of our annual meetings. At the date of our 2009 annual meeting, we had four members on our Board of Directors, all of whom were in attendance at our 2009 annual meeting.

Report of the Audit Committee of the Board of Directors

        Management is responsible for the preparation of the Company's financial statements and the Company's independent registered public accountants are responsible for auditing those statements. In connection with the preparation of the financial statements for the year ending December 31, 2009, the Audit Committee (i) reviewed and discussed the audited financial statements with management; (ii) discussed with the independent registered public accountants the matters required to be discussed under Statement on Auditing Standards No. 61, "Communication with Audit Committees," as amended, and Rule 2-07 "Communication With Audit Committees," of Regulation S-X of the Rules of the SEC; and (iii) received the written report, disclosures and the letter from the independent registered public accountants required by Public Company Accounting Oversight Board Rule 3526, "Communication with Audit Committees Concerning Independence," and the Audit Committee has reviewed, evaluated and discussed with that firm the written report and its independence from the Company. The Audit Committee also has discussed with management of the Company and the independent registered public accountants such other matters and received such assurances from them as the Audit Committee deemed appropriate.

        Based upon these reviews and discussions, the Audit Committee recommended, and the Board of Directors approved, the inclusion of the Company's audited financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, for filing with the SEC.

Audit Committee

Laurence P. Finnegan, Jr., Chairman
Otis W. Baskin
Richard E. Mahmarian

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Beneficial Ownership Table

        Except as otherwise indicated in the related footnotes, the following table sets forth information with respect to the beneficial ownership of our common stock as of June 1, 2010, by:

•

each person known by us to beneficially own more than 5% of the outstanding shares of our common stock;



•

each of our directors;



•

each of the named executive officers in the summary compensation table contained above; and



•

all of our directors and our executive officers as a group.

        Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or dispositive power with respect to the securities. To our knowledge, except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and dispositive power with respect to all shares of common stock shown as beneficially owned by them. Except as indicated in the discussion of contractual beneficial ownership limitations below and except as indicated in the footnotes to the table below, shares of common stock underlying derivative securities, if any, that currently are exercisable or convertible or are scheduled to become exercisable or convertible for or into shares of common stock within 60 days after the date of the table are deemed to be outstanding in calculating the percentage ownership of each listed person or group but are not deemed to be outstanding as to any other person or group. Percentage of beneficial ownership is based on 10,213,412 shares of common stock outstanding as of the date of the table. The information below has been adjusted to reflect a 1 for 3.75 reverse split of our common stock that we completed in November 2008.

        The address of each of the following stockholders, unless otherwise indicated in the footnotes to the table, is c/o EMRISE Corporation, 611 Industrial Way, Eatontown, New Jersey 07724. Messrs. Oliva, Finnegan, Baskin, and Mahmarian are directors of EMRISE. Messrs. Oliva, Donovan and Jefferies are named executive officers and current executive officers of EMRISE.

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Equity Compensation Plan Information

        The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2009.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Director Independence

        Our Board of Directors has determined that each of Messrs. Baskin, Finnegan and Mahmarian is independent under Rule 5.3(k) of the NYSE Arca Equities Rules because none of those directors has, or during the past three years has had, a material relationship with us, either directly or as a partner, stockholder or officer of an organization that has a relationship with us, and none of those directors is disqualified from being deemed independent under any of subparagraphs (A)-(F) of Rule 5.3(k)(1) of the NYSE Arca Equities Rules. Our Board of Directors has also determined that each member of the audit committee is independent under Rule 10A-3(b)(1) of the Exchange Act.

        Under the NYSE Arca Equities Rules, the non-management members of our Board of Directors must meet at regularly scheduled executive sessions without management, with a non-management director presiding over each executive session. A presiding director for each session is selected by the board members in attendance at the session based upon the topics to be discussed at the session. The non-management directors can be contacted by calling the chairman of the audit committee. Further, if the non-management directors include directors who are not independent, then we should at least once a year schedule an executive session including only independent directors. Under the NYSE Arca Equities Rules, we must disclose if any member of our nominating committee or compensation committee is not independent.

Transactions with Related Persons

        We are party to indemnification agreements with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. The Nominating and Corporate Governance Committee reviews, approves and ratifies any transactions between the Company and related persons.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. These officers, directors and stockholders are required by the SEC regulations to furnish us with copies of all reports that they file.

        Based solely upon a review of copies of the reports furnished to us during the year ended December 31, 2009 and thereafter, or any written representations received by us from directors, officers and beneficial owners of more than 10% of our common stock that no other reports were required, we believe that, (i) during 2009, all Section 16(a) filing requirements applicable to our directors and officers were met and (ii) except for any Form 5 filings that may have been required, all Section 16(a) filing requirements applicable to the beneficial owners of more than 10% of our common stock were met.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        This document (including information included or incorporated by reference herein) includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, EMRISE's expectations with respect to the costs and charges, capitalization and anticipated financial impacts of the Transaction and related transactions; approval of the Purchase Agreement by stockholders; the satisfaction of the closing conditions to the Transaction and related transactions; and the timing of the completion of the Transaction and related transactions.

        These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside of EMRISE's control and are difficult to predict. Factors that may cause such differences include, but are not limited to:

•

the possibility that the expected Transaction will not be realized, or will not be realized within the expected time period;



•

our ability to continue to borrow funds under the revolver terms of our credit facility;



•

whether or not our stockholders will approve the Transaction and whether the Transaction will close by the maturity date of our credit facility;



•

the ongoing revenues and profitability of the Company will be substantially reduced as a result of our sale of ACC in order to satisfy our debt obligations. This will have a material adverse effect on the Company's operations, financial condition and ability to continue operations;



•

our ability to decrease operating costs to improve our bottom line following the expected Transaction, which will result in lower than expected net proceeds;



•

our ability to find and secure alternate financing to our current credit facility on or before the expected closing date on July 16, 2010, including a replacement revolver facility in the event the obligations under the current facility are paid in full;



•

our inability to compete directly against ACC, RO Associates or our Digitran operations as a result of previous or currently contemplated sales of such whereby we are prohibited under the relevant sale agreements;



•

the possible cash flow impact of future claims that may be brought against us pursuant to the representations, warranties and indemnification provisions of the Purchase Agreement and in the sale purchase agreements for the sales of RO Associates and our Digitran operations;



•

our ability to successfully merge with or acquire other companies in the communications business segment;



•

our ability to organically grow our European based aerospace and defense divisions;



•

exposure to and impacts of various international risks including legal, business, political and economic risks associated with our international operations, also including the impact of foreign currency translation;



•

the projected growth or contraction in the electronic devices and communications equipment markets in which we operate;



•

our strategies for expanding, maintaining or contracting our presence in these markets;

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•

anticipated and unanticipated trends in our financial condition and results of operations;



•

our ability to meet our working capital and other financing needs;



•

our ability to distinguish ourselves from our current and future competitors;



•

our ability to secure long term purchase orders;



•

our ability to deliver against existing or future backlog;



•

technical or quality issues experienced by us, our suppliers and/or our customers;



•

failure to comply with existing or future government or industry standards and regulations;



•

our ability to successfully locate, acquire and integrate any possible future acquisitions;



•

our ability to successfully support the working capital needs of our company;



•

the impact of current and/or future economic conditions, including but not limited to the overall condition of the stock market, the overall credit market, the global recession, political, economic and/or other constraints which are or may negatively impact the industries in which we participate and/or the ability for us to market the products which we sell; and



•

our ability to successfully compete against competitors that in many cases are larger than we, have access to significantly more working capital than we and have significant resources in comparison to us.

        Other factors include the possibility that the Transaction does not close, including due to the failure to receive required regulatory approvals, or the failure of other closing conditions.

        EMRISE cautions that the foregoing list of factors is not exclusive. EMRISE is also subject to risks and uncertainties and other factors discussed in documents incorporated by reference in this proxy statement, including EMRISE's most recently filed Form 10-K and Form 10-Q and any amendments thereto. All subsequent written and oral forward-looking statements concerning EMRISE, the 2010 Annual Meeting, the Purchase Agreement, the Transaction, the related transactions or other matters attributable to EMRISE or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. EMRISE does not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this document.

