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SUBJECT TO COMPLETION, JUNE     , 2010

EMRISE CORPORATION
611 Industrial Way
Eatontown, New Jersey 07724

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

July    , 2010

June    , 2010

NOTICE IS HEREBY GIVEN that the 2010 annual meeting of stockholders of EMRISE Corporation (“EMRISE” or the “Company”), a Delaware corporation, will be held at Staybridge Suites, Eatontown, New Jersey, on July    , 2010 at 11:30 a.m. local time.

At this important stockholders meeting, stockholders will be asked to consider and vote upon the following proposals:

1.               To approve and adopt the Stock Purchase Agreement (the “Purchase Agreement”), dated as of June 7, 2010, by and among Aeroflex Incorporated (the “Buyer”) and EMRISE Electronics Corporation (the “Seller”) relating to the sale of all of the issued and outstanding shares of common stock of Advanced Control Components, Inc. (“ACC”) and all of the issued and outstanding shares of common stock of Custom Components, Inc. (“CCI”), an 80% owner of ACC.

2.               To elect Laurence P. Finnegan, Jr. as a Class II director to serve a three-year term on the Company’s Board of Directors.

3.               To consider and vote upon a proposal to ratify the selection of BDO Seidman LLP, our independent registered public accountant, to audit our consolidated financial statements for 2010.

4.               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.

5.     To transact such other business as may properly come before the meeting.

Our Board of Directors has fixed the close of business on June 7, 2010 as the record date for determining those stockholders who will be entitled to notice of and to vote at the 2010 annual meeting.  Only holders of our common stock at the close of business on the record date are entitled to vote at the meeting. Stockholders whose shares are held in the name of a broker or other nominee and who desire to vote in person at the meeting should bring with them a legal proxy.

Eatontown, New Jersey

June    , 2010

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YOUR VOTE IS IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, OR VOTE BY TELEPHONE OR OVER THE INTERNET FOLLOWING THE INSTRUCTIONS ON THE PROXY.  Returning a signed proxy card will help us secure a quorum and avoid the expense of additional proxy solicitation.  If you later desire to revoke your proxy for any reason, you may do so in the manner described in the attached proxy statement.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2010 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY    , 2010: The proxy statement for the 2010 Annual Meeting of Stockholders and the Annual Report for the year ended December 31, 2009 are available via the internet at http://www.emrise.com.

Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission determined that this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement is dated June     , 2010 and is first being mailed to the stockholders of the Company on or about June    , 2010.

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EMRISE CORPORATION
611 Industrial Way
Eatontown, New Jersey 07724

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

July   , 2010

VOTING AND PROXY

We are furnishing this proxy statement in connection with the solicitation of proxies by our Board of Directors for use at our 2010 annual meeting of stockholders to be held at 11:30 a.m. local time on July    , 2010, at Staybridge Suites, Eatontown, New Jersey 07724, and at any and all adjournments and postponements of the meeting.  This proxy statement and the enclosed proxy are first being sent or given to stockholders of EMRISE Corporation on or about June   , 2010.  The following items of business will be discussed at the 2010 annual meeting of stockholders:

1.  The approval and adoption of the Purchase Agreement.

2.  The election of Laurence P. Finnegan, Jr. as a Class II director to serve a three-year term on the Company’s Board of Directors.

3.  The ratification of the selection of BDO Seidman LLP, our independent registered public accountant, to audit our consolidated financial statements for 2010.

4.  The approval of 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.

5.  The transaction of such other business as may properly come before the meeting.

Our annual report on Form 10-K for the year ended December 31, 2009, this proxy statement and the accompanying notice of annual meeting and certain other proxy materials were first made available to our stockholders on the Internet, at http://www.emrise.com, on or about June     , 2010.  The annual report is not to be regarded as proxy soliciting material or as a communication through which any solicitation of proxies is made.

The shares represented by each properly executed unrevoked proxy will be voted as directed by the stockholder with respect to the matters described in the proxy.  If no direction is made, the shares represented by each properly executed proxy will be voted “FOR” each of the proposals listed on the proxy.

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You may revoke or change your proxy at any time before it is voted, except as otherwise described herein.  If you are the registered stockholder (that is, you hold your Company shares in certificated form), you may revoke or change your proxy before it is voted by:

·                                          filing a notice of revocation, which is dated a later date than your proxy, with the Company’s Secretary;

·                                          submitting a duly executed proxy card bearing a later date;

·                                          submitting a new proxy by telephone or through the Internet at a later time, but not later than 11:59 p.m., eastern time, on July    , 2010, or the day before the meeting date, if the annual meeting is adjourned or postponed; or

·                                          voting by ballot at the annual meeting (simply attending the annual meeting will not constitute revocation of a proxy).

If your Company shares are held in “street name,” you should follow the instructions of your broker, bank or other nominee regarding revocation or change of proxies in order to revoke or change your proxy. If your broker, bank or other nominee allows you to submit a proxy by telephone or the Internet, you may be able to change your vote by submitting a proxy again by telephone or the Internet.

At the close of business on June 7, 2010, the record date for determining the stockholders entitled to notice of and to vote at the 2010 annual meeting, we had issued and outstanding 10,213,412 shares of common stock.  Only holders of record of our common stock at the close of business on the record date are entitled to notice of and to vote at the annual meeting or at any adjournments and postponements of the meeting.

Each share of our common stock issued and outstanding on the record date entitles the holder of that share to one vote at the 2010 annual meeting for all matters to be voted on at the meeting.  The holders of a majority of our shares of common stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for purposes of voting on the proposals.  Votes cast at the 2010 annual meeting will be tabulated by the person or persons appointed by us to act as inspector of election for the meeting.  Shares of our common stock represented in person or by proxy (regardless of whether the proxy has authority to vote on all matters), as well as abstentions and broker non-votes, will be counted for purposes of determining whether a quorum is present at the meeting.

For Proposal 1, the affirmative vote of a majority of the shares of our outstanding common stock entitled to vote at the meeting will constitute stockholder approval of the Purchase Agreement.  For Proposal 2, the election of one Class II director to our Board of Directors, the nominee receiving the highest number of votes will be elected, as directors are elected by a plurality.  Approval of Proposal 3, the ratification of the selection of our independent registered public accountants, is not required.  However, the affirmative vote of a majority of the shares of our common stock entitled to vote at and present in person or represented by proxy at the meeting will constitute stockholder ratification of the selection of our independent registered public accountants.

In the event that there are insufficient votes at the time of the 2010 annual meeting of stockholders to adopt the Purchase Agreement, the appointed proxy will have the authority to adjourn or postpone the meeting to a future date, which will be announced at the 2010 annual meeting of stockholders.

Under the rules of the NYSE, if a broker or other financial institution holds your shares in its name and you do not provide your voting instructions to them, then that firm has discretion to vote your

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shares for certain routine matters.  Proposal 3, the ratification of the selection of our independent registered public accountants to audit our consolidated financial statements for 2010, is a routine matter.