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PROPOSAL 1
APPROVAL OF STOCK PURCHASE AGREEMENT AND TRANSACTION

Summary of the Transaction

        On June 7, 2010, Buyer, a wholly-owned subsidiary of the Company, and Seller entered into a Stock Purchase Agreement (the "Purchase Agreement") relating to the sale of all of the issued and outstanding shares of common stock of ACC and all of the issued and outstanding shares of common stock of CCI. Pursuant to the Purchase Agreement, Seller will sell to Buyer (a) all of the outstanding shares of common stock of CCI, which currently owns 80% of the issued and outstanding shares of common stock of ACC and (b) the remaining 20% of the issued and outstanding shares of ACC, which are currently owned by Seller. In exchange, Buyer agrees to pay Seller $20 million in cash at closing, subject to a potential net working capital adjustment. An amount equal to $1 million will be placed in an escrow account to satisfy any indemnification claims. The Transaction is expected to close shortly after the meeting of stockholders if the stockholders approve the Transaction. EMRISE intends to use a significant portion of the proceeds to pay off all but $1 million of the obligations under its senior credit facility and approximately half of the approximately $6.6 million debt owed to the previous shareholders of ACC, which amounts are owed in connection with the deferred purchase price obligations, contingent notes and other related payments. If the Transaction does not close on a timely basis, EMRISE's senior Lender could accelerate the debt and exercise its rights and remedies under the Credit Agreement. Stockholders of the Company will not receive any consideration as a result of the Transaction. The Transaction, when consummated, will constitute the sale of substantially all of the assets of the Company.

The Parties to the Transaction

EMRISE Corporation ("EMRISE" or the "Company")

        EMRISE, a Delaware corporation, is the ultimate parent corporation to Seller, CCI and ACC. EMRISE, through its direct and indirect subsidiaries, designs, manufactures and markets electronic devices, sub-systems and equipment for aerospace, defense, industrial and communications markets. EMRISE may be reached at its corporate headquarters by mail at 611 Industrial Way, Eatontown, New Jersey 07224 or by telephone at (732) 389-0355.

EMRISE Electronics Corporation ("EEC" or the "Seller")

        Seller, a Delaware corporation, is a wholly-owned subsidiary of EMRISE which holds ownership interest in certain other entities that design, manufacture and market electronic devices, sub-systems and equipment for aerospace, defense, industrial and communications markets. Specifically, Seller is the owner of 20% of the issued and outstanding shares of common stock of ACC. Seller may be reached by mail at 611 Industrial Way, Eatontown, New Jersey 07224 or by telephone at (732) 389-0355.

Custom Components, Inc. ("CCI")

        CCI is a the wholly-owned subsidiary of Seller. CCI has no business operations and its only asset is the ownership of 80% of the outstanding shares of common stock of Advanced Control Components, Inc. CCI may be reached by mail at 611 Industrial Way, Eatontown, New Jersey 07224 or by telephone at (732) 389-0355.

Advanced Control Components, Inc. ("ACC")

        Advanced Control Components, Inc., a New Jersey corporation, engages in the design, manufacture and market electronic devices, sub-systems and equipment for aerospace, defense,

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industrial and communications markets. ACC may be reached by mail at 611 Industrial Way, Eatontown, New Jersey 07224 or by telephone at (732) 460-0212.

Aeroflex Incorporation (the "Buyer")

        Buyer, a Delaware corporation, is a worldwide provider of highly specialized test and measurement equipment and microelectronic solutions. Buyer may be reached by mail at 35 South Service Road, P.O. Box 6022, Plainview, New York 11803 or by telephone at (516) 694-6700.

Background of the Transaction

        In August 2008, EMRISE acquired CCI and ACC pursuant to a Stock Purchase Agreement, which provided for certain deferred (earn-out) and contingent payments, which were evidenced by subordinated, secured notes (the "Seller Notes") issued to the prior owners of ACC and CCI (the "Seller Noteholders") that were later amended to add additional transaction-related payments.

        EMRISE (including its subsidiaries), are parties to a Credit Agreement, as amended, with its lender, GVEC Resource IV Inc. (the "Lender"), an affiliate of Private Equity Management Group LLC ("PEM"), originally entered into in November 2007. As of June 1, 2010, the outstanding principal balance owed to the Lender for the term loans was $7.6 million and the balance owed on the revolving line of credit was approximately $4.9 million, which fluctuates daily depending on cash collections and advances. In addition, approximately $360,000 in accrued interest and fees were outstanding on the term loans and revolver as of the same date. The Credit Agreement matures on July 16, 2010.

        In late April 2009, the SEC brought charges against the Lender, its affiliate PEM and certain of its principals, alleging violations of the federal securities laws, including fraud and misrepresentation. Such charges never alleged that EMRISE was involved or implicated in any way in such alleged fraud and misrepresentations. The SEC was successful in having a receiver appointed for PEM and its affiliated entities, including the Lender.

        Working capital from continuing operations was negatively impacted in 2009 and 2010 due to reclassification of the Company's debt from long term to short term in 2009 based on an acceleration of the maturity date under the Credit Agreement to June 30, 2010, which was subsequently adjusted to July 16, 2010, and due to the accrual of additional contingent cash consideration associated with ACC related earn-out payments and the Seller Notes. The reclassification of debt and acceleration of the maturity date on the credit facility resulted in a negative working capital position, prompted EMRISE to make certain liquidity disclosures and resulted in management including a statement that there was substantial doubt for the Company to continue as a going concern in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, reported in November 2009. These results and statements caused concern among certain credit reporting agencies and with certain of the Company's vendors and customers. These concerns, coupled with higher planned shipments to be made in the fourth quarter of 2009, and limits on the Company's ability to borrow additional funds beyond its current credit facility resulted in supply interruptions from vendors and corresponding delays in Company shipments during the fourth quarter of 2009.

        Based on the global economic crisis, market conditions, the impact of the circumstances described above and related factors, and the Company's financial results at the time, including working capital from continuing operations, the Company was not able to raise capital through an equity issuance as was required by December 31, 2009 under the Credit Agreement. In addition, based on its operating results at the time, the Company was concerned that it would not be in compliance with certain financial covenants in the Credit Agreement as of the end of the fiscal year on December 31, 2009. The Company entered into negotiations with the Lender in December 2009 regarding these circumstances, strategies to pay the debt by the maturity date and a potential forbearance on the

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anticipated defaults. The Lender granted short term forbearance on these potential defaults while the discussions continued into January 2010.

        On January 25, 2010, the Company and the Lender agreed to an Amendment to the Credit Agreement that had the effect of a long-term forbearance. Under the Amendment, most of the financial covenants and the obligation to raise capital in an equity offering were eliminated and EMRISE agreed to sell certain assets, including ACC, and to use a significant portion of the proceeds of such sales to pay off the obligations owed to the Lender. The Company's primary purpose in engaging in this Transaction is to comply with the Credit Agreement and pay off its obligations owed to the Lender. In addition, the Company intends to pay approximately half of the approximately $6.6 million debt owed to Seller Noteholders and one Noteholder will accept $450,000 worth of Company common stock as partial payment on his contingent note, which will leave a balance owed to Seller Noteholders of approximately $2.85 million. Subject to certain terms and conditions and in connection with the Transaction, the Lender has agreed to waive all accrued fees, which totaled approximately $240,000 as of June 1, 2010, and to accept a note in the principal amount of $1.0 million (which equals 8% of the $12.5 million total debt outstanding as of June 1, 2010). The note will be payable interest only on a monthly basis for the first 17 months, with equal monthly payments of principal plus interest due thereafter through maturity. The note will be payable at a rate of 12.5% per annum during the first 12 months and 15.5% per annum thereafter until paid in full, plus any applicable default rate or late fees. If the Transaction is not consummated on a timely basis, the Lender could accelerate the debt and exercise its rights and remedies under the Credit Agreement.

        With the support of its investment banker, Boenning & Scattergood, Inc. ("Boenning"), EMRISE sold RO Associates in March 2010. We also went on to develop and execute on an auction process to sell ACC with the support of our investment banker. That process included sending a short, no names teaser to approximately 200 potential buyers, including both strategic buyers and financial buyers. Of this group, approximately 50 potential buyers signed non-disclosure agreements and received more detailed information about ACC. Teasers and more detailed confidential memorandums were sent out during January and February, 2010 and the management presentations were conducted on various days from March 15 to March 25, 2010. After reviewing these materials and receiving preliminary indications of interest, ten potential buyers were selected to participate in management presentations at ACC's offices and facility in March 2010. On March 26, 2010, the potential buyers interested in proceeding with a transaction submitted bid proposals, including a mark up of a draft stock purchase agreement. At that time, four proposals were submitted. The three potential buyers with offers that presented the most value were contacted by Boenning regarding certain aspects of their proposals.

        After this process, the Company entered into two, successive limited exclusive periods with two potential buyers, each of whom conducted detailed financial, operational and legal due diligence, and negotiations of definitive stock purchase agreements were conducted. After the termination of the second exclusivity period on May 15, 2010, the Company briefly discussed a potential transaction with another potential buyer that sent an unsolicited proposal. At the same time, the Lender indicated its deteriorating belief that a deal could close in time to pay the debt by maturity and that it was considering selling the debt at a discount into the distressed debt market. Based on another unsolicited proposal, the Company considered a potential recapitalization of the Company. However, the Company determined that pursuing such a transaction would put the Company at risk of defaulting on the Credit Agreement milestones and/or the Lender selling the debt to unfriendly distressed debt buyers.

        At the same time, Aeroflex submitted a revised proposal, a second potential buyer submitted a verbal offer with a reduced purchase price and a third potential buyer opted not to submit a new offer. The Company then entered into a new exclusivity with Aeroflex at 5:00 p.m. on May 21, 2010, negotiated the definitive agreement and facilitated Aeroflex's final due diligence activities. At the same time, EMRISE negotiated with the holders of the Seller Notes to allow approximately half of the debt owed under the Seller Notes to remain outstanding and with the Lender regarding a discount to par

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and waiver of the accrued fees or a limited term debt to remain outstanding. The lender later agreed to extend the maturity date of the Credit Agreement from June 30, 2010 to July 16, 2010.

        On June 7, 2010, Buyer and Seller entered into a Purchase Agreement relating to the sale of all of the issued and outstanding shares of common stock of ACC and all of the issued and outstanding shares of common stock of CCI. Pursuant to the Purchase Agreement, Seller will sell to Buyer (a) all of the outstanding shares of common stock of CCI, which currently owns 80% of the issued and outstanding shares of ACC and (b) the remaining 20% of the issued and outstanding shares of ACC, which are currently owned by Seller. In exchange, Buyer agreed to pay Seller $20 million in cash at closing, subject to a potential net working capital adjustment. An amount equal to $1 million will be placed in an escrow account to satisfy any indemnification claims. The Transaction is expected to close shortly after the meeting of stockholders if the stockholders approve the Transaction.

        If the Transaction is approved by the stockholders, approximately $11.8 million of the obligations owed to the Lender under the Credit Agreement will be paid in full directly out of the purchase price and the Lender will issue a 24 month term note for $1 million at an annual interest rate of 12.5% for the first 12 months and 15.5% for months 13 through maturity. Payments on the note will be interest only for the first 17 months with equal monthly payments in the amount of approximately $143,000 thereafter through maturity. It should be noted that the $11.8 million obligation to be paid to the Lender at the closing of the Transaction could be reduced to as low as $8.6 million or increased to as much as $12.7 million, depending on the actual balance outstanding on the revolver at the time of the closing of the Transaction. In addition, the Company intends to pay approximately half of the approximately $6.6 million debt owed to the Seller Noteholders and one Noteholder will accept $450,000 worth of Company common stock as partial payment on his contingent note. This will leave EMRISE with approximately $2.85 million of debt remaining outstanding under the Seller Notes and $1 million outstanding with its Lender. The maturity of the Seller Notes will be extended to three years from the closing date of the Transaction, with current quarterly interest payments at prime plus 1% and quarterly principal payments of approximately $237,000 beginning on July 2, 2012 with a balloon payment of principal on the maturity date of approximately $1.9 million.

Our Reasons for the Transaction

        Our Board of Directors, at its meeting held on June 6, 2010, considered the Purchase Agreement and determined it to be fair to, advisable and in the best interests of our Company and our stockholders. In evaluating the Transaction, our board of directors consulted with management, as well as our legal and financial advisors, and considered a number of factors. In addition, our Board of Directors had many discussions about the potential sale of ACC and many of the factors listed below at numerous other board meetings held in the weeks and months leading up to its June 6^th meeting. Listed below are the material factors that our Board of Directors considered in its decision:

•

the financial terms of the Transaction;



•

its review of our business, operations, financial condition and earnings on an historical and a prospective basis with respect to the Company and ACC, as a division of the Company;



•

the impending maturity date and amount of the debt owed to its Lender as well as to the Seller Noteholders and the sources from which these debts could be paid;



•

the possible alternatives to the proposed Transaction, including continuing to operate our Company with ACC and CCI, selling other assets of the Company, a recapitalization of the Company, refinancing of the debt, or equity raise, and the risks associated with such alternatives, including particularly whether an alternative could be successfully closed on a timely basis, if at all;

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•

limited access to capital and resources to pay our debt to the Lender under the Credit Agreement when due, and to operate or expand our business;



•

the process through which our Company, with the assistance of our financial advisor, engaged in or sought to learn and facilitate the interest of potential buyers and then engage in discussions with potential buyers;



•

the evaluation by our Board of Directors of the risks and benefits from the proposed Transaction;



•

changes in the economic, industry or political climate that may negatively impact demand for our future products of our continuing operations;



•

the financial presentations of Boenning , including the opinion, dated June 6, 2010, to our Board of Directors as to the fairness, from a financial point of view and as of the date of the opinion, of the proposed sale of all of the issued and outstanding shares of CCI and ACC, as more fully described under the caption "Fairness Opinion of Boenning" beginning on page 35;



•

the terms of the Purchase Agreement;



•

the regulatory, corporate and other approvals required in connection with the Transaction and the likelihood that such approvals would be received without unacceptable conditions; and



•

the fact that some of our executive officers may have certain interests relating to their employment agreements, in connection with the Transaction, that are in addition to their interests as stockholders, including as a result of employment and compensation arrangements with us and the manner in which they would be affected by the Transaction. See "Interests of the Company's Directors and Executive Officers in the Transaction" beginning on page 42.

        The foregoing discussion of the factors considered by our Board of Directors is not intended to be exhaustive, but, rather, includes the material factors considered by our Board of Directors. In reaching its decision to approve the Purchase Agreement, the Transaction and the other transactions contemplated by the Purchase Agreement, our Board of Directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. Our Board of Directors considered all these factors as a whole, and overall considered the factors to be favorable to, and supportive of, its determination.

Fairness of the Transaction

Fairness Opinion of Boenning

        On June 6, 2010, Boenning rendered its oral opinion to the Board of Directors of EMRISE (which was subsequently confirmed in writing by delivery of Boenning's written opinion dated June 6, 2010) to the effect that, subject to the assumptions, qualifications and limitations set forth therein, as of June 6, 2010, the consideration offered pursuant to the Purchase Agreement is fair, from a financial point of view, to EMRISE.

        Boenning's opinion was for the information of the Board of Directors of EMRISE in connection with its evaluation of the proposed sale of ACC. It addressed only the fairness, from a financial point of view, of the consideration to be received by EMRISE in the Transaction pursuant to the Purchase Agreement and did not address any other aspects or implications of the Transaction. The summary of Boenning's opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Boenning in preparing its opinion. However, neither Boenning's written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be,

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and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the Transaction.

        In arriving at its opinion, Boenning:

•

reviewed a draft of the Purchase Agreement in substantially final form;



•

reviewed certain internal financial analyses, historical financials, financial forecasts, reports, operating performance and other information we deemed relevant concerning ACC and CCI, all of which was provided to us by, or on behalf of, the management of EMRISE;



•

held discussions with certain members of the management of EMRISE, CCI and ACC concerning the historical and current business operations, financial condition and prospects of EMRISE, CCI and ACC and such other matters Boenning deemed relevant;



•

analyzed certain financial and industry data, stock market and other publicly available information relating to the businesses of other companies whose operations we considered relevant in evaluating those of CCI and ACC and considering, to the extent publicly available, the financial terms of certain other transactions which Boenning deemed relevant in evaluating the Transaction; and



•

conducted such other financial analyses, studies and investigations as Boenning deemed appropriate.