However, the broker or other financial institution that holds your shares in its name does not have discretion to vote your shares for non-routine matters.  The approval of the Purchase Agreement (Proposal 1) and the election of directors (Proposal 2) are non-routine matters and the firm that holds your shares in its name may not vote on those items absent your instruction.  When a firm votes a client’s shares on some but not all of the proposals at the 2010 Annual Meeting, the missing votes are referred to as “broker non-votes.”  Those shares will be included in determining the presence of a quorum at the 2010 Annual Meeting, but are not considered “present” for purposes of voting on the non-routine items.  Because Proposal 1 requires the affirmative vote of a majority of the outstanding common stock, rather than a majority of the common stock present in person or by proxy at the meeting, a broker non-vote could have the effect of a no-vote on Proposal 1.

As of June 7, 2010, the record date for the annual meeting, the directors and executive officers of the Company held and are entitled to vote, in the aggregate, 667,324 shares of the Company common stock (excluding options), representing approximately 6.34% of the voting power of the Company.  Each of our directors and executive officers have informed the Company that they intend to vote all of their Company shares “FOR”  the approval and adoption of the Purchase Agreement, “FOR” any adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies, “FOR” the election of Laurence P. Finnegan, Jr. as a Class II director to serve a three-year term on the Company’s Board of Directors and “FOR” the ratification of the selection of our independent registered public accountant to audit our consolidated financial statements for 2010.

Although it is not currently expected, the annual meeting may be adjourned or postponed for the purpose of soliciting additional proxies.  Despite the absence of a quorum, the Chairman of the annual meeting or a majority of the shares held by stockholders present in person or by proxy at such meeting may adjourn the annual meeting to another time and place, and it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the annual meeting is adjourned are announced at the meeting at which the adjournment is taken.  At the adjourned annual meeting, any business may be transacted that might have been transacted on the original date of the meeting.  Any adjournment or postponement of the annual meeting for the purpose of soliciting additional proxies will allow the Company stockholders who have already sent in their proxies to revoke them prior to their use at the annual meeting, when it is reconvened following such adjournment or postponement, in the manner described above.

We will pay the expenses of soliciting proxies for the 2010 annual meeting, including the cost of preparing, assembling and mailing the proxy solicitation materials.  Proxies may be solicited personally, by mail, by internet or by telephone, or by our directors, officers and regular employees who will not be additionally compensated.  We have engaged Georgeson Inc. to assist in the solicitation of proxies for the annual meeting.  The matters to be considered and acted upon at the 2010 annual meeting are referred to in the preceding notice and are discussed below more fully.

If you have more questions about the 2010 Annual Meeting of Stockholders or the Purchase Agreement or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please 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 (212) 440-9800.

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PURPOSE AND EFFECT OF THE TRANSACTION

You are being asked to consider and vote upon the approval and adoption of the Purchase Agreement, dated as of June 7, 2010, by and among Buyer and Seller relating to the sale by Seller, and the purchase by Buyer, of all of the issued and outstanding shares of common stock of CCI, the direct parent and owner of 80% of the issued and outstanding shares of common stock of ACC, and the sale by Seller, and the purchase by Buyer, of the remaining 20% of the outstanding shares of common stock of ACC, which are owned by Seller (the “Transaction”).  As a result of the Transaction, ACC will become a wholly-owned subsidiary of Buyer.  A copy of the Purchase Agreement is attached to this proxy statement as Annex A.

EMRISE (including each of its direct 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.  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 January 2010, we agreed to sell certain assets and to use a significant portion of the proceeds to pay off the obligations owed to the Lender.  The Company’s primary purpose in engaging in the Transaction is to meet its commitment under the amended Credit Agreement and pay off the obligations owed to the Lender.  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.

SUMMARY OF THE STOCK PURCHASE AGREEMENT

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you.  To understand the Purchase Agreement fully, and for a more complete description of the legal terms of the Transaction, as defined herein, you should carefully read this entire proxy statement, Annex A attached to this proxy statement and the documents referred to in this proxy statement.

This proxy statement contains forward-looking statements that involve risks and uncertainties.  Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Form 10-Q for the quarterly period ended March 31, 2010 and other Company filings with the SEC.

Summary of the Transaction

On June 7, 2010, Aeroflex Incorporated (“Buyer”) and EMRISE Electronics Corporation (“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 Advanced Control Components, Inc. (“ACC”) and all of the issued and outstanding shares of common stock of Custom Components, Inc. (“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.  Seller is a wholly owned subsidiary of the Company.  The Purchase Agreement provides for Buyer to pay to Seller $20 million in cash, 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.  Stockholders of the Company will not receive any consideration as a result of the Transaction.  For

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purposes of Section 271 of the General Corporation Law of the State of Delaware, the Transaction, when consummated, will constitute the sale of substantially all of the assets of the Company.

Material Terms of the Purchase Agreement

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DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS

Biographical Information

The names, ages and positions held by our directors and executive officers as of June 7, 2010 and their business experience are as follows:

(1)  Member of the compensation committee, corporate governance and nominating committee and audit committee.

Carmine T. Oliva has been Chairman of the Board, Chief Executive Officer and a Class III director of EMRISE since March 26, 1997 and of our subsidiary, EMRISE Electronics Corporation, since he founded EMRISE Electronics Corporation in 1983.  From March 1997 until July 2009, he was also President of EMRISE.  Mr. Oliva served as Acting Chief Financial Officer and Secretary of EMRISE from August 18, 2006 to May 15, 2007 and served as Acting Chief Financial Officer from April to July 2005.  Mr. Oliva has been Chairman of the Board of EMRISE Electronics Ltd. since 1985, and Chairman and Chief Executive Officer of CXR Larus since March 1997. In 2002, Mr. Oliva obtained a French government working permit and assumed responsibility as President of our CXR-AJ subsidiary. From January 1999 to January 2000, Mr. Oliva served as a director of Digital Transmission Systems Inc. From 1980 to 1983, Mr. Oliva was Senior Vice President and General Manager, ITT Asia Pacific Inc.  Prior to holding that position, Mr. Oliva held a number of executive positions with ITT Corporation and its subsidiaries over an eleven-year period.  Mr. Oliva attained the rank of Captain in the United States Army and is a veteran of the Vietnam War.  Mr. Oliva earned a B.A. degree from Seton Hall University and an M.B.A. degree from The Ohio State University.  Mr. Oliva is founder of EMRISE from inception.  This, in addition to his vast business acumen and experience in the aerospace and defense and communications equipment industries for over 40 years along with his judgment, integrity and reputation and his extensive international business background including his extensive acquisition and divestiture expertise, makes Mr. Oliva an ideal director of the Company as well as its Chairman.