        With the consent of EMRISE, Boenning relied upon and assumed, without independent verification, (a) the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to it, discussed with or reviewed by it, or publicly available, and did not assume any responsibility with respect to such data, material and other information, (b) there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of ACC since the date of the most recent financial statements provided to it that would be material to its analyses or the opinion, (c) there was no information or any facts that would make any of the information reviewed by it incomplete or misleading, (d) the representations and warranties of all parties to the Purchase Agreement were true and correct, (e) each party to the Purchase Agreement would fully and timely perform all of the covenants and agreements required to be performed by such party, (f) all conditions to the consummation of the Transaction would be satisfied without waiver thereof, (g) the Purchase Agreement would be consummated in a timely manner in accordance with the terms described in the Purchase Agreement, without any amendments or modifications thereto, (h) the Transaction would be consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and regulations, (i) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Transaction would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would have an effect on EMRISE that would be material to Boenning's analyses or its opinion and (j) that the final form of the Purchase Agreement would not differ from the draft of the Purchase Agreement identified above in any respect material to its analyses.

        Furthermore, in connection with Boenning's opinion, Boenning was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of CCI, ACC or any other party, nor was Boenning provided with any such appraisal or evaluation. Boenning did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Boenning did not undertake independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which EMRISE, CCI or ACC was or may be a party or was or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which EMRISE was or may be a party or is or may be subject.

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        Boenning's opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Boenning did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring after the date of its opinion.

        Boenning's opinion does not constitute a recommendation to the Board of Directors or the stockholders of how to vote or to take any action with regard to the Transaction. Boenning's opinion should not be construed as creating any fiduciary duties. The opinion may not be quoted or referred to, in whole or in part, in any document, or used for any other purpose, without Boenning's written consent. Boenning has consented to the use of its opinion in this proxy statement.

        Boenning's opinion only addresses the fairness to EMRISE, from a financial point of view, of the consideration and does not address any other aspect or implication of the Transaction or any agreement, arrangement or understanding entered into in connection therewith or otherwise including, without limitation: (i) the underlying business decision of EMRISE or any other party to proceed with the Transaction, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form or any other portion or aspect of, the Transaction or otherwise (other than the consideration to the extent expressly specified herein) and whether such terms were the best attainable under the circumstances, (iii) the fairness of any portion or aspect of the Transaction to the holders of any class of securities, creditors or other constituencies of EMRISE, or to any other party, (iv) the relative merits of the Transaction as compared to any alternative business strategies that might exist for EMRISE, CCI and/or ACC or the effect of any other transaction in which EMRISE, CCI and/or ACC might engage, (v) the solvency, creditworthiness or fair value of EMRISE, CCI and/or ACC or any other party to the Transaction, or any of such their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (vii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any consideration received by EMRISE's, CCI's and/or ACC's officers, directors or employees or any class of such persons relative to the consideration to be received by the shareholders of ACC and CCI in the Transaction, if any, or with respect to the fairness of such compensation. Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources. Furthermore, Boenning relied, with the consent of EMRISE, on the assessments by EMRISE and its advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to EMRISE and the Transaction. The issuance of this opinion was approved by a committee authorized to approve opinions of this nature.

        In preparing its opinion to the Board of Directors of EMRISE, Boenning performed a variety of analyses, including those described below. The summary of Boenning's valuation analyses described below is not a complete description of the analyses underlying Boenning's opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of those methods to the unique facts and circumstances presented. As a consequence, neither Boenning's opinion nor the analyses underlying its opinion are readily susceptible to partial analysis or summary description. Boenning arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Boenning believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

        In performing its analyses, Boenning considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, transaction or business used in Boenning's analyses for

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comparative purposes is identical to ACC or the Transaction. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Boenning did not make separate or quantifiable judgments regarding individual analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond our control and the control of Boenning. Much of the information used in, and accordingly the results of, Boenning's analyses are inherently subject to substantial uncertainty.

        The following is a summary of the material valuation analyses performed in connection with the preparation of Boenning's opinion rendered to the Board of Directors of EMRISE on June 6, 2010. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying and the assumptions, qualifications and limitations affecting each analysis, could create a misleading or incomplete view of Boenning's analyses.

Comparable Company Analysis

        Boenning reviewed financial and stock market information of the Company and the following six selected publicly traded companies with similar products, similar operating and financial characteristics and servicing similar markets:

•

Anaren Inc.



•

Applied Signal Technology



•

Filtronic PLC



•

Herley Industries Inc.



•

Micronetics Inc.



•

Spectrum Control Inc.

        Boenning reviewed, among other things, enterprise values of the selected companies, calculated as fully-diluted equity value based on closing stock prices on June 1, 2010, plus debt, minority interest and preferred stock, less cash and equivalents, as a multiple of latest 12 months, calendar year 2010 estimated and calendar year 2011 estimated revenue. Boenning then applied a selected range for latest 12 months, calendar year 2010 estimated and calendar year 2011 estimated revenue multiples of 0.80x to 1.30x, 0.85x to 1.16x, and 0.93x to 1.08x, respectively, derived from the selected companies to corresponding data of ACC. Estimated financial data of the selected companies were based on publicly available research analysts' estimates. Estimated financial data of ACC were based on estimates of EMRISE's management. This analysis indicated an implied value reference range for ACC of approximately $15.3 million to $24.8 million, as compared to the $20 million Aggregate Consideration.

        Although the selected companies were used for comparison purposes, none of those companies is directly comparable to the Company. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the selected companies or ACC.

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Comparable Transactions Analysis

        Boenning reviewed the transaction values of the following ten transactions involving similar businesses with disclosed financial metrics. Due to global asset valuation adjustments over the course of 2008, Boenning only used 2008-2010 precedents:

        Boenning reviewed, among other things, transaction values in the selected transactions, calculated as the purchase prices paid for the target companies, as a multiple of latest 12 months ("LTM") revenue. Boenning then applied a LTM revenue range of multiples of 0.4x to 1.6x, derived from the selected transactions, to the Company's revenue for the corresponding period. Financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Financial data of ACC were based on publicly available information. This analysis indicated an implied per share equity value reference range for ACC of approximately $7.6 million to $30.5 million, as compared to the $20.0 million Aggregate Consideration.

        Although the selected transactions were used for comparison purposes, none of those transactions is directly comparable to the merger and none of the companies in those transactions is directly comparable to ACC. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical financial and operating characteristics of the companies involved and other factors that could affect the acquisition value of such companies or ACC.

Terms of Engagement; Other Matters

        Boenning is regularly engaged to render financial opinions in connection with mergers and acquisitions, financial restructurings, tax matters, ESOP and ERISA matters, corporate planning and for other purposes. Boenning has also acted as financial advisor to EMRISE in connection with, and has participated in certain of the negotiations leading to, the Transaction and certain related transactions and will receive an aggregate fee of approximately $600,000 for such services, a substantial portion of which is contingent upon the consummation of the Transaction. In addition, Boenning is entitled to receive a fee of $250,000 for rendering its opinion, which is not contingent upon the successful completion of the Transaction. EMRISE has agreed to reimburse certain of Boenning's expenses and to indemnify Boenning and certain related parties for certain potential liabilities arising out of its engagement.

        Since Boenning was first engaged in July 2009, it has provided and is currently providing investment banking and financial advisory services to EMRISE. Those services include assistance with financial analysis and due diligence, strategic analysis and counseling, arranging for meetings with potential investors and lenders, attendance at and participation in certain meetings with the current senior lender, and activities related to divestitures, including the sale of RO and ACC and related activities. Compensation received by Boenning from the Company in the past two years for such

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services consisted of a monthly retainer of $10,000 that was paid during a seven-month period, from July 2009 to January 2010, for an aggregate payment of $70,000 that was credited towards the $250,000 fee owed by the Company upon the sale of RO, plus reimbursement of actual out-of-pocket expenses of approximately $49,000 related to their services. Boenning anticipates being paid a fee of $600,000 upon the successful sale of ACC and $250,000 for providing the fairness opinion, in addition to reimbursement of any additional actual out-of-pocket expenses. Boenning may receive additional compensation from the Company in the future for certain transactions that the Company may enter into, such as further mergers, acquisitions or divestitures or financing transactions.