Graham Jefferies was appointed President of EMRISE in July 2009.  He served as Executive Vice President from October 21, 1999 until July 2009. Mr. Jefferies was also appointed as our Chief Operating Officer on January 3, 2005, after having served as Chief Operating Officer of our Telecommunications Group since October 21, 1999. Mr. Jefferies served as Executive Vice President of

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EMRISE from April 1999 through October 1999. Mr. Jefferies has served CXR-AJ as a director since March 1997 and as General Manager since July 2002, has served as Managing Director of Belix Power Conversions Ltd., Belix Wound Components Ltd. and Belix Company Ltd. since our acquisition of those companies in April 2000, as Managing Director of XCEL Power Systems, Ltd. since September 1996 and as Managing Director of EMRISE Electronics Ltd. since March 1992.  Prior to joining us in 1992, he was Sales and Marketing Director of Jasmin Electronics PLC, a major United Kingdom software and systems provider, from 1987 to 1992. Mr. Jefferies held a variety of project management positions at GEC Marconi from 1978 to 1987. Mr. Jefferies earned a B.S. degree in Engineering from Leicester University, and has experience in mergers and acquisition. Mr. Jefferies is a citizen and resident of the United Kingdom.

D. John Donovan was appointed as our Chief Financial Officer in July 2009.  He served as Vice President Finance and Administration from May 2007 to July 2009 and has served as Secretary and Treasurer from May 16, 2007 to present day.  Prior to joining us, Mr. Donovan served as a management consultant at DLC, Inc. where he was employed from December 2004 to April 2007.  During that time, he handled various financial and accounting functions for the firm’s clients, including his principal client, AeroVironment, Inc. (NasdaqGM: AVAV). From March 2002 to October 2004, Mr. Donovan served as president and chief financial officer of Chem Lab Products, Inc., a private manufacturer of chemicals. Prior to that, he served as chief financial officer of Gainey Ceramics, as controller of Rembrandt Photo Services, as director of financial reporting at Transamerica Corporation, as manager of financial reporting at Capitol Multimedia, Inc., and as a certified public accountant at PricewaterhouseCoopers and Ernst & Young LLP. Mr. Donovan earned a B.S. degree in Accounting and a Master of Accountancy degree in Information Systems from Brigham Young University and is a certified public accountant.

Laurence P. Finnegan, Jr. has served as a Class II director since March 26, 1997.  In addition, he was a director of EMRISE Electronics Corporation from 1985 to March 1997, and was EMRISE Electronic Corporation’s part-time Chief Financial Officer from 1994 to 1997. Mr. Finnegan has held positions with ITT (1970-1974) as controller of several divisions, Narco Scientific (1974-1983) as Vice President Finance, Chief Financial Officer, Executive Vice President and Chief Operating Officer, and Fischer & Porter (1986-1994) as Senior Vice President, Chief Financial Officer and Treasurer. Since August 1995, he has been a principal of GwynnAllen Partners, Bethlehem, Pennsylvania, an executive management consulting firm. From 1996-2008 Mr. Finnegan was a director and the President of GA Pipe, Inc., a manufacturing company based in Langhorne, Pennsylvania. From September 1997 to January 2001, Mr. Finnegan served as Vice President Finance and Chief Financial Officer of QuestOne Decision Sciences, an efficiency consulting firm based in Pennsylvania. Since August 2001, Mr. Finnegan has served as a director and the Vice President and Chief Financial Officer of VerdaSee Solutions, Inc., a consulting and software company based in Pennsylvania. Mr. Finnegan earned a B.S. degree in Accounting from St. Joseph’s University.  Mr. Finnegan’s education and lifetime of experience in accounting, including several positions as Chief Financial Officer and controller at industrial and manufacturing companies, as well as his business acumen, judgment, integrity and reputation makes him an ideal director and chair of our Audit Committee.

Otis W. Baskin has served as a Class I director since February 6, 2004.  He has been a Professor of Management at The George L. Graziadio School of Business and Management at Pepperdine University in Malibu, California since June 1995 through present and also served as dean from 1995 to 2001.  As dean at Pepperdine, he was responsible for all aspects of the management of an organization with 200 employees and $47 million in annual revenue.  He has been a member of the full-time faculty of the University of Houston - Clear Lake (1975-1987), where he served as Coordinator of the Management Faculty and Director of the Center for Advanced Management Programs. He has also been Professor of Management at Arizona State University, West Campus (1987-1991) and The University of Memphis (1991-1995), in addition to serving as dean at both universities.  In each of these assignments he had

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responsibilities for recruitment and setting compensation of both professional and support personnel.  Dr. Baskin worked with AACSB International (Association for the Advancement of Collegiate Schools of Business) as Special Advisor to the President and as Chief Executive Officer from July 2002 to June 2004. He is an Associate with the Family Business Consulting Group, where he advises family owned and closely held businesses. He has served as an advisor to Exxon/Mobile Research and Engineering Corporation, NASA and the United States Air Force.  Dr. Baskin is an expert in international business who has worked with companies and business schools in more than 40 countries.  He earned a Ph.D. in Management, Public Relations and Communication Theory from The University of Texas at Austin, an M.A. degree in Speech Communication from the University of Houston, and a B.A. degree in Religion from Oklahoma Christian University.  Dr. Baskin brings a unique blend of business, management, communications and leadership skills, experience and education, as well as his judgment, integrity and reputation, to his role as director and chair of the Compensation Committee.

Richard E. Mahmarian was appointed as a Class III director on March 1, 2006. He is currently serving as a principal and Chairman, President and Chief Executive Officer of Control Solutions, Inc., a company that specializes in providing business systems including hardware, software, consumable products and services to major United States corporations, since December 2003. Mr. Mahmarian also is serving as the Managing Member and Chairman and Chief Executive Officer of REM Associates, LLC, a private investment and consulting company, since 1997. From 1998 until 2001, Mr. Mahmarian was the owner of Alpha Microsystems, LLC, a company that manufactured and sold mini-computer systems, personal computers and servers, provided network services and support, and information technology hardware and software services throughout North America through 50 field offices. In addition, from 1997 until 2006, Mr. Mahmarian owned R&R Palos Verdes Enterprises, Inc., a home construction company in Los Angeles, California.  He served in the United States Navy and was honorably discharged. While in the Navy, he received training in advanced electronic technologies. Mr. Mahmarian earned a B.A. degree in Accounting from Upsala College and an M.B.A. degree in Marketing and Economics from Seton Hall University.  Mr. Mahmarian is a member of the Board of Regents of Seton Hall University and the Board of Advisors of Crestmont College of the Salvation Army.  Mr. Mahmarian makes an ideal director and chair of the Nominating and Corporate Governance Committee because of his long and deep experience in founding, running and growing technology companies with similar technical, engineering, manufacturing, sales and marketing, and distribution issues and challenges, in addition to his business acumen, judgment, integrity and reputation.

Term of Office and Family Relationships

Our officers are appointed by, and serve at the discretion of, our Board of Directors.  There are no family relationships among our executive officers and directors.

EXECUTIVE COMPENSATION AND RELATED INFORMATION

Summary Compensation Table

The following table provides information concerning the compensation for the years ended December 31, 2008 and December 31, 2009 for our principal executive officer, our principal financial officer, and our chief operating officer, who were the only persons who served as executive officers during 2009 (collectively, the “named executive officers”).

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(1)          The dollar amount reflected is the fair value calculated for stock options granted in those years, as well as prior fiscal years, in accordance with applicable FASB guidance.  For purposes of the amount shown in the table above, no forfeitures were assumed to take place.  The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the fiscal years indicated. For purposes of the amounts shown in the table above, no forfeitures were assumed to take place.  Information regarding the material terms of the grants for which we recognized compensation costs in 2008 and 2009 is included in the “Outstanding Equity Awards at December 31, 2009” table below.

(2)          Amount represented includes $4,041 in insurance premiums we paid with respect to a $1,000,000 term life insurance policy for the benefit of Mr. Oliva’s spouse.  This amount also includes perquisites or personal benefits provided, none of which individually exceed the greater of $25,000 or 10% of the total amount of these benefits provided to Mr. Oliva.

(3)          Mr. Jefferies is based in the United Kingdom and receives his remuneration in British pounds sterling. The compensation amounts listed for Mr. Jefferies are shown in United States dollars, converted from British pounds sterling using the average of the daily conversion rates in effect in 2009 and 2008, respectively.  Mr. Jefferies’ salary in British pounds sterling was approximately £180,000 for both 2008 and 2009.

(4)          Amount represented includes $19,780 in Company contributions to Mr. Jefferies’ retirement account.  This amount also includes perquisites or personal benefits provided, none of which individually exceed the greater of $25,000 or 10% of the total amount of these benefits provided to Mr. Jefferies.

(5)          Amount represented includes $16,689 in Company contributions to Mr. Jefferies’ retirement account.  This amount also includes perquisites or personal benefits provided, none of which individually exceed the greater of $25,000 or 10% of the total amount of these benefits provided to Mr. Jefferies.

(6)          Amount represented includes approximately $1,100 in insurance premiums we paid with respect to a term life insurance policy for the benefit of Mr. Donovan’s spouse and $12,900 in medical and dental benefits.  The value of perquisites and other personal benefits Mr. Donovan received was less than $10,000 in aggregate.

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(7)          Amount represented includes approximately $1,000 in insurance premiums we paid with respect to a term life insurance policy for the benefit of Mr. Donovan’s spouse and $13,200 in medical and dental benefits.  This amount also includes perquisites or personal benefits provided, none of which individually exceed the greater of $25,000 or 10% of the total amount of these benefits provided to Mr. Donovan.

Termination Payments

Carmine T. Oliva

We may terminate Mr. Oliva’s employment at any time, with or without due cause. “Due cause” includes any intentional misapplication of our funds or other material assets, or any other act of dishonesty injurious to us, or conviction of a felony or a crime involving moral turpitude. “Due cause” also includes abuse of controlled substances or alcohol and breach, nonperformance or nonobservance of any of the terms of his employment agreement, provided that Mr. Oliva fails to satisfactorily remedy the performance problem following 30 days’ written notice.

Mr. Oliva may terminate his employment at any time, with or without good reason. However, termination for good reason must occur within 90 days of the occurrence of an event constituting good reason, and Mr. Oliva must furnish us with written notice of the event within 30 days after the initial existence of the event and provide us with at least a 30-day cure period. “Good reason” includes: a material diminution in his authority, duties, responsibilities, titles or offices; a purported reduction in Mr. Oliva’s base salary amounting to a material diminution in his salary to an amount less than 10% below the base salary in effect at the time of the reduction; and our failure to timely cure or diligently initiate a cure of any material breach within 30 days after Mr. Oliva gives us written notice of the breach.

If we terminate Mr. Oliva’s employment for due cause or due to Mr. Oliva’s breach of his employment agreement by refusing to continue his employment, or if Mr. Oliva terminates his employment without good reason, then all compensation and benefits for Mr. Oliva will cease, other than amounts under retirement and benefit plans and programs that were earned and vested by the date of termination, pro rata annual salary through the date of termination, any stock options that were vested as of the date of termination, and accrued vacation as required by California law.

If Mr. Oliva becomes incapacitated, we may terminate his employment under the agreement upon 30 days’ prior written notice.  Upon Mr. Oliva’s death, the agreement terminates immediately. If Mr. Oliva’s employment terminates due to his incapacity or death, Mr. Oliva or his estate or legal representative will be entitled to receive benefits under our retirement and benefits plans and programs that were earned and vested at the date of termination, a prorated incentive bonus for the fiscal year in which incapacity or death occurred (to the extent he would otherwise be eligible), and a lump sum cash payment in an amount equal to one year of his then current annual salary, grossed up to cover applicable taxes that are deducted from such amount.

If Mr. Oliva’s employment terminates for good reason or other than as a result of due cause, incapacity, death or retirement, Mr. Oliva will be entitled to his salary through the end of the month in which termination occurs plus credit for accrued vacation, and a prorated incentive bonus, if eligible, for the fiscal year during which termination occurred. In addition, under those circumstances, if Mr. Oliva enters into a separation and release agreement with us, then he will be entitled to receive (i) a severance payment equal to three times his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount), (ii) all medical insurance benefits to which he was entitled immediately prior to the date of termination for a period of eighteen months or the date that Mr. Oliva’s continued

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participation in our medical insurance plan was not possible under the plan, whichever was earlier, (iii) a lump-sum cash payment equal to eighteen times the estimated monthly COBRA premiums at the time of termination (taking into account all known or anticipated premium increases) to be used by Mr. Oliva to maintain his medical insurance coverage for an additional eighteen months, and (iv) a lump-sum cash payment equal to thirty-six times the estimated monthly life insurance premiums at the time of termination (taking into account all known or anticipated premium increases) to be used by Mr. Oliva to maintain his existing group life insurance coverage and the $1,000,000 life insurance policy on his life for three years.  If our medical insurance plan did not allow Mr. Oliva’s continued participation, then we will be required to pay to Mr. Oliva, in monthly installments, the monthly premium or premiums for COBRA coverage, covering the eighteen month period described in clause (ii) in the preceding sentence.