        In 2009, EMRISE selected Boenning after a lengthy and deliberate process to identify, evaluate and interview investment banking firms for the needs of the Company. The process identified approximately 15 firms, of which 5 were selected for interviews. Boenning was selected in July 2009 as the Company's investment banker for a number of reasons, including its long history as an established investment banking firm that seemed to be less impacted by the turmoil in the investment banking industry than other candidate firms, its reputation, the fee structure it proposed, the availability of a broad spectrum of services it could provide to the Company and because of the professionals at the firm who offered a team-oriented, hands on approach. Based on the Company's experience with Boenning and the due diligence and financial analysis conducted by Boenning in the course of the investment banking services provided since the beginning of its relationship with EMRISE and in connection with the sale process of ACC, the Company determined that Boenning was in a good position to provide the fairness opinion.

Certain Effects of the Transaction

        If the Purchase Agreement is approved and adopted by the Company's stockholders and certain other conditions to the closing of the Transaction are satisfied, ACC will become a wholly-owned subsidiary of Buyer. EEC and EMRISE will use a majority of the net proceeds to pay the obligations to its Lender under the Credit Agreement which will satisfy the obligations owed to Lender. Subject to certain terms and conditions and in connection with the Transaction, the Lender has agreed to waive all accrued fees, which totaled approximately $240,000 as of June 1, 2010, and to accept a note in the principal amount of $1.0 million (which equals 8% of the $12.5 million total debt outstanding as of June 1, 2010). The note will be payable interest only on a monthly basis for the first 17 months, with equal monthly payments of principal plus interest due thereafter through maturity. The note will be payable at a rate of 12.5% per annum during the first 12 months and 15.5% per annum thereafter until paid in full, plus any applicable default rate or late fees. The Company will use a portion of the proceeds to pay approximately half of the approximately $6.6 million debt owed to the holders of the Seller Notes and one Noteholder will accept $450,000 worth of Company common stock as partial payment on his contingent note, which will leave a balance owed to Seller Noteholders of approximately $2.85 million.

        The Transaction will not effect the rights granted by nor the validity of stockholders common stock in EMRISE.

        Additional affects of the transaction can be found within the Unaudited Pro Forma Consolidated Financial Statements included within this Proxy.

NYSE Arca, Inc. Compliance

        On May 24, 2010, EMRISE received notice from the staff of the NYSE Arca, Inc. (the "NYSE Arca") that the Company was no longer in compliance with the minimum total net tangible assets and net worth amounts required for continued listing on the NYSE Arca under NYSE Arca Equities Rule 5.5(h)(3). The Company no longer complies with such continued listing requirements because it had total net tangible assets of less than $500,000 and net worth of less than $2 million at both

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December 31, 2009 and March 31, 2010. Subsequent to the Transaction, EMRISE believes it will be in compliance with these requirements.

        On January 5, 2010, the Company received a similar notice that it was no longer in compliance with the minimum $1.00 per share price required for continued listing on the NYSE Arca under NYSE Arca Equities Rule 5.5(h)(4). On January 11, 2010, the Company notified the staff of the NYSE Arca of its intent to cure such deficiency by selling certain assets of the Company and retiring substantially all of its debt, including debt to the Company's current lender and other debtholders. The NYSE Arca accepted such request and plan on March 1, 2010 and, subsequent to that acceptance, the Company has already implemented certain of the steps outlined in that plan. With the anticipated improvements to our balance sheet, we are hopeful that we will be able to come into compliance with the continued listing requirement of NYSE Arca Equities Rule 5.5(h)(4), but there can be no assurance that we will be able to meet such continued listing requirements.

Strategy for Expanding Business

        EMRISE, post the ACC divestiture, will primarily pursue two core strategies. The first is to capitalize on the Company's edge network timing and synchronization technology through both organic and strategic transaction based growth. The second is to refocus efforts to drive strong growth and cash flow contribution from its global European based Aerospace & Defense business units, especially with the anticipation of an improved economy providing expected growth to the European military markets. We believe a narrow focus on these two strategies, combined with the significantly reduced debt levels this transaction provides us, will provide us with the best chance of maximizing value for our stockholders.

The Communications Equipment and Edge Networking Business

        The Company's edge network and central office timing technology, managed through its CXR Larus business in the United States, provides EMRISE a highly differentiated business with marketable products in a high growth industry. CXR Larus designs and develops timing and synchronization systems that are essential for the efficient operation of the world's digital telecommunication infrastructure. CXR Larus is one among a small select group of manufacturers with the technical resources and knowledge to produce these complex systems. With the growing proliferation of streaming video and ever expanding needs of homeland security, the Company believes these specialized robust timing technologies will enjoy strong growth. The Company believes the Larus technology has already been validated in the market as evidenced by recent customer wins with a number of key U.S. carriers and a large U.S. Federal agency.

        The Company believes that the true market opportunity available with its timing and synchronization technology could be much larger if it could overcome some specific challenges. In particular, the Company believes that a significant portion of the business opportunities in this space exist outside the United States, but Larus, due primarily to its size and resources, has only had limited success in penetrating these international markets. In addition, while the Company believes the Larus technology has been validated through recent customer installations, large networking organizations are always cautious of partnering with smaller firms due to the perceived risk of such companies. Accordingly, EMRISE believes that if it can overcome these two issues through a possible strategic transaction, then significant growth could follow.

Electronic Devices and the U.S. and European Aerospace and Defense Business

        EMRISE believes the industry is ripe for consolidation, including consolidation that can deliver the scale needed to drive much larger revenue growth in these markets and also possibly tap into specific large international markets. The Company has identified a target list of potential, complementary

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partners and has already had preliminary discussions with some of those potential partners. Successfully joining with other players in this field will be a core focus going forward to drive growth and cash flow in this segment.

        Even though our remaining Aerospace and Defense businesses are based in the U.K., more than 60 percent of their business comes from customers in the U.S. and is denominated in U.S. dollars. The list of customers for this business includes L3 Communications, BAE Systems, GE Aviation, General Dynamics, Lockheed Martin, Raytheon, Panasonic Avionics, ITT, Rockwell Collins, Thales, Siemens, EDS, Alcatel, MBDA Missile Systems, EADS, and a number of other such customers in Europe, Asia and North America.

        The Company's core strategic focus for its electronic devices business going forward is to organically drive growth and cash flow contributions from its global European-based aerospace and defense divisions. While the U.S. military markets have generally remained robust, the European military markets have experienced slower growth in 2010, primarily due to the economic downturn and timing of certain long term contracts. However, EMRISE believes these businesses will enjoy stronger growth in the coming years, especially since the Eurofighter and other such long term programs are anticipated to grow in comparison to recent history. EMRISE also anticipates that the in-flight entertainment market in the U.S. and Europe will expand as the economy improves. EMRISE believes that by focusing its U.K. divisions in these U.S. and European markets, capitalizing on their strong brand name, validated technology and high quality customer base, they can deliver solid organic growth and deliver robust profit contributions.

        EMRISE has differentiated and highly validated technology platforms, strong engineering and management teams, and as a result of the anticipated Transaction, a much improved balance sheet due to the lower debt levels resulting from the anticipated pay down of debt. As a result, the Company expects to be able to better support its working capital and growth needs, and to facilitate strategic transactions. EMRISE believes that it will now be well focused on the execution of its defined strategic plan, which the Company anticipates will provide the best chance of maximizing value for stockholders following the sale of ACC.

        While these two core strategies will be the focus of the Company, EMRISE will stay vigilant with regard to other possibilities to improve its financial condition and grow the Company. For example, the Company will continue to monitor the market for conditions that might allow for a successful equity raise or a recapitalization transaction. Many factors could prevent the Company from successfully executing on these strategies. Subsequent to the sale of ACC, the Company anticipates a negative cash flow from its operations. If the Company is not able to reverse this trend and cannot increase revenue, net income and EBITDA over the near term, the Company may be forced to sell additional assets to further pay down debt or to liquidate the Company.

Interests of the Company's Directors and Executive Officers in the Transaction

        No director, director nominee or executive officer has a substantial interest, whether direct or indirect, in the Transaction. In connection with the Transaction, the Company is amending the employment arrangements with two of its three executive officers. Under the current employment arrangement with the executives, the executives were entitled to a lump sum payment equal to a multiple of their base salary (grossed up for taxes) in the event of a change in control (whether or not their employment was terminated and whether or not they received severance). The Transaction falls within the definition of change in control and therefore would have triggered aggregate payments well in excess of $3 million. In addition, after closing the Transaction, the Company revenues will be materially reduced, which follows the recent disposition of other material assets of the Company. The executives and the Compensation Committee worked together closely to fashion an arrangement that provided, on the one hand, a proper incentive to the executives to close a Transaction, to reward them

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for the dedication required to close such a major Transaction as well as the other divestitures closed in the recent history of the Company, and to compensate them for releasing the right to receive these change in control payments, while balancing carefully on the other hand the reduced need for executive management of the smaller operations and the Company's anticipated cash needs. As further described herein, based on modified arrangements agreed to by the Company and the executives, upon the earlier of the closing of the Transaction or the first of any other change in control event, (a) Mr. Oliva will receive a lump sum payment of $85,000 and additional monthly payments for four months aggregating $135,000 and (b) Mr. Jefferies will receive a lump sum payment of $80,000 and additional monthly payments for four months aggregating $105,000. Upon the closing of the Transaction, the role of a separate chief financial officer may be eliminated and the employment of Mr. Donovan may be terminated. If Mr. Donovan is terminated, he would be entitled to receive his full termination severance, pursuant to his employment agreement, equal to his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount), as well as some additional payments related to continuing benefits, but he will not be entitled to receive any change in control payment contemplated under his current arrangement. The aggregate payments to be made to the executives based on the closing of the Transaction or the first of any other change in control event is approximately $850,000 which is a fraction of the potential payout well in excess of $3 million if no modifications had been agreed to. If the employment of Mr. Donovan is terminated, the Company intends to promote current members of its finance team to meet the finance and accounting needs of the Company going forward. Mr. Jefferies is also entitled to receive retention payments. Please see "Executive Compensation and Related Information" for a full description of these payments, the employment arrangement modifications and the consideration for the same.

Fees and Expenses

        Whether or not the Transaction is completed, in general, all fees and expenses incurred in connection with the Transaction will be paid by the party incurring those fees and expenses. Fees and expenses incurred or to be incurred by EMRISE in connection with the merger are estimated at this time to be as follows:

Material U.S. Federal Income Tax Consequences

        In connection with the Transaction, EMRISE expects that it will recognize taxable losses in an amount of the difference of EMRISE's tax basis for the shares of CCI and ACC it is selling to Buyer over the sales price paid by Buyer. EMRISE anticipates that it will generate capital loss carry forwards at a Federal and state level on any such losses that it recognizes from the Transaction. The stockholders of EMRISE will not personally owe any taxes nor will they receive any tax benefits as a result of the Transaction.

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Regulatory Approvals

        Under the Purchase Agreement, Seller is required to make and comply with all filing requirements of the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et. seq., including, without limitation, the General Information Notice, with respect to its New Jersey Properties.

Summary of the Stock Purchase Agreement

        The summary of the terms of the Purchase Agreement set forth below and elsewhere in this proxy statement is qualified in its entirety by reference to the Purchase Agreement, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this document. We encourage you to read carefully the Purchase Agreement in its entirety.

        The Purchase Agreement has been included to provide investors and stockholders with information regarding its terms. It is not intended to provide any other factual information about ACC, Seller, CCI, Buyer or their respective subsidiaries or affiliates.

        As described in further detail below under "—Representations and Warranties," the Purchase Agreement contains representations and warranties by Seller, on the one hand, and by Buyer, on the other hand, made solely for the benefit of the other and should not be relied on by any persons as characterizations of the actual state of facts about such parties to the Purchase Agreement at the time they were made or otherwise.

Purchase and Sale of ACC Common Stock

        In exchange for 100% of the common stock of ACC and CCI, Buyer has agreed to pay Seller $20 million in cash. Seller shall create an escrow account for the payment of indemnification claims in the amount of $1 million. The purchase price may also be adjusted based on the level of net working capital of ACC at Closing.

Representations and Warranties

        The Purchase Agreement contains representations and warranties made by Seller to Buyer, and representations and warranties made by Seller to Buyer. These representations and warranties (and the assertions embodied therein) have generally been made for purposes of allocating risk to one of the parties if those statements prove to be inaccurate, rather than for the purpose of establishing matters as facts and may be subject to important qualifications and limitations agreed by the parties in connection with negotiating its terms. Certain representations and warranties in the Purchase Agreement were made as of a specified date, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for the purpose of allocating risk between Buyer, on the one hand, and Seller, on the other hand. In addition, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in the Company's public disclosures. The representations and warranties contained in the Purchase Agreement may or may not have been accurate as of the date they were made and we make no assertion in this proxy statement that they are accurate as of the date of this proxy statement.

        The representations and warranties made by Seller, each of which is subject, in some cases, to specified exceptions and qualifications, relate to, among other things:

•

its organization, qualification to do business, good standing and corporate power and authority to enter into the Purchase Agreement and to consummate the transactions contemplated by the Purchase Agreement;



•

authorization of the execution, delivery and performance of the Purchase Agreement;

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•

consents and approvals of governmental entities as a result of the Transaction;



•

the capitalization of CCI and ACC;



•

the absence of any violation of or conflict with their organizational documents, applicable law or certain agreements as a result of entering into the Purchase Agreement and consummating the Transaction;



•

the absence of certain changes, events or litigation;



•

its financial statements, books and records, operations, material contracts, government contracts and prior activities;



•

the title and condition of its assets and its inventories;



•

taxes and accounts receivable;



•

matters relating to environmental issues, labor and employee benefits;



•

product warranties, defects and liabilities;



•

customers, suppliers and backlog data;



•

the approval of the Lender and the freedom from indebtedness at the closing of the Transaction; and



•

various other items relating to Seller, CCI and ACC.

        Buyer has also made customary representations and warranties in the Purchase Agreement, which are subject, in some cases, to specified exceptions and qualifications. Buyer's representations and warranties relate to, among other things:

•

its organization, good standing and corporate power and authority to enter into the Purchase Agreement and to consummate the transactions contemplated by the Purchase Agreement;



•

its intent to enter into the Purchase Agreement for its own account, for investment and without any view to resell or distribute the shares of ACC;



•

consents and approvals of governmental entities as a result of the merger;



•

the absence of any violation of or conflict with their organizational documents, applicable law or certain agreements as a result of entering into the Purchase Agreement and consummating the Transaction;



•

the absence of undisclosed broker's fees;



•

its financial capability; and



•

the absence of litigation.

Conditions to the Completion of the Transaction

        Completion of the Transaction is subject to the satisfaction or waiver of specified conditions, including the conditions set forth below. All of these conditions may be waived. Neither party to the Purchase Agreement has agreed at present to waive any of these conditions.

Conditions to Buyer's Obligations

•

All consents, approvals and actions of, filings with and notices to any Governmental Authority necessary to permit the actions under the Purchase Agreement shall have been obtained, including approval of the Transaction by Seller's Lender.

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•

No law or action shall be in effect that would prevent or restrain consummation of the transactions contemplated by the Purchase Agreement.



•

The representations and warranties of Seller shall be true and correct.



•

Buyer shall have obtained all consents, approvals, permissions or acknowledgements or notices required to be obtained or made in connection with the Transaction.



•

Each officer and member of the Board of Directors of ACC and CCI shall have resigned.



•

No material adverse effect shall have occurred.



•

Buyer shall have received confirmation that certain indebtedness has been repaid in full.



•

Seller shall have executed and delivered to Buyer an affidavit of Seller stating Seller's United States taxpayer identification number and that Seller is not a foreign person.



•

Seller shall deliver to Buyer a copy of each agreement in connection with the Transaction.



•

Seller shall have made and complied with all filing requirements of the New Jersey Industrial Site Recovery Act.



•

Seller shall have paid the deferred purchase price obligations and paid the employee retention bonuses.

Conditions to Seller's Obligations

•

All consents, approvals and actions of, filings with and notices to any governmental authority necessary to permit the actions under the Purchase Agreement shall have been obtained.



•

No law or action shall be in effect that would prevent or restrain consummation of the transactions contemplated by the Purchase Agreement.