As of June 17, 2010, Mr. Oliva’s employment arrangement was modified.  Before such modification, Mr. Oliva was entitled to receive a payment equal to three times his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount) immediately preceding the occurrence of a change in control, regardless of whether Mr. Oliva’s employment terminated or he received severance payments as a result of the change in control.  Under the modified arrangement that went into effect as of June 17, 2010, Mr. Oliva will only be entitled to receive a payment for a change in control if his employment is terminated by the Company without due cause or by Mr. Oliva for good reason, in both cases within nine months of such change in control.  Under these circumstances, Mr. Oliva would be entitled to receive $125,000 in addition to his previous and continuing termination severance amounts.  In consideration for these modifications to his employment arrangement and in connection with the potential sale of the stock of ACC as described in detail in Proposal 1 herein, Mr. Oliva will also be entitled to receive, upon the earlier of the closing of the Transaction or the first of any other change in control event, both a lump sum payment of $85,000 and an aggregate of $135,000 paid over four months beginning one month after such closing.  The amount of any future severance that Mr. Oliva would be entitled to receive under his employment agreement will be reduced by $125,000 of these payments.

A “change in control” includes the following circumstances:

(a)                                 the acquisition by any person or group of beneficial ownership of securities entitled to vote generally in the election of our directors (“voting securities”) that represent 40% or more of the combined voting power of our then outstanding voting securities or 50% or more of the combined fair market value of our then outstanding stock, other than:

(i)                          an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by us or any person controlled by us or by any employee benefit plan (or related trust) sponsored or maintained by us or any person controlled by us, or

(ii)                       an acquisition of voting securities by us or a corporation owned, directly or indirectly, by our stockholders in substantially the same proportions as their ownership of our stock;

(b)                                a majority of members of our board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of members of our board before the date of the appointment or election, excluding any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than our board;

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(c)                                 the acquisition by any person or group, or combined acquisitions during the 12-month period ending on the date of the most recent acquisition by such person or group, of ownership of assets from us that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of our assets immediately before such acquisition; and

(d)                                stockholder approval of a complete liquidation or dissolution of our company.

Notwithstanding circumstance (a) above, however, if we make an acquisition of our securities that (x) causes our voting securities beneficially owned by a person or group to represent 40% or more of the combined voting power of our then outstanding voting securities or (y) causes our stock beneficially owned by a person or group to represent 50% or more of the combined fair market value of our then outstanding stock, the acquisition will not be considered an acquisition by any person or group for purposes of circumstance (a) unless the person or group subsequently becomes the beneficial owner of additional securities of EMRISE.

For purposes of circumstance (a) above, the calculation of voting power will be made as if the date of the acquisition were a record date for a vote of our stockholders, and for purposes of circumstance (c) above, the calculation of voting power will be made as if the date of the consummation of the transaction were a record date for a vote of our stockholders.

Notwithstanding the above, there will be no change in control event when there is a transfer to an entity that is controlled by our stockholders immediately after the transfer.  A transfer of assets by us is not treated as a change in control if the assets are transferred to: a stockholder of ours (immediately before the asset transfer) in exchange for or with respect to the stockholders’ stock; an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by us; a person or group that owns, directly or indirectly, 50% or more of the total value or voting power of all of our outstanding stock; or an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person or group described in the immediately preceding clause.

Graham Jefferies

Mr. Jefferies may terminate his employment at any time, with or without good reason. However, termination for good reason must occur within 30 days of the occurrence of an event constituting good reason. The term “good reason” has the same meaning as in Mr. Oliva’s employment agreement described above.

We may terminate Mr. Jefferies’ employment at any time, immediately upon written notice, with or without due cause. The term “due cause” has the same meaning as in Mr. Oliva’s employment agreement described above, except that Mr. Jefferies may satisfactorily remedy the performance problem following 90 days’ written notice. If we terminate Mr. Jefferies’ employment for due cause or due to Mr. Jefferies’ breach of his employment agreement by refusing to continue his employment, or if Mr. Jefferies terminates his employment without good reason, then all compensation and benefits for Mr. Jefferies will cease, other than amounts under retirement and benefit plans and programs that were earned and vested by the date of termination, pro rata annual salary through the date of termination, and any stock options that were vested as of the date of termination, and accrued vacation as required by applicable law.

If Mr. Jefferies becomes mentally or physically incapable of performing the services required under the agreement for a period of 180 consecutive days, the agreement terminates; provided, however, that Mr. Jefferies will remain an employee of EMRISE Electronics Ltd. and be entitled to remuneration in

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an amount equal to the amount paid under EMRISE Electronics Ltd.’s permanent health insurance scheme, subject to the paragraph immediately below. Upon Mr. Jefferies’ death, the agreement terminates immediately.

If Mr. Jefferies’ employment terminates due to his incapacity or death, Mr. Jefferies or his estate or legal representative will be entitled to receive benefits under our retirement and benefits plans and programs that were earned and vested at the date of termination, a prorated incentive bonus for the fiscal year in which incapacity or death occurred (to the extent he would otherwise be eligible), and a lump sum cash payment in an amount equal to one year of his then current annual salary, grossed up to cover applicable taxes that are deducted from such amount.

If Mr. Jefferies’ employment terminates for good reason or other than as a result of due cause, incapacity, death or retirement, Mr. Jefferies will be entitled to his salary through the end of the month in which termination occurs plus credit for accrued vacation, and a prorated incentive bonus, if eligible, for the fiscal year during which termination occurred. In addition, under those circumstances, if Mr. Jefferies enters into a separation and release agreement with us, then he will be entitled to receive a severance payment equal to two times his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount), to receive all medical and life insurance benefits to which he was entitled immediately prior to the date of termination (or at the election of Mr. Jefferies in the event of a change in control, immediately prior to the date of the change in control) for a period of two years or the date or dates that Mr. Jefferies’ continued participation in our medical and/or life insurance plans was not possible under the plans, whichever was earlier.  If our medical and/or life insurance plans did not allow Mr. Jefferies’ continued participation, then we will be required to pay to Mr. Jefferies, in monthly installments, the monthly premium or premiums that had been payable by us covering the two-year period.

As of June 18, 2010, Mr. Jefferies’ employment arrangement was also modified.  Before such modification, Mr. Jefferies was entitled to receive a payment equal to two times his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount) immediately preceding the occurrence of a change in control, regardless of whether Mr. Jefferies’ employment terminates and/or he receives severance payments as a result of the change in control.  Under the modified arrangement that went into effect as of June 18, 2010, Mr. Jefferies will only be entitled to receive a payment for a change in control if his employment is terminated by the Company without due cause or by Mr. Jefferies for good reason, in both cases within nine months of such change in control.  Under these circumstances, Mr. Jefferies would be entitled to receive $100,000 in addition to his previous and continuing termination severance.  In consideration for these modifications to his employment arrangement and in connection with the potential sale of the stock of ACC, as described in detail in Proposal 1 herein, Mr. Jefferies will also be entitled to receive, upon the earlier of the closing of the Transaction or the first of any other change in control event, both a lump sum payment of $80,000 and an aggregate of $105,000 paid over four months beginning one month after such closing.  In addition, Mr. Jefferies will be paid retention payments of $4,300 every other week from June 1, 2010 through May 30, 2011 (aggregating $111,800) as long as he remains employed by the Company.