•

The representations and warranties of Buyer shall be true and correct.



•

Buyer shall have paid the payment under the Purchase Agreement.



•

Buyer shall have paid certain indebtedness.



•

EMRISE shall have duly called, convened and held a meeting of its stockholders, in accordance with Delaware law, for the purpose of approving and voting on the transactions contemplated by the Purchase Agreement and such stockholders shall have approved such transactions.

Additional Covenants

Conduct of the Business Covenant

        Seller has agreed in the Purchase Agreement that, from and after the date of the Purchase Agreement to the closing of the Transaction, Seller shall cause CCI and ACC not to:

•

change any of ACC's accounting methods, principles or practices;



•

revalue any of the assets, including writing off receivables or reserves, other than in the ordinary course of business consistent with past practice;



•

establish or increase the benefits payable under any employee plan or establish any new bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing or other employee benefit plan for personnel, or otherwise increase the compensation payable or to become payable to any personnel, except in the ordinary course of business consistent with past practice or as may be required by law;

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•

enter into any employment or consulting agreement with any Personnel that would provide for payments to such Personnel in excess of $50,000 in any calendar year;



•

make, pay or declare any dividend or distribution with respect to either ACC common stock or the shares of CCI or any other equity securities of ACC or CCI, respectively, other than in a manner consistent with past practice, cash dividends to Seller or its affiliates, or redeem or repurchase any of ACC common stock or the shares of CCI or any other equity securities of, or owned by, ACC or CCI, respectively;



•

change or amend the articles of incorporation, bylaws, or any other governance document of ACC or CCI;



•

enter into, extend, materially modify, terminate or renew any material contract; provided, however, that Buyer's consent shall not be unreasonably withheld with respect to ACC's entry into any new material contract or any renewal, amendment, modification or termination of any material contract;



•

(A) sell, assign, transfer, convey, lease, mortgage, pledge or otherwise dispose of or encumber any assets or any interests therein, except for sales of finished goods inventory, obsolete assets or assets replaced in the ordinary course of business consistent with past practice or (B) sell, assign or transfer any assets to Seller or its affiliates;



•

acquire by merger or consolidation with, or merge or consolidate with, or purchase substantially all of the assets of, or otherwise acquire any material assets or business of, any person, business, business unit or division or facility;



•

make any loans or advances to any person, or, except for expenses incurred in the ordinary course of business, to any personnel of ACC;



•

pay accounts payable other than in the ordinary course of business;



•

willfully do any other act or fail to take any reasonable action, which act or failure to take reasonable action would cause any representation or warranty of Seller in the Purchase Agreement (without giving effect to any materiality limitations set forth therein) to become untrue in any material respect;



•

make or change any election in respect of taxes, amend any tax returns of CCI or ACC, enter into any agreement in respect of taxes, including the settlement or compromise of any tax claim, or consent to any extension or waiver of the limitation period applicable to any tax claim;



•

incur, create or otherwise become liable for any indebtedness; or



•

enter into any agreement, or otherwise become obligated, to do any action prohibited under the Purchase Agreement.

        In addition, prior to the closing of the Transaction, Seller shall cause ACC to use its commercially reasonable efforts to preserve substantially intact the business organization of ACC, keep available to Buyer the services of the key personnel and preserve the current relationships of ACC with the material customers and suppliers of, and other persons which have significant business relationships with, ACC.

Other Covenants

        The parties to the Purchase Agreement have agreed to various other covenants in the Purchase Agreement. The covenants include, but are not limited to:

•

Seller causing the personnel, auditors and agents of ACC to provide Buyer with reasonable access, during normal business hours, to the books and records of ACC, to provide Buyer with

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such additional financial and operating data and other information regarding ACC's assets and business, to permit Buyer reasonable access, during normal business hours, to ACC's offices and other facilities for any reasonable business purpose and to make available to Buyer the personnel to assist Buyer in fulfilling its obligations under the Purchase Agreement and to facilitate the consummation of the transactions contemplated by the Purchase Agreement, so long as Buyer does not unreasonably interfere with any of the business or operations of ACC;

•

not issuing any press release or other public statement with respect to the terms of the Purchase Agreement or the transactions contemplated thereby without the prior written consent of the other parties, except as required by law or by the rules and regulations of any national securities exchange on which the securities of a party or their affiliates are listed;



•

cooperating in obtaining all consents and approvals required under the Purchase Agreement to effect the transactions contemplated by the Purchase Agreement, including without limitation, the approval of Seller's stockholders, or that are advisable in order that all agreements, contracts and commitments of ACC remain in effect after the closing of the Transaction and without giving rise to any right to termination, cancellation or acceleration or loss of any right or benefit;



•

using reasonable efforts to take, or cause to be taken, all reasonable actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable to bring about the satisfaction of all conditions to the other party's obligations to complete the transactions contemplated thereby;



•

giving prompt notice to the other party of (a) the occurrence, or failure to occur, of any event which occurrence or failure would likely cause Seller's or Buyer's respective representations or warranties contained in the Purchase Agreement to be untrue or inaccurate and (b) any failure of Seller or Buyer to comply with or satisfy any of its respective covenants, conditions or agreements to be complied with or satisfied by it under the Purchase Agreement;



•

preparing and timely filing all tax returns of ACC;



•

not encouraging, soliciting, initiating or participating in discussions or negotiations with, or providing any information to, any person concerning an acquisition proposal, or entering into any agreement with respect to any such proposal;



•

delivering to Buyer a payoff letter signed by the lenders, lessors and other financing sources setting forth all amounts necessary to be paid in order to fully pay off certain amounts of ACC's indebtedness, as required by the Purchase Agreement, at the closing of the Transaction;



•

terminating all contracts, commitments or transactions between ACC, CCI and Seller or any of its affiliates;



•

for a period of four (4) years, neither Seller nor its affiliates may compete with Buyer, CCI or ACC;



•

obtaining the secrecy and confidentiality of certain proprietary information and intellectual property;



•

preparing any necessary filings pursuant to the New Jersey Industrial Site Recovery Act in connection with ACC's New Jersey facility and complying with all other obligations under such act; and



•

assigning certain non-disclosure and non-competition agreements to Buyer.

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Indemnification

        From and after the closing of the Transaction, Seller shall indemnify Buyer against any and all losses or claims relating to:

•

any inaccuracies in or breaches of Seller's representations and warranties;



•

any nonfulfillment of, or failure to comply with, any covenant of Seller set forth in the Purchase Agreement;



•

any additional taxes, penalties or interest payable by ACC or CCI; and



•

any deficiency payment pursuant to the Purchase Agreement which results from the working capital adjustment.

        Seller shall not have liability under the indemnification provisions until the aggregate amount of the losses of Buyer exceeds $250,000. The indemnification losses to be paid by Seller are further capped at $5,000,000.

        Buyer shall indemnify Seller against any losses resulting from

•

any inaccuracies in or breaches of Buyer's representations and warranties;



•

any nonfulfillment of, or failure to comply with, any covenant of Buyer set forth in the Purchase Agreement; and



•

any and all Losses relating to the ownership of the CCI common stock.

        Buyer shall not have liability under the indemnification provisions until the aggregate amount of the losses of Seller exceeds $250,000. The indemnification losses to be paid by Buyer are further capped at $5,000,000.

Settlement of Claims and Escrow

        Pursuant to the Purchase Agreement, Seller shall create an escrow account for the payment of claims covered by the indemnification provisions of the agreement. Such escrow account shall be in the amount of $1 million. The funds in the escrow account are only intended to satisfy any indemnification obligation made by Seller under the Purchase Agreement.