D. John Donovan

Mr. Donovan’s current employment arrangement is described below.  In anticipation of the significant changes to the Company caused by the sale of ACC, and other divisions of the Company including RO Associates, Digitran, and XCEL Japan, the Company is evaluating the finance department of Emrise, including whether it will continue to require a separate chief financial officer, and whether reorganization of the current finance team can meet or will exceed the Company’s requirements going forward from the closing of the Transaction.  This decision will be significantly impacted by the closing of the Transaction.  In the event that the Company were to determine that it should eliminate the role of chief financial officer before closing the Transaction, then Mr. Donovan would be entitled to receive his full termination severance in the approximate amount of $370,000, but he will not be entitled to receive any change in control payment contemplated under his current arrangement.  If his role is not eliminated before the close of the Transaction, then he would be entitled to the change in control payment described below.

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Mr. Donovan’s current arrangement was as follows:  Mr. Donovan was permitted to terminate his employment at any time, with or without good reason.  However, termination for good reason must have occurred within 90 days of the occurrence of an event constituting good reason, and Mr. Donovan was required to furnish us with written notice of the event within 30 days after the initial existence of the event and provide us with at least a 30-day cure period.  The term “good reason” has the same meaning as in Mr. Oliva’s employment agreement described above.

If we had terminated Mr. Donovan’s employment for due cause or due to Mr. Donovan’s breach of his employment agreement by refusing to continue his employment, or if Mr. Donovan had terminated his employment without good reason, then all compensation and benefits for Mr. Donovan would have ceased, other than amounts under retirement and benefit plans and programs that were earned and vested by the date of termination, pro rata annual salary through the date of termination, any stock options that were vested as of the date of termination, and accrued vacation as required by California law.

If Mr. Donovan had become incapacitated during his prior employment arrangement, we were permitted to terminate his employment under his prior arrangement upon 30 days’ prior written notice.  Upon Mr. Donovan’s death, the agreement would have terminated immediately.  If Mr. Donovan’s employment had terminated due to his incapacity or death, Mr. Donovan or his estate or legal representative would have been entitled to receive benefits under our retirement and benefits plans and programs that were earned and vested at the date of termination, a prorated incentive bonus for the fiscal year in which incapacity or death occurred (to the extent he would otherwise have been eligible), and a lump sum cash payment in an amount equal to one year of his then current annual salary, grossed up to cover applicable taxes that are deducted from such amount.

If Mr. Donovan’s employment had terminated for good reason or other than as a result of due cause, incapacity, death or retirement, Mr. Donovan would have been entitled to his salary through the end of the month in which termination occurred plus credit for accrued vacation, and a prorated incentive bonus, if eligible, for the fiscal year during which termination had occurred.  In addition, under those circumstances, if Mr. Donovan had entered into a separation and release agreement with us, then he would have been entitled to receive (i) a severance payment equal to his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount), (ii) all medical insurance benefits to which he was entitled immediately prior to the date of termination for a period of eighteen months or the date that Mr. Donovan’s continued participation in our medical insurance plan was not possible under the plan, whichever was earlier, and (iii) a lump-sum cash payment equal to $1,650 to be used by Mr. Donovan to maintain his existing life  insurance coverage for a period of eighteen months.  If our medical insurance plan did not allow Mr. Donovan’s continued participation, then we would have been required to pay to Mr. Donovan, in monthly installments, the monthly premium or premiums for COBRA coverage, covering the eighteen month period described in clause (ii) in the preceding sentence.

Immediately preceding the occurrence of a change in control, and regardless of whether Mr. Donovan’s employment had terminated and/or he had received severance payments as a result of the change in control, Mr. Donovan would have been entitled to receive a payment equal to his then current annual salary (grossed up to cover applicable taxes that are deducted from such amount).

The terms “due cause” and “change in control” have the same meaning as in Mr. Oliva’s employment agreement described above.

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Compensation Committee Report

The Compensation Committee of EMRISE’s Board of Directors currently consists of directors Messrs. Finnegan, Baskin and Mahmarian, all of whom the Board has determined to be independent pursuant to rules of the NYSE Arca.  This report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by virtue of any general statement in such filing incorporating the Form 10-K by reference, except to the extent that the Company specifically incorporates the information contained in this section by reference and shall not otherwise be deemed filed under either the Securities Act or the Exchange Act.

The Compensation Committee has reviewed and discussed with management the disclosure regarding Executive Compensation and Related Information contained in this Proxy Statement for the 2010 Annual Meeting.  Based on the review and discussions, the Compensation Committee recommended to the Board of Directors that such disclosure be included in this Proxy Statement.

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.

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(1)          The option becomes exercisable in three equal installments on August 22, 2009, 2010 and 2011.

(2)          The option shall be exercisable in three equal installments on the latter of (a) August 22, 2009, August 22, 2010 and August 22, 2011, respectively, or (b) the date the Company files its financial statements with the SEC for the second consecutive fiscal quarter in which the Company reports net income (after taxes) on its Condensed Consolidated Statements of Operations after August 22, 2008.

(3)          The option becomes exercisable in three equal installments on March 24, 2010, 2011 and 2012.

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.

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

(1)          The dollar amount reflected is the fair value calculated for stock options granted in that year in accordance with applicable FASB guidance.  We did not recognize compensation cost for financial reporting purposes for the 2009 fiscal year for stock options granted in prior years.  For purposes of the amount shown in the table above, no forfeitures were assumed to take place.  The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the fiscal years indicated:

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(2)          At December 31, 2009, Mr. Finnegan held vested and unvested options to purchase an aggregate of 87,601 shares of common stock.

(3)          At December 31, 2009, Mr. Baskin held vested and unvested options to purchase an aggregate of 52,668 shares of common stock.

(4)          At December 31, 2009, Mr. Mahmarian held vested and unvested options to purchase an aggregate of 43,334 shares of common stock.

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).

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.

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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 Seidman 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 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;

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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 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,

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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 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

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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.

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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.

* Less than 1.00%

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(1)          Includes 21,837 shares held individually by Mr. Oliva’s spouse, and 83,847 shares underlying vested options.

(2)          Includes 68,989 shares underlying vested options.

(3)          Includes 34,056 shares underlying vested options.

(4)          Includes 24,722 shares underlying vested options.

(5)          Includes 61,179 shares underlying vested options.

(6)          Includes 36,112 shares underlying vested options.

(7)          Based on share beneficial ownership information contained in a Schedule 13G filed February 11, 2008, by Private Equity Management Group LLC (“PEM”).  PEM has indicated that it is deemed to be the beneficial owner of an aggregate of 775,758 shares underlying warrants, over which the Estate of Danny Pang, Robert Anderson, Wilbur Quon, Todd Gillespie, Peter Paul Mendel, Lian-Hung Chan, Yuan-Feng Sandra Chang and Anthony Bufinsky, as members of PEM, acting by majority in membership interests may be deemed to have the power to vote or direct the vote and the power to dispose or to direct the disposition of the shares.  The address for PEM is One Park Plaza, Suite 550, Irvine, California 92614.

(8)          Includes 308,905 shares underlying vested options and 21,837 outstanding shares held individually by Mr. Oliva’s wife.

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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(1)               Represents shares of common stock underlying options that are outstanding under our 1993 Stock Option Plan, our Employee Stock and Stock Option Plan, our 1997 Stock Incentive Plan, our Amended and Restated 2000 Stock Option Plan and our 2007 Stock Incentive Plan. The material features of these plans are described in note 11 to our consolidated financial statements for the years ended December 31, 2009 and 2008.

(2)               Represents shares of common stock available for issuance under options that may be issued under our Amended and Restated 2000 Stock Option Plan and our 2007 Stock Incentive Plan.

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

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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;

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

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·                                          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 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.

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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, 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 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

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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 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., 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.  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.

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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 and waiver of the accrued fees.

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, the maturity of which 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;

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·                                          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;

·                                          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.

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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 directed to the Board of Directors of EMRISE and only addressed 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, 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 dated June 7, 2010;

·                  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

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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.

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 was furnished for the use and benefit of the Board of Directors of EMRISE (solely in its capacity as such) in connection with its consideration of the Transaction and may not be used for any other purpose without Boenning’s prior written consent.  Boenning’s opinion should not be construed as creating any fiduciary duty on Boenning’s part to any party.  Boenning’s opinion is not intended to be, and does not constitute, a recommendation to the Board of Directors of EMRISE, EMRISE, any stockholder of EMRISE or any other person as to how to act or vote with respect to any matter relating to the Transaction.

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

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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 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

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·                  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.  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.

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.

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 revenue.  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.

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.

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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 $              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.

Boenning has in the past, including over the last two years, provided and is currently providing investment banking, financial advisory and other financial services to EMRISE, for which Boenning has received, and may receive, compensation, including, among other things, having provided financial advisory services to EMRISE in connection with the sale of RO Associates.  Boenning and certain of its affiliates may provide investment banking, financial advisory and other financial services to EMRISE, Aeroflex, other participants in the Transaction or certain of their respective affiliates in the future, for which Boenning and such affiliates may receive compensation.

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.

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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 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 the Company has already implemented certain of the steps outlined in that plan.  After our announcement of acceptance of the plan and the initial implementation of such steps, the price of our common stock has increased.  With the 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.

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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 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

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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 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 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 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 and severance would be paid in the approximate amount of $370,000.  The aggregate payments to be made to the executives based on the closing of the Transaction

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or the first of any other change in control event is approximately $775,000 which is a fraction of the potential payout well in excess of $3 million if no modifications had been agreed to.  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.

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.

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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;

·                                          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;

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·                                          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.

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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.

·                                          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.

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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;

·                                          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

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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 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;

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·                                          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.

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.

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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 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

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·                                          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 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

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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 Seidman 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

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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).

·                                          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 16, 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.

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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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PROPOSAL 2

ELECTION OF CLASS II DIRECTOR

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.

Our current board consists of one Class II director, Laurence P. Finnegan, Jr., whose term expires at our 2010 annual meeting, two Class III directors, Carmine T. Oliva and Richard E. Mahmarian, whose terms expire at our 2011 annual meeting and one Class I director, Otis W. Baskin, whose term expires at our 2012 annual meeting.  Mr. Finnegan, Jr. is named as a nominee for election to serve a three-year term expiring at our 2013 annual meeting or until succeeded by another qualified director who has been duly elected.

The proxy holders intend to vote all proxies received by them in favor of the election of Mr. Finnegan, Jr. unless instructions to the contrary are marked on the proxy.  If Mr. Finnegan, Jr. is unable or declines to serve as a director at the time of the annual meeting, an event not now anticipated, the proxies will be voted for any nominee designated by our present board. However, the proxy holders may not vote proxies for a greater number of persons than the number of nominees named on the proxy.

Required Vote of Stockholders and Board Recommendation

Directors are elected by a plurality vote of shares present in person or represented by proxy at the meeting.  This means that the director nominee with the most votes for a particular slot on the board is elected for that slot.  In an uncontested election for directors, the plurality requirement is not a factor.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF LAURENCE P. FINNEGAN, JR. AS A CLASS II DIRECTOR.

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PROPOSAL 3

RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTANT

Our audit committee has selected BDO Seidman, LLP (“BDO”), independent registered public accountants, to audit our consolidated financial statements for 2010, and our Board of Directors has concurred in this selection.  Additional information regarding our relationship with our independent public accountants is contained in this proxy statement under the headings “Audit Committee Report,” “Principal Accountant Fees and Services,” and “Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Principal Accountants.” We anticipate that a representative of BDO will be present at our 2010 annual meeting, will have the opportunity to make a statement if they desire to do so at the meeting, and will be available to respond to appropriate questions at the meeting.

Change in Accountants

Effective April 30, 2009, we dismissed Hein, the independent registered public accounting firm that was engaged as the principal accountant to audit our consolidated financial statements.  Effective the same date, we engaged BDO, an independent registered public accounting firm, as the principal accountant to audit our consolidated financial statements.  The decision to change the independent registered public accounting firm was approved by our audit committee.  The reason for the change was to allow us to engage an audit firm with a larger international network and one that has an office closer to our then largest U.S. subsidiary, Advanced Control Components, Inc.  We believe that BDO is providing us a more cost effective and synergistic audit solution.  In addition, we believed that BDO has adequate resources and experience to provide us with the global auditing and tax services we require.

Hein’s reports on our consolidated financial statements for the fiscal years ended December 31, 2008 and December 31, 2007 did not contain an adverse opinion or disclaimer of opinion, and was not modified as to uncertainty, audit scope or accounting principles.  During the fiscal years ended December 31, 2008 and 2007 and the subsequent interim period through April 30, 2009, there were no disagreements between us and Hein on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Hein, would have caused Hein to make reference to the matter in connection with its reports on our financial statements. During the two fiscal years ended December 31, 2008 and 2007 and the subsequent interim period through April 30, 2009, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of 1933, as amended (“Regulation S-K”).

We did not consult with BDO during the fiscal years ended December 31, 2008 and December 31, 2007 and the subsequent interim period through April 30, 2009 regarding either:

1.             The application of accounting principles to any specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to BDO nor oral advice was provided that BDO concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or

2.             Any matter that was either subject of disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instruction to Item 304 of Regulation S-K, or a reportable event, as that term is explained in Item 304(a)(1)(v) of Regulation S-K.

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Principal Accounting Fees and Services

Fees and Services for 2009

The following table sets forth the aggregate fees billed to us by BDO Seidman, LLP, our principal accountant, for professional services rendered in connection with the audit of our consolidated financial statements for the year ended December 31, 2009.  BDO Seidman, LLP did not bill us for professional services prior to the year ended December 31, 2009.