Termination of the Purchase Agreement

        The Purchase Agreement may be terminated at any time prior to the closing of the Transaction:

•

by mutual written agreement of the parties to the Purchase Agreement;



•

by any party if the closing of the Transaction shall not have occurred on or before July 31, 2010; provided that the delay in closing is through no fault of the terminating party;



•

by any party if there shall be any law that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or if consummation of the transactions contemplated hereby would violate any nonappealable, final judgment, injunction, order or decree of any court or governmental authority having competent jurisdiction; or



•

by (i) Seller, if Buyer shall be in breach any of its representations and warranties or fails to perform any of its covenants or agreements contained herein in any material respect and if such failure to perform any of its covenants or agreements herein shall not have been cured within ten (10) days following delivery of a written notice of such violation from Seller to Buyer, or (ii) Buyer, if Seller shall be in breach of any of its representations and warranties, or fails to perform any of its covenants or agreements contained herein in any material respect and if such

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failure to perform any of its covenants or agreements herein shall not have been cured within ten (10) days following delivery of a written notice of such violation from Buyer to Seller, as the case may be; provided, however, that the party seeking termination pursuant to clause (ii), (iii) or (iv) (or any of their affiliates) is not then in breach of any of its representations and warranties or of its covenants or agreements contained herein as would justify the other party to terminate the Purchase Agreement;

•

by Seller if a change in recommendation by EMRISE's Board of Directors shall have occurred; or



•

by Seller if, without a change in recommendation by EMRISE's Board of Directors, upon a vote at a duly held meeting of the stockholders of EMRISE held to obtain the stockholder approval for the consummation of the transactions set forth in the Purchase Agreement, such approval is not obtained.

Termination Fee

        If the Purchase Agreement is terminated because (i) Seller initiates contact with a third party in violation of the covenants in the Purchase Agreement or (ii) the Board of Directors of EMRISE effects a change in the recommendation for stockholders to vote for the approval of the Purchase Agreement and the transactions contemplated thereby, then, in consideration of the time and effort expended, the costs incurred, and the opportunity lost, Seller and/or EMRISE shall pay to Buyer within twenty (20) days after the effective date of such termination of the Purchase Agreement an amount equal to four percent (4%) of the purchase price (approximately Eight Hundred Thousand Dollars ($800,000)), plus any out of pocket fees, costs and expenses actually incurred and paid by Buyer to third party advisors in connection with the Purchase Agreement, such as counsel, financial advisors, accountants and environmental experts, up to a maximum of Two Hundred Thousand Dollars ($200,000).

Expenses

        Unless specifically stated otherwise, whether or not the Transaction is completed, in general, all fees and expenses incurred in connection with the Transaction will be paid by the party incurring those fees and expenses, except as otherwise provided in the Purchase Agreement.

Governing Law

        The Purchase Agreement is governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts of laws principles thereof.

Amendment; Waiver

        The Purchase Agreement may be amended or waived by the parties if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party, or in the case of a waiver, by the party against which the waiver is to be effective. After approval and adoption of the Purchase Agreement by the Company's stockholders, however, no amendment may be made which under applicable law requires the further approval of the Company's stockholders without such further approval.

Questions and Answers About Proposal 1

        The following questions and answers are intended to address briefly some commonly asked questions regarding the Transaction, the Purchase Agreement and the annual meeting. These questions and answers may not address all questions that may be important to you as a Company stockholder. Please refer to "Summary" and the more detailed information contained elsewhere in this proxy

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statement, Annex A to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully.

•

Why am I receiving these materials?



•

EMRISE, a Delaware corporation, the owner of all of the issued and outstanding stock of Seller, is required to, in accordance with Delaware law, call, convene and hold a meeting of its stockholders for the purpose of approving and voting on the transactions contemplated by the Purchase Agreement. The Transaction cannot be completed unless the transactions contemplated by the Purchase Agreement are approved and adopted by the affirmative vote of a majority of the outstanding common stock (assuming a quorum is present). This proxy statement contains important information about the Transaction and the 2010 Annual Meeting of EMRISE stockholders. The Company is sending you these materials to provide you with important information about the annual meeting and to help you decide whether to approve and adopt the Purchase Agreement.



•

Am I entitled to exercise rights of dissent and appraisal in connection with the Transaction?



•

No, under Delaware law, holders of Company common stock are not entitled to dissenters' rights in connection with the Transaction. Under Delaware law, holders of EMRISE common stock also do not have rights to an appraisal of the fair value of their shares in connection with the Transaction.



•

What will happen to ACC and CCI as a result of the transaction?



•

ACC and CCI will become wholly-owned subsidiaries of Buyer.



•

How does the Company's Board of Directors recommend that I vote?



•

Our Board of Directors recommends that you vote "FOR" the proposal to approve and adopt the Purchase Agreement, "FOR" the proposal to elect Laurence P. Finnegan, Jr. as a Class II director to serve a three-year term on the Company's Board of Directors, "FOR" the proposal to ratify the selection of BDO USA, LLP, our independent registered public accountant, to audit our consolidated financial statements for 2010, "FOR" the proposal to approve the adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the Purchase Agreement, and "FOR" the proposal to transact such other business as may property come before the meeting.



•

Why is our Board of Directors recommending that I vote "FOR" the proposal to approve and adopt the Purchase Agreement?



•

After careful consideration, our Board of Directors has determined that the proposal, to approve and adopt the Purchase Agreement and the transactions contemplated by the Purchase Agreement is advisable and fair to, and in the best interests of, the Company and its stockholders. In the course of reaching its decision to approve and adopt the Purchase Agreement, the Company's Board of Directors consulted with the Company's legal and financial advisors and considered a number of factors, as described herein. As a result, our Board of Directors has approved and adopted the Purchase Agreement.



•

What vote of stockholders is required to approve and adopt the Purchase Agreement?



•

The Transaction cannot be completed unless the Purchase Agreement is approved and adopted by the affirmative vote of a majority of the shares outstanding present in person or by proxy at the annual meeting who are entitled to vote (assuming a quorum is present).

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•

What does it mean if I get more than one proxy card?



•

If you have shares of the Company that are registered differently and are in more than one account, you will receive more than one proxy card. Please follow the directions for voting on each of the proxy cards you receive to ensure that all of your Company shares are voted.



•

How do I vote without attending the 2010 Annual Meeting?



•

If you are a registered stockholder (that is, if you hold Company shares in certificated form), you may submit your proxy and vote your Company shares by signing and returning the enclosed proxy card in the postage-paid envelope provided, or by telephone or through the Internet by following the instructions included with the enclosed proxy card. If you are voting by telephone or via the Internet, your voting instructions must be received by            on July     , 2010.



•

Will there by any changes to my shares of EMRISE common stock as a result of the Transaction?



•

No. All shares of EMRISE common stock will remain outstanding after the Transaction, and no changes will be made to the shares of EMRISE common stock currently outstanding as a result of the merger.



•

Should I send in my EMRISE stock certificates with my proxy card?



•

No. Please DO NOT send your EMRISE stock certificates with your proxy card. No changes will be made to shares of EMRISE common stock in the Transaction and you will not be asked to send your EMRISE stock certificates to anyone in connection with the Transaction.



•

When is the Transaction expected to be completed?



•

We are working to complete the Transaction as quickly as possible, and we anticipate that it will be completed by July     , 2010. We cannot, however, predict the exact timing of the Transaction. In order to complete the Transaction, our stockholders must approve and adopt the Purchase Agreement and the other closing conditions under the Purchase Agreement must be satisfied or waived.



•

Who can help answer my other questions?



•

If you have more questions about the 2010 Annual Meeting of Stockholders or the Transaction, you should contact our proxy solicitor, Georgeson Inc., toll-free at (866) 295-3782, or EMRISE Corporation, 611 Industrial Way, Eatontown, New Jersey 07724, Attention: Secretary, or by telephone at (732) 389-0355. Banks and brokers may call Georgeson Inc. at (866) 295-3782.

Required Vote of Stockholders and Board Recommendation

        The affirmative vote of a majority of the shares of our outstanding common stock entitled to vote at the 2010 annual meeting of stockholders will constitute stockholder approval of the Purchase Agreement.

        OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.

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CUSTOM COMPONENTS, INC.,
AND ITS SUBSIDIARY

ADVANCED CONTROL COMPONENTS, INC.

Unaudited Consolidated Balance Sheets

(in thousands)

See accompanying notes to unaudited consolidated financial statements

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CUSTOM COMPONENTS, INC.,
AND ITS SUBSIDIARY

ADVANCED CONTROL COMPONENTS, INC.

Unaudited Consolidated Statements of Operations

(in thousands)

See accompanying notes to unaudited consolidated financial statements

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CUSTOM COMPONENTS, INC.,
AND ITS SUBSIDIARY

ADVANCED CONTROL COMPONENTS, INC.

Unaudited Consolidated Statements of Cash Flows

(in thousands)