Audit Fees. Audit fees consist of fees billed for professional services for (i) audit of our 2009 consolidated financial statements, (ii) review of the interim consolidated financial statements included in our 2009 quarterly reports, and (iii) services that are normally provided by an independent registered public accounting firm in connection with statutory and regulatory filings or engagements.

Audit-Related Fees. Audit related fees in 2009 consisted of fees billed for professional services performed with respect to a disposition completed in 2009 and equity transaction related activities.

Tax Fees. Tax fees for 2009 consisted of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers and Transactions, and international tax planning.

All Other Fees. No other fees were incurred for 2009.

Pre-Approval Policies and Procedures

Our audit committee pre-approves all services provided by our principal accountant. Our audit committee also considers in advance whether or not to approve any non-audit services to be performed by the independent accounting firm required to be approved by the audit committee pursuant to any applicable rules and regulations.

Required Vote of Stockholders and Board Recommendation

Although stockholder approval is not required, our Board of Directors has directed that this selection be submitted to our stockholders for ratification at our 2010 annual meeting.  The affirmative vote of a majority of the shares of our common stock entitled to vote at and present in person or represented by proxy at the meeting will constitute stockholder ratification of the selection.  Abstentions but not broker non-votes will be treated as shares present and entitled to vote on this proposal. Applying that standard, an abstention will have the effect of a vote “against” this proposal, and a broker non-vote will reduce the absolute number (although not the percentage) of the affirmative votes needed for approval of this proposal. If stockholder approval of this proposal is not obtained, our audit committee

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and Board of Directors may reconsider our appointment of BDO Seidman, LLP as our independent registered public accountants.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANT TO AUDIT OUR CONSOLIDATED FINANCIAL STATEMENTS FOR 2010.

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STOCKHOLDER PROPOSALS

Pursuant to Rule 14a-8 under the Exchange Act, proposals by stockholders that are intended for inclusion in our proxy statement and proxy card and to be presented at our next annual meeting need to be received by us no later than 120 calendar days in advance of the one-year anniversary of the date of this proxy statement, or                                       , in order to be considered for inclusion in our proxy materials relating to the next annual meeting.  Proposals intended for inclusion in our proxy statement and proxy card for our 2011 annual meeting must be addressed to our secretary at our corporate headquarters and may be included in next year’s annual meeting proxy materials if they comply with rules and regulations of the SEC governing stockholder proposals.

Proposals by stockholders that are not intended for inclusion in our proxy materials may be made by any stockholder who timely and completely complies with the notice procedures contained in our bylaws, was a stockholder of record at the time of giving of notice and is entitled to vote at the meeting, so long as the proposal is a proper matter for stockholder action and the stockholder otherwise complies with the provisions of our bylaws and applicable law. However, stockholder nominations of persons for election to our Board of Directors at a special meeting may only be made if our Board of Directors has determined that directors are to be elected at the special meeting.

To be timely, a stockholder’s notice regarding a proposal not intended for inclusion in our proxy materials must be delivered to our Secretary at our corporate headquarters not later than:

·                                          Typically in the case of an annual meeting, the close of business on the 45th day before the first anniversary of the date on which we first mailed our proxy materials for the prior year’s annual meeting of stockholders, or                                 , 2011.  However, if the date of our 2011 annual meeting changes more than 30 days from the date of our 2010 annual meeting, in order for the stockholder’s notice to be timely it must be delivered to our secretary a reasonable time before we mail our proxy materials for the current year’s meeting.  For purposes of the preceding sentence, a “reasonable time” coincides with any adjusted deadline we publicly announce.

·                                          In the case of a special meeting, the close of business on the 7th day following the day on which we first publicly announce the date of the special meeting.

Except as otherwise provided by law, if the chairperson of the meeting determines that a nomination or any business proposed to be brought before a meeting was not made or proposed in accordance with the procedures set forth in our bylaws and summarized above, the chairperson may prohibit the nomination or proposal from being presented at the meeting.

OTHER MATTERS

The board knows of no matter to come before the annual meeting other than as specified in this proxy statement.  If other business should, however, be properly brought before the meeting, the persons voting the proxies will vote them in accordance with their best judgment.

DELIVERY OF THIS PROXY STATEMENT

The SEC has adopted rules that permit companies and intermediaries (such as brokers) to satisfy delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders.  This process, known as “householding,” potentially means extra convenience for stockholders and cost savings for companies.  This year, a number of brokers with customers who are our stockholders will be “householding” our proxy materials unless contrary instructions have been received from the customers.  We will promptly

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deliver, upon oral or written request, a separate copy of the proxy statement to any stockholders sharing an address to which only one copy was mailed.  Requests for additional copies should be directed to our proxy solicitor, Georgeson Inc., 199 Water Street, 26^th Floor, New York, NY 10038 or by toll-free telephone at (866) 295-3782, or to EMRISE Corporation, 611 Industrial Way, Eatontown, New Jersey 07724, Attention: Secretary, or by telephone at (732) 389-0355.

Once a stockholder has received notice from his or her broker that the broker will be “householding” communications to the stockholder’s address, “householding” will continue until the stockholder is notified otherwise or until the stockholder revokes his or her consent.  If, at any time, a stockholder no longer wishes to participate in “householding” and would prefer to receive separate copies of the proxy statement, the stockholder should so notify his or her broker.  Any stockholder who currently receives multiple copies of the proxy statement at his or her address and would like to request “householding” of communications should contact his or her broker or, if shares are registered in the stockholder’s name, our Secretary, at the address or telephone number provided above.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC:

Public Reference Room
Station Place
100 F Street, N.W.
Washington, D.C. 20549

Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, Station Place, 100 F Street, N.W., Washington, D.C. 20549, at prescribed rates.  The Company’s public filings are also available to the public from document retrieval services and the Internet website maintained by the SEC at http://www.sec.gov. You may also retrieve this information from our website at www.pngaming.com. Information contained on our website is not incorporated in or made a part of this proxy statement.

A copy of our annual report on Form 10-K for the year ended December 31, 2009 is being made available with this proxy statement.

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of reports, proxy statements or other information concerning us, without charge, by written or telephonic request directed to us at EMRISE Corporation, 611 Industrial Way, Eatontown, New Jersey 07724, Attention: Secretary, or by telephone at (732) 389-0355, or by toll-free telephone at (800) 579-1639.  If you would like to request documents, please do so by                 , 2010, in order to receive them before the annual meeting.

No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person.  This proxy statement is dated June       , 2010.  You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

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ANNEX A

Execution Copy

STOCK PURCHASE AGREEMENT

by and between

AEROFLEX INCORPORATED (or its designated Affiliate)

(the “Buyer”)

and

EMRISE ELECTRONICS CORPORATION

(the “Seller”)

Dated June 7, 2010

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